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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q

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

SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended
September 30, 2004

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

The registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.

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

As of October 31, 2004, there were
44,125,202 shares of Loral Space & Communications
Ltd. common stock outstanding.



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##### 



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)


|                                                               |                                              |                                                                   |                                             |              |         |           |           |            |         |           |  
|-------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------- | ------------ | ------- | --------- | --------- | ---------- | ------- | --------- | -
|                                                               |                                              | September 30,                                                     |                                             | December 31,
|                                                               |                                              | 2004                                                              |                                             | 2003        
|                                                               |                                              |                                                                   |                                             |             
|ASSETS                                                        
|Current assets:                                                |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               | Cash and cash equivalents                    |                                                                   | $                                           | 168,923      |         |           | $         | 141,644    |        
|                                                               | Accounts receivable, net                     |                                                                   |                                             | 10,926       |         |           |           | 22,969     |        
|                                                               | Contracts-in-process                         |                                                                   |                                             | 82,896       |         |           |           | 62,063     |        
|                                                               | Inventories                                  |                                                                   |                                             | 36,155       |         |           |           | 42,456     |        
|                                                               | Insurance proceeds receivable                |                                                                   |                                             |             |         |           |           | 122,770    |        
|                                                               | Other current assets                         |                                                                   |                                             | 23,615       |         |           |           | 36,004     |        
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total current assets                        |              |         | 322,515   |           |            |         | 427,906   |  
|Property, plant and equipment, net                             |                                              |                                                                   | 834,487                                     |              |         |           | 1,828,282 |           
|Long-term receivables                                          |                                              |                                                                   | 89,907                                      |              |         |           | 70,749    |           
|Investments in and advances to affiliates                      |                                              |                                                                   | 49,053                                      |              |         |           | 46,674    |           
|Deposits                                                       |                                              |                                                                   | 9,000                                       |              |         |           | 9,000     |           
|Other assets                                                   |                                              |                                                                   | 48,440                                      |              |         |           | 73,130    |           
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total assets                                |              | $       | 1,353,402 |           |            | $       | 2,455,741 |  
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|LIABILITIES AND SHAREHOLDERS
    DEFICIT                     
|Liabilities not subject to compromise:                         |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               | Current liabilities:                         |                                                                   |                                             |              |         |           |           |            |        
|                                                               |                                              | Accounts payable                                                  |                                             | $            | 37,031  |           |           | $          | 50,656  |          
|                                                               |                                              | Accrued employment costs                                          |                                             |              | 34,458  |           |           |            | 23,532  |          
|                                                               |                                              | Customer advances and billings in excess of costs
    and profits |                                             |              | 266,135 |           |           |            | 239,225 |          
|                                                               |                                              | Deferred gain on sale of assets (Note 4)                          |                                             |              | 20,999  |           |           |            |        |          
|                                                               |                                              | Accrued interest                                                  |                                             |              |        |           |           |            | 1,319   |          
|                                                               |                                              | Income taxes payable                                              |                                             |              | 4,204   |           |           |            | 269     |          
|                                                               |                                              | Other current liabilities                                         |                                             |              | 16,731  |           |           |            | 9,870   |          
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total current liabilities                   |              |         | 379,558   |           |            |         | 324,871   |  
|                                                               | Pension and other postretirement liabilities |                                                                   |                                             | 18,646       |         |           |           | 10,983     |        
|                                                               | Long-term liabilities                        |                                                                   |                                             | 76,192       |         |           |           | 66,947     |        
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total liabilities not subject to compromise |              |         | 474,396   |           |            |         | 402,801   |  
|Liabilities subject to compromise (Note 11)                    |                                              |                                                                   | 1,859,201                                   |              |         |           | 2,906,095 |           
|Minority interest                                              |                                              |                                                                   | 2,415                                       |              |         |           | 2,515     |           
|Commitments and contingencies (Notes 2,
    9, 11, 12, and 15) |                                              |                                                                   |                                             |              |         |           |           |           
|Shareholders deficit:                                         |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               | Common stock, $.10 par value                 |                                                                   |                                             | 4,413        |         |           |           | 4,413      |        
|                                                               | Paid-in capital                              |                                                                   |                                             | 3,392,829    |         |           |           | 3,392,829  |        
|                                                               | Treasury stock, at cost                      |                                                                   |                                             | (3,360       | )       |           |           | (3,360     | )      
|                                                               | Unearned compensation                        |                                                                   |                                             | (107         | )       |           |           | (168       | )      
|                                                               | Retained deficit                             |                                                                   |                                             | (4,305,243   | )       |           |           | (4,171,536 | )      
|                                                               | Accumulated other comprehensive loss         |                                                                   |                                             | (71,142      | )       |           |           | (77,848    | )      
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total shareholders deficit                 |              |         | (982,610  | )         |            |         | (855,670  | )
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total liabilities and shareholders deficit |              | $       | 1,353,402 |           |            | $       | 2,455,741 |  
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           

See notes to condensed consolidated financial
statements.

1



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##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
amounts)


(Unaudited)


|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------- | ----------------- | - | ---- | -------- | ------ | - | - | -------- | ------- | - | - | -------- | ------- | -
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                  
|                                                                                                                                                                                          |                                                                                                                                    | Three Months Ended |         | Nine Months Ended
|                                                                                                                                                                                          |                                                                                                                                    | September 30,      |         | September 30,    
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                  
|                                                                                                                                                                                          |                                                                                                                                    | 2004               |         | 2003              |   | 2004 |          | 2003  
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |       
|Revenues from satellite services                                                                                                                                                          |                                                                                                                                    | $                  | 32,870  |                   |   | $    | 37,308   |        |   | $ | 100,851  |         |   | $ | 116,509  |        
|Revenues from sales-type lease
    arrangement  satellite services (Note 8)                                                                                                              |                                                                                                                                    |                    | 87,200  |                   |   |      |         |        |   |   | 87,200   |         |   |   |         |        
|Revenues from satellite manufacturing                                                                                                                                                     |                                                                                                                                    |                    | 78,545  |                   |   |      | (23,568  | )      |   |   | 227,951  |         |   |   | 162,676  |        
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|                                                                                                                                                                                          | Total revenues                                                                                                                     |                    |         | 198,615           |   |      |          | 13,740 |   |   |          | 416,002 |   |   |          | 279,185 |  
|Cost of satellite services                                                                                                                                                                |                                                                                                                                    |                    | 33,509  |                   |   |      | 41,778   |        |   |   | 149,701  |         |   |   | 135,656  |        
|Cost of sales-type lease arrangement 
    satellite services (Note 8)                                                                                                                    |                                                                                                                                    |                    | 79,543  |                   |   |      |         |        |   |   | 79,543   |         |   |   |         |        
|Cost of satellite manufacturing                                                                                                                                                           |                                                                                                                                    |                    | 84,025  |                   |   |      | 14,993   |        |   |   | 231,556  |         |   |   | 298,410  |        
|Selling, general and administrative expenses                                                                                                                                              |                                                                                                                                    |                    | 27,178  |                   |   |      | 39,623   |        |   |   | 89,539   |         |   |   | 105,822  |        
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Loss from continuing operations before
    reorganization expenses due to bankruptcy                                                                                                      |                                                                                                                                    |                    | (25,640 | )                 |   |      | (82,654  | )      |   |   | (134,337 | )       |   |   | (260,703 | )      
|Reorganization expenses due to bankruptcy                                                                                                                                                 |                                                                                                                                    |                    | (9,487  | )                 |   |      | (8,760   | )      |   |   | (27,357  | )       |   |   | (8,760   | )      
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Operating loss from continuing operations                                                                                                                                                 |                                                                                                                                    |                    | (35,127 | )                 |   |      | (91,414  | )      |   |   | (161,694 | )       |   |   | (269,463 | )      
|Interest and investment income                                                                                                                                                            |                                                                                                                                    |                    | 2,316   |                   |   |      | 675      |        |   |   | 7,350    |         |   |   | 11,516   |        
|Interest expense (contractual interest was
    $11,332 and $8,785 and $31,991 and $26,382 for the three and
    nine months ended September 30, 2004 and 2003,
    respectively, Note 12) |                                                                                                                                    |                    | (937    | )                 |   |      | (90      | )      |   |   | (768     | )       |   |   | (17,687  | )      
|Other income (expense)                                                                                                                                                                    |                                                                                                                                    |                    | 1,927   |                   |   |      | 957      |        |   |   | (2,075   | )       |   |   | 2,106    |        
|Gain on investment                                                                                                                                                                        |                                                                                                                                    |                    |        |                   |   |      |         |        |   |   |         |         |   |   | 17,900   |        
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Loss from continuing operations before income
    taxes, equity income (losses) in affiliates and minority interest                                                                       |                                                                                                                                    |                    | (31,821 | )                 |   |      | (89,872  | )      |   |   | (157,187 | )       |   |   | (255,628 | )      
|Income tax (provision) benefit                                                                                                                                                            |                                                                                                                                    |                    | 199     |                   |   |      | 562      |        |   |   | (11,984  | )       |   |   | 7,361    |        
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Loss from continuing operations before equity
    income (losses) in affiliates and minority interest                                                                                     |                                                                                                                                    |                    | (31,622 | )                 |   |      | (89,310  | )      |   |   | (169,171 | )       |   |   | (248,267 | )      
|Equity income (losses) in affiliates (Note 9)                                                                                                                                             |                                                                                                                                    |                    | (53     | )                 |   |      | (38,808  | )      |   |   | 46,527   |         |   |   | (55,646  | )      
|Minority interest                                                                                                                                                                         |                                                                                                                                    |                    | (26     | )                 |   |      | 89       |        |   |   | 100      |         |   |   | 65       |        
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Loss from continuing operations                                                                                                                                                           |                                                                                                                                    |                    | (31,701 | )                 |   |      | (128,029 | )      |   |   | (122,544 | )       |   |   | (303,848 | )      
|(Loss) income from discontinued operations
    (Note 4)                                                                                                                                   |                                                                                                                                    |                    | 299     |                   |   |      | 2,120    |        |   |   | (11,163  | )       |   |   | 20,361   |        
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest                                                        |                                                                                                                                    |                    | (31,402 | )                 |   |      | (125,909 | )      |   |   | (133,707 | )       |   |   | (283,487 | )      
|Cumulative effect of change in accounting
    principle                                                                                                                                   |                                                                                                                                    |                    |        |                   |   |      | (1,970   | )      |   |   |         |         |   |   | (1,970   | )      
|Extraordinary gain on acquisition of minority
    interest                                                                                                                                |                                                                                                                                    |                    |        |                   |   |      |         |        |   |   |         |         |   |   | 13,615   |        
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Net loss                                                                                                                                                                                  |                                                                                                                                    |                    | (31,402 | )                 |   |      | (127,879 | )      |   |   | (133,707 | )       |   |   | (271,842 | )      
|Preferred dividends                                                                                                                                                                       |                                                                                                                                    |                    |        |                   |   |      |         |        |   |   |         |         |   |   | (6,719   | )      
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Net loss applicable to common shareholders                                                                                                                                                |                                                                                                                                    | $                  | (31,402 | )                 |   | $    | (127,879 | )      |   | $ | (133,707 | )       |   | $ | (278,561 | )      
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Basic and diluted (loss) earnings per share
    (Note 16):                                                                                                                                |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|                                                                                                                                                                                          | Continuing operations                                                                                                              |                    | $       | (0.72             | ) |      | $        | (2.91  | ) |   | $        | (2.78   | ) |   | $        | (7.10   | )
|                                                                                                                                                                                          | Discontinued operations                                                                                                            |                    |         | 0.01              |   |      |          | 0.05   |   |   |          | (0.25   | ) |   |          | 0.46    |  
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|                                                                                                                                                                                          | Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |                    |         | (0.71             | ) |      |          | (2.86  | ) |   |          | (3.03   | ) |   |          | (6.64   | )
|                                                                                                                                                                                          | Cumulative effect of change in accounting
    principle                                                                            |                    |         |                  |   |      |          | (0.04  | ) |   |          |        |   |   |          | (0.04   | )
|                                                                                                                                                                                          | Extraordinary gain on acquisition of minority
    interest                                                                         |                    |         |                  |   |      |          |       |   |   |          |        |   |   |          | 0.31    |  
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|                                                                                                                                                                                          | Loss per share                                                                                                                     |                    | $       | (0.71             | ) |      | $        | (2.90  | ) |   | $        | (3.03   | ) |   | $        | (6.37   | )
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|Weighted average shares outstanding:                                                                                                                                                      |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        
|                                                                                                                                                                                          | Basic and diluted                                                                                                                  |                    |         | 44,125            |   |      |          | 44,107 |   |   |          | 44,125  |   |   |          | 43,723  |  
|                                                                                                                                                                                          |                                                                                                                                    |                    |         |                   |   |      |          |        |   |   |          |         |   |   |          |        

See notes to condensed consolidated financial
statements.

2



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##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


(Unaudited)


|                                                         |                                                                            |                   |          |          |   |   |          |         |  
|-------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------- | -------- | -------- | - | - | -------- | ------- | -
|                                                         |                                                                            |                  
|                                                         |                                                                            | Nine Months Ended
|                                                         |                                                                            | September 30,    
|                                                         |                                                                            |                  
|                                                         |                                                                            | 2004              |          | 2003    
|                                                         |                                                                            |                   |          |         
|Operating activities:                                    |                                                                            |                   |          |          |   |   |          |        
|Net loss                                                 |                                                                            | $                 | (133,707 | )        |   | $ | (271,842 | )      
|Non-cash items:                                          |                                                                            |                   |          |          |   |   |          |        
|                                                         | Loss (income) from discontinued operations                                 |                   |          | 11,163   |   |   |          | (20,361 | )
|                                                         | Cumulative effect of change in accounting
    principle                    |                   |          |         |   |   |          | 1,970   |  
|                                                         | Extraordinary gain on acquisition of minority
    interest                 |                   |          |         |   |   |          | (13,615 | )
|                                                         | Equity (income) losses in affiliates                                       |                   |          | (46,527  | ) |   |          | 55,646  |  
|                                                         | Minority interest                                                          |                   |          | (100     | ) |   |          | (65     | )
|                                                         | Deferred taxes                                                             |                   |          | 11,434   |   |   |          | 3,656   |  
|                                                         | Depreciation and amortization                                              |                   |          | 105,458  |   |   |          | 88,446  |  
|                                                         | Impairment charge on satellite and related assets                          |                   |          | 11,989   |   |   |          |        |  
|                                                         | Profit on sales-type lease arrangement
    (Note 8)                        |                   |          | (7,657   | ) |   |          |        |  
|                                                         | Adjustment to revenue straightlining assessment                            |                   |          | 1,149    |   |   |          | 4,086   |  
|                                                         | (Recoveries of) provisions for bad debts                                   |                   |          | (1,606   | ) |   |          | 7,714   |  
|                                                         | Provisions for inventory obsolescence                                      |                   |          | 2,263    |   |   |          | 35,107  |  
|                                                         | Loss on equipment disposals                                                |                   |          |         |   |   |          | 243     |  
|                                                         | Valuation allowance on vendor financing
    receivables                    |                   |          |         |   |   |          | 10,008  |  
|                                                         | Loss on cancellation of deposits                                           |                   |          |         |   |   |          | 23,500  |  
|                                                         | Loss on acceleration of receipt of long-term
    receivables               |                   |          |         |   |   |          | 10,893  |  
|                                                         | Charge on conversion of sales arrangement to
    lease arrangement         |                   |          |         |   |   |          | 10,098  |  
|                                                         | Accrual for Alcatel settlement                                             |                   |          |         |   |   |          | 8,000   |  
|                                                         | Gain on investment                                                         |                   |          |         |   |   |          | (17,900 | )
|                                                         | Non-cash net (gain) loss on foreign currency
    transactions and interest |                   |          | (1,641   | ) |   |          | 5,501   |  
|Changes in operating assets and liabilities:             |                                                                            |                   |          |          |   |   |          |        
|                                                         | Accounts receivable, net                                                   |                   |          | 11,091   |   |   |          | (816    | )
|                                                         | Contracts-in-process                                                       |                   |          | 31,895   |   |   |          | 26,331  |  
|                                                         | Inventories                                                                |                   |          | 4,038    |   |   |          | (758    | )
|                                                         | Long-term receivables                                                      |                   |          | (10,794  | ) |   |          | 75,612  |  
|                                                         | Deposits                                                                   |                   |          |         |   |   |          | 22,750  |  
|                                                         | Other current assets and other assets                                      |                   |          | 1,764    |   |   |          | 20,634  |  
|                                                         | Accounts payable                                                           |                   |          | 2,419    |   |   |          | 11,429  |  
|                                                         | Accrued expenses and other current liabilities                             |                   |          | 987      |   |   |          | (2,130  | )
|                                                         | Customer advances                                                          |                   |          | 68,850   |   |   |          | (53,956 | )
|                                                         | Income taxes payable                                                       |                   |          | (2,742   | ) |   |          | (598    | )
|                                                         | Pension and other postretirement liabilities                               |                   |          | 3,315    |   |   |          | 8,016   |  
|                                                         | Long-term liabilities                                                      |                   |          | (4,600   | ) |   |          | (8,835  | )
|                                                         | Other                                                                      |                   |          | 92       |   |   |          | 234     |  
|                                                         |                                                                            |                   |          |          |   |   |          |        
|Net cash provided by continuing operating
    activities |                                                                            |                   | 58,533   |          |   |   | 38,998   |        
|                                                         |                                                                            |                   |          |          |   |   |          |        
|Net cash provided by discontinued operations             |                                                                            |                   | 18,351   |          |   |   | 56,491   |        
|                                                         |                                                                            |                   |          |          |   |   |          |        
|Investing activities:                                    |                                                                            |                   |          |          |   |   |          |        
|                                                         | Capital expenditures for continuing operations                             |                   |          | (19,441  | ) |   |          | (44,928 | )
|                                                         | Capital expenditures for discontinued operations                           |                   |          | (11,185  | ) |   |          | (41,578 | )
|                                                         | Proceeds from the sales of assets, net of
    expenses (Note 2)            |                   |          | 953,619  |   |   |          |        |  
|                                                         | Proceeds from sale of investment                                           |                   |          |         |   |   |          | 45,908  |  
|                                                         | Investments in and advances to affiliates                                  |                   |          | (5,711   | ) |   |          | (18,591 | )
|                                                         |                                                                            |                   |          |          |   |   |          |        
|Net cash provided by (used in) investing
    activities  |                                                                            |                   | 917,282  |          |   |   | (59,189  | )      
|                                                         |                                                                            |                   |          |          |   |   |          |        
|Financing activities:                                    |                                                                            |                   |          |          |   |   |          |        
|                                                         | Repayments of term loans                                                   |                   |          | (576,500 | ) |   |          | (32,500 | )
|                                                         | Repayments of revolving credit facilities                                  |                   |          | (390,387 | ) |   |          |        |  
|                                                         | Borrowings under revolving credit facilities                               |                   |          |         |   |   |          | 71,400  |  
|                                                         | Interest payments on 10% senior notes                                      |                   |          |         |   |   |          | (30,635 | )
|                                                         | Repayments of other long-term obligations                                  |                   |          |         |   |   |          | (6,434  | )
|                                                         | Proceeds from stock issuances                                              |                   |          |         |   |   |          | 3,869   |  
|                                                         | Payment of bank amendment costs                                            |                   |          |         |   |   |          | (5,131  | )
|                                                         |                                                                            |                   |          |          |   |   |          |        
|Net cash (used in) provided by financing
    activities  |                                                                            |                   | (966,887 | )        |   |   | 569      |        
|                                                         |                                                                            |                   |          |          |   |   |          |        
|Net increase in cash and cash equivalents                |                                                                            |                   | 27,279   |          |   |   | 36,869   |        
|                                                         | Cash and cash equivalents  beginning
    of period                        |                   |          | 141,644  |   |   |          | 65,936  |  
|                                                         |                                                                            |                   |          |          |   |   |          |        
|                                                         | Cash and cash equivalents  end of
    period                              |                   | $        | 168,923  |   |   | $        | 102,805 |  
|                                                         |                                                                            |                   |          |          |   |   |          |        

See notes to condensed consolidated financial
statements.

3



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION



NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS




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

Loral Space & Communications Ltd.
(Loral, the Company, we,
our and us, terms that include our
subsidiaries unless otherwise indicated or the context requires)
together with its subsidiaries is a leading satellite
communications company with substantial activities in
satellite-based communications services and satellite
manufacturing. Loral is organized into two operating segments
(see Note 17):



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Satellite Services,managed by our Loral Skynet division, generates its revenues and
    cash 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 (SS/ L), generates
    its revenues and cash from designing and manufacturing
    satellites, space systems and space system components for
    commercial and government applications including 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

On July 15, 2003, Loral and certain of its
subsidiaries (the Debtor Subsidiaries and
collectively with Loral, the Debtors), including
Loral Space & Communications Corporation, Loral
SpaceCom Corporation (Loral SpaceCom), Loral
Satellite, Inc. (Loral Satellite), SS/ L and Loral
Orion, Inc. (Loral Orion), filed voluntary petitions
for reorganization under chapter 11 of title 11
(Chapter 11) of the United States Code (the
Bankruptcy Code) in the United States Bankruptcy
Court for the Southern District of New York (the
Bankruptcy Court) (Lead Case No. 03-41710
(RDD), Case Nos. 03-41709 (RDD) through 03-41728
(RDD)) (the Chapter 11 Cases). We and our
Debtor Subsidiaries continue to manage our properties and
operate our businesses as debtors in possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the provisions of the Bankruptcy Code (see Note 3).

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

As a result of our voluntary petitions for
reorganization, all of our prepetition debt obligations were
accelerated (see below and Notes 11 and 12). On
July 15, 2003, we also suspended interest payments on all
of our unsecured debt obligations. A creditors committee
was appointed in the Chapter 11 Cases to represent all
unsecured creditors, including all debt holders, and, in
accordance with the provisions of the Bankruptcy Code, has the
right to be heard on all matters that come before the Bankruptcy
Court (see Note 12).

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

4



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Because we are in Chapter 11, the pursuit of
all claims and litigation pending against us that arose prior to
or relate to events that occurred prior to our bankruptcy
filings is generally subject to an automatic stay under
Section 362 of the Bankruptcy Code. Accordingly, absent
further order of the Bankruptcy Court, a party is generally
prohibited from taking any action to recover any prepetition
claims, enforce any lien against or obtain possession of any of
our property. In addition, pursuant to Section 365 of the
Bankruptcy Code, we may reject or assume prepetition executory
contracts and unexpired leases. Parties affected by our
rejections of contracts or leases may file claims with the
Bankruptcy Court.

On July 15, 2003, the New York Stock
Exchange suspended trading of our common stock and, on
September 2, 2003, removed our securities from listing and
registration. Our common stock is being quoted under the ticker
symbol LRLSQ on the Pink Sheets and on the Over-The-Counter
Bulletin Board Service (see Reorganization below).



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

On March 17, 2004, Loral Space &
Communications Corporation, Loral SpaceCom Corporation and Loral
Satellite, Inc. (collectively, the Sellers)
consummated the sale (the Sale) of our North
American satellites and related assets to certain affiliates of
Intelsat, Ltd. and Intelsat (Bermuda), Ltd. (collectively,
Intelsat or the Purchasers). At closing,
we received approximately $1.011 billion, consisting of
approximately $961 million for the North American
satellites and related assets, after adjustments, and
$50 million for an advance on a new satellite to be built
for Intelsat by SS/ L. Our obligations with respect to the
$50 million advance are secured by the Telstar 14/
Estrela do Sul-1 satellite and related assets, including
insurance proceeds relating to the satellite. We used a
significant portion of the funds received to repay all
$967 million of our outstanding secured bank debt. In
addition, after closing, the Sellers received from Intelsat
approximately $16 million to reimburse a deposit made by us
for the launch of Telstar 8, and we received an additional
$4 million in May 2004 as a purchase price adjustment
resulting from resolution of a regulatory issue.

The North American satellites and related assets
have been accounted for as a discontinued operation, resulting
in the reclassification of our historical condensed consolidated
statements of operations and statements of cash flows to reflect
them as discontinued operations separately from continuing
operations (see Note 4).



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

On October 22, 2004, we filed a revised plan
of reorganization (the Plan) and a disclosure
statement (the Disclosure Statement) with the
Bankruptcy Court. The Plan, which revises the terms of a plan
previously filed on August 19, 2004, reflects a consensual
agreement on financial terms between Loral and the
creditors committee appointed in the Chapter 11
Cases. The Plan provides, among other things, that:



| |   |                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lorals two businesses, Satellite
    Manufacturing and Satellite Services, will emerge intact as
    separate subsidiaries of reorganized Loral (New
    Loral). The Disclosure Statement establishes the
    enterprise value of New Loral at between approximately
    $650 million and approximately $800 million.
|
| |  | SS/ L will emerge debt-free, but will guarantee
    $30 million of the new senior secured notes to be issued by
    the reorganized satellite services company (New FSS).                                                                                                                                             
|
| |  | The common stock of New Loral and the new senior
    secured notes of New FSS will be owned by Loral bondholders,
    Loral Orion bondholders and certain other unsecured creditors,
    as follows:                                                                                                                    



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | Loral bondholders and certain other unsecured
    creditors will receive approximately 19.4 percent of the
    common stock of New Loral.

5



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Loral Orion unsecured creditors, including Loral
    Orion bondholders, will receive approximately 79.0 percent
    of New Lorals common stock plus $200 million in new
    senior secured notes of New FSS. These creditors also will be
    offered the right to subscribe to purchase their pro-rata share
    of an additional $30 million in new senior secured notes of
    New FSS. This rights offering will be underwritten by certain
    creditors who will receive a fee payable in the notes.
|
| |  | All other general unsecured creditors will have
    an option to elect to receive either their pro rata share of
    approximately 1.6 percent of New Loral common stock or
    their pro rata share of $30 million in cash, subject to
    adjustment for over-subscription or under-subscription.                                                                                                                                                                                                        



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | Existing common and preferred stock will be
    cancelled and no distribution will be made to current
    shareholders.
|
| |  | New Loral will emerge as a public company and
    will seek listing on a major stock exchange.                         

Implementation of the Plan and the treatment of
claims and equity interests are subject to final documentation
and the resolution of certain other issues between Loral and the
creditors committee and to confirmation by the Bankruptcy
Court. The Plan may be further amended by the Company with the
consent of the creditors committee. The Bankruptcy Court
hearings to consider approval of the Disclosure Statement and
confirmation of the Plan are set for December 6, 2004 and
January 31, 2005, respectively. Such dates, however, are
subject to change and the hearings could be delayed. Although we
expect to emerge from bankruptcy under current management in the
first quarter of 2005, the timing and final terms of our plan of
reorganization cannot be predicted with certainty. There can be
no assurance that we will be able to obtain court approval of
the Disclosure Statement or the Plan or obtain acceptances from
the number of creditors necessary to confirm the Plan.



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

The accompanying unaudited condensed consolidated
financial statements (the financial statements) have
been prepared assuming Loral, in its current structure, will
continue as a going concern. However, the factors mentioned in
Note 2 above, among other things, raise substantial doubt
about our ability to continue as a going concern. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty. Our ability to continue as a
going concern is dependent on a number of factors including, but
not limited to, the Bankruptcy Courts confirmation of a
plan of reorganization, and maintaining good relations with our
customers, suppliers and employees. If a plan of reorganization
is not confirmed and implemented, we may be forced to liquidate
under applicable provisions of the Bankruptcy Code. We cannot
give any assurance of the level of recovery our creditors would
receive in a liquidation. The financial statements do not
include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the
amounts and classification of liabilities if we were forced to
liquidate (see Reorganization in Note 2).

The financial statements have been prepared
pursuant to the rules of the Securities and Exchange Commission
(SEC) and, in our opinion, include all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of results of operations, financial position and
cash flows as of and for the periods presented. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the U.S. have been condensed or
omitted pursuant to SEC rules. We believe that the disclosures
made are adequate to keep the information presented from being
misleading. The results of operations for the three and nine
months ended September 30, 2004 are not necessarily
indicative of the results to be expected for the full year. The
December 31, 2003 balance sheet has been derived from the
audited consolidated financial statements at that date. It is
suggested that these financial statements be read in conjunction
with the audited consolidated financial statements included in
our latest Annual Report on Form 10-K.

6



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



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

During 2004 and 2003, we continued to maintain
the 100% valuation allowance established at
December 31, 2002 and recorded no benefit for our domestic
loss. As described in Notes 6 and 9, with Globalstar,
L.P.s (Globalstar) liquidation on
June 29, 2004, we wrote-off the remaining book value of our
investment in Globalstars $500 million credit
facility and reduced to zero the unrealized gains and related
deferred tax liabilities previously reflected in accumulated
other comprehensive loss. The reversal of these deferred tax
liabilities resulted in a net deferred tax asset of
$11.4 million against which we recorded a full valuation
allowance. Therefore, for 2004, our income tax provision for
continuing operations includes the additional valuation
allowance of $11.4 million, a provision for foreign income
taxes and no benefit for the loss from continuing and
discontinued operations. For 2003, the income tax benefit in
continuing operations primarily relates to a reclassification of
a provision to income from discontinued operations offset by a
deferred tax liability recorded for certain foreign entities.



