##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


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


SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2005


Commission file number 1-14180


Loral Space & Communications Ltd.


c/o Loral SpaceCom Corporation


600 Third Avenue


New York, New York 10016


Telephone: (212) 697-1105


Jurisdiction of incorporation: Bermuda


IRS identification number: 13-3867424




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TABLE OF CONTENTS



|                                                                                                               |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1. FINANCIAL INFORMATION                                                                                 
|                                                                                                               | Item 1. Financial Statements                                                                 
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATED BALANCE SHEETS               
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET(a)                                                             
|CONDENSED CONSOLIDATING BALANCE SHEET                                                                         
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS                                                               
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS                                                               
|CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS                                                               
|CONDENSED CONSOLIDATING BALANCE SHEET                                                                         
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS                                                               
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS                                                               
|CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS                                                               
|                                                                                                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                                                                               | Item 4. Disclosure Controls and Procedures                                                   
|PART II. OTHER INFORMATION                                                                                    
|                                                                                                               | Item 1. Legal Proceedings                                                                    
|                                                                                                               | Item 3. Defaults Upon Senior Securities                                                      
|                                                                                                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                                    
|EXHIBIT INDEX                                                                                                 
|EX-12: COMPUTATION OF DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES                                           
|EX-31.1: CERTIFICATION                                                                                        
|EX-31.2: CERTIFICATION                                                                                        
|EX-32.1: CERTIFICATION                                                                                        
|EX-32.2: CERTIFICATION                                                                                        



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##### Table of Contents






PART 1.


FINANCIAL INFORMATION







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




LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands, except par value)


(Unaudited)


|                                                               |                                      |                                                               |                                             |            |              |            |           |            |         |            |  
|-------------------------------------------------------------- | ------------------------------------ | ------------------------------------------------------------- | ------------------------------------------- | ---------- | ------------ | ---------- | --------- | ---------- | ------- | ---------- | -
|                                                               |                                      | September 30,                                                 |                                             |            | December 31, |           
|                                                               |                                      | 2005                                                          |                                             |            | 2004         |           
|                                                               |                                      |                                                               |                                             |            |              |           
|ASSETS                                                        
|Current assets:                                                |                                      |                                                               |                                             |            |              |            |           |           
|                                                               | Cash and cash equivalents            |                                                               | $                                           | 198,653    |              |            | $         | 147,773    |        
|                                                               | Accounts receivable, net             |                                                               |                                             | 14,455     |              |            |           | 12,132     |        
|                                                               | Contracts-in-process                 |                                                               |                                             | 91,355     |              |            |           | 19,040     |        
|                                                               | Inventories                          |                                                               |                                             | 45,497     |              |            |           | 37,412     |        
|                                                               | Other current assets                 |                                                               |                                             | 41,255     |              |            |           | 21,096     |        
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total current assets                        |            |              | 391,215    |           |            |         | 237,453    |  
|Property, plant and equipment, net                             |                                      |                                                               | 536,541                                     |            |              |            | 798,908   |           
|Long-term receivables                                          |                                      |                                                               | 67,636                                      |            |              |            | 74,851    |           
|Investments in and advances to affiliates                      |                                      |                                                               | 53,739                                      |            |              |            | 49,181    |           
|Deposits                                                       |                                      |                                                               | 9,805                                       |            |              |            | 9,832     |           
|Other assets                                                   |                                      |                                                               | 42,073                                      |            |              |            | 48,508    |           
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total assets                                |            | $            | 1,101,009  |           |            | $       | 1,218,733  |  
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                              
|LIABILITIES AND SHAREHOLDERS DEFICIT                         
|Liabilities not subject to compromise:                         |                                      |                                                               |                                             |            |              |            |           |           
|                                                               | Current liabilities:                 |                                                               |                                             |            |              |            |           |            |        
|                                                               |                                      | Accounts payable                                              |                                             | $          | 36,142       |            |           | $          | 33,248  |           
|                                                               |                                      | Accrued employment costs                                      |                                             |            | 33,945       |            |           |            | 34,385  |           
|                                                               |                                      | Customer advances and billings in excess of costs and profits |                                             |            | 108,395      |            |           |            | 164,981 |           
|                                                               |                                      | Deferred gain on sale of assets (Note 4)                      |                                             |            |             |            |           |            | 10,545  |           
|                                                               |                                      | Income taxes payable                                          |                                             |            |             |            |           |            | 2,359   |           
|                                                               |                                      | Other current liabilities                                     |                                             |            | 25,409       |            |           |            | 16,639  |           
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total current liabilities                   |            |              | 203,891    |           |            |         | 262,157    |  
|                                                               | Pension liabilities (Note 3)         |                                                               |                                             |           |              |            |           | 942        |        
|                                                               | Long-term liabilities                |                                                               |                                             | 84,574     |              |            |           | 81,355     |        
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total liabilities not subject to compromise |            |              | 288,465    |           |            |         | 344,454    |  
|Liabilities subject to compromise (Note 10)                    |                                      |                                                               | 1,913,969                                   |            |              |            | 1,916,000 |           
|Minority interest                                              |                                      |                                                               | 2,254                                       |            |              |            | 2,380     |           
|Commitments and contingencies (Notes 2, 8,
    10, 11, and 14) |                                      |                                                               |                                             |            |              |            |           |           
|Shareholders deficit:                                         |                                      |                                                               |                                             |            |              |            |           |           
|                                                               | Common stock, $.10 par value         |                                                               |                                             | 4,413      |              |            |           | 4,413      |        
|                                                               | Paid-in capital                      |                                                               |                                             | 3,392,825  |              |            |           | 3,392,825  |        
|                                                               | Treasury stock, at cost              |                                                               |                                             | (3,360     | )            |            |           | (3,360     | )      
|                                                               | Unearned compensation                |                                                               |                                             | (27        | )            |            |           | (87        | )      
|                                                               | Retained deficit                     |                                                               |                                             | (4,407,061 | )            |            |           | (4,348,231 | )      
|                                                               | Accumulated other comprehensive loss |                                                               |                                             | (90,469    | )            |            |           | (89,661    | )      
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total shareholders deficit                 |            |              | (1,103,679 | )         |            |         | (1,044,101 | )
|                                                               |                                      |                                                               |                                             |            |              |           
|                                                               |                                      |                                                               | Total liabilities and shareholders deficit |            | $            | 1,101,009  |           |            | $       | 1,218,733  |  
|                                                               |                                      |                                                               |                                             |            |              |           



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share amounts)


(Unaudited)


|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |         |   |   |          |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------------------ | ------- | ------- | ----------------- | - | ------- | ------- | - | - | ------- | ------- | - | - | -------- | ------- | -
|                                                                                                                                                                                       |                         | Three Months Ended |         |         | Nine Months Ended |  
|                                                                                                                                                                                       |                         | September 30,      |         |         | September 30,     |  
|                                                                                                                                                                                       |                         |                    |         |         |                   |  
|                                                                                                                                                                                       |                         | 2005               |         |         | 2004              |   |         | 2005    |   |   | 2004    |        
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Revenues from satellite services                                                                                                                                                       |                         | $                  | 39,769  |         |                   | $ | 32,870  |         |   | $ | 110,596 |         |   | $ | 100,851  |        
|Revenues from sales-type lease arrangement  satellite
    services (Note 7)                                                                                                           |                         |                    |        |         |                   |   | 87,200  |         |   |   |        |         |   |   | 87,200   |        
|Revenues from satellite manufacturing                                                                                                                                                  |                         |                    | 120,274 |         |                   |   | 78,545  |         |   |   | 318,587 |         |   |   | 227,951  |        
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|                                                                                                                                                                                       | Total revenues          |                    |         | 160,043 |                   |   |         | 198,615 |   |   |         | 429,183 |   |   |          | 416,002 |  
|Cost of satellite services                                                                                                                                                             |                         |                    | 28,206  |         |                   |   | 33,509  |         |   |   | 94,169  |         |   |   | 149,701  |        
|Cost of sales-type lease arrangement  satellite
    services (Note 7)                                                                                                                 |                         |                    |        |         |                   |   | 79,543  |         |   |   |        |         |   |   | 79,543   |        
|Cost of satellite manufacturing                                                                                                                                                        |                         |                    | 116,504 |         |                   |   | 84,025  |         |   |   | 291,454 |         |   |   | 231,556  |        
|Selling, general and administrative expenses                                                                                                                                           |                         |                    | 23,107  |         |                   |   | 27,178  |         |   |   | 79,419  |         |   |   | 89,539   |        
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Income (loss) from continuing operations before reorganization
    expenses due to bankruptcy                                                                                          |                         |                    | (7,774  | )       |                   |   | (25,640 | )       |   |   | (35,859 | )       |   |   | (134,337 | )      
|Reorganization expenses due to bankruptcy                                                                                                                                              |                         |                    | (18,621 | )       |                   |   | (9,487  | )       |   |   | (31,236 | )       |   |   | (27,357  | )      
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Operating loss from continuing operations                                                                                                                                              |                         |                    | (26,395 | )       |                   |   | (35,127 | )       |   |   | (67,095 | )       |   |   | (161,694 | )      
|Interest and investment income                                                                                                                                                         |                         |                    | 2,307   |         |                   |   | 2,316   |         |   |   | 6,438   |         |   |   | 7,350    |        
|Interest expense (contractual interest was $12,410 and $11,332
    and $36,610 and $31,991 for the three and nine months ended
    September 30, 2005 and 2004, respectively, Note 11) |                         |                    | (1,533  | )       |                   |   | (937    | )       |   |   | (3,982  | )       |   |   | (768     | )      
|Other income (expense)                                                                                                                                                                 |                         |                    | 34      |         |                   |   | 1,927   |         |   |   | (931    | )       |   |   | (2,075   | )      
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Loss from continuing operations before income taxes, equity
    income (losses) in affiliates and minority interest                                                                    |                         |                    | (25,587 | )       |                   |   | (31,821 | )       |   |   | (65,570 | )       |   |   | (157,187 | )      
|Income tax (provision) benefit                                                                                                                                                         |                         |                    | (1,057  | )       |                   |   | 199     |         |   |   | (4,557  | )       |   |   | (11,984  | )      
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Loss from continuing operations before equity income (losses) in
    affiliates and minority interest                                                                                  |                         |                    | (26,644 | )       |                   |   | (31,622 | )       |   |   | (70,127 | )       |   |   | (169,171 | )      
|Equity income (losses) in affiliates (Note 8)                                                                                                                                          |                         |                    | (1,239  | )       |                   |   | (53     | )       |   |   | (2,796  | )       |   |   | 46,527   |        
|Minority interest                                                                                                                                                                      |                         |                    | 83      |         |                   |   | (26     | )       |   |   | 126     |         |   |   | 100      |        
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Loss from continuing operations                                                                                                                                                        |                         |                    | (27,800 | )       |                   |   | (31,701 | )       |   |   | (72,797 | )       |   |   | (122,544 | )      
|Income (loss) from discontinued operations (Note 4)                                                                                                                                    |                         |                    |        |         |                   |   | 299     |         |   |   |        |         |   |   | (11,163  | )      
|Gain on sale of discontinued operations, net of taxes
    (Note 4)                                                                                                                     |                         |                    | 2,596   |         |                   |   |        |         |   |   | 13,967  |         |   |   |         |        
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Net loss                                                                                                                                                                               |                         | $                  | (25,204 | )       |                   | $ | (31,402 | )       |   | $ | (58,830 | )       |   | $ | (133,707 | )      
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Basic and diluted (loss) earnings per share (Note 15):                                                                                                                                 |                         |                    |         |         |                   |   |         |         |   |   |         |         |   |   |          |        
|                                                                                                                                                                                       | Continuing operations   |                    | $       | (0.63   | )                 |   | $       | (0.72   | ) |   | $       | (1.65   | ) |   | $        | (2.78   | )
|                                                                                                                                                                                       | Discontinued operations |                    |         | 0.06    |                   |   |         | 0.01    |   |   |         | 0.32    |   |   |          | (0.25   | )
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|                                                                                                                                                                                       | Loss per share          |                    | $       | (0.57   | )                 |   | $       | (0.71   | ) |   | $       | (1.33   | ) |   | $        | (3.03   | )
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        
|Weighted average shares outstanding:                                                                                                                                                   |                         |                    |         |         |                   |   |         |         |   |   |         |         |   |   |          |        
|                                                                                                                                                                                       | Basic and diluted       |                    |         | 44,108  |                   |   |         | 44,108  |   |   |         | 44,108  |   |   |          | 44,108  |  
|                                                                                                                                                                                       |                         |                    |         |         |                   |   |         |         |   |   |         |        



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


(Unaudited)


