##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-Q
  QUARTERLY REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF
    1934
  For the quarterly period ended June 30, 2006
  Commission file number 1-14180
  Loral Space &
    Communications Inc.
   600 Third
    Avenue
    New York, New York 10016
    Telephone:
    (212) 697-1105
  Jurisdiction of incorporation: Delaware
  IRS identification number: 87-0748324
  þ o
  Rule 12b-2
 o o þ
  þ o
  Rule 12b-2 o þ




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TABLE OF CONTENTS  PART 1. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Disclosure Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. ExhibitsSIGNATURESEX-14.1: CODE OF CONDUCTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
  PART 1.
    FINANCIAL INFORMATION
 
  Item 1.
    Financial
    Statements  LORAL
    SPACE & COMMUNICATIONS INC.
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (In thousands, except par value)
    (Unaudited)
  June 30,


December 31,2006


2005ASSETSCurrent assets:Cash and cash equivalents

$
341,934


$
275,796Accounts receivable, net


51,859



59,347Contracts-in-process


89,431



73,584Inventories


60,089



51,871Other current assets


24,087



31,066Total current assets


567,400



491,664Property, plant and equipment, net


506,712



520,503Long-term receivables


57,466



48,155Investments in and advances to
    affiliates


101,312



104,616Deposits


9,829



9,840Goodwill


346,283



340,094Other assets


145,844



164,105Total assets

$
1,734,846


$
1,678,977LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
52,559


$
72,594Accrued employment costs


30,780



35,277Customer advances and billings in
    excess of costs and profits


260,621



172,995Income taxes payable


2,051



2,177Accrued interest and preferred
    dividends


25,515



4,881Other current liabilities


19,118



32,324Total current liabilities


390,644



320,248Pension and other post retirement
    liabilities (Note 3)


246,492



237,948Long-term debt (Note 10)


128,139



128,191Long-term liabilities


168,134



165,426Total liabilities


933,409



851,813Minority interest


200,000



200,000Commitments and contingencies
    (Notes 2, 8, 10 and 11)Shareholders equity:Common stock, $.01 par value


200



200Paid-in capital


643,581



642,210Retained deficit


(42,496
)


(15,261
)Accumulated other comprehensive
    income


152



15Total shareholders equity


601,437



627,164Total liabilities and
    shareholders equity

$
1,734,846


$
1,678,977    1




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##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (In thousands, except per share amounts)
    (Unaudited)
  Successor



Predecessor


Successor



PredecessorRegistrant



Registrant


Registrant



RegistrantThree Months



Three Months


Six Months



Six MonthsEnded June 30,



Ended June 30,


Ended June 30,



Ended June 30,2006



2005


2006



2005Revenues from satellite services

$
37,073



$
36,256


$
72,557



$
70,827Revenues from satellite
    manufacturing


155,810




100,506



292,302




198,313Total revenues


192,883




136,762



364,859




269,140Cost of satellite services


23,456




30,792



47,286




65,963Cost of satellite manufacturing


138,252




86,713



264,200




174,950Selling, general and
    administrative expenses


31,695




29,015



60,109




56,312Loss from continuing operations
    before reorganization expenses due to bankruptcy


(520
)



(9,758
)


(6,736
)



(28,085
)Reorganization expenses due to
    bankruptcy







(6,983
)







(12,615
)Operating loss from continuing
    operations


(520
)



(16,741
)


(6,736
)



(40,700
)Interest and investment income


5,014




1,989



9,559




3,777Interest expense (contractual
    interest was $12,346 and $24,200 for the three and six months
    ended June 30, 2005, respectively, Note 2)


(5,495
)



(1,470
)


(10,663
)



(2,448
)Other income (expense)


(87
)



5



926




(612
)Loss from continuing operations
    before income taxes, equity losses in affiliates and minority
    interest


(1,088
)



(16,217
)


(6,914
)



(39,983
)Income tax provision


(2,423
)



(1,770
)


(5,017
)



(3,500
)Loss from continuing operations
    before equity losses in affiliates and minority interest


(3,511
)



(17,987
)


(11,931
)



(43,483
)Equity losses in affiliates
    (Note 8)


(1,884
)



(818
)


(3,304
)



(1,557
)Minority interest


(6,000
)



29



(12,000
)



43Loss from continuing operations


(11,395
)



(18,776
)


(27,235
)



(44,997
)Gain on sale of discontinued
    operations, net of taxes (Note 4)







11,371








11,371Net loss

$
(11,395
)


$
(7,405
)

$
(27,235
)


$
(33,626
)Basic and diluted loss per share
    (Note 12):Continuing operations

$
(0.57
)


$
(0.43
)

$
(1.36
)


$
(1.02
)Discontinued operations







0.26








0.26Loss per share

$
(0.57
)


$
(0.17
)

$
(1.36
)


$
(0.76
)Weighted average shares
    outstanding:Basic and diluted


20,000




44,108



20,000




44,108    2




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##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded June 30,



