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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549** **Form 10-Q****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE****SECURITIES EXCHANGE ACT OF 1934****For the quarterly period ended March 31, 2006****Commission filenumber 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**     Indicate by check mark whether the registrant (1) has filedall reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has beensubject to such filing requirements for the past90 days.     Yes þ          No o     Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of “accelerated filer and largeaccelerated filer” inRule 12b-2 of theExchange Act. (Check one):Large acceleratedfiler o          Acceleratedfiler o          Non-acceleratedfiler þ     Indicate by a check mark whether the registrant has filed alldocuments and reports required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent tothe distribution of securities under a plan confirmed by acourt.     Yes þ          No o     Indicate by check mark whether the registrant is a shell company(as defined in Exchange ActRule 12b-2 of theAct).     Yes o          No þ     As of April 30, 2006, there were 20,000,000 shares ofLoral Space & Communications Inc. common stockoutstanding.  

**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. ExhibitsSIGNATURESEXHIBIT INDEXEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION

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**PART 1.****FINANCIAL INFORMATION****Item 1.*****Financial Statements*****LORAL SPACE & COMMUNICATIONS INC.****CONDENSED CONSOLIDATED BALANCE SHEETS****(In thousands, except par value)****(Unaudited)**              **March 31,** **December 31,**  **2006** **2005**     **ASSETS**    Current assets:             Cash and cash equivalents $360,911  $275,796      Accounts receivable, net  24,758   59,347      Contracts-in-process  79,244   73,584      Inventories  48,972   51,871      Other current assets  26,273   31,066               Total current assets  540,158   491,664     Property, plant and equipment, net  509,654   520,503     Long-term receivables  48,016   48,155     Investments in and advances to affiliates  103,196   104,616     Deposits  9,840   9,840     Goodwill  340,094   340,094     Other assets  154,234   164,105               Total assets $1,705,192  $1,678,977         **LIABILITIES AND SHAREHOLDERS’ EQUITY**     Current liabilities:              Accounts payable $53,426  $72,594       Accrued employment costs  26,045   35,277       Customer advances and billings in excess of costs and profits  231,292   172,995       Income taxes payable  2,358   2,177       Accrued interest and preferred dividends  15,264   4,881       Other current liabilities  30,423   32,324               Total current liabilities  358,808   320,248      Pension and other post retirement liabilities (Note 3)  242,243   237,948      Long-term debt  128,166   128,191      Long-term liabilities  164,028   165,426               Total liabilities  893,245   851,813     Minority interest  200,000   200,000     Commitments and contingencies (Notes 2, 7, 9 and    10)             Shareholders’ equity:             Common stock, $.01 par value  200   200      Paid-in capital  642,793   642,210      Retained deficit  (31,101)  (15,261)     Accumulated other comprehensive income  55   15               Total shareholders’ equity  611,947   627,164               Total liabilities and shareholders’ equity $1,705,192  $1,678,977        See notes to condensed consolidated financial statements.
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**LORAL SPACE & COMMUNICATIONS INC.****CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS****(In thousands, except per share amounts)****(Unaudited)**             **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended March 31,**  **Ended March 31,**  **2006**  **2005**          Revenues from satellite services $35,484   $34,571     Revenues from satellite manufacturing  136,492    97,807              Total revenues  171,976    132,378     Cost of satellite services  23,830    35,171     Cost of satellite manufacturing  125,948    88,237     Selling, general and administrative expenses  28,414    27,296             Loss before reorganization expenses due to bankruptcy  (6,216)   (18,326)    Reorganization expenses due to bankruptcy  —    (5,633)            Operating loss  (6,216)   (23,959)    Interest and investment income  4,544    1,788     Interest expense (contractual interest was $11,854 for the three    months ended March 31, 2005, Note 2)  (5,168)   (978)    Other income (expense)  1,014    (617)            Loss before income taxes, equity losses in affiliates and    minority interest  (5,826)   (23,766)    Income tax provision  (2,594)   (1,730)            Loss before equity losses in affiliates and minority interest  (8,420)   (25,496)    Equity losses in affiliates (Note 7)  (1,420)   (739)    Minority interest  (6,000)   14             Net loss $(15,840)  $(26,221)            Basic and diluted loss per share (Note 11):              Loss per share $(0.79)  $(0.59)            Weighted average shares outstanding:              Basic and diluted  20,000    44,108         See notes to condensed consolidated financial statements.
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**LORAL SPACE & COMMUNICATIONS INC.****CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS****(In thousands)****(Unaudited)**             **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended March 31,**  **Ended March 31,**  **2006**  **2005**          Operating activities:             Net loss $(15,840)  $(26,221)    Non-cash items:              Equity losses in affiliates  1,420    739      Minority interest  6,000    (14)     Deferred taxes  —    188      Depreciation and amortization  16,288    23,529      Amortization of stock option compensation  583    —      (Recoveries of) provisions for bad debts on billed receivables  540    (247)     Provisions for inventory obsolescence  1,678    —      Warranty accruals  (390)   1,501      Loss on equipment disposals  —    283      Net gain on the disposition of an orbital slot  (1,149)   —      Non cash net interest and (gain) loss on foreign currency    transactions  7    349     Changes in operating assets and liabilities:              Accounts receivable, net  48,849    1,009      Contracts-in-process  22,706    (48,545)     Inventories  1,221    1,812      Long-term receivables  (2,261)   (5,131)     Other current assets and other assets  4,646    2,953      Accounts payable  (15,835)   6,703      Accrued expenses and other current liabilities  (11,875)   (5,333)     Customer advances  20,692    (21,133)     Income taxes payable  181    593      Pension and other postretirement liabilities  4,295    5,059      Long-term liabilities  3,668    (256)     Other  15    (32)            Net cash provided by (used in) operating activities  85,439    (62,194)            Investing activities:              Capital expenditures  (6,066)   (724)     Proceeds received from the disposition of an orbital slot  5,742    —      Investments in and advances to affiliates  —    (7,353)            Net cash used in investing activities  (324)   (8,077)            Financing activities:             Net cash provided by (used in) financing activities  —    —             Net increase (decrease) in cash and cash equivalents  85,115    (70,271)     Cash and cash equivalents — beginning of period  275,796    147,773              Cash and cash equivalents — end of period $360,911   $77,502         See notes to condensed consolidated financial statements.
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****1.****Organization and Principal Business**     Loral Space & Communications Inc. (“NewLoral”) together with its subsidiaries is a leadingsatellite communications company with substantial activities insatellite-based communications services and satellitemanufacturing. New Loral was formed to succeed the businessconducted by its predecessor registrant, Loral Space &Communications Ltd. (“Old Loral”), which emerged fromchapter 11 of the federal bankruptcy laws onNovember 21, 2005 (the “Effective Date”).     We adopted fresh-start accounting as of October 1, 2005, inaccordance with Statement of Position No. 90-7,*Financial Reporting of Entities in Reorganization Under theBankruptcy Code*(“SOP 90-7”).Accordingly, our financial information disclosed under theheading “Successor Registrant” for the period endedMarch 31, 2006, is presented on a basis different from, andis therefore not comparable to, our financial informationdisclosed under the heading “Predecessor Registrant”for the period ended March 31, 2005.     The terms, “Loral,” the “Company,”“we,” “our” and “us,” when used inthis report with respect to the period prior to our emergence,are references to Old Loral, and when used with respect to theperiod commencing after our emergence, are references to NewLoral. These references include the subsidiaries of Old Loral orNew Loral, as the case may be, unless otherwise indicated or thecontext otherwise requires.     Loral is organized into two operating segments:     *Satellite Services,*conducted by our subsidiary, LoralSkynet Corporation (“Loral Skynet”), generates itsrevenues and cash flows from leasing satellite capacity on itsfour-satellite fleet to commercial and governmental customersfor video and direct to home (“DTH”) broadcasting,high-speed data distribution, internet access andcommunications, as well as providing satellite-based networkingservices. It also provides professional services to othersatellite operators including satellite construction oversightand fleet operating services.     *Satellite Manufacturing,*conducted by our subsidiary,Space Systems/ Loral, Inc. (“SS/ L”), generates itsrevenues and cash flows from designing and manufacturingsatellites, space systems and space system components forcommercial and government customers whose applications includefixed satellite services, DTH broadcasting, broadband datadistribution, wireless telephony, digital radio, militarycommunications, weather monitoring and air traffic management.**2.****Reorganization**     On July 15, 2003, Old Loral and certain of its subsidiaries(the “Debtor Subsidiaries” and collectively with OldLoral, the “Debtors”), including LoralSpace & Communications Holdings Corporation (formerlyknown as Loral Space & Communications Corporation),Loral SpaceCom Corporation (“Loral SpaceCom”), SS/ Land Loral Orion, Inc. (now known as Loral Skynet Corporation),filed voluntary petitions for reorganization underchapter 11 of title 11 (“Chapter 11”)of the United States Code (the “Bankruptcy Code”) inthe U.S. Bankruptcy Court for the Southern District of NewYork (the “Bankruptcy Court”) (Lead CaseNo. 03-41710 (RDD), Case Nos. 03-41709 (RDD) through03-41728 (RDD)) (the “Chapter 11 Cases”). Also onJuly 15, 2003, Old Loral and one of its Bermudasubsidiaries (the “Bermuda Group”) filed parallelinsolvency proceedings in the Supreme Court of Bermuda (the“Bermuda Court”), and, on that date, the Bermuda Courtentered an order appointing certain partners of KPMG as JointProvisional Liquidators (“JPLs”) in respect of theBermuda Group (see Basis of Presentation Note 3).     The Debtors emerged from Chapter 11 on November 21,2005 pursuant to the terms of their fourth amended joint plan ofreorganization, as modified (the “Plan ofReorganization”). The Plan of Reorganization had previouslybeen confirmed by order (the “Confirmation Order”) ofthe Bankruptcy Court entered on August 1, 2005.
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**     Pursuant to the Plan of Reorganization: •     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.  •     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 9) 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.     Certain Old Loral shareholders acting on behalf of theself-styled Loral Stockholders Protective Committee(“LSPC”) have filed various appeals seeking, amongother things, to revoke the Confirmation Order, to overturn theBankruptcy Court’s denial of the LSPC’s motion tocompel Old Loral to hold a shareholders’ meeting, tooverturn various rulings of the Bankruptcy Court related to feesand expenses and to rescind the approval of the FederalCommunications Commission (“FCC”) of the transfer ofour FCC licenses from Old Loral to New Loral (the“Appeals”). We believe that the Appeals are completelywithout merit and will not have any effect on the completedreorganization. For further details about the Appeals seeNote 10.     Reorganization expenses due to bankruptcy were as follows (inthousands):        **Predecessor Registrant**     **Three Months Ended**  **March 31, 2005**       Professional fees $5,489     Employee retention costs  182     Severance costs  503     Vendor settlement charges  125     Interest income  (666)         Total reorganization expenses due to bankruptcy $5,633     
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)****3.****Basis of Presentation**     The accompanying unaudited condensed consolidated financialstatements (the “financial statements”) have beenprepared pursuant to the rules of the Securities and ExchangeCommission (“SEC”) and, in our opinion, include alladjustments (consisting of normal recurring accruals) necessaryfor a fair presentation of results of operations, financialposition and cash flows as of the balance sheet dates presentedand for the periods presented. Certain information and footnotedisclosures normally included in financial statements preparedin accordance with accounting principles generally accepted inthe U.S. have been condensed or omitted pursuant to SECrules. We believe that the disclosures made are adequate to keepthe information presented from being misleading. The results ofoperations for the three months ended March 31, 2006 arenot necessarily indicative of the results to be expected for thefull year.     The December 31, 2005 balance sheet has been derived fromthe audited consolidated financial statements at that date. Itis suggested that these financial statements be read inconjunction with the audited consolidated financial statementsincluded in our latest Annual Report onForm 10-K filedwith the Securities and Exchange Commission.     The accompanying consolidated financial statements for thePredecessor Registrant have been prepared in accordance withSOP 90-7 and on agoing concern basis, which contemplates continuing operations,realization of assets and liquidation of liabilities in theordinary course of business. In addition, the consolidatedstatements of operations of the Predecessor Registrant portrayour results of operations during the Chapter 11proceedings. As a result, any revenue, expenses, realized gainsand losses, and provision for losses resulting directly from thereorganization and restructuring of the organization arereported separately as reorganization items. We did not preparecombining financial statements for Old Loral and its DebtorSubsidiaries, since the subsidiaries that did not file voluntarypetitions for reorganization under Chapter 11 of theBankruptcy Code were immaterial to our consolidated financialstatements.     As noted above, we emerged from bankruptcy on November 21,2005 and pursuant toSOP 90-7, weadopted fresh-start accounting as of October 1, 2005. Weengaged an independent appraisal firm to assist us indetermining the fair value of our assets and liabilities. Uponemergence, our reorganization enterprise value as determined bythe Bankruptcy Court was approximately $970 million, whichafter reduction for the fair value of the Loral Skynet Notes andLoral Skynet Series A preferred stock (see Note 9 andminority interest below), resulted in a reorganization equityvalue of approximately $642 million. This reorganizationequity value was allocated to our assets and liabilities. Ourassets and liabilities were stated at fair value in accordancewith Statement of Financial Accounting Standards(“SFAS”) No. 141, *Business Combinations*(“SFAS 141”). In addition, our accumulateddeficit was eliminated, and our new debt and equity wererecorded in accordance with distributions pursuant to the Planof Reorganization. The allocation of the reorganization equityvalue to individual assets and liabilities may change based uponcompletion of the fair valuation process, as additionalinformation becomes available, and may result in differences tothe fresh-start adjustments presented in this financialinformation. The Company expects to finalize this allocation inthe first half of 2006. (See Note 4 to the consolidatedfinancial statements contained in the Company’s AnnualReport onForm 10-K for theyear ended December 31, 2005 filed with the Securities andExchange Commission.)     Net amortization of fresh-start accounting fair valueadjustments relating tocontracts-in-process,long-term receivables, customer advances and billings in excessof costs and profits, deferred revenue and long-term liabilitieswas $(6.1) million during the quarter ended March 31,2006.***Minority Interest***     On November 21, 2005, Loral Skynet issued 1 million ofits 2 million authorized shares of series A 12%non-convertible preferred stock, $0.01 par value per share(the “Loral Skynet Preferred Stock”), which weredistributed in accordance with the Plan of Reorganization.
