##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q



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

SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended
September 30, 2003

Commission File Number 1-14180

Loral Space & Communications
Ltd.

c/o Loral SpaceCom Corporation

600 Third Avenue


New York, New York 10016


Telephone: (212) 697-1105


Jurisdiction of incorporation:
Bermuda

IRS identification number:
13-3867424

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

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

As of October 31, 2003, there were
44,125,202 shares of Loral Space & Communications
Ltd. common stock outstanding.



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TABLE OF CONTENTS



|                                         |                                                                                       |                                                      |  |  |  |  |  | 
|---------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART 1. FINANCIAL INFORMATION           
|                                         |                                                                                       | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                         |                                                                                       | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                         |                                                                                       | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                         |                                                                                       | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                         |                                                                                       | CONDENSED CONSOLIDATING BALANCE SHEET               
|                                         |                                                                                       | CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS     
|                                         |                                                                                       | CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS     
|                                         |                                                                                       | CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS     
|                                         |                                                                                       | CONDENSED CONSOLIDATING BALANCE SHEET               
|                                         |                                                                                       | CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS     
|                                         |                                                                                       | CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS     
|                                         |                                                                                       | CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS     
|                                         | MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|                                         | Item 3. Quantitative and Qualitative Disclosures About Market Risk                   
|                                         | Item 4. Disclosure Controls and Procedures                                           
|PART II. OTHER INFORMATION              
|                                         | Item 1. Legal Proceedings                                                            
|                                         | Item 3. Defaults Upon Senior Securities                                              
|                                         | Item 6. Exhibits and Reports on Form 8-K                                             
|SIGNATURES                              
|EXHIBIT INDEX                           
|COMPUTATION OF DEFICIENCY OF EARNINGS   
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER
|CERTIFICATION OF CHIEF FINANCIAL OFFICER
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER
|CERTIFICATION OF CHIEF FINANCIAL OFFICER



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##### Table of Contents






PART 1.

FINANCIAL INFORMATION


LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION






CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                                           |                                                             |                                                            |                                             |              |        |           |           |            |         |           |  
|---------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------- | ------------ | ------ | --------- | --------- | ---------- | ------- | --------- | -
|                                                           |                                                             | September 30,                                              |                                             | December 31,
|                                                           |                                                             | 2003                                                       |                                             | 2002        
|                                                           |                                                             |                                                            |                                             |             
|                                                           |                                                             |                                                           
|                                                           |                                                             | (In thousands, except                                     
|                                                           |                                                             | par values)                                               
|                                                           |                                                             | (Unaudited)                                               
|ASSETS                                                    
|Current assets:                                            |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           | Cash and cash equivalents                                   |                                                            | $                                           | 102,805      |        |           | $         | 65,936     |        
|                                                           | Accounts receivable, net                                    |                                                            |                                             | 21,995       |        |           |           | 28,893     |        
|                                                           | Contracts-in-process                                        |                                                            |                                             | 74,534       |        |           |           | 113,154    |        
|                                                           | Vendor financing receivables                                |                                                            |                                             |             |        |           |           | 38,016     |        
|                                                           | Inventories                                                 |                                                            |                                             | 61,384       |        |           |           | 95,733     |        
|                                                           | Insurance proceeds receivable                               |                                                            |                                             | 122,770      |        |           |           |           |        
|                                                           | Other current assets                                        |                                                            |                                             | 43,328       |        |           |           | 48,695     |        
|                                                           |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           |                                                             |                                                            | Total current assets                        |              |        | 426,816   |           |            |         | 390,427   |  
|Property, plant and equipment, net                         |                                                             |                                                            | 1,797,795                                   |              |        |           | 1,878,137 |           
|Long-term receivables                                      |                                                             |                                                            | 57,062                                      |              |        |           | 163,191   |           
|Investments in and advances to affiliates                  |                                                             |                                                            | 75,982                                      |              |        |           | 95,443    |           
|Deposits                                                   |                                                             |                                                            | 12,000                                      |              |        |           | 58,250    |           
|Other assets                                               |                                                             |                                                            | 84,540                                      |              |        |           | 107,354   |           
|                                                           |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           |                                                             |                                                            | Total assets                                |              | $      | 2,454,195 |           |            | $       | 2,692,802 |  
|                                                           |                                                             |                                                            |                                             |              |        |           |           |           
|LIABILITIES AND SHAREHOLDERS
    DEFICIT                 
|Liabilities not subject to compromise:                     |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           | Current liabilities:                                        |                                                            |                                             |              |        |           |           |            |        
|                                                           |                                                             | Current portion of long-term debt                          |                                             | $            |       |           |           | $          | 130,167 |          
|                                                           |                                                             | Accounts payable                                           |                                             |              | 16,882 |           |           |            | 58,323  |          
|                                                           |                                                             | Accrued employment costs                                   |                                             |              | 14,115 |           |           |            | 34,531  |          
|                                                           |                                                             | Customer advances                                          |                                             |              | 34,072 |           |           |            | 114,080 |          
|                                                           |                                                             | Accrued interest and preferred dividends                   |                                             |              | 6,477  |           |           |            | 37,370  |          
|                                                           |                                                             | Income taxes payable                                       |                                             |              | 80     |           |           |            | 37,936  |          
|                                                           |                                                             | Other current liabilities                                  |                                             |              | 7,635  |           |           |            | 48,736  |          
|                                                           |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           |                                                             |                                                            | Total current liabilities                   |              |        | 79,261    |           |            |         | 461,143   |  
|                                                           | Pension and other postretirement liabilities                |                                                            |                                             | 2,682        |        |           |           | 124,193    |        
|                                                           | Long-term liabilities                                       |                                                            |                                             | 174,217      |        |           |           | 214,132    |        
|                                                           | Long-term debt                                              |                                                            |                                             |             |        |           |           | 2,106,330  |        
|                                                           |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           |                                                             |                                                            | Total liabilities not subject to compromise |              |        | 256,160   |           |            |         | 2,905,798 |  
|Liabilities subject to compromise (Note 11)                |                                                             |                                                            | 2,901,394                                   |              |        |           |          |           
|Minority interest                                          |                                                             |                                                            | 2,470                                       |              |        |           | 16,150    |           
|Convertible redeemable preferred stock:                    |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           | 6% Series C ($106,009 redemption value),
    $.01 par value |                                                            |                                             |             |        |           |           | 104,582    |        
|                                                           | 6% Series D ($21,122 redemption value), $.01
    par value  |                                                            |                                             |             |        |           |           | 20,499     |        
|Commitments and contingencies (Notes 2, 10,
    11 and 14) |                                                             |                                                            |                                             |              |        |           |           |           
|Shareholders deficit:                                     |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           | Convertible redeemable preferred stock:                     |                                                            |                                             |              |        |           |           |            |        
|                                                           |                                                             | 6% Series C ($81,265 redemption value), $.01
    par value |                                             |              |       |           |           |            | 80,171  |          
|                                                           |                                                             | 6% Series D ($15,585 redemption value), $.01
    par value |                                             |              |       |           |           |            | 15,125  |          
|                                                           | Common stock, $.10 par value                                |                                                            |                                             | 4,413        |        |           |           | 4,293      |        
|                                                           | Paid-in capital                                             |                                                            |                                             | 3,392,867    |        |           |           | 3,389,035  |        
|                                                           | Treasury stock                                              |                                                            |                                             | (3,360       | )      |           |           | (3,360     | )      
|                                                           | Unearned compensation                                       |                                                            |                                             | (188         | )      |           |           | (151       | )      
|                                                           | Retained deficit                                            |                                                            |                                             | (4,060,669   | )      |           |           | (3,782,107 | )      
|                                                           | Accumulated other comprehensive loss                        |                                                            |                                             | (38,892      | )      |           |           | (57,233    | )      
|                                                           |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           |                                                             |                                                            | Total shareholders deficit                 |              |        | (705,829  | )         |            |         | (354,227  | )
|                                                           |                                                             |                                                            |                                             |              |        |           |           |           
|                                                           |                                                             |                                                            | Total liabilities and shareholders deficit |              | $      | 2,454,195 |           |            | $       | 2,692,802 |  
|                                                           |                                                             |                                                            |                                             |              |        |           |           |           

See notes to condensed consolidated financial
statements.

1



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | -------- | ----------------- | - | ---- | ------- | ------------ | - | - | -------- | ------- | - | - | ---------- | ------- | -
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                  
|                                                                                                                                                                                                            |                                                                                                                               | Three Months Ended                       |          | Nine Months Ended
|                                                                                                                                                                                                            |                                                                                                                               | September 30,                            |          | September 30,    
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                  
|                                                                                                                                                                                                            |                                                                                                                               | 2003                                     |          | 2002              |   | 2003 |         | 2002        
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |             
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          | As Restated       |   |      |         | As Restated 
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          | (See Note 4)      |   |      |         | (See Note 4)
|                                                                                                                                                                                                            |                                                                                                                               |                                         
|                                                                                                                                                                                                            |                                                                                                                               | (In thousands, except per share amounts)
|                                                                                                                                                                                                            |                                                                                                                               | (Unaudited)                             
|Revenues from satellite sales (see Note 14
    regarding revenue reversal in the third quarter of 2003)                                                                                                     |                                                                                                                               | $                                        | (23,568  | )                 |   | $    | 119,425 |              |   | $ | 162,676  |         |   | $ | 532,475    |        
|Revenues from satellite services                                                                                                                                                                            |                                                                                                                               |                                          | 70,891   |                   |   |      | 91,557  |              |   |   | 225,529  |         |   |   | 303,043    |        
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|                                                                                                                                                                                                            | Total revenues                                                                                                                |                                          |          | 47,323            |   |      |         | 210,982      |   |   |          | 388,205 |   |   |            | 835,518 |  
|Cost of satellite sales (see Note 14
    regarding cost of sales reversal in the third quarter of 2003)                                                                                                     |                                                                                                                               |                                          | 14,993   |                   |   |      | 124,647 |              |   |   | 298,410  |         |   |   | 513,965    |        
|Cost of satellite services                                                                                                                                                                                  |                                                                                                                               |                                          | 59,969   |                   |   |      | 65,102  |              |   |   | 172,979  |         |   |   | 193,820    |        
|Selling, general and administrative expenses                                                                                                                                                                |                                                                                                                               |                                          | 40,859   |                   |   |      | 37,038  |              |   |   | 115,189  |         |   |   | 120,158    |        
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Operating (loss) income before reorganization
    expenses due to bankruptcy                                                                                                                                |                                                                                                                               |                                          | (68,498  | )                 |   |      | (15,805 | )            |   |   | (198,373 | )       |   |   | 7,575      |        
|Reorganization expenses due to bankruptcy                                                                                                                                                                   |                                                                                                                               |                                          | (8,760   | )                 |   |      |        |              |   |   | (8,760   | )       |   |   |           |        
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Operating (loss) income                                                                                                                                                                                     |                                                                                                                               |                                          | (77,258  | )                 |   |      | (15,805 | )            |   |   | (207,133 | )       |   |   | 7,575      |        
|Interest and investment income                                                                                                                                                                              |                                                                                                                               |                                          | 675      |                   |   |      | 1,076   |              |   |   | 11,516   |         |   |   | 10,937     |        
|Interest expense                                                                                                                                                                                            |                                                                                                                               |                                          | (9,931   | )                 |   |      | (19,510 | )            |   |   | (45,664  | )       |   |   | (56,465    | )      
|Gain on investment                                                                                                                                                                                          |                                                                                                                               |                                          |         |                   |   |      |        |              |   |   | 17,900   |         |   |   |           |        
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Loss before income taxes, equity in net losses of
    affiliates, minority interest, cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |                                                                                                                               |                                          | (86,514  | )                 |   |      | (34,239 | )            |   |   | (223,381 | )       |   |   | (37,953    | )      
|Income tax (provision) benefit                                                                                                                                                                              |                                                                                                                               |                                          | (676     | )                 |   |      | 7,685   |              |   |   | (4,525   | )       |   |   | (1,886     | )      
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Loss before equity in net losses of affiliates,
    minority interest, cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest               |                                                                                                                               |                                          | (87,190  | )                 |   |      | (26,554 | )            |   |   | (227,906 | )       |   |   | (39,839    | )      
|Equity in net losses of affiliates, net of taxes                                                                                                                                                            |                                                                                                                               |                                          | (38,808  | )                 |   |      | (22,009 | )            |   |   | (55,646  | )       |   |   | (51,159    | )      
|Minority interest, net of taxes                                                                                                                                                                             |                                                                                                                               |                                          | 89       |                   |   |      | (149    | )            |   |   | 65       |         |   |   | (143       | )      
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest                                                                          |                                                                                                                               |                                          | (125,909 | )                 |   |      | (48,712 | )            |   |   | (283,487 | )       |   |   | (91,141    | )      
|Cumulative effect of change in accounting
    principle, net of taxes of $13,809 in 2002                                                                                                                    |                                                                                                                               |                                          | (1,970   | )                 |   |      |        |              |   |   | (1,970   | )       |   |   | (876,500   | )      
|Extraordinary gain on acquisition of minority
    interest, net of taxes                                                                                                                                    |                                                                                                                               |                                          |         |                   |   |      |        |              |   |   | 13,615   |         |   |   |           |        
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Net loss                                                                                                                                                                                                    |                                                                                                                               |                                          | (127,879 | )                 |   |      | (48,712 | )            |   |   | (271,842 | )       |   |   | (967,641   | )      
|Preferred dividends                                                                                                                                                                                         |                                                                                                                               |                                          |         |                   |   |      | (8,607  | )            |   |   | (6,720   | )       |   |   | (67,380    | )      
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Net loss applicable to common shareholders                                                                                                                                                                  |                                                                                                                               | $                                        | (127,879 | )                 |   | $    | (57,319 | )            |   | $ | (278,562 | )       |   | $ | (1,035,021 | )      
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Basic and diluted loss per share:                                                                                                                                                                           |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|                                                                                                                                                                                                            | Before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest |                                          | $        | (2.86             | ) |      | $       | (1.53        | ) |   | $        | (6.64   | ) |   | $          | (4.45   | )
|                                                                                                                                                                                                            | Cumulative effect of change in accounting
    principle                                                                       |                                          |          | (0.04             | ) |      |         |             |   |   |          | (0.04   | ) |   |            | (24.60  | )
|                                                                                                                                                                                                            | Extraordinary gain on acquisition of minority
    interest                                                                    |                                          |          |                  |   |      |         |             |   |   |          | 0.31    |   |   |            |        |  
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|                                                                                                                                                                                                            | Loss per share                                                                                                                |                                          | $        | (2.90             | ) |      | $       | (1.53        | ) |   | $        | (6.37   | ) |   | $          | (29.05  | )
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|Weighted average shares outstanding:                                                                                                                                                                        |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        
|                                                                                                                                                                                                            | Basic and diluted                                                                                                             |                                          |          | 44,107            |   |      |         | 37,374       |   |   |          | 43,723  |   |   |            | 35,632  |  
|                                                                                                                                                                                                            |                                                                                                                               |                                          |          |                   |   |      |         |              |   |   |          |         |   |   |            |        

See notes to condensed consolidated financial
statements.