|                                                                                 |                                                                            |                   |          |         |      |   |          |          |  
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------- | -------- | ------- | ---- | - | -------- | -------- | -
|                                                                                 |                                                                            | Nine Months Ended |         
|                                                                                 |                                                                            | September 30,     |         
|                                                                                 |                                                                            |                   |         
|                                                                                 |                                                                            | 2005              |          |         | 2004 |  
|                                                                                 |                                                                            |                   |          |         |      |  
|Operating activities:                                                            |                                                                            |                   |          |         |      |   |          |         
|Net loss                                                                         |                                                                            | $                 | (58,830  | )       |      | $ | (133,707 | )       
|Non-cash items:                                                                  |                                                                            |                   |          |         |      |   |          |         
|                                                                                 | Gain on sale of discontinued operations, net of taxes
    (Note 4)         |                   |          | (13,967 | )    |   |          |         |  
|                                                                                 | Loss from discontinued operations                                          |                   |          |        |      |   |          | 11,163   |  
|                                                                                 | Equity (income) losses in affiliates                                       |                   |          | 2,796   |      |   |          | (46,527  | )
|                                                                                 | Minority interest                                                          |                   |          | (126    | )    |   |          | (100     | )
|                                                                                 | Deferred taxes                                                             |                   |          | 336     |      |   |          | 11,434   |  
|                                                                                 | Depreciation and amortization                                              |                   |          | 61,277  |      |   |          | 105,458  |  
|                                                                                 | Provisions (recoveries) for bad debts                                      |                   |          | (2,886  | )    |   |          | (1,606   | )
|                                                                                 | Warranty accrual relating to pre-existing contracts                        |                   |          | 11,850  |      |   |          |         |  
|                                                                                 | Impairment charge on satellite and related assets                          |                   |          |        |      |   |          | 11,989   |  
|                                                                                 | Profit on sales-type lease arrangement (Note 7)                            |                   |          |         |      |   |          | (7,657   | )
|                                                                                 | Loss on equipment disposals                                                |                   |          | 3,456   |      |   |          |         |  
|                                                                                 | Lease revenue straightline adjustment                                      |                   |          |        |      |   |          | 1,149    |  
|                                                                                 | Non-cash net (gain) loss on foreign currency transactions
    and interest |                   |          | 693     |      |   |          | (1,641   | )
|                                                                                 | Provisions for inventory obsolescence                                      |                   |          | 898     |      |   |          | 2,263    |  
|Changes in operating assets and liabilities:                                     |                                                                            |                   |          |         |      |   |          |         
|                                                                                 | Accounts receivable, net                                                   |                   |          | 563     |      |   |          | 11,091   |  
|                                                                                 | Contracts-in-process                                                       |                   |          | (76,464 | )    |   |          | 31,895   |  
|                                                                                 | Inventories                                                                |                   |          | (8,983  | )    |   |          | 4,038    |  
|                                                                                 | Long-term receivables                                                      |                   |          | (22,361 | )    |   |          | (10,794  | )
|                                                                                 | Other current assets and other assets                                      |                   |          | 13,012  |      |   |          | 1,764    |  
|                                                                                 | Accounts payable                                                           |                   |          | (1,285  | )    |   |          | 2,419    |  
|                                                                                 | Accrued expenses and other current liabilities                             |                   |          | 8,341   |      |   |          | 987      |  
|                                                                                 | Customer advances                                                          |                   |          | (62,212 | )    |   |          | 68,850   |  
|                                                                                 | Income taxes payable                                                       |                   |          | 2,066   |      |   |          | (2,742   | )
|                                                                                 | Pension and other postretirement liabilities                               |                   |          | (3,650  | )    |   |          | 3,315    |  
|                                                                                 | Long-term liabilities                                                      |                   |          | 1,844   |      |   |          | (4,600   | )
|                                                                                 | Other                                                                      |                   |          | (195    | )    |   |          | 92       |  
|                                                                                 |                                                                            |                   |          |         |      |  
|Net cash (used in) provided by operating activities of
    continuing operations |                                                                            |                   | (143,827 | )       |      |   | 58,533   |         
|                                                                                 |                                                                            |                   |          |         |      |  
|Net cash provided by operating activities of discontinued
    operations         |                                                                            |                   |         |         |      |   | 18,351   |         
|                                                                                 |                                                                            |                   |          |         |      |  
|Net cash (used in) provided by operating activities                              |                                                                            |                   | (143,827 | )       |      |   | 76,884   |         
|                                                                                 |                                                                            |                   |          |         |      |  
|Investing activities:                                                            |                                                                            |                   |          |         |      |   |          |         
|                                                                                 | Capital expenditures for continuing operations                             |                   |          | (4,649  | )    |   |          | (19,441  | )
|                                                                                 | Decrease in restricted cash in escrow                                      |                   |          | 1,566   |      |   |          |         |  
|                                                                                 | Insurance proceeds received (Note 7)                                       |                   |          | 205,000 |      |   |          |         |  
|                                                                                 | Investments in and advances to affiliates                                  |                   |          | (7,354  | )    |   |          | (5,711   | )
|                                                                                 |                                                                            |                   |          |         |      |  
|Net cash provided by (used in) investing activities of
    continuing operations |                                                                            |                   | 194,563  |         |      |   | (25,152  | )       
|                                                                                 |                                                                            |                   |          |         |      |  
|Proceeds from the sales of assets, net of expenses (Note 2)                      |                                                                            |                   | 144      |         |      |   | 953,619  |         
|Capital expenditures for discontinued operations                                 |                                                                            |                   |         |         |      |   | (11,185  | )       
|                                                                                 |                                                                            |                   |          |         |      |  
|Net cash provided by investing activities of discontinued
    operations         |                                                                            |                   | 144      |         |      |   | 942,434  |         
|                                                                                 |                                                                            |                   |          |         |      |  
|Net cash provided by investing activities                                        |                                                                            |                   | 194,707  |         |      |   | 917,282  |         
|                                                                                 |                                                                            |                   |          |         |      |  
|Financing activities:                                                            |                                                                            |                   |          |         |      |   |          |         
|                                                                                 | Repayments of term loans                                                   |                   |          |        |      |   |          | (576,500 | )
|                                                                                 | Repayments of revolving credit facilities                                  |                   |          |        |      |   |          | (390,387 | )
|                                                                                 |                                                                            |                   |          |         |      |  
|Net cash used in financing activities                                            |                                                                            |                   |         |         |      |   | (966,887 | )       
|                                                                                 |                                                                            |                   |          |         |      |  
|Increase in cash and cash equivalents                                            |                                                                            |                   | 50,880   |         |      |   | 27,279   |         
|                                                                                 | Cash and cash equivalents  beginning of period                            |                   |          | 147,773 |      |   |          | 141,644  |  
|                                                                                 |                                                                            |                   |          |         |      |  
|                                                                                 | Cash and cash equivalents  end of period                                  |                   | $        | 198,653 |      |   | $        | 168,923  |  
|                                                                                 |                                                                            |                   |          |         |      |  



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##### Table of Contents






LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




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





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



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



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







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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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







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



5



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A new reorganized Loral (New Loral) that will be a
    publicly owned company under current management and listed on a
    major stock exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Our two businesses, Satellite Manufacturing (New SS/
    L) and Satellite Services (New Skynet), will
    emerge intact as separate subsidiaries of New Loral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | New SS/ L will emerge debt-free.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Holders of allowed claims against SS/ L and Loral SpaceCom will
    be paid in cash in full, including interest from the petition
    date to the effective date of the Plan of Reorganization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Twenty million shares of New Loral common stock will be issued
    to our distribution agent on the effective date of the Plan of
    Reorganization and will be distributed in accordance with the
    Plan of Reorganization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Loral Orion unsecured creditors will receive approximately
    77 percent of the New Loral common stock and their pro rata
    share of $200 million of preferred stock to be issued by
    New Skynet. These creditors were also offered the right to
    subscribe to purchase their pro-rata share of $120 million
    in new senior secured notes of New Skynet (the New Skynet
    Notes), which rights offering was underwritten by certain
    Loral Orion creditors (the Backstop Purchasers) who
    will receive a $6 million fee which is payable in
    additional New Skynet Notes. The rights offering expired on
    July 29, 2005, with creditors subscribing for approximately
    $98.3 million of New Skynet Notes. The remaining
    $21.7 million of such notes will be subscribed for by the
    Backstop Purchasers. Distributions of preferred stock and New
    Skynet Notes to these creditors will be made in accordance with
    the Plan of Reorganization.
|
| |  | Loral bondholders and certain other unsecured creditors will
    receive approximately 23 percent of the common stock of New
    Loral. Distributions of New Loral common stock to these
    creditors will be made in accordance with the Plan of
    Reorganization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | New Loral will issue 1,283,500 stock options to employees and
    106,952 stock options to its new Vice Chairman 30 days
    after emergence at the fair market value as defined in the stock
    option plan of New Loral.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Existing common and preferred stock will be cancelled and no
    distribution will be made to the holders of such stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    





6



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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









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



7



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



|                                   |  |                  |        |   |                |   |        |               |  |   |               |   |  |      |         |   |      |   |      |      |  |   |       |   |  |   |        |   |  |   |        |  
|---------------------------------- |  | ---------------- | ------ | - | -------------- | - | ------ | ------------- |  | - | ------------- | - |  | ---- | ------- | - | ---- | - | ---- | ---- |  | - | ----- | - |  | - | ------ | - |  | - | ------ | -
|                                   |  | Pension Benefits |        |   | Other Benefits |  
|                                   |  |                  |        |   |                |  
|                                   |  | Three Months     |        |   | Nine Months    |   |        | Three Months  |  |   | Nine Months   |  
|                                   |  | Ended            |        |   | Ended          |   |        | Ended         |  |   | Ended         |  
|                                   |  | September 30,    |        |   | September 30,  |   |        | September 30, |  |   | September 30, |  
|                                   |  |                  |        |   |                |   |        |               |  |   |               |  
|                                   |  | 2005             |        |   | 2004           |   |        | 2005          |  |   | 2004          |   |  | 2005 |         |   | 2004 |   |      | 2005 |  |   | 2004  |  
|                                   |  |                  |        |   |                |   |        |               |  |   |               |   |  |      |         |   |      |   |      |      |  |   |       |  
|Service cost                       |  | $                | 2,095  |   |                | $ | 2,324  |               |  | $ | 7,787         |   |  | $    | 6,972   |   |      | $ | (24  | )    |  | $ | 274   |   |  | $ | 680    |   |  | $ | 822    |  
|Interest cost                      |  |                  | 6,045  |   |                |   | 5,548  |               |  |   | 17,601        |   |  |      | 16,644  |   |      |   | 781  |      |  |   | 1,069 |   |  |   | 3,407  |   |  |   | 3,207  |  
|Expected return on plan assets     |  |                  | (5,133 | ) |                |   | (4,870 | )             |  |   | (15,343       | ) |  |      | (14,610 | ) |      |   | (48  | )    |  |   | (20   | ) |  |   | (78    | ) |  |   | (60    | )
|Amortization of prior service cost |  |                  | (9     | ) |                |   | (9     | )             |  |   | (27           | ) |  |      | (27     | ) |      |   | (481 | )    |  |   | (483  | ) |  |   | (1,443 | ) |  |   | (1,449 | )
|Amortization of net loss           |  |                  | 1,862  |   |                |   | 1,164  |               |  |   | 4,976         |   |  |      | 3,492   |   |      |   | 457  |      |  |   | 564   |   |  |   | 1,843  |   |  |   | 1,692  |  
|                                   |  |                  |        |   |                |   |        |               |  |   |               |   |  |      |         |   |      |   |      |      |  |   |       |  
|Net periodic benefit costs         |  | $                | 4,860  |   |                | $ | 4,157  |               |  | $ | 14,994        |   |  | $    | 12,471  |   |      | $ | 685  |      |  | $ | 1,404 |   |  | $ | 4,409  |   |  | $ | 4,212  |  
|                                   |  |                  |        |   |                |   |        |               |  |   |               |   |  |      |         |   |      |   |      |      |  |   |       |  

8



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                          |                                                                              |                         |   |       |         |   |   |        |         |  
|------------------------- | ---------------------------------------------------------------------------- | ----------------------- | - | ----- | ------- | - | - | ------ | ------- | -
|                          |                                                                              | Nine Months Ended       |  
|                          |                                                                              | September 30,           |  
|                          |                                                                              |                         |  
|                          |                                                                              | 2005                    |   |       | 2004    |  
|                          |                                                                              |                         |   |       |         |  
|Non-cash activities:      |                                                                              |                         |   |       |         |   |   |       
|                          | Unrealized (losses) gains on available-for-sale securities, net
    of taxes |                         | $ | (99   | )       |   | $ | 8,142  |        
|                          |                                                                              |                         |   |       |         |  
|                          | Unrealized net losses on derivatives, net of taxes                           |                         | $ | (487  | )       |   | $ | (1,468 | )      
|                          |                                                                              |                         |   |       |         |  
|Supplemental information: |                                                                              |                         |   |       |         |   |   |       
|                          | Taxes paid, net of refunds                                                   |                         | $ | 2,166 |         |   | $ | 3,627  |        
|                          |                                                                              |                         |   |       |         |  
|                          | Interest paid, net of capitalized interest                                   |                         | $ |      |         |   | $ |       |        
|                          |                                                                              |                         |   |       |         |  
|                          | Cash (paid) received for reorganization items:                               |                         |   |       |         |   |   |        |        
|                          |                                                                              | Professional fees       |   | $     | (17,533 | ) |   | $      | (14,082 | )
|                          |                                                                              |                         |   |       |         |  
|                          |                                                                              | Retention costs         |   | $     |        |   |   | $      | (6,402  | )
|                          |                                                                              |                         |   |       |         |  
|                          |                                                                              | Severance costs         |   | $     |        |   |   | $      | (1,288  | )
|                          |                                                                              |                         |   |       |         |  
|                          |                                                                              | Vendor settlement gains |   | $     |        |   |   | $      | 35      |  
|                          |                                                                              |                         |   |       |         |  
|                          |                                                                              | Restructuring costs     |   | $     | (55     | ) |   | $      |        |  
|                          |                                                                              |                         |   |       |         |  
|                          |                                                                              | Interest income         |   | $     | 2,536   |   |   | $      | 1,014   |  
|                          |                                                                              |                         |   |       |         |  



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



9



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                      |  |                |       |  |               |   |     |         |  |   |        |  |  |   |         |  
|----------------------------------------------------- |  | -------------- | ----- |  | ------------- | - | --- | ------- |  | - | ------ |  |  | - | ------- | -
|                                                      |  | Three Months   |       |  | Nine Months   |  
|                                                      |  | Ended          |       |  | Ended         |  
|                                                      |  | September 30,  |       |  | September 30, |  
|                                                      |  |                |       |  |               |  
|                                                      |  | 2005(a)        |       |  | 2004          |   |     | 2005(a) |  |   | 2004   | 
|                                                      |  |                |       |  |               |   |     |         |  |   |        | 
|                                                      |  | (In thousands) |      
|Revenues of discontinued operations                   |  | $              |      |  |               | $ |    |         |  | $ |       |  |  | $ | 29,106  |  
|                                                      |  |                |       |  |               |   |     |         |  |   |        | 
|Operating income (loss)                               |  | $              |      |  |               | $ | 299 |         |  | $ |       |  |  | $ | 13,592  |  
|Interest expense                                      |  |                |      |  |               |   |    |         |  |   |       |  |  |   | (24,755 | )
|                                                      |  |                |       |  |               |   |     |         |  |   |        | 
|Income (loss) before income taxes                     |  |                |      |  |               |   | 299 |         |  |   |       |  |  |   | (11,163 | )
|Income tax provision                                  |  |                |      |  |               |   |    |         |  |   |       |  |  |   |        |  
|                                                      |  |                |       |  |               |   |     |         |  |   |        | 
|Income (loss) from discontinued operations            |  |                |      |  |               |   | 299 |         |  |   |       |  |  |   | (11,163 | )
|Gain on sale of discontinued operations, net of taxes |  |                | 2,596 |  |               |   |    |         |  |   | 13,967 |  |  |   |        |  
|                                                      |  |                |       |  |               |   |     |         |  |   |        | 
|Income (loss) from discontinued operations            |  | $              | 2,596 |  |               | $ | 299 |         |  | $ | 13,967 |  |  | $ | (11,163 | )
|                                                      |  |                |       |  |               |   |     |         |  |   |        | 






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





|   |                   
|-- | ------------------
|5. | Comprehensive Loss



|                                                                             |                                                                                                    |                    |         |     |                   |   |         |      |  |   |         |      |   |   |          |        |  
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------ | ------- | --- | ----------------- | - | ------- | ---- |  | - | ------- | ---- | - | - | -------- | ------ | -
|                                                                             |                                                                                                    | Three Months Ended |         |     | Nine Months Ended |  
|                                                                             |                                                                                                    | September 30,      |         |     | September 30,     |  
|                                                                             |                                                                                                    |                    |         |     |                   |  
|                                                                             |                                                                                                    | 2005               |         |     | 2004              |   |         | 2005 |  |   | 2004    |     
|                                                                             |                                                                                                    |                    |         |     |                   |   |         |      |  |   |         |     
|Net loss                                                                     |                                                                                                    | $                  | (25,204 | )   |                   | $ | (31,402 | )    |  | $ | (58,830 | )    |   | $ | (133,707 | )     
|Cumulative translation adjustment                                            |                                                                                                    |                    | (73     | )   |                   |   | 65      |      |  |   | (222    | )    |   |   | 32       |       
|Unrealized gains (losses) on available-for-sale securities, net
    of taxes |                                                                                                    |                    | (54     | )   |                   |   |        |      |  |   | (99     | )    |   |   | 8,142    |       
|Foreign currency hedging:                                                    |                                                                                                    |                    |         |     |                   |   |         |      |  |   |         |      |   |   |          |       
|                                                                             | Reclassifications into revenue and cost of sales from other
    comprehensive income, net of taxes |                    |         | (14 | )                 |   |         | 15   |  |   |         | (487 | ) |   |          | (1,468 | )
|                                                                             |                                                                                                    |                    |         |     |                   |   |         |      |  |   |         |     
|Comprehensive loss                                                           |                                                                                                    | $                  | (25,345 | )   |                   | $ | (31,322 | )    |  | $ | (59,638 | )    |   | $ | (127,001 | )     
|                                                                             |                                                                                                    |                    |         |     |                   |   |         |      |  |   |         |     