Ended June 30,2006



2005Operating activities:Net loss

$
(27,235
)


$
(33,626
)Non-cash items:Gain on sale of discontinued
    operations, net of taxes (Note 4)







(11,371
)Equity losses in affiliates


3,304




1,557Minority interest


12,000




(43
)Deferred taxes







326Depreciation and amortization


33,074




43,580Amortization of stock option
    compensation


1,371




(Recoveries of) provisions for bad
    debts on billed receivables


499




(553
)Provisions for inventory
    obsolescence


1,678




Warranty accruals


1,351




6,103Loss on equipment disposals







2,495Net gain on the disposition of an
    orbital slot


(1,149
)



Non cash net interest and (gain)
    loss on foreign currency transactions


27




767Changes in operating assets and
    liabilities:Accounts receivable, net


15,289




646Contracts-in-process


(14,067
)



(44,218
)Inventories


(9,896
)



(912
)Long-term receivables


(323
)



(2,628
)Deposits


11




(106
)Other current assets and other
    assets


8,985




2,107Accounts payable


(14,007
)



347Accrued expenses and other current
    liabilities


(19,180
)



(2,273
)Customer advances


72,562




(67,199
)Income taxes payable


(126
)



1,648Pension and other postretirement
    liabilities


8,544




9,127Long-term liabilities


6,995




2,103Other


85




(149
)Net cash provided by (used in)
    operating activities


79,792




(92,272
)Investing activities:Capital expenditures


(20,590
)



(2,967
)Decrease in restricted cash in
    escrow


1,194




1,600Insurance proceeds received
    (Note 7)







129,355Proceeds received from the
    disposition of an orbital slot


5,742




Investments in and advances to
    affiliates







(7,354
)Net cash (used in) provided by
    investing activities of continuing operations


(13,654
)



120,634Proceeds from the sales of assets,
    net of expenses (Note 4)







144Net cash provided by discontinued
    operations







144Net cash (used in) provided by
    investing activities


(13,654
)



120,778Financing activities:Net cash provided by (used in)
    financing activities







Net increase in cash and cash
    equivalents


66,138




28,506Cash and cash
    equivalents  beginning of period


275,796




147,773Cash and cash
    equivalents  end of period

$
341,934



$
176,279    3




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##### Table of Contents



LORAL
    SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Organization
    and Principal Business    No. 90-7, Financial Reporting of Entities in Reorganization Under the
    Bankruptcy Code (SOP 90-7).
      Satellite Services,
  Satellite Manufacturing,
  2.
    Reorganization  No. 03-41710
   4




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    The business and operations of Old Loral have been transferred
    to New Loral, and Loral Skynet and SS/L have emerged intact as
    separate subsidiaries of reorganized Loral.
    Our new common stock has been listed on NASDAQ under the symbol
    LORL.
    SS/L has emerged debt-free.
    The initial distributions to creditors of Old Loral and its
    subsidiaries have been completed in accordance with the Plan of
    Reorganization as follows:  
    All holders of allowed claims against SS/L and Loral SpaceCom
    have been, or will be, paid in cash in full, including interest
    from the petition date to the Effective Date.
    20 million shares of New Loral common stock were issued to
    our distribution agent on the Effective Date, 18.8 million
    of which have been distributed to creditors.
    $200 million of Loral Skynet preferred stock was issued to
    our distribution agent on the Effective Date,
    $197.5 million of which has been distributed to creditors
    (See Note 3).
    The remaining undistributed shares of New Loral common stock and
    Loral Skynet preferred stock have been reserved to cover
    disputed claims and will be distributed quarterly in accordance
    with the Plan of Reorganization upon resolutions of those claims.
    Pursuant to a rights offering, Loral Skynet issued on the
    Effective Date, $126 million, principal amount, of senior
    secured notes (the Loral Skynet Notes, see
    Note 10) to certain creditors who subscribed for the
    notes and to certain creditors who committed to purchase any
    unsubscribed notes (i.e., backstopped the offering).
    Old Loral will be liquidated; the common and preferred stock of
    Old Loral were cancelled on the Effective Date, and no
    distribution was made to the holders of such stock.      Predecessor RegistrantThree Months Ended


Six Months EndedJune 30, 2005


June 30, 2005Professional fees

$
5,639


$
11,127Employee retention costs


111



293Severance costs


177



680Restructuring costs


1,857



1,857Vendor settlement gains


(192
)


(67
)Interest income


(609
)


(1,275
)Total reorganization expenses due
    to bankruptcy

$
6,983


$
12,615  5




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    3.
    Basis of
    Presentation    Form 10-K
  SOP 90-7
  SOP 90-7, Business Combinations Form 10-K
  contracts-in-process,
 6




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Minority
    Interest
      Accounting
    for Stock Based Compensation
  Share-Based Payment
  Accounting for Stock-Based
    Compensation-Transition and Disclosure Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
  Income
    Taxes
  paid-in-capital.
   7