2



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |          |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | -------- | ------------ | - | - | -------- | -------- | -
|                                                                              |                                                                                                                                            |                  
|                                                                              |                                                                                                                                            | Nine Months Ended
|                                                                              |                                                                                                                                            | September 30,    
|                                                                              |                                                                                                                                            |                  
|                                                                              |                                                                                                                                            | 2003              |          | 2002        
|                                                                              |                                                                                                                                            |                   |          |             
|                                                                              |                                                                                                                                            |                   |          | As Restated 
|                                                                              |                                                                                                                                            |                   |          | (See Note 4)
|                                                                              |                                                                                                                                            |                  
|                                                                              |                                                                                                                                            | (In thousands)   
|                                                                              |                                                                                                                                            | (Unaudited)      
|Operating activities:                                                         |                                                                                                                                            |                   |          |              |   |   |          |         
|Net loss                                                                      |                                                                                                                                            | $                 | (271,842 | )            |   | $ | (967,641 | )       
|Non-cash items:                                                               |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Equity in net losses of affiliates, net of taxes                                                                                           |                   |          | 55,646       |   |   |          | 59,357   |  
|                                                                              | Minority interest, net of taxes                                                                                                            |                   |          | (65          | ) |   |          | 143      |  
|                                                                              | Cumulative effect of change in accounting
    principle, net of taxes                                                                      |                   |          | 1,970        |   |   |          | 876,500  |  
|                                                                              | Extraordinary gain on acquisition of minority
    interest, net of taxes                                                                   |                   |          | (13,615      | ) |   |          |         |  
|                                                                              | Deferred taxes                                                                                                                             |                   |          | 3,656        |   |   |          | 6,313    |  
|                                                                              | Depreciation and amortization                                                                                                              |                   |          | 132,377      |   |   |          | 141,632  |  
|                                                                              | Provisions for inventory obsolescence                                                                                                      |                   |          | 35,107       |   |   |          | 14,013   |  
|                                                                              | Loss on cancellation of deposit                                                                                                            |                   |          | 23,500       |   |   |          |         |  
|                                                                              | Loss on acceleration of receipt of long-term
    receivables                                                                               |                   |          | 10,893       |   |   |          |         |  
|                                                                              | Charge on conversion of sales arrangement to
    lease arrangement (Note 14)                                                               |                   |          | 10,098       |   |   |          |         |  
|                                                                              | Charge on vendor financing receivables                                                                                                     |                   |          | 10,008       |   |   |          | 11,190   |  
|                                                                              | Accrual for Alcatel settlement                                                                                                             |                   |          | 8,000        |   |   |          |         |  
|                                                                              | Provisions for bad debts                                                                                                                   |                   |          | 7,714        |   |   |          | 2,196    |  
|                                                                              | Loss on equipment disposals                                                                                                                |                   |          |             |   |   |          | 1,977    |  
|                                                                              | Gain on investment                                                                                                                         |                   |          | (17,900      | ) |   |          |         |  
|                                                                              | Interest                                                                                                                                   |                   |          | (916         | ) |   |          | (931     | )
|Changes in operating assets and liabilities:                                  |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Accounts receivable                                                                                                                        |                   |          | (816         | ) |   |          | 230      |  
|                                                                              | Contracts-in-process                                                                                                                       |                   |          | 26,331       |   |   |          | 74,982   |  
|                                                                              | Inventories                                                                                                                                |                   |          | (758         | ) |   |          | (3,023   | )
|                                                                              | Long-term receivables                                                                                                                      |                   |          | 75,612       |   |   |          | 4,172    |  
|                                                                              | Deposits                                                                                                                                   |                   |          | 22,750       |   |   |          | 30,700   |  
|                                                                              | Other current assets and other assets                                                                                                      |                   |          | 31,241       |   |   |          | 27,012   |  
|                                                                              | Accounts payable                                                                                                                           |                   |          | 11,429       |   |   |          | (24,906  | )
|                                                                              | Accrued expenses and other current liabilities                                                                                             |                   |          | (2,666       | ) |   |          | (32,178  | )
|                                                                              | Customer advances                                                                                                                          |                   |          | (58,713      | ) |   |          | 239      |  
|                                                                              | Income taxes payable                                                                                                                       |                   |          | (598         | ) |   |          | (443     | )
|                                                                              | Pension and other postretirement liabilities                                                                                               |                   |          | 8,016        |   |   |          | 6,638    |  
|                                                                              | Long-term liabilities                                                                                                                      |                   |          | (11,447      | ) |   |          | (9,587   | )
|                                                                              | Other                                                                                                                                      |                   |          | 234          |   |   |          | 251      |  
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|Net cash provided by operating activities                                     |                                                                                                                                            |                   | 95,246   |              |   |   | 218,836  |         
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|Investing activities:                                                         |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Capital expenditures                                                                                                                       |                   |          | (86,263      | ) |   |          | (141,709 | )
|                                                                              | Proceeds from sale of investment                                                                                                           |                   |          | 45,908       |   |   |          |         |  
|                                                                              | Investments in and advances to affiliates                                                                                                  |                   |          | (18,591      | ) |   |          | (41,321  | )
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|Net cash used in investing activities                                         |                                                                                                                                            |                   | (58,946  | )            |   |   | (183,030 | )       
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|Financing activities:                                                         |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Borrowings under revolving credit facilities                                                                                               |                   |          | 71,400       |   |   |          | 118,000  |  
|                                                                              | Repayments under term loans                                                                                                                |                   |          | (32,500      | ) |   |          | (48,750  | )
|                                                                              | Repayments under revolving credit facilities                                                                                               |                   |          |             |   |   |          | (99,000  | )
|                                                                              | Interest payments on 10% senior notes                                                                                                      |                   |          | (30,635      | ) |   |          | (45,952  | )
|                                                                              | Repayments of export-import facility                                                                                                       |                   |          | (6,434       | ) |   |          | (1,073   | )
|                                                                              | Repayments of other long-term obligations                                                                                                  |                   |          |             |   |   |          | (16      | )
|                                                                              | Payment of bank amendment costs                                                                                                            |                   |          | (5,131       | ) |   |          |         |  
|                                                                              | Preferred dividends                                                                                                                        |                   |          |             |   |   |          | (29,485  | )
|                                                                              | Proceeds from stock issuances                                                                                                              |                   |          | 3,869        |   |   |          | 9,967    |  
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|Net cash provided by (used in) financing
    activities                       |                                                                                                                                            |                   | 569      |              |   |   | (96,309  | )       
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|Increase (decrease) in cash and cash
    equivalents                          |                                                                                                                                            |                   | 36,869   |              |   |   | (60,503  | )       
|                                                                              | Cash and cash equivalents  beginning
    of period                                                                                        |                   |          | 65,936       |   |   |          | 159,949  |  
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Cash and cash equivalents  end of
    period                                                                                              |                   | $        | 102,805      |   |   | $        | 99,446   |  
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|Non-cash activities:                                                          |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Insurance proceeds receivable recorded for
    satellite loss and warranty obligations                                                     |                   | $        | 122,770      |   |   | $        |         |  
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Unrealized (losses) gains on available-for-sale
    securities, net of taxes                                                               |                   | $        | 17,594       |   |   | $        | (11,458  | )
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Accrual of preferred dividends                                                                                                             |                   | $        | 6,720        |   |   | $        |         |  
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Unrealized net gains (losses) on derivatives, net
    of taxes                                                                             |                   | $        | 44           |   |   | $        | (948     | )
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Conversion of Series C preferred stock and
    Series D preferred stock and related issuance of additional
    common shares on conversion |                   | $        |             |   |   | $        | 256,444  |  
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|Supplemental information  cash
    received (paid) for reorganization items: |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              | Professional fees                                                                                                                          |                   | $        | (195         | ) |   | $        |         |  
|                                                                              | Interest income                                                                                                                            |                   |          | 1,734        |   |   |          |         |  
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         
|                                                                              |                                                                                                                                            | $                 | 1,539    |              |   | $ |         |         
|                                                                              |                                                                                                                                            |                   |          |              |   |   |          |         

See notes to condensed consolidated financial
statements.

3



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS




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

Loral Space & Communications Ltd.
(Loral or the Company, which terms shall
include its subsidiaries unless otherwise indicated or the
context requires) together with its subsidiaries is one of the
worlds leading satellite communications companies with
substantial activities in satellite-based communications
services and satellite manufacturing. Loral is organized into
two operating businesses (see Note 16):



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fixed Satellite Services (FSS).The Company leases transponder
    capacity to customers for various applications, including
    television and cable broadcasting, news gathering, Internet
    access and transmission, private voice and data networks,
    business television, distance learning and direct-to-home
    television (DTH) and provides satellite telemetry,
    tracking and control (TT&C) and related
    professional services to its customers. Loral also provides
    network services such as managed communications networks,
    Internet and intranet services, business television and business
    media services to customers.
|
| | Satellite Manufacturing and Technology.The Company designs and manufactures
    satellites and space systems and develops satellite technology
    for a broad variety of customers and applications through Space
    Systems/Loral, Inc. (SS/L).                                                                                                                                                                                                                                                                                                                                                                                                                



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Sale of Assets, Bankruptcy Filings and
    Telstar 4 Failure

On July 15, 2003, Loral Space &
Communications Corporation, Loral SpaceCom Corporation and Loral
Satellite, Inc. (collectively, the Sellers), direct
or indirect subsidiaries of Loral, entered into a definitive
agreement (the Asset Purchase Agreement) to sell to
Intelsat, Ltd. and Intelsat (Bermuda), Ltd. (together, the
Purchasers), all of the Sellers domestic fixed
satellite services satellites, then comprised of four satellites
in-orbit (one of which failed in September 2003, see below) and
two under construction (one of which has been successfully
launched and completed in-orbit testing and was placed into
service on September 12, 2003 and one scheduled for launch
in 2004), as well as certain other net assets. In addition,
Intelsat has agreed to order a new satellite from SS/L and will
make a $100 million down payment on that order upon closing
of the sale of the North American satellites, subject to
obtaining a security interest from Loral on assets related to
its Brazilian FSS business.

Also on July 15, 2003, Loral and certain of
its subsidiaries (the Debtor Subsidiaries and
collectively, the Debtors), including the Sellers,
SS/ L and Loral Orion, Inc. (Loral Orion), filed
voluntary petitions for reorganization under Chapter 11 of
Title 11 of the United States Code (the Bankruptcy
Code) in the United States Bankruptcy Court for the
Southern District of New York (the Bankruptcy Court)
(Lead Case No. 03-41710 (RDD), Case Nos. 03-41709
(RDD) through 03-41728 (RDD)) (the Chapter 11
Cases). Loral and its Debtor Subsidiaries, including the
Sellers, continue to manage their properties and operate their
businesses as debtors in possession under the
jurisdiction of the Bankruptcy Court and in accordance with the
provisions of the Bankruptcy Code.

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

On October 20, 2003, the Sellers held a
Bankruptcy Court ordered auction in respect of the assets to be
sold. At the auction, Purchasers agreed, among other things, to
increase the base purchase price under the

4



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Asset Purchase Agreement from $1 billion to
$1.025 billion (subject to certain purchase price
adjustments, which include a reduction for the insurance
proceeds received from the Telstar 4 failuresee below),
and, in consideration of a new transponder lease agreement
entered into on October 22, 2003 with a customer, which
contract will be assumed by Purchasers following the closing, to
pay an additional $50 million at closing and accelerate
orbital incentive payments to SS/L in the amount of
$25 million. The effectiveness of this new transponder
lease agreement is subject to receipt of approvals from the
Board of Directors of the customer and the Bankruptcy Court.
Purchasers offer, as revised at the auction, was
determined to be the highest and best offer, and, accordingly,
Purchasers were declared the winning bidder. On October 24,
2003, after a hearing on the matter, the Bankruptcy Court
approved the transactions contemplated by the Asset Purchase
Agreement. Consummation of the transactions is still subject to
a number of conditions, including that certain operating
parameters continue to be met with respect to the assets being
sold, receipt of the approval of the Federal Communications
Commission and certain other closing conditions typical for
transactions of this type. Loral expects to use most of the
proceeds from the sale of the assets to repay its outstanding
secured bank debt. The Chapter 11 Cases will enable the
Sellers to sell the North American satellites to the Purchasers
free and clear of any interests. There can be no assurance,
however, that the transactions contemplated by the Asset
Purchase Agreement will be consummated. The net book value of
the satellites to be sold was approximately $805 million
and the other net assets of the disposal group was approximately
$9 million as of September 30, 2003. The net assets to
be sold, as well as the results of operations relating to such
net assets, have not been segregated in the accompanying
financial statements.

As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization,
certain of Lorals prepetition debt obligations
(aggregating approximately $2.1 billion at
September 30, 2003) have been accelerated and are
immediately due and Lorals other prepetition debt
obligations of $93 million at September 30, 2003 are
subject to acceleration (see below and Note 10). On
July 15, 2003, Loral failed to make interest payments of
$16.6 million on its 9.50% Senior Notes due 2006, and Loral
Orion failed to make interest payments of $30.6 million on
its 10% Senior Notes due 2006, $2.1 million on its 11.25%
Senior Notes due 2007 and $3.1 million on its 12.50% Senior
Notes due 2007. A creditors committee has been appointed
in the Chapter 11 Cases to represent all unsecured
creditors, including all holders of Lorals and Loral
Orions senior unsecured notes, and, in accordance with the
provisions of the Bankruptcy Code, will have the right to be
heard on all matters that come before the Bankruptcy Court.

As provided by the Bankruptcy Code, Loral and its
Debtor Subsidiaries have the exclusive right to submit their
plan or plans of reorganization for 120 days from the date
of the filing of the voluntary petitions. On November 12,
2003, the Bankruptcy Court extended this exclusive period to
March 12, 2004. Further extension may be sought and may be
granted or rejected by the Bankruptcy Court. If Loral and its
Debtor Subsidiaries fail to file their plan or plans of
reorganization during such period, or if such plan or plans is
not accepted by the required number of creditors and equity
holders within the required period, any party in interest may
subsequently file its own plan or plans of reorganization for
Loral and its Debtor Subsidiaries. A plan of reorganization must
be confirmed by the Bankruptcy Court, upon certain findings
being made by the Bankruptcy Court which are required by the
Bankruptcy Code. The Bankruptcy Court may confirm a plan of
reorganization notwithstanding an objection to the plan by an
impaired class of creditors or equity holders if certain
requirements of the Bankruptcy Code are met. Although Loral and
its Debtor Subsidiaries expect to file a reorganization plan or
plans that provide for emergence from bankruptcy sometime during
2004, there can be no assurance that a reorganization plan or
plans will be proposed by Loral and its Debtor Subsidiaries or
confirmed by the Bankruptcy Court or that any such plan will be
consummated.

During the pendency of the Chapter 11 Cases,
Lorals business will be subject to risks and uncertainties
relating to the Chapter 11 Cases. For example, the
Chapter 11 Cases could adversely affect relationships with
Lorals customers, suppliers and employees, which could
adversely affect the going concern value of the business and of
its assets, particularly if the Chapter 11 Cases are
protracted. Also, transactions outside the

5



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ordinary course of business will be subject to
the prior approval of the Bankruptcy Court which may limit
Lorals ability to respond to certain market events or take
advantage of certain market opportunities, and, as a result,
Lorals operations could be materially adversely affected.

As a result of the commencement of the
Chapter 11 Cases, the pursuit of all pending claims and
litigation against Loral and its Debtor Subsidiaries arising
prior to or relating to events which occurred prior to the
commencement of the Chapter 11 Cases is generally subject
to an automatic stay under Section 362 of the Bankruptcy
Code, and, absent further order of the Bankruptcy Court, no
party may take any action to recover any prepetition claims,
enforce any lien against or obtain possession of any property
from Loral or its Debtor Subsidiaries. In addition, pursuant to
Section 365 of the Bankruptcy Code, Loral and its Debtor
Subsidiaries may reject or assume prepetition executory
contracts and unexpired leases, and parties affected by
rejections of these contracts or leases may file claims with the
Bankruptcy Court which will be addressed in the context of the
Chapter 11 Cases.

On July 15, 2003, the New York Stock
Exchange (NYSE) suspended trading of Lorals
common stock and removed Lorals securities from listing
and registration on September 2, 2003. Lorals common
stock is being quoted under the ticker symbol LRLSQ on the Pink
Sheets Electronic Quotation Service and on the Over-The-Counter
Bulletin Board service. The Company anticipates that, in any
plan of reorganization ultimately confirmed by the Bankruptcy
Court, the common and preferred stock of the Company will, at
best, be severely diluted and may be eliminated entirely, with
the result that common and preferred stockholders could receive
no distribution.