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**     The Loral Skynet Preferred Stock is reflected as minorityinterest on our condensed consolidated balance sheet and accrueddividends of $6.0 million for the three months endedMarch 31, 2006 are reflected as minority interest on ourcondensed consolidated statement of operations.***Accounting for Stock Based Compensation***     Effective October 1, 2005, in connection with our adoptionof fresh-start accounting, we adopted the fair value method ofaccounting for stock options for all options granted by us afterOctober 1, 2005 pursuant to the prospective methodprovisions of SFAS No. 123(R), *Share-Based Payment*(“SFAS 123R”). We use theBlack-Scholes-Merton option-pricing model to measure fair valueof these stock option awards.     Prior to October 1, 2005, we followed the disclosure-onlyprovisions of SFAS No. 148, *Accounting forStock-Based Compensation-Transition and Disclosure*(“SFAS 148”), an amendment ofSFAS No. 123, *Accounting for Stock-BasedCompensation*(“SFAS 123”). We accounted forstock-based compensation for employees using the intrinsic valuemethod (as defined below) as prescribed by Accounting PrinciplesBoard Opinion No. 25, *Accounting for Stock Issued toEmployees*(“APB 25”), and relatedinterpretations. Under APB 25, no compensation expense wasrecognized for employee share option grants because the exerciseprice of the options granted equaled the market price of theunderlying shares on the date of grant (the “intrinsicvalue method”). We used the Black-Scholes-Merton optionpricing model to determine the pro forma effect. Our pro-formanet loss and pro-forma loss per share would not have beenmaterially different than reported on the accompanyingconsolidated statement of operations for the three months endedMarch 31, 2005, if we used the fair value method underSFAS 123R.***Income Taxes***     During 2006 and 2005, we continued to maintain the 100%valuation allowance against our net deferred tax assets.However, upon emergence from bankruptcy in 2005, we reversed ourvaluation allowance related to $2.0 million of deferred taxassets for AMT credit carryforwards. We will continue tomaintain the valuation allowance until sufficient positiveevidence exists to support its reversal. If, in the future, wewere to determine that we will be able to realize all or aportion of the benefit from our deferred tax assets, a reductionto the valuation allowance as of October 1, 2005 will firstreduce goodwill, then other intangible assets with any excesstreated as an increase topaid-in-capital. Theincome tax provision for the three months ended March 31,2006 and 2005 includes our current provision for federal, stateand foreign income taxes and adjustment, if required, to taxcontingency liabilities for potential audit issues. Theprovision for 2005 also includes certain changes to thevaluation allowance.     Our policy is to establish tax contingency liabilities forpotential audit issues. The tax contingency liabilities arebased on our estimate of the probable amount of additional taxesthat may be due in the future. Any additional taxes due would bedetermined only upon completion of current and future federal,state and international tax audits. At March 31, 2006, theCompany had $43.6 million and $0.4 million of taxcontingency liabilities included in long-term liabilities andincome taxes payable, respectively. At December 31, 2005,the Company had $41.8 million and $0.4 million of taxcontingency liabilities included in long-term liabilities andincome taxes payable, respectively.
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)*****Pensions and Other Employee Benefits***     The following table provides the components of net periodicbenefit cost for our qualified and supplemental retirement plans(the “Pension Benefits”) and health care and lifeinsurance benefits for retired employees and dependents (the“Other Benefits”) (in thousands):                      **Pension Benefits**  **Other Benefits**              **Successor**  **Predecessor**  **Successor**  **Predecessor**  **Registrant**  **Registrant**  **Registrant**  **Registrant**              **March 31,**  **March 31,**  **March 31,**  **March 31,**  **2006**  **2005**  **2006**  **2005**                Service cost $3,375   $2,846   $300   $352     Interest cost  5,700    5,778    1,125    1,313     Expected 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   $5,067   $1,425   $1,862                 ***Additional Cash Flow Information***     The following represents non-cash activities and supplementalinformation to the condensed consolidated statements of cashflows (in thousands):              **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**          Non-cash activities:              Unrealized net losses on derivatives, net of taxes      $(273)            Supplemental information:               Interest paid, net of capitalized interest $757                    Taxes paid, net of refunds $628   $962              Cash (paid) received for reorganization items:               Professional fees $(4,342)  $(4,620)              Interest income      $666         
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)****4.****Comprehensive Loss**     The components of comprehensive loss are as follows (inthousands):             **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**          Net loss $(15,840)  $(26,221)    Cumulative translation adjustment  40    (30)    Foreign currency hedging:              Reclassifications into revenue and cost of sales from other    comprehensive income, net of taxes  —    (273)            Comprehensive loss $(15,800)  $(26,524)        **5.****Contracts-in-Process**           **March 31,** **December 31,**  **2006** **2005**       **(In thousands)**    Amounts billed $52,793  $38,913     Unbilled receivables  26,451   34,671          $79,244  $73,584             Unbilled amounts include recoverable costs and accrued profit onprogress completed, which have not been billed. Such amounts arebilled in accordance with the contract terms, typically uponshipment of the product, achievement of contractual milestones,or completion of the contract and, at such time, arereclassified to billed receivables. Fresh-start fair valueadjustments relating tocontracts-in-processare amortized on a percentage of completion basis as performanceunder the related contract is completed.     When we filed for Chapter 11, SS/L’s hedges withcounterparties (primarily yen denominated forward contracts)were cancelled leaving SS/L vulnerable to foreign currencyfluctuations in the future. The inability to enter into forwardcontracts exposes SS/L’s future revenues, costs and cashassociated with anticipated yen denominated receipts andpayments to currency fluctuations. As of March 31, 2006,SS/L had the following amounts denominated in Japanese yen(which were translated into U.S. dollars based on theMarch 31, 2006 exchange rate) that were unhedged (inmillions):           **Japanese Yen** **U.S.$**         Future revenues ¥198  $1.7     Future expenditures  2,244   19.1     Contracts-in-process, unbilled receivables/(customer advances)  (81)  (0.7)     At March 31, 2006, SS/L also had future expenditures inEURO’s of 138,666 ($167,457 U.S.) that were unhedged.     Foreign exchange losses of $23,000 and $617,000 for the threemonths ended March 31, 2006 and 2005 respectively, arereflected on the condensed consolidated statement of operationsas other income (expense).
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)****6.****Property, Plant and Equipment**           **March 31,** **December 31,**  **2006** **2005**       **(In thousands)**    Land and land improvements $27,533  $27,833     Buildings  52,854   52,873     Leasehold improvements  5,973   6,352     Satellites in-orbit, including satellite transponder rights of    $109.6 million  366,196   366,196     Satellites under construction  2,948   197     Earth stations  17,702   17,710     Equipment, furniture and fixtures  63,066   61,937     Other construction in progress  7,983   5,096           544,255   538,194     Accumulated depreciation and amortization  (34,601)  (17,691)         $509,654  $520,503        **7.****Investment in and Advances to Affiliates**     Investment in and advances to affiliates consists of (inthousands):           **March 31,** **December 31,**  **2006** **2005**         XTAR equity investment $103,196  $104,616             Equity losses in affiliate, consists of (in thousands):            **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**          XTAR $(1,420)  $(739)             The condensed consolidated statements of operations reflect theeffects of the following amounts related to transactions with orinvestments in affiliates (in thousands):            **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**          Revenues $2,816   $2,904     Elimination of our proportionate share of losses relating to    affiliate transactions  367    301     Loss relating to affiliate transactions not eliminated  (289)   (236)***XTAR***     XTAR, L.L.C. (“XTAR”), is a joint venture between usand Hisdesat Servicios Estrategicos, S.A.(“Hisdesat”), a consortium comprised of leadingSpanish telecommunications companies, including Hispasat,
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**S.A., and agencies of the Spanish government. XTAR was formed toconstruct and launch an X-band satellite to provide X-bandcommunications services exclusively to United States, Spanishand allied government users throughout the satellite’scoverage area, including Europe, the Middle East and Asia. XTARcurrently has contracts to provide X-band services to theU.S. Department of State, the Spanish Ministry of Defenseand the Danish armed forces. XTAR successfully launched itsXTAR-EUR satellite on February 12, 2005 and it commencedservice in March 2005.     We own 56% of XTAR (accounted for under the equity method sincewe do not control certain significant operating decisions) andHisdesat owns 44%. During the first quarter of 2005, we made anequity contribution of $7.3 million to XTAR, which wasmatched by $5.76 million from Hisdesat. To date, thepartners have contributed a total of $109.6 million to XTARin proportion to their respective ownership interests. As aresult of the slower than expectedtake-up rate on itscapacity, XTAR may require additional funding from its partnersto meet its obligations under its Arianespace loan agreementdiscussed below and its Spainsat lease discussed below. Wecurrently estimate that this potential funding requirement fromXTAR’s partners, in the fourth quarter of 2006, would notexceed $10 million.     XTAR and Loral Skynet have entered into agreements whereby LoralSkynet provides to XTAR (i) certain selling, general andadministrative services, (ii) telemetry, tracking andcontrol services for the XTAR satellite, (iii) transponderengineering and regulatory support services as needed and(iv) satellite construction oversight services. XTAR iscurrently not making payments under the agreements andanticipates resuming payments upon the satisfaction of itsArianespace loan discussed below.     In May 2005, XTAR signed a contract with theU.S. Department of State for the lease of transpondercapacity. The State Department is authorized pursuant to itsprocurement guidelines to lease up to $137.0 million ofcapacity under this contract, to the extent that capacity isavailable. To date, the U.S. Department of State hascommitted to lease two transponders under this contract, havinga total lease value of $19.3 million, and has the right, atits option, to renew the leases for additional terms, which, iffully exercised, would bring the total value of the leases to$34 million. There can be no assurance as to how much, ifany, additional capacity the U.S. Department of State maylease from XTAR under this contract.     In January 2005, Hisdesat provided XTAR with a convertible loanin the amount of $10.8 million due 2011, for which Hisdesatreceived enhanced governance rights in XTAR. Moreover, ifHisdesat were to convert the loan into XTAR equity, our equityinterest in XTAR would be reduced to 51%.     XTAR entered into a Launch Services Agreement with Arianespace,S.A. (“Arianespace”) providing for launch of itssatellite on Arianespace’s Ariane 5 ECA launch vehicle.Arianespace provided a one-year, $15.8 million, 10%interest paid-in-kindloan for a portion of the launch price, secured by certain ofXTAR’s assets, including the satellite, ground equipmentand rights to the orbital slot. The remainder of the launchprice consists of a revenue-based fee to be paid over time byXTAR. If XTAR is unable to repay the Arianespace loan when due,Arianespace may have the right to foreclose on the XTAR assetspledged as collateral, which would adversely affect ourinvestment in XTAR. On October 25, 2005, XTAR andArianespace entered into an amendment to the loan agreementpursuant to which Arianespace agreed to extend the maturity dateof the loan to November 2006 in return for XTAR’s agreementto make certain amortization and excess cash payments toArianespace. As of March 31, 2006, $10.5 million wasoutstanding under the Arianespace loan.     XTAR has agreed to lease eight transponders (to be marketed asXTAR-LANT) on the Spainsat satellite, which has been constructedby SS/ L for Hisdesat. Spainsat was successfully launched onMarch 11, 2006 and commenced service in April 2006.XTAR’s lease obligations for such service would initiallyamount to $6.2 million per year, growing to$23 million per year. Under this lease agreement, Hisdesatmay also be entitled under certain circumstances to a share ofthe revenues generated on the Spainsat transponders leased byXTAR.