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Pensions
    and Other Employee Benefits
    SuccessorRegistrant



Predecessor RegistrantThree Months Ended



Three Months EndedJune 30, 2006



June 30, 2005Pension


Other



Pension


OtherBenefits


Benefits



Benefits


BenefitsService cost

$
3,375


$
300



$
2,846


$
352Interest cost


5,700



1,125




5,778



1,313Expected return on plan assets


(5,425
)







(5,105
)


(15
)Amortization of prior service cost











(9
)


(481
)Amortization of net loss











1,557



693$
3,650


$
1,425



$
5,067


$
1,862   SuccessorRegistrant



Predecessor RegistrantSix Months Ended



Six Months EndedJune 30, 2006



June 30, 2005Pension


Other



Pension


OtherBenefits


Benefits



Benefits


BenefitsService cost

$
6,750


$
600



$
5,692


$
704Interest cost


11,400



2,250




11,556



2,626Expected return on plan assets


(10,850
)







(10,210
)


(30
)Amortization of prior service cost











(18
)


(962
)Amortization of net loss











3,114



1,386$
7,300


$
2,850



$
10,134


$
3,724    8




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Additional
    Cash Flow Information
    Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30, 2006



June 30, 2005Non-cash activities:Unrealized losses on
    available-for-sale
    securities






$
(45
)Unrealized net losses on
    derivatives, net of taxes






$
(473
)Supplemental information:Interest paid, net of capitalized
    interest

$
3,030Taxes paid, net of refunds

$
1,574



$
1,537Cash (paid) received for
    reorganization items:Professional fees

$
(9,177
)


$
(8,841
)Restructuring costs






$
(55
)Interest income






$
1,277   New
    Accounting Pronouncements
  FIN 48
  Accounting for Uncertainty in Income Taxes, an Interpretation
    of FASB Statement No. 109
  4.
    Discontinued
    Operations   9




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    5.
    Comprehensive
    Loss    Successor



Predecessor


Successor



PredecessorRegistrant



Registrant


Registrant



RegistrantThree Months



Three Months


Six Months



Six MonthsEnded



Ended


Ended



EndedJune 30,



June 30,


June 30,



June 30,2006



2005


2006



2005Net loss

$
(11,395
)


$
(7,405
)

$
(27,235
)


$
(33,626
)Cumulative translation adjustment


97




(119
)


137




(149
)Unrealized losses on
    available-for-sale
    securities







(45
)







(45
)Foreign currency hedging:Reclassifications into revenue and
    cost of sales from other comprehensive income, net of taxes







(200
)







(473
)Comprehensive loss

$
(11,298
)


$
(7,769
)

$
(27,098
)


$
(34,293
)   6.
    Contracts-in-Process  June 30,


December 31,2006


2005(In thousands)Amounts billed

$
59,607


$
38,913Unbilled receivables


29,824



34,671$
89,431


$
73,584   contracts-in-process
    Japanese Yen


U.S.$Future revenues

¥
191


$
1.6Future expenditures


2,548



21.9Contracts-in-process,
    unbilled receivables/(customer advances)


(42
)


(0.4
)      10




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    Property,
    Plant and Equipment  June 30,


December 31,2006


2005(In thousands)Land and land improvements

$
27,533


$
27,833Buildings


52,894



52,873Leasehold improvements


6,020



6,352Satellites in-orbit, including
    satellite transponder rights of $116.7 million


366,196



366,196Satellites under construction


10,121



197Earth stations


17,939



17,710Equipment, furniture and fixtures


64,977



61,937Other construction in progress


12,371



5,096558,051



538,194Accumulated depreciation and
    amortization


(51,339
)


(17,691
)$
506,712


$
520,503   8.
    Investment
    in and Advances to Affiliates    June 30,


December 31,2006


2005XTAR equity investment

$
101,312


$
104,616     Successor



Predecessor


Successor



PredecessorRegistrant



Registrant


Registrant



RegistrantThree Months



Three Months


Six Months



Six MonthsEnded



Ended


Ended



EndedJune 30,



June 30,


June 30,



June 30,2006



2005


2006



2005XTAR

$
(1,884
)


$
(818
)

$
(3,304
)


$
(1,557
)     Successor



Predecessor


Successor



PredecessorRegistrant



Registrant


Registrant



RegistrantThree Months



Three Months


Six Months



Six MonthsEnded



Ended


Ended



EndedJune 30,



June 30,


June 30,



June 30,2006



2005


2006



2005Revenues

$
5,638



$
1,711


$
8,454



$
4,615Elimination of our proportionate
    share of profit relating to affiliate transactions


(53
)



(19
)


(287
)



(6
)Profit relating to affiliate
    transactions not eliminated


42




15



225




4  11




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    XTAR
        XTAR-LANT
    paid-in-kind
 12




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2006


2005


2006


2005Revenues

$
3.8


$
4.7


$
7.2


$
4.7Operating loss


(2.2
)


(0.1
)


(3.4
)