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

The following table provides the components of
net periodic benefit cost for our qualified and supplemental
retirement plans (the Pension Benefits) and health
care and life insurance benefits for retired employees and
dependents (the Other Benefits) for the three and
nine months ended September 30, 2004 and 2003 respectively
(in thousands):

|                                   |  |                    |        |                   |  |                    |        |                   |  |      |         |      |  |      |         |      |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  
|---------------------------------- |  | ------------------ | ------ | ----------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ----- | - |  | - | ----- | - |  | - | ------ | - |  | - | ----- | -
|                                   |  |                    |        |                  
|                                   |  | Pension Benefits   |        | Other Benefits   
|                                   |  |                    |        |                  
|                                   |  |                    |        |                   |  |                    |        |                  
|                                   |  | Three Months Ended |        | Nine Months Ended |  | Three Months Ended |        | Nine Months Ended
|                                   |  | September 30,      |        | September 30,     |  | September 30,      |        | September 30,    
|                                   |  |                    |        |                   |  |                    |        |                  
|                                   |  | 2004               |        | 2003              |  | 2004               |        | 2003              |  | 2004 |         | 2003 |  | 2004 |         | 2003
|                                   |  |                    |        |                   |  |                    |        |                   |  |      |         |      |  |      |         |     
|Service cost                       |  | $                  | 2,324  |                   |  | $                  | 3,049  |                   |  | $    | 6,972   |      |  | $    | 9,147   |      |  | $ | 274   |   |  | $ | 836   |   |  | $ | 822    |   |  | $ | 2,508 |  
|Interest cost                      |  |                    | 5,548  |                   |  |                    | 5,498  |                   |  |      | 16,644  |      |  |      | 16,494  |      |  |   | 1,069 |   |  |   | 1,300 |   |  |   | 3,207  |   |  |   | 3,900 |  
|Expected return on plan assets     |  |                    | (4,870 | )                 |  |                    | (4,596 | )                 |  |      | (14,610 | )    |  |      | (13,788 | )    |  |   | (20   | ) |  |   | (37   | ) |  |   | (60    | ) |  |   | (111  | )
|Amortization of prior service cost |  |                    | (9     | )                 |  |                    | (9     | )                 |  |      | (27     | )    |  |      | (27     | )    |  |   | (483  | ) |  |   | (318  | ) |  |   | (1,449 | ) |  |   | (954  | )
|Amortization of net loss           |  |                    | 1,164  |                   |  |                    | 1,314  |                   |  |      | 3,492   |      |  |      | 3,942   |      |  |   | 564   |   |  |   | 428   |   |  |   | 1,692  |   |  |   | 1,284 |  
|                                   |  |                    |        |                   |  |                    |        |                   |  |      |         |      |  |      |         |      |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  
|                                   |  | $                  | 4,157  |                   |  | $                  | 5,256  |                   |  | $    | 12,471  |      |  | $    | 15,768  |      |  | $ | 1,404 |   |  | $ | 2,209 |   |  | $ | 4,212  |   |  | $ | 6,627 |  
|                                   |  |                    |        |                   |  |                    |        |                   |  |      |         |      |  |      |         |      |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  

7



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

|                          |                                                                                        |                         |   |        |         |   |   |         |       |  
|------------------------- | -------------------------------------------------------------------------------------- | ----------------------- | - | ------ | ------- | - | - | ------- | ----- | -
|                          |                                                                                        |                        
|                          |                                                                                        | Nine Months Ended      
|                          |                                                                                        | September 30,          
|                          |                                                                                        |                        
|                          |                                                                                        | 2004                    |   | 2003  
|                          |                                                                                        |                         |   |       
|Non-cash activities:      |                                                                                        |                         |   |        |         |   |   |        
|                          | Insurance proceeds receivable recorded for
    satellite loss and warranty obligations |                         |   |        |         |   | $ | 122,770 |      
|                          |                                                                                        |                         |   |        |         |   |   |        
|                          | Unrealized gains on available-for-sale
    securities, net of taxes                    |                         | $ | 8,142  |         |   | $ | 17,594  |      
|                          |                                                                                        |                         |   |        |         |   |   |        
|                          | Unrealized net gains (losses) on derivatives, net
    of taxes                         |                         | $ | (1,468 | )       |   | $ | 44      |      
|                          |                                                                                        |                         |   |        |         |   |   |        
|                          | Accrual of preferred dividends                                                         |                         |   |        |         |   | $ | 6,719   |      
|                          |                                                                                        |                         |   |        |         |   |   |        
|Supplemental information: |                                                                                        |                         |   |        |         |   |   |        
|                          | Cash (paid) received for reorganization
    items:                                     |                         |   |        |         |   |   |         |      
|                          |                                                                                        | Professional fees       |   | $      | (14,082 | ) |   | $       | (195  | )
|                          |                                                                                        |                         |   |        |         |   |   |        
|                          |                                                                                        | Retention costs         |   | $      | (6,402  | ) |   |         |       |  
|                          |                                                                                        |                         |   |        |         |   |   |        
|                          |                                                                                        | Severance costs         |   | $      | (1,288  | ) |   |         |       |  
|                          |                                                                                        |                         |   |        |         |   |   |        
|                          |                                                                                        | Vendor settlement gains |   | $      | 35      |   |   |         |       |  
|                          |                                                                                        |                         |   |        |         |   |   |        
|                          |                                                                                        | Interest income         |   | $      | 1,014   |   |   | $       | 1,734 |  
|                          |                                                                                        |                         |   |        |         |   |   |        



| |                  
| | -----------------
| | Reclassifications

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



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

As described in Note 2, on March 17,
2004, we completed the sale of our North American satellites and
related assets to Intelsat. The operating revenues and expenses
of these assets have been classified as discontinued operations
under SFAS 144 for all periods presented. Due to certain
unsettled contingencies, we have deferred the expected gain on
the sale of approximately $21 million on our condensed
consolidated balance sheet as of September 30, 2004. The
determination of the actual gain will be finalized when all
contingencies are resolved. Accordingly, the actual gain
ultimately recognized may be different than the deferred gain
reflected here.

The following table summarizes certain statement
of operations data for the discontinued operations. In 2004, the
operating results of the discontinued operations are for the
period from January 1, 2004 to March 17, 2004, the
date of the sale. The results for the nine months ended
September 30, 2004 include the write-off of approximately
$11 million of debt issue costs to interest expense
relating to secured debt that we repaid. For the purposes of
this presentation, in accordance with SFAS 144, continuing
operations includes all indirect

8



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

costs normally associated with these operations,
including telemetry, tracking and control, access control,
maintenance and engineering, selling and marketing, and general
and administrative.

|                                           |  |                    |     |                   |  |      |         |      |  |   |         |   |  |   |         |  
|------------------------------------------ |  | ------------------ | --- | ----------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                           |  |                    |     |                  
|                                           |  | Three Months Ended |     | Nine Months Ended
|                                           |  | September 30,      |     | September 30,    
|                                           |  |                    |     |                  
|                                           |  | 2004               |     | 2003              |  | 2004 |         | 2003
|                                           |  |                    |     |                   |  |      |         |     
|                                           |  |                   
|                                           |  | (In thousands)    
|Revenues of discontinued operations        |  | $                  |    |                   |  | $    | 34,166  |      |  | $ | 29,106  |   |  | $ | 110,700 |  
|                                           |  |                    |     |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Operating income                           |  | $                  | 299 |                   |  | $    | 14,156  |      |  | $ | 13,592  |   |  | $ | 62,330  |  
|Interest expense                           |  |                    |    |                   |  |      | (10,798 | )    |  |   | (24,755 | ) |  |   | (30,083 | )
|                                           |  |                    |     |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Income (loss) before income taxes          |  |                    | 299 |                   |  |      | 3,358   |      |  |   | (11,163 | ) |  |   | 32,247  |  
|Income tax provision                       |  |                    |    |                   |  |      | (1,238  | )    |  |   |        |   |  |   | (11,886 | )
|                                           |  |                    |     |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Income (loss) from discontinued operations |  | $                  | 299 |                   |  | $    | 2,120   |      |  | $ | (11,163 | ) |  | $ | 20,361  |  
|                                           |  |                    |     |                   |  |      |         |      |  |   |         |   |  |   |         |  

The satellites sold had a net book value of
$935 million, including insurance proceeds receivable on
our consolidated balance sheet at December 31, 2003. The
related assets and liabilities sold had a net book value of
$30 million and $31 million, respectively, as of
December 31, 2003.



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

In accordance with SFAS No. 148,
Accounting for Stock-Based Compensation  Transition
and Disclosure (SFAS 148), an amendment of
SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123), presented below are pro forma
results reflecting the application of the fair value-based
method of accounting for stock-based employee compensation.
Under SFAS 123, the fair value of stock-based awards to
employees is calculated using option pricing models, even though
such models were developed to estimate the fair value of freely
tradable, fully transferable options without vesting
restrictions, which differ significantly from our stock option
awards. These models also require subjective assumptions,
including future stock price volatility and expected exercise
time, which can significantly affect the calculated values. We
used the Black-Scholes option pricing model with the following
weighted average assumptions in our calculations: expected life,
six to twelve months following vesting; stock volatility, 90%;
risk free interest rate, 2.4% to 6.6% based on date of grant;
and dividends, none during the expected term. Our calculations
are based on a multiple option valuation approach and
forfeitures are recognized as they occur. The following table
summarizes what

9



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##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

our pro forma net loss and pro forma loss per
share would have been if we used the fair value method under
SFAS 123 (in millions, except per share amounts):

|                                                                                                                                                                         |  |                    |       |                   |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----- | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                                                         |  |                    |       |                  
|                                                                                                                                                                         |  | Three Months Ended |       | Nine Months Ended
|                                                                                                                                                                         |  | September 30,      |       | September 30,    
|                                                                                                                                                                         |  |                    |       |                  
|                                                                                                                                                                         |  | 2004               |       | 2003              |  | 2004 |        | 2003
|                                                                                                                                                                         |  |                    |       |                   |  |      |        |     
|Reported loss from continuing operations                                                                                                                                 |  | $                  | (31.7 | )                 |  | $    | (128.0 | )    |  | $ | (122.5 | ) |  | $ | (303.8 | )
|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  | )                 |  |      | (1.7   | )    |  |   | (0.9   | ) |  |   | (4.0   | )
|                                                                                                                                                                         |  |                    |       |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma loss from continuing operations                                                                                                                                |  |                    | (32.0 | )                 |  |      | (129.7 | )    |  |   | (123.4 | ) |  |   | (307.8 | )
|(Loss) income from discontinued operations, net
    of taxes                                                                                                             |  |                    | 0.3   |                   |  |      | 2.1    |      |  |   | (11.2  | ) |  |   | 20.3   |  
|                                                                                                                                                                         |  |                    |       |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma net loss before cumulative effect of
    change in accounting principle and extraordinary gain on
    acquisition of minority interest                         |  |                    | (31.7 | )                 |  |      | (127.6 | )    |  |   | (134.6 | ) |  |   | (287.5 | )
|Cumulative effect of change in accounting
    principle                                                                                                                  |  |                    |      |                   |  |      | (2.0   | )    |  |   |       |   |  |   | (2.0   | )
|Extraordinary gain on acquisition of minority
    interest                                                                                                               |  |                    |      |                   |  |      |       |      |  |   |       |   |  |   | 13.6   |  
|                                                                                                                                                                         |  |                    |       |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma net loss                                                                                                                                                       |  |                    | (31.7 | )                 |  |      | (129.6 | )    |  |   | (134.6 | ) |  |   | (275.9 | )
|Preferred dividends                                                                                                                                                      |  |                    |      |                   |  |      |       |      |  |   |       |   |  |   | (6.7   | )
|                                                                                                                                                                         |  |                    |       |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma net loss applicable to common
    shareholders                                                                                                                 |  | $                  | (31.7 | )                 |  | $    | (129.6 | )    |  | $ | (134.6 | ) |  | $ | (282.6 | )
|                                                                                                                                                                         |  |                    |       |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Reported basic and diluted loss per share from
    continuing operations                                                                                                 |  | $                  | (0.72 | )                 |  | $    | (2.91  | )    |  | $ | (2.78  | ) |  | $ | (7.10  | )
|Pro forma basic and diluted loss per share from
    continuing operations                                                                                                |  |                    | (0.73 | )                 |  |      | (2.94  | )    |  |   | (2.80  | ) |  |   | (7.19  | )
|Reported basic and diluted loss per share before
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest  |  |                    | (0.71 | )                 |  |      | (2.86  | )    |  |   | (3.03  | ) |  |   | (6.64  | )
|Pro forma basic and diluted loss per share before
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest |  |                    | (0.72 | )                 |  |      | (2.89  | )    |  |   | (3.05  | ) |  |   | (6.73  | )
|Reported loss per share applicable to common
    shareholders                                                                                                            |  |                    | (0.71 | )                 |  |      | (2.90  | )    |  |   | (3.03  | ) |  |   | (6.37  | )
|Pro forma loss per share applicable to common
    shareholders                                                                                                           |  |                    | (0.72 | )                 |  |      | (2.94  | )    |  |   | (3.05  | ) |  |   | (6.46  | )

The fair values of stock based employee
compensation above were calculated based on the relative values
of the options at the date of grant. In order for the stock
options to have any value to the holders, the market share of
our common stock would have to rise from $0.05 at
September 30, 2004 to greater than $3.80 (the lowest price
of our stock options outstanding). The Plan does not provide for
participation or recovery by our common shareholders and,
accordingly, these stock options have no value to the employees.

10



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

|                                                                    |                                                                                                                                          |                    |         |                   |  |      |          |      |   |   |          |        |   |   |          |      |  
|------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------- | ----------------- |  | ---- | -------- | ---- | - | - | -------- | ------ | - | - | -------- | ---- | -
|                                                                    |                                                                                                                                          |                    |         |                  
|                                                                    |                                                                                                                                          | Three Months Ended |         | Nine Months Ended
|                                                                    |                                                                                                                                          | September 30,      |         | September 30,    
|                                                                    |                                                                                                                                          |                    |         |                  
|                                                                    |                                                                                                                                          | 2004               |         | 2003              |  | 2004 |          | 2003
|                                                                    |                                                                                                                                          |                    |         |                   |  |      |          |     
|Net loss                                                            |                                                                                                                                          | $                  | (31,402 | )                 |  | $    | (127,879 | )    |   | $ | (133,707 | )      |   | $ | (271,842 | )   
|Cumulative translation adjustment                                   |                                                                                                                                          |                    | 65      |                   |  |      | 278      |      |   |   | 32       |        |   |   | 704      |     
|Unrealized gains on available-for-sale
    securities, net of taxes |                                                                                                                                          |                    |        |                   |  |      | 20,107   |      |   |   | 8,142    |        |   |   | 17,594   |     
|Foreign currency hedging:                                           |                                                                                                                                          |                    |         |                   |  |      |          |      |   |   |          |        |   |   |          |     
|                                                                    | Net increase in foreign currency exchange
    contracts                                                                                  |                    |         |                  |  |      |          | 415  |   |   |          |       |   |   |          | 868  |  
|                                                                    | Reclassifications into revenue and cost of sales
    from other comprehensive income                                                     |                    |         | 15                |  |      |          | (604 | ) |   |          | (1,468 | ) |   |          | (222 | )
|                                                                    | Reclassifications into interest expense from
    other comprehensive income for anticipated transactions that are
    no longer probable |                    |         |                  |  |      |          | (99  | ) |   |          |       |   |   |          | (602 | )
|                                                                    |                                                                                                                                          |                    |         |                   |  |      |          |      |   |   |          |        |   |   |          |     
|Comprehensive loss                                                  |                                                                                                                                          | $                  | (31,322 | )                 |  | $    | (107,782 | )    |   | $ | (127,001 | )      |   | $ | (253,500 | )   
|                                                                    |                                                                                                                                          |                    |         |                   |  |      |          |      |   |   |          |        |   |   |          |     

As described in Note 9, with
Globalstars liquidation on June 29, 2004, we
wrote-off the remaining book value of our investment in
Globalstars $500 million credit facility and reduced
to zero the unrealized gains and related deferred tax
liabilities previously reflected in accumulated other
comprehensive loss. The unrealized gains reflected above for the
nine months ended September 30, 2004, include the reversal
of $11.4 million of deferred tax liabilities relating to
our investment in Globalstars $500 million credit
facility.



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

|                     |  |                |        |              |  |   |        | 
|-------------------- |  | -------------- | ------ | ------------ |  | - | ------ | 
|                     |  | September 30,  |        | December 31,
|                     |  | 2004           |        | 2003        
|                     |  |                |        |             
|                     |  |               
|                     |  | (In thousands)
|Amounts billed       |  | $              | 70,287 |              |  | $ | 14,104 | 
|Unbilled receivables |  |                | 12,609 |              |  |   | 47,959 | 
|                     |  |                |        |              |  |   |        | 
|                     |  | $              | 82,896 |              |  | $ | 62,063 | 
|                     |  |                |        |              |  |   |        | 

Unbilled amounts include recoverable costs and
accrued profit on progress completed. Such amounts are billed in
accordance with the contract terms, typically upon shipment of
the product, achievement of contractual milestones, or
completion of the contract and, at such time, are reclassified
to billed receivables.

When we filed for Chapter 11, SS/Ls
hedges with counterparties (primarily yen-denominated forward
contracts) were cancelled leaving SS/L vulnerable to foreign
currency fluctuations in the future. The inability to enter into
forward contracts exposes SS/Ls future revenues, costs and
cash associated with anticipated yen-denominated receipts and
payments to currency fluctuations. As of September 30,
2004, SS/L had the

11



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

following amounts denominated in Japanese yen
(which was translated into U.S. dollars based on the
September 30, 2004 exchange rate) that were unhedged (in
millions):

|                     |  |              |         |        |  |   |      | 
|-------------------- |  | ------------ | ------- | ------ |  | - | ---- | 
|                     |  | Japanese Yen |         | U.S. $
|                     |  |              |         |       
|Future revenues      |  |              | ¥ 2,006 |        |  | $ | 18.1 | 
|Future expenditures  |  |              | 711     |        |  |   | 6.4  | 
|Contracts-in-process |  |              | 1,589   |        |  |   | 14.3 | 

At September 30, 2004, SS/L also had future
expenditures in euros of 1.8 million ($2.2 million
U.S.) that were unhedged.



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

|                                                                                  |  |                |           |              |  |   |           |  
|--------------------------------------------------------------------------------- |  | -------------- | --------- | ------------ |  | - | --------- | -
|                                                                                  |  | September 30,  |           | December 31,
|                                                                                  |  | 2004           |           | 2003        
|                                                                                  |  |                |           |             
|                                                                                  |  |               
|                                                                                  |  | (In thousands)
|Land and land improvements                                                        |  | $              | 24,827    |              |  | $ | 24,827    |  
|Buildings                                                                         |  |                | 87,809    |              |  |   | 86,065    |  
|Leasehold improvements                                                            |  |                | 17,042    |              |  |   | 16,995    |  
|Satellites in-orbit, including satellite
    transponder rights of $279.6 million |  |                | 1,089,369 |              |  |   | 1,454,511 |  
|Satellites under construction                                                     |  |                |          |              |  |   | 707,453   |  
|Earth stations                                                                    |  |                | 42,798    |              |  |   | 59,303    |  
|Equipment, furniture and fixtures                                                 |  |                | 302,622   |              |  |   | 290,257   |  
|Other construction in progress                                                    |  |                | 9,479     |              |  |   | 24,728    |  
|                                                                                  |  |                |           |              |  |   |           |  
|                                                                                  |  |                | 1,573,946 |              |  |   | 2,664,139 |  
|Accumulated depreciation and amortization                                         |  |                | (739,459  | )            |  |   | (835,857  | )
|                                                                                  |  |                |           |              |  |   |           |  
|                                                                                  |  | $              | 834,487   |              |  | $ | 1,828,282 |  
|                                                                                  |  |                |           |              |  |   |           |  

On March 17, 2004 we sold our North American
satellites and related assets (see Note 2).

In January 2004, our Telstar 14/ Estrela do
Sul-1 satellites North solar array only partially deployed
after launch diminishing the power and life expectancy of the
satellite. At the end of March 2004, the satellite began
commercial service able to operate from 15 to 17 of its 41
transponders. The satellites life expectancy is now
approximately seven years, as compared to a design life of
15 years. During March 2004, we recorded an impairment
charge of $12 million to reduce the carrying value of the
satellite and related assets to the expected proceeds from
insurance of $250 million. Until the claim process with the
insurers has been completed, however, there can be no assurance
as to the amount of the insurance proceeds that we will receive
regarding this claim. We believe resolution of the insurance
claim will not have a material adverse effect on our condensed
consolidated financial position or our results of operations,
although no assurance can be provided.

On September 20, 2002, and as further
amended in March 2003, we agreed with APT Satellite Company
Limited (APT) to jointly acquire the Apstar V
satellite, a satellite then under construction by SS/L for APT
pursuant to which we and APT agreed to share, on a 50/50 basis,
the project cost of constructing, launching and insuring the
satellite. Under this agreement, we were initially to acquire
23% of the satellite in return for paying 25% of the project
cost, and were to pay APT over time an additional 25% of the
project cost to acquire an additional 23% interest in the
satellite. In August 2003, in order to expedite the receipt of
necessary export licenses from the U.S. government, we
amended our various agreements with APT, converting our
arrangement from joint ownership to a lease, but leaving
unchanged the cost allocation between

12



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the parties relating to the project cost of the
satellite. Under this arrangement, we retain title to the entire
satellite, now known as Telstar 18, and we are initially
leasing to APT transponders representing 77% of the transponder
capacity. The number of transponders leased to APT are reduced
over time upon repayment by us of the second 25% of the
satellites project cost, ultimately to 54% of the
satellites transponder capacity. As a result of this
conversion from joint ownership to a lease arrangement, in the
third quarter of 2003 we (a) reversed the cumulative sales
of $83 million and cost of satellite manufacturing of
$73 million and (b) recorded an increase to
self-constructed assets of $73 million and recorded
deferred revenue of $80 million from APT. In November 2003,
we agreed with APT to further revise our existing arrangement.
Under this revised arrangement, we agreed, among other things,
to accelerate the termination of APTs leasehold interest
in 4.5 transponders by assuming $20.4 million of project
cost which otherwise would have been initially paid by APT,
decreasing APTs initial leased transponder capacity from
77% to 69%. In addition, we agreed to provide to APT, at no
additional cost, certain unused capacity on Telstar 10/
Apstar IIR, during an interim period and telemetry,
tracking and control services for the life of the satellite.

During September 2004, our Telstar 18 satellite
began commercial service and we recognized $87 million of
sales and $80 million of cost of sales relating to the
sales-type lease element of our agreement with APT. In addition,
as of September 30, 2004, we have recorded $13 million
of deferred revenue relating to the operating lease and service
elements of the agreement (primarily APTs lease of four
transponders for four years and four additional transponders for
five years and our providing APT with telemetry tracking and
control services for the life of the satellite), which will be
recognized on a straight-line basis over the life of the related
element to be provided. Also, at September 30, 2004, we
recorded a long-term liability of $21 million, representing
the present value of our obligation to make future payments of
$18.1 million to APT on each of the fourth and fifth
service anniversaries of Telstar 18.



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

Investments in and advances to affiliates consist
of (in thousands):

|                         |  |               |        |              |  |   |        | 
|------------------------ |  | ------------- | ------ | ------------ |  | - | ------ | 
|                         |  | September 30, |        | December 31,
|                         |  | 2004          |        | 2003        
|                         |  |               |        |             
|XTAR equity investments  |  | $             | 49,053 |              |  | $ | 43,382 | 
|Globalstar:              |  |               |        |              |  |   |        | 
|Acquired notes and loans |  |               |       |              |  |   | 3,292  | 
|                         |  |               |        |              |  |   |        | 
|                         |  | $             | 49,053 |              |  | $ | 46,674 | 
|                         |  |               |        |              |  |   |        | 

Equity income (losses) in affiliates, consists of
(in thousands):

|                                                            |  |                    |     |                   |  |      |         |      |  |   |        |   |  |   |         |  
|----------------------------------------------------------- |  | ------------------ | --- | ----------------- |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                                                            |  |                    |     |                  
|                                                            |  | Three Months Ended |     | Nine Months Ended
|                                                            |  | September 30,      |     | September 30,    
|                                                            |  |                    |     |                  
|                                                            |  | 2004               |     | 2003              |  | 2004 |         | 2003
|                                                            |  |                    |     |                   |  |      |         |     
|XTAR                                                        |  | $                  | (53 | )                 |  | $    | (708    | )    |  | $ | (40    | ) |  | $ | (4,860  | )
|Satmex                                                      |  |                    |    |                   |  |      | (38,357 | )    |  |   |       |   |  |   | (51,691 | )
|Globalstar and Globalstar service provider
    partnerships |  |                    |    |                   |  |      | 257     |      |  |   | 46,567 |   |  |   | 905     |  
|                                                            |  |                    |     |                   |  |      |         |      |  |   |        |   |  |   |         |  
|                                                            |  | $                  | (53 | )                 |  | $    | (38,808 | )    |  | $ | 46,527 |   |  | $ | (55,646 | )
|                                                            |  |                    |     |                   |  |      |         |      |  |   |        |   |  |   |         |  

13



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                                                  |  |                    |       |                   |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                  |  |                    |       |                  
|                                                                                                  |  | Three Months Ended |       | Nine Months Ended
|                                                                                                  |  | September 30,      |       | September 30,    
|                                                                                                  |  |                    |       |                  
|                                                                                                  |  | 2004               |       | 2003              |  | 2004 |        | 2003
|                                                                                                  |  |                    |       |                   |  |      |        |     
|Revenues                                                                                          |  | $                  | 1,851 |                   |  | $    | (5,138 | )    |  | $ | 7,063  |   |  | $ | 18,076 |  
|Investment income                                                                                 |  |                    |      |                   |  |      | 297    |      |  |   |       |   |  |   | 886    |  
|Interest expense capitalized on development stage
    enterprise                                  |  |                    |      |                   |  |      |       |      |  |   | 478    |   |  |   | 428    |  
|(Losses) profits relating to affiliate
    transactions not eliminated                            |  |                    | (548  | )                 |  |      | (499   | )    |  |   | (1,279 | ) |  |   | 1,789  |  
|Elimination of our proportionate share of losses
    (profits) relating to affiliate transactions |  |                    | 74    |                   |  |      | 374    |      |  |   | 1,005  |   |  |   | (2,440 | )
|Amortization of deferred credit and profits
    relating to investments in affiliates             |  |                    |      |                   |  |      | 261    |      |  |   |       |   |  |   | 784    |  

XTAR

XTAR is a joint venture between us and Hisdesat
Servicios Estrategicos, S.A. (Hisdesat), a
consortium comprised of leading Spanish telecommunications
companies, including Hispasat, S.A., and agencies of the Spanish
government. XTAR is constructing and plans to launch an X-band
satellite to provide X-band services to government users in the
United States and Spain, as well as other friendly and allied
nations. We own 56% of XTAR (accounted for under the equity
method since we do not control certain significant operating
decisions) and Hisdesat owns 44%. In addition, XTAR has agreed
to lease certain transponders on the Spainsat satellite, which
is being constructed by SS/L for Hisdesat. As of
September 30, 2004, the partners in proportion to their
respective ownership interests have contributed $96 million
to XTAR.

In October 2003, we and Hisdesat entered into an
agreement (the Contribution Agreement) to contribute
over time an additional $25.4 million and
$20.0 million, respectively, into XTAR, with our
contribution effected through the cancellation of amounts owed
under XTARs satellite construction contract with SS/L. The
proceeds from Hisdesats capital contributions have been
and will be used largely to fund the remaining amounts due under
the satellite construction contract. XTAR has entered into a
Launch Services Agreement with Arianespace, S.A. providing for
launch of its satellite on Arianespaces Ariane 5 ECA
launch vehicle. This flight represents the resumption of the
Ariane 5 ECAs missions since an unsuccessful launch
in late 2002. Arianespace has agreed to provide a one-year loan
for a portion of the launch price, secured by certain of
XTARs assets, including the satellite, ground equipment
and rights to the orbital slot. The remainder of the launch
price consists of a revenue-based fee to be paid over time
following commencement of operations by XTAR. No launch price
would be payable to Arianespace in the event of a launch failure
that resulted in a constructive total loss of the satellite (as
defined in the Launch Services Agreement) and the related loan
payable would be cancelled. In the event of a launch failure
that resulted in a partial loss (as defined in the Launch
Services Agreement), the launch price and the loan payable would
be correspondingly reduced. XTAR still requires additional funds
to insure its satellite, complete the ground station system and
fund its operations.

In March 2004, after receiving Bankruptcy Court
approval, we provided an additional $2.8 million to XTAR,
which was matched by $2.2 million from Hisdesat. In June
2004, we received Bankruptcy Court approval to make an
additional equity contribution of $2.24 million into XTAR,
which amount would be funded upon XTARs receipt of
Hisdesats contribution of $1.76 million. Because of
the delay in the launch of the XTAR satellite, we recently
sought approval from the Bankruptcy Court to contribute our
share of $2.1 million of additional capital contributions
($1.2 million) to XTAR. We expect that the Bankruptcy Court
will rule on this in November 2004.

14



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

XTAR is also in the process of finalizing an
arrangement under which Hisdesat would provide XTAR with a
convertible loan in the amount of $10.8 million. Under this
arrangement, Hisdesat would receive enhanced governance rights
in XTAR. Moreover, if Hisdesat were to convert the loan into
XTAR equity, our equity interest in XTAR would be reduced to
51%. We are seeking the approval of the Bankruptcy Court to
launch the XTAR satellite without launch insurance for our
portion of the satellite. In the event of the loss of
XTARs satellite during launch without insurance, our
investment in XTAR would be lost. Moreover, if XTAR is unable to
repay the Arianespace loan when due, Arianespace will have the
right to foreclose on the XTAR assets pledged as collateral,
which also may adversely affect our investment in XTAR.



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

On June 29, 2004, Globalstar, L.P.
(Globalstar) was dissolved. As a result of
Globalstars liquidation, we recorded equity income of
$47 million on the reversal of vendor financing liabilities
that were non-recourse to SS/L in the event of non-payment by
Globalstar (see Note 11).

On April 14, 2004, Globalstar announced the
completion of its financial restructuring following the formal
acquisition of its main business operations and assets by Thermo
Capital Partners LLC (Thermo), effectively resulting
in Globalstar exiting from bankruptcy. Thermo invested
$43 million in the newly formed Globalstar company
(New Globalstar) in exchange for an 81.25% equity
interest, with the remaining 18.75% of the equity to be
distributed to the creditors of Globalstar. Our share of the
equity interest is approximately 2.7% of New Globalstar, for
which we assigned no value. Upon receipt of our equity interest
in New Globalstar in June 2004, we reversed the
$2.8 million unrealized gain included in accumulated other
comprehensive income against the remaining $2.8 million
investment in Globalstars $500 million credit
facility, which had no impact on our condensed consolidated
results of operations.

Loral entered into a settlement and release
agreement with Globalstar and Globalstars official
creditors committee to resolve certain issues related to
Globalstar and its restructuring (the Settlement).
This Settlement was approved on April 14, 2003 by the
bankruptcy court overseeing Globalstars case and closed on
July 10, 2003. Among other things, the Settlement provided
that Globalstar grants us, subject to certain conditions, a
general release of all claims it may have against us in exchange
for certain considerations including, effective upon
Globalstars emergence from Chapter 11 reorganization,
an approximate 50% reduction in the amount of our unsecured
claims against Globalstar of approximately $875 million.