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**     The following table presents summary financial data for XTAR (inmillions):     Statement of Operations Data:           **Three Months Ended** **Three Months Ended**  **March 31, 2006** **March 31, 2005**         Revenues $3.4  $—     Operating loss  (1.2)  (0.9)    Net loss  (2.1)  (1.4)     Balance Sheet Data:           **March 31,**    **2006** **December 31, 2005**         Current assets $3.9  $7.4     Total assets  136.9   142.8     Current liabilities  13.4   21.1     Long-term liabilities  34.1   30.2     Members equity  89.4   91.5 ***Satmex***     In 1997, in connection with the privatization of Satmex by theMexican Government of its satellite services business, Loral andPrincipia S.A. de C.V. (“Principia”) formed a jointventure that acquired 75% of the outstanding capital stock ofSatmex. In addition to the $647 million of cash that wasgiven to the Mexican Government for this 75% interest, as partof the acquisition, a wholly owned subsidiary of the jointventure, Servicios Corporativos Satelitales S.A. de C.V.(“Servicios”), which held this 75% ownership interestin Satmex, was required to issue a seven-year governmentobligation (“Government Obligation”) to the MexicanGovernment. The Government Obligation had an initial face amountof $125 million that accreted at 6.03% to $189 millionas of December 30, 2004, its maturity date. There is noguarantee of this debt by Satmex; however, Loral and Principiahave pledged their respective membership interests in the jointventure in a collateral trust to support this obligation. In1999, Loral and Principia increased its investment stake inSatmex by purchasing direct equity interests in Satmex, whichinterests were not pledged in favor of the Mexican Government.     As Servicios did not repay the Government Obligation when due,the Mexican Government has commenced a liquidation proceeding inMexico against Servicios. As part of the contemplated Satmexrestructuring discussed below, it is expected that the MexicanGovernment will receive the economic benefit of the shares inSatmex held by Servicios in full satisfaction of the GovernmentObligation, while the direct equity interests in Satmex held byLoral and Principia will be converted to 1.33% and 0.67%,respectively, of the outstanding common equity interest in arestructured Satmex.     As a consequence of various defaults, by Satmex in respect ofits debt securities, including its failure to repay suchsecurities on their maturity date, on May 25, 2005, certainholders of Satmex fixed rate notes and the floating rate notes(the “Petitioning Creditors”) commenced an involuntarychapter 11 case (the “Involuntary Case”) underthe Bankruptcy Code against Satmex in the U.S. BankruptcyCourt. On June 29, 2005, Satmex filed a petition forreorganization in Mexico (the “Concurso Mercantil”).On July 7, 2005, Satmex filed a motion in theU.S. Bankruptcy Court to dismiss the Involuntary Case.Satmex subsequently reached a settlement agreement with thePetitioning Creditors premised upon, among other things, theparties consenting to the dismissal of the Involuntary Case andSatmex commencing a case under section 304 (the “304Proceeding”) of the Bankruptcy Code in theU.S. Bankruptcy Court as a case ancillary to the ConcursoMercantil. In April 2006, Satmex, the holders of a majority ofits floating rate notes and the holders of more than two-thirdsof its fixed rate notes, together with Loral, Principia andServicios, entered into an agreement (the “SatmexRestructuring Agreement”)
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**to restructure Satmex’s existing indebtedness and re-alignits capital structure. This agreement provides for the filing ofa restructuring plan with the Mexican court where the ConcursoMercantil proceeding is pending, which, in turn, will providefor the final implementation of the restructuring through thecommencement of a case under chapter 11 of the BankruptcyCode in the U.S. Bankruptcy Court and the prosecution of apre-negotiated plan of reorganization under chapter 11 ofthe Bankruptcy Code. The obligations of the parties to supportthe restructuring are subject to a number of timing and otherconditions, including the receipt of necessary governmentalregulatory and judicial approvals and the acceptance of therestructuring by holders of at least two-thirds of the floatingrate notes. Upon consummation of this restructuring, the equityof Satmex will be held 78% by the holders of Satmex’s fixedrate notes, 20% by the Mexican Government and Servicios (for thebenefit of the Mexican Government) and 2% in the aggregate byLoral and Principia. The Satmex Restructuring Agreement furtherprovides that all of these shares of Satmex, including theshares to be issued to Loral, will be transferred to a Mexicanequity trust for the purpose of facilitating a potential sale of100% of the equity of Satmex.     As of March 31, 2006, we had a 49% indirect economicinterest in Satmex. We account for Satmex using the equitymethod. In the third quarter of 2003, we wrote off our remaininginvestment in Satmex of $29 million (as an increase to itsequity loss), due to the financial difficulties that Satmex washaving. As a result, and because we have no future fundingrequirements relating to this investment, there is norequirement for us to provide for our allocated share ofSatmex’s net losses subsequent to September 30, 2003.***Satmex Settlement Agreement***     On June 14, 2005, Loral Space & CommunicationsHoldings Corporation (“LSCC”), Loral Skynet, adivision of Loral SpaceCom, Loral Skynet Network Services, Inc.(“LSNS”) and SS/ L (collectively the “LoralEntities”) and Satmex entered into an agreement to beimplemented through various amendments and agreements withrespect to various transactions involving the Loral Entities andSatmex (the “Settlement Agreement”), including but notlimited to the contract for the procurement of Satmex 6 betweenSS/ L and Satmex (the “Satmex 6 SPA”), the managementservices agreement among Loral SpaceCom, Principia and Satmex(the “Management Services Agreement”), the licenseagreement between Loral SpaceCom and Satmex (the “LicenseAgreement”), and various transponder agreements betweencertain of the Loral Entities and Satmex. Pursuant to the termsof the Settlement Agreement, Satmex and the Loral Entitiesagreed to offset certain amounts owing between them, and SS/ Lagreed to give Satmex an allowed claim of $3.7 million inSS/ L’s Chapter 11 Case. In addition, SS/ L and Satmexterminated their respective obligations under the Satmex 6 SPA,and entered into a new contract pursuant to which SS/ L agreedto perform certain additional work, as well as renewed itscommitment to provide its continued support for the launch ofSatmex 6 provided that SS/ L’s obligation to providecertain services under the new contract is expressly subject tocertain conditions, including Satmex obtaining the approval ofthe Settlement Agreement and the underlying transactions withany court(s) and other authorities with jurisdiction over itsreorganization proceeding. Also pursuant to the SettlementAgreement, Loral SpaceCom and Satmex agreed to terminate theManagement Services Agreement and the License Agreement. As partof the consideration for the various benefits conferred by theLoral Entities to Satmex under the terms of the SettlementAgreement, including without limitation, the elimination ofSatmex’s obligation to make orbital incentive and end oflife bonus payments in respect of Satmex 6, Satmex hasagreed to lease to LSCC for the life of the satellite, withoutany further consideration, two 36 MHz Ku-band transpondersand two 36 MHz C-band transponders on Satmex 6 (the“Satmex 6 Lease”). Upon emergence from bankruptcy,LSCC assigned its rights under this lease agreement to SS/ L.The Settlement Agreement was approved by the Bankruptcy Court onJuly 26, 2005 and became effective on August 5, 2005.Upon receipt of Bankruptcy Court approval, Loral Skynet recordedincome of $4.6 million in the third quarter of 2005representing the reversal of reserves and accruals recorded inprevious periods. In February 2006, the *conciliador*inSatmex’s Mexican reorganization proceeding (ConcursoMercantil) approved the Settlement Agreement.     Concurrently with the execution of the Satmex RestructuringAgreement and as provided therein, Satmex, the Loral Entities,the holders of a majority of its floating rate notes and theholders of more than two-thirds of its
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**fixed rate notes entered into a stipulation, agreement and orderpursuant to which they agreed, among other things, that Satmexwill file a motion to assume the Settlement Agreement and itsunderlying agreements within five (5) days after thecommencement of any chapter 11 case. This stipulation,agreement and order has been approved by the Bankruptcy Court inSatmex’s 304 Proceeding. The Satmex Restructuring Agreementfurther provides that on the effective date of the restructuringcontemplated therein, the Satmex 6 Lease, as well as a leaseagreement between Satmex and Loral Skynet for three transponderson Satmex 5, will be converted from a lease arrangement toa *usufructo*, a property right under Mexican law whichgrants the holder a right of use to the subject property. Therecan be no assurance that Satmex will be able to effect therestructuring set forth in the Satmex Restructuring Agreement,or that if such restructuring fails, that it will be able toconsummate any other restructuring. We have not recorded thefinancial benefit of the Satmex 6 Lease pending the launch ofSatmex 6, which is currently scheduled to occur in thesecond quarter of 2006.**8.****Goodwill and Other Intangible Assets***Goodwill*     Goodwill was established in connection with our adoption offresh-start accounting. See Note 4 to the consolidatedfinancial statements contained in the Company’s AnnualReport onForm 10-K for theyear ended December 31, 2005 filed with the Securities andExchange Commission.*Other Intangible Assets*     Other Intangible Assets, net of accumulated amortization, were$127 million and $137 million as of March 31,2006 and December 31, 2005, respectively, and are includedin Other Assets on our condensed consolidated balance sheet.Other Intangible Assets were established in connection with ouradoption of fresh-start accounting. See Note 4 to theconsolidated financial statements contained in theCompany’s Annual Report onForm 10-K for theyear ended December 31, 2005 filed with the SEC. OtherIntangible Assets consists of (in millions, except years):                       **Weighted Average** **March 31, 2006** **December 31, 2005**  **Remaining**      **Amortization Period** **Gross** **Accumulated** **Gross** **Accumulated**  **(Years)** **Amount** **Amortization** **Amount** **Amortization**               Internally developed software and technology  5  $59.8  $(5.5) $59.8  $(2.7)    Orbital slots  10   10.8   (0.7)  15.8   (0.8)    Trade names  20   13.2   (0.3)  13.2   (0.2)    Customer relationships  14   20.0   (0.7)  20.0   (0.3)    Customer contracts  7   32.0   (3.7)  32.0   (2.1)    Other intangibles  4   2.7   (0.3)  2.7   (0.1)                      $138.5  $(11.2) $143.5  $(6.2)                     Total amortization expense for other intangible assets was$5.4 million and $0.8 million for the three monthsended March 31, 2006 and 2005, respectively. Annualamortization expense for other intangible assets for the fiveyears ended December 31, 2010 is estimated to be as follows(in millions):         2006 $21.1     2007  19.9     2008  19.3     2009  18.3     2010  14.6 
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)****9.****Debt**           **March 31,** **December 31,**  **2006** **2005**       **(In thousands)**    Loral Skynet 14.0% senior secured notes due 2015 (principal    amount $126 million) $128,166  $128,191      On November 21, 2005, pursuant to the Plan ofReorganization, Loral Skynet issued $126 million of14% Senior Secured Notes due 2015, which notes areguaranteed on a senior secured basis by our subsidiary LoralAsia Pacific Satellite (HK) Limited and all of LoralSkynet’s existing domestic, wholly-owned subsidiaries.During the first four years after the Effective Date, we mayredeem the notes at a redemption price of 110% plus accrued andunpaid interest, but only if we do not receive an objectionnotice from holders of two-thirds of the principal amount of thenotes. After this four-year period, the notes are redeemable atour option at a redemption price of 110%, declining over time to100% in 2014, plus accrued and unpaid interest. The Loral SkynetNotes bear interest at a rate of 14% per annum payable incash semi-annually, except that interest will be payable in-kindto the extent that the amount of such interest would exceedcertain adjusted EBITDA calculations for Loral Skynet, asdetailed in the indenture. The proceeds from the Loral SkynetNotes have been used by Loral Skynet to finance, in part, theconsummation of the Plan of Reorganization and the payment ofthe fees and expenses relating thereto.*SS/L Letter of Credit Facility*     On November 21, 2005, SS/L entered into a $20 millionletter of credit agreement with JPMorgan Chase Bank. Theagreement provides, among other things, for the amendment andrestatement of SS/L’s then existing letter of creditfacility such that any existing letters of credit issued andoutstanding became letters of credit under this new letter ofcredit agreement. The letters of credit are available fromNovember 21, 2005 until the earlier of the termination bySS/L of the $20 million commitment, or December 31,2006. Outstanding letters of credit are fully cashcollateralized. As of March 31, 2006, $2.4 million ofletters of credit under this facility were issued andoutstanding.**10.****Commitments and Contingencies*****Financial Matters***     We are obligated to pay $5.0 million over the next threeyears to the U.S. Department of State pursuant to a consentagreement entered into by Old Loral and SS/L.     SS/L has deferred revenue and accrued liabilities forperformance warranty obligations relating to satellites sold tocustomers, which could be affected by future performance. SS/Laccounts for satellite performance warranties in accordance withthe product warranty provisions of FIN 45, which requiresdisclosure, but not initial recognition and measurement, ofperformance guarantees. SS/L estimates the deferred revenue forits warranty obligations based on historical satelliteperformance. SS/L periodically reviews and adjusts the deferredrevenue and accrued liabilities for warranty reserves based onthe actual performance of each satellite and remaining warrantyperiod. A reconciliation of such deferred amounts for the threemonths ended March 31, 2006, is as follows (in millions):         Balance of deferred amounts at January 1, 2006 $40.5     Accruals for deferred amounts issued during the period  —     Accruals relating to pre-existing contracts (including changes    in estimates)  (0.4)        Balance of deferred amounts at March 31, 2006 $40.1     