(1.1
)Net loss


(3.3
)


(1.4
)


(5.4
)


(2.8
)Balance Sheet Data:   June 30,


December 31,2006


2005Current assets

$
6.2


$
7.4Total assets


136.7



142.8Current liabilities


19.4



21.1Long-term liabilities


31.2



30.2Members equity


86.1



91.5Other Data:   Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2006


2005


2006


2005Depreciation and Amortization

$
2.4


$
2.4


$
4.8


$
2.4   Satmex
     13




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Satmex
    Settlement Agreement
   14




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   conciliador
  usufructo
  9.
    Goodwill
    and Other Intangible Assets  Goodwill
    Goodwill balance at
    December 31, 2005

$
340,094Adjustments:Deferred revenues  fair
    value


6,070Fixed assets  fair value


502Intangibles  fair value


(212
)Contracts-in-process 
    fair value


(171
)Goodwill balance at June 30,
    2006

$
346,283    15




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Intangible Assets
    Weighted AverageRemaining


June 30, 2006


December 31, 2005Amortization Period


Gross


Accumulated


Gross


Accumulated(Years)


Amount


Amortization


Amount


AmortizationInternally developed software and
    technology


5


$
59.0


$
(8.1
)

$
59.8


$
(2.7
)Orbital slots


10



10.8



(1.1
)


15.8



(0.8
)Trade names


19



13.2



(0.5
)


13.2



(0.2
)Customer relationships


14



20.0



(1.0
)


20.0



(0.3
)Customer contracts


7



33.0



(5.3
)


32.0



(2.1
)Other intangibles


4



2.7



(0.5
)


2.7



(0.1
)$
138.7


$
(16.5
)

$
143.5


$
(6.2
)     2006

$
20.92007


19.92008


19.22009


18.22010


14.6   10.
    Debt  June 30,


December 31,2006


2005(In thousands)Loral Skynet 14.0% senior
    secured notes due 2015 (principal amount $126 million)

$
128,139


$
128,191    16




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    SS/L
    Letter of Credit Facility
    11.
    Commitments
    and Contingencies  Financial
    Matters
    Balance of deferred amounts at
    January 1, 2006

$
40.5Accruals for deferred amounts
    issued during the period


2.0Accruals relating to pre-existing
    contracts (including changes in estimates)


(0.6
)Balance of deferred amounts at
    June 30, 2006

$
41.9   start-up SS/L.
  FM-5
 17




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Satellite
    Matters
      back-up back-up
 18




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     1300-class
      Regulatory
    Matters
     19




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Legal
    Proceedings
  Class Action
    Securities Litigations
  Rule 10b-5 Beleson
  Rule 10b-5
  Class Action
    ERISA Litigation
   20




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   In re: Loral Space ERISA Litigation.
  In re: Loral Space ERISA
    Litigation In re: Loral Space ERISA
    Litigation
  Globalstar
    Related Class Action Securities Litigations
   21




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   In re: Globalstar Securities Litigation. Rule 10b-5
  In re:
    Loral Space & Communications Ltd. Securities
    Litigation. Rule 10b-5
 22




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##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  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 Space ERISA Litigation In re: Loral Space & Communications Ltd. Securities
    Litigation
  Reorganization
    Matters
  Natelco
 23




---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          24




---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Other and
    Routine Litigation
   25




---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        26




---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      12.
    Loss Per
    Share    Successor



Predecessor


Successor



PredecessorRegistrant



Registrant


Registrant



RegistrantThree Months



Three Months


Six Months



Six MonthsEnded



Ended


Ended



EndedJune 30,



June 30,


June 30,



June 30,2006



2005


2006



2005Numerator for basic and diluted
    loss per share:Loss from continuing operations

$
(11,395
)


$
(18,776
)

$
(27,235
)


$
(44,997
)Gain on sale of discontinued
    operations, net of taxes







11,371








11,371Net loss

$
(11,395
)


$
(7,405
)

$
(27,235
)


$
(33,626
)Denominator:Weighted average common shares
    outstanding


20,000




44,108



20,000




44,108Basic and diluted loss per share:Continuing operations

$
(0.57
)


$
(0.43
)

$
(1.36
)


$
(1.02
)Discontinued operations







0.26








0.26Loss per share

$
(0.57
)


$
(0.17
)

$
(1.36
)


$
(0.76
)   13.
    Segments     27




---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Three
    Months Ended June 30, 2006
  Satellite


SatelliteSuccessor Registrant

Services


Manufacturing


Corporate(1)


TotalRevenues and Adjusted
    EBITDA:Revenues(2)

$
37.0


$
155.9






$
192.9Intersegment revenues


0.9



7.4







8.3Operating segment revenues

$
37.9


$
163.3







201.2Eliminations(3)














(8.3
)Operating revenues as reported













$
192.9Segment Adjusted EBITDA before
    eliminations

$
14.1


$
11.8


$
(7.3
)

$
18.6Eliminations(3)