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

15



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Other acquired intangible assets are included in
other assets in our consolidated balance sheets as follows (in
millions):

|                              |  |                    |      |                   |  |        |       |              |  |   |      |  |  |   |       |  
|----------------------------- |  | ------------------ | ---- | ----------------- |  | ------ | ----- | ------------ |  | - | ---- |  |  | - | ----- | -
|                              |  |                    |      |                  
|                              |  | September 30, 2004 |      | December 31, 2003
|                              |  |                    |      |                  
|                              |  | Gross              |      | Accumulated       |  | Gross  |       | Accumulated 
|                              |  | Amount             |      | Amortization      |  | Amount |       | Amortization
|                              |  |                    |      |                   |  |        |       |             
|Satellite related intangibles |  | $                  |     |                   |  | $      |      |              |  | $ | 40.7 |  |  | $ | (23.4 | )
|Regulatory fees               |  |                    | 22.5 |                   |  |        | (7.2  | )            |  |   | 22.7 |  |  |   | (6.2  | )
|Other intangibles             |  |                    | 13.0 |                   |  |        | (11.5 | )            |  |   | 13.0 |  |  |   | (10.2 | )
|                              |  |                    |      |                   |  |        |       |              |  |   |      |  |  |   |       |  
|                              |  | $                  | 35.5 |                   |  | $      | (18.7 | )            |  | $ | 76.4 |  |  | $ | (39.8 | )
|                              |  |                    |      |                   |  |        |       |              |  |   |      |  |  |   |       |  

As of September 30, 2004, the weighted
average remaining amortization period for regulatory fees was
approximately 11 years and approximately one year for
other intangibles.

Total amortization expense for other acquired
intangible assets was $0.8 million and $0.9 million
for the three months ended September 30, 2004 and 2003,
respectively, and $2.5 million and $2.6 million for
the nine months ended September 30, 2004 and 2003,
respectively. Annual pre-tax amortization expense for other
acquired intangible assets for the five years ended
December 31, 2008 is estimated to be as follows (in
millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2004 |  | $ | 3.3 | 
|2005 |  |   | 2.5 | 
|2006 |  |   | 1.4 | 
|2007 |  |   | 1.4 | 
|2008 |  |   | 1.4 | 



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

As discussed in Note 2, we and our Debtor
Subsidiaries have been operating as debtors in possession under
the jurisdiction of the Bankruptcy Court and in accordance with
the provisions of the Bankruptcy Code.

On the condensed consolidated balance sheets, the
caption liabilities subject to compromise reflects
our carrying value of prepetition claims that will be
restructured in our Chapter 11 Cases. Pursuant to court
order, we have been authorized to pay certain prepetition
operating liabilities incurred in the ordinary course of
business (e.g. salaries and insurance). Since July 15,
2003, as permitted under the Bankruptcy Code, we have rejected
certain of our prepetition contracts and are calculating our
estimated liability to the unsecured creditors affected by these
rejections. The Bankruptcy Court established January 26,
2004 as the bar date in the Debtors Chapter 11 Cases,
which is the date by which prepetition claims against us and our
Debtor Subsidiaries were to have been filed for claimants to
receive any distribution in the Chapter 11 Cases.
Differences between liability amounts estimated by us and claims
filed by our creditors are being investigated and the Bankruptcy
Court will make a final determination of the allowable claims.
The determination of how liabilities ultimately will be treated
cannot be made until the Bankruptcy Court approves a
Chapter 11 plan of reorganization. We will continue to
evaluate the amount and classification of our prepetition
liabilities through the remainder of our Chapter 11 Cases.
Should we identify additional liabilities subject to compromise,
we will recognize them accordingly. As a result,
liabilities subject to compromise may change. Claims
classified

16



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

as liabilities subject to compromise
represent secured as well as unsecured claims. Liabilities
subject to compromise at September 30, 2004 and
December 31, 2003 consisted of the following (in thousands):

|                                                       |  |               |           |              |  |   |           |    
|------------------------------------------------------ |  | ------------- | --------- | ------------ |  | - | --------- | ---
|                                                       |  | September 30, |           | December 31,
|                                                       |  | 2004          |           | 2003        
|                                                       |  |               |           |             
|Debt obligations (Note 12)                             |  | $             | 1,269,977 |              |  | $ | 2,236,864 |    
|Accounts payable                                       |  |               | 49,763    |              |  |   | 50,605    |    
|Accrued employment costs                               |  |               | 720       |              |  |   | 6,295     |    
|Customer advances                                      |  |               | 21,156    |              |  |   | 36,430    |    
|Accrued interest and preferred dividends               |  |               | 40,428    |              |  |   | 44,610    |    
|Income taxes payable                                   |  |               | 38,837    |              |  |   | 39,514    |    
|Pension and other postretirement liabilities           |  |               | 134,705   |              |  |   | 130,981   |    
|Other liabilities                                      |  |               | 79,634    |              |  |   | 136,815   | (1)
|6% Series C convertible redeemable preferred
    stock |  |               | 187,274   |              |  |   | 187,274   |    
|6% Series D convertible redeemable preferred
    stock |  |               | 36,707    |              |  |   | 36,707    |    
|                                                       |  |               |           |              |  |   |           |    
|                                                       |  | $             | 1,859,201 |              |  | $ | 2,906,095 |    
|                                                       |  |               |           |              |  |   |           |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes approximately $47 million of vendor
    financing that was non-recourse to SS/L in the event of
    non-payment by Globalstar due to bankruptcy. In June 2004, we
    recorded $47 million of equity income relating to
    Globalstar on the reversal of such non-recourse vendor financing
    obligations, upon the liquidation of Globalstar (see
    Note 9).



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

In August 2002, Lorals Board of Directors
approved a plan to suspend indefinitely the future payment of
dividends on its two series of preferred stock. Accordingly,
commencing on November 1, 2002, we deferred payments of
quarterly dividends due on our Series C preferred stock and
commencing on November 15, 2002, we deferred payment of
quarterly dividends due on our Series D preferred stock. On
July 15, 2003, as a result of our Chapter 11 filing,
we stopped accruing dividends on our two series of our preferred
stock in our financial statements. Because we failed to pay
dividends on our preferred stock for six consecutive quarters,
holders of the majority of each class of the preferred stock are
now entitled, subject to the applicable effects of the
Chapter 11 Cases and our Bermuda insolvency proceedings, to
elect two additional directors, for a total of four directors,
to our Board of Directors. The Plan does not provide for
participation or recovery by holders of our preferred stock.

17



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

|                                                                                     |                                                                           |                |           |              |  |   |           |         | 
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | -------------- | --------- | ------------ |  | - | --------- | ------- | 
|                                                                                     |                                                                           | September 30,  |           | December 31,
|                                                                                     |                                                                           | 2004           |           | 2003        
|                                                                                     |                                                                           |                |           |             
|                                                                                     |                                                                           |               
|                                                                                     |                                                                           | (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 | 
|Bank debt:                                                                           |                                                                           |                |           |              |  |   |           |        
|                                                                                     | Loral Satellite term loan, 5.75% at
    December 31, 2003                 |                |           |             |  |   |           | 226,500 | 
|                                                                                     | Loral Satellite revolving credit facility, 5.75%
    at December 31, 2003 |                |           |             |  |   |           | 200,000 | 
|                                                                                     | LSC term loan facility, 5.25% at
    December 31, 2003                    |                |           |             |  |   |           | 350,000 | 
|                                                                                     | LSC revolving credit facility, 5.25% at
    December 31, 2003             |                |           |             |  |   |           | 190,387 | 
|9.50% Senior notes due 2006                                                          |                                                                           |                | 350,000   |              |  |   | 350,000   |        
|Non-recourse debt of Loral Orion:                                                    |                                                                           |                |           |              |  |   |           |        
|                                                                                     | 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 |              |  |   | 2,236,864 |        
|Less, current maturities included in liabilities
    subject to compromise (Note 11) |                                                                           |                | 1,269,977 |              |  |   | 2,236,864 |        
|                                                                                     |                                                                           |                |           |              |  |   |           |        
|                                                                                     |                                                                           | $              |          |              |  | $ |          |        
|                                                                                     |                                                                           |                |           |              |  |   |           |        

As a result of our voluntary petitions for
reorganization, all of our prepetition debt obligations were
accelerated. A creditors committee was appointed in the
Chapter 11 Cases to represent all unsecured creditors,
including all of our debt holders and, in accordance with the
provisions of the Bankruptcy Code, the committee has the right
to be heard on all matters that come before the Bankruptcy Court
(see Note 2).

On March 17, 2004, we repaid all
$967 million of our outstanding secured bank debt (see
Note 2). As of September 30, 2004, the principal
amounts of our prepetition debt obligations were
$1.049 billion.

Subsequent to our voluntary petitions for
reorganization on July 15, 2003, we only recognized and
paid interest on our bank debt through March 18, 2004 and
stopped recognizing and paying interest on all other outstanding
debt obligations. While we are in Chapter 11, we only
recognize interest expense to the extent paid. For the three and
nine months ended September 30, 2004, we did not recognize
$10.4 million and $31.2 million, respectively, of
interest expense on our senior notes (excluding our
10% senior notes) and $15.3 million and
$46.0 million, respectively, of a reduction to accrued
interest on our 10% senior notes as a result of the
suspension of interest payments on our debt obligations. For
both the three and nine months ended September 30, 2003, we
did not recognize $8.7 million of interest expense on our
senior notes (excluding our 10% senior notes) and
$12.8 million of a reduction to accrued interest on our
10% senior notes as a result of the suspension of interest
payments on our debt obligations.

18



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Reorganization expenses due to bankruptcy include
professional fees associated with bankruptcy services, employee
retention costs, severance costs, lease rejection claims, vendor
settlement gains and interest income earned, excluding interest
earned in relation to satellite activities, and were as follows
(in thousands):

|                         |                                                 |                    |       |                    |  |                    |        |       |  |   |        |        | 
|------------------------ | ----------------------------------------------- | ------------------ | ----- | ------------------ |  | ------------------ | ------ | ----- |  | - | ------ | ------ | 
|                         |                                                 |                    |       | Period from        |  |                   
|                         |                                                 |                    |       | July 15, 2003      |  |                   
|                         |                                                 | Three Months Ended |       | (filing date) to   |  | Nine Months Ended 
|                         |                                                 | September 30, 2004 |       | September 30, 2003 |  | September 30, 2004
|                         |                                                 |                    |       |                    |  |                   
|Professional fees        |                                                 | $                  | 4,937 |                    |  | $                  | 4,723  |       |  | $ | 15,293 |       
|Employee retention costs |                                                 |                    | 2,118 |                    |  |                    |       |       |  |   | 9,154  |       
|Severance costs          |                                                 |                    | 2,952 |                    |  |                    |       |       |  |   | 3,959  |       
|Lease rejection claims   |                                                 |                    |      |                    |  |                    | 5,771  |       |  |   |       |       
|Vendor settlement gains  |                                                 |                    |      |                    |  |                    |       |       |  |   | (35    | )     
|Interest income          |                                                 |                    | (520  | )                  |  |                    | (1,734 | )     |  |   | (1,014 | )     
|                         |                                                 |                    |       |                    |  |                    |        |       |  |   |        |       
|                         | Total reorganization expenses due to bankruptcy |                    | $     | 9,487              |  |                    | $      | 8,760 |  |   | $      | 27,357 | 
|                         |                                                 |                    |       |                    |  |                    |        |       |  |   |        |       



|    |                      
|--- | ---------------------
|14. | Shareholders Deficit



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

On June 4, 2003, our Board of Directors
approved a reverse stock split of our common stock at a ratio of
one-for-ten, resulting in a new par value of $0.10 per
common share (previously $0.01 par value per common share).
The reverse stock split became effective after the close of
business on June 13, 2003 and reduced the number of shares
of common stock then outstanding from 440 million to
44 million. All share and per share amounts for all periods
presented have been retroactively restated to reflect the
reverse stock split. The Plan does not provide for participation
or recovery by our common stockholders.



|    |                              
|--- | -----------------------------
|15. | Commitments and Contingencies

SS/L has deferred revenue for performance
warranty obligations relating to satellites sold to customers
which could be affected by future performance. SS/L accounts for
satellite performance warranties in accordance with the product
warranty provisions of FIN 45 which requires disclosure,
but not initial recognition and measurement, of performance
guarantees. SS/L estimates the deferred revenue for its warranty
obligations based on historical satellite performance. SS/L
periodically reviews and adjusts the deferred revenue for
warranty reserves based on the actual performance of each
satellite and remaining warranty period. A reconciliation of
such deferred amounts for the period ended September 30,
2004, is as follows (in millions):

|                                                                                 |  |   |      | 
|-------------------------------------------------------------------------------- |  | - | ---- | 
|Balance of deferred amounts at January 1,
    2004                               |  | $ | 16.3 | 
|Accruals for deferred amounts issued during the
    period                       |  |   |     | 
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | 1.7  | 
|                                                                                 |  |   |      | 
|Balance of deferred amounts at September 30,
    2004                            |  | $ | 18.0 | 
|                                                                                 |  |   |      | 

Loral Skynet has in the past entered into prepaid
leases, sales contracts and other arrangements relating to
transponders on its satellites. Under the terms of these
agreements, as of September 30, 2004, Loral Skynet
continues to provide for a warranty for periods of two years to
eight years for sales contracts and other arrangements (seven
transponders), and prepaid leases (two transponders). Depending
on the contract, Loral Skynet may be required to replace
transponders which do not meet operating specifications.
Substantially all

19



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##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

customers are entitled to a refund equal to the
reimbursement value if there is no replacement, which is
normally covered by insurance. In the case of the sales
contracts, the reimbursement value is based on the original
purchase price plus an interest factor from the time the payment
was received to acceptance of the transponder by the customer,
reduced on a straight-line basis over the warranty period. In
the case of prepaid leases, the reimbursement value is equal to
the unamortized portion of the lease prepayment made by the
customer. For other arrangements, in the event of transponder
failure where replacement capacity is not available on the
satellite, one customer is not entitled to reimbursement, and
the other customers reimbursement value is based on
contractually prescribed amounts that decline over time.

Eighteen of the satellites built by SS/L and
launched since 1997, three of which are owned and operated by
our subsidiaries or affiliates, have experienced minor losses of
power from their solar arrays. Although to date, neither we nor
any of the customers using the affected satellites have
experienced any degradation in performance, there can be no
assurance that one or more of the affected satellites will not
experience additional power loss that could result in
performance degradation, including loss of transponder capacity
or reduction in power transmitted. In the event of additional
power loss, the extent of the performance degradation, if any,
will depend on numerous factors, including the amount of the
additional power loss, the level of redundancy built into the
affected satellites design, when in the life of the
affected satellite the loss occurred, and how many transponders
are then in service and how they are being used. It is also
possible that one or more transponders on a satellite may need
to be removed from service to accommodate the power loss and to
preserve full performance capabilities on the remaining
transponders. A complete or partial loss of a satellites
capacity could result in a loss of orbital incentive payments to
us and, in the case of satellites owned by our subsidiaries and
affiliates, a loss of revenues and profits. With respect to
satellites under construction and the construction of new
satellites, based on its investigation of the matter, SS/L has
identified and has implemented remediation measures that SS/L
believes will prevent newly launched satellites from
experiencing similar anomalies. SS/L does not expect that
implementation of these measures will cause any significant
delay in the launch of satellites under construction or the
construction of new satellites. Based upon information currently
available, including design redundancies to accommodate small
power losses and that no pattern has been identified as to the
timing or specific location within the solar arrays of the
failures, we believe that this matter will not have a material
adverse effect on our condensed consolidated financial position
or our results of operations, although no assurance can be
provided.

In September 2001, the PAS 7 satellite built
by SS/L for PanAmSat experienced an electrical power failure on
its solar arrays that resulted in the loss of use of certain
transponders on the satellite. The PAS 8 satellite also has
experienced minor power losses on its solar arrays, the cause of
which is unrelated to the PAS 7 event. SS/L believes that
these failures are isolated events and do not reflect a systemic
problem in either the satellite design or manufacturing process.
Accordingly, SS/L does not believe that these anomalies will
affect other on-orbit satellites built by SS/L. On June 30,
2003, PanAmSat initiated an arbitration claiming that under its
contract with SS/L it is entitled to $23.7 million as a
result of these losses. In June 2004, the Bankruptcy Court
approved an agreement between Loral and PanAmSat settling this
matter and, in the fourth quarter of 2003 (based on estimates at
that time), we recorded a charge to operations of
$8 million in connection with the settlement.

SS/L has contracted to build a spot beam, Ka-band
satellite for a customer planning to offer broadband data
services directly to the consumer. SS/L had suspended work on
this program in December 2001 while the customer and SS/L
discussed how to resolve a contract dispute. In March 2003, SS/L
and the customer reached an agreement in principle to restart
the satellite construction program, and, in June 2003, SS/L and
the customer executed a definitive agreement and SS/L entered
into a security agreement with the customer that provided the
customer with a security interest in work-in-progress (the
SS/L Security Agreement). In September 2004, SS/L
and the customer amended the agreement to provide for, among
other things, acceleration of the payment of $15 million of
the outstanding vendor financing (received in October 2004) and
the granting of a security interest by the customer to secure
payment of the remaining vendor financing (the

20



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Customer Security Agreement). In
October 2004, the Bankruptcy Court approved the Customer
Security Agreement and SS/Ls assumption of the amended
contract and the SS/L Security Agreement. As of
September 30, 2004, SS/L had billed and unbilled accounts
receivable and vendor financing arrangements of $60 million
(including accrued interest of $13 million) with this
customer, of which approximately $44 million will be paid
to SS/L beginning in 2006 through 2011.

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

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

The launch of ChinaSat 8 has been delayed
pending SS/Ls obtaining the approvals required for the
launch. SS/L is continuing to seek the State Department
approvals required for the launch of ChinaSat 8. In June
2004, the Bankruptcy Court approved a settlement agreement among
ChinaSat, SS/L and China Great Wall Industry Corporation which
resolved a portion of the disputes outstanding among the
parties. This settlement agreement provides, among other things,
for a release by ChinaSat of any claim it may have against SS/L
to recover some or all of the $52 million that ChinaSat
paid to SS/L, and SS/L paid to China Great Wall, for a Chinese
launch vehicle. Nothing in the settlement agreement would,
however, preclude ChinaSat from seeking to terminate its
contract with SS/L for ChinaSat 8 as a result of the delay
caused by the inability to obtain necessary U.S. government
approvals to launch and transfer the satellite to ChinaSat. In
such event, ChinaSat may seek, after giving effect to the
settlement agreement, a refund of $81.6 million for
payments made to SS/L as well as penalties of up to
$6.5 million. We do not believe that ChinaSat is entitled
to such a refund or penalties and would vigorously contest any
such claims by ChinaSat. If the ChinaSat 8 contract were
terminated, SS/L estimates that it would cost approximately
$38 million to refurbish and retrofit the satellite so that
it could be sold to another customer, which resale cannot be
guaranteed.

21



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

SS/L has entered into several long-term launch
services agreements with various launch providers to secure
future launches for its customers, including Loral and its
affiliates. SS/L had launch services agreements with
International Launch Services (ILS) which covered a
number of launches, three of which remained open. In November
2002, SS/L terminated one of those future launches, which had a
termination liability equal to SS/Ls deposit of
$5 million. Subsequently, SS/L received a letter from ILS
alleging SS/Ls breach of the agreements and purporting to
terminate the launch service agreements and all three remaining
launches. Despite ILSs wrongful termination of the
agreements and all three launches, to protect its interest SS/L
also terminated a second launch, which had a termination
liability equal to its deposit of $5 million, but reserved
all of its rights against ILS. As a result, SS/L recognized a
non-cash charge to earnings of $10 million in the fourth
quarter of 2002 with respect to the two terminated launches. In
June 2003, to protect its interest SS/L also terminated a third
launch, which had a termination liability equal to
$23.5 million, and SS/L recognized a non-cash charge to
earnings of $23.5 million in the second quarter of 2003
with respect to this launch. SS/L also reserved all of its
rights at that time. In April 2004, SS/L commenced an adversary
proceeding against ILS in the Bankruptcy Court to seek recovery
of $37.5 million of its deposits. In June 2004, ILS filed
counterclaims in the Bankruptcy Court seeking to recover
termination charges of up to $54.75 million with respect to
the three terminated launches, $50 million in damages for
alleged losses incurred in connection with halting production of
launch vehicles and $38 million in lost revenue due to our
alleged failure to comply with a contractual obligation to
assign the launch of another satellite to ILS. We believe that
ILSs counterclaims are without merit and intend to defend
against them vigorously and will continue to seek recovery of
SS/Ls deposits. We do not believe that this matter will
have a material adverse effect on our condensed consolidated
financial position or results of operations, although no
assurance can be provided.

We have estimated that we will incur
approximately $47 million to repair a satellite that was
damaged in transit, a significant portion of which we expect to
recover through insurance coverage. We believe resolution of the
insurance claim will not have a material adverse effect on our
condensed consolidated financial position or our results of
operations, although no assurance can be provided.

While we have in the past, consistent with
industry practice and the requirements in our debt agreements,
typically obtained in-orbit insurance for our satellites, we
cannot assure that, upon a policys expiration, we will be
able to renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past. Two satellites
owned by Loral Orion have the same solar array configuration as
one other 1300-class satellite manufactured by SS/L that has
experienced an event with a large loss of solar power. SS/L
believes that this failure is an isolated event and does not
reflect a systemic problem in either the satellite design or
manufacturing process. Accordingly, we do not believe that this
anomaly will affect the two Loral Orion satellites with the same
solar array configuration. The insurance coverage for one of
these satellites, however, provides for coverage of losses due
to solar array failures only in the event of a capacity loss of
80% or more. We believe that the insurers will require either
exclusions of, or limitations on, coverage due to solar array
failures in connection with future insurance renewals for these
two satellites. An uninsured loss of a satellite would have a
material adverse effect on our condensed consolidated financial
position and our results of operations.

On October 21, 2002, National Telecom of
India Ltd. (Natelco) filed suit against Loral and a
subsidiary in the United States District Court for the Southern
District of New York. The suit relates to a joint venture
agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a Loral Orion subsidiary, the effectiveness of
which was subject to express conditions precedent. In 1999, ONS
Mauritius had notified Natelco that Natelco had failed to
satisfy those conditions precedent. In Natelcos amended
complaint filed in March 2003, Natelco has alleged wrongful
termination of the joint venture agreement, has asserted claims
for breach of contract and fraud in the inducement and is
seeking damages and expenses in the amount of $97 million.
We believe that the claims are without merit and intend to
vigorously defend against them. As a result of the commencement
of the Chapter 11 Cases, this lawsuit is subject to the
automatic stay and further proceedings in the matter have been
suspended.

22



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

In August 2003, plaintiffs Robert Beleson and
Harvey Matcovsky filed a purported class action complaint
against Bernard Schwartz in the United States District Court for
the Southern District of New York. The complaint alleges
(a) that Mr. Schwartz violated Section 10(b) of
the Exchange Act and Rule 10b-5 promulgated thereunder, by
making material misstatements or failing to state material facts
about our financial condition relating to the sale of assets to
Intelsat and Lorals Chapter 11 filing and
(b) that Mr. Schwartz is secondarily liable for these
alleged misstatements and omissions under Section 20(a) of
the Exchange Act as an alleged controlling person of
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Loral common stock
during the period from June 30, 2003 through July 15,
2003, excluding the defendant and certain persons related to or
affiliated with him. In November 2003, three other complaints
against Mr. Schwartz with substantially similar allegations
were consolidated into the Belesoncase. In February
2004, a motion to dismiss the complaint in its entirety was
denied by the court. Defendant filed an answer in March 2004 and
discovery has commenced.

In November 2003, plaintiffs Tony Christ,
individually and as custodian for Brian and Katelyn Christ,
Casey Crawford, Thomas Orndorff and Marvin Rich, filed a
purported class action complaint against Bernard Schwartz and
Richard J. Townsend in the United States District Court for the
Southern District of New York. The complaint alleges
(a) that defendants violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder, by
making material misstatements or failing to state material facts
about Lorals financial condition relating to the
restatement in 2003 of the financial statements for the second
and third quarters of 2002 to correct accounting for certain
general and administrative expenses and the alleged improper
accounting for a satellite transaction with APT Satellite
Company Ltd. and (b) that each of the defendants is
secondarily liable for these alleged misstatements and omissions
under Section 20(a) of the Exchange Act as an alleged
controlling person of Loral. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all
buyers of Loral common stock during the period from
July 31, 2002 through June 29, 2003, excluding the
defendants and certain persons related to or affiliated with
them. In October 2004, a motion to dismiss the complaint in its
entirety was denied by the court, and defendants will file an
answer to the complaint.

In April 2004, two separate purported class
action lawsuits filed in the United States District Court for
the Southern District of New York by former Loral employees and
participants in the Loral Savings Plan (the Plan)
were consolidated into one action titled In re: Loral Space
ERISA Litigation. In July 2004, plaintiffs in the
consolidated action filed an amended consolidated complaint
against the members of the Loral Space & Communications
Ltd. Savings Plan Administrative Committee and certain existing
and former members of the Board of Directors of Space Systems/
Loral, Inc., including Bernard L. Schwartz. The amended
complaint alleges (a) that defendants violated
Section 404 of the Employee Retirement Income Security Act
(ERISA), by breaching their fiduciary duties to
prudently and loyally manage the assets of the Plan by including
Loral common stock as an investment alternative and by providing
matching contributions under the Plan in Loral stock,
(b) that the director defendants violated Section 404
of ERISA by breaching their fiduciary duties to monitor the
committee defendants and to provide them with accurate
information, (c) that defendants violated Sections 404
and 405 of ERISA by failing to provide complete and accurate
information to Plan participants and beneficiaries, and
(d) that defendants violated Sections 404 and 405 of
ERISA by breaching their fiduciary duties to avoid conflicts of
interest. The class of plaintiffs on whose behalf the lawsuit
has been asserted consists of all participants in or
beneficiaries of the Plan at any time between November 4,
1999 and the present and whose accounts included investments in
Loral stock. In October 2004, defendants filed a motion to
dismiss the amended complaint in its entirety.

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

23



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

We are subject to various other legal proceedings
and claims, either asserted or unasserted, that arise in the
ordinary course of business. Although the outcome of these
claims cannot be predicted with certainty, we do not believe
that any of these other existing legal matters will have a
material adverse effect on our condensed consolidated financial
position or our results of operations. These claims against us
are generally subject to the automatic stay as a result of the
commencement of the Chapter 11 Cases.



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

On September 26, 2001, the nineteen separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of securities of Globalstar Telecommunications Limited
(GTL) and Globalstar against GTL, Loral, Bernard L.
Schwartz and other defendants were consolidated into one action
titled In re: Globalstar Securities Litigation. In November
2001, plaintiffs in the consolidated action filed a consolidated
amended class action complaint against Globalstar, GTL,
Globalstar Capital Corporation, Loral and Bernard L. Schwartz
alleging (a) that all defendants (except Loral) violated
Section 10(b) of the Securities Exchange Act of 1934 (the
Exchange Act) and Rule 10b-5 promulgated
thereunder, by making material misstatements or failing to state
material facts about Globalstars business and prospects,
(b) that defendants Loral and Mr. Schwartz are
secondarily liable for these alleged misstatements and omissions
under Section 20(a) of the Exchange Act as alleged
controlling persons of Globalstar, (c) that
defendants GTL and Mr. Schwartz are liable under
Section 11 of the Securities Act of 1933 (the
Securities Act) for untrue statements of material
facts in or omissions of material facts from a registration
statement relating to the sale of shares of GTL common stock in
January 2000, (d) that defendant GTL is liable under
Section 12(2)(a) of the Securities Act for untrue
statements of material facts in or omissions of material facts
from a prospectus and prospectus supplement relating to the sale
of shares of GTL common stock in January 2000, and (e) that
defendants Loral and Mr. Schwartz are secondarily liable
under Section 15 of the Securities Act for GTLs
primary violations of Sections 11 and 12(2)(a) of the
Securities Act as alleged controlling persons of
GTL. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of securities of
Globalstar, Globalstar Capital and GTL during the period from
December 6, 1999 through October 27, 2000, excluding
the defendants and certain persons related to or affiliated with
them. We believe that we have meritorious defenses to this class
action lawsuit and intend to pursue them vigorously. As a result
of the commencement of the Chapter 11 Cases, however, this
lawsuit is subject to the automatic stay and further proceedings
in the matter have been suspended insofar as Loral is concerned
but are proceeding as to Mr. Schwartz. Loral is obligated
to indemnify Mr. Schwartz for any losses or costs he may
incur as a result of this lawsuit. We are unable to estimate the
maximum potential impact of these obligations on our future
results of operations. In December 2003, a motion to dismiss the
amended complaint in its entirety was denied by the court
insofar as GTL and Mr. Schwartz are concerned, and
discovery has commenced. In October 2004, GTL was liquidated
pursuant to chapter 7 of the Bankruptcy Code.

On March 2, 2002, the seven separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of Loral common stock against Loral, Bernard L. Schwartz
and Richard Townsend were consolidated into one action titled
In re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint alleging (a) that all defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, by making material misstatements or
failing to state material facts about Lorals financial
condition and its investment in Globalstar and (b) that
Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged controlling person of
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Loral common stock
during the period from November 4, 1999 through
February 1, 2001, excluding the defendants and certain
persons related to or affiliated with them. Loral and

24



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Messrs. Schwartz and Townsend have filed a
motion to dismiss the complaint in its entirety. After oral
argument on a motion to dismiss filed by Loral and
Messrs. Schwartz and Townsend, in June 2003, the plaintiffs
filed an amended complaint alleging essentially the same claims
as in the original amended complaint. Loral believes that it has
meritorious defenses to this class action lawsuit and intends to
pursue them vigorously. As a result of the commencement of the
Chapter 11 Cases, however, this lawsuit is subject to the
automatic stay, and further proceedings in the matter have been
suspended, insofar as Loral is concerned but are proceeding as
to the other defendants. Loral is obligated to indemnify
Messrs. Schwartz and Townsend for any losses or costs they
may incur as a result of this lawsuit. We are unable to estimate
the maximum potential impact of these obligations on our future
results of operations. In February 2004, a motion to dismiss the
amended complaint was granted by the court insofar as
Messrs. Schwartz and Townsend are concerned.

The Plan does not provide for recovery for claims
arising from the rescission of, or damages arising from the
purchase or sale of any security of the Debtors and their
affiliates.