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**     Many of SS/L’s satellite contracts permit SS/L’scustomers to pay a portion of the purchase price for thesatellite over time subject to the continued performance of thesatellite (“orbitals”) and certain of SS/L’ssatellite contracts require SS/L to provide vendor financing toits customers, or a combination of these contractual terms. Someof these arrangements are provided to customers that arestart-up companies orcompanies in the early stages of building their businesses.There can be no assurance that these companies or theirbusinesses will be successful and, accordingly, that thesecustomers will be able to fulfill their payment obligationsunder their contracts with SS/L. Moreover, SS/L’s receiptof orbital payments is subject to the continued performance ofits satellites generally over the contractually stipulated lifeof the satellites. Since these orbital receivables could beaffected by future satellite performance, there can be noassurance that SS/L will be able to collect all or a portion ofthese receivables.     Loral Skynet has in the past entered into prepaid leases, salescontracts and other arrangements relating to transponders on itssatellites. Under the terms of these agreements, as ofMarch 31, 2006, Loral Skynet continues to provide for awarranty for periods of two years to eight years for salescontracts and other arrangements (seven transponders), andprepaid leases (two transponders). Depending on the contract,Loral Skynet may be required to replace transponders which donot meet operating specifications. Substantially all customersare entitled to a refund equal to the reimbursement value ifthere is no replacement, which is normally covered by insurance.In the case of the sales contracts, the reimbursement value isbased on the original purchase price plus an interest factorfrom the time the payment was received to acceptance of thetransponder by the customer, reduced on a straight-line basisover the warranty period. In the case of prepaid leases, thereimbursement value is equal to the unamortized portion of thelease prepayment made by the customer. For other arrangements,in the event of transponder failure where replacement capacityis not available on the satellite, one customer is not entitledto reimbursement, and the other customer’s reimbursementvalue is based on contractually prescribed amounts that declineover time.***Satellite Matters***     Satellites are built with redundant components or additionalcomponents to provide excess performance margins to permit theircontinued operation in case of component failure, an event thatis not uncommon in complex satellites. Twenty of the satellitesbuilt by SS/L and launched since 1997, three of which are ownedand operated by our subsidiaries or affiliates, have experiencedlosses of power from their solar arrays. There can be noassurance that one or more of the affected satellites will notexperience additional power loss. In the event of additionalpower loss, the extent of the performance degradation, if any,will depend on numerous factors, including the amount of theadditional power loss, the level of redundancy built into theaffected satellite’s design, when in the life of theaffected satellite the loss occurred, how many transponders arethen in service and how they are being used. It is also possiblethat one or more transponders on a satellite may need to beremoved from service to accommodate the power loss and topreserve full performance capabilities on the remainingtransponders. A complete or partial loss of a satellite’scapacity could result in a loss of orbital incentive payments toSS/L and, in the case of satellites owned by Loral Skynet andits affiliates, a loss of revenues and profits. With respect tosatellites under construction and the construction of newsatellites, based on its investigation of the matter, SS/L hasidentified and has implemented remediation measures that SS/Lbelieves will prevent newly launched satellites fromexperiencing similar anomalies. SS/L does not expect thatimplementation of these measures will cause any significantdelay in the launch of satellites under construction or theconstruction of new satellites. Based upon information currentlyavailable, including design redundancies to accommodate smallpower losses, and that no pattern has been identified as to thetiming or specific location within the solar arrays of thefailures, we believe that this matter will not have a materialadverse effect on our condensed consolidated financial positionor our results of operations, although no assurance can beprovided.     In November 2004, Intelsat Americas 7 (formerlyTelstar 7) experienced an anomaly which caused it tocompletely cease operations for several days before it waspartially recovered. Four other satellites manufactured by SS/Lfor other customers have designs similar to Intelsat Americas 7and, therefore, could be susceptible to
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**similar anomalies in the future. A partial or complete loss ofthese satellites could result in the incurrence of warrantypayments by SS/L.     Certain of our satellites are currently operating usingback-up componentsbecause of the failure of primary components. If theback-up componentsfail, however, and we are unable to restore redundancy, thesesatellites could lose capacity or be total losses, which wouldresult in a loss of revenues and profits. For example, in July2005, in the course of conducting our normal operations, wedetermined that the primary command receiver on two of oursatellites had failed. These satellites, which are equipped withredundant command receivers designed to provide full functionalcapability through the full design life of the satellite,continue to function normally and service to customers has notbeen affected. Moreover, SS/L has successfully completedimplementation of a software workaround that fully restores theredundant command receiver function on each of these satellites.     Two satellites owned by us have the same solar arrayconfiguration as one other 1300-class satellite manufactured bySS/L that has experienced an event with a large loss of solarpower. SS/L believes that this failure is an isolated event anddoes not reflect a systemic problem in either the satellitedesign or manufacturing process. Accordingly, we do not believethat this anomaly will affect our two satellites with the samesolar array configuration. The insurance coverage for thesesatellites, however, provides for coverage of losses due tosolar array failures only in the event of a capacity loss of 75%or more for one satellite and 80% or more for the othersatellite.     We have in the past insured the on-orbit performance of thesatellites in our Satellite Services segment. Typically suchinsurance is for one year subject to renewal. It may bedifficult, however, to obtain full insurance coverage forsatellites that have, or are part of a family of satellites thathas, experienced problems in the past. We cannot assure, uponthe expiration of an insurance policy, that we will be able torenew the policy on terms acceptable to us or that we will notelect to self-insure and forego insurance for the satellite.Insurers may require either exclusions of certain components ormay place limitations on coverage in connection with insurancerenewals for such satellites in the future. The loss of asatellite would have a material adverse effect on our financialperformance and may not be adequately mitigated by insurance.     In connection with an agreement reached in 1999 and an overallsettlement reached in February 2005 with ChinaSat relating tothe delayed delivery of ChinaSat 8, we have providedChinaSat with usage rights to two Ku-band transponders onTelstar 10 for the life of the satellite and to one Ku-bandtransponder on Telstar 18 for the life of the Telstar 10satellite plus two years.***Regulatory Matters***     To prevent frequency interference, the regulatory processrequires potentially lengthy and costly negotiations with thirdparties who operate or intend to operate satellites at or nearthe locations of our satellites. For example, as part of ourcoordination efforts on Telstar 12, we agreed to providefour 54 MHz transponders on Telstar 12 to Eutelsat forthe life of the satellite and have retained risk of loss withrespect to those transponders. In the event of an unrestoredfailure, under Loral Skynet’s related warranty obligation,Eutelsat would be entitled to compensation on contractuallyprescribed amounts that decline over time. We also grantedEutelsat the right to acquire, at cost, four transponders on thereplacement satellite for Telstar 12. We continue to be indiscussions with other operators on coordination issues. We maybe required to make additional financial concessions in thefuture in connection with our coordination efforts. The failureto reach an appropriate arrangement with a third party havingpriority rights at or near one of our orbital slots may resultin substantial restrictions on the use and operation of oursatellite at that location.     SS/L is required to obtain licenses and enter into technicalassistance agreements, presently under the jurisdiction of theState Department, in connection with the export of satellitesand related equipment, and with the disclosure of technical datato foreign persons. Due to the relationship between launchtechnology and missile technology, the U.S. government haslimited, and is likely in the future to limit, launches fromChina and other
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**foreign countries. Delays in obtaining the necessary licensesand technical assistance agreements have in the past resultedin, and may in the future result in, the delay of SS/L’sperformance on its contracts, which could result in thecancellation of contracts by its customers, the incurrence ofpenalties or the loss of incentive payments under thesecontracts.***Legal Proceedings****Class Action Securities Litigations*     In August 2003, plaintiffs Robert Beleson and Harvey Matcovskyfiled a purported class action complaint against Bernard L.Schwartz in the United States District Court for the SouthernDistrict of New York. The complaint seeks, among other things,damages in an unspecified amount and reimbursement ofplaintiffs’ reasonable costs and expenses. The complaintalleges (a) that Mr. Schwartz violatedSection 10(b) of the Securities Exchange Act of 1934 (the“Exchange Act”) andRule 10b-5promulgated thereunder, by making material misstatements orfailing to state material facts about our financial conditionrelating to the sale of assets to Intelsat and ourChapter 11 filing and (b) that Mr. Schwartz issecondarily liable for these alleged misstatements and omissionsunder Section 20(a) of the Exchange Act as an alleged“controlling person” of Old Loral. The class ofplaintiffs on whose behalf the lawsuit has been assertedconsists of all buyers of Old Loral common stock during theperiod from June 30, 2003 through July 15, 2003,excluding the defendant and certain persons related to oraffiliated with him. In November 2003, three other complaintsagainst Mr. Schwartz with substantially similar allegationswere consolidated into the *Beleson*case. In February2004, a motion to dismiss the complaint in its entirety wasdenied by the court. Defendant filed an answer in March 2004.The case has been stayed until mid-July 2006. Since this casewas not brought against Old Loral, but only against one of itsofficers, we believe, although no assurance can be given, that,to the extent that any award is ultimately granted to theplaintiffs in this action, the liability of New Loral, if any,with respect thereto is limited solely to claims forindemnification against Old Loral by the defendant as describedbelow under “Indemnification Claims.”     In November 2003, plaintiffs Tony Christ, individually and ascustodian for Brian and Katelyn Christ, Casey Crawford, ThomasOrndorff and Marvin Rich, filed a purported class actioncomplaint against Bernard L. Schwartz and Richard J. Townsend inthe United States District Court for the Southern District ofNew York. The complaint seeks, among other things, damages in anunspecified amount and reimbursement of plaintiffs’reasonable costs and expenses. The complaint alleges(a) that defendants violated Section 10(b) of theExchange Act andRule 10b-5promulgated thereunder, by making material misstatements orfailing to state material facts about Old Loral’s financialcondition relating to the restatement in 2003 of the financialstatements for the second and third quarters of 2002 to correctaccounting for certain general and administrative expenses andthe alleged improper accounting for a satellite transaction withAPT Satellite Company Ltd. and (b) that each of thedefendants is secondarily liable for these alleged misstatementsand omissions under Section 20(a) of the Exchange Act as analleged “controlling person” of Old Loral. The classof plaintiffs on whose behalf the lawsuit has been assertedconsists of all buyers of Old Loral common stock during theperiod from July 31, 2002 through June 29, 2003,excluding the defendants and certain persons related to oraffiliated with them. In October 2004, a motion to dismiss thecomplaint in its entirety was denied by the court. Defendantsfiled an answer to the complaint in December 2004. The case hasbeen stayed until mid-July 2006. Since this case was not broughtagainst Old Loral, but only against certain of its officers, webelieve, although no assurance can be given, that to the extentthat any award is ultimately granted to the plaintiffs in thisaction, the liability of New Loral, if any, with respect theretois limited solely to claims for indemnification against OldLoral by the defendants as described below under“Indemnification Claims.”*Class Action ERISA Litigation*     In April 2004, two separate purported class action lawsuitsfiled in the United States District Court for the SouthernDistrict of New York by former employees of Old Loral andparticipants in the Old Loral Savings Plan
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**(the “Savings Plan”) were consolidated into one actiontitled *In re: Loral Space ERISA Litigation*. In July 2004,plaintiffs in the consolidated action filed an amendedconsolidated complaint against the members of the LoralSpace & Communications Ltd. Savings Plan AdministrativeCommittee and certain existing and former members of the Boardof Directors of SS/L, including Bernard L. Schwartz. The amendedcomplaint seeks, among other things, damages in the amount ofany losses suffered by the Savings Plan to be allocated amongthe participants’ individual accounts in proportion to theaccounts’ losses, an order compelling defendants to makegood to the Savings Plan all losses to the Savings Planresulting from defendants’ alleged breaches of theirfiduciary duties and reimbursement of costs and attorneys’fees. The amended complaint alleges (a) that defendantsviolated Section 404 of the Employee Retirement IncomeSecurity Act (“ERISA”), by breaching their fiduciaryduties to prudently and loyally manage the assets of the SavingsPlan by including Old Loral common stock as an investmentalternative and by providing matching contributions under theSavings Plan in Old Loral stock, (b) that the directordefendants violated Section 404 of ERISA by breaching theirfiduciary duties to monitor the committee defendants and toprovide them with accurate information, (c) that defendantsviolated Sections 404 and 405 of ERISA by failing toprovide complete and accurate information to Savings Planparticipants and beneficiaries, and (d) that defendantsviolated Sections 404 and 405 of ERISA by breaching theirfiduciary duties to avoid conflicts of interest. The class ofplaintiffs on whose behalf the lawsuit has been assertedconsists of all participants in or beneficiaries of the SavingsPlan at any time between November 4, 1999 and the presentand whose accounts included investments in Old Loral stock. InSeptember 2005, the plaintiffs agreed in principle to settlethis case for $7.5 million payable solely from proceeds ofinsurance coverage and without recourse to the individualdefendants. The District Court has suspended further proceedingsin this case pending the outcome of the insurance litigationreferred to below and final approval of the settlement.Plaintiffs have also filed a proof of claim against Old Loralwith respect to this case and have agreed that in no event willtheir claim against Old Loral with respect to this case exceed$22 million. If the settlement of this case does not, forwhatever reason, go forward and plaintiffs’ claimultimately becomes an allowed claim under the Plan ofReorganization, plaintiffs would be entitled to a distributionunder the Plan of Reorganization of New Loral common stock basedupon the amount of the allowed claim. Any such distribution ofstock would be in addition to the 20 million shares of NewLoral common stock being distributed under the Plan ofReorganization to other creditors.     In addition, two insurers under our directors and officersliability insurance policies have denied coverage with respectto the case titled *In re: Loral Space ERISA Litigation*,each claiming that coverage should be provided under theother’s policy. In December 2004, one of the defendants inthat case filed a lawsuit in the United States District Courtfor the Southern District of New York seeking a declaratoryjudgment as to his right to receive coverage under the policies.In March 2005, the insurers filed answers to the complaint andone of the insurers filed a cross claim against the otherinsurer which such insurer answered in April 2005. In August andOctober 2005, each of the two potentially responsible insurersmoved separately for judgment on the pleadings, seeking a courtruling absolving it of liability to provide coverage of theERISA action. In March 2006, the court granted the motion of oneof the insurers and denied the motion of the other insurer. Theparties are awaiting direction from the court as to how toproceed. We believe, although no assurance can be given, thatthe liability of New Loral, if any, with respect to the *Inre: Loral Space ERISA Litigation*case or with respect to therelated insurance coverage litigation is limited solely toclaims for indemnification against Old Loral by the defendantsas described below under “Indemnification Claims” and,to the extent that any award is ultimately granted to theplaintiffs in this action, to distributions under the Plan ofReorganization as described above.*Globalstar Related Class Action Securities    Litigations*     On September 26, 2001, the nineteen separate purportedclass action lawsuits filed in the United States District Courtfor the Southern District of New York by various holders ofsecurities of Globalstar Telecommunications Limited(“GTL”) and Globalstar, L.P. (“Globalstar”)against GTL, Old Loral, Bernard L. Schwartz and other defendantswere consolidated into one action titled*In re: Globalstar Securities Litigation.* InNovember 2001, plaintiffs in the consolidated action filed aconsolidated amended class action complaint against Globalstar,