10



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                     
|-- | --------------------
|6. | Contracts-in-Process

|                     |  |                |        |  |              |   |        | 
|-------------------- |  | -------------- | ------ |  | ------------ | - | ------ | 
|                     |  | September 30,  |        |  | December 31, |  
|                     |  | 2005           |        |  | 2004         |  
|                     |  |                |        |  |              |  
|                     |  | (In thousands) |       
|Amounts billed       |  | $              | 21,712 |  |              | $ | 8,146  | 
|Unbilled receivables |  |                | 69,643 |  |              |   | 10,894 | 
|                     |  |                |        |  |              |  
|                     |  | $              | 91,355 |  |              | $ | 19,040 | 
|                     |  |                |        |  |              |  





|                                                               |  |              |       |  |        |   |      | 
|-------------------------------------------------------------- |  | ------------ | ----- |  | ------ | - | ---- | 
|                                                               |  | Japanese Yen |       |  | U.S. $ |  
|                                                               |  |              |       |  |        |  
|Future revenues                                                |  | ¥            | 595   |  |        | $ | 5.3  | 
|Future expenditures                                            |  |              | 1,418 |  |        |   | 12.6 | 
|Contracts-in-process: unbilled receivables/(customer advances) |  |              | 183   |  |        |   | 1.6  | 





|   |                              
|-- | -----------------------------
|7. | Property, Plant and Equipment

|                                                                                  |  |                |           |   |              |   |           |  
|--------------------------------------------------------------------------------- |  | -------------- | --------- | - | ------------ | - | --------- | -
|                                                                                  |  | September 30,  |           |   | December 31, |  
|                                                                                  |  | 2005           |           |   | 2004         |  
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  | (In thousands) |          
|Land and land improvements                                                        |  | $              | 24,833    |   |              | $ | 24,827    |  
|Buildings                                                                         |  |                | 85,409    |   |              |   | 87,133    |  
|Leasehold improvements                                                            |  |                | 16,987    |   |              |   | 15,638    |  
|Satellites in-orbit, including satellite transponder rights of
    $279.6 million |  |                | 885,655   |   |              |   | 1,093,951 |  
|Earth stations                                                                    |  |                | 80,911    |   |              |   | 82,577    |  
|Equipment, furniture and fixtures                                                 |  |                | 278,364   |   |              |   | 276,948   |  
|Other construction in progress                                                    |  |                | 3,149     |   |              |   | 2,337     |  
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  |                | 1,375,308 |   |              |   | 1,583,411 |  
|Accumulated depreciation and amortization                                         |  |                | (838,767  | ) |              |   | (784,503  | )
|                                                                                  |  |                |           |   |              |  
|                                                                                  |  | $              | 536,541   |   |              | $ | 798,908   |  
|                                                                                  |  |                |           |   |              |  

11



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|   |                                          
|-- | -----------------------------------------
|8. | Investments in and Advances to Affiliates



|                        |  |               |        |  |              |   |        | 
|----------------------- |  | ------------- | ------ |  | ------------ | - | ------ | 
|                        |  | September 30, |        |  | December 31, |  
|                        |  | 2005          |        |  | 2004         |  
|                        |  |               |        |  |              |  
|XTAR equity investments |  | $             | 53,739 |  |              | $ | 49,181 | 
|                        |  |               |        |  |              |  

12



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                        |  |                    |        |   |                   |   |     |      |  |   |        |   |  |   |        |  
|------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | --- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                        |  | Three Months Ended |        |   | Nine Months Ended |  
|                                                        |  | September 30,      |        |   | September 30,     |  
|                                                        |  |                    |        |   |                   |  
|                                                        |  | 2005               |        |   | 2004              |   |     | 2005 |  |   | 2004   |  
|                                                        |  |                    |        |   |                   |   |     |      |  |   |        |  
|XTAR                                                    |  | $                  | (1,239 | ) |                   | $ | (53 | )    |  | $ | (2,796 | ) |  | $ | (40    | )
|Globalstar and Globalstar service provider partnerships |  |                    |       |   |                   |   |    |      |  |   |       |   |  |   | 46,567 |  
|                                                        |  |                    |        |   |                   |   |     |      |  |   |        |  
|                                                        |  | $                  | (1,239 | ) |                   | $ | (53 | )    |  | $ | (2,796 | ) |  | $ | 46,527 |  
|                                                        |  |                    |        |   |                   |   |     |      |  |   |        |  



|                                                                                        |  |                    |       |   |                   |   |       |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | ------------------ | ----- | - | ----------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                        |  | Three Months Ended |       |   | Nine Months Ended |  
|                                                                                        |  | September 30,      |       |   | September 30,     |  
|                                                                                        |  |                    |       |   |                   |  
|                                                                                        |  | 2005               |       |   | 2004              |   |       | 2005 |  |   | 2004   |  
|                                                                                        |  |                    |       |   |                   |   |       |      |  |   |        |  
|Revenues                                                                                |  | $                  | 5,410 |   |                   | $ | 1,851 |      |  | $ | 10,025 |   |  | $ | 7,063  |  
|Interest expense capitalized on development stage enterprise                            |  |                    |      |   |                   |   |      |      |  |   |       |   |  |   | 478    |  
|Elimination of our proportionate share of losses relating to
    affiliate transactions |  |                    | 246   |   |                   |   | 74    |      |  |   | 593    |   |  |   | 1,005  |  
|Losses relating to affiliate transactions not eliminated                                |  |                    | (194  | ) |                   |   | (548  | )    |  |   | (466   | ) |  |   | (1,279 | )



| |     
| | ----
| | XTAR









13



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












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







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



14



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














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



15



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                 
|-- | --------------------------------
|9. | Other Acquired Intangible Assets



|                  |  |                    |      |  |                   |   |       |        |  |   |              |  |  |   |       |  
|----------------- |  | ------------------ | ---- |  | ----------------- | - | ----- | ------ |  | - | ------------ |  |  | - | ----- | -
|                  |  | September 30, 2005 |      |  | December 31, 2004 |  
|                  |  |                    |      |  |                   |  
|                  |  | Gross              |      |  | Accumulated       |   |       | Gross  |  |   | Accumulated  | 
|                  |  | Amount             |      |  | Amortization      |   |       | Amount |  |   | Amortization | 
|                  |  |                    |      |  |                   |   |       |        |  |   |              | 
|Regulatory fees   |  | $                  | 22.5 |  |                   | $ | (9.1  | )      |  | $ | 22.5         |  |  | $ | (7.7  | )
|Other intangibles |  |                    | 13.0 |  |                   |   | (13.0 | )      |  |   | 13.0         |  |  |   | (12.0 | )
|                  |  |                    |      |  |                   |   |       |        |  |   |              | 
|                  |  | $                  | 35.5 |  |                   | $ | (22.1 | )      |  | $ | 35.5         |  |  | $ | (19.7 | )
|                  |  |                    |      |  |                   |   |       |        |  |   |              | 





|     |  |   |     | 
|---- |  | - | --- | 
|2005 |  | $ | 3.2 | 
|2006 |  |   | 2.8 | 
|2007 |  |   | 2.8 | 
|2008 |  |   | 2.8 | 
|2009 |  |   | 2.8 | 



|    |                                  
|--- | ---------------------------------
|10. | Liabilities Subject to Compromise





16



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                   |  |               |           |  |              |   |           | 
|-------------------------------------------------- |  | ------------- | --------- |  | ------------ | - | --------- | 
|                                                   |  | September 30, |           |  | December 31, |  
|                                                   |  | 2005          |           |  | 2004         |  
|                                                   |  |               |           |  |              |  
|Debt obligations (Note 11)                         |  | $             | 1,269,977 |  |              | $ | 1,269,977 | 
|Accounts payable                                   |  |               | 52,353    |  |              |   | 52,728    | 
|Accrued employment costs                           |  |               | 445       |  |              |   | 542       | 
|Customer advances                                  |  |               | 25,211    |  |              |   | 30,837    | 
|Accrued interest and preferred dividends           |  |               | 40,348    |  |              |   | 40,428    | 
|Income taxes payable                               |  |               | 41,921    |  |              |   | 38,934    | 
|Pension and other postretirement liabilities       |  |               | 175,938   |  |              |   | 178,647   | 
|Other liabilities                                  |  |               | 83,795    |  |              |   | 79,926    | 
|6% Series C convertible redeemable preferred stock |  |               | 187,274   |  |              |   | 187,274   | 
|6% Series D convertible redeemable preferred stock |  |               | 36,707    |  |              |   | 36,707    | 
|                                                   |  |               |           |  |              |  
|                                                   |  | $             | 1,913,969 |  |              | $ | 1,916,000 | 
|                                                   |  |               |           |  |              |  



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



17



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |     
|--- | ----
|11. | Debt

|                                                                                     |                                                                          |                |           |         |              |   |           |         | 
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------ | -------------- | --------- | ------- | ------------ | - | --------- | ------- | 
|                                                                                     |                                                                          | September 30,  |           |         | December 31, |  
|                                                                                     |                                                                          | 2005           |           |         | 2004         |  
|                                                                                     |                                                                          |                |           |         |              |  
|                                                                                     |                                                                          | (In thousands) |          
|Loral Orion 10.00% senior notes due 2006:                                            |                                                                          |                |           |         |              |   |           |        
|                                                                                     | Principal amount                                                         |                | $         | 612,704 |              |   | $         | 612,704 | 
|                                                                                     | Accrued interest (deferred gain on debt exchanges)                       |                |           | 214,446 |              |   |           | 214,446 | 
|Loral 9.50% Senior notes due 2006                                                    |                                                                          |                | 350,000   |         |              |   | 350,000   |        
|Loral Orion debt non-recourse to Loral:                                              |                                                                          |                |           |         |              |   |           |        
|                                                                                     | 11.25% Senior notes due 2007 (principal amount
    $37 million)          |                |           | 39,402  |              |   |           | 39,402  | 
|                                                                                     | 12.50% Senior discount notes due 2007 (principal amount
    $49 million) |                |           | 53,425  |              |   |           | 53,425  | 
|                                                                                     |                                                                          |                |           |         |              |  
|Total debt                                                                           |                                                                          |                | 1,269,977 |         |              |   | 1,269,977 |        
|Less, current maturities included in liabilities subject to
    compromise (Note 10) |                                                                          |                | 1,269,977 |         |              |   | 1,269,977 |        
|                                                                                     |                                                                          |                |           |         |              |  
|                                                                                     |                                                                          | $              |          |         |              | $ |          |        
|                                                                                     |                                                                          |                |           |         |              |  









18



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                     
|--- | --------------------
|12. | Shareholders Equity





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





| |                             
| | ----------------------------
| | 12% Series A Preferred Stock





| |                                                               
| | --------------------------------------------------------------
| | Management Stock Plan of Loral Space &
    Communications Inc.





| |                                                       
| | ------------------------------------------------------
| | Stock Options of Loral Space & Communications
    Ltd.



19



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



|                                 |                                                 |                    |        |        |                   |   |       |       |  |   |        |        |  |   |        |        | 
|-------------------------------- | ----------------------------------------------- | ------------------ | ------ | ------ | ----------------- | - | ----- | ----- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                 |                                                 | Three Months Ended |        |        | Nine Months Ended |  
|                                 |                                                 | September 30,      |        |        | September 30,     |  
|                                 |                                                 |                    |        |        |                   |  
|                                 |                                                 | 2005               |        |        | 2004              |   |       | 2005  |  |   | 2004   |       
|                                 |                                                 |                    |        |        |                   |   |       |       |  |   |        |       
|Professional fees                |                                                 | $                  | 21,113 |        |                   | $ | 4,937 |       |  | $ | 32,240 |        |  | $ | 15,293 |       
|Employee retention costs         |                                                 |                    | (1,210 | )      |                   |   | 2,118 |       |  |   | (917   | )      |  |   | 9,154  |       
|Severance costs                  |                                                 |                    | 292    |        |                   |   | 2,952 |       |  |   | 972    |        |  |   | 3,959  |       
|Restructuring costs              |                                                 |                    | (619   | )      |                   |   |      |       |  |   | 1,238  |        |  |   |       |       
|Vendor settlement losses (gains) |                                                 |                    | 356    |        |                   |   |      |       |  |   | 289    |        |  |   | (35    | )     
|Interest income                  |                                                 |                    | (1,311 | )      |                   |   | (520  | )     |  |   | (2,586 | )      |  |   | (1,014 | )     
|                                 |                                                 |                    |        |        |                   |   |       |       |  |   |        |       
|                                 | Total reorganization expenses due to bankruptcy |                    | $      | 18,621 |                   |   | $     | 9,487 |  |   | $      | 31,236 |  |   | $      | 27,357 | 
|                                 |                                                 |                    |        |        |                   |   |       |       |  |   |        |       



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



|                                                                                 |  |   |      | 
|-------------------------------------------------------------------------------- |  | - | ---- | 
|Balance of deferred amounts at January 1, 2005                                   |  | $ | 26.0 | 
|Accruals for deferred amounts issued during the period                           |  |   | 1.3  | 
|Accruals relating to pre-existing contracts (including changes
    in estimates) |  |   | 10.5 | 
|                                                                                 |  |   |     
|Balance of deferred amounts at September 30, 2005                                |  | $ | 37.8 | 
|                                                                                 |  |   |     





20



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












21



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












22



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










23



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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

Beleson




In re: Loral Space ERISA
Litigation.


24



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




In re: Loral Space ERISA Litigation




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

In re: Globalstar Securities Litigation


25



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




In re:
Loral Space & Communications Ltd. Securities
Litigation


In re: Loral Space &
Communications Ltd. Securities Litigation




| |                       
| | ----------------------
| | Indemnification Claims

In re: Loral


26



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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




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







27



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                               |                                                       |                    |       |         |                   |   |       |         |   |   |       |         |   |   |       |          |  
|---------------------------------------------- | ----------------------------------------------------- | ------------------ | ----- | ------- | ----------------- | - | ----- | ------- | - | - | ----- | ------- | - | - | ----- | -------- | -
|                                               |                                                       | Three Months Ended |       |         | Nine Months Ended |  
|                                               |                                                       | September 30,      |       |         | September 30,     |  
|                                               |                                                       |                    |       |         |                   |  
|                                               |                                                       | 2005               |       |         | 2004              |   |       | 2005    |   |   | 2004  |        
|                                               |                                                       |                    |       |         |                   |   |       |         |   |   |       |        
|Numerator for basic and diluted loss per share |                                                       |                    |       |         |                   |   |       |         |   |   |       |         |   |   |       |         
|                                               | Loss from continuing operations                       |                    | $     | (27,800 | )                 |   | $     | (31,701 | ) |   | $     | (72,797 | ) |   | $     | (122,544 | )
|                                               | Income (loss) from discontinued operations            |                    |       |        |                   |   |       | 299     |   |   |       |        |   |   |       | (11,163  | )
|                                               | Gain on sale of discontinued operations, net of taxes |                    |       | 2,596   |                   |   |       |        |   |   |       | 13,967  |   |   |       |         |  
|                                               |                                                       |                    |       |         |                   |   |       |         |   |   |       |        
|                                               | Net loss                                              |                    | $     | (25,204 | )                 |   | $     | (31,402 | ) |   | $     | (58,830 | ) |   | $     | (133,707 | )
|                                               |                                                       |                    |       |         |                   |   |       |         |   |   |       |        
|Denominator:                                   |                                                       |                    |       |         |                   |   |       |         |   |   |       |         |   |   |       |         
|                                               | Weighted average common shares outstanding            |                    |       | 44,108  |                   |   |       | 44,108  |   |   |       | 44,108  |   |   |       | 44,108   |  
|                                               |                                                       |                    |       |         |                   |   |       |         |   |   |       |        
|Basic and diluted (loss) earnings per share:   |                                                       |                    |       |         |                   |   |       |         |   |   |       |         |   |   |       |         
|                                               | Continuing operations                                 |                    | $     | (0.63   | )                 |   | $     | (0.72   | ) |   | $     | (1.65   | ) |   | $     | (2.78    | )
|                                               | Discontinued operations                               |                    |       | 0.06    |                   |   |       | 0.01    |   |   |       | 0.32    |   |   |       | (0.25    | )
|                                               |                                                       |                    |       |         |                   |   |       |         |   |   |       |        
|Loss per share                                 |                                                       | $                  | (0.57 | )       |                   | $ | (0.71 | )       |   | $ | (1.33 | )       |   | $ | (3.03 | )       
|                                               |                                                       |                    |       |         |                   |   |       |         |   |   |       |        