In addition, the primary insurer under
Lorals directors and officers liability insurance policy
has denied coverage for the Globalstar-related case filed by
Loral shareholders under the policy and, on March 24, 2003,
filed a lawsuit in the Supreme Court of New York County seeking
a declaratory judgment upholding its coverage position. In May
2003, we and the other defendants served our answer and filed
counterclaims seeking a declaration that the insurer is
obligated to provide coverage and damages for breach of contract
and the implied covenant of good faith. In May 2003, we and the
other defendants also filed a third party complaint against the
excess insurers seeking a declaration that they are obligated to
provide coverage. We believe that the insurers have wrongfully
denied coverage and intend to defend against the denial
vigorously. As a result of the commencement of the
Chapter 11 Cases, however, this lawsuit is subject to the
automatic stay and further proceedings in the matter have been
suspended insofar as Loral is concerned but are proceeding as to
the other defendants.



|    |               
|--- | --------------
|16. | Loss Per Share

Basic loss per share is computed based upon the
weighted average number of shares of common stock outstanding.
Diluted loss per share excludes the assumed conversion of the
Series C Preferred Stock (936,371 shares) and the
Series D Preferred Stock (185,104 shares), as their
effect would have been antidilutive. For both the three and nine
months ended September 30, 2004 and 2003, there were
2,387,213 and 2,618,184 weighted options outstanding that were
excluded from the calculation of diluted loss per share.

25



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the computation of
basic and diluted loss per share (in thousands, except per share
data):

|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |          |  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ----- | ----------------- | - | ---- | ----- | -------- | - | - | ----- | -------- | - | - | ----- | -------- | -
|                                                |                                                                                                                                    |                    |       |                  
|                                                |                                                                                                                                    | Three Months Ended |       | Nine Months Ended
|                                                |                                                                                                                                    | September 30,      |       | September 30,    
|                                                |                                                                                                                                    |                    |       |                  
|                                                |                                                                                                                                    | 2004               |       | 2003              |   | 2004 |       | 2003    
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |         
|Numerator for basic and diluted loss per share: |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|                                                | Loss from continuing operations                                                                                                    |                    | $     | (31,701           | ) |      | $     | (128,029 | ) |   | $     | (122,544 | ) |   | $     | (303,848 | )
|                                                | Income (loss) from discontinued operations                                                                                         |                    |       | 299               |   |      |       | 2,120    |   |   |       | (11,163  | ) |   |       | 20,361   |  
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|                                                | Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |                    |       | (31,402           | ) |      |       | (125,909 | ) |   |       | (133,707 | ) |   |       | (283,487 | )
|                                                | Cumulative effect of change in accounting
    principle                                                                            |                    |       |                  |   |      |       | (1,970   | ) |   |       |         |   |   |       | (1,970   | )
|                                                | Extraordinary gain on acquisition of minority
    interest                                                                         |                    |       |                  |   |      |       |         |   |   |       |         |   |   |       | 13,615   |  
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|                                                | Net loss                                                                                                                           |                    |       | (31,402           | ) |      |       | (127,879 | ) |   |       | (133,707 | ) |   |       | (271,842 | )
|                                                | Preferred dividends                                                                                                                |                    |       |                  |   |      |       |         |   |   |       |         |   |   |       | (6,719   | )
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|                                                | Net loss applicable to common shareholders                                                                                         |                    | $     | (31,402           | ) |      | $     | (127,879 | ) |   | $     | (133,707 | ) |   | $     | (278,561 | )
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|Denominator:                                    |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|                                                | Weighted average common shares outstanding                                                                                         |                    |       | 44,125            |   |      |       | 44,107   |   |   |       | 44,125   |   |   |       | 43,723   |  
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|Basic and diluted (loss) earnings per share:    |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|                                                | Continuing operations                                                                                                              |                    | $     | (0.72             | ) |      | $     | (2.91    | ) |   | $     | (2.78    | ) |   | $     | (7.10    | )
|                                                | Discontinued operations                                                                                                            |                    |       | 0.01              |   |      |       | 0.05     |   |   |       | (0.25    | ) |   |       | 0.46     |  
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|                                                | Before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest      |                    |       | (0.71             | ) |      |       | (2.86    | ) |   |       | (3.03    | ) |   |       | (6.64    | )
|                                                | Cumulative effect of change in accounting
    principle                                                                            |                    |       |                  |   |      |       | (0.04    | ) |   |       |         |   |   |       | (0.04    | )
|                                                | Extraordinary gain on acquisition of minority
    interest                                                                         |                    |       |                  |   |      |       |         |   |   |       |         |   |   |       | 0.31     |  
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         
|Loss per share                                  |                                                                                                                                    | $                  | (0.71 | )                 |   | $    | (2.90 | )        |   | $ | (3.03 | )        |   | $ | (6.37 | )       
|                                                |                                                                                                                                    |                    |       |                   |   |      |       |          |   |   |       |          |   |   |       |         



|    |         
|--- | --------
|17. | Segments

We are organized into two operating segments:
Satellite Services and Satellite Manufacturing (see Note 2
and Note 4 regarding the sale of our North American
satellites and related assets).

The common definition of EBITDA is Earnings
Before Interest, Taxes, Depreciation and Amortization. In
evaluating financial performance, we use revenues and operating
income (loss) from continuing operations before depreciation and
amortization, including amortization of unearned stock
compensation, and reorganization expenses due to bankruptcy
(Adjusted EBITDA) as the measure of a segments
profit or loss. Adjusted EBITDA is equivalent to the common
definition of EBITDA before amortization of stock compensation;
reorganization expenses due to bankruptcy; gain (loss) on
investments and debt exchanges; equity income (losses) in
affiliates, net of tax; minority interest, net of tax; income
(loss) from discontinued operations, net of taxes; cumulative
effect of change in accounting principle, net of tax; and
extraordinary gain on acquisition of minority interest, net of
tax. Interest expense has been excluded from Adjusted EBITDA to
maintain comparability with the performance of competitors using
similar measures with different capital structures. During the
period we are in Chapter 11, we only recognize interest
expense on the actual interest payments we make. During this
period, we do not expect to make any further interest payments
on debt obligations after March 17, 2004, the date we
repaid our secured bank debt. Reorganization expenses are only
incurred during the period we are in Chapter 11. These
expenses have been excluded from Adjusted EBITDA to maintain
comparability with our results during periods we are not in
Chapter 11 and with the results of

26



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##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

competitors using similar measures. Adjusted
EBITDA should be used in conjunction with U.S. GAAP
financial measures and is not presented as an alternative to
cash flow from operations as a measure of our liquidity or as an
alternative to net income as an indicator of our operating
performance.

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

Intersegment revenues consist primarily of
satellites under construction by Satellite Manufacturing for
Satellite Services and the leasing of transponder capacity by
Satellite Manufacturing from Satellite Services.

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

Three Months Ended September 30,
2004

|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|----------------------------------------------------------- |  | --------- | ----- | ------------- |  | ------------ | ----- | ----- |  | - | ---- | - |  | - | ------- | -
|                                                            |  | Satellite |       | Satellite     |  |              |       |      
|                                                            |  | Services  |       | Manufacturing |  | Corporate(1) |       | Total
|                                                            |  |           |       |               |  |              |       |      
|Revenues and Adjusted EBITDA:                               |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Revenues(2)                                                 |  | $         | 33.1  |               |  | $            | 78.6  |       |  |   |      |   |  | $ | 111.7   |  
|Revenues from sales-type lease arrangement (see
    Note 8) |  |           | 87.2  |               |  |              |      |       |  |   |      |   |  |   | 87.2    |  
|Intersegment revenues                                       |  |           | 1.1   |               |  |              | 6.6   |       |  |   |      |   |  |   | 7.7     |  
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Operating segment revenues                                  |  | $         | 121.4 |               |  | $            | 85.2  |       |  |   |      |   |  |   | 206.6   |  
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Eliminations(3)                                             |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (8.0    | )
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Operating revenues as reported                              |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | 198.6   |  
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Segment Adjusted EBITDA before eliminations
    (4)(5)(9)   |  | $         | 15.2  |               |  | $            | (7.3  | )     |  | $ | (9.7 | ) |  | $ | (1.8    | )
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Eliminations(3)                                             |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (2.5    | )
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Adjusted EBITDA                                             |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (4.3    | )
|Depreciation and amortization(6)(7)                         |  | $         | (16.0 | )             |  | $            | (5.2  | )     |  | $ | (0.1 | ) |  |   | (21.3   | )
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Reorganization expenses due to bankruptcy                   |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (9.5    | )
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Operating loss from continuing operations                   |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (35.1   | )
|Interest and investment income                              |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 2.3     |  
|Interest expense                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (0.9    | )
|Other income                                                |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 1.9     |  
|Income tax benefit                                          |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 0.2     |  
|Equity losses in affiliates                                 |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (0.1    | )
|Minority interest                                           |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Loss from continuing operations                             |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | (31.7   | )
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Other Data:                                                 |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  
|Total assets(7)                                             |  | $         | 815.3 |               |  | $            | 469.0 |       |  | $ | 69.1 |   |  | $ | 1,353.4 |  
|                                                            |  |           |       |               |  |              |       |       |  |   |      |   |  |   |         |  

27



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##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Nine Months Ended September 30,
2004

|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|----------------------------------------------------------- |  | --------- | ----- | ------------- |  | ------------ | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|                                                            |  | Satellite |       | Satellite     |  |              |       |      
|                                                            |  | Services  |       | Manufacturing |  | Corporate(1) |       | Total
|                                                            |  |           |       |               |  |              |       |      
|Revenues and Adjusted EBITDA:                               |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Revenues(2)                                                 |  | $         | 102.1 |               |  | $            | 227.9 |       |  |   |       |   |  | $ | 330.0  |  
|Revenues from sales-type lease arrangement (see
    Note 8) |  |           | 87.2  |               |  |              |      |       |  |   |       |   |  |   | 87.2   |  
|Intersegment revenues                                       |  |           | 3.4   |               |  |              | 72.1  |       |  |   |       |   |  |   | 75.5   |  
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Operating segment revenues                                  |  | $         | 192.7 |               |  | $            | 300.0 |       |  |   |       |   |  |   | 492.7  |  
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Eliminations(3)                                             |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (76.7  | )
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Operating revenues as reported                              |  |           |       |               |  |              |       |       |  |   |       |   |  | $ | 416.0  |  
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Segment Adjusted EBITDA before eliminations
    (4)(5)(9)   |  | $         | 14.0  |               |  | $            | (1.5  | )     |  | $ | (27.2 | ) |  | $ | (14.7  | )
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Eliminations(3)                                             |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (14.2  | )
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Adjusted EBITDA                                             |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (28.9  | )
|Depreciation and amortization(6)(7)                         |  | $         | (87.6 | )             |  | $            | (17.5 | )     |  | $ | (0.4  | ) |  |   | (105.5 | )
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Reorganization expenses due to bankruptcy                   |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (27.3  | )
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Operating loss from continuing operations                   |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (161.7 | )
|Interest and investment income                              |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 7.4    |  
|Interest expense                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (0.7   | )
|Other expense                                               |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (2.1   | )
|Income tax provision                                        |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (12.0  | )
|Equity income in affiliates                                 |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 46.5   |  
|Minority interest                                           |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 0.1    |  
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  
|Loss from continuing operations                             |  |           |       |               |  |              |       |       |  |   |       |   |  | $ | (122.5 | )
|                                                            |  |           |       |               |  |              |       |       |  |   |       |   |  |   |        |  

28



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Three Months Ended September 30,
2003(8)

|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|----------------------------------------------------- |  | --------- | ----- | ------------- |  | ------------ | ----- | ----- |  | - | ---- | - |  | - | ------ | -
|                                                      |  | Satellite |       | Satellite     |  |              |       |      
|                                                      |  | Services  |       | Manufacturing |  | Corporate(1) |       | Total
|                                                      |  |           |       |               |  |              |       |      
|Revenues and Adjusted EBITDA:                         |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Revenues(2)                                           |  | $         | 38.0  |               |  | $            | 59.5  |       |  |   |      |   |  | $ | 97.5   |  
|Intersegment revenues                                 |  |           | 1.1   |               |  |              | 39.6  |       |  |   |      |   |  |   | 40.7   |  
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Operating segment revenues                            |  | $         | 39.1  |               |  | $            | 99.1  |       |  |   |      |   |  |   | 138.2  |  
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Eliminations(3)                                       |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (124.5 | )
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Operating revenues as reported                        |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | 13.7   |  
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Segment Adjusted EBITDA before
    eliminations(5)(9) |  | $         | 0.1   |               |  | $            | (30.3 | )     |  | $ | (9.9 | ) |  | $ | (40.1  | )
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Eliminations(3)                                       |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (13.7  | )
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Adjusted EBITDA                                       |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (53.8  | )
|Depreciation and amortization(6)(7)                   |  | $         | (21.9 | )             |  | $            | (6.7  | )     |  | $ | (0.2 | ) |  |   | (28.8  | )
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Reorganization expenses due to bankruptcy             |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (8.8   | )
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Operating loss from continuing operations             |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (91.4  | )
|Interest and investment income                        |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 0.7    |  
|Interest expense                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (0.1   | )
|Other income                                          |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 1.0    |  
|Income tax benefit                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 0.5    |  
|Equity losses in affiliates                           |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (38.8  | )
|Minority interest                                     |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 0.1    |  
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  
|Loss from continuing operations                       |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | (128.0 | )
|                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |        |  

29



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Nine Months Ended September 30,
2003(8)

|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|------------------------------------------------------ |  | ------------------ | ----- | ------------- |  | ------------ | ------ | ----- |  | - | ----- | - |  | - | ------ | -
|                                                       |  |                    |       | Satellite     |  |              |        |      
|                                                       |  | Satellite Services |       | Manufacturing |  | Corporate(1) |        | Total
|                                                       |  |                    |       |               |  |              |        |      
|Revenues and Adjusted EBITDA:                          |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Revenues(2)                                            |  | $                  | 118.6 |               |  | $            | 245.7  |       |  |   |       |   |  | $ | 364.3  |  
|Intersegment revenues                                  |  |                    | 3.2   |               |  |              | 66.0   |       |  |   |       |   |  |   | 69.2   |  
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Operating segment revenues                             |  | $                  | 121.8 |               |  | $            | 311.7  |       |  |   |       |   |  |   | 433.5  |  
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Eliminations(3)                                        |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | (154.3 | )
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Operating revenues as reported                         |  |                    |       |               |  |              |        |       |  |   |       |   |  | $ | 279.2  |  
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Segment Adjusted EBITDA before eliminations
    (5)(9) |  | $                  | 6.5   |               |  | $            | (131.3 | )     |  | $ | (28.9 | ) |  | $ | (153.7 | )
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Eliminations(3)                                        |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | (18.5  | )
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Adjusted EBITDA                                        |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | (172.2 | )
|Depreciation and amortization(6)(7)                    |  | $                  | (67.5 | )             |  | $            | (20.5  | )     |  | $ | (0.5  | ) |  |   | (88.5  | )
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Reorganization expenses due to bankruptcy              |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | (8.8   | )
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Operating loss from continuing operations              |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | (269.5 | )
|Interest and investment income                         |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | 11.5   |  
|Interest expense                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | (17.7  | )
|Other income                                           |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | 2.1    |  
|Gain on investment                                     |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | 17.9   |  
|Income tax benefit                                     |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | 7.4    |  
|Equity losses in affiliates                            |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | (55.6  | )
|Minority interest                                      |  |                    |       |               |  |              |        |       |  |   |       |   |  |   | 0.1    |  
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  
|Loss from continuing operations                        |  |                    |       |               |  |              |        |       |  |   |       |   |  | $ | (303.8 | )
|                                                       |  |                    |       |               |  |              |        |       |  |   |       |   |  |   |        |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support
    of our operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | Includes revenues from affiliates of
    $1.9 million and $(5.1) million for the three months
    ended September 30, 2004 and 2003, respectively, and
    $7.1 million and $18.1 million for the nine months
    ended September 30, 2004 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) | Represents the elimination of intercompany sales
    and intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/ L for wholly owned subsidiaries and in the
    three and nine months ended September 30, 2003, the
    reversal of cumulative satellite manufacturing sales of
    $83 million and cost of satellite manufacturing of
    $73 million on a satellite program that was changed to a
    lease arrangement in the third quarter of 2003 (see Note 8).                                                                                                                                                                                               
|   
|(4) | Satellite manufacturing excludes charges of
    $22 million for the nine months ended September 30,
    2004, as a result of the settlement of all orbital receivables
    on satellites sold to Intelsat. This settlement had the effect
    of reducing future orbital receipts by $25 million,
    including $15 million relating to a satellite currently
    under construction. Consistent with our internal reporting for
    satellite manufacturing, this decrease in contract value for the
    satellite currently under construction is not being reflected as
    a decrease in 2004 satellite manufacturing revenues. These
    charges had no effect on our consolidated results.

30



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(5)

|                             |                                                                               |               |   |               |  |      |   |      |  |  |   |       |   |  |   |     | 
|---------------------------- | ----------------------------------------------------------------------------- | ------------- | - | ------------- |  | ---- | - | ---- |  |  | - | ----- | - |  | - | --- | 
|                             |                                                                               |               |   |              
|                             |                                                                               | Three Months  |   | Nine Months  
|                             |                                                                               | Ended         |   | Ended        
|                             |                                                                               | September 30, |   | September 30,
|                             |                                                                               |               |   |              
|                             |                                                                               | 2004          |   | 2003          |  | 2004 |   | 2003
|                             |                                                                               |               |   |               |  |      |   |     
|Satellite services includes: |                                                                               |               |   |               |  |      |   |      |  |  |   |       |   |  |   |    
|                             | Impairment charge for Telstar 14/ Estrela do
    Sul-1 satellite (see Note 8) |               | $ |              |  |      | $ |     |  |  | $ | (12.0 | ) |  | $ |    | 
|                             | Sales-type lease arrangement (see Note 8)                                     |               |   | 7.7           |  |      |   |     |  |  |   | 7.7   |   |  |   |    | 
|                             | Other Adjusted EBITDA before eliminations                                     |               |   | 7.5           |  |      |   | 0.1  |  |  |   | 18.3  |   |  |   | 6.5 | 
|                             |                                                                               |               |   |               |  |      |   |      |  |  |   |       |   |  |   |    
|                             | Satellite services segment Adjusted EBITDA before
    eliminations            |               | $ | 15.2          |  |      | $ | 0.1  |  |  | $ | 14.0  |   |  | $ | 6.5 | 
|                             |                                                                               |               |   |               |  |      |   |      |  |  |   |       |   |  |   |    



|    |                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes additional depreciation expense of
    $15 million for the nine months ended September 30,
    2004, due to accelerating the estimated end of depreciable life
    of our Telstar 11 satellite to June 2004 from March 2005. Also,
    includes amortization of unearned stock compensation charges.
|   
|(7) | Amounts are presented after the elimination of
    intercompany profit.                                                                                                                                                                                                                                      
|   
|(8) | The 2003 segment information has been adjusted to
    remove the operations of the North American satellites and
    related assets sold, which have been reclassified to
    discontinued operations (see Note 4).                                                                                          

(9)

|                                  |                                                                         |               |   |               |   |      |   |       |   |  |   |      |   |  |   |        |  
|--------------------------------- | ----------------------------------------------------------------------- | ------------- | - | ------------- | - | ---- | - | ----- | - |  | - | ---- | - |  | - | ------ | -
|                                  |                                                                         |               |   |              
|                                  |                                                                         | Three Months  |   | Nine Months  
|                                  |                                                                         | Ended         |   | Ended        
|                                  |                                                                         | September 30, |   | September 30,
|                                  |                                                                         |               |   |              
|                                  |                                                                         | 2004          |   | 2003          |   | 2004 |   | 2003 
|                                  |                                                                         |               |   |               |   |      |   |      
|Satellite manufacturing includes: |                                                                         |               |   |               |   |      |   |       |   |  |   |      |   |  |   |       
|                                  | Provisions for inventory obsolescence                                   |               | $ | (0.6          | ) |      | $ | (11.2 | ) |  | $ | (2.3 | ) |  | $ | (35.1  | )
|                                  | Loss on cancellation of a deposits                                      |               |   |              |   |      |   |      |   |  |   |     |   |  |   | (23.5  | )
|                                  | Accrual for Alcatel settlement                                          |               |   |              |   |      |   |      |   |  |   |     |   |  |   | (13.0  | )
|                                  | Loss on acceleration of receipt of long-term
    receivables            |               |   |              |   |      |   |      |   |  |   |     |   |  |   | (10.9  | )
|                                  | Valuation allowance on vendor financing
    receivables                 |               |   |              |   |      |   |      |   |  |   |     |   |  |   | (10.0  | )
|                                  | Other Adjusted EBITDA before eliminations                               |               |   | (6.7          | ) |      |   | (19.1 | ) |  |   | 0.8  |   |  |   | (38.8  | )
|                                  |                                                                         |               |   |               |   |      |   |       |   |  |   |      |   |  |   |       
|                                  | Satellite manufacturing segment Adjusted EBITDA
    before eliminations |               | $ | (7.3          | ) |      | $ | (30.3 | ) |  | $ | (1.5 | ) |  | $ | (131.3 | )
|                                  |                                                                         |               |   |               |   |      |   |       |   |  |   |      |   |  |   |       



|    |                              
|--- | -----------------------------
|18. | New Accounting Pronouncements



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

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

31



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |        
| | -------
| | FIN 46R

Financial Accounting Standards Board
(FASB) Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51 (FIN 46) and its
amendment entitled FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities
(FIN 46R) were first issued by the FASB in
January 2003 and revised in December 2003. FIN 46R requires
certain variable interest entities to be consolidated by the
primary beneficiary of the entity if (a) the equity
investors in the entity do not have the characteristics of a
controlling financial interest or (b) do not have
sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. We determined that there was no effect on
our condensed consolidated financial position or results of
operations from the adoption of FIN 46R during the quarter
ended March 31, 2004.



|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|19. | Financial Information for Subsidiary Issuer
    and Guarantor and Non-Guarantor Subsidiaries

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

Presented below is condensed consolidating
financial information for the Parent Company, the Subsidiary
Issuer, the Guarantor Subsidiaries and the other wholly owned
subsidiaries of the Parent Company (the Non-Guarantor
Subsidiaries) as of September 30, 2004 and
December 31, 2003 and for the three and nine months ended
September 30, 2004 and 2003. The unaudited condensed
consolidating financial information has been presented to show
the nature of assets held, results of operations and cash flows
of the Parent Company, Subsidiary Issuer, Guarantor Subsidiaries
and Non-Guarantor Subsidiaries.

The supplemental condensed consolidating
financial information reflects the investments of the Parent
Company in the Subsidiary Issuer, the Guarantor Subsidiaries and
the Non-Guarantor Subsidiaries using the equity method of
accounting. Our significant transactions with our subsidiaries,
other than the investment account and related equity in net loss
of unconsolidated subsidiaries, are intercompany payables and
receivables between our subsidiaries resulting primarily from
the funding of the construction of satellites for the Satellite
Services segment. Lorals $200 million note receivable
from unconsolidated subsidiaries is due from Loral
Space & Communications Corporation (LSCC)
and bears interest at 8.2% per annum. Loral SpaceCom (a
non-guarantor subsidiary) holds a $29.7 million
subordinated note receivable from the Subsidiary Issuer. The
note is subordinated to all existing and future indebtedness of
the Subsidiary Issuer and guaranteed by the Parent Company. The
note bears interest at a rate of 10% per annum. Loral
Satellite has provided $59.8 million to Loral as of
September 30, 2004, in the form of a note receivable which
bears no interest and is payable upon maturity of the Loral
Satellite Credit Agreement. As a result of filing
Chapter 11, the accrual of interest on all related party
notes in the following condensed consolidating financial
statements was suspended.

32



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATING BALANCE
SHEET

September 30, 2004


(In thousands)


(Unaudited)


|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |            |         |           |  
|-------------------------------------------- | -------------------------------------- | ----------------------------------------------------------------- | -------------------------------------------------------- | ---------- | ----- | ------------ | --------- | ------------- | ----- | ------------ | -------- | ------------ | --- | ------- | ---------- | ---------- | ------- | ---------- | --------- | --------- | - | --------- | --------- | ---------- | ------- | --------- | -
|                                             |                                        | Parent                                                            |                                                          | Subsidiary |       | Guarantor    |           | Non-Guarantor |       |              |          |             
|                                             |                                        | Company                                                           |                                                          | Issuer     |       | Subsidiaries |           | Subsidiaries  |       | Eliminations |          | Consolidated
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |             
|Current assets:                              |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             | Cash and cash equivalents              |                                                                   | $                                                        | 2,304      |       |              | $         | 37,113        |       |              | $        |             |     |         | $          | 129,506    |         |            | $         |          |   |           | $         | 168,923    |        
|                                             | Accounts receivable, net               |                                                                   |                                                          |           |       |              |           | 3,971         |       |              |          | 251          |     |         |            | 6,704      |         |            |           |          |   |           |           | 10,926     |        
|                                             | Contracts-in-process                   |                                                                   |                                                          |           |       |              |           |              |       |              |          |             |     |         |            | 82,896     |         |            |           |          |   |           |           | 82,896     |        
|                                             | Inventories                            |                                                                   |                                                          |           |       |              |           |              |       |              |          |             |     |         |            | 36,155     |         |            |           |          |   |           |           | 36,155     |        
|                                             | Other current assets                   |                                                                   |                                                          | 4,100      |       |              |           | 3,956         |       |              |          | 426          |     |         |            | 15,201     |         |            |           | (68       | ) |           |           | 23,615     |        
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                        |                                                                   | Total current assets                                     |            |       | 6,404        |           |               |       | 45,040       |          |              |     | 677     |            |            |         | 270,462    |           |           |   | (68       | )         |            |         | 322,515   |  
|Property, plant and equipment, net           |                                        |                                                                   |                                                         |            |       |              | 260,704   |               |       |              | 167,928  |              |     |         | 428,002    |            |         |            | (22,147   | )         |   |           | 834,487   |           
|Long-term receivables                        |                                        |                                                                   |                                                         |            |       |              |          |               |       |              |         |              |     |         | 89,907     |            |         |            |          |           |   |           | 89,907    |           
|Due (to) from unconsolidated subsidiaries    |                                        |                                                                   | (9,022                                                   | )          |       |              | (19,413   | )             |       |              | 32,348   |              |     |         | 46,864     |            |         |            | (50,777   | )         |   |           |          |           
|Investments in unconsolidated subsidiaries   |                                        |                                                                   | (495,624                                                 | )          |       |              | 307,972   |               |       |              | (271,698 | )            |     |         | (1,640,188 | )          |         |            | 2,099,538 |           |   |           |          |           
|Investments in and advances to affiliates    |                                        |                                                                   | 20                                                       |            |       |              |          |               |       |              |         |              |     |         | 49,033     |            |         |            |          |           |   |           | 49,053    |           
|Deposits                                     |                                        |                                                                   |                                                         |            |       |              |          |               |       |              |         |              |     |         | 9,000      |            |         |            |          |           |   |           | 9,000     |           
|Other assets                                 |                                        |                                                                   | 4,253                                                    |            |       |              | 3,571     |               |       |              | 420      |              |     |         | 40,196     |            |         |            |          |           |   |           | 48,440    |           
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                        |                                                                   | Total assets                                             |            | $     | (493,969     | )         |               | $     | 597,874      |          |              | $   | (70,325 | )          |            | $       | (706,724   | )         |           | $ | 2,026,546 |           |            | $       | 1,353,402 |  
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|Liabilities not subject to compromise:       |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             | Current liabilities:                   |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |            |        
|                                             |                                        | Accounts payable                                                  |                                                          | $          |      |              |           | $             | 1,893 |              |          | $            | 250 |         |            | $          | 34,888  |            |           | $         |  |           |           | $          | 37,031  |          
|                                             |                                        | Accrued employment costs                                          |                                                          |            |      |              |           |               |      |              |          |              |    |         |            |            | 34,458  |            |           |           |  |           |           |            | 34,458  |          
|                                             |                                        | Customer advances and billings in excess of costs
    and profits |                                                          |            |      |              |           |               | 4,241 |              |          |              | 15  |         |            |            | 261,879 |            |           |           |  |           |           |            | 266,135 |          
|                                             |                                        | Deferred gain on sale of assets                                   |                                                          |            |      |              |           |               |      |              |          |              |    |         |            |            | 20,999  |            |           |           |  |           |           |            | 20,999  |          
|                                             |                                        | Income taxes payable                                              |                                                          |            |      |              |           |               |      |              |          |              |    |         |            |            | 4,204   |            |           |           |  |           |           |            | 4,204   |          
|                                             |                                        | Other current liabilities                                         |                                                          |            | 1,956 |              |           |               |      |              |          |              |    |         |            |            | 14,775  |            |           |           |  |           |           |            | 16,731  |          
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                        |                                                                   | Total current liabilities                                |            |       | 1,956        |           |               |       | 6,134        |          |              |     | 265     |            |            |         | 371,203    |           |           |   |          |           |            |         | 379,558   |  
|Pension and other postretirement liabilities |                                        |                                                                   |                                                         |            |       |              |          |               |       |              |         |              |     |         | 18,646     |            |         |            |          |           |   |           | 18,646    |           
|Long-term liabilities                        |                                        |                                                                   | 52,233                                                   |            |       |              | 34,887    |               |       |              | 15,667   |              |     |         | 10,698     |            |         |            | (37,293   | )         |   |           | 76,192    |           
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                        |                                                                   | Total liabilities not subject to compromise              |            |       | 54,189       |           |               |       | 41,021       |          |              |     | 15,932  |            |            |         | 400,547    |           |           |   | (37,293   | )         |            |         | 474,396   |  
|Liabilities subject to compromise            |                                        |                                                                   | 434,452                                                  |            |       |              | 1,111,032 |               |       |              | (116,662 | )            |     |         | 434,575    |            |         |            | (4,196    | )         |   |           | 1,859,201 |           
|Minority interest                            |                                        |                                                                   |                                                         |            |       |              |          |               |       |              |         |              |     |         | 2,415      |            |         |            |          |           |   |           | 2,415     |           
|Shareholders (deficit) equity:              |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             | Common stock                           |                                                                   |                                                          | 4,413      |       |              |           |              |       |              |          |             |     |         |            |           |         |            |           |          |   |           |           | 4,413      |        
|                                             | Paid-in capital                        |                                                                   |                                                          | 3,392,829  |       |              |           | 604,166       |       |              |          |             |     |         |            |           |         |            |           | (604,166  | ) |           |           | 3,392,829  |        
|                                             | Treasury stock, at cost                |                                                                   |                                                          | (3,360     | )     |              |           |              |       |              |          |             |     |         |            |           |         |            |           |          |   |           |           | (3,360     | )      
|                                             | Unearned compensation                  |                                                                   |                                                          | (107       | )     |              |           |              |       |              |          |             |     |         |            |           |         |            |           |          |   |           |           | (107       | )      
|                                             | Due from related parties               |                                                                   |                                                          |           |       |              |           | (53,996       | )     |              |          |             |     |         |            | 53,996     |         |            |           |          |   |           |           |           |        
|                                             | Retained (deficit) earnings            |                                                                   |                                                          | (4,305,243 | )     |              |           | (1,104,349    | )     |              |          | 30,405       |     |         |            | (1,598,257 | )       |            |           | 2,672,201 |   |           |           | (4,305,243 | )      
|                                             | Accumulated other comprehensive (loss) |                                                                   |                                                          | (71,142    | )     |              |           |              |       |              |          |             |     |         |            |           |         |            |           |          |   |           |           | (71,142    | )      
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                        |                                                                   | Total shareholders (deficit) equity                     |            |       | (982,610     | )         |               |       | (554,179     | )        |              |     | 30,405  |            |            |         | (1,544,261 | )         |           |   | 2,068,035 |           |            |         | (982,610  | )
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                        |                                                                   | Total liabilities and shareholders
    (deficit) equity |            | $     | (493,969     | )         |               | $     | 597,874      |          |              | $   | (70,325 | )          |            | $       | (706,724   | )         |           | $ | 2,026,546 |           |            | $       | 1,353,402 |  
|                                             |                                        |                                                                   |                                                          |            |       |              |           |               |       |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           