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**GTL, Globalstar Capital Corporation, Old Loral and Bernard L.Schwartz seeking, among other things, damages in an unspecifiedamount and reimbursement of plaintiffs’ costs and expenses.The complaints alleged (a) that all defendants (except OldLoral) violated Section 10(b) of the Exchange Act andRule 10b-5promulgated thereunder, by making material misstatements orfailing to state material facts about Globalstar’s businessand prospects, (b) that defendants Old Loral andMr. Schwartz are secondarily liable for these allegedmisstatements and omissions under Section 20(a) of theExchange Act as alleged “controlling persons” ofGlobalstar, (c) that defendants GTL and Mr. Schwartzare liable under Section 11 of the Securities Act of 1933(the “Securities Act”) for untrue statements ofmaterial facts in or omissions of material facts from aregistration statement relating to the sale of shares of GTLcommon stock in January 2000, (d) that defendant GTL isliable under Section 12(2)(a) of the Securities Act foruntrue statements of material facts in or omissions of materialfacts from a prospectus and prospectus supplement relating tothe sale of shares of GTL common stock in January 2000, and(e) that defendants Old Loral and Mr. Schwartz aresecondarily liable under Section 15 of the Securities Actfor GTL’s primary violations of Sections 11 and12(2)(a) of the Securities Act as alleged “controllingpersons” of GTL. The class of plaintiffs on whose behalfthe lawsuit has been asserted consists of all buyers ofsecurities of Globalstar, Globalstar Capital and GTL during theperiod from December 6, 1999 through October 27, 2000,excluding the defendants and certain persons related to oraffiliated with them. This case was preliminarily settled byMr. Schwartz in July 2005 for $20 million with finalapproval of the settlement in December 2005, and he hascommenced a lawsuit against Globalstar’s directors andofficers liability insurers seeking to recover the fullsettlement amount plus legal fees and expenses incurred inenforcing his rights under Globalstar’s directors andofficers liability insurance policy. In addition,Mr. Schwartz has filed a proof of claim against Old Loralasserting a general unsecured prepetition claim for, among otherthings, indemnification relating to this case. Mr. Schwartzand Old Loral have agreed that in no event will his claimagainst Old Loral with respect to the settlement of this caseexceed $25 million. If Mr. Schwartz’s claimultimately becomes an allowed claim under the Plan ofReorganization and assuming he is not reimbursed byGlobalstar’s insurers, Mr. Schwartz would be entitledto a distribution under the Plan of Reorganization of New Loralcommon stock based upon the amount of the allowed claim. Anysuch distribution of stock would be in addition to the20 million shares of New Loral common stock beingdistributed under the Plan of Reorganization to other creditors.We believe, although no assurance can be given, that New Loralwill not incur any material loss as a result of this settlement.     On March 2, 2002, the seven separate purported class actionlawsuits filed in the United States District Court for theSouthern District of New York by various holders of Old Loralcommon stock against Old Loral, Bernard L. Schwartz and RichardJ. Townsend were consolidated into one action titled *In re:Loral Space & Communications Ltd. SecuritiesLitigation*. On May 6, 2002, plaintiffs in theconsolidated action filed a consolidated amended class actioncomplaint seeking, among other things, damages in an unspecifiedamount and reimbursement of plaintiffs’ costs and expenses.The complaint alleged (a) that all defendants violatedSection 10(b) of the Exchange Act andRule 10b-5promulgated thereunder, by making material misstatements orfailing to state material facts about Old Loral’s financialcondition and its investment in Globalstar and (b) thatMr. Schwartz is secondarily liable for these allegedmisstatements and omissions under Section 20(a) of theExchange Act as an alleged “controlling person” of OldLoral. The class of plaintiffs on whose behalf the lawsuit hasbeen asserted consists of all buyers of Old Loral common stockduring the period from November 4, 1999 throughFebruary 1, 2001, excluding the defendants and certainpersons related to or affiliated with them. After oral argumenton a motion to dismiss filed by Old Loral andMessrs. Schwartz and Townsend, in June 2003, the plaintiffsfiled an amended complaint alleging essentially the same claimsas in the original amended complaint. In February 2004, a motionto dismiss the amended complaint was granted by the courtinsofar as Messrs. Schwartz and Townsend are concerned.Pursuant to the Plan of Reorganization, plaintiffs received nodistribution with respect to their claims in this lawsuit.     In addition, the primary insurer under the directors andofficers liability insurance policy of Old Loral has deniedcoverage under the policy for the *In re: LoralSpace & Communications Ltd. Securities Litigation*case
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**and, on March 24, 2003, filed a lawsuit in the SupremeCourt of New York County seeking a declaratory judgmentupholding its coverage position. In May 2003, Old Loral and theother defendants served an answer and filed counterclaimsseeking a declaration that the insurer is obligated to providecoverage and damages for breach of contract and the impliedcovenant of good faith. In May 2003, Old Loral and the otherdefendants also filed a third party complaint against the excessinsurers seeking a declaration that they are obligated toprovide coverage. In April 2006, the primary insurer indicatedits intent to proceed with the litigation. We believe that theinsurers have wrongfully denied coverage and, although noassurance can be given, that the liability of New Loral, if any,with respect to the *In re: Loral Space &Communications Ltd. Securities Litigation*case or withrespect to the related insurance coverage litigation is limitedsolely to claims for indemnification against Old Loral by thedefendants as described below under “IndemnificationClaims.”*Indemnification Claims*     Old Loral was obligated to indemnify its directors and officersfor any losses or costs they may incur as a result of thelawsuits described above in Class Action SecuritiesLitigations, Class Action ERISA Litigation and GlobalstarRelated Class Action Securities Litigations. The Plan ofReorganization provides that the direct liability of New Loralpost-emergence in respect of such indemnity obligation islimited to the *In re: Loral Space ERISA Litigation*and*In re: Loral Space & Communications Ltd. SecuritiesLitigation*cases in an aggregate amount of$2.5 million. In addition, most directors and officers havefiled proofs of claim in unliquidated amounts with respect tothe prepetition indemnity obligations of the Debtors. TheDebtors and these directors and officers, includingMr. Schwartz with respect to all claims he may have otherthan the Globalstar settlement for which he has a separateindemnity claim of up to $25 million as described above,have agreed that in no event will their indemnity claims againstOld Loral and Loral Orion in the aggregate exceed$25 million and $5 million, respectively. If any ofthese claims ultimately becomes an allowed claim under the Planof Reorganization, the claimant would be entitled to adistribution under the Plan of Reorganization of New Loralcommon stock based upon the amount of the allowed claim. Anysuch distribution of stock would be in addition to the20 million shares of New Loral common stock beingdistributed under the Plan of Reorganization to other creditors.We believe, although no assurance can be given, that New Loralwill not incur any substantial losses as a result of theseclaims.*Reorganization Matters*     In connection with our Plan of Reorganization, certain claimshave been filed against Old Loral and its Debtor Subsidiaries,the validity or amount of which we dispute. We are in theprocess of resolving these disputed claims, which may involvelitigation in the Bankruptcy Court. To the extent any disputedclaims become allowed claims, the claimants would be entitled todistributions under the Plan of Reorganization based upon theamount of the allowed claim, payable either in cash for claimsagainst SS/L or Loral SpaceCom or in New Loral common stock forall other claims. We have accrued only the amount we believe isvalid for disputed claims payable in cash, although there can beno assurance that this amount will be sufficient to cover allsuch claims that ultimately become allowed claims. We havereserved 1.2 million of the 20 million shares of NewLoral common stock distributable under the Plan ofReorganization for disputed claims that may ultimately bepayable in common stock. To the extent that disputed claims donot become allowed claims, shares held in reserve on account ofsuch claims will be distributed pursuant to the Plan ofReorganization pro rata to claimants with allowed claims.     Confirmation of our Plan of Reorganization was opposed by theOfficial Committee of Equity Security Holders (the “EquityCommittee”) appointed in the Chapter 11 Cases and bythe LSPC. Shortly before the hearing to consider confirmation ofthe Plan of Reorganization, the Equity Committee also filed amotion seeking authority to prosecute an action on behalf of theestates of Old Loral and its Debtor Subsidiaries seeking tounwind as fraudulent, a guarantee provided by Old Loral in 2001,of certain indebtedness of Loral Orion, Inc. (the “Motionto Prosecute”). By separate Orders dated August 1,2005, the Bankruptcy Court confirmed the Plan
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**of Reorganization (the “Confirmation Order”) anddenied the Motion to Prosecute (the “Denial Order”).On or about August 10, 2005, the LSPC appealed (the“Confirmation Appeal”) to the United States DistrictCourt for the Southern District of New York (the “DistrictCourt”) the Confirmation Order and the Denial Order. OnFebruary 3, 2006, we filed with the District Court a motionto dismiss the Confirmation Appeal. The motion is now fullysubmitted and awaiting decision.     On or about January 27, 2006, the LSPC filed with theBankruptcy Court a motion pursuant to section 1144 of theBankruptcy Code (the “Revocation Motion”), pursuant towhich the LSPC sought revocation of the Confirmation Order. OnFebruary 6, 2006, we filed an objection to the RevocationMotion, in which we objected to the relief sought in theRevocation Motion and requested that the Bankruptcy Court imposesanctions against the LSPC. At a hearing before the BankruptcyCourt on April 10, 2006 to consider the LSPC’sRevocation Motion, the LSPC withdrew the Revocation Motion, withprejudice, and, on April 18, 2006, the Bankruptcy Courtentered an order (the “Revocation Withdrawal Order”)confirming that such motion was withdrawn, with prejudice. OnApril 27, 2006, the LSPC filed an appeal of the RevocationWithdrawal Order.     At a hearing held on March 29, 2005, the Bankruptcy Courtdenied the “Motion of the LSPC for a Court Order for ReliefFrom Automatic Stay and Order for the Annual Election of theLoral Board of Directors” (the “ElectionMotion”). Pursuant to the Election Motion, the LSPC soughtan order compelling Old Loral to hold an annual meeting ofshareholders. Although the Bankruptcy Court did not enter itsOrder denying the Election Motion until March 31, 2005, onMarch 30, 2005, the LSPC filed with the Bankruptcy Court aNotice of Appeal of the Bankruptcy Court’s denial of theElection Motion (the “Shareholder Meeting Appeal”).This appeal is currently on the court’s active calendar,and the LSPC has been instructed to file its brief. The courthas stated, however, that we need not respond to that briefuntil further notice from the court, pending resolution of themotion to dismiss the Confirmation Appeal. In connection withthe Shareholder Meeting Appeal, in March 2006, our attorneyswere provided by electronic mail with a copy of the LSPC’s“Application for Permission to Certify Interlocutory Appealto Judge Jones’s Recent Orders Regarding LSPC’s Appealof Robert Drain’s Denial to Order an Annual Meeting and toElect Directors” (the “LSPC InterlocutoryApplication”). In April 2006, we filed a Memorandum of Lawin Opposition to the LSPC Interlocutory Application. We havereceived no notification from the District Court as to the LSPCInterlocutory Application.     The LSPC has also filed various appeals of Bankruptcy Courtorders relating to fees and expenses of professionals paid bythe Debtors in the Chapter 11 Cases. In particular, onMarch 24, 2006, the LSPC filed a “Notice of PartialAppeal” of the order of the Bankruptcy Court entered onMarch 8, 2006 granting the final fee applications ofcertain of the retained professionals in the Chapter11 Cases. In addition, on April 27, 2006, the LSPCfiled an appeal of the Bankruptcy Court’s order entered onApril 20, 2006 denying the LSPC’s motion fordisgorgement of fees paid by the Debtors’ to theirfinancial advisor, Greenhill & Co. Also, onApril 27, 2006, the LSPC filed an appeal of the order ofthe Bankruptcy Court entered on April 20, 2006 denying theLSPC’s application seeking reimbursement from theDebtors’ estates of certain fees and expenses incurred bythe LSPC in connection with the Chapter 11 Cases.     In November 2005, a shareholder of Old Loral on behalf of theLSPC filed with the FCC a petition for reconsideration of theFCC’s approval of the transfer of our FCC licenses from OldLoral to reorganized Loral in connection with the implementationof our Plan of Reorganization and a request for investigation bythe FCC into the financial matters and actions of the Company(the “FCC Appeal”). In December 2005, we filed withthe FCC our opposition to the FCC Appeal.*Other and Routine Litigation*     In October 2002, National Telecom of India Ltd.(“Natelco”) filed suit against Old Loral and asubsidiary in the United States District Court for the SouthernDistrict of New York. The suit relates to a joint ventureagreement entered into in 1998 between Natelco and ONSMauritius, Ltd., a Loral Orion subsidiary, the
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**effectiveness of which was subject to express conditionsprecedent. In 1999, ONS Mauritius had notified Natelco thatNatelco had failed to satisfy those conditions precedent. InNatelco’s amended complaint filed in March 2003, Natelcohas alleged wrongful termination of the joint venture agreement,has asserted claims for breach of contract and fraud in theinducement and is seeking damages and expenses in the amount of$97 million. Natelco has filed a proof of claim in theChapter 11 Cases and, in response, we have filed anobjection stating our belief that the claims are without merit.The Bankruptcy Court has assumed jurisdiction over this claim.After a hearing on March 15, 2006, the Bankruptcy Courtgranted both our motion for summary judgment and our motion todismiss with respect to Natelco’s claim for breach ofcontract. The Bankruptcy Court denied our motion for summaryjudgment with respect to Natelco’s fraudulent inducementclaim and, as requested, has been provided with further briefingwith respect to our motion to dismiss that claim, which motionis pending before the court. In addition, in April 2006, Natelcofiled a motion in the Bankruptcy Court for leave to furtheramend its amended complaint. This motion is currently scheduledto be heard on May 19, 2006. We believe that, ifNatelco’s pre-petition unsecured claim ultimately becomesan allowed claim, the liability of New Loral would be limitedsolely to a distribution of New Loral common stock under thePlan of Reorganization based upon the amount of the allowedclaim.     SS/L has entered into several long-term launch servicesagreements with various launch providers to secure futurelaunches for its customers, including Loral and its affiliates.SS/L had launch services agreements with International LaunchServices (“ILS”) which covered a number of launches,three of which remained open. In November 2002, SS/L elected toterminate one of those future launches, which had a terminationliability equal to SS/L’s deposit of $5 million.Subsequently, SS/L received a letter from ILS allegingSS/L’s breach of the agreements and purporting to terminatethe launch service agreements and all remaining launches.Despite ILS’s wrongful termination of the agreements andall remaining launches, to protect its interest, SS/L alsoterminated a second launch, which had a termination liabilityequal to its deposit of $5 million, but reserved all of itsrights against ILS. As a result, SS/L recognized a non-cashcharge to earnings of $10 million in the fourth quarter of2002 with respect to the two terminated launches. In June 2003,to protect its interest, SS/L also terminated a third launch,which had a termination liability equal to $23.5 million,and SS/L recognized a non-cash charge to earnings of$23.5 million in the second quarter of 2003 with respect tothis launch. SS/L also reserved all of its rights at that timeagainst ILS. In April 2004, SS/L commenced an adversaryproceeding against ILS in the Bankruptcy Court to seek recoveryof $37.5 million of its deposits. In June 2004, ILS filedcounterclaims in the Bankruptcy Court, and, in January 2005, theBankruptcy Court dismissed two of ILS’s four counterclaims.In the two remaining counterclaims, ILS is seeking to recoverdamages, in an unspecified amount, as a result of our allegedfailure to assign to ILS two satellite launches and$38 million in lost revenue due to our alleged failure tocomply with a contractual obligation to assign to ILS the launchof another satellite. After a hearing in October 2005 on crossmotions for summary judgment, the Bankruptcy Court ruled thatSS/L is entitled to recover from ILS at least $9 million,representing the excess of the deposits that SS/L paid to ILSover the termination liabilities. The Bankruptcy Court furtherruled that this $9 million payment is subject to ILS’scounterclaims which we believe are without merit and againstwhich we intend to defend vigorously. In addition, theBankruptcy Court ruled that ILS wrongfully terminated the launchservice agreements with SS/L but that whether SS/L is entitledto the $28.5 million in remaining deposits involves factualquestions that must be the subject of a trial after furtherdiscovery. We do not believe that this matter will have amaterial adverse effect on our consolidated financial positionor results of operations, although no assurance can be provided.     In March 2001, Loral entered into an agreement (the“Rainbow DBS Sale Agreement”) with Rainbow DBSHoldings, Inc. (“Rainbow Holdings”) pursuant to whichLoral agreed to sell to Rainbow Holdings its interest in RainbowDBS Company, LLC (formerly R/L DBS Company, LLC,“Rainbow DBS”) for a purchase price of$33 million plus interest at an annual rate of 8% fromApril 1, 2001. Loral’s receipt of this purchase priceis, however, contingent on the occurrence of certain events,including without limitation, the sale of substantially all ofthe assets of Rainbow DBS. At the time of the Rainbow DBS SaleAgreement, Loral’s investment in Rainbow DBS had beenrecorded at zero and Loral did not record a receivable or gainfrom this sale. During the quarter