In September 2003, Lorals Telstar 4
satellite experienced a short circuit of its high voltage bus
causing the satellite to cease operations. Loral has been unable
to reestablish contact with the satellite and has declared the
satellite a total loss. At the time of the satellites
failure, Loral initiated a comprehensive restoration plan that
has provided capacity to nearly all Telstar 4 customers on
other Loral satellites. Loral and Lockheed Martin, the
manufacturer of the satellite, continue to work to identify the
cause of the failure of the high voltage bus. The satellite is
insured for $141 million, for which the agent for secured
lenders of Loral SpaceCom is named as the loss payee on the
insurance policy. During October 2003, Loral filed the proof of
loss with the insurance underwriters. Under Lorals
agreement to sell its North American satellites discussed above,
the purchase price will be reduced by any insurance proceeds
received for Telstar 4 by Loral, net of any payments by
Loral to customers for warranty claims. As previously planned,
Loral expects to replace Telstar 4 at 89 degrees West
in mid-2004 with the larger and more powerful Telstar 8
satellite currently under construction. Of the $141 million
of insurance proceeds that the Company expects to receive, a
receivable for insurance proceeds for Telstar 4 of
$123 million was recorded at September 30, 2003,
primarily representing the carrying value of Telstar 4 and
the estimated costs of warranty obligations to customers
directly associated with the failure of Telstar 4. Any gain
to be recorded for the difference between the receivable of
$123 million for insurance proceeds and the insurance
policy value of $141 million will be recorded upon approval
for payment by the insurance underwriters and a full release by
Loral of the satisfaction of the claim. As of September 30,
2003, customer cancellations resulting from the failure of
Telstar 4 have reduced the future minimum lease receipts
due from customers under long-term operating leases for
transponder capacity by approximately $47 million.

6



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The accompanying condensed consolidated financial
statements have been prepared assuming the Company in its
current structure will continue as a going concern. The factors
mentioned in Note 2 above, however, among other things,
raise substantial doubt about Lorals ability to continue
as a going concern. The condensed consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty. The ability of the Company to
continue as a going concern is dependent on a number of factors
including, but not limited to, the Companys development of
a plan of reorganization, confirmation of the plan by the
Bankruptcy Court, customer and employee retention and the
Companys ability to continue to provide high quality
services. If a plan of reorganization is not confirmed and
implemented, the Company may be forced to liquidate under
applicable provisions of the Bankruptcy Code. There can be no
assurance of the level of recovery that the Companys
creditors would receive in such liquidation. The condensed
consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities if the Company is forced to liquidate.

During 2002 and the nine months ended
September 30, 2003, Loral took a number of steps to
conserve cash on hand by reducing its operating expenses,
suspending payment of cash dividends on its preferred stock and
closely monitoring capital expenditures. In addition, in October
2003, SS/L received three new satellite orders from existing
customers. In connection with these orders, the Bankruptcy Court
approved binding authorizations to proceed for their
construction and SS/L received advance payments of
$75 million. In addition, in connection with contract
negotiations on a nearly completed satellite, the customer
increased the total contract value for the construction by
$25 million, for which SS/L received payment in November
2003. As a result of these recent events, Loral believes that it
currently has adequate cash on hand and cash flow from
operations to continue normal operations and customer support
beyond September 30, 2004.

The condensed consolidated financial statements
have been prepared pursuant to the rules of the Securities and
Exchange Commission (SEC) and, in the opinion of the
Company, include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of results of
operations, financial position and cash flows as of and for the
periods presented. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the U.S. have
been condensed or omitted pursuant to SEC rules. The Company
believes that the disclosures made are adequate to keep the
information presented from being misleading. The results of
operations for the three and nine months ended
September 30, 2003 are not necessarily indicative of the
results to be expected for the full year. The December 31,
2002 balance sheet has been derived from the audited
consolidated financial statements at that date. It is suggested
that these condensed consolidated financial statements be read
in conjunction with the audited consolidated financial
statements and notes thereto of Loral included in Lorals
latest Annual Report on Form 10-K.

The condensed consolidated financial statements
have been prepared in accordance with Statement of Position
No. 90-7, Financial Reporting by Entities in Reorganization
under the Bankruptcy Code (SOP 90-7).
SOP 90-7 requires an entity to distinguish prepetition
liabilities subject to compromise from postpetition liabilities
in the Companys condensed consolidated balance sheet. The
caption liabilities subject to compromise reflects
the Companys best current estimate of the amount of
prepetition claims that will be restructured in Lorals and
its Debtor Subsidiaries Chapter 11 Cases. In
addition, the Companys condensed consolidated statement of
operations portrays the results of operations of the reporting
entity during Chapter 11 proceedings. As a result, any
revenue, expenses, realized gains and losses, and provision for
losses resulting directly from the reorganization and
restructuring of the organization are reported separately as
reorganization items, except those required to be reported as
discontinued operations and extraordinary items

7



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

in conformity with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(SFAS 144) and SFAS No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections (SFAS
145). The Company did not prepare condensed combined
financial statements for Loral and the Debtor Subsidiaries,
since the subsidiaries that did not file voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code were
immaterial to the Companys consolidated financial position
and results of operations. In accordance with SOP 90-7, the
Company stopped accruing interest expense on its liabilities
subsequent to July 14, 2003, except for its debt
obligations to the banks.

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



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

At December 31, 2002, Loral recorded a 100%
valuation allowance against its domestic net deferred tax assets
under the criteria of SFAS No. 109, Accounting for Income
Taxes. During 2003, Loral continued to maintain the 100%
valuation allowance and recorded no benefit for its domestic
loss. The provision for 2003 is primarily state, local and
foreign income taxes and a deferred tax liability recorded for
certain foreign entities while for 2002 the Company also
included a benefit for its domestic loss.



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

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



|   |            
|-- | -----------
|4. | Restatement

Prior to the first quarter of 2003, management
evaluated the financial performance of the satellite
manufacturing and technology segment in accordance with
accounting principles applicable to government contracts,
whereby all costs incurred, including general and administrative
expenses (G&A), were allocated to programs.
G&A can be capitalized on government contracts, in
accordance with the AICPA Audit and Accounting Guide, Audits of
Federal Government Contractors; however, U.S. generally accepted
accounting principles require that G&A on non-government
contracts be expensed in the period incurred. The required
adjustment to conform to U.S. generally accepted accounting
principles for commercial contracts and self-constructed assets
was reflected in consolidation eliminations. Subsequent to the
filing of the Companys September 30, 2002
Form 10-Q, the Company determined that it had miscalculated
this adjustment in its eliminations and has restated its
reported results for the second and third quarters of 2002 to
reflect the correct

8



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

amounts. The following is a summary of the
significant effects of the restatement (in thousands, except per
share amounts):

|                                                                                                                                  |                                                                |                    |         |                    |   |            |         |          |   |   |            |        |   |   |            |        |  
|--------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------ | ------- | ------------------ | - | ---------- | ------- | -------- | - | - | ---------- | ------ | - | - | ---------- | ------ | -
|                                                                                                                                  |                                                                |                    |         |                   
|                                                                                                                                  |                                                                | Three Months Ended |         | Nine Months Ended 
|                                                                                                                                  |                                                                | September 30, 2002 |         | September 30, 2002
|                                                                                                                                  |                                                                |                    |         |                   
|                                                                                                                                  |                                                                | Previously         |         | As                 |   | Previously |         | As      
|                                                                                                                                  |                                                                | Reported           |         | Restated           |   | Reported   |         | Restated
|                                                                                                                                  |                                                                |                    |         |                    |   |            |         |         
|Total revenues                                                                                                                    |                                                                | $                  | 210,982 |                    |   | $          | 210,982 |          |   | $ | 835,518    |        |   | $ | 835,518    |       
|Cost of satellite sales                                                                                                           |                                                                |                    | 117,388 |                    |   |            | 124,647 |          |   |   | 497,673    |        |   |   | 513,965    |       
|Operating income (loss)                                                                                                           |                                                                |                    | (8,546  | )                  |   |            | (15,805 | )        |   |   | 23,867     |        |   |   | 7,575      |       
|Income tax benefit (provision)                                                                                                    |                                                                |                    | 4,727   |                    |   |            | 7,685   |          |   |   | (8,525     | )      |   |   | (1,886     | )     
|Loss before equity in net losses of affiliates,
    minority interest and cumulative effect of change in accounting
    principle |                                                                |                    | (22,253 | )                  |   |            | (26,554 | )        |   |   | (30,186    | )      |   |   | (39,839    | )     
|Equity in net losses of affiliates, net of taxes                                                                                  |                                                                |                    | (21,306 | )                  |   |            | (22,009 | )        |   |   | (49,900    | )      |   |   | (51,159    | )     
|Loss before cumulative effect of change in
    accounting principle                                                               |                                                                |                    | (43,708 | )                  |   |            | (48,712 | )        |   |   | (80,229    | )      |   |   | (91,141    | )     
|Cumulative effect of change in accounting
    principle, net of taxes                                                             |                                                                |                    |        |                    |   |            |        |          |   |   | (876,500   | )      |   |   | (876,500   | )     
|Net loss applicable to common shareholders                                                                                        |                                                                |                    | (52,315 | )                  |   |            | (57,319 | )        |   |   | (1,024,109 | )      |   |   | (1,035,021 | )     
|Loss per share:                                                                                                                   |                                                                |                    |         |                    |   |            |         |          |   |   |            |        |   |   |            |       
|                                                                                                                                  | Before cumulative effect of change in accounting
    principle |                    | $       | (1.40              | ) |            | $       | (1.53    | ) |   | $          | (4.14  | ) |   | $          | (4.45  | )
|                                                                                                                                  | Cumulative effect of change in accounting
    principle        |                    |         |                   |   |            |         |         |   |   |            | (24.60 | ) |   |            | (24.60 | )
|                                                                                                                                  |                                                                |                    |         |                    |   |            |         |          |   |   |            |        |   |   |            |       
|                                                                                                                                  | Loss per share                                                 |                    | $       | (1.40              | ) |            | $       | (1.53    | ) |   | $          | (28.74 | ) |   | $          | (29.05 | )
|                                                                                                                                  |                                                                |                    |         |                    |   |            |         |          |   |   |            |        |   |   |            |       



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

In accordance with SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and
Disclosure (SFAS 148), an amendment of
SFAS 123, presented below are the pro forma results as if
the Company applied the fair value based method of accounting
for stock-based employee compensation. Under SFAS 123, the
fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such
models were developed to estimate the fair value of freely
tradable, fully transferable options without vesting
restrictions, which significantly differ from the Companys
stock option awards. These models also require subjective
assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated
values. The Companys calculations were made using the
Black-Scholes option pricing model with the following weighted
average assumptions: expected life, six to twelve months
following vesting; stock volatility, 90%; risk free interest
rate, 2.4% to 6.6% based on date of grant; and no dividends
during the expected term. The Companys calculations are
based on a multiple option valuation approach and forfeitures
are recognized as they occur. The following table summarizes
what the

9



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                                                                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---- | ----- | ----------- |  | - | ------ | - |  | - | -------- | -
|                                                                                                                                                                         |  |                    |        |                  
|                                                                                                                                                                         |  | Three Months Ended |        | Nine Months Ended
|                                                                                                                                                                         |  | September 30,      |        | September 30,    
|                                                                                                                                                                         |  |                    |        |                  
|                                                                                                                                                                         |  | 2003               |        | 2002              |  | 2003 |       | 2002       
|                                                                                                                                                                         |  |                    |        |                   |  |      |       |            
|                                                                                                                                                                         |  |                    |        | As Restated       |  |      |       | As Restated
|Reported loss before cumulative effect of change
    in accounting principle and extraordinary gain on acquisition of
    minority interest                              |  | $                  | (125.9 | )                 |  | $    | (48.7 | )           |  | $ | (283.5 | ) |  | $ | (91.1    | )
|Add: Total stock based compensation charged to
    operations under the intrinsic value method, net of taxes                                                             |  |                    |       |                   |  |      |      |             |  |   |       |   |  |   | 0.6      |  
|Less: Total stock based employee compensation
    determined under the fair value method for all awards, net of
    taxes                                                |  |                    | (1.7   | )                 |  |      | (2.2  | )           |  |   | (4.0   | ) |  |   | (7.2     | )
|                                                                                                                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |          |  
|Pro forma loss before cumulative effect of change
    in accounting principle and extraordinary gain on acquisition of
    minority interest                             |  |                    | (127.6 | )                 |  |      | (50.9 | )           |  |   | (287.5 | ) |  |   | (97.7    | )
|Cumulative effect of change in accounting
    principle, net of taxes                                                                                                    |  |                    | (2.0   | )                 |  |      |      |             |  |   | (2.0   | ) |  |   | (876.5   | )
|Extraordinary gain on acquisition of minority
    interest, net of taxes                                                                                                 |  |                    |       |                   |  |      |      |             |  |   | 13.6   |   |  |   |         |  
|                                                                                                                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |          |  
|Pro forma net loss                                                                                                                                                       |  |                    | (129.6 | )                 |  |      | (50.9 | )           |  |   | (275.9 | ) |  |   | (974.2   | )
|Preferred dividends                                                                                                                                                      |  |                    |       |                   |  |      | (8.6  | )           |  |   | (6.7   | ) |  |   | (67.4    | )
|                                                                                                                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |          |  
|Pro forma net loss applicable to common
    shareholders                                                                                                                 |  | $                  | (129.6 | )                 |  | $    | (59.5 | )           |  | $ | (282.6 | ) |  | $ | (1,041.6 | )
|                                                                                                                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |          |  
|Reported basic and diluted loss per share before
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest  |  | $                  | (2.86  | )                 |  | $    | (1.53 | )           |  | $ | (6.64  | ) |  | $ | (4.45    | )
|Pro forma basic and diluted loss per share before
    cumulative effect of change in accounting principle and
    extraordinary gain on acquisition of minority interest |  | $                  | (2.89  | )                 |  | $    | (1.59 | )           |  | $ | (6.73  | ) |  | $ | (4.63    | )
|Reported loss per share applicable to common
    shareholders                                                                                                            |  | $                  | (2.90  | )                 |  | $    | (1.53 | )           |  | $ | (6.37  | ) |  | $ | (29.05   | )
|Pro forma loss per share applicable to common
    shareholders                                                                                                           |  | $                  | (2.94  | )                 |  | $    | (1.59 | )           |  | $ | (6.46  | ) |  | $ | (29.23   | )

10



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

|                                                                             |                                                                                                                                          |                    |          |                   |   |      |         |             |   |   |          |      |   |   |          |      |  
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | -------- | ----------------- | - | ---- | ------- | ----------- | - | - | -------- | ---- | - | - | -------- | ---- | -
|                                                                             |                                                                                                                                          |                    |          |                  
|                                                                             |                                                                                                                                          | Three Months Ended |          | Nine Months Ended
|                                                                             |                                                                                                                                          | September 30,      |          | September 30,    
|                                                                             |                                                                                                                                          |                    |          |                  
|                                                                             |                                                                                                                                          | 2003               |          | 2002              |   | 2003 |         | 2002       
|                                                                             |                                                                                                                                          |                    |          |                   |   |      |         |            
|                                                                             |                                                                                                                                          |                    |          | As Restated       |   |      |         | As Restated
|Net loss                                                                     |                                                                                                                                          | $                  | (127,879 | )                 |   | $    | (48,712 | )           |   | $ | (271,842 | )    |   | $ | (967,641 | )   
|Cumulative translation adjustment                                            |                                                                                                                                          |                    | 278      |                   |   |      | 131     |             |   |   | 704      |      |   |   | 219      |     
|Unrealized gains (losses) on
    available-for-sale securities, net of taxes |                                                                                                                                          |                    | 20,107   |                   |   |      | (12,974 | )           |   |   | 17,594   |      |   |   | (11,458  | )   
|Foreign currency hedging:                                                    |                                                                                                                                          |                    |          |                   |   |      |         |             |   |   |          |      |   |   |          |     
|                                                                             | Net increase (decrease) in foreign currency
    exchange contracts                                                                       |                    |          | 415               |   |      |         | 872         |   |   |          | 868  |   |   |          | (407 | )
|                                                                             | Reclassifications into revenue and cost of sales
    from other comprehensive income                                                     |                    |          | (604              | ) |      |         | (1,041      | ) |   |          | (222 | ) |   |          | (541 | )
|                                                                             | Reclassifications into interest expense from
    other comprehensive income for anticipated transactions that are
    no longer probable |                    |          | (99               | ) |      |         |            |   |   |          | (602 | ) |   |          |     |  
|                                                                             |                                                                                                                                          |                    |          |                   |   |      |         |             |   |   |          |      |   |   |          |     
|Comprehensive loss                                                           |                                                                                                                                          | $                  | (107,782 | )                 |   | $    | (61,724 | )           |   | $ | (253,500 | )    |   | $ | (979,828 | )   
|                                                                             |                                                                                                                                          |                    |          |                   |   |      |         |             |   |   |          |      |   |   |          |     



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

|                     |  |                |        |              |  |   |         | 
|-------------------- |  | -------------- | ------ | ------------ |  | - | ------- | 
|                     |  | September 30,  |        | December 31,
|                     |  | 2003           |        | 2002        
|                     |  |                |        |             
|                     |  |               
|                     |  | (In thousands)
|Amounts billed       |  | $              | 41,386 |              |  | $ | 63,737  | 
|Unbilled receivables |  |                | 33,148 |              |  |   | 49,417  | 
|                     |  |                |        |              |  |   |         | 
|                     |  | $              | 74,534 |              |  | $ | 113,154 | 
|                     |  |                |        |              |  |   |         | 

Unbilled amounts include recoverable costs and
accrued profit on progress completed, which have not been
billed. Such amounts are billed in accordance with the contract
terms, typically upon shipment of the product, achievement of
contractual milestones, or completion of the contract and, at
such time, are reclassified to billed receivables.