33



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Three Months Ended September 30,
2004


(In thousands)


(Unaudited)


|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |         |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------- | ------- | ---------- | - | ------------ | ------ | ------------- | ------- | ------------ | ------ | ------------ | ----- | - | ------- | ------- | ------ | - | ------ | ----- | ------ | - | ------- | ------- | ------- | 
|                                                                                                                                                          |                                                                                               | Parent         |         | Subsidiary |   | Guarantor    |        | Non-Guarantor |         |              |        |             
|                                                                                                                                                          |                                                                                               | Company        |         | Issuer     |   | Subsidiaries |        | Subsidiaries  |         | Eliminations |        | Consolidated
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |             
|Revenues from satellite services                                                                                                                          |                                                                                               | $              |        |            |   | $            | 18,118 |               |         | $            | 6,665  |              |       | $ | 13,293  |         |        | $ | (5,206 | )     |        | $ | 32,870  |        
|Revenues from sales-type lease
    arrangement  satellite services                                                                                       |                                                                                               |                |        |            |   |              | 87,200 |               |         |              |       |              |       |   |        |         |        |   |       |       |        |   | 87,200  |        
|Revenues from satellite manufacturing                                                                                                                     |                                                                                               |                |        |            |   |              |       |               |         |              |       |              |       |   | 81,999  |         |        |   | (3,454 | )     |        |   | 78,545  |        
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |        
|                                                                                                                                                          |                                                                                               | Total revenues |         |            |  |              |        |               | 105,318 |              |        |              | 6,665 |   |         |         | 95,292 |   |        |       | (8,660 | ) |         |         | 198,615 | 
|Cost of satellite services                                                                                                                                |                                                                                               |                |        |            |   |              | 22,693 |               |         |              | 7,157  |              |       |   | 11,575  |         |        |   | (7,916 | )     |        |   | 33,509  |        
|Cost of sales-type lease arrangement 
    satellite services                                                                                             |                                                                                               |                |        |            |   |              | 79,543 |               |         |              |       |              |       |   |        |         |        |   |       |       |        |   | 79,543  |        
|Cost of satellite manufacturing                                                                                                                           |                                                                                               |                |        |            |   |              |       |               |         |              |       |              |       |   | 86,438  |         |        |   | (2,413 | )     |        |   | 84,025  |        
|Selling, general and administrative expenses                                                                                                              |                                                                                               |                |        |            |   |              | 3,405  |               |         |              | 5,366  |              |       |   | 18,407  |         |        |   |       |       |        |   | 27,178  |        
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |        
|                                                                                                                                                          | (Loss) income from continuing operations before
    reorganization expenses due to bankruptcy |                |         |           |   |              |        | (323          | )       |              |        | (5,858       | )     |   |         | (21,128 | )      |   |        | 1,669 |        |   |         | (25,640 | )      
|Reorganization expenses due to bankruptcy                                                                                                                 |                                                                                               |                | (916    | )          |   |              | (1,718 | )             |         |              |       |              |       |   | (6,853  | )       |        |   |       |       |        |   | (9,487  | )      
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |        
|Operating (loss) income from continuing operations                                                                                                        |                                                                                               |                | (916    | )          |   |              | (2,041 | )             |         |              | (5,858 | )            |       |   | (27,981 | )       |        |   | 1,669  |       |        |   | (35,127 | )      
|Interest and investment income                                                                                                                            |                                                                                               |                |        |            |   |              |       |               |         |              |       |              |       |   | 2,316   |         |        |   |       |       |        |   | 2,316   |        
|Interest expense                                                                                                                                          |                                                                                               |                |        |            |   |              | (702   | )             |         |              |       |              |       |   | (844    | )       |        |   | 609    |       |        |   | (937    | )      
|Other expense                                                                                                                                             |                                                                                               |                |        |            |   |              |       |               |         |              |       |              |       |   | 1,927   |         |        |   |       |       |        |   | 1,927   |        
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |        
|(Loss) income from continuing operations before
    income taxes, equity (losses) in unconsolidated subsidiaries and
    affiliates and minority interest |                                                                                               |                | (916    | )          |   |              | (2,743 | )             |         |              | (5,858 | )            |       |   | (24,582 | )       |        |   | 2,278  |       |        |   | (31,821 | )      
|Income tax (provision) benefit                                                                                                                            |                                                                                               |                |        |            |   |              | 2,775  |               |         |              | (3,012 | )            |       |   | 246     |         |        |   | 190    |       |        |   | 199     |        
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |        
|(Loss) income from continuing operations before
    equity (losses) in unconsolidated subsidiaries and affiliates
    and minority interest               |                                                                                               |                | (916    | )          |   |              | 32     |               |         |              | (8,870 | )            |       |   | (24,336 | )       |        |   | 2,468  |       |        |   | (31,622 | )      
|Equity income (losses) in unconsolidated
    subsidiaries                                                                                                 |                                                                                               |                | (30,486 | )          |   |              | (8,870 | )             |         |              |       |              |       |   |        |         |        |   | 39,356 |       |        |   |        |        
|Equity income (losses) in affiliates                                                                                                                      |                                                                                               |                |        |            |   |              |       |               |         |              |       |              |       |   | (53     | )       |        |   |       |       |        |   | (53     | )      
|Minority interest                                                                                                                                         |                                                                                               |                |        |            |   |              |       |               |         |              |       |              |       |   | (26     | )       |        |   |       |       |        |   | (26     | )      
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |        
|(Loss) income from continuing operations                                                                                                                  |                                                                                               |                | (31,402 | )          |   |              | (8,838 | )             |         |              | (8,870 | )            |       |   | (24,415 | )       |        |   | 41,824 |       |        |   | (31,701 | )      
|Income from discontinued operations                                                                                                                       |                                                                                               |                |        |            |   |              |       |               |         |              |       |              |       |   | 299     |         |        |   |       |       |        |   | 299     |        
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |        
|Net (loss) income                                                                                                                                         |                                                                                               | $              | (31,402 | )          |   | $            | (8,838 | )             |         | $            | (8,870 | )            |       | $ | (24,116 | )       |        | $ | 41,824 |       |        | $ | (31,402 | )      
|                                                                                                                                                          |                                                                                               |                |         |            |   |              |        |               |         |              |        |              |       |   |         |         |        |   |        |       |        |   |         |        

34



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Nine Months Ended September 30,
2004


(In thousands)


(Unaudited)


|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | -------- | ---------- |  | ------------ | ------- | ------------- |  | ------------ | ------- | ------------ |  | - | -------- | ------- |  | - | ------- | ------- | - | - | -------- | ------- | 
|                                                                                                                                                                 |                | Parent  |          | Subsidiary |  | Guarantor    |         | Non-Guarantor |  |              |         |             
|                                                                                                                                                                 |                | Company |          | Issuer     |  | Subsidiaries |         | Subsidiaries  |  | Eliminations |         | Consolidated
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |             
|Revenues from satellite services                                                                                                                                 |                | $       |         |            |  | $            | 58,540  |               |  | $            | 23,726  |              |  | $ | 44,017   |         |  | $ | (25,432 | )       |   | $ | 100,851  |        
|Revenues from sales-type lease
    arrangement  satellite services                                                                                              |                |         |         |            |  |              | 87,200  |               |  |              |        |              |  |   |         |         |  |   |        |         |   |   | 87,200   |        
|Revenues from satellite manufacturing                                                                                                                            |                |         |         |            |  |              |        |               |  |              |        |              |  |   | 237,803  |         |  |   | (9,852  | )       |   |   | 227,951  |        
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |        
|                                                                                                                                                                 | Total revenues |         |          |           |  |              |         | 145,740       |  |              |         | 23,726       |  |   |          | 281,820 |  |   |         | (35,284 | ) |   |          | 416,002 | 
|Cost of satellite services                                                                                                                                       |                |         |         |            |  |              | 91,222  |               |  |              | 23,934  |              |  |   | 61,217   |         |  |   | (26,672 | )       |   |   | 149,701  |        
|Cost of sales-type lease arrangement 
    satellite services                                                                                                    |                |         |         |            |  |              | 79,543  |               |  |              |        |              |  |   |         |         |  |   |        |         |   |   | 79,543   |        
|Cost of satellite manufacturing                                                                                                                                  |                |         |         |            |  |              |        |               |  |              |        |              |  |   | 239,682  |         |  |   | (8,126  | )       |   |   | 231,556  |        
|Selling, general and administrative expenses                                                                                                                     |                |         | 4,279    |            |  |              | 14,089  |               |  |              | 9,180   |              |  |   | 61,991   |         |  |   |        |         |   |   | 89,539   |        
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |        
|Loss from continuing operations before
    reorganization expenses due to bankruptcy                                                                             |                |         | (4,279   | )          |  |              | (39,114 | )             |  |              | (9,388  | )            |  |   | (81,070  | )       |  |   | (486    | )       |   |   | (134,337 | )      
|Reorganization expenses due to bankruptcy                                                                                                                        |                |         | (2,893   | )          |  |              | (5,569  | )             |  |              |        |              |  |   | (18,895  | )       |  |   |        |         |   |   | (27,357  | )      
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |        
|Loss from continuing operations                                                                                                                                  |                |         | (7,172   | )          |  |              | (44,683 | )             |  |              | (9,388  | )            |  |   | (99,965  | )       |  |   | (486    | )       |   |   | (161,694 | )      
|Interest and investment income                                                                                                                                   |                |         |         |            |  |              |        |               |  |              |        |              |  |   | 7,350    |         |  |   |        |         |   |   | 7,350    |        
|Interest expense                                                                                                                                                 |                |         |         |            |  |              | (922    | )             |  |              |        |              |  |   | (1,673   | )       |  |   | 1,827   |         |   |   | (768     | )      
|Other expense                                                                                                                                                    |                |         |         |            |  |              |        |               |  |              |        |              |  |   | (2,075   | )       |  |   |        |         |   |   | (2,075   | )      
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income from continuing operations before
    income taxes, equity income (losses) in unconsolidated
    subsidiaries and affiliates and minority interest |                |         | (7,172   | )          |  |              | (45,605 | )             |  |              | (9,388  | )            |  |   | (96,363  | )       |  |   | 1,341   |         |   |   | (157,187 | )      
|Income tax (provision) benefit                                                                                                                                   |                |         |         |            |  |              | 659     |               |  |              | (1,776  | )            |  |   | (11,870  | )       |  |   | 1,003   |         |   |   | (11,984  | )      
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income from continuing operations before
    equity income (losses) in unconsolidated subsidiaries and
    affiliates and minority interest               |                |         | (7,172   | )          |  |              | (44,946 | )             |  |              | (11,164 | )            |  |   | (108,233 | )       |  |   | 2,344   |         |   |   | (169,171 | )      
|Equity income (losses) in unconsolidated
    subsidiaries                                                                                                        |                |         | (126,535 | )          |  |              | (11,164 | )             |  |              |        |              |  |   |         |         |  |   | 137,699 |         |   |   |         |        
|Equity income (losses) in affiliates                                                                                                                             |                |         |         |            |  |              |        |               |  |              |        |              |  |   | 46,527   |         |  |   |        |         |   |   | 46,527   |        
|Minority interest                                                                                                                                                |                |         |         |            |  |              |        |               |  |              |        |              |  |   | 100      |         |  |   |        |         |   |   | 100      |        
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income from continuing operations                                                                                                                         |                |         | (133,707 | )          |  |              | (56,110 | )             |  |              | (11,164 | )            |  |   | (61,606  | )       |  |   | 140,043 |         |   |   | (122,544 | )      
|Loss from discontinued operations                                                                                                                                |                |         |         |            |  |              |        |               |  |              |        |              |  |   | (11,163  | )       |  |   |        |         |   |   | (11,163  | )      
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |        
|Net (loss) income                                                                                                                                                |                | $       | (133,707 | )          |  | $            | (56,110 | )             |  | $            | (11,164 | )            |  | $ | (72,769  | )       |  | $ | 140,043 |         |   | $ | (133,707 | )      
|                                                                                                                                                                 |                |         |          |            |  |              |         |               |  |              |         |              |  |   |          |         |  |   |         |         |   |   |          |        

35



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Nine Months Ended September 30,
2004


(In thousands)


(Unaudited)


|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |          |         |  
|-------------------------------------------------------- | ------------------------------------------------- | ---------------------------------------------------------------------- | ------ | ---------- | ------- | ------------ | ------ | ------------- | ------ | ------------ | - | ------------ | ------ | - | -------- | -------- | ------- | - | ------- | ------- | -------- | - | -------- | -------- | ------- | -
|                                                         |                                                   | Parent                                                                 |        | Subsidiary |         | Guarantor    |        | Non-Guarantor |        |              |   |             
|                                                         |                                                   | Company                                                                |        | Issuer     |         | Subsidiaries |        | Subsidiaries  |        | Eliminations |   | Consolidated
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |             
|Operating activities:                                    |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|                                                         | Net (loss) income                                 |                                                                        | $      | (133,707   | )       |              | $      | (56,110       | )      |              | $ | (11,164      | )      |   | $        | (72,769  | )       |   | $       | 140,043 |          |   | $        | (133,707 | )      
|                                                         | Non-cash items:                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |          |        
|                                                         |                                                   | Loss from discontinued operations                                      |        |            |        |              |        |               |       |              |   |              |       |   |          |          | 11,163  |   |         |         |         |   |          |          | 11,163  |  
|                                                         |                                                   | Equity income in affiliates                                            |        |            |        |              |        |               |       |              |   |              |       |   |          |          | (46,527 | ) |         |         |         |   |          |          | (46,527 | )
|                                                         |                                                   | Minority interest                                                      |        |            |        |              |        |               |       |              |   |              |       |   |          |          | (100    | ) |         |         |         |   |          |          | (100    | )
|                                                         |                                                   | Equity losses in unconsolidated subsidiaries                           |        |            | 126,535 |              |        |               | 11,164 |              |   |              |       |   |          |          | 68      |   |         |         | (137,767 | ) |          |          |        |  
|                                                         |                                                   | Deferred taxes                                                         |        |            |        |              |        |               |       |              |   |              | 2,744  |   |          |          | 11,434  |   |         |         | (2,744   | ) |          |          | 11,434  |  
|                                                         |                                                   | Depreciation and amortization                                          |        |            |        |              |        |               | 55,317 |              |   |              | 15,760 |   |          |          | 34,381  |   |         |         |         |   |          |          | 105,458 |  
|                                                         |                                                   | (Recovery of) provisions for bad debts                                 |        |            |        |              |        |               | (1,787 | )            |   |              | (5     | ) |          |          | 186     |   |         |         |         |   |          |          | (1,606  | )
|                                                         |                                                   | Impairment charge on satellite and related assets                      |        |            |        |              |        |               |       |              |   |              |       |   |          |          | 11,989  |   |         |         |         |   |          |          | 11,989  |  
|                                                         |                                                   | Profit on sales-type lease arrangement
    (Note 8)                    |        |            |        |              |        |               |       |              |   |              |       |   |          |          | (7,657  | ) |         |         |         |   |          |          | (7,657  | )
|                                                         |                                                   | Provisions for inventory obsolescence                                  |        |            |        |              |        |               |       |              |   |              |       |   |          |          | 2,263   |   |         |         |         |   |          |          | 2,263   |  
|                                                         |                                                   | Adjustment to revenue straightlining assessment                        |        |            |        |              |        |               | 61     |              |   |              |       |   |          |          | 1,088   |   |         |         |         |   |          |          | 1,149   |  
|                                                         |                                                   | Non cash (gain) loss of foreign currency
    transactions and interest |        |            |        |              |        |               |       |              |   |              |       |   |          |          | (1,641  | ) |         |         |         |   |          |          | (1,641  | )
|Changes in operating assets and liabilities:             |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|                                                         | Accounts receivable, net                          |                                                                        |        |           |         |              |        | 4,728         |        |              |   | 722          |        |   |          | 5,641    |         |   |         |        |          |   |          | 11,091   |        
|                                                         | Contracts-in-process                              |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | 31,895   |         |   |         |        |          |   |          | 31,895   |        
|                                                         | Inventories                                       |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | 4,038    |         |   |         |        |          |   |          | 4,038    |        
|                                                         | Long-term receivables                             |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | (10,794  | )       |   |         |        |          |   |          | (10,794  | )      
|                                                         | Due (to) from unconsolidated subsidiaries         |                                                                        |        | 5,928      |         |              |        | (10,558       | )      |              |   | (13,884      | )      |   |          | 4,857    |         |   |         | 13,657  |          |   |          |         |        
|                                                         | Other current assets and other assets             |                                                                        |        | (1,698     | )       |              |        | (2,110        | )      |              |   | 5,562        |        |   |          | 10       |         |   |         |        |          |   |          | 1,764    |        
|                                                         | Accounts payable                                  |                                                                        |        |           |         |              |        | 1,793         |        |              |   | 250          |        |   |          | 376      |         |   |         |        |          |   |          | 2,419    |        
|                                                         | Accrued expenses and other current liabilities    |                                                                        |        | 765        |         |              |        | 148           |        |              |   | 15           |        |   |          | 59       |         |   |         |        |          |   |          | 987      |        
|                                                         | Customer advances                                 |                                                                        |        |           |         |              |        | (1,882        | )      |              |   |             |        |   |          | 70,732   |         |   |         |        |          |   |          | 68,850   |        
|                                                         | Income taxes payable                              |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | (2,742   | )       |   |         |        |          |   |          | (2,742   | )      
|                                                         | Pension and other postretirement liabilities      |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | 3,315    |         |   |         |        |          |   |          | 3,315    |        
|                                                         | Long-term liabilities                             |                                                                        |        |           |         |              |        | (1,447        | )      |              |   |             |        |   |          | (3,153   | )       |   |         |        |          |   |          | (4,600   | )      
|                                                         | Other                                             |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | 92       |         |   |         |        |          |   |          | 92       |        
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|Net cash provided by continuing operating
    activities |                                                   |                                                                        | (2,177 | )          |         |              | (683   | )             |        |              |  |              |        |   | 48,204   |          |         |   | 13,189  |         |          |   | 58,533   |         
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|Net cash provided by discontinued operations             |                                                   |                                                                        |       |            |         |              |       |               |        |              |  |              |        |   | 18,351   |          |         |   |        |         |          |   | 18,351   |         
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|Investing activities:                                    |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|                                                         | Capital expenditures for continuing operations    |                                                                        |        |           |         |              |        | (9,035        | )      |              |   |             |        |   |          | 2,783    |         |   |         | (13,189 | )        |   |          | (19,441  | )      
|                                                         | Capital expenditures for discontinued operations  |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | (11,185  | )       |   |         |        |          |   |          | (11,185  | )      
|                                                         | Proceeds from the sale of assets, net of expenses |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | 953,619  |         |   |         |        |          |   |          | 953,619  |        
|                                                         | Investments in and advances to affiliates         |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | (5,711   | )       |   |         |        |          |   |          | (5,711   | )      
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|Net cash provided by investing activities                |                                                   |                                                                        |       |            |         |              | (9,035 | )             |        |              |  |              |        |   | 939,506  |          |         |   | (13,189 | )       |          |   | 917,282  |         
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|Financing activities:                                    |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|                                                         | Repayments of term loans                          |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | (576,500 | )       |   |         |        |          |   |          | (576,500 | )      
|                                                         | Repayments of revolving credit facilities         |                                                                        |        |           |         |              |        |              |        |              |   |             |        |   |          | (390,387 | )       |   |         |        |          |   |          | (390,387 | )      
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|Net cash provided by (used in) financing
    activities  |                                                   |                                                                        |       |            |         |              |       |               |        |              |  |              |        |   | (966,887 | )        |         |   |        |         |          |   | (966,887 | )       
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|Net increase (decrease) in cash and cash
    equivalents |                                                   |                                                                        | (2,177 | )          |         |              | (9,718 | )             |        |              |  |              |        |   | 39,174   |          |         |   |        |         |          |   | 27,279   |         
|Cash and cash equivalents  beginning
    of period      |                                                   |                                                                        | 4,481  |            |         |              | 46,831 |               |        |              |  |              |        |   | 90,332   |          |         |   |        |         |          |   | 141,644  |         
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         
|Cash and cash equivalents  end of
    period            |                                                   | $                                                                      | 2,304  |            |         | $            | 37,113 |               |        | $            |  |              |        | $ | 129,506  |          |         | $ |        |         |          | $ | 168,923  |         
|                                                         |                                                   |                                                                        |        |            |         |              |        |               |        |              |   |              |        |   |          |          |         |   |         |         |          |   |          |         

36



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2003


(In thousands)


|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |            |         |           |  
|-------------------------------------------- | ------------------------------------ | ---------------------------------------- | -------------------------------------------------------- | ---------- | ----- | ------------ | --------- | ------------- | ------- | ------------ | -------- | ------------ | - | ------- | ---------- | ---------- | ------- | ---------- | --------- | --------- | - | --------- | --------- | ---------- | ------- | --------- | -
|                                             |                                      | Parent                                   |                                                          | Subsidiary |       | Guarantor    |           | Non-Guarantor |         |              |          |             
|                                             |                                      | Company                                  |                                                          | Issuer     |       | Subsidiaries |           | Subsidiaries  |         | Eliminations |          | Consolidated
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |             
|Current assets:                              |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             | Cash and cash equivalents            |                                          | $                                                        | 4,481      |       |              | $         | 46,831        |         |              | $        |             |   |         | $          | 90,332     |         |            | $         |          |   |           | $         | 141,644    |        
|                                             | Accounts receivable, net             |                                          |                                                          |           |       |              |           | 6,912         |         |              |          | 968          |   |         |            | 15,089     |         |            |           |          |   |           |           | 22,969     |        
|                                             | Contracts-in-process                 |                                          |                                                          |           |       |              |           |              |         |              |          |             |   |         |            | 62,063     |         |            |           |          |   |           |           | 62,063     |        
|                                             | Inventories                          |                                          |                                                          |           |       |              |           |              |         |              |          |             |   |         |            | 42,456     |         |            |           |          |   |           |           | 42,456     |        
|                                             | Insurance proceeds receivable        |                                          |                                                          |           |       |              |           |              |         |              |          |             |   |         |            | 122,770    |         |            |           |          |   |           |           | 122,770    |        
|                                             | Other current assets                 |                                          |                                                          | 2,341      |       |              |           | 2,925         |         |              |          | 5,859        |   |         |            | 25,859     |         |            |           | (980      | ) |           |           | 36,004     |        
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                          | Total current assets                                     |            |       | 6,822        |           |               |         | 56,668       |          |              |   | 6,827   |            |            |         | 358,569    |           |           |   | (980      | )         |            |         | 427,906   |  
|Property, plant and equipment, net           |                                      |                                          |                                                         |            |       |              | 390,649   |               |         |              | 183,688  |              |   |         | 1,289,281  |            |         |            | (35,336   | )         |   |           | 1,828,282 |           
|Long-term receivables                        |                                      |                                          |                                                         |            |       |              |          |               |         |              |         |              |   |         | 70,749     |            |         |            |          |           |   |           | 70,749    |           
|Due (to) from unconsolidated subsidiaries    |                                      |                                          | (3,055                                                   | )          |       |              | (24,395   | )             |         |              | 17,598   |              |   |         | 47,199     |            |         |            | (37,347   | )         |   |           |          |           
|Investments in unconsolidated subsidiaries   |                                      |                                          | (375,795                                                 | )          |       |              | 311,487   |               |         |              | (271,698 | )            |   |         | (1,625,765 | )          |         |            | 1,961,771 |           |   |           |          |           
|Investments in and advances to affiliates    |                                      |                                          | 20                                                       |            |       |              |          |               |         |              |         |              |   |         | 46,654     |            |         |            |          |           |   |           | 46,674    |           
|Deposits                                     |                                      |                                          |                                                         |            |       |              |          |               |         |              |         |              |   |         | 9,000      |            |         |            |          |           |   |           | 9,000     |           
|Other assets                                 |                                      |                                          | 4,253                                                    |            |       |              | 5,030     |               |         |              | 549      |              |   |         | 63,298     |            |         |            |          |           |   |           | 73,130    |           
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                          | Total assets                                             |            | $     | (367,755     | )         |               | $       | 739,439      |          |              | $ | (63,036 | )          |            | $       | 258,985    |           |           | $ | 1,888,108 |           |            | $       | 2,455,741 |  
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|Liabilities not subject to compromise:       |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             | Current liabilities:                 |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |            |        
|                                             |                                      | Accounts payable                         |                                                          | $          |      |              |           | $             | 824     |              |          | $            |  |         |            | $          | 49,832  |            |           | $         |  |           |           | $          | 50,656  |          
|                                             |                                      | Accrued employment costs                 |                                                          |            |      |              |           |               |        |              |          |              |  |         |            |            | 23,532  |            |           |           |  |           |           |            | 23,532  |          
|                                             |                                      | Customer advances                        |                                                          |            |      |              |           |               | 120,386 |              |          |              |  |         |            |            | 118,839 |            |           |           |  |           |           |            | 239,225 |          
|                                             |                                      | Accrued interest and preferred dividends |                                                          |            |      |              |           |               |        |              |          |              |  |         |            |            | 1,319   |            |           |           |  |           |           |            | 1,319   |          
|                                             |                                      | Income taxes payable                     |                                                          |            |      |              |           |               |        |              |          |              |  |         |            |            | 269     |            |           |           |  |           |           |            | 269     |          
|                                             |                                      | Other current liabilities                |                                                          |            | 1,191 |              |           |               |        |              |          |              |  |         |            |            | 8,679   |            |           |           |  |           |           |            | 9,870   |          
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                          | Total current liabilities                                |            |       | 1,191        |           |               |         | 121,210      |          |              |   |        |            |            |         | 202,470    |           |           |   |          |           |            |         | 324,871   |  
|Pension and other postretirement liabilities |                                      |                                          |                                                         |            |       |              |          |               |         |              |         |              |   |         | 10,983     |            |         |            |          |           |   |           | 10,983    |           
|Long-term liabilities                        |                                      |                                          | 52,233                                                   |            |       |              | 4,302     |               |         |              | 13,835   |              |   |         | 32,038     |            |         |            | (35,461   | )         |   |           | 66,947    |           
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                          | Total liabilities not subject to compromise              |            |       | 53,424       |           |               |         | 125,512      |          |              |   | 13,835  |            |            |         | 245,491    |           |           |   | (35,461   | )         |            |         | 402,801   |  
|Liabilities subject to compromise            |                                      |                                          | 434,491                                                  |            |       |              | 1,113,705 |               |         |              | (116,663 | )            |   |         | 1,478,985  |            |         |            | (4,423    | )         |   |           | 2,906,095 |           
|Minority interest                            |                                      |                                          |                                                         |            |       |              |          |               |         |              |         |              |   |         | 2,515      |            |         |            |          |           |   |           | 2,515     |           
|Shareholders (deficit) equity:              |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             | Common stock                         |                                          |                                                          | 4,413      |       |              |           |              |         |              |          |             |   |         |            |           |         |            |           |          |   |           |           | 4,413      |        
|                                             | Paid-in capital                      |                                          |                                                          | 3,392,829  |       |              |           | 604,166       |         |              |          |             |   |         |            |           |         |            |           | (604,166  | ) |           |           | 3,392,829  |        
|                                             | Treasury stock, at cost              |                                          |                                                          | (3,360     | )     |              |           |              |         |              |          |             |   |         |            |           |         |            |           |          |   |           |           | (3,360     | )      
|                                             | Unearned compensation                |                                          |                                                          | (168       | )     |              |           |              |         |              |          |             |   |         |            |           |         |            |           |          |   |           |           | (168       | )      
|                                             | Due from related parties             |                                          |                                                          |           |       |              |           | (52,784       | )       |              |          |             |   |         |            | 52,784     |         |            |           |          |   |           |           |           |        
|                                             | Retained (deficit) earnings          |                                          |                                                          | (4,171,536 | )     |              |           | (1,051,160    | )       |              |          | 39,792       |   |         |            | (1,520,790 | )       |            |           | 2,532,158 |   |           |           | (4,171,536 | )      
|                                             | Accumulated other comprehensive loss |                                          |                                                          | (77,848    | )     |              |           |              |         |              |          |             |   |         |            |           |         |            |           |          |   |           |           | (77,848    | )      
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                          | Total shareholders (deficit) equity                     |            |       | (855,670     | )         |               |         | (499,778     | )        |              |   | 39,792  |            |            |         | (1,468,006 | )         |           |   | 1,927,992 |           |            |         | (855,670  | )
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                          | Total liabilities and shareholders
    (deficit) equity |            | $     | (367,755     | )         |               | $       | 739,439      |          |              | $ | (63,036 | )          |            | $       | 258,985    |           |           | $ | 1,888,108 |           |            | $       | 2,455,741 |  
|                                             |                                      |                                          |                                                          |            |       |              |           |               |         |              |          |              |   |         |            |            |         |            |           |           |   |           |           |           