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





28



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Three Months Ended September 30, 2005


|                                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   |       |  
|----------------------------------------------------- |  | --------- | ----- | - | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ----- | -
|                                                      |  | Satellite |       |   | Satellite     |   |       |              |  |  
|                                                      |  | Services  |       |   | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   |       |  
|Revenue(2)                                            |  | $         | 40.0  |   |               | $ | 120.3 |              |  |   |       |   |  | $ | 160.3 |  
|Intersegment revenues                                 |  |           | 1.1   |   |               |   | 3.0   |              |  |   |       |   |  |   | 4.1   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating segment revenues                            |  | $         | 41.1  |   |               | $ | 123.3 |              |  |   |       |   |  |   | 164.4 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (4.4  | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating revenues as reported                        |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | 160.0 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(4)(5) |  | $         | 18.9  |   |               | $ | 4.8   |              |  | $ | (5.0  | ) |  | $ | 18.7  |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (8.8  | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 9.9   |  
|Depreciation and
    amortization(6)(7)               |  | $         | (13.6 | ) |               | $ | (4.0  | )            |  | $ | (0.1  | ) |  |   | (17.7 | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Reorganization expenses due to bankruptcy             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (18.6 | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating loss from continuing operations             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (26.4 | )
|Interest and investment income                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 2.3   |  
|Interest expense                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.5  | )
|Other expense                                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   |      |  
|Income tax provision                                  |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.1  | )
|Equity loss in affiliates                             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (1.2  | )
|Minority interest                                     |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 0.1   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Loss from continuing operations                       |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | (27.8 | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  

29



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Nine Months Ended September 30, 2005


|                                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|----------------------------------------------------- |  | --------- | ----- | - | ------------- | - | ----- | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                      |  | Satellite |       |   | Satellite     |   |       |              |  |  
|                                                      |  | Services  |       |   | Manufacturing |   |       | Corporate(1) |  |   | Total |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Revenues and Adjusted EBITDA:                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Revenue(2)                                            |  | $         | 111.3 |   |               | $ | 318.6 |              |  |   |       |   |  | $ | 429.9   |  
|Intersegment revenues                                 |  |           | 3.2   |   |               |   | 10.9  |              |  |   |       |   |  |   | 14.1    |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating segment revenues                            |  | $         | 114.5 |   |               | $ | 329.5 |              |  |   |       |   |  |   | 444.0   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (14.8   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating revenues as reported                        |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | 429.2   |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(4)(5) |  | $         | 39.8  |   |               | $ | 15.2  |              |  | $ | (17.3 | ) |  | $ | 37.7    |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Eliminations(3)                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (12.3   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Adjusted EBITDA                                       |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 25.4    |  
|Depreciation and
    amortization(6)(7)               |  | $         | (48.8 | ) |               | $ | (11.9 | )            |  | $ | (0.5  | ) |  |   | (61.2   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Reorganization expenses due to bankruptcy             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (31.2   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Operating loss from continuing operations             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (67.0   | )
|Interest and investment income                        |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 6.4     |  
|Interest expense                                      |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (4.0    | )
|Other expense                                         |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (0.9    | )
|Income tax provision                                  |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (4.6    | )
|Equity loss in affiliates                             |  |           |       |   |               |   |       |              |  |   |       |   |  |   | (2.8    | )
|Minority interest                                     |  |           |       |   |               |   |       |              |  |   |       |   |  |   | 0.1     |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Loss from continuing operations                       |  |           |       |   |               |   |       |              |  |   |       |   |  | $ | (72.8   | )
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  
|Other Data:                                           |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Total
    assets(7)                                   |  | $         | 521.5 |   |               | $ | 510.7 |              |  | $ | 68.8  |   |  | $ | 1,101.0 |  
|                                                      |  |           |       |   |               |   |       |              |  |   |       |  

30



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Three Months Ended 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 7) |  |           | 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)   |  | $         | 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  | )
|                                                        |  |           |       |   |               |   |      |              |  |   |       |  
|Loss from continuing operations                         |  |           |       |   |               |   |      |              |  |   |       |   |  | $ | (31.7 | )
|                                                        |  |           |       |   |               |   |      |              |  |   |       |  

31



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##### Table of Contents



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 7) |  |           | 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)   |  | $         | 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  | )
|                                                        |  |           |       |   |               |   |       |              |  |   |       |  
|Other Data:                                             |  |           |       |   |               |   |       |              |  |   |       |   |  |   |         |  
|Total
    assets(7)                                     |  | $         | 815.3 |   |               | $ | 469.0 |              |  | $ | 69.1  |   |  | $ | 1,353.4 |  
|                                                        |  |           |       |   |               |   |       |              |  |   |       |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support of our
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(2) | Includes revenues from affiliates of $5.4 million and
    $1.9 million for the three months ended September 30,
    2005 and 2004, respectively, and $10.0 million and
    $7.1 million for the nine months ended September 30,
    2005 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) | Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/ L for wholly owned subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | Satellite manufacturing includes a warranty accrual of
    $5 million and $12 million for the three and nine
    months ended September 30, 2005, respectively. 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 that was under construction in 2004.
    Consistent with our internal reporting for satellite
    manufacturing, this decrease in contract value for the satellite
    that was under construction in 2004 was not being reflected as a
    decrease in satellite manufacturing revenues. These charges had
    no effect on our consolidated results in 2004.
|   
|(5) | Satellite Services recognized for the three and nine months
    ended September 30, 2004, $7.7 million of EBITDA for a
    sales-type lease arrangement for satellite capacity. For the
    nine months ended September 30, 2004 Satellite Services
    recorded an impairment charge of $12.0 million relating to
    our                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

32



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Telstar 14/Estrela do Sul-1 satellite and related assets to
    reduce the carrying values to the expected proceeds from
    insurance.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes depreciation expense of $42 million for the nine
    months ended September 30, 2004, relating to our Telstar 11
    satellite for which depreciation was accelerated due to the
    estimated end of depreciable life to June 2004 from March 2005.
    As a result of this acceleration, there was no depreciation
    expense recorded for Telstar 11 in the three months ended
    September 30, 2005 and 2004 and the nine months ended
    September 30, 2005.
|   
|(7) | Amounts are presented after the elimination of intercompany
    profit.                                                                                                                                                                                                                                                                                                                                                                                                      



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





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





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





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



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LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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





|    |                      
|--- | ---------------------
|18. | Fresh-Start Reporting









| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) changes in the carrying value of assets and liabilities
    to reflect fair values including the establishment of certain
    intangible assets;
|
| | (ii) discharge of the Companys pre-petition
    liabilities in accordance with the Plan of Reorganization;                                         
|
| | (iii) issuance of New Loral Common Stock as well as Skynet
    Preferred Stock and New Skynet Notes pursuant to the Plan of
    Reorganization;     





34



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATED PRO FORMA BALANCE
SHEET(a)


(In millions)


|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |          |       |   |         |       |       | 
|-------------------------------------------- | ------------------------------------------------------------- | ------------------------------------ | ------- | -------- | -------------- | - | -------- | ----------- | ------- | - | ------------- | -------- | ----- | - | ------- | ----- | ----- | 
|                                             |                                                               | Historical                           |         |          | Plan           |   |          | Fresh-Start |         |   | Pro Forma     |         
|                                             |                                                               | September 30,                        |         |          | Reorganization |   |          | Valuation   |         |   | September 30, |         
|                                             |                                                               | 2005                                 |         |          | Adjustments    |   |          | Adjustments |         |   | 2005          |         
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         
|ASSETS                                      
|Current assets:                              |                                                               |                                      |         |          |                |   |          |             |         |   |               |          |       |   |         |      
|                                             | Cash and cash equivalents                                     |                                      | $       | 198.7    |                |   | $        | 120.0       | (b)(h)  |   | $             |         |       |   | $       | 318.7 |      
|                                             | Accounts receivable, net                                      |                                      |         | 14.4     |                |   |          |            |         |   |               |         |       |   |         | 14.4  |      
|                                             | Contracts-in-process                                          |                                      |         | 91.4     |                |   |          |            |         |   |               | (89.4    | )(e)  |   |         | 2.0   |      
|                                             | Inventories                                                   |                                      |         | 45.5     |                |   |          |            |         |   |               |         |       |   |         | 45.5  |      
|                                             | Other current assets                                          |                                      |         | 41.2     |                |   |          | (1.2        | )(c)    |   |               | 0.1      | (e)   |   |         | 40.1  |      
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         
|                                             |                                                               | Total current assets                 |         |          | 391.2          |   |          |             | 118.8   |   |               |          | (89.3 | ) |         |       | 420.7 | 
|Property, plant and equipment, net           |                                                               |                                      | 536.6   |          |                |   |         |             |         |   | 50.4          | (e)      |       |   | 587.0   |      
|Long-term receivables                        |                                                               |                                      | 67.6    |          |                |   |         |             |         |   | (64.8         | )(e)     |       |   | 2.8     |      
|Investments in affiliates                    |                                                               |                                      | 53.7    |          |                |   |         |             |         |   | 56.5          | (e)      |       |   | 110.2   |      
|Deposits                                     |                                                               |                                      | 9.8     |          |                |   |         |             |         |   |              |          |       |   | 9.8     |      
|Goodwill                                     |                                                               |                                      |        |          |                |   |         |             |         |   | 236.4         | (e)(g)   |       |   | 236.4   |      
|Intangible assets                            |                                                               |                                      |        |          |                |   |         |             |         |   | 198.6         | (e)      |       |   | 198.6   |      
|Other assets                                 |                                                               |                                      | 42.1    |          |                |   | 6.0      | (b)         |         |   | (22.7         | )(e)     |       |   | 25.4    |      
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         
|                                             |                                                               | $                                    | 1,101.0 |          |                | $ | 124.8    |             |         | $ | 365.1         |          |       | $ | 1,590.9 |      
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         
|                                            
|LIABILITIES AND SHAREHOLDERS EQUITY        
|Current liabilities:                         |                                                               |                                      |         |          |                |   |          |             |         |   |               |          |       |   |         |      
|                                             | Accounts payable                                              |                                      | $       | 36.1     |                |   | $        | 46.7        | (c)(h)  |   | $             |         |       |   | $       | 82.8  |      
|                                             | Accrued employment costs                                      |                                      |         | 33.9     |                |   |          | 0.4         | (c)     |   |               |         |       |   |         | 34.3  |      
|                                             | Customer advances and billings in excess of costs and profits |                                      |         | 108.4    |                |   |          | 24.9        | (c)(h)  |   |               | (63.0    | )(e)  |   |         | 70.3  |      
|                                             | Other current liabilities                                     |                                      |         | 25.5     |                |   |          | 75.7        | (c)(h)  |   |               | (4.7     | )(e)  |   |         | 96.5  |      
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         
|                                             |                                                               | Total current liabilities            |         |          | 203.9          |   |          |             | 147.7   |   |               |          | (67.7 | ) |         |       | 283.9 | 
|Pension and other postretirement liabilities |                                                               |                                      |        |          |                |   | 156.2    | (c)         |         |   | 78.2          | (e)      |       |   | 234.4   |      
|Long-term liabilities                        |                                                               |                                      | 84.6    |          |                |   | 34.6     | (c)         |         |   | (16.6         | )(e)     |       |   | 102.6   |      
|Long-term debt                               |                                                               |                                      |        |          |                |   | 126.0    | (b)         |         |   |              |          |       |   | 126.0   |      
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         
|                                             |                                                               | Total liabilities                    |         |          | 288.5          |   |          |             | 464.5   |   |               |          | (6.1  | ) |         |       | 746.9 | 
|Liabilities subject to compromise            |                                                               |                                      | 1,914.0 |          |                |   | (1,914.0 | ) (c)       |         |   |              |          |       |   |        |      
|Minority interest                            |                                                               |                                      | 2.3     |          |                |   |         |             |         |   | (2.3          | )(e)     |       |   |        |      
|Shareholders equity:                        |                                                               |                                      |         |          |                |   |          |             |         |   |               |          |       |   |         |      
|                                             | Common stock, par value $.01 and Paid-in capital              |                                      |         | 3,397.2  |                |   |          | 644.0       | (d)     |   |               | (3,397.2 | ) (f) |   |         | 644.0 |      
|                                             | 12% Series A Preferred Stock                                  |                                      |         |         |                |   |          | 200.0       | (b)     |   |               |         |       |   |         | 200.0 |      
|                                             | Other                                                         |                                      |         | (93.9    | )              |   |          |            |         |   |               | 93.9     | (f)   |   |         |      |      
|                                             | Retained earnings (deficit)                                   |                                      |         | (4,407.1 | )              |   |          | 730.3       | (c)(d)  |   |               | 3,676.8  | (f)   |   |         |      |      
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         
|                                             |                                                               | Total shareholders (deficit) equity |         |          | (1,103.8       | ) |          |             | 1,574.3 |   |               |          | 373.5 |   |         |       | 844.0 | 
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         
|                                             |                                                               | $                                    | 1,101.0 |          |                | $ | 124.8    |             |         | $ | 365.1         |          |       | $ | 1,590.9 |      
|                                             |                                                               |                                      |         |          |                |   |          |             |         |   |               |         

35



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The Condensed Consolidated Pro Forma Balance Sheet estimates the
    effect of implementing the Plan of Reorganization and
    fresh-start reporting which will be required for financial
    reporting upon emergence. Under fresh-start reporting which is
    required by SOP 90-7, reorganization enterprise value is
    allocated to assets based upon their fair values and liabilities
    are stated at present value of amounts to be paid. The Condensed
    Consolidated Pro Forma Balance Sheet reflects a reorganization
    enterprise value of $970 million based on the Bankruptcy
    Courts determination (see Note 2), which, after
    reduction for the New Skynet Notes (see Note 11), results
    in a reorganization equity value of $844 million. This
    results in goodwill equal to the excess of reorganization
    enterprise value over fair value of identifiable net assets.



| |  |                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The adjustments in the condensed consolidated projected pro
    forma balance sheet are based on estimates. Actual adjustments
    will be based on the final valuation and may be materially
    different than those presented herein.