(1.5
)Adjusted EBITDA














17.1Depreciation and amortization

$
(10.9
)

$
(6.1
)

$
(0.6
)


(17.6
)Operating loss from continuing
    operations














(0.5
)Interest and investment income














5.0Interest expense














(5.5
)Other income (expense)














(0.1
)Income tax provision














(2.4
)Equity loss in affiliates














(1.9
)Minority Interest














(6.0
)Net loss













$
(11.4
)  28




---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Six
    Months Ended June 30, 2006
  Satellite


SatelliteSuccessor Registrant

Services


Manufacturing


Corporate(1)


TotalRevenues and Adjusted
    EBITDA:Revenues(2)

$
72.6


$
292.3






$
364.9Intersegment revenues


1.5



10.3







11.8Operating segment revenues

$
74.1


$
302.6







376.7Eliminations(3)














(11.8
)Operating revenues as reported













$
364.9Segment Adjusted EBITDA before
    eliminations

$
26.7


$
17.6


$
(14.2
)

$
30.1Eliminations(3)














(2.3
)Adjusted EBITDA














27.8Depreciation and amortization

$
(21.8
)

$
(11.6
)

$
(1.1
)


(34.5
)Operating loss from continuing
    operations














(6.7
)Interest and investment income














9.6Interest expense














(10.7
)Other income (expense)














0.9Income tax provision














(5.0
)Equity loss in affiliates














(3.3
)Minority Interest














(12.0
)Net loss













$
(27.2
)Other Data:Total
    assets(4)

$
722.1


$
951.2


$
61.5


$
1,734.8  29




---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Three
    Months Ended June 30, 2005
  Satellite


SatellitePredecessor Registrant

Services


Manufacturing


Corporate(1)


TotalRevenues and Adjusted
    EBITDA:Revenues(2)

$
36.4


$
100.5






$
136.9Intersegment revenues


1.1



6.1







7.2Operating segment revenues

$
37.5


$
106.6







144.1Eliminations(3)














(7.3
)Operating revenues as reported













$
136.8Segment Adjusted EBITDA before
    eliminations

$
11.8


$
6.2


$
(6.7
)

$
11.3Eliminations(3)














(1.0
)Adjusted EBITDA














10.3Depreciation and
    amortization(4)

$
(15.9
)

$
(3.9
)

$
(0.2
)


(20.0
)Reorganization expenses due to
    bankruptcy














(7.0
)Operating loss from continuing
    operations














(16.7
)Interest and investment income














2.0Interest expense














(1.5
)Income tax provision














(1.8
)Equity loss in affiliates














(0.8
)Loss from continuing operations














(18.8
)Gain on sale of discontinued
    operations, net of taxes














11.4Net loss













$
(7.4
)  30




---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Six
    Months Ended June 30, 2005
  Satellite


SatellitePredecessor Registrant

Services


Manufacturing


Corporate(1)


TotalRevenues and Adjusted
    EBITDA:Revenues(2)

$
71.3


$
198.3






$
269.6Intersegment revenues


2.1



7.9







10.0Operating segment revenues

$
73.4


$
206.2







279.6Eliminations(3)














(10.5
)Operating revenues as reported













$
269.1Segment Adjusted EBITDA before
    eliminations

$
20.9


$
10.5


$
(12.4
)

$
19.0Eliminations(3)














(3.5
)Adjusted EBITDA














15.5Depreciation and
    amortization(4)

$
(35.3
)

$
(7.9
)

$
(0.4
)


(43.6
)Reorganization expenses due to
    bankruptcy














(12.6
)Operating loss from continuing
    operations














(40.7
)Interest and investment income














3.8Interest expense














(2.4
)Other income (expense)














(0.6
)Income tax provision














(3.5
)Equity loss in affiliates














(1.6
)Loss from continuing operations














(45.0
)Gain on sale of discontinued
    operations, net of taxes














11.4Net loss













$
(33.6
)Other Data:Total
    assets(4)

$
625.8


$
448.9


$
46.1


$
1,120.8     (1)
    
    Represents corporate expenses incurred in support of our
    operations and continuing expenses related to the remaining
    bankruptcy matters.(2)
    
    Includes revenues from affiliates of $5.6 million and
    $1.7 million for the three months ended June 30, 2006
    and 2005, respectively, and $8.4 million and
    $4.6 million for the six months ended June 30, 2006
    and 2005, respectively.(3)
    
    Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA for satellites under construction
    by SS/L for wholly owned subsidiaries and for Satellite Services
    leasing transponder capacity to SS/L.(4)
    
    Amounts are presented after the elimination of intercompany
    profit. Total assets include $94.4 million,
    $251.9 million and zero goodwill for Satellite Services,
    Satellite Manufacturing and Corporate, respectively, as of
    June 30, 2006. 31