Upon filing Chapter 11, SS/Ls hedges
with counterparties (primarily yen denominated forward
contracts) were cancelled leaving SS/L vulnerable to foreign
currency fluctuations in the future. The inability to enter into
forward contracts exposes SS/Ls future revenues, costs and
cash associated with anticipated yen denominated receipts and
payments to currency fluctuations. As of September 30,
2003, SS/L had the following amounts denominated in Japanese Yen
that were unhedged (in millions):

|                     |  |              |       |        |  |   |      | 
|-------------------- |  | ------------ | ----- | ------ |  | - | ---- | 
|                     |  | Japanese Yen |       | U.S. $
|                     |  |              |       |       
|Future revenues      |  | ¥            | 3,283 |        |  | $ | 29.6 | 
|Future expenditures  |  |              | 1,193 |        |  |   | 10.8 | 
|Unbilled receivables |  |              | 2,272 |        |  |   | 20.5 | 

11



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

|                          |                                                                            |               |        |              |  |   |        |        | 
|------------------------- | -------------------------------------------------------------------------- | ------------- | ------ | ------------ |  | - | ------ | ------ | 
|                          |                                                                            | September 30, |        | December 31,
|                          |                                                                            | 2003          |        | 2002        
|                          |                                                                            |               |        |             
|Satmex equity investments |                                                                            | $             |       |              |  | $ | 50,761 |       
|XTAR equity investments   |                                                                            |               | 38,281 |              |  |   | 24,575 |       
|Globalstar:               |                                                                            |               |        |              |  |   |        |       
|                          | Acquired notes and loans ($630 million
    principal and accrued interest) |               |        | 37,701       |  |   |        | 20,107 | 
|                          | Vendor financing ($250 million principal and
    accrued interest)         |               |        |             |  |   |        |       | 
|                          |                                                                            |               |        |              |  |   |        |       
|                          |                                                                            | $             | 75,982 |              |  | $ | 95,443 |       
|                          |                                                                            |               |        |              |  |   |        |       

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

|                                                            |  |                    |         |                   |  |      |         |             |  |   |         |   |  |   |         |  
|----------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ----------- |  | - | ------- | - |  | - | ------- | -
|                                                            |  |                    |         |                  
|                                                            |  | Three Months Ended |         | Nine Months Ended
|                                                            |  | September 30,      |         | September 30,    
|                                                            |  |                    |         |                  
|                                                            |  | 2003               |         | 2002              |  | 2003 |         | 2002       
|                                                            |  |                    |         |                   |  |      |         |            
|                                                            |  |                    |         | As Restated       |  |      |         | As Restated
|Satmex                                                      |  | $                  | (38,357 | )                 |  | $    | (6,033  | )           |  | $ | (51,691 | ) |  | $ | (17,066 | )
|XTAR                                                        |  |                    | (708    | )                 |  |      | (630    | )           |  |   | (4,860  | ) |  |   | (1,722  | )
|Europe*Star                                                 |  |                    |        |                   |  |      | (15,547 | )           |  |   |        |   |  |   | (29,230 | )
|Globalstar and Globalstar service provider
    partnerships |  |                    | 257     |                   |  |      | 201     |             |  |   | 905     |   |  |   | (3,141  | )
|                                                            |  |                    |         |                   |  |      |         |             |  |   |         |   |  |   |         |  
|                                                            |  | $                  | (38,808 | )                 |  | $    | (22,009 | )           |  | $ | (55,646 | ) |  | $ | (51,159 | )
|                                                            |  |                    |         |                   |  |      |         |             |  |   |         |   |  |   |         |  

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

|                                                                                                           |  |                    |        |                   |  |      |        |             |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ----------- |  | - | ------ | - |  | - | ------ | -
|                                                                                                           |  |                    |        |                  
|                                                                                                           |  | Three Months Ended |        | Nine Months Ended
|                                                                                                           |  | September 30,      |        | September 30,    
|                                                                                                           |  |                    |        |                  
|                                                                                                           |  | 2003               |        | 2002              |  | 2003 |        | 2002       
|                                                                                                           |  |                    |        |                   |  |      |        |            
|                                                                                                           |  |                    |        | As Restated       |  |      |        | As Restated
|Revenues                                                                                                   |  | $                  | (4,914 | )                 |  | $    | 19,980 |             |  | $ | 19,020 |   |  | $ | 70,569 |  
|Investment income                                                                                          |  |                    | 297    |                   |  |      | 294    |             |  |   | 886    |   |  |   | 882    |  
|Interest expense capitalized on development stage
    enterprise                                           |  |                    |       |                   |  |      | 447    |             |  |   | 428    |   |  |   | 844    |  
|Profits relating to affiliate transactions not
    eliminated, net of taxes                                |  |                    | (499   | )                 |  |      | 1,857  |             |  |   | 1,789  |   |  |   | 4,465  |  
|Elimination of Lorals proportionate share
    of profits relating to affiliate transactions, net of taxes |  |                    | 374    |                   |  |      | (1,900 | )           |  |   | (2,440 | ) |  |   | (4,539 | )
|Amortization of deferred credit and profits
    relating to investments in affiliates                      |  |                    | 261    |                   |  |      | 127    |             |  |   | 784    |   |  |   | 381    |  



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

In order to fund the construction, insurance and
launch of Satmex 6, Satmex is pursuing export credit agency
financings and is working on a proposed private placement of
$80 million aggregate principal amount of secured notes,
which are expected to yield $70 million in net proceeds to
Satmex net of original issue

12



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

discount. In addition to funding Satmex 6, these
financings would replace Satmexs existing floating rate
notes. These financings, however, are subject to, among other
things, the extension of Satmexs 2004 debt maturities on
its high yield bonds. Satmex is in discussions with an ad hoc
committee of holders of its high yield bonds regarding such
extensions, but has not yet reached any agreement with the
committee.

To conserve cash, Satmex did not make the
August 1, 2003 interest payment of $16.2 million on
its high yield bonds and is currently in default. Although
Satmex is current on interest due on its floating rate notes,
the default on its high yield bonds triggered a cross-default
provision under the indenture for its existing floating rate
notes. In addition, on September 30, 2003, an additional
default occurred under Satmexs existing floating rate
notes as a result of its failure to complete financings by such
date. Satmexs parent company, Servicios, defaulted on the
Government Obligation on September 30, 2003, as a result of
its failure to maintain a minimum coverage ratio, which in turn
caused another cross-default on the existing floating rate
notes. The occurrence of the events of default under each of the
high yield bonds and the existing floating rate notes gives the
holders of such notes the right to accelerate Satmexs
principal repayment obligations on such notes. Should this
occur, Satmex may seek to reorganize under either
Chapter 11 of the United States Bankruptcy Code or Mexican
reorganization law or both.

Although Satmex has made progress in completing
its proposed financing transactions, if it is unable to do so,
it will not have sufficient liquidity to complete the launch of
Satmex 6 or service all its debt. In that case, Satmex may seek
to reorganize under either Chapter 11 of the United States
Bankruptcy Code or Mexican reorganization law or both. As a
result of these recent events, under U.S. generally accepted
accounting principles, Loral wrote-off its investment in Satmex
of $29 million (as an increase to its equity loss) in the
third quarter of 2003. Accordingly, there is no longer any
requirement for Loral to provide for its allocated share of
Satmexs net losses subsequent to September 30, 2003. In
addition, Loral recorded reserves against receivables and
estimated contract revenues from Satmex resulting in an
aggregate charge of $11 million during the third quarter of
2003 (which primarily represents long-term receivables). Such
reserves will be re-evaluated pending the outcome of
Satmexs liquidity concerns or the receipt of payment by
the Company.

The following table presents summary statement of
operations data of Satmex (in thousands):

|                                           |  |                    |         |                   |  |      |        |      |  |   |         |   |  |   |         |  
|------------------------------------------ |  | ------------------ | ------- | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                           |  |                    |         |                  
|                                           |  | Three Months Ended |         | Nine Months Ended
|                                           |  | September 30,      |         | September 30,    
|                                           |  |                    |         |                  
|                                           |  | 2003               |         | 2002              |  | 2003 |        | 2002
|                                           |  |                    |         |                   |  |      |        |     
|Statement of operations data:              |  |                    |         |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Revenues                                   |  | $                  | 19,024  |                   |  | $    | 19,424 |      |  | $ | 59,212  |   |  | $ | 62,433  |  
|Operating loss                             |  |                    | (2,169  | )                 |  |      | (1,222 | )    |  |   | (4,244  | ) |  |   | (755    | )
|Net loss                                   |  |                    | (15,354 | )                 |  |      | (4,197 | )    |  |   | (29,258 | ) |  |   | (11,937 | )
|Net loss applicable to common shareholders |  |                    | (15,731 | )                 |  |      | (4,574 | )    |  |   | (30,389 | ) |  |   | (13,068 | )



| |     
| | ----
| | XTAR

XTAR, L.L.C. (XTAR), a joint venture
between Loral and Hisdesat Servicios Estrategicos, S.A.
(Hisdesat), a consortium comprised of leading
Spanish telecommunications companies, including Hispasat, S.A.,
and agencies of the Spanish government, plans to construct and
launch an X-band satellite to provide X-band services to
government users in the United States and Spain, as well as
other friendly and allied nations. XTAR is owned 56% by Loral
(accounted for under the equity method since the Company does
not control certain significant operating decisions) and 44% by
Hisdesat. In addition, XTAR has agreed to lease certain
transponders on the Spainsat satellite, which is being
constructed by SS/L for Hisdesat. As of September 30, 2003,
the partners in proportion to their respective ownership
interests have contributed $55 million to XTAR.

13



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Due to uncertainties regarding XTARs
ability to raise funds necessary to complete and launch its
satellite, Loral stopped recognizing revenues and profits
associated with the construction of the satellite as of
April 1, 2003, and has treated the unpaid costs incurred
during the second and third quarters of 2003 associated with
such satellite (aggregating $18 million) as an increase to
Lorals investment account balance. In October 2003,
Loral and Hisdesat entered into an agreement (the
Contribution Agreement) to contribute over time an
additional $25.4 million and $20.0 million,
respectively, into XTAR, such agreement to go into effect upon
SS/ L and Hisdesat reaching an agreement as to certain
amendments to the satellite construction contract between XTAR
and SS/ L. Lorals contribution will be effected through
the cancellation of amounts owed under XTARs satellite
construction contract with SS/ L while Hisdesats
contribution will be made in cash. The proceeds from
Hisdesats capital contributions will be largely used to
fund the remaining amounts due under the satellite construction
contract. In September 2003, XTAR entered into a Launch
Services Agreement with Arianespace, S.A. providing for launch
of its satellite on Arianespaces return to flight launch
vehicle. Arianespace has agreed to provide a one-year loan for a
portion of the launch price, which loan is secured by certain of
XTARs assets, including the satellite, ground equipment
and rights to the orbital slot. The remainder of the launch
price consists of a revenue-based fee to be paid over time
following commencement of operations by XTAR. While the cost of
satellite construction and launch have been addressed by the
above two transactions, XTAR still requires additional funds to
insure its satellite and fund its operations. XTAR is seeking
such funds through vendor and other third-party financings. If
XTAR is unable to raise such funds, the Companys
investment in XTAR of $38 million at September 30,
2003, and any additional investment effected as a result of the
Contribution Agreement, would be adversely affected. Moreover,
if XTAR is unable to repay the Arianespace loan when due,
Arianespace will have the right to foreclose on the XTAR assets
pledged as collateral, which will also adversely affect the
Companys investment in XTAR.



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

The Company accounts for its investment in
Globalstar, L.P.s (Globalstar)
$500 million credit facility at fair value, with changes in
the value (net of taxes) recorded as a component of other
comprehensive loss.

During the second quarter of 2002, the Company
recorded a $9 million charge to equity in net losses of
affiliates relating to liabilities it had guaranteed in
connection with a Globalstar service provider partnership.

In connection with recording its share of
Globalstars operating losses in 2000, the Company recorded
as a charge to equity in net losses of affiliates
$22.3 million representing the estimated probable
uncollectible costs relating to subcontractor obligations to be
incurred by the Company on Globalstars behalf. In the
second quarter of 2002, the Company recovered a claim from a
vendor on the Globalstar program. Of this recovery,
$14 million ($8 million after taxes) is reflected in
the statement of operations as equity income related to
Globalstar, which, when combined with the recovery of
$8.5 million ($5.5 million, after taxes) recorded in
2001, fully offset the probable uncollectible costs originally
recorded.