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**ended March 31, 2005, Rainbow DBS entered into an agreementto sell its Rainbow 1 satellite and related assets to EchoStarCommunications Corporation, which sale was consummated inNovember 2005. Rainbow Holdings, however, has informed Loralthat it does not believe that Loral is entitled to receive animmediate payment of the purchase price under the Rainbow DBSSale Agreement as a result of the EchoStar sale transaction.Loral disputes Rainbow Holdings’ interpretation of theagreement and, in September 2005, commenced a lawsuit in theSupreme Court of the State of New York to enforce its rightsthereunder. Moreover, a third party has asserted a prepetitionclaim against Loral in the amount of $3 million withrespect to the purchase price.     We are subject to various other legal proceedings and claims,either asserted or unasserted, that arise in the ordinary courseof business. Although the outcome of these legal proceedings andclaims cannot be predicted with certainty, we do not believethat any of these other existing legal matters will have amaterial adverse effect on our consolidated financial positionor our results of operations.**11.****Loss Per Share**     Basic loss per share is computed based upon the weighted averagenumber of shares of common stock outstanding. Diluted loss pershare for 2005 excludes the assumed conversion of the Old LoralSeries C Preferred Stock (936,371 shares) and the OldLoral Series D Preferred Stock (185,104 shares), astheir effect would have been antidilutive. For the three monthsended March 31, 2006 and 2005, there were 1,390,452 and2,002,870 options, respectively, outstanding that were excludedfrom the calculation of diluted loss per share, as their effectwould have been antidilutive. In addition, for the three monthsended March 31, 2005 there were 617,226 warrants for OldLoral common stock outstanding that were excluded from thecalculation of diluted loss per share as their effect would havebeen antidilutive. The following table sets forth thecomputation of basic and diluted loss per share (in thousands,except per share data):             **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**          Numerator for basic and diluted loss per share:              Net loss $(15,840)  $(26,221)            Denominator:              Weighted average common shares outstanding  20,000    44,108             Basic and diluted loss per share:              Loss per share $(0.79)  $(0.59)        **12.****Segments**     We are organized into two operating segments: Satellite Servicesand Satellite Manufacturing (see Note 1 regarding ouroperating segments).     The common definition of EBITDA is “Earnings BeforeInterest, Taxes, Depreciation and Amortization”. Inevaluating financial performance, we use revenues and operatingincome (loss) before depreciation and amortization, includingamortization of stock option compensation, and reorganizationexpenses due to bankruptcy (“Adjusted EBITDA”) as themeasure of a segment’s profit or loss. Adjusted EBITDA isequivalent to the common definition of EBITDA before:reorganization expenses due to bankruptcy; gain on discharge ofpre-petition obligations and fresh-start adjustments; gain(loss) on investments; other income (expense); equity in netincome (losses) of affiliates; and minority interest, net oftax. Interest expense has been excluded from Adjusted EBITDA tomaintain comparability with the performance of competitors usingsimilar measures with different capital structures. During theperiod we were in Chapter 11, we only recognized interestexpense on the actual
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**interest payments we made. During this period, we did not makeany further interest payments on our debt obligations afterMarch 17, 2004, the date we repaid our secured bank debt.Reorganization expenses due to bankruptcy were only incurredduring the period we were in Chapter 11. These expenseshave been excluded from Adjusted EBITDA to maintaincomparability with our results during periods we were not inChapter 11 and with the results of competitors usingsimilar measures. Adjusted EBITDA should be used in conjunctionwith U.S. GAAP financial measures and is not presented asan alternative to cash flow from operations as a measure of ourliquidity or as an alternative to net income as an indicator ofour operating performance.     We believe the use of Adjusted EBITDA along with U.S. GAAPfinancial measures enhances the understanding of our operatingresults and is useful to investors in comparing performance withcompetitors, estimating enterprise value and making investmentdecisions. Adjusted EBITDA allows investors to compare operatingresults of competitors exclusive of depreciation andamortization, net losses of affiliates and minority interest.Adjusted EBITDA is a useful tool given the significant variationthat can result from the timing of capital expenditures, theamount of intangible assets recorded, the differences inassets’ lives, the timing and amount of investments, andeffects of investments not managed by us. Adjusted EBITDA asused here may not be comparable to similarly titled measuresreported by competitors. We also use Adjusted EBITDA to evaluateoperating performance of our segments, to allocate resources andcapital to such segments, to measure performance for incentivecompensation programs, and to evaluate future growthopportunities.
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**     Intersegment revenues primarily consists of satellites underconstruction by Satellite Manufacturing for Satellite Servicesand the leasing of transponder capacity by SatelliteManufacturing from Satellite Services. Summarized financialinformation concerning the reportable segments is as follows (inmillions):**Three Months Ended March 31, 2006**                   **Satellite** **Satellite**    **Successor Registrant** **Services** **Manufacturing** **Corporate(1)** **Total**         **Revenues and Adjusted EBITDA:**                    Revenues(2) $35.5  $136.5      $172.0     Intersegment revenues  0.7   2.8       3.5                  Operating segment revenues $36.2  $139.3       175.5                  Eliminations(3)              (3.5)                 Operating revenues as reported             $172.0                  Segment Adjusted EBITDA before eliminations $12.6  $5.8  $(6.9) $11.5                  Eliminations(3)              (0.8)                 Adjusted EBITDA              10.7     Depreciation and amortization $(10.9) $(5.5) $(0.5)  (16.9)                 Operating loss              (6.2)    Interest and investment income              4.5     Interest expense              (5.1)    Other income              1.0     Income tax provision              (2.6)    Equity loss in affiliate              (1.4)    Minority Interest              (6.0)                 Net loss             $(15.8)             **Other Data:**                    Total    assets(4) $737.1  $913.0  $55.1  $1,705.2              
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**LORAL SPACE & COMMUNICATIONS INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)****Three Months Ended March 31, 2005**                   **Satellite** **Satellite**    **Predecessor Registrant** **Services** **Manufacturing** **Corporate(1)** **Total**         **Revenues and Adjusted EBITDA:**                    Revenues(2) $34.8  $97.8      $132.6     Intersegment revenues  1.1   1.8       2.9                  Operating segment revenues $35.9  $99.6       135.5                  Eliminations(3)              (3.1)                 Operating revenues as reported             $132.4                  Segment Adjusted EBITDA before eliminations $9.1  $4.2  $(5.7) $7.6                  Eliminations(3)              (2.4)                 Adjusted EBITDA              5.2     Depreciation and    amortization(4) $(19.4) $(4.0) $(0.2)  (23.6)                 Reorganization expenses due to bankruptcy              (5.6)                 Operating loss              (24.0)    Interest and investment income              1.8     Interest expense              (1.0)    Other expense              (0.6)    Income tax provision              (1.7)    Equity losses in affiliates              (0.7)                 Net loss             $(26.2)             **Other Data:**                    Total    assets(4) $767.0  $369.3  $43.0  $1,179.3               (1)     Represents corporate expenses incurred in support of our    operations. (2)     Includes revenues from affiliates of $2.8 million and    $2.9 million for the three months ended March 31, 2006    and 2005, 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)     Amounts are presented after the elimination of intercompany    profit. Total assets include $89.4 million,    $250.7 million and zero goodwill for Satellite Services,    Satellite Manufacturing and Corporate, respectively, as of    March 31, 2006.
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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 inconjunction with our unaudited condensed consolidated financialstatements (the “financial statements”) included inItem 1 and our latest Annual Report onForm 10-K filedwith the Securities and Exchange Commission.*     Loral Space & Communications Inc. (“NewLoral”) was formed to succeed the business conducted by itspredecessor registrant, Loral Space & CommunicationsLtd. (“Old Loral”), which emerged from reorganizationproceedings under chapter 11 (“Chapter 11”)of title 11 of the United States Code on November 21,2005 (the “Effective Date”) pursuant to the terms ofthe fourth amended joint plan of reorganization of Old Loral andits debtor subsidiaries, as modified (the “Plan ofReorganization”).     We adopted fresh-start accounting as of October 1, 2005, inaccordance with Statement of Position No. 90-7,*Financial Reporting of Entities in Reorganization Under theBankruptcy Code*(“SOP 90-7”).Accordingly, our financial information disclosed under theheading “Successor Registrant” for the period endedand as of March 31, 2006, is presented on a basis differentfrom, and is therefore not comparable to, our financialinformation disclosed under the heading “PredecessorRegistrant” for the period ended and as of March 31,2005.     The terms, “Loral,” the “Company,”“we,” “our” and “us,” when used inthis report with respect to the period prior to our emergencefrom Chapter 11, are references to Old Loral, and when usedwith respect to the period commencing after our emergence, arereferences to New Loral. These references include thesubsidiaries of Old Loral or New Loral, as the case may be,unless otherwise indicated or the context otherwise requires.**Disclosure Regarding Forward-Looking Statements**     *Except for the historical information contained in thefollowing discussion and analysis, the matters discussed beloware not historical facts, but are “forward-lookingstatements” as that term is defined in the PrivateSecurities Litigation Reform Act of 1995. In addition, we or ourrepresentatives have made and may continue to makeforward-looking statements, orally or in writing, in othercontexts. These forward-looking statements can be identified bythe 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. Thesestatements are not guarantees of future performance and involverisks and uncertainties that are difficult to predict orquantify. Actual events or results may differ materially as aresult of a wide variety of factors and conditions, many ofwhich are beyond our control. For a detailed discussion of theseand other factors and conditions, please refer to theCommitments and Contingencies section below and to our otherperiodic reports filed with the Securities and ExchangeCommission (“SEC”). We operate in an industry sectorin which the value of securities may be volatile and may beinfluenced by economic and other factors beyond our control. Weundertake no obligation to update any forward-lookingstatements.***Overview*****Businesses***     Loral is a leading satellite communications company organizedinto two operating segments: Satellite Services and SatelliteManufacturing.*Satellite Services*     Through Loral Skynet Corporation (“Loral Skynet”) weprovide satellite capacity and networking infrastructure to ourcommercial and government customers for a wide range of videoand data transmission services, including video anddirect-to-home(“DTH”) broadcasting, high-speed data distribution,internet access, communications and networking services. Whilewe compete with fiber optic cable and other terrestrial deliverysystems, primarily forpoint-to-pointapplications, Loral Skynet has been able to combine the inherentadvantages of each technology to provide its customers withcomplete end-to-endservices. Since FSS satellites remain in a fixed point above theearth’s equator, they are considerably more efficient thanterrestrial systems for certain applications, such as broadcastor point-to-multipointtransmission of video and broadband data. A
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satellite offers instant infrastructure. It can cover largegeographic areas, sometimes entire hemispheres, and can not onlyprovide services to populated areas, but can also better serveareas with inadequate terrestrial infrastructures, low-densitypopulations or difficult geographic terrain.     The satellite services business is capital intensive and thebuild-out of a satellite fleet requires substantial time andinvestment. Once these investments are made, however, the coststo maintain and operate the fleet are relatively low. Theupfront investments are earned back through the leasing oftransponders to customers over the life of the satellite. Giventhe harsh and unpredictable environment in which the satellitesoperate, another major cost factor is in-orbit insurance. Annualreceipts from this business are fairly predictable because theyare derived from an established base of long-term customercontracts and high contract renewal rates.     On March 17, 2004, we consummated the sale of our NorthAmerican satellites and related assets to certain affiliates ofIntelsat, Ltd. and Intelsat (Bermuda), Ltd. (collectively,“Intelsat”). This transaction precluded Loral Skynetfrom providing lease capacity into North America for two years.Commencing on March 18, 2006, Loral Skynet resumedmarketing of satellite services to the North American market.     Competition in the satellite services market has been intense inrecent years due to a number of factors, including transponderover-capacity in certain geographic regions and increasedcompetition from fiber. This competition has put furtherpressure on prices already depressed by the telecommunicationsindustry downturn earlier this decade. A stronger economy and anincrease in capital available for expanded consumer andenterprise-level services have led to an improvement in demand.Much of Loral Skynet’s remaining available capacity,however, is over geographic regions where the market ischaracterized by excess capacity, coupled with weak demand, orwhere regulatory obstacles are such that we find ourselves at acompetitive disadvantage versus local operators. LoralSkynet’s growth depends on its ability to successfullymarket the capacity available on its international fleet ofsatellites, to differentiate itself from its competition throughsuperior customer service and to fund additional satelliteacquisitions.*Satellite Manufacturing*     Space Systems/Loral, Inc. (“SS/L”) designs andmanufactures satellites, space systems and space systemscomponents for commercial and government customers who use thesatellites for applications such as fixed satellite services,DTH broadcasting, broadband data distribution, wirelesstelephony, digital radio, military communications, weathermonitoring and air traffic management.     While its requirement for ongoing capital investment isrelatively low, the satellite manufacturing industry is aknowledge-intensive business, the success of which reliesheavily on its technological heritage and the skills of itsworkforce. The breadth and depth of talent and experienceresident in SS/L’s workforce of approximately 1,500employees is one of our key competitive resources.     Satellite manufacturers have high fixed costs relating primarilyto labor and overhead. Based on its current cost structure, weestimate that SS/L covers its fixed costs with an average ofthree to four satellite awards a year depending on the size,power and complexity of the satellite and the payment plan,which may include provisions for customer payments during thelifetime of the satellite subject to the satellite’scontinued performance. Cash flow in the satellite manufacturingbusiness, however, tends to be uneven. It takes two to threeyears to complete a satellite project and numerous assumptionsare built into the estimated costs. Cash receipts are tied tothe achievement of contract milestones which depend in part onthe ability of our subcontractors to deliver on time. Inaddition, the timing of satellite awards is difficult topredict, contributing to the unevenness of revenue and making itmore challenging to align the workforce to the workflow.     Satellites are extraordinarily complex devices designed tooperate in the very hostile environment of space. Thiscomplexity may lead to unanticipated costs during the design,manufacture and testing of a satellite. SS/L establishesprovisions for costs based on historical experience and programcomplexity to cover anticipated costs. Since most of SS/L’scontracts are fixed price, cost increases in excess of theprovisions reduce profitability and may result in losses bornesolely by SS/L, which may be material. The highly competitivesatellite manufacturing industry is just now recovering from aseveral year period when order levels reached an unprecedentedlow level, resulting in manufacturing over-capacity. Buyers, asa result, have had the advantage over suppliers in negotiating