---



##### Table of Contents



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
    filed with the Securities and Exchange Commission.
    No. 90-7, Financial Reporting of Entities in Reorganization Under the
    Bankruptcy Code (SOP 90-7).
    Disclosure
    Regarding Forward-Looking Statements
  Except for the historical information contained in the
    following discussion and analysis, the matters discussed below
    are not historical facts, but are forward-looking
    statements as that term is defined in the Private
    Securities Litigation Reform Act of 1995. In addition, we or our
    representatives have made and may continue to make
    forward-looking statements, orally or in writing, in other
    contexts. These forward-looking statements can be identified by
    the use of words such as believes,
    expects, plans, may,
    will, would, could,
    should, anticipates,
    estimates, project, intend,
    or outlook or other variations of these words. These
    statements are not guarantees of future performance and involve
    risks and uncertainties that are difficult to predict or
    quantify. Actual events or results may differ materially as a
    result of a wide variety of factors and conditions, many of
    which are beyond our control. 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
  direct-to-home point-to-point end-to-end point-to-multipoint
 32




---



##### Table of Contents



Satellite
    Manufacturing
         33




---



##### Table of Contents



Bankruptcy
    Reorganization
      SOP 90-7
  Future
    Outlook
      SS/L and
      Consolidated
    Operating Results
  Form 10-K
 34




---



##### Table of Contents



Revenues:
  Successor



Predecessor


Successor



PredecessorRegistrant



Registrant


Registrant



RegistrantThree Months



Three Months


Six Months



Six MonthsEnded



Ended


Ended



EndedJune 30,



June 30,


June 30,



June 30,2006



2005


2006



2005(In millions)


(In millions)Satellite Services

$
37.9



$
37.5


$
74.1



$
73.4Satellite Manufacturing


163.3




106.6



302.6




206.2Segment revenues


201.2




144.1



376.7




279.6Eliminations(1)


(8.3
)



(7.3
)


(11.8
)



(10.5
)Revenues as
    reported(2)

$
192.9



$
136.8


$
364.9



$
269.1   Adjusted
    EBITDA:
  Successor



Predecessor


Successor



PredecessorRegistrant



Registrant


Registrant



RegistrantThree Months



Three Months


Six Months



Six MonthsEnded



Ended


Ended



EndedJune 30,



June 30,


June 30,



June 30,2006



2005


2006



2005(In millions)


(In millions)Satellite Services

$
14.1



$
11.8


$
26.7



$
20.9Satellite
    Manufacturing(3)


11.8




6.2



17.6




10.5Corporate
    expenses(4)


(7.3
)



(6.7
)


(14.2
)



(12.4
)Segment Adjusted EBITDA before
    eliminations


18.6




11.3



30.1




19.0Eliminations(1)


(1.5
)



(1.0
)


(2.3
)



(3.5
)Adjusted EBITDA

$
17.1



$
10.3


$
27.8



$
15.5  35




---



##### Table of Contents



Reconciliation
    of Adjusted EBITDA to Net Loss:
  Successor



Predecessor


Successor



PredecessorRegistrant



Registrant


Registrant



RegistrantThree Months



Three Months


Six Months



Six MonthsEnded



Ended


Ended



EndedJune 30,



June 30,


June 30,



June 30,2006



2005


2006



2005(In millions)


(In millions)Adjusted EBITDA

$
17.1



$
10.3


$
27.8



$
15.5Depreciation and amortization


(17.6
)



(20.0
)


(34.5
)



(43.6
)Reorganization expenses due to
    bankruptcy







(7.0
)







(12.6
)Operating loss from continuing
    operations


(0.5
)



(16.7
)


(6.7
)



(40.7
)Interest and investment income


5.0




2.0



9.6




3.8Interest expense


(5.5
)



(1.5
)


(10.7
)



(2.4
)Other income (expense)


(0.1
)







0.9




(0.6
)Income tax provision


(2.4
)



(1.8
)


(5.0
)



(3.5
)Equity in net losses of affiliates


(1.9
)



(0.8
)


(3.3
)



(1.6
)Minority interest


(6.0
)







(12.0
)



Loss from continuing operations


(11.4
)



(18.8
)


(27.2
)



(45.0
)Gain on sale of discontinued
    operations, net of taxes







11.4








11.4Net loss

$
(11.4
)


$
(7.4
)

$
(27.2
)


$
(33.6
)     (1)
    
    Represents the elimination of intercompany sales and
    intercompany Adjusted EBITDA for satellites under construction
    by SS/L for Satellite Services and for Satellite Services
    leasing transponder capacity to SS/L.(2)
    
    Includes revenues from affiliates of $5.6 million and
    $1.7 million for the three months ended June 30, 2006
    and 2005, respectively, and $8.4 million and
    $4.6 million for the six months ended June 30, 2006
    and 2005, respectively.(3)
    
    Satellite manufacturing includes a warranty accrual of
    $2 million and $6 million for the three months ended
    June 30, 2006 and 2005 respectively, and $1 million
    and $7 million for the six months ended June 30, 2006
    and 2005, respectively.(4)
    