37



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Three Months Ended September 30,
2003


(In thousands)


(Unaudited)


|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | -------- | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ----- | ------------ |  | - | ------- | ------ | - | - | ------- | ------- | - | - | -------- | ------ | 
|                                                                                                                                                               |                | Parent  |          | Subsidiary |  | Guarantor    |        | Non-Guarantor |  |              |       |             
|                                                                                                                                                               |                | Company |          | Issuer     |  | Subsidiaries |        | Subsidiaries  |  | Eliminations |       | Consolidated
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |             
|Revenues from satellite services                                                                                                                               |                | $       |         |            |  | $            | 22,631 |               |  | $            | 9,906 |              |  | $ | 15,710  |        |   | $ | (10,939 | )       |   | $ | 37,308   |       
|Revenues from satellite manufacturing                                                                                                                          |                |         |         |            |  |              |       |               |  |              |      |              |  |   | (21,213 | )      |   |   | (2,355  | )       |   |   | (23,568  | )     
|Management fee to parent                                                                                                                                       |                |         |         |            |  |              |       |               |  |              |      |              |  |   | (109    | )      |   |   | 109     |         |   |   |         |       
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       
|                                                                                                                                                               | Total revenues |         |          |           |  |              |        | 22,631        |  |              |       | 9,906        |  |   |         | (5,612 | ) |   |         | (13,185 | ) |   |          | 13,740 | 
|Costs of satellite services                                                                                                                                    |                |         |         |            |  |              | 23,721 |               |  |              | 8,005 |              |  |   | 20,321  |        |   |   | (10,269 | )       |   |   | 41,778   |       
|Costs of satellite manufacturing                                                                                                                               |                |         |         |            |  |              |       |               |  |              |      |              |  |   | 16,559  |        |   |   | (1,566  | )       |   |   | 14,993   |       
|Selling, general and administrative expenses                                                                                                                   |                |         | 3,169    |            |  |              | 2,587  |               |  |              | 972   |              |  |   | 32,895  |        |   |   |        |         |   |   | 39,623   |       
|Management fee expense                                                                                                                                         |                |         | (109     | )          |  |              |       |               |  |              |      |              |  |   |        |        |   |   | 109     |         |   |   |         |       
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       
|Operating (loss) income before reorganization
    expenses due to bankruptcy                                                                                   |                |         | (3,060   | )          |  |              | (3,677 | )             |  |              | 929   |              |  |   | (75,387 | )      |   |   | (1,459  | )       |   |   | (82,654  | )     
|Reorganization expenses due to bankruptcy                                                                                                                      |                |         | (814     | )          |  |              | (1,575 | )             |  |              |      |              |  |   | (6,371  | )      |   |   |        |         |   |   | (8,760   | )     
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       
|Operating (loss) income                                                                                                                                        |                |         | (3,874   | )          |  |              | (5,252 | )             |  |              | 929   |              |  |   | (81,758 | )      |   |   | (1,459  | )       |   |   | (91,414  | )     
|Interest and investment income                                                                                                                                 |                |         | 873      |            |  |              | 14     |               |  |              |      |              |  |   | (72     | )      |   |   | (140    | )       |   |   | 675      |       
|Interest expense                                                                                                                                               |                |         | (2,005   | )          |  |              | (657   | )             |  |              |      |              |  |   | 1,783   |        |   |   | 789     |         |   |   | (90      | )     
|Other income                                                                                                                                                   |                |         |         |            |  |              |       |               |  |              |      |              |  |   | 957     |        |   |   |        |         |   |   | 957      |       
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       
|(Loss) income from continuing operations before
    income taxes, equity in net losses of unconsolidated
    subsidiaries and affiliates and minority interest |                |         | (5,006   | )          |  |              | (5,895 | )             |  |              | 929   |              |  |   | (79,090 | )      |   |   | (810    | )       |   |   | (89,872  | )     
|Income tax benefit (provision)                                                                                                                                 |                |         | (261     | )          |  |              | (788   | )             |  |              | (327  | )            |  |   | 1,231   |        |   |   | 707     |         |   |   | 562      |       
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       
|(Loss) income from continuing operations before
    equity in net losses of unconsolidated subsidiaries and
    affiliates and minority interest               |                |         | (5,267   | )          |  |              | (6,683 | )             |  |              | 602   |              |  |   | (77,859 | )      |   |   | (103    | )       |   |   | (89,310  | )     
|Equity in net income (losses) of unconsolidated
    subsidiaries                                                                                               |                |         | (82,542  | )          |  |              | 602    |               |  |              |      |              |  |   |        |        |   |   | 81,940  |         |   |   |         |       
|Equity in net losses of affiliates                                                                                                                             |                |         | (38,100  | )          |  |              |       |               |  |              |      |              |  |   | (708    | )      |   |   |        |         |   |   | (38,808  | )     
|Minority interest                                                                                                                                              |                |         |         |            |  |              |       |               |  |              |      |              |  |   | 89      |        |   |   |        |         |   |   | 89       |       
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       
|(Loss) income from continuing operations                                                                                                                       |                |         | (125,909 | )          |  |              | (6,081 | )             |  |              | 602   |              |  |   | (78,478 | )      |   |   | 81,837  |         |   |   | (128,029 | )     
|Income from discontinued operations                                                                                                                            |                |         |         |            |  |              |       |               |  |              |      |              |  |   | 2,120   |        |   |   |        |         |   |   | 2,120    |       
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                   |                |         | (125,909 | )          |  |              | (6,081 | )             |  |              | 602   |              |  |   | (76,358 | )      |   |   | 81,837  |         |   |   | (125,909 | )     
|Cumulative effect of change in accounting
    principle                                                                                                        |                |         | (1,970   | )          |  |              |       |               |  |              |      |              |  |   |        |        |   |   |        |         |   |   | (1,970   | )     
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       
|Net (loss) income                                                                                                                                              |                | $       | (127,879 | )          |  | $            | (6,081 | )             |  | $            | 602   |              |  | $ | (76,358 | )      |   | $ | 81,837  |         |   | $ | (127,879 | )     
|                                                                                                                                                               |                |         |          |            |  |              |        |               |  |              |       |              |  |   |         |        |   |   |         |         |   |   |          |       

38



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Nine Months Ended September 30,
2003


(In thousands)


(Unaudited)


|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | -------- | ---------- |  | ------------ | ------- | ------------- |  | ------------ | ------ | ------------ |  | - | -------- | ------- |  | - | ------- | ------- | - | - | -------- | ------- | 
|                                                                                                                                                               |                | Parent  |          | Subsidiary |  | Guarantor    |         | Non-Guarantor |  |              |        |             
|                                                                                                                                                               |                | Company |          | Issuer     |  | Subsidiaries |         | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |             
|Revenues from satellite services                                                                                                                               |                | $       |         |            |  | $            | 68,655  |               |  | $            | 30,575 |              |  | $ | 50,777   |         |  | $ | (33,498 | )       |   | $ | 116,509  |        
|Revenues from satellite manufacturing                                                                                                                          |                |         |         |            |  |              |        |               |  |              |       |              |  |   | 172,477  |         |  |   | (9,801  | )       |   |   | 162,676  |        
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|                                                                                                                                                               | Total revenues |         |          |           |  |              |         | 68,655        |  |              |        | 30,575       |  |   |          | 223,254 |  |   |         | (43,299 | ) |   |          | 279,185 | 
|Costs of satellite services                                                                                                                                    |                |         |         |            |  |              | 71,917  |               |  |              | 23,770 |              |  |   | 71,454   |         |  |   | (31,485 | )       |   |   | 135,656  |        
|Costs of satellite manufacturing                                                                                                                               |                |         |         |            |  |              |        |               |  |              |       |              |  |   | 305,140  |         |  |   | (6,730  | )       |   |   | 298,410  |        
|Selling, general and administrative expenses                                                                                                                   |                |         | 7,353    |            |  |              | 6,948   |               |  |              | 1,542  |              |  |   | 89,979   |         |  |   |        |         |   |   | 105,822  |        
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Operating (loss) income before reorganization
    expenses due to bankruptcy                                                                                   |                |         | (7,353   | )          |  |              | (10,210 | )             |  |              | 5,263  |              |  |   | (243,319 | )       |  |   | (5,084  | )       |   |   | (260,703 | )      
|Reorganization expenses due to bankruptcy                                                                                                                      |                |         | (814     | )          |  |              | (1,575  | )             |  |              |       |              |  |   | (6,371   | )       |  |   |        |         |   |   | (8,760   | )      
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Operating (loss) income                                                                                                                                        |                |         | (8,167   | )          |  |              | (11,785 | )             |  |              | 5,263  |              |  |   | (249,690 | )       |  |   | (5,084  | )       |   |   | (269,463 | )      
|Interest and investment income                                                                                                                                 |                |         | 12,201   |            |  |              | 19      |               |  |              |       |              |  |   | 12,396   |         |  |   | (13,100 | )       |   |   | 11,516   |        
|Interest expense                                                                                                                                               |                |         | (21,674  | )          |  |              | (6,305  | )             |  |              |       |              |  |   | (4,757   | )       |  |   | 15,049  |         |   |   | (17,687  | )      
|Other income                                                                                                                                                   |                |         |         |            |  |              |        |               |  |              |       |              |  |   | 2,106    |         |  |   |        |         |   |   | 2,106    |        
|Gain on investment                                                                                                                                             |                |         |         |            |  |              |        |               |  |              |       |              |  |   | 17,900   |         |  |   |        |         |   |   | 17,900   |        
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income from continuing operations before
    income taxes, equity in net losses of unconsolidated
    subsidiaries and affiliates and minority interest |                |         | (17,640  | )          |  |              | (18,071 | )             |  |              | 5,263  |              |  |   | (222,045 | )       |  |   | (3,135  | )       |   |   | (255,628 | )      
|Income tax benefit (provision)                                                                                                                                 |                |         | (3,656   | )          |  |              | (1,678  | )             |  |              | (1,842 | )            |  |   | 11,144   |         |  |   | 3,393   |         |   |   | 7,361    |        
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income from continuing operations before
    equity in net losses of unconsolidated subsidiaries and
    affiliates and minority interest               |                |         | (21,296  | )          |  |              | (19,749 | )             |  |              | 3,421  |              |  |   | (210,901 | )       |  |   | 258     |         |   |   | (248,267 | )      
|Equity in net income (losses) of unconsolidated
    subsidiaries                                                                                               |                |         | (197,683 | )          |  |              | 3,421   |               |  |              |       |              |  |   |         |         |  |   | 194,262 |         |   |   |         |        
|Equity in net losses of affiliates                                                                                                                             |                |         | (50,893  | )          |  |              |        |               |  |              |       |              |  |   | (4,753   | )       |  |   |        |         |   |   | (55,646  | )      
|Minority interest                                                                                                                                              |                |         |         |            |  |              |        |               |  |              |       |              |  |   | 65       |         |  |   |        |         |   |   | 65       |        
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income from continuing operations                                                                                                                       |                |         | (269,872 | )          |  |              | (16,328 | )             |  |              | 3,421  |              |  |   | (215,589 | )       |  |   | 194,520 |         |   |   | (303,848 | )      
|Income from discontinued operations                                                                                                                            |                |         |         |            |  |              |        |               |  |              |       |              |  |   | 20,361   |         |  |   |        |         |   |   | 20,361   |        
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before cumulative effect of change
    in accounting principle and extraordinary gain on acquisition of
    minority interest                    |                |         | (269,872 | )          |  |              | (16,328 | )             |  |              | 3,421  |              |  |   | (195,228 | )       |  |   | 194,520 |         |   |   | (283,487 | )      
|Cumulative effect of change in accounting
    principle                                                                                                        |                |         | (1,970   | )          |  |              |        |               |  |              |       |              |  |   |         |         |  |   |        |         |   |   | (1,970   | )      
|Extraordinary gain on acquisition of minority
    interest                                                                                                     |                |         |         |            |  |              |        |               |  |              |       |              |  |   | 13,615   |         |  |   |        |         |   |   | 13,615   |        
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Net (loss) income                                                                                                                                              |                | $       | (271,842 | )          |  | $            | (16,328 | )             |  | $            | 3,421  |              |  | $ | (181,613 | )       |  | $ | 194,520 |         |   | $ | (271,842 | )      
|                                                                                                                                                               |                |         |          |            |  |              |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        

39



---



##### 



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Nine Months Ended September 30,
2003


(In thousands)


(Unaudited)


|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |          |         |  
|------------------------------------------------------------------ | -------------------------------------------- | -------------------------------------------------------------------------- | ------- | ---------- | ------- | ------------ | ------- | ------------- | ------- | ------------ | - | ------------ | ------- | - | ------- | -------- | ------- | - | ---- | ------- | -------- | - | ------- | -------- | ------- | -
|                                                                   |                                              | Parent                                                                     |         | Subsidiary |         | Guarantor    |         | Non-Guarantor |         |              |   |             
|                                                                   |                                              | Company                                                                    |         | Issuer     |         | Subsidiaries |         | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |             
|Operating activities:                                              |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|                                                                   | Net (loss) income                            |                                                                            | $       | (271,842   | )       |              | $       | (16,328       | )       |              | $ | 3,421        |         |   | $       | (181,613 | )       |   | $    | 194,520 |          |   | $       | (271,842 | )      
|                                                                   | Non-cash items:                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |          |        
|                                                                   |                                              | Income from discontinued operations                                        |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (20,361 | ) |      |         |         |   |         |          | (20,361 | )
|                                                                   |                                              | Cumulative effect of change in accounting
    principle                    |         |            | 1,970   |              |         |               |        |              |   |              |        |   |         |          |        |   |      |         |         |   |         |          | 1,970   |  
|                                                                   |                                              | Extraordinary gain on acquisition of minority
    interest                 |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (13,615 | ) |      |         |         |   |         |          | (13,615 | )
|                                                                   |                                              | Equity (income) losses in affiliates                                       |         |            | 50,893  |              |         |               |        |              |   |              |        |   |         |          | 4,753   |   |      |         |         |   |         |          | 55,646  |  
|                                                                   |                                              | Minority interest                                                          |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (65     | ) |      |         |         |   |         |          | (65     | )
|                                                                   |                                              | Equity in net losses of unconsolidated
    subsidiaries                    |         |            | 197,683 |              |         |               | (3,421  | )            |   |              |        |   |         |          |        |   |      |         | (194,262 | ) |         |          |        |  
|                                                                   |                                              | Deferred taxes                                                             |         |            | 3,656   |              |         |               |        |              |   |              | 3,393   |   |         |          |        |   |      |         | (3,393   | ) |         |          | 3,656   |  
|                                                                   |                                              | Depreciation and amortization                                              |         |            |        |              |         |               | 40,710  |              |   |              | 15,760  |   |         |          | 31,976  |   |      |         |         |   |         |          | 88,446  |  
|                                                                   |                                              | Adjustment to revenue straightlining assessment                            |         |            |        |              |         |               | 367     |              |   |              |        |   |         |          | 3,719   |   |      |         |         |   |         |          | 4,086   |  
|                                                                   |                                              | Provisions for bad debts                                                   |         |            |        |              |         |               | 1,423   |              |   |              | 155     |   |         |          | 6,136   |   |      |         |         |   |         |          | 7,714   |  
|                                                                   |                                              | Provisions for inventory obsolescence                                      |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 35,107  |   |      |         |         |   |         |          | 35,107  |  
|                                                                   |                                              | Loss on equipment disposals                                                |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 243     |   |      |         |         |   |         |          | 243     |  
|                                                                   |                                              | Valuation allowance on vendor financing
    receivables                    |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 10,008  |   |      |         |         |   |         |          | 10,008  |  
|                                                                   |                                              | Loss on cancellation of deposits                                           |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 23,500  |   |      |         |         |   |         |          | 23,500  |  
|                                                                   |                                              | Loss on acceleration of receipt of long-term
    receivables               |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 10,893  |   |      |         |         |   |         |          | 10,893  |  
|                                                                   |                                              | Charge on conversion of sales arrangement to
    lease arrangement         |         |            |         |              |         |               |         |              |   |              |         |   |         |          | 10,098  |   |      |         |          |   |         |          | 10,098  |  
|                                                                   |                                              | Accrual for Alcatel settlement                                             |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 8,000   |   |      |         |         |   |         |          | 8,000   |  
|                                                                   |                                              | Gain on investments                                                        |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (17,900 | ) |      |         |         |   |         |          | (17,900 | )
|                                                                   |                                              | Non-cash net (gain) loss on foreign currency
    transactions and interest |         |            |        |              |         |               | 669     |              |   |              |        |   |         |          | 4,832   |   |      |         |         |   |         |          | 5,501   |  
|                                                                   | Changes in operating assets and liabilities: |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |          |        
|                                                                   |                                              | Accounts receivable, net                                                   |         |            |        |              |         |               | (1,364  | )            |   |              | (535    | ) |         |          | 1,083   |   |      |         |         |   |         |          | (816    | )
|                                                                   |                                              | Contracts-in-process                                                       |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 26,331  |   |      |         |         |   |         |          | 26,331  |  
|                                                                   |                                              | Inventories                                                                |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (758    | ) |      |         |         |   |         |          | (758    | )
|                                                                   |                                              | Long-term receivables                                                      |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 75,612  |   |      |         |         |   |         |          | 75,612  |  
|                                                                   |                                              | Deposits                                                                   |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 22,750  |   |      |         |         |   |         |          | 22,750  |  
|                                                                   |                                              | Due to (from) unconsolidated subsidiaries                                  |         |            | 152     |              |         |               | 21,733  |              |   |              | (29,053 | ) |         |          | 3,249   |   |      |         | 3,919    |   |         |          |        |  
|                                                                   |                                              | Other current assets and other assets                                      |         |            | (2,924  | )            |         |               | 4,500   |              |   |              | 7,158   |   |         |          | 11,900  |   |      |         |         |   |         |          | 20,634  |  
|                                                                   |                                              | Accounts payable                                                           |         |            |        |              |         |               | (155    | )            |   |              | 20      |   |         |          | 11,564  |   |      |         |         |   |         |          | 11,429  |  
|                                                                   |                                              | Accrued expenses and other current liabilities                             |         |            | 1,492   |              |         |               | 384     |              |   |              |        |   |         |          | (4,006  | ) |      |         |         |   |         |          | (2,130  | )
|                                                                   |                                              | Customer advances                                                          |         |            |        |              |         |               | (2,014  | )            |   |              | (319    | ) |         |          | (51,623 | ) |      |         |         |   |         |          | (53,956 | )
|                                                                   |                                              | Income taxes payable                                                       |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (598    | ) |      |         |         |   |         |          | (598    | )
|                                                                   |                                              | Pension and other postretirement liabilities                               |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 8,016   |   |      |         |         |   |         |          | 8,016   |  
|                                                                   |                                              | Long-term liabilities                                                      |         |            |        |              |         |               | (1,284  | )            |   |              |        |   |         |          | (7,551  | ) |      |         |         |   |         |          | (8,835  | )
|                                                                   |                                              | Other                                                                      |         |            | 64      |              |         |               |        |              |   |              |        |   |         |          | 170     |   |      |         |         |   |         |          | 234     |  
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|Net cash provided by (used in) continuing
    operating activities |                                              |                                                                            | (18,856 | )          |         |              | 45,220  |               |         |              |  |              |         |   | 11,850  |          |         |   | 784  |         |          |   | 38,998  |         
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|Net cash provided by discontinued operations                       |                                              |                                                                            |        |            |         |              |        |               |         |              |  |              |         |   | 56,491  |          |         |   |     |         |          |   | 56,491  |         
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|Investing activities:                                              |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|                                                                   |                                              | Capital expenditures for continuing operations                             |         |            |        |              |         |               | (4,751  | )            |   |              |        |   |         |          | (39,393 | ) |      |         | (784     | ) |         |          | (44,928 | )
|                                                                   |                                              | Capital expenditures for discontinued operations                           |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (41,578 | ) |      |         |         |   |         |          | (41,578 | )
|                                                                   |                                              | Proceeds from sale of investments                                          |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 45,908  |   |      |         |         |   |         |          | 45,908  |  
|                                                                   |                                              | Investments in and advances to unconsolidated
    subsidiaries             |         |            | 734     |              |         |               |        |              |   |              |        |   |         |          | (734    | ) |      |         |         |   |         |          |        |  
|                                                                   |                                              | Investments in and advances to affiliates                                  |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (18,591 | ) |      |         |         |   |         |          | (18,591 | )
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|Net cash (used in) provided by in investing
    activities         |                                              |                                                                            | 734     |            |         |              | (4,751  | )             |         |              |  |              |         |   | (54,388 | )        |         |   | (784 | )       |          |   | (59,189 | )       
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|Financing activities:                                              |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|                                                                   |                                              | Repayments of term loans                                                   |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (32,500 | ) |      |         |         |   |         |          | (32,500 | )
|                                                                   |                                              | Borrowings under revolving credit facilities                               |         |            |        |              |         |               |        |              |   |              |        |   |         |          | 71,400  |   |      |         |         |   |         |          | 71,400  |  
|                                                                   |                                              | Interest payments on 10% senior notes                                      |         |            |        |              |         |               | (30,635 | )            |   |              |        |   |         |          |        |   |      |         |         |   |         |          | (30,635 | )
|                                                                   |                                              | Repayments of other long-term obligations                                  |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (6,434  | ) |      |         |         |   |         |          | (6,434  | )
|                                                                   |                                              | Note receivable from unconsolidated affiliate                              |         |            | 17,284  |              |         |               |        |              |   |              |        |   |         |          | (17,284 | ) |      |         |         |   |         |          |        |  
|                                                                   |                                              | Proceeds from stock issuances                                              |         |            | 3,869   |              |         |               |        |              |   |              |        |   |         |          |        |   |      |         |         |   |         |          | 3,869   |  
|                                                                   |                                              | Payment of bank amendment costs                                            |         |            |        |              |         |               |        |              |   |              |        |   |         |          | (5,131  | ) |      |         |         |   |         |          | (5,131  | )
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|Net cash provided by (used in) financing
    activities            |                                              |                                                                            | 21,153  |            |         |              | (30,635 | )             |         |              |  |              |         |   | 10,051  |          |         |   |     |         |          |   | 569     |         
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|Net increase (decrease) in cash and cash
    equivalents           |                                              |                                                                            | 3,031   |            |         |              | 9,834   |               |         |              |  |              |         |   | 24,004  |          |         |   |     |         |          |   | 36,869  |         
|Cash and cash equivalents  beginning
    of period                |                                              |                                                                            | 1,514   |            |         |              | 42,964  |               |         |              |  |              |         |   | 21,458  |          |         |   |     |         |          |   | 65,936  |         
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         
|Cash and cash equivalents  end of
    period                      |                                              | $                                                                          | 4,545   |            |         | $            | 52,798  |               |         | $            |  |              |         | $ | 45,462  |          |         | $ |     |         |          | $ | 102,805 |         
|                                                                   |                                              |                                                                            |         |            |         |              |         |               |         |              |   |              |         |   |         |          |         |   |      |         |          |   |         |         

40



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##### 





|    |                 
|--- | ----------------
|20. | Subsequent Event

During October 2004, we settled an insurance
claim for $9.3 million ($4.6 million received in
October 2004) with our insurers with respect to a satellite that
was sold. The receipt of the insurance claim will be recognized
in the fourth quarter of 2004.

41



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##### 





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

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

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

Disclosure Regarding Forward-Looking
Statements

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

Overview



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

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



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

Through our Loral Skynet division, we provide
satellite capacity and networking infrastructure to our
customers for video and direct-to-home (DTH)
broadcasting, high-speed data distribution, Internet access,
communications and networking services. The satellite services
business is capital intensive and highly competitive. We compete
with other satellite operators and with ground-based service
providers. The build-out of a satellite fleet requires
substantial investment. Once these investments are made,
however, the costs to maintain and operate the fleet are
relatively low. The upfront investments are earned back through
the leasing of transponders to customers over the life of the
satellite. Beyond construction, one of the major cost factors is
in-orbit insurance, given the harsh and unpredictable
environment in which the satellites operate. Annual receipts
from this business are fairly predictable because they are
derived from an established base of long-term customer contracts.

The satellite services market has been
characterized in recent years by over-capacity, pricing pressure
and competition from fiber. The downturn in the
telecommunications sector led many existing Skynet customers,
hampered by a slow-down in demand and lack of access to the
capital markets, to postpone expansion plans. Similarly, several
start-up companies that leased Skynets satellite capacity
for the delivery of new applications failed to meet their
business objectives. Following the closing of the Intelsat
transaction (see Note 4 to the financial statements) on
March 17, 2004, Skynets growth will depend on its
ability to differentiate itself from the competition through
customized product offerings, its superior customer service and
its successful

42



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##### 



marketing of available capacity on its
international fleet which is well positioned to serve regions of
the world where we expect demand to grow.




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

Our Space Systems/ Loral (SS/L)
subsidiary designs and manufactures satellites, space systems
and space systems components for customers in the commercial and
government sectors for applications including satellite
services, DTH broadcasting, broadband data distribution,
wireless telephony, digital radio, military communications,
weather monitoring and air traffic management.

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

Satellite manufacturers have high fixed costs
relating primarily to labor and overhead. Based on its current
cost structure, we estimate that SS/L covers its fixed costs
with an average of three to four satellite awards a year. In
October 2003, SS/L entered into binding authorizations to
proceed for the construction of three satellites, and in March
2004, SS/L entered into a contract for the construction of one
additional satellite. Cash flow in the satellite manufacturing
business tends to be uneven. It takes two to three years to
complete a satellite project and numerous assumptions are built
into the estimated costs. Cash receipts are tied to the
achievement of contract milestones, which depend in part on the
ability of our subcontractors to deliver on time. In addition,
the timing of satellite awards is difficult to predict,
contributing to the unevenness of revenue and making it more
challenging to match the workforce to the workflow.

Satellites are extraordinarily complex devices
designed to operate in the very hostile environment of space.
This complexity may lead to unanticipated costs during the
design, manufacture and testing of a satellite. SS/L establishes
provisions for costs based on historical experience and program
complexity to cover anticipated costs. Since most of SS/Ls
contracts are fixed price, cost increases in excess of the
provisions reduce profitability and may result in losses borne
solely by SS/L, which may be material. The satellite
manufacturing industry is highly competitive and, in recent
years, order levels reached an unprecedented low level,
resulting in manufacturing over-capacity. Buyers, as a result,
have the advantage over suppliers in negotiating prices, terms
and conditions. In the latter part of 2003, the order rate for
new commercial satellites picked up and was expected to continue
into 2004. This anticipated trend of increased orders, however,
has not materialized during the first nine months of 2004, nor
is it expected to for the remainder of 2004.



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

We operate in extremely competitive markets
characterized in recent years by over-capacity and pricing
pressures brought on by the downturn in the telecommunications
sector. Our existing and potential customers, having limited
access to the capital markets, postponed or reduced the scope of
their planned satellite-based applications and services. This
resulted in an excess of transponder capacity and a standstill
in satellite orders. In the face of these pressures, we further
increased our emphasis on cash conservation, reducing operating
expenses, suspending dividend payments on our preferred stock,
and closely monitoring capital expenditures. The sustained and
unprecedented decline in demand for our satellites and satellite
services, however, exacerbated our already strained financial
condition brought on primarily by the investments we had
previously made in Globalstar, L.P. (Globalstar) and
subsequently wrote-off.

On July 15, 2003, Loral and certain of its
subsidiaries (the Debtor Subsidiaries and
collectively with Loral, the Debtors), including
Loral Space & Communications Corporation, Loral
SpaceCom Corporation (Loral SpaceCom), Loral
Satellite, Inc. (Loral Satellite), SS/L and Loral
Orion, Inc. (Loral Orion), filed voluntary petitions
for reorganization under chapter 11 of title 11
(Chapter 11) of the United States Code (the
Bankruptcy Code) in the United States Bankruptcy
Court for the Southern District of New York (the
Bankruptcy Court) (Lead Case No. 03-41710
(RDD), Case Nos. 03-41709 (RDD) through 03-41728 (RDD))
(the Chapter 11 Cases). We and our Debtor
Subsidiaries continue to manage our properties and operate our
businesses as debtors in possession under the
jurisdiction of the Bankruptcy

43



---



##### 



Court and in accordance with the provisions of
the Bankruptcy Code. As a result of our Chapter 11 filing,
all of our prepetition debt obligations were accelerated. On
July 15, 2003, we also suspended interest payments on all
of our unsecured debt obligations. As of September 30,
2004, the principal amounts of our prepetition outstanding debt
obligations totaled $1.049 billion.


For the duration of the bankruptcy proceedings,
our businesses are subject to the risks and uncertainties of
bankruptcy.



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

In order to strengthen our balance sheet, on
July 15, 2003 we agreed to sell our North American
satellites and related assets to Intelsat. On March 17,
2004, we completed the sale of such assets to Intelsat. We used
the proceeds from the sale of the assets to repay our
outstanding secured bank debt (see Notes 2 and 4 to the
financial statements).



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

On October 22, 2004, we filed a revised plan
of reorganization (the Plan) and a disclosure
statement with the Bankruptcy Court, which resulted from an
agreement with the creditors committee in our
Chapter 11 Cases on the principal financial terms of a plan
of reorganization. The Plan is subject to final documentation
and the resolution of certain other issues between us and the
creditors committee and to confirmation by the Bankruptcy
Court, and may be further amended by us with the consent of the
creditors committee. We expect to exit Chapter 11
under current management in the first quarter of 2005.

We intend to reorganize around our satellite
manufacturing operations and our remaining fleet of
international satellites, which will cover regions with growth
potential, such as Asia, the Middle East and South America,
where the ground infrastructure is inadequate to support
increased demand. We consider these operations to be a viable
foundation for the further expansion of our company. Based upon
our Plan for emergence from Chapter 11, we believe that we will
not require any additional financing to fund operations.

Critical success factors for us include
maintaining our reputation for reliability, quality and superior
customer service. During reorganization, in particular, these
factors are vital to securing new customers and retaining
current ones. In addition, we must align our workforce levels
with the needs of the business, continue to contain costs, and
maximize the efficiency of both of our operations. Loral Skynet
is focused on increasing the capacity utilization of its
satellite fleet and successfully introducing new value-added
services to its markets. SS/L is focused on increased bookings
and backlog in 2004.