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Reflects the issuance of $126 million of New Skynet Notes
    and $200 million of Skynet Preferred Stock pursuant to the
    Plan of Reorganization.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | Reflects the discharge of Lorals prepetition liabilities
    in accordance with the Plan of Reorganization and the
    reclassification of the remaining liabilities subject to
    compromise to the appropriate liability accounts in accordance
    with the Plan of Reorganization. No adjustments are reflected
    for the actual payments of these remaining liabilities subject
    to compromise. Discharge of Lorals prepetition liabilities
    is summarized as follows (in thousands):

|                          |  |   |           | 
|------------------------- |  | - | --------- | 
|To be exchanged for stock |  | $ | 1,297,328 | 
|To be paid in cash        |  |   | 103,017   | 
|To be cancelled           |  |   | 288,521   | 
|To be reinstated          |  |   | 225,103   | 
|                          |  |   |          
|                          |  | $ | 1,913,969 | 
|                          |  |   |          



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Additionally, in accordance with the Plan of Reorganization,
    holders of claims to be paid in cash will also be paid interest
    at the rate of 6% per annum for the period from the petition
    date to the effective date of the Plan of Reorganization. This
    interest is estimated at $11.6 million and is reflected as
    an increase to other current liabilities and a reduction to the
    gain on discharge of liabilities subject to compromise.



|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(d) | Reflects the issuance of New Loral Common Stock to pre-petition
    creditors and the gain on the discharge of liabilities subject
    to compromise.



|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(e) | Reflects changes to carrying values of assets and liabilities to
    reflect fair values.                                                                                                                                                      
|   
|(f) | Reflects the elimination of the historical retained deficit and
    other equity accounts and an adjustment to shareholders
    equity to result in the estimated reorganized equity value in
    accordance with SOP 90-7 (see note a above).



|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(g) | Reflects goodwill equal to the excess of reorganization
    enterprise value over fair value of identifiable net assets (see
    note a above).                                                                                      
|   
|(h) | The Condensed Consolidated Pro Forma Balance Sheet does not give
    effect to cash payments estimated at $142 million to
    unsecured creditors and for taxes, interest and other costs
    pursuant to the Plan of Reorganization.



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



36



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








37



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING BALANCE SHEET


September 30, 2005


(In thousands)


(Unaudited)


|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |            |         |            |  
|------------------------------------------ | -------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------- | ---------- | ---------- | ---------- | --------- | ------------ | ----- | -------- | ------------- | ------ | -- | ------------ | ---------- | ---------- | ------------ | ---------- | --------- | --------- | - | --------- | --------- | ---------- | ------- | ---------- | -
|                                           |                                        | Parent                                                        |                                                      |            | Subsidiary |            |           | Guarantor    |       |          | Non-Guarantor |        |    |              |            |           
|                                           |                                        | Company                                                       |                                                      |            | Issuer     |            |           | Subsidiaries |       |          | Subsidiaries  |        |    | Eliminations |            |            | Consolidated |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|Current assets:                            |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |           
|                                           | Cash and cash equivalents              |                                                               | $                                                    | 1,037      |            |            | $         | 24,795       |       |          | $             |       |    |              | $          | 172,821    |              |            | $         |          |   |           | $         | 198,653    |        
|                                           | Accounts receivable, net               |                                                               |                                                      |           |            |            |           | 6,550        |       |          |               |       |    |              |            | 7,905      |              |            |           |          |   |           |           | 14,455     |        
|                                           | Contracts-in-process                   |                                                               |                                                      |           |            |            |           |             |       |          |               |       |    |              |            | 91,355     |              |            |           |          |   |           |           | 91,355     |        
|                                           | Inventories                            |                                                               |                                                      |           |            |            |           |             |       |          |               |       |    |              |            | 45,497     |              |            |           |          |   |           |           | 45,497     |        
|                                           | Insurance proceeds receivable          |                                                               |                                                      |           |            |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           |           |        
|                                           | Other current assets                   |                                                               |                                                      | 599        |            |            |           | 2,587        |       |          |               | 322    |    |              |            | 37,880     |              |            |           | (133      | ) |           |           | 41,255     |        
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total current assets                                 |            |            | 1,636      |           |              |       | 33,932   |               |        |    | 322          |            |            |              | 355,458    |           |           |   | (133      | )         |            |         | 391,215    |  
|Property, plant and equipment, net         |                                        |                                                               |                                                     |            |            |            | 238,981   |              |       |          | 146,915       |        |    |              | 172,792    |            |              |            | (22,147   | )         |   |           | 536,541   |           
|Long-term receivables                      |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |    |              | 67,636     |            |              |            |          |           |   |           | 67,636    |           
|Due (to) from unconsolidated subsidiaries  |                                        |                                                               | (11,367                                              | )          |            |            | (2,089    | )            |       |          | 37,226        |        |    |              | 25,820     |            |              |            | (49,590   | )         |   |           |          |           
|Investments in unconsolidated subsidiaries |                                        |                                                               | (610,264                                             | )          |            |            | 301,820   |              |       |          | (271,698      | )      |    |              | (1,614,828 | )          |              |            | 2,194,970 |           |   |           |          |           
|Investments in and advances to affiliates  |                                        |                                                               | 20                                                   |            |            |            |          |              |       |          |              |        |    |              | 53,719     |            |              |            |          |           |   |           | 53,739    |           
|Deposits                                   |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |    |              | 9,805      |            |              |            |          |           |   |           | 9,805     |           
|Other assets                               |                                        |                                                               | 4,197                                                |            |            |            | 3,845     |              |       |          | 191           |        |    |              | 33,840     |            |              |            |          |           |   |           | 42,073    |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total assets                                         |            | $          | (615,778   | )         |              | $     | 576,489  |               |        | $  | (87,044      | )          |            | $            | (895,758   | )         |           | $ | 2,123,100 |           |            | $       | 1,101,009  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|Liabilities not subject to compromise:     |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |           
|                                           | Current liabilities:                   |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |            |        
|                                           |                                        | Accounts payable                                              |                                                      | $          |           |            |           | $            |      |          |               | $      | 4  |              |            | $          | 36,138       |            |           | $         |  |           |           | $          | 36,142  |           
|                                           |                                        | Accrued employment costs                                      |                                                      |            |           |            |           |              |      |          |               |        |   |              |            |            | 33,945       |            |           |           |  |           |           |            | 33,945  |           
|                                           |                                        | Customer advances and billings in excess of costs and profits |                                                      |            |           |            |           |              | 4,166 |          |               |        | 15 |              |            |            | 104,214      |            |           |           |  |           |           |            | 108,395 |           
|                                           |                                        | Deferred gain on sales of assets                              |                                                      |            |           |            |           |              |      |          |               |        |   |              |            |            |             |            |           |           |  |           |           |            |        |           
|                                           |                                        | Income taxes payable                                          |                                                      |            |           |            |           |              |      |          |               |        |   |              |            |            |             |            |           |           |  |           |           |            |        |           
|                                           |                                        | Other current liabilities                                     |                                                      |            | 1,216      |            |           |              |      |          |               |        |   |              |            |            | 24,193       |            |           |           |  |           |           |            | 25,409  |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total current liabilities                            |            |            | 1,216      |           |              |       | 4,166    |               |        |    | 19           |            |            |              | 198,490    |           |           |   |          |           |            |         | 203,891    |  
|Pension liability                          |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |    |              |           |            |              |            |          |           |   |           |          |           
|Long-term liabilities                      |                                        |                                                               | 52,233                                               |            |            |            | 34,654    |              |       |          | 7,883         |        |    |              | 19,313     |            |              |            | (29,509   | )         |   |           | 84,574    |           
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total liabilities not subject to compromise          |            |            | 53,449     |           |              |       | 38,820   |               |        |    | 7,902        |            |            |              | 217,803    |           |           |   | (29,509   | )         |            |         | 288,465    |  
|Liabilities subject to compromise          |                                        |                                                               | 434,452                                              |            |            |            | 1,108,745 |              |       |          | (117,386      | )      |    |              | 492,354    |            |              |            | (4,196    | )         |   |           | 1,913,969 |           
|Minority interest                          |                                        |                                                               |                                                     |            |            |            |          |              |       |          |              |        |    |              | 2,254      |            |              |            |          |           |   |           | 2,254     |           
|Shareholders (deficit) equity:            |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |            |           |           |   |           |           |           
|                                           | Common stock                           |                                                               |                                                      | 4,413      |            |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           | 4,413      |        
|                                           | Paid-in capital                        |                                                               |                                                      | 3,392,825  |            |            |           | 604,166      |       |          |               |       |    |              |            |           |              |            |           | (604,166  | ) |           |           | 3,392,825  |        
|                                           | Treasury stock, at cost                |                                                               |                                                      | (3,360     | )          |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           | (3,360     | )      
|                                           | Unearned compensation                  |                                                               |                                                      | (27        | )          |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           | (27        | )      
|                                           | Due from related parties               |                                                               |                                                      |           |            |            |           | (53,996      | )     |          |               |       |    |              |            | 53,996     |              |            |           |          |   |           |           |           |        
|                                           | Retained (deficit) earnings            |                                                               |                                                      | (4,407,061 | )          |            |           | (1,121,246   | )     |          |               | 22,440 |    |              |            | (1,662,165 | )            |            |           | 2,760,971 |   |           |           | (4,407,061 | )      
|                                           | Accumulated other comprehensive (loss) |                                                               |                                                      | (90,469    | )          |            |           |             |       |          |               |       |    |              |            |           |              |            |           |          |   |           |           | (90,469    | )      
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total shareholders (deficit) equity                 |            |            | (1,103,679 | )         |              |       | (571,076 | )             |        |    | 22,440       |            |            |              | (1,608,169 | )         |           |   | 2,156,805 |           |            |         | (1,103,679 | )
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           
|                                           |                                        |                                                               | Total liabilities and shareholders (deficit) equity |            | $          | (615,778   | )         |              | $     | 576,489  |               |        | $  | (87,044      | )          |            | $            | (895,758   | )         |           | $ | 2,123,100 |           |            | $       | 1,101,009  |  
|                                           |                                        |                                                               |                                                      |            |            |            |           |              |       |          |               |        |    |              |            |            |              |           

38



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Three Months Ended September 30, 2005


(In thousands)


(Unaudited)


|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |   |         |        |   |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | - | ---------- | - | ------ | ------------ |  | - | ------------- | ----- |  | ------------ | ------- | ------- | ------------ | - | ------- | ------ | - | - | ------- | ------- | 
|                                                                                                                                                                                                              |                | Parent  |         |   | Subsidiary |   |        | Guarantor    |  |   | Non-Guarantor |       |  |              |         |        
|                                                                                                                                                                                                              |                | Company |         |   | Issuer     |   |        | Subsidiaries |  |   | Subsidiaries  |       |  | Eliminations |         |         | Consolidated |  
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|Revenues from satellite services                                                                                                                                                                              |                | $       |        |   |            | $ | 21,417 |              |  | $ | 7,919         |       |  | $            | 18,067  |         |              | $ | (7,634  | )      |   | $ | 39,769  |        
|Revenues from satellite manufacturing                                                                                                                                                                         |                |         |        |   |            |   |       |              |  |   |              |       |  |              | 120,602 |         |              |   | (328    | )      |   |   | 120,274 |        
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|                                                                                                                                                                                                              | Total revenues |         |         |  |            |   |        | 21,417       |  |   |               | 7,919 |  |              |         | 138,669 |              |   |         | (7,962 | ) |   |         | 160,043 | 
|Cost of satellite services                                                                                                                                                                                    |                |         |        |   |            |   | 10,042 |              |  |   | 7,049         |       |  |              | 21,253  |         |              |   | (10,138 | )      |   |   | 28,206  |        
|Cost of satellite manufacturing                                                                                                                                                                               |                |         |        |   |            |   |       |              |  |   |              |       |  |              | 116,482 |         |              |   | 22      |        |   |   | 116,504 |        
|Selling, general and administrative expenses                                                                                                                                                                  |                |         |        |   |            |   | 9,300  |              |  |   | 2,097         |       |  |              | 11,710  |         |              |   |        |        |   |   | 23,107  |        
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|Loss from continuing operations before reorganization expenses
    due to bankruptcy                                                                                                                          |                |         |        |   |            |   | 2,075  |              |  |   | (1,227        | )     |  |              | (10,776 | )       |              |   | 2,154   |        |   |   | (7,774  | )      
|Reorganization expenses due to bankruptcy                                                                                                                                                                     |                |         | (3,634  | ) |            |   | (7,143 | )            |  |   |              |       |  |              | (7,844  | )       |              |   |        |        |   |   | (18,621 | )      
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|Loss income from continuing operations                                                                                                                                                                        |                |         | (3,634  | ) |            |   | (5,068 | )            |  |   | (1,227        | )     |  |              | (18,620 | )       |              |   | 2,154   |        |   |   | (26,395 | )      
|Interest and investment income                                                                                                                                                                                |                |         | 8       |   |            |   | 5      |              |  |   |              |       |  |              | 2,294   |         |              |   |        |        |   |   | 2,307   |        
|Interest expense                                                                                                                                                                                              |                |         |        |   |            |   | (834   | )            |  |   |              |       |  |              | (1,266  | )       |              |   | 567     |        |   |   | (1,533  | )      
|Other expense                                                                                                                                                                                                 |                |         | (3      | ) |            |   |       |              |  |   |              |       |  |              | 37      |         |              |   |        |        |   |   | 34      |        
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations before income taxes,
    equity income (losses) in unconsolidated subsidiaries and
    affiliates, minority interest and gain on sale of discontinued
    operations |                |         | (3,629  | ) |            |   | (5,897 | )            |  |   | (1,227        | )     |  |              | (17,555 | )       |              |   | 2,721   |        |   |   | (25,587 | )      
|Income tax (provision) benefit                                                                                                                                                                                |                |         |        |   |            |   | (58    | )            |  |   | 429           |       |  |              | (999    | )       |              |   | (429    | )      |   |   | (1,057  | )      
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations before equity income
    (losses) in unconsolidated subsidiaries and affiliates, minority
    interest and gain on sale of discontinued operations                   |                |         | (3,629  | ) |            |   | (5,955 | )            |  |   | (798          | )     |  |              | (18,554 | )       |              |   | 2,292   |        |   |   | (26,644 | )      
|Equity income (losses) in unconsolidated subsidiaries                                                                                                                                                         |                |         | (21,575 | ) |            |   | (798   | )            |  |   |              |       |  |              |        |         |              |   | 22,373  |        |   |   |        |        
|Equity income (losses) in affiliates                                                                                                                                                                          |                |         |        |   |            |   |       |              |  |   |              |       |  |              | (1,239  | )       |              |   |        |        |   |   | (1,239  | )      
|Minority interest                                                                                                                                                                                             |                |         |        |   |            |   |       |              |  |   |              |       |  |              | 83      |         |              |   |        |        |   |   | 83      |        
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|(Loss) income from continuing operations                                                                                                                                                                      |                |         | (25,204 | ) |            |   | (6,753 | )            |  |   | (798          | )     |  |              | (19,710 | )       |              |   | 24,665  |        |   |   | (27,800 | )      
|Gain on sale of discontinued operations                                                                                                                                                                       |                |         |        |   |            |   |       |              |  |   |              |       |  |              | 2,596   |         |              |   |        |        |   |   | 2,596   |        
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  
|Net (loss) income                                                                                                                                                                                             |                | $       | (25,204 | ) |            | $ | (6,753 | )            |  | $ | (798          | )     |  | $            | (17,114 | )       |              | $ | 24,665  |        |   | $ | (25,204 | )      
|                                                                                                                                                                                                              |                |         |         |   |            |   |        |              |  |   |               |       |  |              |         |         |              |  

39



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Nine Months Ended September 30, 2005


(In thousands)