On April 8, 2003, Loral signed a settlement
and release agreement with Globalstar and Globalstars
official creditors committee to resolve certain issues related
to Globalstar and Globalstars restructuring (the
Settlement). The Settlement was approved on
April 14, 2003 by the Bankruptcy Court (the
Globalstar Court) and closed on July 10, 2003.
Among other things, the Settlement provided that Globalstar
grants to Loral, subject to certain conditions, a general
release of all claims Globalstar might have against Loral;
approximately 50% of Lorals unsecured claims against
Globalstar are allowed, or approximately $438 million; and
the debt owed to Globalstar by three foreign service providers,
in which Loral has a substantial equity interest (Globalstar do
Brasil, Globalstar de Mexico and GlobalTel), of an aggregate of
$5.5 million has been set off against amounts otherwise due
to Loral from the Globalstar Canadian service providers. In
consideration, Loral has transferred to Globalstar eight spare
satellites ordered by Globalstar but not fully paid for; certain
agreements relating to a joint venture in which Loral is a
participant and that provided the joint

14



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

venture with exclusivity in marketing certain
Globalstar services in the U.S. have been terminated, with a new
joint venture formed between Globalstar (75%) and Loral (25%),
which is under the management and control of Globalstar, to be
the exclusive reseller of Globalstar encrypted, end-to-end
services to certain governmental agencies in the U.S. and
non-exclusively to other customers in the U.S.; the FCC license
authorizing the Globalstar service, which in any event was being
held by a joint venture in which Loral is a participant for the
exclusive benefit of Globalstar, will be transferred to
Globalstar; Lorals equity interest in the Globalstar
Canadian service providers has been transferred to Globalstar; a
$11.5 million obligation of the Canadian service providers
owed to Loral has been reduced by $5.5 million (described
above) and the remaining debt obligation has been converted from
a demand note into two five-year term notes of $4.4 million
and $1.6 million, respectively; Lorals unsecured
claims against Globalstar will be reduced by approximately 50%
or approximately $438 million when Globalstar emerges from
bankruptcy; the unused prepayment ($2,260,000) on a Globalstar
contract under which there is a stop work order has been
returned to Globalstar by Loral; a $250,000 termination fee that
may come due under that contract has been waived; Loral will
cooperate toward a reorganization of Globalstar; and the Loral
employees on Globalstars management committee have
resigned. Loral does not expect any material impact on its
results of operations or financial position as a result of this
Settlement.

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

On April 28, 2003, Globalstar and ICO Global
Communications (Holdings) Limited (ICO) received
Court approval for ICO to acquire a majority interest in a
reorganized Globalstar. The Court approved the sale of
Globalstars assets to a new company to be controlled by
ICO in exchange for an investment of $55 million for which
ICO would have received a 54% equity stake in the new operating
company. Globalstars transaction with ICO was subject to a
number of material closing conditions, and, in
October 2003, ICO informed Globalstar that it had
determined that certain of the conditions were unlikely to be
satisfied, and, accordingly, the transaction was unlikely to
close. Globalstar is now in the process of seeking other
investors to purchase its assets and has had discussions with
several parties including Thermo Capital Partners and the New
Valley Group both of whom had previously made proposals to enter
into a transaction with Globalstar. In filings with the Court,
Globalstar has described its current bidding process, and has
stated that, if it is unable to find another investor by
November 20, 2003, it will commence an orderly liquidation
on November 21, 2003. There can be no assurance that
Globalstar will be successful in finding one or more other
investors, that Globalstar and its creditors will be able to
reach an agreement with any interested investors, that any
proposed plan of reorganization for Globalstar will be approved
by the Court, that Globalstar will be successfully reorganized
or, if successfully reorganized, what percentage of the new
Globalstar Loral will receive, if any.



| |            
| | -----------
| | Europe*Star

In the fourth quarter of 2002, the Companys
investment in Europe*Star Limited (Europe*Star) was
reduced to zero. Accordingly, there is no longer any requirement
for Loral to provide for its allocated share of
Europe*Stars net losses subsequent to December 31,
2002. In addition, pursuant to the master settlement agreement
with Alcatel, on June 30, 2003, Loral transferred to
Alcatel its minority interest in Europe*Star (see Note 14).
Accordingly, Loral does not have access to any financial
information of Europe*Star subsequent to June 30, 2003.

15



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table presents summary statement of
operations data of Europe*Star (in thousands):

|                                    |  |               |         |                    |  |                    |         |   |  |   |         |  
|----------------------------------- |  | ------------- | ------- | ------------------ |  | ------------------ | ------- | - |  | - | ------- | -
|                                    |  | Six Months    |         | Three Months       |  | Nine Months       
|                                    |  | Ended         |         | Ended              |  | Ended             
|                                    |  | June 30, 2003 |         | September 30, 2002 |  | September 30, 2002
|                                    |  |               |         |                    |  |                   
|Statement of operations data:       |  |               |         |                    |  |                    |         |   |  |   |         |  
|Revenues                            |  | $             | 10,218  |                    |  | $                  | 3,915   |   |  | $ | 12,034  |  
|Operating loss                      |  |               | (7,376  | )                  |  |                    | (6,619  | ) |  |   | (19,302 | )
|Net loss                            |  |               | (31,080 | )                  |  |                    | (34,120 | ) |  |   | (62,901 | )
|Net loss applicable to shareholders |  |               | (31,080 | )                  |  |                    | (34,120 | ) |  |   | (62,901 | )

9.     Accounting for
Goodwill and Other Acquired Intangible Assets

On January 1, 2002, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets
(SFAS 142), which addresses the initial
recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for
goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with
finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives not be amortized, but
rather be tested at least annually for impairment. SFAS 142
also changed the evaluation criteria for testing goodwill for
impairment from an undiscounted cash flow approach, which was
previously utilized under the guidance in SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (SFAS 121)
and Accounting Principles Board Opinion No. 17, Intangible
Assets (APB 17), to a test based on fair value.
Fair value is determined by the amount at which an asset or
liability could be bought or sold in a current transaction
between willing parties, that is, other than in a forced or
liquidation sale. Quoted market prices in active markets are the
best evidence of fair value and must be used as the basis for
the measurement, if available. If quoted market prices are not
available, the estimate of fair value must be based on the best
information available, including prices for similar assets and
liabilities and the results of using other valuation techniques,
such as public company trading multiples, future discounted cash
flows and merger and acquisition transaction multiples.



| |         
| | --------
| | Goodwill

In accordance with SFAS 142, the
Companys previously recognized cost in excess of net
assets acquired (goodwill) of $892 million for
business acquisitions accounted for under the purchase method of
accounting completed prior to July 1, 2001, was reviewed
under the new transitional guidance as of January 1, 2002.
Goodwill had been previously assigned to the Companys
business segments as follows (based on the net book value at
December 31, 2001): FSS $606 million and satellite
manufacturing and technology $286 million. The Company
hired professionals in the valuation consulting business to
determine the fair value of each of the Companys reporting
units. Since there were no quoted market prices in active
markets for the Companys reporting units, the measurement
of fair value for each reporting unit was based on the best
information available for that reporting unit, including
reasonable and supportable assumptions and projections, as
follows: (1) FSS  public company trading
multiples and merger and acquisition transaction multiples and
(2) satellite manufacturing and technology 
future discounted cash flows. Based on the fair values concluded
on by those professionals, management determined that the
goodwill for each of the Companys reporting units under
the new guidance in SFAS 142 was fully impaired.
Accordingly, as of January 1, 2002, the Company recorded a
non-cash charge for the cumulative effect of the change in
accounting principle of $892 million before taxes
($877 million after taxes).

The charge is the result of a change in the
evaluation criteria for goodwill from an undiscounted cash flow
approach, which was previously utilized under the guidance in
SFAS 121 and APB 17, to the fair value approach which
is stipulated in SFAS 142.

16



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                     
| | ------------------------------------
| | Other Acquired Intangible
    Assets

The Company evaluated the useful lives of its
other acquired intangible assets in connection with the adoption
of SFAS 142 and determined that no changes to the useful
lives were necessary. Other acquired intangible assets are
included in other assets in the Companys condensed
consolidated balance sheets as follows (in millions):

|                              |       |                    |      |                   |  |        |       |              |   |   |      |      |  |   |       |       |  
|----------------------------- | ----- | ------------------ | ---- | ----------------- |  | ------ | ----- | ------------ | - | - | ---- | ---- |  | - | ----- | ----- | -
|                              |       |                    |      |                  
|                              |       | September 30, 2003 |      | December 31, 2002
|                              |       |                    |      |                  
|                              |       | Gross              |      | Accumulated       |  | Gross  |       | Accumulated 
|                              |       | Amount             |      | Amortization      |  | Amount |       | Amortization
|                              |       |                    |      |                   |  |        |       |             
|Satellite related intangibles |       | $                  | 40.7 |                   |  | $      | (22.6 | )            |   | $ | 40.7 |      |  | $ | (19.9 | )    
|Regulatory fees               |       |                    | 22.7 |                   |  |        | (5.8  | )            |   |   | 22.7 |      |  |   | (4.6  | )    
|Other intangibles             |       |                    | 13.0 |                   |  |        | (9.8  | )            |   |   | 13.0 |      |  |   | (8.4  | )    
|                              |       |                    |      |                   |  |        |       |              |   |   |      |      |  |   |       |      
|                              | Total |                    | $    | 76.4              |  |        | $     | (38.2        | ) |   | $    | 76.4 |  |   | $     | (32.9 | )
|                              |       |                    |      |                   |  |        |       |              |   |   |      |      |  |   |       |      

As of September 30, 2003, the weighted
average remaining amortization period for regulatory fees was
12 years, seven years for satellite-related intangibles and
two years for other intangibles.

Total pre-tax amortization expense for other
acquired intangible assets was $1.8 million for both the
three months ended September 30, 2003 and 2002 and
$5.3 million for both the nine months ended
September 30, 2003 and 2002. Annual pre-tax amortization
expense for other acquired intangible assets for the five years
ended December 31, 2007 is estimated to be as follows (in
millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2003 |  | $ | 6.9 | 
|2004 |  |   | 6.8 | 
|2005 |  |   | 5.4 | 
|2006 |  |   | 4.3 | 
|2007 |  |   | 4.3 | 

17



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Debt

|                                                                                                                                           |                                                                                                                        |                |           |              |  |   |           |         | 
|------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------- | -------------- | --------- | ------------ |  | - | --------- | ------- | 
|                                                                                                                                           |                                                                                                                        | September 30,  |           | December 31,
|                                                                                                                                           |                                                                                                                        | 2003           |           | 2002        
|                                                                                                                                           |                                                                                                                        |                |           |             
|                                                                                                                                           |                                                                                                                        |               
|                                                                                                                                           |                                                                                                                        | (In thousands)
|Loral Orion 10.00% Senior notes due 2006:                                                                                                  |                                                                                                                        |                |           |              |  |   |           |        
|                                                                                                                                           | Principal amount                                                                                                       |                | $         | 612,704      |  |   | $         | 612,704 | 
|                                                                                                                                           | Accrued interest (deferred gain on debt exchanges)                                                                     |                |           | 214,446      |  |   |           | 245,080 | 
|Loral Satellite term loan, 5.75% and 5.60% at
    September 30, 2003 and December 31, 2002, respectively                                   |                                                                                                                        |                | 226,500   |              |  |   | 249,000   |        
|Loral Satellite revolving credit facility, 5.75%
    and 4.67% at September 30, 2003 and December 31, 2002,
    respectively               |                                                                                                                        |                | 200,000   |              |  |   | 179,000   |        
|Loral SpaceCom term loan facility, 5.25% and
    5.03% at September 30, 2003 and December 31, 2002,
    respectively                       |                                                                                                                        |                | 350,000   |              |  |   | 360,000   |        
|Loral SpaceCom revolving credit facility, 5.25%
    and 5.05% at September 30, 2003 and December 31, 2002,
    respectively                |                                                                                                                        |                | 190,387   |              |  |   | 140,000   |        
|9.50% Senior notes due 2006.                                                                                                               |                                                                                                                        |                | 350,000   |              |  |   | 350,000   |        
|Export-import credit facility                                                                                                              |                                                                                                                        |                |          |              |  |   | 6,434     |        
|Other                                                                                                                                      |                                                                                                                        |                |          |              |  |   | 535       |        
|Non-recourse debt of Loral Orion:                                                                                                          |                                                                                                                        |                |           |              |  |   |           |        
|                                                                                                                                           | 11.25% Senior notes due 2007 (principal amount
    $37 million)                                                        |                |           | 39,402       |  |   |           | 39,762  | 
|                                                                                                                                           | 12.50% Senior discount notes due 2007 (principal
    amount at maturity and accreted principal amount
    $49 million) |                |           | 53,425       |  |   |           | 53,982  | 
|                                                                                                                                           |                                                                                                                        |                |           |              |  |   |           |        
|Total debt                                                                                                                                 |                                                                                                                        |                | 2,236,864 |              |  |   | 2,236,497 |        
|Less, current maturities at December 31,
    2002, and amounts included in liabilities subject to compromise
    as of September 30, 2003. |                                                                                                                        |                | 2,236,864 |              |  |   | 130,167   |        
|                                                                                                                                           |                                                                                                                        |                |           |              |  |   |           |        
|                                                                                                                                           |                                                                                                                        | $              |          |              |  | $ | 2,106,330 |        
|                                                                                                                                           |                                                                                                                        |                |           |              |  |   |           |        

Loral currently has approximately
$2.2 billion in debt (including future accrued interest of
$214 million associated with the deferred gain on the Loral
Orion debt exchanges), which mainly resulted from its
investments in Globalstar as well as the rapid build-up of its
FSS fleet. This debt includes $967 million of bank debt
that is secured by liens on the assets of Loral SpaceCom
Corporation (Loral SpaceCom) and Loral Satellite,
Inc. (Loral Satellite), consisting primarily of
Lorals satellite manufacturing and domestic FSS assets. As
a result of the commencement of its Chapter 11 Cases, Loral
continues to pay interest only on its bank debt, which has
significantly reduced its cash interest payments. Loral expects
to use most of the proceeds from the sale of the North American
satellites to the Purchasers to repay its outstanding secured
bank debt (see Note 2).

As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization,
certain of Lorals prepetition debt obligations
(aggregating approximately $2.1 billion at
September 30, 2003) have been accelerated and are
immediately due and Lorals other prepetition debt
obligations of $93 million at September 30, 2003 are
subject to acceleration. On July 15, 2003, Loral failed to
make interest payments of $16.6 million on its 9.50% Senior
Notes due 2006, and Loral Orion failed to make interest payments
of $30.6 million on its 10% Senior Notes due 2006,
$2.1 million on its 11.25% Senior Notes due 2007 and
$3.1 million on its 12.50% Senior Notes due 2007. A
creditors committee has been appointed in the
Chapter 11 Cases to represent all unsecured creditors,
including all holders of Lorals and Loral Orions
senior unsecured notes, and, in accordance with the provisions
of the Bankruptcy Code, will have the right to be heard on all
matters that come before the Bankruptcy Court.

18



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As stated above, substantially all of the assets
of Loral SpaceCom and Loral Satellite constitute collateral
security for the obligations that are owed to their bank
lenders. Under the provisions of the Bankruptcy Code, Loral
SpaceCom and Loral Satellite are not authorized to use the
existing cash or cash proceeds of this collateral (the
Cash Collateral) without either an order of the
Bankruptcy Court authorizing the use of the Cash Collateral or
the consent of their bank lenders.

On the date the Chapter 11 Cases were
commenced, the Bankruptcy Court entered an order authorizing the
Debtors to use the Cash Collateral to fund all operating
expenses associated with their businesses in accordance with an
agreed upon budget and in accordance with certain other terms
set forth in the order. The use of the Cash Collateral can be
terminated by the bank lenders upon the occurrence of certain
events specified in the order, including the failure of the
Debtors and the bank lenders to agree on a budget for the
further use of the Cash Collateral for the period subsequent to
January 16, 2004, the failure of the Debtors to comply with
certain obligations contained in the order, or the failure of
the Debtors to achieve certain milestones with respect to the
proposed sale of certain of the Debtors assets to the
Purchasers. In the event the debtors ability to use the
Cash Collateral were terminated, the Debtors would still have
the right to seek the authority of the Bankruptcy Court to use
the Cash Collateral notwithstanding any objection by the bank
lenders. There can be no assurance that the Bankruptcy Court
would grant such request.

11.     Liabilities
Subject to Compromise

As discussed in Note 2, the Company has been
operating as a debtor in possession under the jurisdiction of
the Bankruptcy Court and in accordance with the provisions of
the Bankruptcy Code.