See Note 2 to the financial statements for a
description of our Chapter 11 Cases and our reorganization
plans.

Consolidated Operating Results

See Critical Accounting Matters in our latest
Annual Report on Form 10-K filed with the SEC and
Note 18 to the financial statements.

The accompanying financial statements have been
prepared assuming Loral, in its current structure, will continue
as a going concern. However, the factors mentioned above, among
other things, raise substantial doubt about our ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty. Our ability to continue as a going concern is
dependent on a number of factors including, but not limited to,
the Bankruptcy Courts confirmation of our plan of
reorganization and maintaining good relations with our
customers, suppliers and employees. If a plan of reorganization
is not confirmed and implemented, we may be forced to liquidate
under applicable provisions of the Bankruptcy Code. We cannot
give any assurance of the level of recovery our creditors would
receive in a liquidation. The financial statements do not
include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the
amounts and classification of liabilities if we were forced to
liquidate.

44



---



##### 



The following discussion of revenues and Adjusted
EBITDA (see Note 17 to the financial statements) reflects
the results of our operating businesses for the three and nine
months ended September 30, 2004 and 2003. The balance of
the discussion relates to our condensed consolidated results,
unless otherwise noted. Both of our business segments have been
adversely affected by the downturn in the telecommunications
sector, which has caused a delay in demand for new
telecommunications applications and services.

The sale of our North American satellites and
related assets to Intelsat has been accounted for as a
discontinued operation, resulting in our historical condensed
consolidated statements of operations and statements of cash
flows being reclassified to reflect such discontinued operations
separately from continuing operations (see Note 2 and
Note 4 to the financial statements).

Revenues:

|                                                                                             |                         |               |       |               |  |      |        |      |  |   |       |       |  |   |        |       | 
|-------------------------------------------------------------------------------------------- | ----------------------- | ------------- | ----- | ------------- |  | ---- | ------ | ---- |  | - | ----- | ----- |  | - | ------ | ----- | 
|                                                                                             |                         |               |       |              
|                                                                                             |                         | Three Months  |       | Nine Months  
|                                                                                             |                         | Ended         |       | Ended        
|                                                                                             |                         | September 30, |       | September 30,
|                                                                                             |                         |               |       |              
|                                                                                             |                         | 2004          |       | 2003          |  | 2004 |        | 2003
|                                                                                             |                         |               |       |               |  |      |        |     
|                                                                                             |                         |              
|                                                                                             |                         | (In millions)
|Satellite services                                                                           |                         | $             | 34.2  |               |  | $    | 39.1   |      |  | $ | 105.5 |       |  | $ | 121.8  |      
|Satellite services sales-type lease arrangement
    (see Note 8 to the financial statements) |                         |               | 87.2  |               |  |      |       |      |  |   | 87.2  |       |  |   |       |      
|Satellite manufacturing                                                                      |                         |               | 85.2  |               |  |      | 99.1   |      |  |   | 300.0 |       |  |   | 311.7  |      
|                                                                                             |                         |               |       |               |  |      |        |      |  |   |       |       |  |   |        |      
|Segment revenues                                                                             |                         |               | 206.6 |               |  |      | 138.2  |      |  |   | 492.7 |       |  |   | 433.5  |      
|Eliminations(1)                                                                              |                         |               | (8.0  | )             |  |      | (124.5 | )    |  |   | (76.7 | )     |  |   | (154.3 | )    
|                                                                                             |                         |               |       |               |  |      |        |      |  |   |       |       |  |   |        |      
|                                                                                             | Revenues as reported(2) |               | $     | 198.6         |  |      | $      | 13.7 |  |   | $     | 416.0 |  |   | $      | 279.2 | 
|                                                                                             |                         |               |       |               |  |      |        |      |  |   |       |       |  |   |        |      

Adjusted EBITDA:

|                                                                                             |                                             |               |      |               |   |      |       |       |   |   |       |       |   |   |        |        |  
|-------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------- | ---- | ------------- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ------ | ------ | -
|                                                                                             |                                             |               |      |              
|                                                                                             |                                             | Three Months  |      | Nine Months  
|                                                                                             |                                             | Ended         |      | Ended        
|                                                                                             |                                             | September 30, |      | September 30,
|                                                                                             |                                             |               |      |              
|                                                                                             |                                             | 2004          |      | 2003          |   | 2004 |       | 2003 
|                                                                                             |                                             |               |      |               |   |      |       |      
|                                                                                             |                                             |              
|                                                                                             |                                             | (In millions)
|Satellite services(3)                                                                        |                                             | $             | 7.5  |               |   | $    | 0.1   |       |   | $ | 6.3   |       |   | $ | 6.5    |       
|Satellite services sales-type lease arrangement
    (see Note 8 to the financial statements) |                                             |               | 7.7  |               |   |      |      |       |   |   | 7.7   |       |   |   |       |       
|Satellite manufacturing(4)                                                                   |                                             |               | (7.3 | )             |   |      | (30.3 | )     |   |   | (1.5  | )     |   |   | (131.3 | )     
|Corporate expenses(5)                                                                        |                                             |               | (9.7 | )             |   |      | (9.9  | )     |   |   | (27.2 | )     |   |   | (28.9  | )     
|                                                                                             |                                             |               |      |               |   |      |       |       |   |   |       |       |   |   |        |       
|                                                                                             | Segment Adjusted EBITDA before eliminations |               |      | (1.8          | ) |      |       | (40.1 | ) |   |       | (14.7 | ) |   |        | (153.7 | )
|Eliminations(1)                                                                              |                                             |               | (2.5 | )             |   |      | (13.7 | )     |   |   | (14.2 | )     |   |   | (18.5  | )     
|                                                                                             |                                             |               |      |               |   |      |       |       |   |   |       |       |   |   |        |       
|                                                                                             | Adjusted EBITDA                             |               | $    | (4.3          | ) |      | $     | (53.8 | ) |   | $     | (28.9 | ) |   | $      | (172.2 | )
|                                                                                             |                                             |               |      |               |   |      |       |       |   |   |       |       |   |   |        |       

45



---



##### 



Reconciliation of Adjusted EBITDA to Net
Loss:

|                                                                                                                                   |                                           |                    |       |                   |   |      |        |        |   |   |        |        |   |   |        |        |  
|---------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------ | ----- | ----------------- | - | ---- | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                                                                   |                                           |                    |       |                  
|                                                                                                                                   |                                           | Three Months Ended |       | Nine Months Ended
|                                                                                                                                   |                                           | September 30,      |       | September 30,    
|                                                                                                                                   |                                           |                    |       |                  
|                                                                                                                                   |                                           | 2004               |       | 2003              |   | 2004 |        | 2003  
|                                                                                                                                   |                                           |                    |       |                   |   |      |        |       
|                                                                                                                                   |                                           |                   
|                                                                                                                                   |                                           | (In millions)     
|Adjusted EBITDA                                                                                                                    |                                           | $                  | (4.3  | )                 |   | $    | (53.8  | )      |   | $ | (28.9  | )      |   | $ | (172.2 | )     
|Depreciation and amortization(6)                                                                                                   |                                           |                    | (21.3 | )                 |   |      | (28.8  | )      |   |   | (105.5 | )      |   |   | (88.5  | )     
|Reorganization expenses due to bankruptcy                                                                                          |                                           |                    | (9.5  | )                 |   |      | (8.8   | )      |   |   | (27.3  | )      |   |   | (8.8   | )     
|                                                                                                                                   |                                           |                    |       |                   |   |      |        |        |   |   |        |        |   |   |        |       
|                                                                                                                                   | Operating loss from continuing operations |                    |       | (35.1             | ) |      |        | (91.4  | ) |   |        | (161.7 | ) |   |        | (269.5 | )
|Interest and investment income                                                                                                     |                                           |                    | 2.3   |                   |   |      | 0.7    |        |   |   | 7.4    |        |   |   | 11.5   |       
|Interest expense                                                                                                                   |                                           |                    | (0.9  | )                 |   |      | (0.1   | )      |   |   | (0.7   | )      |   |   | (17.7  | )     
|Other income (expense)                                                                                                             |                                           |                    | 1.9   |                   |   |      | 1.0    |        |   |   | (2.1   | )      |   |   | 2.1    |       
|Gain on investment                                                                                                                 |                                           |                    |      |                   |   |      |       |        |   |   |       |        |   |   | 17.9   |       
|Income tax benefit (provision)                                                                                                     |                                           |                    | 0.2   |                   |   |      | 0.5    |        |   |   | (12.0  | )      |   |   | 7.4    |       
|Equity income (losses) in affiliates                                                                                               |                                           |                    | (0.1  | )                 |   |      | (38.8  | )      |   |   | 46.5   |        |   |   | (55.6  | )     
|Minority interest                                                                                                                  |                                           |                    |      |                   |   |      | 0.1    |        |   |   | 0.1    |        |   |   | 0.1    |       
|                                                                                                                                   |                                           |                    |       |                   |   |      |        |        |   |   |        |        |   |   |        |       
|Loss from continuing operations                                                                                                    |                                           |                    | (31.7 | )                 |   |      | (128.0 | )      |   |   | (122.5 | )      |   |   | (303.8 | )     
|Income (loss) from discontinued operations, net
    of taxes                                                                       |                                           |                    | 0.3   |                   |   |      | 2.1    |        |   |   | (11.2  | )      |   |   | 20.4   |       
|                                                                                                                                   |                                           |                    |       |                   |   |      |        |        |   |   |        |        |   |   |        |       
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |                                           |                    | (31.4 | )                 |   |      | (125.9 | )      |   |   | (133.7 | )      |   |   | (283.4 | )     
|Cumulative effect of change in accounting
    principle                                                                            |                                           |                    |      |                   |   |      | (2.0   | )      |   |   |       |        |   |   | (2.0   | )     
|Extraordinary gain on acquisition of minority
    interest                                                                         |                                           |                    |      |                   |   |      |       |        |   |   |       |        |   |   | 13.6   |       
|                                                                                                                                   |                                           |                    |       |                   |   |      |        |        |   |   |        |        |   |   |        |       
|                                                                                                                                   | Net loss                                  |                    | $     | (31.4             | ) |      | $      | (127.9 | ) |   | $      | (133.7 | ) |   | $      | (271.8 | )
|                                                                                                                                   |                                           |                    |       |                   |   |      |        |        |   |   |        |        |   |   |        |       



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the elimination of intercompany sales
    and intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/L for wholly owned subsidiaries and in the
    three and nine months ended September 30, 2003, the
    reversal of cumulative satellite manufacturing sales of
    $83 million and cost of satellite manufacturing of
    $73 million on a satellite program that was changed to a
    lease arrangement in the third quarter of 2003 (see Note 8
    to the financial statements).
|   
|(2) | Includes revenues from affiliates of
    $1.9 million and $(5.1) million for the three months
    ended September 30, 2004 and 2003, respectively, and
    $7.1 million and $18.1 million for the nine months
    ended September 30, 2004 and 2003, respectively.                                                                                                                                                                                                                                                              
|   
|(3) |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                                       |                                                                    |               |   |               |  |      |   |      |  |  |   |       |   |  |   |     | 
|------------------------------------------------------ | ------------------------------------------------------------------ | ------------- | - | ------------- |  | ---- | - | ---- |  |  | - | ----- | - |  | - | --- | 
|                                                       |                                                                    |               |   |              
|                                                       |                                                                    | Three Months  |   | Nine Months  
|                                                       |                                                                    | Ended         |   | Ended        
|                                                       |                                                                    | September 30, |   | September 30,
|                                                       |                                                                    |               |   |              
|                                                       |                                                                    | 2004          |   | 2003          |  | 2004 |   | 2003
|                                                       |                                                                    |               |   |               |  |      |   |     
|Includes (see Note 8 to the financial
    statements): |                                                                    |               |   |               |  |      |   |      |  |  |   |       |   |  |   |    
|                                                       | Impairment charge for Telstar 14/Estrela do
    Sul-1 satellite    |               | $ |              |  |      | $ |     |  |  | $ | (12.0 | ) |  | $ |    | 
|                                                       | Sales-type lease arrangement                                       |               |   | 7.7           |  |      |   |     |  |  |   | 7.7   |   |  |   |    | 
|                                                       | Other Adjusted EBITDA before eliminations                          |               |   | 7.5           |  |      |   | 0.1  |  |  |   | 18.3  |   |  |   | 6.5 | 
|                                                       |                                                                    |               |   |               |  |      |   |      |  |  |   |       |   |  |   |    
|                                                       | Satellite services segment Adjusted EBITDA before
    eliminations |               | $ | 15.2          |  |      | $ | 0.1  |  |  | $ | 14.0  |   |  | $ | 6.5 | 
|                                                       |                                                                    |               |   |               |  |      |   |      |  |  |   |       |   |  |   |    



|    |                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Excludes charges of $22 million for the nine
    months ended September 30, 2004, as a result of the
    settlement of all orbital receivables on satellites sold to
    Intelsat. This settlement had the effect of reducing

46



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | future orbital receipts by $25 million,
    including $15 million relating to a satellite currently
    under construction. Consistent with our internal reporting for
    satellite manufacturing, this decrease in contract value for the
    satellite currently under construction is not being reflected as
    a decrease in 2004 satellite manufacturing revenues. These
    charges had no effect on our consolidated results.

|                                  |                                                                         |               |   |               |   |      |   |       |   |  |   |      |   |  |   |        |  
|--------------------------------- | ----------------------------------------------------------------------- | ------------- | - | ------------- | - | ---- | - | ----- | - |  | - | ---- | - |  | - | ------ | -
|                                  |                                                                         |               |   |              
|                                  |                                                                         | Three Months  |   | Nine Months  
|                                  |                                                                         | Ended         |   | Ended        
|                                  |                                                                         | September 30, |   | September 30,
|                                  |                                                                         |               |   |              
|                                  |                                                                         | 2004          |   | 2003          |   | 2004 |   | 2003 
|                                  |                                                                         |               |   |               |   |      |   |      
|Satellite manufacturing includes: |                                                                         |               |   |               |   |      |   |       |   |  |   |      |   |  |   |       
|                                  | Provisions for inventory obsolescence                                   |               | $ | (0.6          | ) |      | $ | (11.2 | ) |  | $ | (2.3 | ) |  | $ | (35.1  | )
|                                  | Loss on cancellation of a deposits                                      |               |   |              |   |      |   |      |   |  |   |     |   |  |   | (23.5  | )
|                                  | Accrual for Alcatel settlement                                          |               |   |              |   |      |   |      |   |  |   |     |   |  |   | (13.0  | )
|                                  | Loss on acceleration of receipt of long-term
    receivables            |               |   |              |   |      |   |      |   |  |   |     |   |  |   | (10.9  | )
|                                  | Valuation allowance on vendor financing
    receivables                 |               |   |              |   |      |   |      |   |  |   |     |   |  |   | (10.0  | )
|                                  | Other Adjusted EBITDA before eliminations                               |               |   | (6.7          | ) |      |   | (19.1 | ) |  |   | 0.8  |   |  |   | (38.8  | )
|                                  |                                                                         |               |   |               |   |      |   |       |   |  |   |      |   |  |   |       
|                                  | Satellite manufacturing segment Adjusted EBITDA
    before eliminations |               | $ | (7.3          | ) |      | $ | (30.3 | ) |  | $ | (1.5 | ) |  | $ | (131.3 | )
|                                  |                                                                         |               |   |               |   |      |   |       |   |  |   |      |   |  |   |       



|    |                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Represents corporate expenses incurred in support
    of our operations.                                                                                                                                                                                                                                     
|   
|(6) | Includes additional depreciation expense of
    $15 million for the nine months ended September 30,
    2004, due to accelerating the estimated end of depreciable life
    of our Telstar 11 satellite to June 2004 from March 2005. Also,
    includes amortization of unearned stock compensation charges.

Three Months Ended September 30, 2004
Compared With 2003



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

|                                             |  |               |     |             |  |            |    |   |  |  |     |   
|-------------------------------------------- |  | ------------- | --- | ----------- |  | ---------- | -- | - |  |  | --- | --
|                                             |  |               |     |            
|                                             |  | Three Months  |     |            
|                                             |  | Ended         |     |            
|                                             |  | September 30, |     |            
|                                             |  |               |     | % Increase/
|                                             |  | 2004          |     | 2003        |  | (Decrease)
|                                             |  |               |     |             |  |           
|                                             |  |               |     |            
|                                             |  | (In millions) |     |            
|Revenues from satellite services             |  | $             | 34  |             |  | $          | 39 |   |  |  | (13 | )%
|Revenues from sales-type lease arrangement   |  |               | 87  |             |  |            |   |   |  |  | N/A |   
|Eliminations                                 |  |               | (1  | )           |  |            | (2 | ) |  |  | (26 | )%
|                                             |  |               |     |             |  |            |    |   |  |  |     |   
|Revenues from satellite services as reported |  | $             | 120 |             |  | $          | 37 |   |  |  | 222 | % 
|                                             |  |               |     |             |  |            |    |   |  |  |     |   

Revenues from satellite services as reported
increased $83 million in the three months ended
September 30, 2004, as compared to 2003 primarily due to
$87 million of revenues recognized for a sales-type lease
arrangement for satellite capacity (see Note 8 to the
financial statements). This was offset by a $2 million
decrease due to lower rates for services and a $3 million
decrease resulting from lower transponder and network
utilization.



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

|                                                  |  |               |    |             |  |            |      |   |  |  |     |   
|------------------------------------------------- |  | ------------- | -- | ----------- |  | ---------- | ---- | - |  |  | --- | --
|                                                  |  |               |    |            
|                                                  |  | Three Months  |    |            
|                                                  |  | Ended         |    |            
|                                                  |  | September 30, |    |            
|                                                  |  |               |    | % Increase/
|                                                  |  | 2004          |    | 2003        |  | (Decrease)
|                                                  |  |               |    |             |  |           
|                                                  |  |               |    |            
|                                                  |  | (In millions) |    |            
|Revenues from satellite manufacturing             |  | $             | 86 |             |  | $          | 99   |   |  |  | (14 | )%
|Eliminations                                      |  |               | (7 | )           |  |            | (123 | ) |  |  | (95 | )%
|                                                  |  |               |    |             |  |            |      |   |  |  |     |   
|Revenues from satellite manufacturing as reported |  | $             | 79 |             |  | $          | (24  | ) |  |  | N/A |   
|                                                  |  |               |    |             |  |            |      |   |  |  |     |   

47



---



##### 



Revenues from satellite manufacturing as reported
increased $103 million in the three months ended
September 30, 2004, as compared to 2003. Revenues from
satellite manufacturing before eliminations decreased by
$13 million, resulting primarily from a decrease in
revenues from satellite programs nearing completion under the
percentage of completion method of $66 million, offset by a
$53 million increase in revenues from the new orders
received in the fourth quarter of 2003. Eliminations consist
primarily of revenues from satellites under construction by SS/L
for Satellite Services, and in 2003, the reversal of sales of
$83 million of cumulative sales on a satellite program that
was changed to a lease arrangement in the third quarter of 2003,
which resulted in negative satellite manufacturing sales for the
2003 quarter (see Note 8 to the financial statements).



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

|                                                                                 |                                      |               |     |             |  |            |     |    |  |  |     |     |   
|-------------------------------------------------------------------------------- | ------------------------------------ | ------------- | --- | ----------- |  | ---------- | --- | -- |  |  | --- | --- | --
|                                                                                 |                                      |               |     |            
|                                                                                 |                                      | Three Months  |     |            
|                                                                                 |                                      | Ended         |     |            
|                                                                                 |                                      | September 30, |     |            
|                                                                                 |                                      |               |     | % Increase/
|                                                                                 |                                      | 2004          |     | 2003        |  | (Decrease)
|                                                                                 |                                      |               |     |             |  |           
|                                                                                 |                                      |               |     |            
|                                                                                 |                                      | (In millions) |     |            
|Cost of satellite services includes:                                             |                                      |               |     |             |  |            |     |    |  |  |     |    
|                                                                                 | Other cost of satellite services     |               | $   | 17          |  |            | $   | 20 |  |  |     | (12 | )%
|                                                                                 | Depreciation and amortization        |               |     | 16          |  |            |     | 22 |  |  |     | (27 | )%
|                                                                                 | Cost of sales-type lease arrangement |               |     | 80          |  |            |     |   |  |  |     | N/A |   
|                                                                                 |                                      |               |     |             |  |            |     |    |  |  |     |    
|Cost of satellite services                                                       |                                      | $             | 113 |             |  | $          | 42  |    |  |  | 171 | %  
|                                                                                 |                                      |               |     |             |  |            |     |    |  |  |     |    
|Cost of satellite services as a % of satellite
    services revenues as reported |                                      |               | 94  | %           |  |            | 112 | %  |  |  |     |    

Cost of satellite services increased
$71 million in the three months ended September 30,
2004, as compared to 2003. Other cost of satellite services
decreased $3 million, primarily due to reduced external
satellite capacity costs. Depreciation and amortization expense
decreased by $6 million, primarily resulting from a
reduction of $9 million due to our Telstar 11
satellite being fully depreciated in June 2004, offset in part
by higher depreciation expense of $3 million for our
Telstar 14/Estrela do Sul-1 satellite which commenced service at
the end of March 2004 and our Telstar 18 satellite which
commenced service at the beginning of September 2004.
Depreciation and amortization expense is expected to approximate
$17 million per quarter beginning in the fourth quarter of
2004. In September 2004, we incurred $80 million of costs
for a sales-type lease arrangement (see Note 8 to the
financial statements).



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

|                                                                                           |                                                               |               |     |             |  |            |     |     |   |  |     |     |   
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ------------- | --- | ----------- |  | ---------- | --- | --- | - |  | --- | --- | --
|                                                                                           |                                                               |               |     |            
|                                                                                           |                                                               | Three Months  |     |            
|                                                                                           |                                                               | Ended         |     |            
|                                                                                           |                                                               | September 30, |     |            
|                                                                                           |                                                               |               |     | % Increase/
|                                                                                           |                                                               | 2004          |     | 2003        |  | (Decrease)
|                                                                                           |                                                               |               |     |             |  |           
|                                                                                           |                                                               |               |     |            
|                                                                                           |                                                               | (In millions) |     |            
|Cost of satellite manufacturing includes:                                                  |                                                               |               |     |             |  |            |     |     |   |  |     |    
|                                                                                           | Other cost of satellite manufacturing                         |               | $   | 83          |  |            | $   | 77  |   |  |     | 9   | % 
|                                                                                           | Provisions for inventory obsolescence                         |               |     | 1           |  |            |     | 11  |   |  |     | (95 | )%
|                                                                                           | Reversal of costs on satellite program changed to
    a lease |               |     |            |  |            |     | (73 | ) |  |     | N/A |   
|                                                                                           |                                                               |               |     |             |  |            |     |     |   |  |     |    
|Cost of satellite manufacturing                                                            |                                                               | $             | 84  |             |  | $          | 15  |     |   |  | 460 | %  
|                                                                                           |                                                               |               |     |             |  |            |     |     |   |  |     |    
|Cost of satellite manufacturing as a % of
    satellite manufacturing revenues as reported |                                                               |               | 107 | %           |  |            | N/A |     |   |  |     |    

Cost of satellite manufacturing increased
$69 million in the three months ended September 30,
2004, as compared to 2003. Other cost of satellite manufacturing
increased $6 million, due primarily to increased costs on
satellite programs nearing completion under the percentage of
completion method and costs incurred on the new satellite orders
received in the fourth quarter of 2003. In 2003, we reversed
costs of $73 million on a

48



---



##### 



satellite program that was changed to a lease
arrangement in the third quarter of 2003 (see Note 8 to the
financial statements) and recorded provisions for inventory
obsolescence of $11 million.




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

|                                             |  |               |    |             |  |            |     |   |  |  |     |   
|-------------------------------------------- |  | ------------- | -- | ----------- |  | ---------- | --- | - |  |  | --- | --
|                                             |  |               |    |            
|                                             |  | Three Months  |    |            
|                                             |  | Ended         |    |            
|                                             |  | September 30, |    |            
|                                             |  |               |    | % Increase/
|                                             |  | 2004          |    | 2003        |  | (Decrease)
|                                             |  |               |    |             |  |           
|                                             |  |               |    |            
|                                             |  | (In millions) |    |            
|Selling, general and administrative expenses |  | $             | 27 |             |  | $          | 40  |   |  |  | (31 | )%
|% of revenues as reported                    |  |               | 14 | %           |  |            | 288 | % |  |  |     |   

The $13 million decrease in selling, general
and administrative expenses in the three months ended
September 30, 2004, as compared to 2003 was due primarily
to decreases in bad debt expense of $8 million and other
cost reductions of $1 million for satellite services and
lower professional fees of $3 million for SS/ L.



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

|                                          |  |               |   |                  |  |             |   |  |  |  |   |  
|----------------------------------------- |  | ------------- | - | ---------------- |  | ----------- | - |  |  |  | - | -
|                                          |  |               |   | Period from      |  |            
|                                          |  | Three Months  |   | July 15, 2003    |  |            
|                                          |  | Ended         |   | (filing date) to |  |            
|                                          |  | September 30, |   | September 30,    |  | % Increase/
|                                          |  | 2004          |   | 2003             |  | (Decrease) 
|                                          |  |               |   |                  |  |            
|                                          |  |               |   |                 
|                                          |  | (In millions) |   |                 
|Reorganization expenses due to bankruptcy |  | $             | 9 |                  |  | $           | 9 |  |  |  | 8 | %

Reorganization expenses due to bankruptcy for the
three months ended September 30, 2004, include professional
fees of $5 million, employee retention costs of
$2 million and severance costs of $3 million, offset
by interest income of $1 million. Reorganization expenses
due to bankruptcy for the period from July 15, 2003 (filing
date) to September 30, 2003, include professional fees of
$5 million and lease rejection claims of $6 million,
offset by interest income of $2 million.



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

|                               |  |               |   |             |  |            |   |  |  |  |     |  
|------------------------------ |  | ------------- | - | ----------- |  | ---------- | - |  |  |  | --- | -
|                               |  |               |   |            
|                               |  | Three Months  |   |            
|                               |  | Ended         |   |            
|                               |  | September 30, |   |            
|                               |  |               |   | % Increase/
|                               |  | 2004          |   | 2003        |  | (Decrease)
|                               |  |               |   |             |  |           
|                               |  |               |   |            
|                               |  | (In millions) |   |            
|Interest and investment income |  | $             | 2 |             |  | $          | 1 |  |  |  | 243 | %

Interest and investment income primarily
represents interest income earned on satellite manufacturing
programs.



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

|                                          |  |               |   |             |  |            |    |   |  |  |     |   
|----------------------------------------- |  | ------------- | - | ----------- |  | ---------- | -- | - |  |  | --- | --
|                                          |  |               |   |            
|                                          |  | Three Months  |   |            
|                                          |  | Ended         |   |            
|                                          |  | September 30, |   |            
|                                          |  |               |   | % Increase/
|                                          |  | 2004          |   | 2003        |  | (Decrease)
|                                          |  |               |   |             |  |           
|                                          |  |               |   |            
|                                          |  | (In millions) |   |            
|Interest cost before capitalized interest |  | $             | 1 |             |  | $          | 3  |   |  |  | (67 | )%
|Capitalized interest                      |  |               |  |             |  |            | (3 | ) |  |  | N/A |   
|                                          |  |               |   |             |  |            |    |   |  |  |     |   
|Interest expense                          |  | $             | 1 |             |  | $          |   |   |  |  | N/A |   
|                                          |  |               |   |             |  |            |    |   |  |  |     |   

Interest expense increased $1 million in the
three months ended September 30, 2004, as compared to 2003.
Subsequent to our voluntary petitions for reorganization on
July 15, 2003, we only recognized and paid interest on our
secured bank debt through March 18, 2004 and stopped
recognizing and paying interest on all other outstanding debt
obligations and preferred stock. Capitalized interest decreased
to zero in the three

49



---



##### 



months ended September 30, 2004, which was
due to us no longer incurring interest expense on our secured
bank debt that we repaid in March 2004. Interest cost will
continue to be minimal while we are in Chapter 11.




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

|                       |  |               |   |      |  |   |   | 
|---------------------- |  | ------------- | - | ---- |  | - | - | 
|                       |  |              
|                       |  | Three Months 
|                       |  | Ended        
|                       |  | September 30,
|                       |  |              
|                       |  | 2004          |   | 2003
|                       |  |               |   |     
|                       |  |              
|                       |  | (In millions)
|Other income (expense) |  | $             | 2 |      |  | $ | 1 | 

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



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

During 2004 and 2003, we continued to maintain
the 100% valuation allowance established at December 31,
2002 and recorded no benefit for our domestic loss. For the
three months ended September 30, 2004, we recorded a
foreign income tax benefit of $0.2 million on a pre-tax
loss of $31.8 million. For the three months ended
September 30, 2003, we recorded a tax benefit of
$0.6 million on a pre-tax loss of $89.9 million, which
primarily includes the reclassification of a tax provision to
income from discontinued operations offset by a state and local
income tax provision and a deferred tax liability recorded for
certain foreign entities.



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

|                                                            |  |               |      |      |  |   |       |  
|----------------------------------------------------------- |  | ------------- | ---- | ---- |  | - | ----- | -
|                                                            |  |              
|                                                            |  | Three Months 
|                                                            |  | Ended        
|                                                            |  | September 30,
|                                                            |  |              
|                                                            |  | 2004          |      | 2003
|                                                            |  |               |      |     
|                                                            |  |              
|                                                            |  | (In millions)
|XTAR                                                        |  | $             | (0.1 | )    |  | $ | (0.7  | )
|Satmex                                                      |  |               |     |      |  |   | (38.4 | )
|Globalstar and Globalstar service provider
    partnerships |  |               |     |      |  |   | 0.3   |  
|                                                            |  |               |      |      |  |   |       |  
|                                                            |  | $             | (0.1 | )    |  | $ | (38.8 | )
|                                                            |  |               |      |      |  |   |       |  

During 2004, we did not provide for our allocated
share of Satmexs net losses, due to our write-off of our
remaining investment in Satmex in the third quarter of 2003. Our
equity losses in Satmex in 2003, of $38 million include our
write-off of our remaining investment in Satmex of
$29 million. See Note 9 to the financial statements.



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

Discontinued operations represents the results of
the North American satellites and related assets sold to
Intelsat on March 17, 2004 and includes interest expense on
our secured bank debt through March 18, 2004 (see
Interest Expense above). For the purpose of this
presentation, in accordance with SFAS 144, all indirect
costs normally associated with these operations are included in
continuing operations. These indirect costs include telemetry,
tracking and control, access control, maintenance and
engineering, selling and marketing and general and
administrative. See Note 4 to the financial statements.