(Unaudited)


|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |   |         |         |   |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------- | ------- | ------- | - | ---------- | - | ------- | ------------ |  | - | ------------- | ------ |  | ------------ | ------- | ------- | ------------ | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                                                                                                 |                | Parent  |         |   | Subsidiary |   |         | Guarantor    |  |   | Non-Guarantor |        |  |              |         |        
|                                                                                                                                                                                                 |                | Company |         |   | Issuer     |   |         | Subsidiaries |  |   | Subsidiaries  |        |  | Eliminations |         |         | Consolidated |  
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Revenues from satellite services                                                                                                                                                                 |                | $       |        |   |            | $ | 64,233  |              |  | $ | 23,548        |        |  | $            | 51,979  |         |              | $ | (29,164 | )       |   | $ | 110,596 |        
|Revenues from satellite manufacturing                                                                                                                                                            |                |         |        |   |            |   |        |              |  |   |              |        |  |              | 320,014 |         |              |   | (1,427  | )       |   |   | 318,587 |        
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|                                                                                                                                                                                                 | Total revenues |         |         |  |            |   |         | 64,233       |  |   |               | 23,548 |  |              |         | 371,993 |              |   |         | (30,591 | ) |   |         | 429,183 | 
|Cost of satellite services                                                                                                                                                                       |                |         |        |   |            |   | 30,361  |              |  |   | 22,286        |        |  |              | 71,847  |         |              |   | (30,325 | )       |   |   | 94,169  |        
|Cost of satellite manufacturing                                                                                                                                                                  |                |         |        |   |            |   |        |              |  |   |              |        |  |              | 292,509 |         |              |   | (1,055  | )       |   |   | 291,454 |        
|Selling, general and administrative expenses                                                                                                                                                     |                |         |        |   |            |   | 30,173  |              |  |   | 7,414         |        |  |              | 41,832  |         |              |   |        |         |   |   | 79,419  |        
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Loss from continuing operations before reorganization expenses
    due to bankruptcy                                                                                                             |                |         |        |   |            |   | 3,699   |              |  |   | (6,152        | )      |  |              | (34,195 | )       |              |   | 789     |         |   |   | (35,859 | )      
|Reorganization expenses due to bankruptcy                                                                                                                                                        |                |         | (5,539  | ) |            |   | (10,687 | )            |  |   |              |        |  |              | (15,010 | )       |              |   |        |         |   |   | (31,236 | )      
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Loss income from continuing operations                                                                                                                                                           |                |         | (5,539  | ) |            |   | (6,988  | )            |  |   | (6,152        | )      |  |              | (49,205 | )       |              |   | 789     |         |   |   | (67,095 | )      
|Interest and investment income                                                                                                                                                                   |                |         | 20      |   |            |   | 65      |              |  |   |              |        |  |              | 6,353   |         |              |   |        |         |   |   | 6,438   |        
|Interest expense                                                                                                                                                                                 |                |         |        |   |            |   | (2,452  | )            |  |   |              |        |  |              | (3,223  | )       |              |   | 1,693   |         |   |   | (3,982  | )      
|Other expense                                                                                                                                                                                    |                |         | (3      | ) |            |   |        |              |  |   |              |        |  |              | (928    | )       |              |   |        |         |   |   | (931    | )      
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Loss from continuing operations before income taxes, equity
    income (losses) in unconsolidated subsidiaries and affiliates,
    minority interest and gain on sale of discontinued operations |                |         | (5,522  | ) |            |   | (9,375  | )            |  |   | (6,152        | )      |  |              | (47,003 | )       |              |   | 2,482   |         |   |   | (65,570 | )      
|Income tax (provision) benefit                                                                                                                                                                   |                |         |        |   |            |   | (128    | )            |  |   | 2,153         |        |  |              | (4,429  | )       |              |   | (2,153  | )       |   |   | (4,557  | )      
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Loss from continuing operations before equity income (losses) in
    unconsolidated subsidiaries and affiliates, minority interest
    and gain on sale of discontinued operations               |                |         | (5,522  | ) |            |   | (9,503  | )            |  |   | (3,999        | )      |  |              | (51,432 | )       |              |   | 329     |         |   |   | (70,127 | )      
|Equity income (losses) in unconsolidated subsidiaries                                                                                                                                            |                |         | (53,308 | ) |            |   | (3,999  | )            |  |   |              |        |  |              |        |         |              |   | 57,307  |         |   |   |        |        
|Equity income (losses) in affiliates                                                                                                                                                             |                |         |        |   |            |   |        |              |  |   |              |        |  |              | (2,796  | )       |              |   |        |         |   |   | (2,796  | )      
|Minority interest                                                                                                                                                                                |                |         |        |   |            |   |        |              |  |   |              |        |  |              | 126     |         |              |   |        |         |   |   | 126     |        
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|(Loss) income from continuing operations                                                                                                                                                         |                |         | (58,830 | ) |            |   | (13,502 | )            |  |   | (3,999        | )      |  |              | (54,102 | )       |              |   | 57,636  |         |   |   | (72,797 | )      
|Gain on sale of discontinued operations                                                                                                                                                          |                |         |        |   |            |   |        |              |  |   |              |        |  |              | 13,967  |         |              |   |        |         |   |   | 13,967  |        
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  
|Net (loss) income                                                                                                                                                                                |                | $       | (58,830 | ) |            | $ | (13,502 | )            |  | $ | (3,999        | )      |  | $            | (40,135 | )       |              | $ | 57,636  |         |   | $ | (58,830 | )      
|                                                                                                                                                                                                 |                |         |         |   |            |   |         |              |  |   |               |        |  |              |         |         |              |  

40



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


Nine Months Ended September 30, 2005


(In thousands)


(Unaudited)


|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |   |   |        |         |   |          |         |         |  
|---------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------------------------- | ------ | ------- | ---------- | - | ------ | ------------ | ------ | - | ------------- | ------- | ------ | ------------ | -------- | ------- | ------------ | - | - | ------ | ------- | - | -------- | ------- | ------- | -
|                                                     |                                                | Parent                                                                 |        |         | Subsidiary |   |        | Guarantor    |        |   | Non-Guarantor |         |        |              |          |        
|                                                     |                                                | Company                                                                |        |         | Issuer     |   |        | Subsidiaries |        |   | Subsidiaries  |         |        | Eliminations |          |         | Consolidated |  
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Operating activities:                                |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |   |   |        |         |   |          |        
|                                                     | Net (loss) income                              |                                                                        | $      | (58,830 | )          |   | $      | (13,502      | )      |   | $             | (3,999  | )      |              | $        | (40,135 | )            |   | $ | 57,636 |         |   | $        | (58,830 | )      
|                                                     | Non-cash items:                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |   |   |        |         |   |          |         |        
|                                                     |                                                | Gain on sale of discontinued operations                                |        |         |           |   |        |              |       |   |               |         |       |              |          |         | (13,967      | ) |   |        |        |   |          |         | (13,967 | )
|                                                     |                                                | Equity income in affiliates                                            |        |         |           |   |        |              |       |   |               |         |       |              |          |         | 2,796        |   |   |        |        |   |          |         | 2,796   |  
|                                                     |                                                | Minority interest                                                      |        |         |           |   |        |              |       |   |               |         |       |              |          |         | (126         | ) |   |        |        |   |          |         | (126    | )
|                                                     |                                                | Equity losses in unconsolidated subsidiaries                           |        |         | 53,308     |   |        |              | 3,999  |   |               |         |       |              |          |         |             |   |   |        | (57,307 | ) |          |         |        |  
|                                                     |                                                | Deferred taxes                                                         |        |         |           |   |        |              |       |   |               |         | (2,153 | )            |          |         | 336          |   |   |        | 2,153   |   |          |         | 336     |  
|                                                     |                                                | Depreciation and amortization                                          |        |         |           |   |        |              | 16,844 |   |               |         | 15,760 |              |          |         | 28,673       |   |   |        |        |   |          |         | 61,277  |  
|                                                     |                                                | (Recovery of) provisions for bad debts                                 |        |         |           |   |        |              | (710   | ) |               |         |       |              |          |         | (2,176       | ) |   |        |        |   |          |         | (2,886  | )
|                                                     |                                                | Warranty accruals relating to pre-existing contracts                   |        |         |           |   |        |              |       |   |               |         |       |              |          |         | 11,850       |   |   |        |        |   |          |         | 11,850  |  
|                                                     |                                                | Provisions for inventory obsolescence                                  |        |         |           |   |        |              |       |   |               |         |       |              |          |         | 898          |   |   |        |        |   |          |         | 898     |  
|                                                     |                                                | Loss on equipment disposals                                            |        |         |           |   |        |              |       |   |               |         |       |              |          |         | 3,456        |   |   |        |        |   |          |         | 3,456   |  
|                                                     |                                                | Non cash (gain) loss of foreign currency transactions and
    interest |        |         |           |   |        |              |       |   |               |         |       |              |          |         | 693          |   |   |        |        |   |          |         | 693     |  
|Changes in operating assets and liabilities:         |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |   |   |        |         |   |          |        
|                                                     | Accounts receivable, net                       |                                                                        |        |        |            |   |        | (766         | )      |   |               | 121     |        |              |          | 1,208   |              |   |   |       |         |   |          | 563     |        
|                                                     | Contracts-in-process                           |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          | (76,464 | )            |   |   |       |         |   |          | (76,464 | )      
|                                                     | Inventories                                    |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          | (8,983  | )            |   |   |       |         |   |          | (8,983  | )      
|                                                     | Long-term receivables                          |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          | (22,361 | )            |   |   |       |         |   |          | (22,361 | )      
|                                                     | Due (to) from unconsolidated subsidiaries      |                                                                        |        | 58      |            |   |        | (13,046      | )      |   |               | (12,628 | )      |              |          | 28,098  |              |   |   | (2,482 | )       |   |          |        |        
|                                                     | Other current assets and other assets          |                                                                        |        | 1,732   |            |   |        | 5,323        |        |   |               | 2,531   |        |              |          | 3,426   |              |   |   |       |         |   |          | 13,012  |        
|                                                     | Accounts payable                               |                                                                        |        | (499    | )          |   |        | (493         | )      |   |               | 212     |        |              |          | (505    | )            |   |   |       |         |   |          | (1,285  | )      
|                                                     | Accrued expenses and other current liabilities |                                                                        |        | (4      | )          |   |        |             |        |   |               |        |        |              |          | 8,345   |              |   |   |       |         |   |          | 8,341   |        
|                                                     | Customer advances                              |                                                                        |        |        |            |   |        | 201          |        |   |               | (241    | )      |              |          | (62,172 | )            |   |   |       |         |   |          | (62,212 | )      
|                                                     | Income taxes payable                           |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          | 2,066   |              |   |   |       |         |   |          | 2,066   |        
|                                                     | Pension and other postretirement liabilities   |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          | (3,650  | )            |   |   |       |         |   |          | (3,650  | )      
|                                                     | Long-term liabilities                          |                                                                        |        |        |            |   |        | 375          |        |   |               |        |        |              |          | 1,469   |              |   |   |       |         |   |          | 1,844   |        
|                                                     | Other                                          |                                                                        |        |        |            |   |        | (397         | )      |   |               | 397     |        |              |          | (195    | )            |   |   |       |         |   |          | (195    | )      
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Net cash provided by continuing operating activities |                                                |                                                                        | (4,235 | )       |            |   | (2,172 | )            |        |   |              |         |        |              | (137,420 | )       |              |   |  |        |         |   | (143,827 | )      
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Net cash provided by discontinued operations         |                                                |                                                                        |       |         |            |   |       |              |        |   |              |         |        |              |         |         |              |   |  |        |         |   |         |        
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Investing activities:                                |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |   |   |        |         |   |          |        
|                                                     | Capital expenditures for continuing operations |                                                                        |        |        |            |   |        | (263         | )      |   |               |        |        |              |          | (4,386  | )            |   |   |       |         |   |          | (4,649  | )      
|                                                     | Decrease in restricted cash in escrow          |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          | 1,566   |              |   |   |       |         |   |          | 1,566   |        
|                                                     | Insurance proceeds receivable                  |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          | 205,000 |              |   |   |       |         |   |          | 205,000 |        
|                                                     | Proceeds from sale of assets                   |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          | 144     |              |   |   |       |         |   |          | 144     |        
|                                                     | Investments in and advances to affiliates      |                                                                        |        | 3,747   |            |   |        |             |        |   |               |        |        |              |          | (11,101 | )            |   |   |       |         |   |          | (7,354  | )      
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Net cash provided by investing activities            |                                                |                                                                        | 3,747  |         |            |   | (263   | )            |        |   |              |         |        |              | 191,223  |         |              |   |  |        |         |   | 194,707  |        
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Financing activities:                                |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |   |   |        |         |   |          |        
|                                                     | Repayments of term loans                       |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          |        |              |   |   |       |         |   |          |        |        
|                                                     | Repayments of revolving credit facilities      |                                                                        |        |        |            |   |        |             |        |   |               |        |        |              |          |        |              |   |   |       |         |   |          |        |        
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Net cash provided by (used in) financing activities  |                                                |                                                                        |       |         |            |   |       |              |        |   |              |         |        |              |         |         |              |   |  |        |         |   |         |        
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Net increase (decrease) in cash and cash equivalents |                                                |                                                                        | (488   | )       |            |   | (2,435 | )            |        |   |              |         |        |              | 53,803   |         |              |   |  |        |         |   | 50,880   |        
|Cash and cash equivalents  beginning of period      |                                                |                                                                        | 1,525  |         |            |   | 27,230 |              |        |   |              |         |        |              | 119,018  |         |              |   |  |        |         |   | 147,773  |        
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  
|Cash and cash equivalents  end of period            |                                                | $                                                                      | 1,037  |         |            | $ | 24,795 |              |        | $ |              |         |        | $            | 172,821  |         |              | $ |  |        |         | $ | 198,653  |        
|                                                     |                                                |                                                                        |        |         |            |   |        |              |        |   |               |         |        |              |          |         |              |  

41



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING BALANCE SHEET


December 31, 2004


(In thousands)


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

42



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Three Months Ended 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 | )      
|                                                                                                                                                          |                                                                                               |                |         |   |            |   |        |              |         |   |               |        |       |              |         |         |              |  

43



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







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 | )      
|                                                                                                                                                                 |                |         |          |   |            |   |         |              |  |   |               |        |  |              |          |         |              |  

44



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN
POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







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 7)                        |                                        |          |           |   |        |              |       |        |               |         |       |              |          |          | (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 (used in) provided by operating activities of
    continuing operations |                                                   |                                                                        | (2,177                                 | )        |            |   | (683   | )            |        |        |              |         |        |              | 48,204   |          |              |     | 13,189  |         |          |   | 58,533   |         
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    
|Net cash provided by discontinued operations                                     |                                                   |                                                                        |                                       |          |            |   |       |              |        |        |              |         |        |              | 18,351   |          |              |     |        |         |          |   | 18,351   |         
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    
|Net cash (used in) provided by operating activities                              |                                                   |                                                                        | (2,177                                 | )        |            |   | (683   | )            |        |        |              |         |        |              | 66,555   |          |              |     | 13,189  |         |          |   | 76,884   |         
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    
|Investing activities:                                                            |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |     |         |         |          |   |          |         
|                                                                                 | Capital expenditures for continuing operations    |                                                                        |                                        |         |            |   |        | (9,035       | )      |        |               |        |        |              |          | 2,783    |              |     |         | (13,189 | )        |   |          | (19,441  | )      
|                                                                                 | Investments in and advances to affiliates         |                                                                        |                                        |         |            |   |        |             |        |        |               |        |        |              |          | (5,711   | )            |     |         |        |          |   |          | (5,711   | )      
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    
|Net cash used in investing activities of continuing operations                   |                                                   |                                                                        |                                       |          |            |   | (9,035 | )            |        |        |              |         |        |              | (2,928   | )        |              |     | (13,189 | )       |          |   | (25,152  | )       
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    
|                                                                                 | Proceeds from the sale of assets, net of expenses |                                                                        |                                        |         |            |   |        |             |        |        |               |        |        |              |          | 953,619  |              |     |         |        |          |   |          | 953,619  |        
|                                                                                 | Capital expenditures for discontinued operations  |                                                                        |                                        |         |            |   |        |             |        |        |               |        |        |              |          | (11,185  | )            |     |         |        |          |   |          | (11,185  | )      
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    
|Net cash provided by discontinued operations                                     |                                                   |                                                                        |                                       |          |            |   |       |              |        |        |              |         |        |              | 942,434  |          |              |     |        |         |          |   | 942,434  |         
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    
|Net cash provided by (used in) investing activities                              |                                                   |                                                                        |                                       |          |            |   | (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 used in financing activities                                            |                                                   |                                                                        |                                       |          |            |   |       |              |        |        |              |         |        |              | (966,887 | )        |              |     |        |         |          |   | (966,887 | )       
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    
|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  |         
|                                                                                 |                                                   |                                                                        |                                        |          |            |   |        |              |        |        |               |         |        |              |          |          |              |    

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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, including in other parts of this report. These
forward-looking statements can be identified by the use of words
such as believes, expects,
plans, may, will,
would, could, should,
anticipates, estimates,
project, intend, or outlook
or other variations of these words. These statements are not
guarantees of future performance and involve risks and
uncertainties that are difficult to predict or quantify. Actual
events or results may differ materially as a result of a wide
variety of factors and conditions, many of which are beyond our
control. These include implementation of a Plan of
Reorganization as confirmed by the United States Bankruptcy
Court for the Southern District of New York (the
Bankruptcy Court), and our ability to maintain good
relations with our customers, suppliers and employees. For a
detailed discussion of these and other factors and conditions,
please refer to the Commitments and Contingencies section below
and to our other periodic reports filed with the Securities and
Exchange Commission (SEC). We operate in an industry
sector in which the value of securities may be volatile and may
be influenced by economic and other factors beyond our control.
We undertake no obligation to update any forward-looking
statements.