    Represents corporate expenses incurred in support of our
    operations and continuing expenses related to the remaining
    bankruptcy matters.  Three
    Months Ended June 30, 2006 Compared With June 30,
    2005
  Revenues
    from Satellite Services
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Revenues from Satellite
    Services

$
38



$
37



1
%Eliminations


(1
)



(1
)


(34
)%Revenues from Satellite Services
    as reported

$
37



$
36



2
%    36




---



##### Table of Contents



Revenues
    from Satellite Manufacturing
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Revenues from Satellite
    Manufacturing

$
163



$
107



53
%Eliminations


(7
)



(6
)


22
%Revenues from Satellite
    Manufacturing as reported

$
156



$
101



55
%     Cost of
    Satellite Services
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Cost of Satellite Services
    includes:Cost of Satellite Services before
    depreciation and amortization

$
12



$
15



(15
)%Depreciation and amortization


11




16



(32
)%Total cost of Satellite Services
    as reported

$
23



$
31



(24
)%Cost of Satellite Services as a %
    of Satellite Services revenues as reported


63
%



85
%    37




---



##### Table of Contents



Cost
    of Satellite Manufacturing
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Cost of Satellite
    Manufacturing includes:Cost of Satellite Manufacturing
    before the following specific identified charges

$
130



$
77



69
%Accrued warranty obligations


2




6



(68
)%Depreciation and amortization


6




4



55
%Total cost of Satellite
    Manufacturing as reported

$
138



$
87



59
%Cost of Satellite Manufacturing as
    a % of Satellite Manufacturing revenues as reported


89
%



86
%     Selling,
    General and Administrative Expenses
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Selling, general and
    administrative expenses

$
30



$
29



4
%Continuing expenses related to
    remaining bankruptcy matters


2




Selling, general and
    administrative expenses

$
32



$
29



9
%% of revenues as reported


16
%



21
%     Reorganization
    Expenses Due to Bankruptcy
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,2006



2005(In millions)Reorganization expenses due
    to bankruptcy

$




$
7    38




---



##### Table of Contents



Interest
    and Investment Income
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,2006



2005(In millions)Interest and Investment
    Income

$
5



$
2     Interest
    Expense
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,2006



2005(In millions)Interest cost before
    capitalized interest

$
6



$
1Capitalized interest







Interest expense

$
6



$
1     Other
    Income (Expense)
    Income
    Tax Provision
  paid-in-capital.
   39




---



##### Table of Contents



Equity
    Income (Losses) in Affiliates
  Successor



PredecessorRegistrant



RegistrantThree Months



Three MonthsEnded



EndedJune 30,



June 30,2006



2005(In millions)XTAR

$
(2
)


$
(1
)   start-up.
  Minority
    Interest
    Six
    Months Ended June 30, 2006 Compared With June 30,
    2005
  Revenues
    from Satellite Services
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Revenues from Satellite
    Services

$
74



$
73



1
%Eliminations


(2
)



(2
)


(40
)%Revenues from Satellite Services
    as reported

$
72



$
71



2
%     Revenues
    from Satellite Manufacturing
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Revenues from Satellite
    Manufacturing

$
303



$
206



47
%Eliminations


(10
)



(8
)


31
%Revenues from Satellite
    Manufacturing as reported

$
293



$
198



47
%    40




---



##### Table of Contents



Cost of
    Satellite Services
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Cost of Satellite Services
    includes:Cost of Satellite Services before
    depreciation and amortization

$
25



$
31



(17
)%Depreciation and amortization


22




35



(38
)%Total cost of Satellite Services
    as reported

$
47



$
66



(28
)%Cost of Satellite Services as a %
    of Satellite Services revenues as reported


65
%



93
%     Cost
    of Satellite Manufacturing
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Cost of Satellite
    Manufacturing includes:Cost of Satellite Manufacturing
    before the following specific identified charges

$
252



$
160



57
%Warranty obligations


1




7



(81
)%Depreciation and amortization


11




8



47
%Total cost of Satellite
    Manufacturing as reported

$
264



$
175



51
%Cost of Satellite Manufacturing as
    a % of Satellite Manufacturing revenues as reported


90
%



88
%    41




---



##### Table of Contents



Selling,
    General and Administrative Expenses
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,


% Increase/2006



2005


(Decrease)(In millions)Selling, general and
    administrative expenses

$
57



$
56



2
%Continuing expenses related to
    remaining bankruptcy matters


3




Selling, general and
    administrative expenses

$
60



$
56



7
%% of revenues as reported


16
%



21
%     Reorganization
    Expenses Due to Bankruptcy
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,2006



2005(In millions)Reorganization expenses due
    to bankruptcy

$




$
13     Interest
    and Investment Income
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,2006



2005(In millions)Interest and investment
    income

$
10



$
4    42




---



##### Table of Contents



Interest
    Expense
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,2006



2005(In millions)Interest cost before
    capitalized interest

$
11



$
2Capitalized interest







Interest expense

$
11



$
2     Other
    Income (Expense)
    Income
    Tax Provision
  paid-in-capital.
    Equity
    Income (Losses) in Affiliates
  Successor