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prices, terms and conditions resulting in reduced margins andincreased assumptions of risk by SS/L. SS/L was furtherhandicapped while it was in Chapter 11, because ofbuyers’ reluctance to purchase satellites from a company inbankruptcy.**Bankruptcy Reorganization**     The sustained and unprecedented decline in demand for oursatellites and the transponder over-capacity in our satelliteservices business exacerbated Old Loral’s already strainedfinancial condition brought on primarily by the investments wehad previously made in Globalstar, L.P. (“Globalstar”)and subsequently wrote-off. On July 15, 2003, Old Loral andcertain of its subsidiaries (the “Debtor Subsidiaries”and collectively with Old Loral, the “Debtors”) filedvoluntary petitions for reorganization under Chapter 11.     During the ensuing two-and-a-half year period we furtherincreased our emphasis on cash conservation by reducingoperating expenses and closely monitoring capital expenditures.     On August 1, 2005, the Bankruptcy Court entered itsconfirmation order confirming the Plan of Reorganization. OnSeptember 30, 2005, the Federal Communications Commission(the “FCC”) approved the transfer of FCC licenses fromOld Loral to New Loral, which represented satisfaction of thelast material condition precedent to emergence. The Debtorsemerged from their reorganization proceeding underChapter 11 on November 21, 2005 pursuant to the Planof Reorganization. Pursuant toSOP 90-7 weadopted fresh-start accounting as of October 1, 2005 (seeNotes 2 and 3 to the financial statements).**Future Outlook**     Following our recent emergence from Chapter 11, we havefocused primarily on taking advantage of the years of experienceand superior expertise of our professional senior managementteam to capture opportunities in our markets and maintain anefficient stream-lined operation.     We have reorganized around SS/L’s satellite manufacturingoperations and Loral Skynet’s international fleet ofsatellites. We consider these operations to be a viablefoundation for the further expansion of our company.     Construction of Telstar 11N, a powerful new multi-region Ku-bandcommunications satellite, has begun at SS/L and upon completionwill be launched into the 37.5 degree W.L. orbital location.Scheduled to enter service in 2008, Telstar 11N will providecommercial and governmental customers with broadbandconnectivity within and among the American, European and Africanregions. Our customers will use Telstar 11N for videodistribution and high-speed,IP-based data and voiceservices.     Critical success factors for both of our segments includemaintaining our reputation for reliability, quality and superiorcustomer service. These factors are vital to securing newcustomers and retaining current ones. At the same time, we mustcontinue to contain costs, and maximize efficiencies. LoralSkynet is focused on increasing the capacity utilization of itssatellite fleet and successfully rolling out new value-addedservices to its markets, as well as identifying opportunitiesfor fleet expansion. SS/L is focused on increasing bookings andbacklog in 2006, while maintaining the cost efficiencies andprocess improvements realized over the past several years. Inaddition, SS/L must continue to align its direct workforce withthe level of awards. In order to complete construction of allthe satellites in backlog, SS/L will need, and is in the processof hiring, additional staff. Long-term growth at SS/L willlikely require expanded facilities and working capital.     We regularly explore and evaluate possible strategictransactions and alliances. We also periodically engage indiscussions with satellite service providers, satellitemanufacturers and others regarding such matters, which mayinclude joint ventures and strategic relationships as well asbusiness combinations or the acquisition or disposition ofassets. In order to pursue certain of these opportunities, wewould require additional funds, which would likely take the formof equity financing from our shareholders or other public orprivate investors, and possibly debt financing from financialinstitutions and public markets. There can be no assurance thatwe will enter into any strategic transactions or alliances and,if so, on what terms.
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**Consolidated Operating Results**     See Critical Accounting Matters in our latest Annual Report onForm 10-K filedwith the SEC.     The following discussion of revenues and Adjusted EBITDA (seeNote 12 to the financial statements) reflects the resultsof our operating business segments for the three months endedMarch 31, 2006 and 2005. The balance of the discussionrelates to our consolidated results, unless otherwise noted. Aspreviously discussed, we emerged from Chapter 11 onNovember 21, 2005 and adopted fresh-start accounting as ofOctober 1, 2005. As a result of the adoption of fresh-startaccounting, the Successor Registrant’s financial statementsare not comparable with the Predecessor Registrant’sfinancial statements.**Revenues:**             **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**        **(In millions)**    Satellite Services $36.2   $35.9     Satellite Manufacturing  139.3    99.6             Segment revenues  175.5    135.5     Eliminations(1)  (3.5)   (3.1)             Revenues as    reported(2) $172.0   $132.4         **Adjusted EBITDA:**             **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**        **(In millions)**    Satellite Services $12.6   $9.1     Satellite Manufacturing  5.8    4.2     Corporate    expenses(3)  (6.9)   (5.7)             Segment Adjusted EBITDA before eliminations  11.5    7.6     Eliminations(1)  (0.8)   (2.4)             Adjusted EBITDA $10.7   $5.2         
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**Reconciliation of Adjusted EBITDA to Net Loss:**             **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**        **(In millions)**    Adjusted EBITDA $10.7   $5.2     Depreciation and amortization  (16.9)   (23.6)    Reorganization expenses due to bankruptcy  —    (5.6)             Operating loss  (6.2)   (24.0)    Interest and investment income  4.5    1.8     Interest expense  (5.1)   (1.0)    Other income (expense)  1.0    (0.6)    Income tax provision  (2.6)   (1.7)    Equity in net losses of affiliates  (1.4)   (0.7)    Minority interest  (6.0)   —              Net loss $(15.8)  $(26.2)         (1)     Represents the elimination of intercompany sales and    intercompany Adjusted EBITDA, primarily for satellites under    construction by SS/L for Satellite Services and for Satellite    Services leasing transponder capacity to SS/L. (2)     Includes revenues from affiliates of $2.8 million and    $2.9 million for the three months ended March 31, 2006    and 2005, respectively. (3)     Represents corporate expenses incurred in support of our    operations.**Three Months Ended March 31, 2006 Compared WithMarch 31, 2005*****Revenues from Satellite Services***                **Successor**  **Predecessor**    **Registrant**  **Registrant**            **Three Months**  **Three Months**    **Ended**  **Ended**    **March 31,**  **March 31,** **% Increase/**  **2006**  **2005** **(Decrease)**          **(In millions)**      Revenues from Satellite Services $36   $36   —%    Eliminations  (1)   (1)  —%               Revenues from Satellite Services as reported $35   $35   —%                Revenues from Satellite Services remained constant for the threemonths ended March 31, 2006 compared to 2005, resultingfrom increased fixed satellite services sales of $2 millionand increased network services sales of $1 million, offsetby decreased professional services sales of $2 million anda reduction in revenue of $1 million due to the sale of ourbusiness television service. Eliminations primarily consist ofrevenues from leasing transponder capacity to SatelliteManufacturing.
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***Revenues from Satellite Manufacturing***                **Successor**  **Predecessor**    **Registrant**  **Registrant**            **Three Months**  **Three Months**    **Ended**  **Ended**    **March 31,**  **March 31,** **% Increase/**  **2006**  **2005** **(Decrease)**          **(In millions)**      Revenues from Satellite Manufacturing $139   $100   40%    Eliminations  (3)   (2)  63%               Revenues from Satellite Manufacturing as reported $136   $98   40%                Revenues from Satellite Manufacturing before eliminationsincreased by $39 million for the three months endedMarch 31, 2006 as compared to 2005, primarily as a resultof increased revenues of $64 million from new satelliteorders received in the fourth quarter of 2004 and in the firsthalf of 2005. This increase was partially offset by a reductionto revenues as a result of satellites completed and satelliteprograms nearing completion. Eliminations consist primarily ofrevenues from a satellite under construction by SS/L forSatellite Services. As a result, revenues from SatelliteManufacturing as reported increased $38 million in 2006 ascompared to 2005.***Cost of Satellite Services***                 **Successor**  **Predecessor**    **Registrant**  **Registrant**            **Three Months**  **Three Months**    **Ended**  **Ended**    **March 31,**  **March 31,** **% Increase/**  **2006**  **2005** **(Decrease)**          **(In millions)**      Cost of Satellite Services includes:                  Cost of Satellite Services before depreciation and amortization $13   $16   (18)%     Depreciation and amortization  11    19   (44)%               Total cost of Satellite Services as reported $24   $35   (32)%               Cost of Satellite Services as a % of Satellite Services revenues    as reported  67%   102%         Cost of Satellite Services decreased $11 million for thethree months ended March 31, 2006 as compared to 2005. Thisdecrease was primarily due to a reduction of depreciation andamortization expense of $8 million in 2006 as compared to2005, primarily resulting from the net effect of theamortization of fair value adjustments in connection with theadoption of fresh-start accounting on October 1, 2005 andcost reductions of approximately $3 million.
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***Cost of Satellite Manufacturing***                 **Successor**  **Predecessor**    **Registrant**  **Registrant**            **Three Months**  **Three Months**    **Ended**  **Ended**    **March 31,**  **March 31,** **% Increase/**  **2006**  **2005** **(Decrease)**          **(In millions)**      Cost of Satellite Manufacturing includes:                  Cost of Satellite Manufacturing before depreciation and    amortization $121   $84   43%     Depreciation and amortization  5    4   39%               Total cost of Satellite Manufacturing as reported $126   $88   43%               Cost of Satellite Manufacturing as a % of Satellite    Manufacturing revenues as reported  92%   90%         Cost of Satellite Manufacturing increased $38 million forthe three months ended March 31, 2006 as compared to 2005.Cost of Satellite Manufacturing before depreciation andamortization increased $37 million for the three monthsended March 31, 2006 as compared to 2005. This wasprimarily due to the increased sales and the related costs ofnew satellites under construction. Depreciation and amortizationexpense increased $1 million primarily resulting from thenet effect of the amortization of fair value adjustments inconnection with the adoption of fresh-start accounting onOctober 1, 2005.***Selling, General and Administrative Expenses***                **Successor**  **Predecessor**    **Registrant**  **Registrant**            **Three Months**  **Three Months**    **Ended**  **Ended**    **March 31,**  **March 31,** **% Increase/**  **2006**  **2005** **(Decrease)**          **(In millions)**      Selling, general and administrative expenses $27   $27   4%    Continuing expenses related to remaining bankruptcy related    matters  1    —   4%               Selling, general and administrative expenses $28   $27   4%               % of revenues as reported  17%   21%         Selling, general and administrative expenses remained relativelyconstant for the three months ended March 31, 2006 ascompared to 2005. After the adoption of fresh-start accounting,continuing expenses related to the remaining bankruptcy relatedmatters are recorded in general and administrative expenses andtotaled $1.2 million for the three months endedMarch 31, 2006.***Reorganization Expenses Due to Bankruptcy***            **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**        **(In millions)**    Reorganization expenses due to bankruptcy $—   $6      Reorganization expenses due to bankruptcy decreased$6 million for the three months ended March 31, 2006as compared to 2005 primarily as a result of the adoption offresh-start accounting on October 1, 2005. After the
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adoption of fresh-start accounting, continuing expenses relatedto the remaining bankruptcy related matters are recorded ingeneral and administrative expenses. See Note 2 to thefinancial statements for a description of the components ofreorganization expenses due to bankruptcy for the three monthsended March 31, 2005.***Interest and Investment Income***                **Successor**  **Predecessor**    **Registrant**  **Registrant**            **Three Months**  **Three Months**    **Ended**  **Ended**    **March 31,**  **March 31,** **% Increase/**  **2006**  **2005** **(Decrease)**          **(In millions)**      Interest and investment income $5   $2   154%     The interest income increase of $3 million for the threemonths ended March 31, 2006 as compared to 2005, primarilyrepresents interest income earned on higher cash balances atSS/L due to collections on satellite manufacturing programs.***Interest Expense***            **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**        **(In millions)**    Interest cost before capitalized interest $5   $1     Capitalized interest  —    —             Interest expense $5   $1              Interest cost increased $4 million for the three monthsended March 31, 2006 as compared to 2005, primarily due to$4 million of interest expense recognized on the LoralSkynet 14% senior secured notes issued in connection withour Plan of Reorganization.***Other Income (Expense)***     Other income (expense) represents gains and (losses) on foreigncurrency transactions and the gain recorded on the dispositionof an orbital slot.***Income Tax Provision***     During 2006 and 2005, we continued to maintain the 100%valuation allowance against our net deferred tax assets.However, upon emergence from bankruptcy in 2005, we reversed ourvaluation allowance related to $2.0 million of deferred taxassets for AMT credit carryforwards. We will continue tomaintain the valuation allowance until sufficient positiveevidence exists to support its reversal. If, in the future, wewere to determine that we will be able to realize all or aportion of the benefit from our deferred tax assets, a reductionto the valuation allowance as of October 1, 2005 will firstreduce goodwill, then other intangible assets with any excesstreated as an increase topaid-in-capital.     The income tax provision was $2.6 million for the threemonths ended March 31, 2006 as compared to$1.7 million for 2005 on a pre-tax loss of$5.8 million and $23.8 million, respectively. Theincrease to our provision for 2006 was primarily attributable toadditional accruals of tax contingency reserves for potentialaudit issues.