Overview




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





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





46



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





 Cash and Available Credit






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



47



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





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











Consolidated Operating Results






48



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Revenues:


|                                                                                             |                             |               |       |       |               |   |       |       |  |   |       |       |  |   |       |       | 
|-------------------------------------------------------------------------------------------- | --------------------------- | ------------- | ----- | ----- | ------------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                                                                             |                             | Three Months  |       |       | Nine Months   |  
|                                                                                             |                             | Ended         |       |       | Ended         |  
|                                                                                             |                             | September 30, |       |       | September 30, |  
|                                                                                             |                             |               |       |       |               |  
|                                                                                             |                             | 2005          |       |       | 2004          |   |       | 2005  |  |   | 2004  |      
|                                                                                             |                             |               |       |       |               |   |       |       |  |   |       |      
|                                                                                             |                             | (In millions) |      
|Satellite Services                                                                           |                             | $             | 41.1  |       |               | $ | 34.2  |       |  | $ | 114.5 |       |  | $ | 105.5 |      
|Satellite Services sales-type lease arrangement (see Note 7
    to the financial statements) |                             |               |      |       |               |   | 87.2  |       |  |   |      |       |  |   | 87.2  |      
|Satellite Manufacturing                                                                      |                             |               | 123.3 |       |               |   | 85.2  |       |  |   | 329.5 |       |  |   | 300.0 |      
|                                                                                             |                             |               |       |       |               |   |       |       |  |   |       |      
|Segment revenues                                                                             |                             |               | 164.4 |       |               |   | 206.6 |       |  |   | 444.0 |       |  |   | 492.7 |      
|Eliminations(1)                                                                              |                             |               | (4.4  | )     |               |   | (8.0  | )     |  |   | (14.8 | )     |  |   | (76.7 | )    
|                                                                                             |                             |               |       |       |               |   |       |       |  |   |       |      
|                                                                                             | Revenues as
    reported(2) |               | $     | 160.0 |               |   | $     | 198.6 |  |   | $     | 429.2 |  |   | $     | 416.0 | 
|                                                                                             |                             |               |       |       |               |   |       |       |  |   |       |      

Adjusted EBITDA:


|                                                                                             |                                             |               |      |      |               |   |      |      |   |   |       |      |  |   |       |       |  
|-------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------- | ---- | ---- | ------------- | - | ---- | ---- | - | - | ----- | ---- |  | - | ----- | ----- | -
|                                                                                             |                                             | Three Months  |      |      | Nine Months   |  
|                                                                                             |                                             | Ended         |      |      | Ended         |  
|                                                                                             |                                             | September 30, |      |      | September 30, |  
|                                                                                             |                                             |               |      |      |               |  
|                                                                                             |                                             | 2005          |      |      | 2004          |   |      | 2005 |   |   | 2004  |     
|                                                                                             |                                             |               |      |      |               |   |      |      |   |   |       |     
|                                                                                             |                                             | (In millions) |     
|Satellite
    Services(3)                                                                    |                                             | $             | 18.9 |      |               | $ | 7.5  |      |   | $ | 39.8  |      |  | $ | 6.3   |      
|Satellite Services sales-type lease arrangement (see Note 7
    to the financial statements) |                                             |               |     |      |               |   | 7.7  |      |   |   |      |      |  |   | 7.7   |      
|Satellite
    Manufacturing(4)                                                               |                                             |               | 4.8  |      |               |   | (7.3 | )    |   |   | 15.2  |      |  |   | (1.5  | )    
|Corporate
    expenses(5)                                                                    |                                             |               | (5.0 | )    |               |   | (9.7 | )    |   |   | (17.3 | )    |  |   | (27.2 | )    
|                                                                                             |                                             |               |      |      |               |   |      |      |   |   |       |     
|                                                                                             | Segment Adjusted EBITDA before eliminations |               |      | 18.7 |               |   |      | (1.8 | ) |   |       | 37.7 |  |   |       | (14.7 | )
|Eliminations(1)                                                                              |                                             |               | (8.8 | )    |               |   | (2.5 | )    |   |   | (12.3 | )    |  |   | (14.2 | )    
|                                                                                             |                                             |               |      |      |               |   |      |      |   |   |       |     
|                                                                                             | Adjusted EBITDA                             |               | $    | 9.9  |               |   | $    | (4.3 | ) |   | $     | 25.4 |  |   | $     | (28.9 | )
|                                                                                             |                                             |               |      |      |               |   |      |      |   |   |       |     

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Reconciliation of Adjusted EBITDA to Net Loss:


|                                                         |                                           |               |       |       |               |   |       |       |   |   |       |       |   |   |        |        |  
|-------------------------------------------------------- | ----------------------------------------- | ------------- | ----- | ----- | ------------- | - | ----- | ----- | - | - | ----- | ----- | - | - | ------ | ------ | -
|                                                         |                                           | Three Months  |       |       | Nine Months   |  
|                                                         |                                           | Ended         |       |       | Ended         |  
|                                                         |                                           | September 30, |       |       | September 30, |  
|                                                         |                                           |               |       |       |               |  
|                                                         |                                           | 2005          |       |       | 2004          |   |       | 2005  |   |   | 2004  |      
|                                                         |                                           |               |       |       |               |   |       |       |   |   |       |      
|                                                         |                                           | (In millions) |      
|Adjusted EBITDA                                          |                                           | $             | 9.9   |       |               | $ | (4.3  | )     |   | $ | 25.4  |       |   | $ | (28.9  | )     
|Depreciation and
    amortization(6)                     |                                           |               | (17.7 | )     |               |   | (21.3 | )     |   |   | (61.2 | )     |   |   | (105.5 | )     
|Reorganization expenses due to bankruptcy                |                                           |               | (18.6 | )     |               |   | (9.5  | )     |   |   | (31.2 | )     |   |   | (27.3  | )     
|                                                         |                                           |               |       |       |               |   |       |       |   |   |       |      
|                                                         | Operating loss from continuing operations |               |       | (26.4 | )             |   |       | (35.1 | ) |   |       | (67.0 | ) |   |        | (161.7 | )
|Interest and investment income                           |                                           |               | 2.3   |       |               |   | 2.3   |       |   |   | 6.4   |       |   |   | 7.4    |       
|Interest expense                                         |                                           |               | (1.5  | )     |               |   | (0.9  | )     |   |   | (4.0  | )     |   |   | (0.7   | )     
|Other income (expense)                                   |                                           |               |      |       |               |   | 1.9   |       |   |   | (0.9  | )     |   |   | (2.1   | )     
|Income tax benefit (provision)                           |                                           |               | (1.1  | )     |               |   | 0.2   |       |   |   | (4.6  | )     |   |   | (12.0  | )     
|Equity income (losses) in affiliates                     |                                           |               | (1.2  | )     |               |   | (0.1  | )     |   |   | (2.8  | )     |   |   | 46.5   |       
|Minority interest                                        |                                           |               | 0.1   |       |               |   |      |       |   |   | 0.1   |       |   |   | 0.1    |       
|                                                         |                                           |               |       |       |               |   |       |       |   |   |       |      
|Loss from continuing operations                          |                                           |               | (27.8 | )     |               |   | (31.7 | )     |   |   | (72.8 | )     |   |   | (122.5 | )     
|Income (loss) from discontinued operations, net of taxes |                                           |               |      |       |               |   | 0.3   |       |   |   |      |       |   |   | (11.2  | )     
|Gain on sale of discontinued operations, net of taxes    |                                           |               | 2.6   |       |               |   |      |       |   |   | 14.0  |       |   |   |       |       
|                                                         |                                           |               |       |       |               |   |       |       |   |   |       |      
|Net loss                                                 |                                           | $             | (25.2 | )     |               | $ | (31.4 | )     |   | $ | (58.8 | )     |   | $ | (133.7 | )     
|                                                         |                                           |               |       |       |               |   |       |       |   |   |       |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/ L for wholly owned subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | Includes revenues from affiliates of $5.4 million and
    $1.9 million for the three months ended September 30,
    2005 and 2004, respectively, and $10.0 million and
    $7.1 million for the nine months ended September 30,
    2005 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | Satellite Services recognized for the three and nine months
    ended September 30, 2004, $7.7 million of EBITDA for a
    sales-type lease arrangement for satellite capacity. For the
    nine months ended September 30, 2004 Satellite Services
    recorded an impairment charge of $12.0 million relating to
    our Telstar 14/Estrela do Sul-1 satellite and related
    assets to reduce the carrying values to the expected proceeds
    from insurance.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | Satellite Manufacturing includes a warranty accrual of
    $5 million for the three months ended September 30,
    2005 and $12 million for the nine months ended
    September 30, 2005. 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 that was under construction in 2004. Consistent with
    our internal reporting for Satellite Manufacturing, this
    decrease in contract value for the satellite that was under
    construction in 2004 was not reflected as a decrease in
    Satellite Manufacturing revenues. These charges had no effect on
    our consolidated results in 2004.
|   
|(5) | Represents corporate expenses incurred in support of our
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(6) | Includes depreciation expense of $42 million for the nine
    months ended September 30, 2004, relating to our Telstar 11
    satellite for which depreciation was accelerated due to the
    estimated end of depreciable life to June 2004 from March 2005.
    As a result of this acceleration, there was no depreciation
    expense recorded for Telstar 11 in the three months ended
    September 30, 2005 and 2004 and the nine months ended
    September 30, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                             

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Three Months Ended September 30, 2005 Compared With
2004




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

|                                                                         |  |               |    |   |             |   |     |            |  |  |     |   
|------------------------------------------------------------------------ |  | ------------- | -- | - | ----------- | - | --- | ---------- |  |  | --- | --
|                                                                         |  | Three Months  |    |   |            
|                                                                         |  | Ended         |    |   |            
|                                                                         |  | September 30, |    |   |            
|                                                                         |  |               |    |   | % Increase/ |  
|                                                                         |  | 2005          |    |   | 2004        |   |     | (Decrease) | 
|                                                                         |  |               |    |   |             |   |     |            | 
|                                                                         |  | (In millions) |    |   |            
|Revenues from Satellite Services before sales-type lease
    arrangement |  | $             | 41 |   |             | $ | 34  |            |  |  | 20  | % 
|Revenues from sales-type lease arrangement                               |  |               |   |   |             |   | 87  |            |  |  |     |   
|Eliminations                                                             |  |               | (1 | ) |             |   | (1  | )          |  |  | (3  | )%
|                                                                         |  |               |    |   |             |   |     |            | 
|Revenues from Satellite Services as reported                             |  | $             | 40 |   |             | $ | 120 |            |  |  | (67 | )%
|                                                                         |  |               |    |   |             |   |     |            | 





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

|                                                  |  |               |     |   |             |   |    |            |  |  |     |   
|------------------------------------------------- |  | ------------- | --- | - | ----------- | - | -- | ---------- |  |  | --- | --
|                                                  |  | Three Months  |     |   |            
|                                                  |  | Ended         |     |   |            
|                                                  |  | September 30, |     |   |            
|                                                  |  |               |     |   | % Increase/ |  
|                                                  |  | 2005          |     |   | 2004        |   |    | (Decrease) | 
|                                                  |  |               |     |   |             |   |    |            | 
|                                                  |  | (In millions) |     |   |            
|Revenues from Satellite Manufacturing             |  | $             | 123 |   |             | $ | 86 |            |  |  | 45  | % 
|Eliminations                                      |  |               | (3  | ) |             |   | (7 | )          |  |  | (54 | )%
|                                                  |  |               |     |   |             |   |    |            | 
|Revenues from Satellite Manufacturing as reported |  | $             | 120 |   |             | $ | 79 |            |  |  | 53  | % 
|                                                  |  |               |     |   |             |   |    |            | 





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

|                                                                                 |                                                                            |               |    |    |             |   |     |            |  |  |     |     |   
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------- | -- | -- | ----------- | - | --- | ---------- |  |  | --- | --- | --
|                                                                                 |                                                                            | Three Months  |    |    |            
|                                                                                 |                                                                            | Ended         |    |    |            
|                                                                                 |                                                                            | September 30, |    |    |            
|                                                                                 |                                                                            |               |    |    | % Increase/ |  
|                                                                                 |                                                                            | 2005          |    |    | 2004        |   |     | (Decrease) | 
|                                                                                 |                                                                            |               |    |    |             |   |     |            | 
|                                                                                 |                                                                            | (In millions) |    |    |            
|Cost of Satellite Services includes:                                             |                                                                            |               |    |    |             |   |     |            |  |  |     |    
|                                                                                 | Cost of Satellite Services before cost of sales-type lease
    arrangement |               | $  | 15 |             |   | $   | 17         |  |  |     | (16 | )%
|                                                                                 | Depreciation and amortization                                              |               |    | 13 |             |   |     | 16         |  |  |     | (15 | )%
|                                                                                 | Cost of sales-type lease arrangement                                       |               |    |   |             |   |     | 80         |  |  |     |     |   
|                                                                                 |                                                                            |               |    |    |             |   |     |            | 
|Cost of Satellite Services as reported                                           |                                                                            | $             | 28 |    |             | $ | 113 |            |  |  | (75 | )% 
|                                                                                 |                                                                            |               |    |    |             |   |     |            | 
|Cost of Satellite Services as a % of Satellite Services revenues
    as reported |                                                                            |               | 71 | %  |             |   | 94  | %          |  |  |     |    

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

|                                                                                          |                                 |               |     |     |             |   |     |            |  |  |    |     |   
|----------------------------------------------------------------------------------------- | ------------------------------- | ------------- | --- | --- | ----------- | - | --- | ---------- |  |  | -- | --- | --
|                                                                                          |                                 | Three Months  |     |     |            
|                                                                                          |                                 | Ended         |     |     |            
|                                                                                          |                                 | September 30, |     |     |            
|                                                                                          |                                 |               |     |     | % Increase/ |  
|                                                                                          |                                 | 2005          |     |     | 2004        |   |     | (Decrease) | 
|                                                                                          |                                 |               |     |     |             |   |     |            | 
|                                                                                          |                                 | (In millions) |     |     |            
|Cost of Satellite Manufacturing includes:                                                 |                                 |               |     |     |             |   |     |            |  |  |    |    
|                                                                                          | Cost of Satellite Manufacturing |               | $   | 112 |             |   | $   | 79         |  |  |    | 44  | % 
|                                                                                          | Depreciation and amortization   |               |     | 4   |             |   |     | 5          |  |  |    | (23 | )%
|                                                                                          |                                 |               |     |     |             |   |     |            | 
|Cost of Satellite Manufacturing as reported                                               |                                 | $             | 116 |     |             | $ | 84  |            |  |  | 39 | %  
|                                                                                          |                                 |               |     |     |             |   |     |            | 
|Cost of Satellite Manufacturing as a % of Satellite
    Manufacturing revenue as reported |                                 |               | 97  | %   |             |   | 107 | %          |  |  |    |    