In the condensed consolidated balance sheet, the
caption liabilities subject to compromise reflects
Lorals current estimate of the amount of prepetition
claims that will be restructured in Lorals and its Debtor
Subsidiaries Chapter 11 Cases. Pursuant to court
order, Loral has been authorized to pay certain prepetition
operating liabilities incurred in the ordinary course of
business (e.g. salaries and insurance). Since July 15,
2003, as permitted under the Bankruptcy Code, the Company has
rejected certain of its prepetition obligations. Loral is in the
process of calculating its estimated liability to the unsecured
creditors affected by these contract rejections. Loral will
notify all known claimants subject to the bar date of their need
to file a proof of claim with the Bankruptcy Court. A bar date
is the date by which claims against Loral and its Debtor
Subsidiaries must be filed if the claimants wish to receive any
distribution in the Chapter 11 Cases. No bar date has yet
been set by the Bankruptcy Court. Differences between liability
amounts estimated by the Company and claims filed by creditors
will be investigated and the Bankruptcy Court will make a final
determination of the allowable claim. The determination of how
liabilities will ultimately be settled and treated cannot be
made until the Bankruptcy Court approves a Chapter 11 plan
of reorganization. Loral and its Debtor Subsidiaries will
continue to evaluate the amount and classification of their
prepetition liabilities in general through the remainder of
their Chapter 11 Cases. Should Loral or its Debtor
Subsidiaries, through this ongoing evaluation, identify
additional liabilities subject to compromise, such amounts will
be recognized accordingly. As a result, liabilities
subject to compromise are subject to change. Claims
classified as

19



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                       |                                         |   |           |           | 
|------------------------------------------------------ | --------------------------------------- | - | --------- | --------- | 
|Debt obligations                                       |                                         | $ | 2,236,864 |          
|Accounts payable                                       |                                         |   | 54,423    |          
|Accrued employment costs                               |                                         |   | 17,087    |          
|Customer advances                                      |                                         |   | 19,938    |          
|Accrued interest and preferred dividends               |                                         |   | 40,432    |          
|Income taxes payable                                   |                                         |   | 37,258    |          
|Pension and other postretirement liabilities           |                                         |   | 129,527   |          
|Other liabilities(1)                                   |                                         |   | 141,884   |          
|6% Series C convertible redeemable preferred
    stock |                                         |   | 187,274   |          
|6% Series D convertible redeemable preferred
    stock |                                         |   | 36,707    |          
|                                                       |                                         |   |           |          
|                                                       | Total liabilities subject to compromise |   | $         | 2,901,394 | 
|                                                       |                                         |   |           |          



---



|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $47 million of vendor financing that is
    non-recourse to SS/L in the event of non payment by Globalstar
    due to bankruptcy.



| |                
| | ---------------
| | Preferred Stock

The Companys 6% Series C convertible
redeemable preferred stock (the Series C Preferred
Stock) and 6% Series D convertible redeemable
preferred stock (the Series D Preferred Stock)
have mandatory redemption dates in 2006 and 2007, respectively.
The Company has the right to make mandatory redemption payments
to the holders in either cash or common stock, or a combination
of the two. On July 1, 2003, the Company adopted SFAS
No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity
(SFAS 150). As a result of the adoption of
SFAS 150, the Company reclassified its preferred stock to
liabilities from shareholders deficit at June 30,
2003 and the related dividends since adoption have been included
in interest expense (see Note 17).

In August 2002, Lorals Board of
Directors approved a plan to suspend indefinitely the future
payment of dividends on its two series of preferred stock.
Accordingly, Loral has deferred the payments of quarterly
dividends due on its Series C Preferred Stock and the
payments of quarterly dividends due on its Series D
Preferred Stock. Dividends on the two series continued to accrue
through July 14, 2003. In the event accrued and unpaid
dividends accumulate to an amount equal to six quarterly
dividends on the Series C Preferred Stock, subject to the
applicable effects of the Chapter 11 Cases and Lorals
Bermuda insolvency proceedings, the terms of the Series C
Preferred Stock provide that holders of the majority of the
outstanding Series C Preferred Stock will be entitled to
elect two additional members to Lorals Board of Directors.
In the event accrued and unpaid dividends accumulate to an
amount equal to six consecutive quarterly dividends on the
Series D Preferred Stock, subject to the applicable effects
of the Chapter 11 Cases and Lorals Bermuda insolvency
proceedings, the terms of the Series D Preferred Stock
provide that holders of the majority of the outstanding
Series D Preferred will be entitled to elect two additional
members to Lorals Board of Directors. As of
September 30, 2003, accrued and unpaid dividends of
$13 million represented four quarterly dividend payments
outstanding, which were accrued through July 14, 2003 (see
Note 13).

12.     Reorganization
Expenses due to Bankruptcy

Reorganization expenses due to bankruptcy for the
period from July 15, 2003 (filing date) to
September 30, 2003, include professional fees associated
with developing a plan of reorganization and for

20



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

bankruptcy services, lease rejection claims, and
interest income earned excluding orbital interest and were as
follows (in thousands):

|                       |                                                 |   |        |       | 
|---------------------- | ----------------------------------------------- | - | ------ | ----- | 
|Professional fees      |                                                 | $ | 4,723  |      
|Lease rejection claims |                                                 |   | 5,771  |      
|Interest income        |                                                 |   | (1,734 | )    
|                       |                                                 |   |        |      
|                       | Total reorganization expenses due to bankruptcy |   | $      | 8,760 | 
|                       |                                                 |   |        |      

13.     Equity

As a result of the Companys voluntary
petitions for reorganization, on July 15, 2003, the NYSE
suspended trading of Lorals common stock and removed
Lorals securities from listing and registration on
September 2, 2003. Lorals common stock is being
quoted under the ticker symbol LRLSQ on the Pink Sheets
Electronic Quotation Service and on the Over-The-Counter
Bulletin Board service. The Company anticipates that, in any
plan of reorganization ultimately confirmed by the Bankruptcy
Court, the common and preferred stock of the Company will, at
best, be severely diluted and may be eliminated entirely, with
the result that common and preferred stockholders would receive
no distribution.



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

In August 2002, the Company received notice
from the NYSE that its common stock price failed to meet the
NYSE listing requirement of maintaining a trading price over
$1.00. In response, the Company requested from its shareholders,
and received at its May 29, 2003 annual shareholders
meeting, authority to effect a reverse stock split of the
Companys common stock. On June 4, 2003, the
Companys Board of Directors approved the reverse stock
split of the Companys common stock at a ratio of
one-for-ten, resulting in a new par value of $0.10 per common
share (previously $0.01 par value per common share). The reverse
stock split became effective after the close of business on
June 13, 2003 and reduced the number of shares of common
stock then outstanding from approximately 440 million to
approximately 44 million.

At its annual shareholders meeting on
May 29, 2003, the Company obtained shareholder approval to
increase the authorized number of shares of its common stock
from 75,000,000 to 125,000,000 (as adjusted for the
above-mentioned reverse stock split).

Loral completed an exchange offer for certain of
its outstanding stock options on March 7, 2003. In
connection with this exchange offer, Loral accepted and
cancelled existing stock options to purchase an aggregate of
1,488,440 shares of common stock that were tendered in the
exchange offer and agreed to grant, in exchange, new stock
options to purchase an aggregate of 602,149 shares of common
stock. The new options were to have been granted, subject to the
terms and conditions of the exchange offer, on September 8,
2003. As a result of Lorals Chapter 11 filing,
however, Loral will not be able to grant the new stock options.
Any claims or rights that option holders whose options were
cancelled may have, will be addressed in the context of the
Chapter 11 Cases.



| |                
| | ---------------
| | Preferred Stock

Based upon the price of the Companys common
stock at December 31, 2002, the Company did not have
available a sufficient number of authorized shares of its common
stock to effect payment of the total mandatory redemptions in
common stock in 2006 and 2007. Accordingly, as of
December 31, 2002, the Company classified an aggregate of
$125 million of its Series C Preferred Stock and
Series D Preferred Stock outside the shareholders
deficit section of the balance sheet, based on the average of
the volume weighted average daily price of the Companys
common stock as defined. As a consequence of the Chapter 11
Cases, it is not likely that a mandatory redemption will occur.

21



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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On October 8, 2002, Loral completed exchange
offers for its Series C and Series D preferred stock
and converted 4.3 million shares of its Series C
Preferred Stock and 2.7 million shares of its Series D
Preferred Stock for 4.6 million shares of its common stock
and $13.4 million in cash. In connection with the exchange
offers, Loral incurred $21.6 million of dividend charges,
comprised of the $13.4 million in cash and non-cash
dividend charges of $8.2 million. The non-cash dividend
charges relate to the difference between the value of the common
stock issued in the exchanges and the value of the shares that
were issuable under the stated conversion terms of the preferred
stock and had no impact on Lorals total shareholders
deficit as the offset was an increase in common stock and
paid-in capital.

During the second quarter of 2002, in privately
negotiated exchange transactions, Loral converted
1.8 million shares of its Series C Preferred Stock and
2.7 million shares of its Series D Preferred Stock
into 3.1 million shares of its common stock. In connection
with these transactions, Loral incurred non-cash dividend
charges of $38 million, which primarily relate to the
difference between the value of the common stock issued in the
exchanges and the value of the shares that were issuable under
the stated conversion terms of the preferred stock. The non-cash
dividend charges had no impact on Lorals total
shareholders deficit as the offset was an increase in
common stock and paid-in capital.



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

SS/L has deferred revenue for performance
warranty obligations relating to satellites sold to customers
which could be impacted by future performance. SS/L accounts for
satellite performance warranties in accordance with the product
warranty provisions of FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees and Indebtedness of
Others (FIN 45), which requires disclosure, but
not initial recognition and measurement, of performance
guarantees. SS/L estimates the deferred revenue for its warranty
obligation based on historical satellite performance. Management
periodically reviews and adjusts the deferred revenue for
warranty reserves based on the actual performance of each
satellite and remaining warranty period. A reconciliation of
such deferred amounts for the nine months ended
September 30, 2003 is as follows (in millions):

|                                                                                 |  |   |      | 
|-------------------------------------------------------------------------------- |  | - | ---- | 
|Balance of deferred amounts at January 1,
    2003                               |  | $ | 14.1 | 
|Accruals for deferred amounts issued during the
    period                       |  |   |     | 
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | 1.8  | 
|                                                                                 |  |   |      | 
|Balance of deferred amounts at September 30,
    2003                            |  | $ | 15.9 | 
|                                                                                 |  |   |      | 

Loral Skynet has in the past entered into prepaid
leases, sales contracts and other arrangements relating to
transponders on its satellites. Under the terms of these
agreements, Loral Skynet continues to operate the satellites
which carry the transponders and originally provided for a
warranty for a period of 10 to 14 years, in the case of
sales contracts and other arrangements (19 transponders), and
the lease term, in the case of the prepaid leases (six
transponders). Depending on the contract, Loral Skynet may be
required to replace transponders which do not meet operating
specifications. Substantially all customers are entitled to a
refund equal to the reimbursement value if there is no
replacement, which is normally covered by insurance. In the case
of the sales contracts, the reimbursement value is based on the
original purchase price plus an interest factor from the time
the payment was received to acceptance of the transponder by the
customer, reduced on a straight-line basis over the warranty
period. In the case of prepaid leases, the reimbursement value
is equal to the unamortized portion of the lease prepayment made
by the customer. In the case of other arrangements, in the event
of transponder failure where replacement capacity is not
available on the satellite, one customer is not entitled to
reimbursement, and the other customers reimbursement value
is based on contractually prescribed amounts that decline over
time. As a result of the Telstar 4 failure, during the third
quarter of 2003 Loral Skynet established warranty liabilities of
$11 million for previously sold transponders to customers
who were restored and who were not restored (three transponders)
on other Loral satellites (see Note 2).

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fourteen of the satellites built by SS/L and
launched since 1997, seven of which are owned and operated by
Lorals subsidiaries or affiliates, have experienced minor
losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected
satellites have experienced any degradation in performance,
there can be no assurance that one or more of the affected
satellites will not experience additional power loss that could
result in performance degradation, including loss of transponder
capacity or reduction in power transmitted. In the event of
additional power loss, the extent of the performance
degradation, if any, will depend on numerous factors, including
the amount of the additional power loss, the level of redundancy
built into the affected satellites design, when in the
life of the affected satellite the loss occurred and the number
and type of use being made of transponders then in service. It
is also possible that one or more transponders on a satellite
may need to be removed from service to accommodate the power
loss and to preserve full performance capabilities of the
remaining transponders. In the case of one satellite, Loral
Skynet has removed one transponder from service in order to
maintain proper power balance for the remaining transponders,
none of which have been degraded in performance as a result of
the power loss. A complete or partial loss of satellites could
result in a loss of orbital incentive payments and, in the case
of satellites owned by Loral subsidiaries and affiliates, a loss
of revenues and profits. With respect to satellites under
construction and construction of new satellites, based on its
investigation of the matter, SS/L has identified and has
implemented remediation measures that SS/L believes will prevent
newly launched satellites from experiencing similar anomalies.
SS/L does not expect that implementation of these measures will
cause any significant delay in the launch of satellites under
construction or construction of new satellites. Based upon
information currently available, including design redundancies
to accommodate small power losses and that no pattern has been
identified as to the timing or specific location within the
solar arrays of the failures, the Company believes that this
matter will not have a material adverse effect on the
consolidated financial position or results of operations of
Loral.

In September 2001, the PAS 7 satellite built by
SS/L for PanAmSat experienced an electrical power failure on its
solar arrays that resulted in the loss of use of certain
transponders on the satellite. Also, the PAS 8 satellite
has experienced minor losses of power from its solar arrays, the
cause of which is unrelated to the loss of power on the
PAS 7 satellite. On June 30, 2003, PanAmSat commenced
an arbitration claiming that under its contract with SS/L it is
entitled to $23.7 million as a result of these losses. As a
result of SS/Ls Chapter 11 filing, this arbitration
is subject to the automatic stay and further proceedings in the
matter have been suspended. See Part II, Item 1, Legal
Proceedings. In addition, a Loral Skynet satellite has
experienced a minor loss of power from its solar arrays, the
cause of which may be similar to the cause of the PAS 7
anomaly. SS/L believes, however, that these failures are
isolated events and do not reflect a systemic problem in either
the satellite design or manufacturing process. Accordingly, SS/L
does not believe that these anomalies will affect other on-orbit
satellites built by SS/L.

SS/L has contracted to build a spot beam, Ka-band
satellite for a customer planning to offer broadband data
services directly to the consumer. SS/L had suspended work on
this program since December 2001 while the customer and SS/L
were in discussions to resolve a dispute under the contract. In
March 2003, SS/L and the customer reached an agreement in
principle to restart the satellite construction program, and in
June 2003, SS/L and the customer executed a definitive
agreement. As of September 30, 2003, SS/L had billed and
unbilled accounts receivable and vendor financing arrangements
of $53 million (including accrued interest of
$8 million) with this customer. Under the agreement, the
customer will pay the remainder of the purchase price under the
contract of $68.1 million plus accrued interest (including
$53 million owed to SS/L at September 30, 2003) in
installments over time, a portion of which will be due
subsequent to completion of the satellite.

SS/L was a party to an Operational Agreement with
Alcatel Space Industries, pursuant to which the parties had
agreed to cooperate on certain satellite programs, and an
Alliance Agreement with Alcatel Space (together with Alcatel
Space Industries, Alcatel), pursuant to which
Alcatel had certain rights with respect to SS/L. The agreements
between Alcatel and SS/L were terminable on one years
notice, and, on

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

February 22, 2001, Loral gave notice to
Alcatel that they would expire on February 22, 2002. In
April 2001, Alcatel commenced an arbitration proceeding
challenging the effectiveness of Lorals notice of
termination and asserting various alleged breaches of the
agreements by SS/L relating to the exchange of information and
other procedural or administrative matters. In February 2002,
the arbitral tribunal issued a partial decision, which upheld
the validity of Lorals termination effective
February 22, 2002 and Alcatels claims as to certain
breaches. The partial decision was confirmed by the District
Court for the Southern District of New York on June 25,
2002. The arbitral tribunal provided both parties with an
opportunity to file any additional claims or counterclaims they
had. In March 2002, Alcatel submitted additional claims against
Loral and SS/L and sought at least $350 million in damages
in respect of all of its claims. On January 27, 2003, Loral
and SS/L received from the arbitral tribunal a partial decision
on the additional claims and counterclaims. The arbitral
tribunal ruled in favor of Alcatel on most of its claims
alleging breaches of the Operational Agreement or Alliance
Agreement and ruled against Loral and SS/L on the counterclaims.
The arbitral tribunal deferred, pending additional submissions
and hearings, a determination whether any of the breaches caused
Alcatel to suffer injury and a determination of the amount of
damages, if any.