PredecessorRegistrant



RegistrantSix Months



Six MonthsEnded



EndedJune 30,



June 30,2006



2005(In millions)XTAR

$
(3
)


$
(2
)   start-up
  Minority
    Interest
   43




---



##### Table of Contents



Backlog
  Consolidated
    Satellite
    Services
    Satellite
    Manufacturing
    Liquidity
    and Capital Resources
  Cash
    and Available Credit
           44




---



##### Table of Contents



Contractual
    Obligations  Form 10-K
  Net
    Cash Provided by (Used in) Operating Activities  contracts-in-process
  contracts-in-
 45




---



##### Table of Contents



Net
    Cash (Used in) Provided by Investing Activities      Affiliate
    Matters    Commitments
    and Contingencies    Other
    Matters
  Accounting
    Pronouncements  FIN 48
  Accounting for Uncertainty in Income Taxes, an Interpretation
    of FASB Statement No. 109
 
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Foreign
    Currency
    Japanese Yen


U.S. $Future revenues

¥
191


$
1.6Future expenditures


2,548



21.9Contracts-in-process,
    unbilled receivables/(customer advances)


(42
)


(0.4
)      46




---



##### Table of Contents



Interest   
  Item 4.
    Disclosure
    Controls and Procedures  Disclosure controls and
    procedures. Rules 13a-15(e) 15d-15(e)
  Internal control over financial
    reporting. Rules 13a-15(f) 15-d-15(f))
 
  PART II.
    OTHER INFORMATION
 
  Item 1.
    Legal
    Proceedings  Form 10-Q
 
  Item 1A.
    Risk
    Factors  Form 10-K Form 10-K, and/or
 
  Item 6.
    Exhibits    Form 8-K
  Form 8-K
 47




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##### Table of Contents



Form 8-K
  Form 8-K
  Form 8-K
  Form 8-K/A
  Form 8-K/A
           48




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##### Table of Contents



SIGNATURES
      Loral Space &
    Communications Inc.
  Richard
    J. Townsend
   Executive Vice President and
 Chief Financial Officer
 (Principal Financial Officer)
 and Registrants Authorized Officer
   49




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##### Table of Contents



EXHIBIT INDEX
  Exhibit No.



DescriptionExhibit 10
.1



Exhibit 10.1 
    Customer Credit Agreement dated as of May 31, 2006 between
    Sirius Satellite Radio Inc. and Space Systems/Loral, Inc.
    (Incorporated by reference to Exhibit 10.1 of the Current Report
    on
    Form 8-K
    filed by the Company on June 8, 2006)Exhibit 10
.2



Exhibit 10.2 
    Consulting Agreement dated June 7, 2006 between Loral
    Space & Communications Inc. and Dean A. Olmstead
    (Incorporated by reference to Exhibit 10.2 of the Current
    Report on
    Form 8-K
    filed by the Company on June 8, 2006)Exhibit 10
.3



Exhibit 10.3 
    Loral Space & Communications Inc. Severance Policy for
    Corporate Officers (Management Compensation Plan) (Incorporated
    by reference to Exhibit 10.1 of the Current Report on
    Form 8-K
    filed by the Company on June 20, 2006)Exhibit 10
.4



Exhibit 10.4 
    Amendment No. 1 to Employment Agreement dated June 19,
    2006 between Loral Space & Communications Inc. and
    Richard J. Townsend (Management Compensation Plan) (Incorporated
    by reference to Exhibit 10.2 of the Current Report on
    Form 8-K
    filed by the Company on June 20, 2006)Exhibit 10
.5



Exhibit 10.5 
    Amendment No. 1 to Employment Agreement dated June 19,
    2006 between Loral Space & Communications Inc. and Avi
    Katz (Management Compensation Plan) (Incorporated by reference
    to Exhibit 10.3 of the Current Report on
    Form 8-K
    filed by the Company on June 20, 2006)Exhibit 10
.6



Exhibit 10.6   Non
    Qualified Stock Option Agreement under Loral Space &
    Communications Inc. 2005 Stock Incentive Plan dated
    June 19, 2006 between Loral Space & Communications
    Inc. and Richard J. Townsend (Management Compensation Plan)
    (Incorporated by reference to Exhibit 10.1 of the Current
    Report on
    Form 8-K/A
    filed by the Company on June 26, 2006)Exhibit 10
.7



Exhibit 10.7   Non
    Qualified Stock Option Agreement under Loral Space &
    Communications Inc. 2005 Stock Incentive Plan dated
    June 19, 2006 between Loral Space & Communications
    Inc. and Dean A. Olmstead (Management Compensation Plan)
    (Incorporated by reference to Exhibit 10.2 of the Current
    Report on
    Form 8-K/A
    filed by the Company on June 26, 2006)Exhibit 14
.1



Exhibit 14.1 
    Code of Conduct, Revised as of August 1, 2006.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.