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***Equity Income (Losses) in Affiliates***            **Successor**  **Predecessor**  **Registrant**  **Registrant**        **Three Months**  **Three Months**  **Ended**  **Ended**  **March 31,**  **March 31,**  **2006**  **2005**        **(In millions)**    XTAR $(1.4)  $(0.7)             XTAR commenced commercial operations in 2005 with the launch ofits satellite in February 2005. The increase in equity losses inXTAR in the three months ended March 31, 2006 representsour share of higher XTAR losses incurred in connection with itsstart-up, as well as,the elimination of profit related to the construction of theSpainsat satellite by SS/L for Hisdesat, which was successfullylaunched on March 11, 2006 (See Note 7 to thefinancial statements).**Minority Interest**     Minority interest increased for the three months endedMarch 31, 2006 as compared to the three month endedMarch 31, 2005, as a result of the $6 million dividendaccrual for the Loral Skynet Series A preferred stockissued in connection with our Plan of Reorganization.***Backlog****Consolidated*     Consolidated backlog was $1,115 million at March 31,2006 and $1,248 million at December 31, 2005.*Satellite Services*     At March 31, 2006, Satellite Services’ backlog totaledapproximately $433 million, including intercompany backlogof approximately $19 million. As of December 31, 2005,backlog was $453 million, including intercompany backlog of$20 million.*Satellite Manufacturing*     As of March 31, 2006, backlog for SS/ L was approximately$830 million, including intercompany backlog ofapproximately $129 million. Backlog at December 31,2005 was $815 million, including intercompany backlog of$0.3 million.**Liquidity and Capital Resources*****Cash and Available Credit***     As of March 31, 2006, we had $361 million of availablecash and $12 million of restricted cash ($2 millionincluded in other current assets and $10 million includedin other assets on our condensed consolidated balance sheet).During the next 12 months, we expect to use a significantportion of our available cash for capital expenditures,including the construction of Telstar 11N and facilitiesexpansion, and for working capital requirements. We believe thatcash as of March 31, 2006 and net cash provided byoperating activities will be adequate to meet our expected cashrequirement through at least the next 12 months. It islikely, however, that we will access the financial markets tomeet some or all of the following needs: (a) funding thelong-term growth of our businesses by constructing satellitesfor our Satellite Services business and by expanding ourSatellite Manufacturing business (including both facilitiesexpansion and working capital requirements); (b) betterpositioning our capital structure; and (c) equipping us torespond quickly to strategic transactions and other growthopportunities.
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     Cash required to pay the remaining claims from the Plan ofReorganization and the expenses associated with completing thereorganization activity, in the aggregate approximately$31 million, will be paid from existing cash on hand.     Annual receipts from the Satellite Services business are fairlypredictable because they are derived from an established base oflong-term customer contracts and high contract renewal rates. Webelieve that the Satellite Services cash flow from operationswill be sufficient to provide for its maintenance capitalrequirements and pay its interest and preferred dividendobligations. Cash required for the construction of the Telstar11N satellite will be funded from cash on hand, cash flow fromoperations, or through financing activity.     Cash requirements at Satellite Manufacturing are drivenprimarily by working capital requirements to fund long-termreceivables associated with satellite contracts and capitalspending required to maintain and expand the manufacturingfacility. We believe that the Satellite Manufacturing cash flowfrom operations is sufficient to fund the capital required tomaintain the current manufacturing operations and workingcapital associated with typical satellite contracts. Capitalrequirements to expand the manufacturing facility beyond itscurrent capabilities, and offer customer financing terms beyondstandard terms, will be funded from cash on hand, cash flow fromoperations, or through financing activity.     On November 21, 2005, Loral Skynet completed the sale of$126 million of Senior Secured Notes (the “LoralSkynet Notes”). The Loral Skynet Notes mature onNovember 15, 2015 and bear interest at 14% payablesemi-annually beginning July 15, 2006. No principalpayments prior to the maturity date are required. The LoralSkynet Notes are guaranteed by certain of Loral Skynet’ssubsidiaries. The obligations of Loral Skynet and the subsidiaryguarantors are secured by a first priority lien on certainspecified assets of Loral Skynet and the guarantors pursuant tothe security agreements entered into on November 21, 2005.The related indenture contains restrictive covenants that limit,subject to certain exceptions, Loral Skynet’s and itssubsidiaries’ ability to take certain actions, includingrestricted payments, incurrence of debt, incurrence of liens,payment of certain dividends or distributions, issuance or saleof capital stock of subsidiaries, sale of assets, affiliatetransactions and sale/leaseback and merger transactions. Theserestrictions may limit our flexibility in planning for andreacting to changes in our business and the industry in which weoperate. Our ability to redeem these notes in the near-term islimited. During the first four years after the Effective Date,we may redeem the notes at a redemption price of 110% plusaccrued and unpaid interest, but only if we do not receive anobjection notice from holders of two-thirds of the principalamount of the notes. After this four-year period, the notes areredeemable at our option at a redemption price of 110%,declining over time to 100% in 2014, plus accrued and unpaidinterest.     Proceeds from the sale of the Loral Skynet Notes were used toacquire certain satellite services assets from Old Loral andcertain of its subsidiaries and to fund certain cash claims inaccordance with the Plan of Reorganization (see Note 9 tothe financial statements).     On November 21, 2005 SS/ L entered into an amended andrestated $20 million Letter of Credit ReimbursementAgreement with JP Morgan Chase Bank. As of March 31, 2006,$2.4 million in letters of credit were issued andoutstanding.***Contractual Obligations***     There have not been any significant changes to the ContractualObligations as previously disclosed in our latest Annual Reporton Form 10-K filedwith the SEC.***Net Cash Provided by (Used in) Operating Activities***     Net cash provided by operating activities for the three monthsended March 31, 2006 was $85 million. This wasprimarily due to a decrease in accounts receivable of$49 million, representing the collection of outstandingaccounts receivable and vendor financing from a customer, adecrease ofcontracts-in-process of$23 million, primarily resulting from net collections oncustomer contracts and an increase in customer advances of$21 million from new satellite programs receipts.
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     Net cash used in operating activities in the three months endedMarch 31, 2005 was $62 million. This was primarily dueto an increase incontracts-in-process of$49 million primarily due to new satellite programs and adecrease in customer advances of $21 million primarily dueto progress on satellite programs.***Net Cash Used in Investing Activities***     Net cash used in investing activities for the three months endedMarch 31, 2006 was $0.3 million, resulting fromcapital expenditures, partially offset by proceeds received fromthe disposition of an orbital slot.     Net cash used in investing activities was $8 million in thethree months ended March 31, 2005. This primarily resultedfrom capital expenditures of $1 million and investments inand advances to affiliates of $7 million (XTAR).***Affiliate Matters***     Loral has made certain investments in joint ventures in theSatellite Services business that are accounted for under theequity method of accounting. See Note 7 to the financialstatements for further information on affiliate matters.***Commitments and Contingencies***     Our business and operations are subject to a number ofsignificant risks, the most significant of which are summarizedbelow in Item 1A — Risk Factors and also inNote 10 to the financial statements, Commitments andContingencies.**Other Matters*****Accounting Pronouncements***     New accounting principles or interpretations that have beenissued, but not yet adopted by us, are not expected to have amaterial impact on our financial statements.**Item 3.*****Quantitative and Qualitative Disclosures About Market    Risk****Foreign Currency*     While we were under Chapter 11, SS/ L’s hedges withcounterparties (primarily yen denominated forward contracts)were cancelled, leaving SS/ L vulnerable to foreign currencyfluctuations in the future. The inability to enter into forwardcontracts exposed SS/ L’s future revenues, costs and cashassociated with anticipated yen denominated receipts andpayments to currency fluctuations. As of March 31, 2006,SS/ L had the following amounts denominated in Japanese Yen(which have been translated into U.S. dollars based on theMarch 31, 2006 exchange rate) that were unhedged (inmillions):           **Japanese Yen** **U.S. $**         Future revenues ¥198  $1.7     Future expenditures  2,244   19.1     Contracts-in-process, unbilled receivables/(customer advances)  (81)  (0.7)     At March 31, 2006, SS/ L also had future expenditures inEURO’s of 138,666 ($167,457 U.S.) that were unhedged.     Loral does not enter into foreign currency transactions fortrading or speculative purposes.*Interest*     The Company issued long-term fixed rate debt at its Loral SkynetCorporation subsidiary upon emergence from bankruptcy. Since allof these instruments are at a fixed rate, the Company does nothave any exposure to
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changes in interest rates. Accordingly, the Company does notactively manage its interest rate risk through the use ofderivatives or other financial instruments.**Item 4.*****Disclosure Controls and Procedures***     (a) *Disclosure controls and procedures.* Our chiefexecutive officer and our chief financial officer, afterevaluating the effectiveness of our “disclosure controlsand procedures” (as defined inRules 13a-15(e)and 15d-15(e) of theSecurities Exchange Act of 1934, as amended (the “ExchangeAct”)) as of March 31, 2006, have concluded that ourdisclosure controls and procedures were effective and designedto ensure that information relating to Loral and itsconsolidated subsidiaries required to be disclosed in ourfilings under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in theSecurities Exchange Commission rules and forms.     (b) *Internal control over financial reporting.* Therewere no changes in our internal control over financial reporting(as defined in the Securities and Exchange Act of 1934Rules 13a-15(f)and 15-d-15(f)) during the most recent fiscal quarter that havematerially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.**PART II.****OTHER INFORMATION****Item 1.*****Legal Proceedings***     We discuss certain legal proceedings pending against the Companyin the notes to the financial statements and refer the reader tothat discussion for important information concerning those legalproceedings, including the basis for such actions and reliefsought. See Note 10 to the financial statements of thisQuarterly Report onForm 10-Q for thisdiscussion.**Item 1A.*****Risk Factors***     Our business and operations are subject to a significant numberof risks. The most significant of these risks are summarized in,and the reader’s attention is directed to, the section ofour Annual Report onForm 10-K for theyear ended December 31, 2005 in “Item 1A. RiskFactors.” There are no material changes to those riskfactors except as set forth in this report under“Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and in Note 10(Commitments and Contingencies) of the financial statementscontained in this report, and the reader is specificallydirected to those sections. The risks described in our AnnualReport onForm 10-K, asupdated by this report, are not the only risks facing us.Additional risks and uncertainties not currently known to us orthat we currently deem to be immaterial also may materiallyadversely affect our business, financial condition and/oroperating results.**Item 6.*****Exhibits***     The following exhibits are filed as part of this report:     Exhibit 31.1 — Certification of Chief ExecutiveOfficer pursuant to 18 U.S.C. § 1350, as adoptedpursuant to § 302 of the Sarbanes-Oxley Act of 2002.     Exhibit 31.2 — Certification of Chief FinancialOfficer pursuant to 18 U.S.C. § 1350, as adoptedpursuant to § 302 of the Sarbanes-Oxley Act of 2002.     Exhibit 32.1 — Certification of Chief ExecutiveOfficer pursuant to 18 U.S.C. § 1350, as adoptedpursuant to § 906 of the Sarbanes-Oxley Act of 2002.     Exhibit 32.2 — Certification of Chief FinancialOfficer pursuant to 18 U.S.C. § 1350, as adoptedpursuant to § 906 of the Sarbanes-Oxley Act of 2002.
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**SIGNATURES**     Pursuant to the requirements of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized.     Registrant  Loral Space &    Communications Inc.          /s/ Richard J. Townsend           Richard J. Townsend *Executive Vice President and* *Chief Financial Officer* *(Principal Financial Officer)* *and Registrant’s Authorized Officer*Date: May 8, 2006
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**EXHIBIT INDEX**     **Exhibit No.**   **Description**         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.