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

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

The launch of ChinaSat-8 has been delayed pending
SS/Ls obtaining the approvals required for the launch. On
December 23, 1998, the Office of Defense Trade Controls, or
ODTC, of the U.S. Department of State temporarily suspended
a previously approved technical assistance agreement under which
SS/L had been preparing for the launch of the ChinaSat-8
satellite. In addition, SS/L was required to re-apply for new
export licenses from the State Department to permit the launch
of ChinaSat-8 on a Long March launch vehicle when the old export
licenses issued by the Commerce Department, the agency that
previously had jurisdiction over satellite licensing, expired in
March 2000. On January 4, 2001, the ODTC, while not
rejecting these license applications, notified SS/L that they
were being returned without action. On January 9, 2002,
Loral, SS/L and the U.S. Department of State entered into a
consent agreement (the Consent Agreement) settling
and disposing of all civil charges, penalties and sanctions
associated with alleged violations by SS/L of the Arms Export
Control Act and its implementing regulations. The Company
recorded

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

a $12 million charge in 2001 for the
penalties associated with the Consent Agreement. The Consent
Agreement provides that the State Department agrees, assuming
the Companys and SS/Ls faithful adherence to the
terms of the Consent Agreement, and the Arms Export Control Act
and its implementing regulations, that decisions concerning
export licenses for the ChinaSat-8 spacecraft will be made on
the basis of the security and foreign policy interests of the
United States, including matters relating to U.S. relations with
the Peoples Republic of China, without reference to the
State Departments previously expressed concerns regarding
SS/Ls reliability, which concerns are considered to be
appropriately mitigated through the operation of various
provisions of the Consent Agreement. Discussions between SS/L
and the State Department regarding SS/Ls obtaining the
approvals required for the launch of ChinaSat-8 are continuing.

If ChinaSat were to terminate its contract with
SS/L for ChinaSat-8 as a result of these delays, ChinaSat may
seek a refund of $134 million for payments made to SS/L as
well as penalties of up to $11 million. The Company does
not believe that ChinaSat is entitled to such a refund or
penalties and would vigorously contest any such claims by
ChinaSat. A portion of the potential claim relates to amounts
that were paid to a launch vehicle provider. To the extent that
SS/L or ChinaSat is able to recover some or all of the
$52 million deposit payment on the Chinese launch vehicle,
this recovery would reduce the amount of any claim. SS/L
believes that ChinaSat bears the risk of loss in the event that
the deposit payments are not refunded by the launch vehicle
provider. SS/L has commenced discussions with the launch vehicle
provider to recover this deposit. There can be no assurance,
however, that SS/L will be able either to obtain a refund from
the launch provider or to find a replacement customer for the
Chinese launch vehicle. If ChinaSat were to terminate the
contract, SS/L estimates that it would incur costs of
approximately $38 million to refurbish and retrofit the
satellite so that it could be sold to another customer, which
resale cannot be guaranteed.

On September 20, 2002, and as further
amended in March 2003, Loral agreed with APT Satellite Company
Limited (APT) to jointly acquire the Apstar V
satellite, a satellite then under construction by SS/L for APT
pursuant to which Loral and APT agreed to share, on a 50/50
basis, the project cost of constructing, launching and insuring
the satellite. Under this agreement, Loral would initially
acquire 23% of the satellite in return for paying 25% of the
project cost, and would pay to APT over time an additional 25%
of the project cost to acquire an additional 23% interest in the
satellite. In August 2003, in order to expedite the receipt of
necessary export licenses from the U.S. government, Loral
and APT amended their various agreements to convert their
arrangement from a joint ownership arrangement to a lease
arrangement, but leaving unchanged the cost allocation between
the parties relating to the project cost of the satellite. Under
this arrangement approved by the Bankruptcy Court in October
2003, Loral will retain title to the entire satellite, now known
as Telstar 18, and will lease to APT transponders
representing initially 77% of the transponder capacity on the
satellite. The number of transponders leased to APT would be
reduced over time upon repayment by Loral of the second 25% of
the satellites project cost. Upon payment in full by Loral
of 50% of the project cost of the satellite, the lease to APT
would be reduced from 77% to 54% of the satellites
transponder capacity. At September 30, 2003, the project
cost of the satellite was estimated at $230 million. The
second 25% of the project cost of the satellite to be repaid by
Loral to APT as termination fees are estimated as follows:
$7 million to terminate APTs leasehold interest in
2.5 additional transponders on the second anniversary of the
satellites in-service date; $13 million for three
additional transponders on the third anniversary; and
$18 million for four additional transponders on each of the
fourth and fifth anniversary. Loral may at its option, elect to
accelerate the termination of APTs leasehold interest in
certain of the foregoing transponders upon earlier payment of
the related termination fee. Loral has agreed that if so
requested by APT, it will seek further government approval to
transfer a portion of the satellite to APT. If it is successful
in doing so, the parties will revert back to the original joint
ownership arrangement. As a result of the above changes to the
agreement, whereby Loral will retain title and provide capacity
to APT under a lease arrangement, Loral has reversed the
cumulative sales of $83 million and profits of
$10 million and has established a self constructed asset of
$73 million (resulting in a total satellite asset value of
$123 million) and deferred revenue of $80 million
during the quarter ended September 30, 2003. In addition,
amounts received

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

from APT and subject to repayment have been
recorded at their estimated present value of $26 million at
September 30, 2003 and are presented in long-term
liabilities.

In October 2003, Loral and APT have engaged in
discussions to further revise their existing arrangement. Under
this proposed arrangement, Loral would accelerate the
termination of APTs leasehold interest in 4.5 transponders
by assuming $20.4 million of project cost which otherwise
would have been initially borne by APT, increasing Lorals
initial economic interest in the satellite from 23% to 31%. In
addition, Loral would provide to APT, free of charge, available
capacity on Telstar 10/Apstar IIR, during an interim
period, and provide APT with certain rights to exchange Ku-band
transponder capacity on Telstar 18 for Ku-band transponder
capacity on Telstar 10/Apstar IIR. The effectiveness
of any revised arrangement agreed to between APT and Loral will
be subject to the approval of the Bankruptcy Court.

Sirius, a customer of SS/L, is currently in the
process of rolling out its business. On March 7, 2003,
Sirius completed its recapitalization plan and received
$200 million in cash from third party investors and
exchanged approximately $636 million of its debt and all of
its $525 million of preferred stock into common stock. As
part of this recapitalization, SS/L converted all of its vendor
financing receivables of approximately $76 million into
58,964,981 shares of common stock of Sirius. For the nine months
ended September 30, 2003, SS/L realized net proceeds of
$46 million from the sale of all of the shares of Sirius
common stock that it received in the recapitalization, and
realized gains on such sales of $18 million. At
December 31, 2002, the receivables from Sirius were
classified as short-term vendor financing receivables. In the
first quarter of 2003, SS/L recorded a charge on the vendor
financing receivables due from Sirius of $10 million,
representing the difference between the carrying value of
SS/Ls receivables of $38 million, and the value of
the common shares received by SS/L based on the trading price of
Siriuss common stock on March 7, 2003 of
$28 million.

SS/L has entered into several long-term launch
services agreements with various launch providers to secure
future launches for its customers, including Loral and its
affiliates. SS/L had launch services agreements with
International Launch Services (ILS) which covered
three launches. In November 2002, SS/L terminated one of those
future launches, which had a termination liability equal to
SS/Ls deposit of $5 million. Subsequently, SS/L
received a letter from ILS alleging SS/Ls breach of the
agreements, purporting to terminate all three launches and
asserting a right to retain $42.5 million in deposits,
without prejudice to any other legal claims or remedies. Despite
ILSs termination of all three launches, to protect its
interest SS/L also terminated a second launch, which had a
termination liability equal to its deposit of $5 million,
and SS/L recognized a non-cash charge to earnings of
$10 million in the fourth quarter of 2002 with respect to
the two terminated launches. In June 2003, to protect its
interest, SS/L also terminated a third launch, which had a
termination liability equal to $23.5 million, and SS/L
recognized a non-cash charge to earnings of $23.5 in the second
quarter of 2003 with respect to this launch. SS/L believes that
ILSs claims are without merit and intends to defend
against them vigorously and to seek recovery of its deposits and
termination liabilities. The Company does not believe that this
matter will have a material adverse effect on its consolidated
financial position and its results of operations, although no
assurances can be provided.

While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot guarantee that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past. Five satellites
owned by Loral Skynet and Loral Orion have the same solar array
configuration as two other 1300-class satellites manufactured by
SS/L that have experienced solar array failures. SS/L believes
that these failures are isolated events and do not reflect a
systemic problem in either the satellite design or manufacturing
process. Accordingly, the Company does not believe that these
anomalies will affect these satellites. The insurance coverage
for Telstar 10/Apstar IIR, however, provides for
coverage of losses due to solar array failures only in the event
of a capacity loss of 80% or more. The Company believes that the
insurers will require either exclusions of, or limitations on,
coverage due to solar array failures in

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

connection with renewals of insurance for the
other four satellites in 2003 and 2004. An uninsured loss of a
satellite would have a material adverse effect on the
Companys consolidated financial position and its results
of operations. Moreover, the Company is required under the terms
of its bank facilities and cash collateral order to use the
insurance proceeds from any launch or in-orbit failure of a
satellite owned by Loral SpaceCom or Loral Satellite to prepay
the bank loans (see Note 2), and as a result, these
insurance proceeds would not be available to Loral to build a
replacement for the lost satellite, which would result in an
adverse effect on its future revenue. In addition, Loral Orion
did not renew its in-orbit insurance policy on Telstar 11
due to the high cost of such insurance and the relative age of
the satellite. A loss of the satellite would have a material
adverse effect on the Company.

In an order released on August 8, 2003, the
FCC added Telstar 13 to the Permitted Space Station
List in the C-Band frequency at 121 degrees W.L. As a
result of this action, earth stations located in the U.S. will
be able to communicate with the Telstar 13 satellite, which
was successfully launched on August 7, 2003, and
Telstar 13 will be permitted to operate in the U.S. using a
non-U.S. ITU filing. The order contains several conditions on
this authorization, including (1) a requirement that
Telstar 13 be in compliance with all applicable current and
future operational requirements as a result of coordination
agreements reached with other satellite systems; and
(2) that, in the absence of a coordination agreement with a
satellite network with higher ITU priority, Telstar 13 must
cease service to the U.S. market immediately upon launch and
operation of the higher ITU priority satellite, or be subject to
further conditions designed to address potential harmful
interference to a satellite with ITU date precedence. New Skies
Satellites has asserted that its non-U.S. ITU filing at
120.8 degrees W.L. has ITU priority over Telstar 13.
Loral Skynet is continuing its international coordination of the
121 degrees W.L. slot. There can be no assurance, however,
that coordination discussions will be successful.

On October 21, 2002, National Telecom of
India Ltd. (Natelco) filed suit against Loral and
Loral CyberStar in the United States District Court for the
Southern District of New York. The suit relates to a joint
venture agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a Loral Orion subsidiary, the effectiveness of
which was subject to express conditions precedent. In 1999, ONS
Mauritius had notified Natelco that Natelco had failed to
satisfy those conditions precedent. In Natelcos amended
complaint filed in March 2003, Natelco has alleged wrongful
termination of the joint venture agreement, has asserted claims
for breach of contract and fraud in the inducement and is
seeking damages and expenses in the amount of $97 million.
Loral believes that the claims are without merit and intends to
vigorously defend against them. As a result of the commencement
of the Chapter 11 Cases, this lawsuit is subject to the
automatic stay and further proceedings in the matter have been
suspended. See Part II, Item 1, Legal Proceedings.

The Company is subject to various other legal
proceedings and claims, either asserted or unasserted, that
arise in the ordinary course of business. Although the outcome
of these claims cannot be predicted with certainty, the Company
does not believe that any of these other existing legal matters
will have a material adverse effect on its consolidated
financial position or results of operations. These claims
against the Company are subject to the automatic stay as a
result of the commencement of the Chapter 11 Cases. See
Part II, Item 1, Legal Proceedings.



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

On September 26, 2001, the nineteen separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of securities of Globalstar Telecommunications Limited
(GTL) and Globalstar against GTL, Loral, Bernard L.
Schwartz and other defendants were consolidated into one action
titled In re: Globalstar Securities Litigation. In
November 2001, plaintiffs in the consolidated action filed a
consolidated amended class action complaint against Globalstar,
GTL, Globalstar Capital Corporation, Loral and Bernard L.
Schwartz alleging (a) that all defendants (except

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Loral) violated Section 10(b) of the
Securities Exchange Act of 1934 (the Exchange Act)
and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about
Globalstars business and prospects, (b) that
defendants Loral and Mr. Schwartz are secondarily liable
for these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as alleged
controlling persons of Globalstar, (c) that
defendants GTL and Mr. Schwartz are liable under
Section 11 of the Securities Act of 1933 (the
Securities Act) for untrue statements of material
facts in or omissions of material facts from a registration
statement relating to the sale of shares of GTL common stock in
January 2000, (d) that defendant GTL is liable under
Section 12(2)(a) of the Securities Act for untrue
statements of material facts in or omissions of material facts
from a prospectus and prospectus supplement relating to the sale
of shares of GTL common stock in January 2000, and (e) that
defendants Loral and Mr. Schwartz are secondarily liable
under Section 15 of the Securities Act for GTLs
primary violations of Sections 11 and 12(2)(a) of the
Securities Act as alleged controlling persons of
GTL. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of securities of
Globalstar, Globalstar Capital and GTL during the period from
December 6, 1999 through October 27, 2000, excluding
the defendants and certain persons related or affiliated
therewith. Loral and Mr. Schwartz have filed a motion to
dismiss the amended complaint in its entirety as to Loral and
Mr. Schwartz, which motion is pending before the court.
Loral believes that it has meritorious defenses to this class
action lawsuit and intends to pursue them vigorously. As a
result of the commencement of the Chapter 11 Cases, this
lawsuit is subject to the automatic stay and further proceedings
in the matter have been suspended insofar as Loral is concerned
but are proceeding as to the other defendants. See Part II,
Item 1, Legal Proceedings.

On March 2, 2002, the seven separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of common stock of Loral Space & Communications Ltd.
(Loral) against Loral, Bernard L. Schwartz and
Richard Townsend were consolidated into one action titled In
re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint alleging (a) that all defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, by making material misstatements or
failing to state material facts about Lorals financial
condition and its investment in Globalstar and (b) that
Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged controlling person of
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Loral common stock
during the period from November 4, 1999 through
February 1, 2001, excluding the defendants and certain
persons related or affiliated therewith. Loral and
Messrs. Schwartz and Townsend have filed a motion to
dismiss the complaint in its entirety. At oral argument on the
motion on May 9, 2003, the Court indicated its intent to
dismiss the complaint but gave the plaintiffs thirty days to
amend their complaint to state a cause of action. In the
interim, the Court denied the motion without prejudice to its
renewal. On June 9, 2003, the plaintiffs filed an amended
complaint alleging essentially the same claims as in the
original amended complaint. As a result of the commencement of
the Chapter 11 Cases, this lawsuit is subject to the
automatic stay and further proceedings in the matter have been
suspended, insofar as Loral is concerned but are proceeding as
to the other defendants who served a motion to dismiss the
amended complaint on July 31, 2003. See Part II,
Item 1, Legal Proceedings.