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

|                                             |  |               |    |   |             |   |    |            |  |  |     |   
|-------------------------------------------- |  | ------------- | -- | - | ----------- | - | -- | ---------- |  |  | --- | --
|                                             |  | Three Months  |    |   |            
|                                             |  | Ended         |    |   |            
|                                             |  | September 30, |    |   |            
|                                             |  |               |    |   | % Increase/ |  
|                                             |  | 2005          |    |   | 2004        |   |    | (Decrease) | 
|                                             |  |               |    |   |             |   |    |            | 
|                                             |  | (In millions) |    |   |            
|Selling, general and administrative expenses |  | $             | 23 |   |             | $ | 27 |            |  |  | (15 | )%
|% of revenues as reported                    |  |               | 14 | % |             |   | 14 | %          |  |  |     |   





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

|                                          |  |               |    |  |             |   |   |            |  |  |    |  
|----------------------------------------- |  | ------------- | -- |  | ----------- | - | - | ---------- |  |  | -- | -
|                                          |  | Three Months  |    |  |            
|                                          |  | Ended         |    |  |            
|                                          |  | September30,  |    |  |            
|                                          |  |               |    |  | % Increase/ |  
|                                          |  | 2005          |    |  | 2004        |   |   | (Decrease) | 
|                                          |  |               |    |  |             |   |   |            | 
|                                          |  | (In millions) |    |  |            
|Reorganization expenses due to bankruptcy |  | $             | 19 |  |             | $ | 9 |            |  |  | 96 | %



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

|                               |  |               |   |  |      |   |   | 
|------------------------------ |  | ------------- | - |  | ---- | - | - | 
|                               |  | Three Months  |  
|                               |  | Ended         |  
|                               |  | September 30, |  
|                               |  |               |  
|                               |  | 2005          |   |  | 2004 |  
|                               |  |               |   |  |      |  
|                               |  | (In millions) |  
|Interest and investment income |  | $             | 2 |  |      | $ | 2 | 





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





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





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





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

|                                              |  |               |    |   |      |   |   | 
|--------------------------------------------- |  | ------------- | -- | - | ---- | - | - | 
|                                              |  | Three Months 
|                                              |  | Ended        
|                                              |  | September 30,
|                                              |  |              
|                                              |  | 2005          |    |   | 2004
|                                              |  |               |    |   |     
|                                              |  | (In millions)
|XTAR (see Note 8 to the financial statements) |  | $             | (1 | ) |      | $ |  | 
|                                              |  |               |    |   |      |  



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



53



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Nine Months Ended September 30, 2005 Compared With
2004




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

|                                                                         |  |               |     |   |             |   |     |            |  |  |     |   
|------------------------------------------------------------------------ |  | ------------- | --- | - | ----------- | - | --- | ---------- |  |  | --- | --
|                                                                         |  | Nine Months   |     |   |            
|                                                                         |  | Ended         |     |   |            
|                                                                         |  | September 30, |     |   |            
|                                                                         |  |               |     |   | % Increase/ |  
|                                                                         |  | 2005          |     |   | 2004        |   |     | (Decrease) | 
|                                                                         |  |               |     |   |             |   |     |            | 
|                                                                         |  | (In millions) |     |   |            
|Revenues from Satellite Services before sales-type lease
    arrangement |  | $             | 115 |   |             | $ | 106 |            |  |  | 8   | % 
|Revenues from sales-type lease arrangement                               |  |               |    |   |             |   | 87  |            |  |  |     |   
|Eliminations                                                             |  |               | (4  | ) |             |   | (5  | )          |  |  | (17 | )%
|                                                                         |  |               |     |   |             |   |     |            | 
|Revenues from Satellite Services as reported                             |  | $             | 111 |   |             | $ | 188 |            |  |  | (41 | )%
|                                                                         |  |               |     |   |             |   |     |            | 





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

|                                                  |  |               |     |   |             |   |     |            |  |  |     |   
|------------------------------------------------- |  | ------------- | --- | - | ----------- | - | --- | ---------- |  |  | --- | --
|                                                  |  | Nine Months   |     |   |            
|                                                  |  | Ended         |     |   |            
|                                                  |  | September 30, |     |   |            
|                                                  |  |               |     |   | % Increase/ |  
|                                                  |  | 2005          |     |   | 2004        |   |     | (Decrease) | 
|                                                  |  |               |     |   |             |   |     |            | 
|                                                  |  | (In millions) |     |   |            
|Revenues from Satellite Manufacturing             |  | $             | 329 |   |             | $ | 300 |            |  |  | 10  | % 
|Eliminations                                      |  |               | (11 | ) |             |   | (72 | )          |  |  | (85 | )%
|                                                  |  |               |     |   |             |   |     |            | 
|Revenues from Satellite Manufacturing as reported |  | $             | 318 |   |             | $ | 228 |            |  |  | 40  | % 
|                                                  |  |               |     |   |             |   |     |            | 



54



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

|                                                                                 |                                                                            |               |    |    |             |   |     |            |  |  |     |     |   
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------- | -- | -- | ----------- | - | --- | ---------- |  |  | --- | --- | --
|                                                                                 |                                                                            | Nine Months   |    |    |            
|                                                                                 |                                                                            | Ended         |    |    |            
|                                                                                 |                                                                            | September 30, |    |    |            
|                                                                                 |                                                                            |               |    |    | % Increase/ |  
|                                                                                 |                                                                            | 2005          |    |    | 2004        |   |     | (Decrease) | 
|                                                                                 |                                                                            |               |    |    |             |   |     |            | 
|                                                                                 |                                                                            | (In millions) |    |    |            
|Cost of Satellite Services includes:                                             |                                                                            |               |    |    |             |   |     |            |  |  |     |    
|                                                                                 | Cost of Satellite Services before cost of sales-type lease
    arrangement |               | $  | 45 |             |   | $   | 50         |  |  |     | (10 | )%
|                                                                                 | Cost of sales-type lease arrangement                                       |               |    |   |             |   |     | 80         |  |  |     |     |   
|                                                                                 | Impairment charge for Telstar 14/ Estrela do Sul-1satellite                |               |    |   |             |   |     | 12         |  |  |     |     |   
|                                                                                 | Depreciation and amortization                                              |               |    | 49 |             |   |     | 87         |  |  |     | (44 | )%
|                                                                                 |                                                                            |               |    |    |             |   |     |            | 
|Cost of Satellite Services as reported                                           |                                                                            | $             | 94 |    |             | $ | 229 |            |  |  | (59 | )% 
|                                                                                 |                                                                            |               |    |    |             |   |     |            | 
|Cost of Satellite Services as a % of Satellite Services revenues
    as reported |                                                                            |               | 85 | %  |             |   | 122 | %          |  |  |     |    





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

|                                                                                          |                                       |               |     |     |             |   |     |            |  |  |    |     |   
|----------------------------------------------------------------------------------------- | ------------------------------------- | ------------- | --- | --- | ----------- | - | --- | ---------- |  |  | -- | --- | --
|                                                                                          |                                       | Nine Months   |     |     |            
|                                                                                          |                                       | Ended         |     |     |            
|                                                                                          |                                       | September 30, |     |     |            
|                                                                                          |                                       |               |     |     | % Increase/ |  
|                                                                                          |                                       | 2005          |     |     | 2004        |   |     | (Decrease) | 
|                                                                                          |                                       |               |     |     |             |   |     |            | 
|                                                                                          |                                       | (In millions) |     |     |            
|Cost of Satellite Manufacturing includes:                                                 |                                       |               |     |     |             |   |     |            |  |  |    |    
|                                                                                          | Other cost of Satellite Manufacturing |               | $   | 279 |             |   | $   | 215        |  |  |    | 32  | % 
|                                                                                          | Depreciation and amortization         |               |     | 12  |             |   |     | 17         |  |  |    | (32 | )%
|                                                                                          |                                       |               |     |     |             |   |     |            | 
|Cost of Satellite Manufacturing as reported                                               |                                       | $             | 291 |     |             | $ | 232 |            |  |  | 26 | %  
|                                                                                          |                                       |               |     |     |             |   |     |            | 
|Cost of Satellite Manufacturing as a % of Satellite
    Manufacturing revenue as reported |                                       |               | 91  | %   |             |   | 102 | %          |  |  |    |    



55



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

|                                             |  |               |    |   |            |   |    |            |  |  |     |   
|-------------------------------------------- |  | ------------- | -- | - | ---------- | - | -- | ---------- |  |  | --- | --
|                                             |  | Nine Months   |    |   |           
|                                             |  | Ended         |    |   |           
|                                             |  | September 30, |    |   |           
|                                             |  |               |    |   | %Increase/ |  
|                                             |  | 2005          |    |   | 2004       |   |    | (Decrease) | 
|                                             |  |               |    |   |            |   |    |            | 
|                                             |  | (In millions) |    |   |           
|Selling, general and administrative expenses |  | $             | 80 |   |            | $ | 90 |            |  |  | (11 | )%
|% of revenues as reported                    |  |               | 18 | % |            |   | 22 | %          |  |  |     |   





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

|                                          |  |               |    |  |             |   |    |            |  |  |    |  
|----------------------------------------- |  | ------------- | -- |  | ----------- | - | -- | ---------- |  |  | -- | -
|                                          |  | Nine Months   |    |  |            
|                                          |  | Ended         |    |  |            
|                                          |  | September 30, |    |  |            
|                                          |  |               |    |  | % Increase/ |  
|                                          |  | 2005          |    |  | 2004        |   |    | (Decrease) | 
|                                          |  |               |    |  |             |   |    |            | 
|                                          |  | (In millions) |    |  |            
|Reorganization expenses due to bankruptcy |  | $             | 31 |  |             | $ | 27 |            |  |  | 14 | %





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

|                               |  |               |   |  |             |   |   |            |  |  |     |   
|------------------------------ |  | ------------- | - |  | ----------- | - | - | ---------- |  |  | --- | --
|                               |  | Nine Months   |   |  |            
|                               |  | Ended         |   |  |            
|                               |  | September 30, |   |  |            
|                               |  |               |   |  | % Increase/ |  
|                               |  | 2005          |   |  | 2004        |   |   | (Decrease) | 
|                               |  |               |   |  |             |   |   |            | 
|                               |  | (In millions) |   |  |            
|Interest and investment income |  | $             | 6 |  |             | $ | 7 |            |  |  | (12 | )%





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

|                                          |  |               |   |  |      |   |    |  
|----------------------------------------- |  | ------------- | - |  | ---- | - | -- | -
|                                          |  | Nine Months   |  
|                                          |  | Ended         |  
|                                          |  | September 30, |  
|                                          |  |               |  
|                                          |  | 2005          |   |  | 2004 |  
|                                          |  |               |   |  |      |  
|                                          |  | (In millions) |  
|Interest cost before capitalized interest |  | $             | 4 |  |      | $ | 2  |  
|Capitalized interest                      |  |               |  |  |      |   | (1 | )
|                                          |  |               |   |  |      |  
|Interest expense                          |  | $             | 4 |  |      | $ | 1  |  
|                                          |  |               |   |  |      |  



56



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





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





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

|                                                        |  |               |    |   |      |   |    | 
|------------------------------------------------------- |  | ------------- | -- | - | ---- | - | -- | 
|                                                        |  | Nine Months   |   
|                                                        |  | Ended         |   
|                                                        |  | September 30, |   
|                                                        |  |               |   
|                                                        |  | 2005          |    |   | 2004 |  
|                                                        |  |               |    |   |      |  
|                                                        |  | (In millions) |   
|XTAR                                                    |  | $             | (3 | ) |      | $ |   | 
|Globalstar and Globalstar service provider partnerships |  |               |   |   |      |   | 47 | 
|                                                        |  |               |    |   |      |  
|                                                        |  | $             | (3 | ) |      | $ | 47 | 
|                                                        |  |               |    |   |      |  





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





57



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



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





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





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



Liquidity and Capital Resources




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











58



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##### Table of Contents









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





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







| |                                                                         
| | ------------------------------------------------------------------------
| | Net Cash Provided by Operating Activities of Discontinued
    Operations





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







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





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



59



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Commitments and Contingencies




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



Other Matters




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








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



|                                                               |  |              |       |  |        |   |      | 
|-------------------------------------------------------------- |  | ------------ | ----- |  | ------ | - | ---- | 
|                                                               |  | Japanese Yen |       |  | U.S. $ |  
|                                                               |  |              |       |  |        |  
|Future revenues                                                |  | ¥            | 595   |  |        | $ | 5.3  | 
|Future expenditures                                            |  |              | 1,418 |  |        |   | 12.6 | 
|Contracts-in-process: unbilled receivables/(customer advances) |  |              | 183   |  |        |   | 1.6  | 








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

Disclosure controls and procedures.


Internal control over financial reporting.


60



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##### Table of Contents






PART II.


OTHER INFORMATION







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














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







61



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

















|                   |  |                                       |  |                                                                                                                                                                                 
|------------------ |  | ------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report     |  |                                       |  | Description                                                                                                                                                                     
|                   |  |                                       |  |                                                                                                                                                                                 
|July 1, 2005       |  | Item 8.01. Other Events               |  | Extended to July 29, 2005 the expiration date of the rights
    offering in connection with and subject to the terms and
    conditions set forth in the Plan of Reorganization.
|                  
|July 11, 2005      |  | Item 7.01. Regulation FD Disclosure   |  | Monthly Operating report for the period of April 22, 2005
    through May 20, 2005 as filed with the U.S. Bankruptcy
    Court for the Southern District of New York.           
|                  
|August 5, 2005     |  | Item 1.03. Bankruptcy or Receivership |  | The Bankruptcy Court entered an order on August 1, 2005
    confirming the Fourth Amended Joint Plan of Reorganization, as
    modified by the Confirmation Order.              
|                  
|September 9, 2005  |  | Item 8.01. Other Events               |  | On September 7, 2005 an appeal of the Confirmation Order
    and Motion to Prosecute was docketed in the Bankruptcy Court.                                                      
|                  
|September 23, 2005 |  | Item 7.01. Regulation FD Disclosure   |  | Monthly Operating report for the period of July 1, 2005
    through July 22, 2005 as filed with the
    U.S. Bankruptcy Court for the Southern District of New York.            

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SIGNATURES






| |                                      
| | -------------------------------------
| | Registrant                           
|
| | Loral Space &
    Communications Ltd.
|
| | /s/ Richard J. Townsend              
| |                                      



| |                                    
| | -----------------------------------
| | Richard J. Townsend                
| | Executive Vice President and       
| | Chief Financial Officer            
| | (Principal Financial Officer)      
| | and Registrants Authorized Officer



63



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##### Table of Contents






EXHIBIT INDEX


|             |  |   |  |                                                                                                                                              
|------------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  |   |  | Description                                                                                                                                  
|             |  |   |  |                                                                                                                                              
|Exhibit 12   |  |  |  | Computation of Deficiency of Earnings to Cover Fixed Charges                                                                                 
|Exhibit 31.1 |  |  |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 302 of the Sarbanes-Oxley Act of 2002
|Exhibit 31.2 |  |  |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 302 of the Sarbanes-Oxley Act of 2002
|Exhibit 32.1 |  |  |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002
|Exhibit 32.2 |  |  |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002