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

On July 1, 2003, we adopted
SFAS No. 150. As a result, we recorded a charge of
$2 million for the amortization of expenses incurred on the
issuance of our preferred stock from their issuance dates
through June 30, 2003, that were not previously amortized,
as a cumulative effect of change in accounting principle. See
Note 18 to the financial statements.

50



---



##### 



Nine Months Ended September 30, 2004
Compared With 2003



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

|                                             |  |               |     |             |  |            |     |   |  |  |     |   
|-------------------------------------------- |  | ------------- | --- | ----------- |  | ---------- | --- | - |  |  | --- | --
|                                             |  |               |     |            
|                                             |  | Nine Months   |     |            
|                                             |  | Ended         |     |            
|                                             |  | September 30, |     |            
|                                             |  |               |     | % Increase/
|                                             |  | 2004          |     | 2003        |  | (Decrease)
|                                             |  |               |     |             |  |           
|                                             |  |               |     |            
|                                             |  | (In millions) |     |            
|Revenues from satellite services             |  | $             | 106 |             |  | $          | 122 |   |  |  | (13 | )%
|Revenues from sales-type lease arrangement   |  |               | 87  |             |  |            |    |   |  |  | N/A |   
|Eliminations                                 |  |               | (5  | )           |  |            | (5  | ) |  |  | (12 | )%
|                                             |  |               |     |             |  |            |     |   |  |  |     |   
|Revenues from satellite services as reported |  | $             | 188 |             |  | $          | 117 |   |  |  | 61  | % 
|                                             |  |               |     |             |  |            |     |   |  |  |     |   

Revenues from satellite services as reported
increased $71 million in the nine months ended
September 30, 2004, as compared to 2003, primarily due to
$87 million of revenues recognized for a sales-type lease
arrangement for satellite capacity (see Note 8 to the
financial statements). This increase was offset by a decrease in
rates for services of $8 million and reduced transponder
and network utilization of $8 million. Eliminations
primarily consist of revenues from leasing transponder capacity
to Satellite Manufacturing and an adjustment to reduce revenues
for the implicit interest discount provided to customers who
have made prepayments under long-term contracts.



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

|                                                  |  |               |     |             |  |            |      |   |  |  |     |   
|------------------------------------------------- |  | ------------- | --- | ----------- |  | ---------- | ---- | - |  |  | --- | --
|                                                  |  |               |     |            
|                                                  |  | Nine Months   |     |            
|                                                  |  | Ended         |     |            
|                                                  |  | September 30, |     |            
|                                                  |  |               |     | % Increase/
|                                                  |  | 2004          |     | 2003        |  | (Decrease)
|                                                  |  |               |     |             |  |           
|                                                  |  |               |     |            
|                                                  |  | (In millions) |     |            
|Revenues from satellite manufacturing             |  | $             | 300 |             |  | $          | 312  |   |  |  | (4  | )%
|Eliminations                                      |  |               | (72 | )           |  |            | (149 | ) |  |  | (52 | )%
|                                                  |  |               |     |             |  |            |      |   |  |  |     |   
|Revenues from satellite manufacturing as reported |  | $             | 228 |             |  | $          | 163  |   |  |  | 40  | % 
|                                                  |  |               |     |             |  |            |      |   |  |  |     |   

Revenues from satellite manufacturing as reported
increased $65 million in the nine months ended
September 30, 2004, as compared to 2003. Revenues from
satellite manufacturing before eliminations decreased by
$12 million, primarily due to a decrease of
$138 million in revenues from satellite programs nearing
completion under the percentage of completion method,
substantially offset by a $126 million increase in revenues
from the new orders received in the fourth quarter of 2003.
Eliminations primarily consist of revenues from satellites under
construction by SS/ L for Satellite Services, and in 2003, the
reversal of $83 million of cumulative sales on a satellite
program that was changed to a lease arrangement in the third
quarter of 2003 (see Note 8 to the financial statements).

51



---



##### 





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

|                                                                                 |                                                                 |               |     |             |  |            |     |    |  |  |    |     |   
|-------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------------- | --- | ----------- |  | ---------- | --- | -- |  |  | -- | --- | --
|                                                                                 |                                                                 |               |     |            
|                                                                                 |                                                                 | Nine Months   |     |            
|                                                                                 |                                                                 | Ended         |     |            
|                                                                                 |                                                                 | September 30, |     |            
|                                                                                 |                                                                 |               |     | % Increase/
|                                                                                 |                                                                 | 2004          |     | 2003        |  | (Decrease)
|                                                                                 |                                                                 |               |     |             |  |           
|                                                                                 |                                                                 |               |     |            
|                                                                                 |                                                                 | (In millions) |     |            
|Cost of satellite services includes:                                             |                                                                 |               |     |             |  |            |     |    |  |  |    |    
|                                                                                 | Other cost of satellite services                                |               | $   | 50          |  |            | $   | 69 |  |  |    | (26 | )%
|                                                                                 | Depreciation and amortization                                   |               |     | 87          |  |            | $   | 67 |  |  |    | 30  | % 
|                                                                                 | Impairment charge for Telstar 14/ Estrela do
    Sul-1satellite |               |     | 12          |  |            |     |   |  |  |    | N/A |   
|                                                                                 | Cost of sales-type lease arrangement                            |               |     | 80          |  |            |     |   |  |  |    | N/A |   
|                                                                                 |                                                                 |               |     |             |  |            |     |    |  |  |    |    
|Cost of satellite services                                                       |                                                                 | $             | 229 |             |  | $          | 136 |    |  |  | 69 | %  
|                                                                                 |                                                                 |               |     |             |  |            |     |    |  |  |    |    
|Cost of satellite services as a % of satellite
    services revenues as reported |                                                                 |               | 122 | %           |  |            | 116 | %  |  |  |    |    

Cost of satellite services increased
$93 million in the nine months ended September 30,
2004, as compared to 2003. Other cost of satellite services
decreased $19 million due primarily to reduced external
satellite capacity costs of $10 million, decreased
insurance costs of $3 million primarily resulting from
non-renewal of insurance for Telstar 11 in the fourth quarter of
2003 and from the lower premium on renewal for Telstar 10/
Apstar IIR due to changes to coverage and lower costs of
$6 million in 2004 due to headcount and other cost
reductions. Depreciation and amortization expense increased
$20 million primarily due to an increase of
$15 million resulting from accelerating the estimated end
of depreciable life of our Telstar 11 satellite to June 2004
from March 2005 and increased depreciation expense of
$6 million for our Telstar 14/ Estrela do Sul-1 satellite
which commenced service at the end of March 2004 and our Telstar
18 satellite which commenced service in the beginning of
September 2004. Depreciation and amortization expense is
expected to approximate $17 million per quarter beginning
in the fourth quarter of 2004. In 2004, we incurred
$80 million of costs for a sales type lease arrangement and
an impairment charge of $12 million for Telstar 14/ Estrela
do Sul-1 satellite and related assets to reduce the carrying
values to the expected proceeds from insurance of
$250 million (see Note 8 to the financial statements).



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

|                                                                                           |                                                                 |               |     |             |  |            |     |     |   |  |     |     |   
|------------------------------------------------------------------------------------------ | --------------------------------------------------------------- | ------------- | --- | ----------- |  | ---------- | --- | --- | - |  | --- | --- | --
|                                                                                           |                                                                 |               |     |            
|                                                                                           |                                                                 | Nine Months   |     |            
|                                                                                           |                                                                 | Ended         |     |            
|                                                                                           |                                                                 | September 30, |     |            
|                                                                                           |                                                                 |               |     | % Increase/
|                                                                                           |                                                                 | 2004          |     | 2003        |  | (Decrease)
|                                                                                           |                                                                 |               |     |             |  |           
|                                                                                           |                                                                 |               |     |            
|                                                                                           |                                                                 | (In millions) |     |            
|Cost of satellite manufacturing includes:                                                  |                                                                 |               |     |             |  |            |     |     |   |  |     |    
|                                                                                           | Other cost of satellite manufacturing                           |               | $   | 230         |  |            | $   | 279 |   |  |     | (18 | )%
|                                                                                           | Loss on cancellation of deposits                                |               |     |            |  |            |     | 23  |   |  |     | N/A |   
|                                                                                           | Provisions for inventory obsolescence                           |               |     | 2           |  |            |     | 35  |   |  |     | (94 | )%
|                                                                                           | Accrual for Alcatel settlement                                  |               |     |            |  |            |     | 13  |   |  |     | N/A |   
|                                                                                           | Loss on acceleration of receipt of long-term
    receivables    |               |     |            |  |            |     | 11  |   |  |     | N/A |   
|                                                                                           | Valuation allowance on vendor financing
    receivables         |               |     |            |  |            |     | 10  |   |  |     | N/A |   
|                                                                                           | Reversal of costs on a satellite program changed
    to a lease |               |     |            |  |            |     | (73 | ) |  |     | N/A |   
|                                                                                           |                                                                 |               |     |             |  |            |     |     |   |  |     |    
|Cost of satellite manufacturing                                                            |                                                                 | $             | 232 |             |  | $          | 298 |     |   |  | (22 | )% 
|                                                                                           |                                                                 |               |     |             |  |            |     |     |   |  |     |    
|Cost of satellite manufacturing as a % of
    satellite manufacturing revenues as reported |                                                                 |               | 102 | %           |  |            | 183 | %   |   |  |     |    

The decrease of $66 million in the nine
months ended September 30, 2004, as compared to 2003 was
primarily due to the charges incurred in 2003 that were not
incurred in 2004 as detailed in the above table, lower overall
volume as satellite programs neared completion under the
percentage of completion method in

52



---



##### 



2004 and lower costs in 2004 due to headcount
reductions. This was offset by the reversal of $73 million
of costs on a satellite program that was changed to a lease
arrangement in the third quarter of 2003 (see Note 8 to the
financial statements) and costs incurred in 2004 on the new
satellite orders received in the fourth quarter of 2003.




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

|                                             |  |               |    |             |  |            |     |   |  |  |     |   
|-------------------------------------------- |  | ------------- | -- | ----------- |  | ---------- | --- | - |  |  | --- | --
|                                             |  |               |    |            
|                                             |  | Nine Months   |    |            
|                                             |  | Ended         |    |            
|                                             |  | September 30, |    |            
|                                             |  |               |    | % Increase/
|                                             |  | 2004          |    | 2003        |  | (Decrease)
|                                             |  |               |    |             |  |           
|                                             |  |               |    |            
|                                             |  | (In millions) |    |            
|Selling, general and administrative expenses |  | $             | 90 |             |  | $          | 106 |   |  |  | (15 | )%
|% of revenues as reported                    |  |               | 21 | %           |  |            | 38  | % |  |  |     |   

The decrease in selling, general and
administrative expenses of $16 million in the nine months
ended September 30, 2004, as compared to 2003 was primarily
due to lower bad debt expense of $9 million for satellite
services and lower research and development expenses and bid and
proposal expenses of $4 million and lower professional fees
of $4 million for SS/ L.



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

|                                          |  |               |    |                  |  |             |   |  |  |  |     |  
|----------------------------------------- |  | ------------- | -- | ---------------- |  | ----------- | - |  |  |  | --- | -
|                                          |  |               |    | Period from      |  |            
|                                          |  | Nine Months   |    | July 15, 2003    |  |            
|                                          |  | Ended         |    | (filing date) to |  |            
|                                          |  | September 30, |    | September 30,    |  | % Increase/
|                                          |  | 2004          |    | 2003             |  | (Decrease) 
|                                          |  |               |    |                  |  |            
|                                          |  |               |    |                 
|                                          |  | (In millions) |    |                 
|Reorganization expenses due to bankruptcy |  | $             | 27 |                  |  | $           | 9 |  |  |  | 212 | %

Reorganization expenses due to bankruptcy for the
nine months ended September 30, 2004, include professional
fees of $15 million, employee retention costs of
$9 million and severance costs of $4 million, offset
by interest income of $1 million. Reorganization expenses
due to bankruptcy for the period from July 15, 2003 (filing
date) to September 30, 2003, include professional fees of
$5 million and lease rejection claims of $6 million,
offset by interest income of $2 million.



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

|                               |  |               |   |             |  |            |    |  |  |  |     |   
|------------------------------ |  | ------------- | - | ----------- |  | ---------- | -- |  |  |  | --- | --
|                               |  |               |   |            
|                               |  | Nine Months   |   |            
|                               |  | Ended         |   |            
|                               |  | September 30, |   |            
|                               |  |               |   | % Increase/
|                               |  | 2004          |   | 2003        |  | (Decrease)
|                               |  |               |   |             |  |           
|                               |  |               |   |            
|                               |  | (In millions) |   |            
|Interest and investment income |  | $             | 7 |             |  | $          | 12 |  |  |  | (36 | )%

The decrease of $5 million in the nine
months ended September 30, 2004, as compared to 2003 was
due to lower interest income earned on satellite manufacturing
programs.



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

|                                          |  |               |    |             |  |            |     |   |  |  |     |   
|----------------------------------------- |  | ------------- | -- | ----------- |  | ---------- | --- | - |  |  | --- | --
|                                          |  |               |    |            
|                                          |  | Nine Months   |    |            
|                                          |  | Ended         |    |            
|                                          |  | September 30, |    |            
|                                          |  |               |    | % Increase/
|                                          |  | 2004          |    | 2003        |  | (Decrease)
|                                          |  |               |    |             |  |           
|                                          |  |               |    |            
|                                          |  | (In millions) |    |            
|Interest cost before capitalized interest |  | $             | 2  |             |  | $          | 28  |   |  |  | (94 | )%
|Capitalized interest                      |  |               | (1 | )           |  |            | (10 | ) |  |  | (91 | )%
|                                          |  |               |    |             |  |            |     |   |  |  |     |   
|Interest expense                          |  | $             | 1  |             |  | $          | 18  |   |  |  | (96 | )%
|                                          |  |               |    |             |  |            |     |   |  |  |     |   

53



---



##### 



Interest expense decreased $17 million in
the nine months ended September 30, 2004, as compared to
2003. This was primarily due to the fact that subsequent to our
voluntary petitions for reorganization on July 15, 2003, we
only recognized and paid interest on our secured bank debt
through March 18, 2004 and stopped recognizing and paying
interest on all other outstanding debt obligations and preferred
stock. Capitalized interest decreased to $1 million for the
nine months ended September 30, 2004, which was due to us
no longer incurring interest expense on our secured bank debt
that we repaid in March 2004. Interest cost will continue to be
minimal while we are in Chapter 11.



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

|                       |  |               |    |      |  |   |   | 
|---------------------- |  | ------------- | -- | ---- |  | - | - | 
|                       |  |              
|                       |  | Nine Months  
|                       |  | Ended        
|                       |  | September 30,
|                       |  |              
|                       |  | 2004          |    | 2003
|                       |  |               |    |     
|                       |  |              
|                       |  | (In millions)
|Other income (expense) |  | $             | (2 | )    |  | $ | 2 | 

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



| |                   
| | ------------------
| | Gain on Investment

During the nine months ended September 30,
2003, we realized an $18 million gain on the sale of all
59 million shares of our Sirius common stock.



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

During 2004 and 2003, we continued to maintain
the 100% valuation allowance established at December 31,
2002 and recorded no benefit for our domestic loss. For the nine
months ended September 30, 2004, we recorded a tax
provision of $12.0 million on a pre-tax loss of
$157.2 million, which primarily includes the additional
valuation allowance of $11.4 million related to the
reversal of deferred tax liabilities from Accumulated Other
Comprehensive Loss (see Notes 3 and 6 to the financial
statements) and a provision for foreign income taxes. For the
nine months ended September 30, 2003, we recorded a tax
benefit of $7.4 million on a pre-tax loss of
$255.6 million, which primarily includes the
reclassification of a tax provision to income from discontinued
operations offset by a deferred tax liability recorded for
certain foreign entities.



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

|                                                            |  |               |      |      |  |   |       |  
|----------------------------------------------------------- |  | ------------- | ---- | ---- |  | - | ----- | -
|                                                            |  |              
|                                                            |  | Nine Months  
|                                                            |  | Ended        
|                                                            |  | September 30,
|                                                            |  |              
|                                                            |  | 2004          |      | 2003
|                                                            |  |               |      |     
|                                                            |  |              
|                                                            |  | (In millions)
|XTAR                                                        |  | $             |     |      |  | $ | (4.8  | )
|Satmex                                                      |  |               |     |      |  |   | (51.7 | )
|Globalstar and Globalstar service provider
    partnerships |  |               | 46.5 |      |  |   | 0.9   |  
|                                                            |  |               |      |      |  |   |       |  
|                                                            |  | $             | 46.5 |      |  | $ | (55.6 | )
|                                                            |  |               |      |      |  |   |       |  

In connection with Globalstars liquidation
on June 29, 2004, we recorded equity income of
$47 million relating to Globalstar, on the reversal of
vendor financing that was non-recourse to SS/ L in the event of
non-payment by Globalstar. During 2004, we did not provide for
our allocated share of Satmexs net losses, due to our
write-off of our remaining investment in Satmex in the third
quarter of 2003. Our equity losses in Satmex in 2003, of
$52 million include our write-off of our remaining
investment in Satmex of $29 million. Our losses from XTAR
decreased in 2004 as compared to 2003 primarily due to lower
profit elimination. See Note 9 to the financial statements.

54



---



##### 





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

Discontinued operations represents the results of
the North American satellites and related assets sold to
Intelsat on March 14, 2004 and includes interest expense on
our secured bank debt through March 18, 2004 (see
Interest Expenseabove). In 2004, the results of the
discontinued operations are for the period from January 1,
2004 to March 17, 2004, the date of the sale and include
the write-off of approximately $11 million of debt issue
costs to interest expense relating to our secured debt that was
repaid. For the purpose of this presentation, in accordance with
SFAS 144, all indirect costs normally associated with these
operations are included in continuing operations. These indirect
costs include telemetry, tracking and control, access control,
maintenance and engineering, selling and marketing and general
and administrative. See Note 4 to the financial statements.



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

On July 1, 2003, we adopted
SFAS No. 150, and as a result, recorded a charge of
$2 million for the amortization of expenses incurred on the
issuance of our preferred stock from their issuance dates
through June 30, 2003, that were not previously amortized,
as a cumulative effect of change in accounting principle. See
Note 18 to the financial statements.



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

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



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

|                    |  |               |   |             |  |            |   |  |  |  |     | 
|------------------- |  | ------------- | - | ----------- |  | ---------- | - |  |  |  | --- | 
|                    |  |               |   |            
|                    |  | Nine Months   |   |            
|                    |  | Ended         |   |            
|                    |  | September 30, |   |            
|                    |  |               |   | % Increase/
|                    |  | 2004          |   | 2003        |  | (Decrease)
|                    |  |               |   |             |  |           
|                    |  |               |   |            
|                    |  | (In millions) |   |            
|Preferred dividends |  | $             |  |             |  | $          | 7 |  |  |  | N/A | 

The $7 million decrease in the nine months
ended September 30, 2004, as compared to 2003 was primarily
due to the adoption of SFAS 150 on July 1, 2003, which
requires that dividends be included in interest expense (see
Interest Expense above).



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



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

Backlog before eliminations was $928 million
at September 30, 2004 (including $102 million for
Telstar 14/ Estrela do Sul-1 and intercompany backlog of
$109 million), which was reduced by $178 million
during the third quarter of 2004, as a result of the shortening
of the life of Telstar 14/ Estrela do Sul-1 (see Note 8 to
the financial statements). Backlog before eliminations was
$1.4 billion (as adjusted to remove the backlog related to
the North American satellites sold) at December 31, 2003,
including $282 million for Telstar 14/ Estrela do Sul-1 and
intercompany backlog of $182 million. Backlog before
eliminations includes $19 million and $24 million,
respectively, as a result of transactions entered into with
affiliates for the construction of satellites (primarily with
XTAR). Backlog at September 30, 2004 does not include
approximately $95 million for a satellite construction
order currently being finalized. Backlog at December 31,
2003, did not include approximately $240 million for the
construction of two satellites for satellite orders that were
being finalized.



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

As of September 30, 2004, Satellite Services
had five satellites in-orbit (including Telstar 14/ Estrela do
Sul-1 launched in January 2004 that did not fully deploy its
solar array, see Note 8 to the financial statements and
Telstar 11 which is in inclined orbit). At September 30,
2004, Satellite Services backlog totaled approximately
$529 million (including $102 million for Telstar 14/
Estrela do Sul-1 and intercompany backlog of $34 million),
which was reduced by $178 million during the third quarter
of 2004, as a result of the shortening of the life of Telstar
14/ Estrela do Sul-1 (see Note 8 to the financial
statements). At

55



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##### 



December 31, 2003, satellite services
backlog totaled approximately $830 million, (as adjusted to
remove the backlog related to the North American satellites
sold), including $282 million for Telstar 14/ Estrela do
Sul-1 and intercompany backlog of $37 million.




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

As of September 30, 2004, backlog for SS/ L
was approximately $399 million (which does not include
approximately $95 million for a satellite construction
order that is currently being finalized), including intercompany
backlog of approximately $75 million. At December 31,
2003, backlog for SS/ L was approximately $536 million
(which did not include approximately $240 million for
satellite construction orders that were being finalized),
including intercompany backlog of approximately
$145 million.

Liquidity and Capital Resources



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

As of September 30, 2004, we had
$169 million of available cash and $15 million of
restricted cash ($5 million included in other current
assets and $10 million included in other assets on our
consolidated balance sheet at September 30, 2004), after
repayment of all $967 million of our secured bank debt on
March 17, 2004 and had no further available credit. Cash
flow from Satellite Services is fairly predictable because it is
derived from an existing base of long-term customer contracts.
Cash flow from Satellite Manufacturing, however, is not as
predictable, because it depends on a number of factors, some of
which are not within SS/ Ls control.

During October 2004, we settled an insurance
claim for $9.3 million ($4.6 million received in
October 2004) with our insurers with respect to a satellite that
was sold. The receipt of the insurance claim will be recognized
in the fourth quarter of 2004.

Based upon our Plan for emergence from
Chapter 11, we believe that we will not require any
additional financing to fund operations.



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

Contractual obligations, as previously disclosed
in our latest Annual Report on Form 10-K, have been reduced
by $967 million due to the repayment of all of our
outstanding secured bank debt on March 17, 2004 (see
Note 2 to the financial statements) and also reduced by
$47 million due to the reversal of non-recourse vendor
financing upon Globalstars liquidation on June 29,
2004 (see Notes 9 and 11 to the financial statements).



| |                                              
| | ---------------------------------------------
| | Net Cash Provided by Operating
    Activities

Net cash provided by operating activities in the
nine months ended September 30, 2004 was $59 million.
This was primarily due to an increase in customer advances of
$69 million for new satellite programs and a decrease of
contracts-in-process of $32 million primarily resulting
from net collections on customer contracts, which was offset by
net loss adjusted for non-cash items of $48 million.

Net cash provided by operating activities in the
nine months ended September 30, 2003 was $39 million.
This was primarily due to a decrease in long-term receivables of
$76 million primarily from accelerated collections of
orbital receivables, a decrease in contracts-in-process of
$26 million primarily resulting from net collections on
customer contracts, a decrease in deposits of $23 million
resulting from the assignment of launch vehicles to satellite
programs and a decrease in other current assets and other assets
of $21 million primarily due to a decrease in prepaid
insurance and pension costs recorded in 2003. These decreases
were offset by net loss adjusted for non-cash items of
$59 million and a decrease in customer advances of
$54 million primarily due to progress on satellite programs.

56



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##### 





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

Represents the net cash provided from the
operations of the North American satellites and related
equipment prior to their sale.



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

Net cash provided by investing activities was
$917 million in the nine months ended September 30,
2004. This primarily resulted from the $954 million of
proceeds from the sale of our North American satellites and
related assets, net of expenses, offset by capital expenditures
for continuing operations of $19 million and capital
expenditures for discontinued operations of $11 million,
mainly for the construction of satellites, and investments in
and advances to affiliates of $6 million, primarily for
XTAR.

Net cash used in investing activities was
$59 million in the nine months ended September 30,
2003. This primarily resulted from capital expenditures for
continuing operations of $45 million and capital
expenditures for discontinued operations of $42 million
mainly for the construction of satellites, and advances to
affiliates of $19 million, primarily for XTAR, offset by
$46 million of proceeds from the sale of Sirius common
stock.



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

Net cash used in financing activities was
$967 million in the nine months ended September 30,
2004, resulting from our repayment of our bank term loans and
revolving credit facilities, primarily with the proceeds from
the sale of the North America satellites and related assets.

Net cash provided by financing activities was
$1 million in the nine months ended September 30,
2003, primarily due to net borrowings under revolving credit
facilities of $71 million and proceeds from stock issuances
of $4 million, offset by debt amortization payments of
$70 million (including $31 million of interest
payments on the 10% senior notes) and bank amendment costs
of $5 million.



| |       
| | ------
| | Equity

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



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

Loral has made certain investments in joint
ventures in the satellite services business that are accounted
for under the equity method of accounting. See Note 9 to
the financial statements.

Commitments and Contingencies



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

Our business and operations are subject to a
significant number of risks. The most significant of these risks
are summarized in, and the readers attention is directed
to, the section of our Annual Report on Form 10-K for the
year ended December 31, 2003 entitled
Managements Discussion and Analysis of Results of
Operations and Financial Condition  Commitments and
Contingencies  Risk Factors. In addition, the
reader is referred to Note 15 (Commitments and
Contingencies) of the financial statements of this Quarterly
Report on Form 10-Q for further discussion of these risks.

57



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##### 



Other Matters



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

During 2004, we adopted a new accounting
pronouncement (see Note 18 to the financial statements).



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

When we filed Chapter 11, SS/Ls hedges
with counterparties (primarily yen-denominated forward
contracts) were cancelled leaving SS/L vulnerable to foreign
currency fluctuations in the future. The inability to enter into
forward contracts exposes SS/Ls future revenues, costs and
cash associated with anticipated yen denominated receipts and
payments to currency fluctuations. As of September 30,
2004, SS/L had the following amounts denominated in Japanese yen
(which has been translated into U.S. dollars based on the
September 30, 2004 exchange rate) that were unhedged (in
millions):

|                                            |  |              |       |        |  |   |      | 
|------------------------------------------- |  | ------------ | ----- | ------ |  | - | ---- | 
|                                            |  | Japanese Yen |       | U.S. $
|                                            |  |              |       |       
|Future revenues                             |  | ¥            | 2,006 |        |  | $ | 18.1 | 
|Future expenditures                         |  |              | 711   |        |  |   | 6.4  | 
|Contracts-in-process (unbilled receivables) |  |              | 1,589 |        |  |   | 14.3 | 

At September 30, 2004, SS/ L also had future
expenditures in euros of 1.8 million ($2.2 million
U.S.) that were unhedged.



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

(a) Disclosure controls and
procedures. Our chief executive officer and our chief
financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in
the Securities and Exchange Act of 1934 Rules 13a-15(e) or
15d-15(e)) as of September 30, 2004, have concluded that
our disclosure controls and procedures were effective and
designed to ensure that material information relating to Loral
and its consolidated subsidiaries required to be in our filings
under the Securities and Exchange Act of 1934 would be made
known to them by others within those entities in a timely manner.

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

PART II.

OTHER INFORMATION



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

Loral and certain of its subsidiaries (the
Debtor Subsidiaries) filed voluntary petitions for
reorganization under Chapter 11 of title 11 of the
United States Code (the Bankruptcy Code) on
July 15, 2003 in the United States Bankruptcy Court for the
Southern District of New York (the Bankruptcy
Court). We and our Debtor Subsidiaries continue to manage
our properties and operate our businesses as debtors in
possession under the jurisdiction of the Bankruptcy Court
and in accordance with the provisions of the Bankruptcy Code.

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

58



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##### 



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

See Note 15 to the financial statements.



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

(a) On July 15, 2003, we and our Debtor
Subsidiaries filed voluntary petitions for reorganization under
the Bankruptcy Code in the Bankruptcy Court (Lead Case
No. 03-41710 (RDD), Case Nos. 03-41709 (RDD) through
03-41728 (RDD)). As a result of our voluntary petitions for
reorganization, our prepetition debt obligations were
accelerated (see Note 12 to the financial statements). On
July 15, 2003, we suspended interest payments on all of our
unsecured senior notes. As of September 30, 2004, the
principal amounts of our prepetition outstanding debt
obligations were $1.049 billion.

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

We do not intend to make interest or dividend
payments to cure these defaults, and the lenders, noteholders
and preferred stockholders have not issued waivers related to
these defaults.



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

(a) Exhibits

The following exhibits are filed as part of this
report:

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

59



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##### 



(b) Reports on Form 8-K

|                   |  |                                                      |  |                                                                                                                                                                            
|------------------ |  | ---------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report     |  |                                                      |  | Description                                                                                                                                                                
|                   |  |                                                      |  |                                                                                                                                                                            
|July 23, 2004      |  | Item 5  Other Events and Required
    FD Disclosure |  | Agreement with Official Committee of Unsecured
    Creditors on the principal terms of a plan of reorganization.                                                           
|August 10, 2004    |  | Item 9  Regulation FD
    Disclosure                |  | Monthly Operating Report for the Period of
    May 22, 2004 through June 30, 2004 as filed with the
    U.S. Bankruptcy Court for the Southern District of New York.       
|August 23, 2004    |  | Item 8.01  Other Events                             |  | Filing of plan of reorganization with the
    U.S. Bankruptcy Court for the Southern District of New York.                                                                 
|                   |  | Item 9.01  Financial Statements
    and Exhibits    |  | Exhibits  Plan of Reorganization and
    Press Release.                                                                                                                   
|September 13, 2004 |  | Item 7.01  Regulation FD
    Disclosure             |  | Monthly Operating Report for the Period of
    July 1, 2004 through July 23, 2004 as filed with the
    U.S. Bankruptcy Court for the Southern District of New York.       
|September 27, 2004 |  | Item 7.01  Regulation FD
    Disclosure             |  | Monthly Operating Report for the Period of
    July 24, 2004 through August 20, 2004 as filed with
    the U.S. Bankruptcy Court for the Southern District of New
    York.

60



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##### 



SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                                        
| | ---------------------------------------
| | 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

Date: November 9, 2004

61



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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

62