In addition, the primary insurer under
Lorals directors and officers liability insurance policy
has denied coverage for the case filed by Loral shareholders
under the policy and, on March 24, 2003, filed a lawsuit in
the Supreme Court of New York county seeking a declaratory
judgment upholding their coverage position. In May 2003, Loral
and the other defendants served their answer and filed
counterclaims seeking a declaration that the insurer is
obligated to provide coverage and damages for breach of contract
and the implied covenant of good faith. In May 2003, Loral and
the other defendants also filed a third party complaint against
the excess insurers seeking a declaration that they are
obligated to provide coverage. Loral believes that the insurers
have wrongfully denied coverage and intends to defend against
the denial vigorously. As a result of the

28



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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

commencement of the Chapter 11 Cases, this
lawsuit is subject to the automatic stay and further proceedings
in the matter have been suspended insofar as Loral is concerned
but are proceeding as to the other defendants. See Part II,
Item 1, Legal Proceedings.



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

Basic loss per share is computed based upon the
weighted average number of shares of common stock outstanding.
For the three and nine months ended September 30, 2003 and
2002, diluted loss per share excludes the assumed conversion of
the Companys outstanding Series C Preferred Stock and
the Series D Preferred Stock into shares of common stock,
as their effect would have been antidilutive. For the nine
months ended September 30, 2003 and 2002, weighted options
equating to zero shares and approximately 0.2 million
shares of common stock, respectively, as calculated using the
treasury stock method, were excluded from the calculation of
diluted loss per share, as the effect would have been
antidilutive.

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

|                                                  |                                                                                                                                    |                    |   |                   |   |      |   |             |   |  |   |          |   |  |   |            |  
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------ | - | ----------------- | - | ---- | - | ----------- | - |  | - | -------- | - |  | - | ---------- | -
|                                                  |                                                                                                                                    |                    |   |                  
|                                                  |                                                                                                                                    | Three Months Ended |   | Nine Months Ended
|                                                  |                                                                                                                                    | September 30,      |   | September 30,    
|                                                  |                                                                                                                                    |                    |   |                  
|                                                  |                                                                                                                                    | 2003               |   | 2002              |   | 2003 |   | 2002       
|                                                  |                                                                                                                                    |                    |   |                   |   |      |   |            
|                                                  |                                                                                                                                    |                    |   | As restated       |   |      |   | As restated
|                                                  |                                                                                                                                    |                    |   |                   |   |      |   |            
|Numerator:                                        |                                                                                                                                    |                    |   |                   |   |      |   |             |   |  |   |          |   |  |   |           
|                                                  | Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |                    | $ | (125,909          | ) |      | $ | (48,712     | ) |  | $ | (283,487 | ) |  | $ | (91,141    | )
|                                                  | Cumulative effect of change in accounting
    principle, net of taxes                                                              |                    |   | (1,970            | ) |      |   |            |   |  |   | (1,970   | ) |  |   | (876,500   | )
|                                                  | Extraordinary gain on acquisition of minority
    interest, net of taxes                                                           |                    |   |                  |   |      |   |            |   |  |   | 13,615   |   |  |   |           |  
|                                                  |                                                                                                                                    |                    |   |                   |   |      |   |             |   |  |   |          |   |  |   |           
|                                                  | Net loss                                                                                                                           |                    |   | (127,879          | ) |      |   | (48,712     | ) |  |   | (271,842 | ) |  |   | (967,641   | )
|                                                  | Preferred dividends                                                                                                                |                    |   |                  |   |      |   | (8,607      | ) |  |   | (6,720   | ) |  |   | (67,380    | )
|                                                  |                                                                                                                                    |                    |   |                   |   |      |   |             |   |  |   |          |   |  |   |           
|                                                  | Numerator for basic and diluted loss per
    share  net loss applicable to common shareholders                                    |                    | $ | (127,879          | ) |      | $ | (57,319     | ) |  | $ | (278,562 | ) |  | $ | (1,035,021 | )
|                                                  |                                                                                                                                    |                    |   |                   |   |      |   |             |   |  |   |          |   |  |   |           
|Denominator for basic and diluted loss per share: |                                                                                                                                    |                    |   |                   |   |      |   |             |   |  |   |          |   |  |   |           
|                                                  | Weighted average shares of common stock                                                                                            |                    |   | 44,107            |   |      |   | 37,374      |   |  |   | 43,723   |   |  |   | 35,632     |  
|                                                  |                                                                                                                                    |                    |   |                   |   |      |   |             |   |  |   |          |   |  |   |           

29



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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                  |                                                                                                                               |                    |   |                   |   |      |   |             |   |  |   |       |      |  |   |        |   | 
|--------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------ | - | ----------------- | - | ---- | - | ----------- | - |  | - | ----- | ---- |  | - | ------ | - | 
|                                  |                                                                                                                               |                    |   |                  
|                                  |                                                                                                                               | Three Months Ended |   | Nine Months Ended
|                                  |                                                                                                                               | September 30,      |   | September 30,    
|                                  |                                                                                                                               |                    |   |                  
|                                  |                                                                                                                               | 2003               |   | 2002              |   | 2003 |   | 2002       
|                                  |                                                                                                                               |                    |   |                   |   |      |   |            
|                                  |                                                                                                                               |                    |   | As restated       |   |      |   | As restated
|                                  |                                                                                                                               |                    |   |                   |   |      |   |            
|Basic and diluted loss per share: |                                                                                                                               |                    |   |                   |   |      |   |             |   |  |   |       |      |  |   |       
|                                  | Before cumulative effect of change in accounting
    principle and extraordinary gain on acquisition of minority
    interest |                    | $ | (2.86             | ) |      | $ | (1.53       | ) |  | $ | (6.64 | )    |  | $ | (4.45  | )
|                                  | Cumulative effect of change in accounting
    principle                                                                       |                    |   | (0.04             | ) |      |   |            |   |  |   | (0.04 | )    |  |   | (24.60 | )
|                                  | Extraordinary gain on acquisition of minority                                                                                 |                    |   |                  |   |      |   |            |   |  |   |      |      |  |   |       |  
|                                  |                                                                                                                               | interest           |   |                   |  |      |   |             |  |  |   |       | 0.31 |  |   |        |  | 
|                                  |                                                                                                                               |                    |   |                   |   |      |   |             |   |  |   |       |      |  |   |       
|                                  | Loss per share                                                                                                                |                    | $ | (2.90             | ) |      | $ | (1.53       | ) |  | $ | (6.37 | )    |  | $ | (29.05 | )
|                                  |                                                                                                                               |                    |   |                   |   |      |   |             |   |  |   |       |      |  |   |       



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

Loral is organized into two operating businesses:
fixed satellite services and satellite manufacturing and
technology (see Note 1).

In evaluating financial performance, management
uses revenues and operating income (loss) before depreciation
and amortization, including amortization of unearned stock
compensation, and reorganization expenses due to bankruptcy
(Adjusted EBITDA see Note 4 to the table below)
as the measure of a segments profit or loss. Intersegment
revenues primarily consist of satellites under construction by
SS/L for fixed satellite services and the leasing of transponder
capacity by SS/L from fixed satellite services. In the first
quarter of 2003, management changed its basis of evaluating and
reporting the financial performance of the satellite
manufacturing and technology segment to conform it to U.S.
generally accepted accounting principles for commercial
contracts and has restated the segment information for 2002
accordingly. Previously the segment was evaluated and reported
by management in accordance with accounting principles
applicable to government contracts whereby all costs incurred,
including G&A were allocated to customer programs (see
Note 4).

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

Three Months Ended September 30,
2003

|                                    |  |           |      |               |  |              |      |       |  |  |  |  |  |   |        |  
|----------------------------------- |  | --------- | ---- | ------------- |  | ------------ | ---- | ----- |  |  |  |  |  | - | ------ | -
|                                    |  |           |      | Satellite     |  |              |      |      
|                                    |  | Fixed     |      | Manufacturing |  |              |      |      
|                                    |  | Satellite |      | and           |  |              |      |      
|                                    |  | Services  |      | Technology    |  | Corporate(1) |      | Total
|                                    |  |           |      |               |  |              |      |      
|Revenues and Adjusted EBITDA:       |  |           |      |               |  |              |      |       |  |  |  |  |  |   |        |  
|Revenues from external customers(2) |  | $         | 71.6 |               |  | $            | 59.5 |       |  |  |  |  |  | $ | 131.1  |  
|Intersegment revenues               |  |           | 1.1  |               |  |              | 39.6 |       |  |  |  |  |  |   | 40.7   |  
|                                    |  |           |      |               |  |              |      |       |  |  |  |  |  |   |        |  
|Operating segment revenues          |  | $         | 72.7 |               |  | $            | 99.1 |       |  |  |  |  |  |   | 171.8  |  
|                                    |  |           |      |               |  |              |      |       |  |  |  |  |  |   |        |  
|Eliminations(3)                     |  |           |      |               |  |              |      |       |  |  |  |  |  |   | (124.5 | )
|                                    |  |           |      |               |  |              |      |       |  |  |  |  |  |   |        |  
|Operating revenues as reported      |  |           |      |               |  |              |      |       |  |  |  |  |  | $ | 47.3   |  
|                                    |  |           |      |               |  |              |      |       |  |  |  |  |  |   |        |  

30



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                    |  |           |         |               |  |              |       |       |  |   |      |   |  |   |         |         
|------------------------------------------------------------------- |  | --------- | ------- | ------------- |  | ------------ | ----- | ----- |  | - | ---- | - |  | - | ------- | --------
|                                                                    |  |           |         | Satellite     |  |              |       |      
|                                                                    |  | Fixed     |         | Manufacturing |  |              |       |      
|                                                                    |  | Satellite |         | and           |  |              |       |      
|                                                                    |  | Services  |         | Technology    |  | Corporate(1) |       | Total
|                                                                    |  |           |         |               |  |              |       |      
|Segment Adjusted EBITDA before
    eliminations(4)                  |  | $         | 29.7    |               |  | $            | (30.3 | )     |  | $ | (9.9 | ) |  | $ | (10.5   | ) (14.8)
|Eliminations(3)                                                     |  |           |         |               |  |              |       |       |  |   |      |   |  |   | (25.3   | )       
|Adjusted EBITDA(4)                                                  |  | $         | (36.3   | )             |  | $            | (6.7  | )     |  | $ | (0.2 | ) |  |   | (43.2   | )       
|Depreciation and amortization(5)(6)                                 |  |           |         |               |  |              |       |       |  |   |      |   |  |   | (8.8    | )       
|Reorganization expenses due to bankruptcy                           |  |           |         |               |  |              |       |       |  |   |      |   |  |   | (77.3   | )       
|Operating loss                                                      |  |           |         |               |  |              |       |       |  |   |      |   |  |   | 0.7     |         
|Interest and investment income                                      |  |           |         |               |  |              |       |       |  |   |      |   |  |   | (9.9    | )       
|Interest expense                                                    |  |           |         |               |  |              |       |       |  |   |      |   |  |   | (0.7    | )       
|Income tax provision                                                |  |           |         |               |  |              |       |       |  |   |      |   |  |   |         |         
|Equity in net losses of affiliates, net of taxes                    |  |           |         |               |  |              |       |       |  |   |      |   |  |   | (38.8   | ) 0.1   
|Minority interest, net of taxes                                     |  |           |         |               |  |              |       |       |  |   |      |   |  |   |         |         
|                                                                    |  |           |         |               |  |              |       |       |  |   |      |   |  |   |         |         
|Loss before cumulative effect of change in
    accounting principle |  |           |         |               |  |              |       |       |  |   |      |   |  | $ | (125.9  | )       
|                                                                    |  |           |         |               |  |              |       |       |  |   |      |   |  |   |         |         
|Other Data:                                                         |  | $         | 1,922.2 |               |  | $            | 458.2 |       |  | $ | 73.8 |   |  | $ | 2,454.2 |         
|Total assets(6)                                                     |  |           |         |               |  |              |       |       |  |   |      |   |  |   |         |         
|                                                                    |  |           |         |               |  |              |       |       |  |   |      |   |  |   |         |         



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support
    of the Companys operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | Includes revenues from affiliates of
    $(4.9) million and of $20.0 million for the three
    months ended September 30, 2003 and 2002, respectively and
    revenues of $19.0 million and $70.6 million for the
    nine months ended September 30, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) | Represents the elimination of intercompany sales
    and intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/L for wholly-owned subsidiaries and the
    reversal of sales of $83 million and profits of
    $10 million on a satellite program that was changed to a
    lease arrangement in the third quarter of 2003 (see
    Note 14).                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(4) | The common definition of EBITDA is Earnings
    Before Interest, Taxes, Depreciation and Amortization. The
    Company defines Adjusted EBITDA as EBITDA before
    amortization of stock compensation; reorganization expenses due
    to bankruptcy; gain on investment; equity in net losses of
    affiliates, net of tax; minority interest, net of tax;
    cumulative effect of change in accounting principle, net of tax,
    and extraordinary gain on acquisition of minority interest, net
    of tax. Adjusted EBITDA should be used in conjunction with GAAP
    financial measures and is not presented as an alternative to
    cash flow from operations as a measure of the Companys
    liquidity or as an alternative to net income as an indicator of
    the Companys operating performance.

The Company believes the use of Adjusted EBITDA
along with GAAP financial measures enhances the understanding of
the Companys operating results and is useful to investors
in comparing performance with competitors, estimating enterprise
value and making investment decisions. Adjusted EBITDA allows
investors to compare operating results of competitors exclusive
of depreciation and amortization, net losses of affiliates and
minority interest, a useful tool given the significant variation
that can result from the timing of capital expenditures, the
amount of intangible assets recorded, the differences in
assets lives, the timing and amount of investments, and
effects of investments not managed by the

31



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company. Adjusted EBITDA as used here may not be
comparable to similarly titled measures reported by other
companies.

31.1



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company also uses Adjusted EBITDA to evaluate
    operating performance, to allocate resources and capital, to
    measure performance for incentive compensation programs, and to
    evaluate future growth opportunities. See the tables for
    reconciliations of Adjusted EBITDA to net loss.



|    |                                                                        
|--- | -----------------------------------------------------------------------
|(5) | Includes amortization of unearned stock
    compensation charges.      
|   
|(6) | Amounts are presented after the elimination of
    intercompany profit.

Nine Months Ended September 30,
2003

|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------ | ------------- |  | ------------ | ------ | ----- |  | - | ----- | - |  | - | ------ | -
|                                                                                                                                   |  |           |        | Satellite     |  |              |        |      
|                                                                                                                                   |  | Fixed     |        | Manufacturing |  |              |        |      
|                                                                                                                                   |  | Satellite |        | and           |  |              |        |      
|                                                                                                                                   |  | Services  |        | Technology    |  | Corporate(1) |        | Total
|                                                                                                                                   |  |           |        |               |  |              |        |      
|Revenues and Adjusted EBITDA:                                                                                                      |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Revenues from external customers(2)                                                                                                |  | $         | 227.6  |               |  | $            | 245.7  |       |  |   |       |   |  | $ | 473.3  |  
|Intersegment revenues                                                                                                              |  |           | 3.2    |               |  |              | 66.0   |       |  |   |       |   |  |   | 69.2   |  
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Operating segment revenues                                                                                                         |  | $         | 230.8  |               |  | $            | 311.7  |       |  |   |       |   |  |   | 542.5  |  
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Eliminations(3)                                                                                                                    |  |           |        |               |  |              |        |       |  |   |       |   |  |   | (154.3 | )
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Operating revenues as reported                                                                                                     |  |           |        |               |  |              |        |       |  |   |       |   |  | $ | 388.2  |  
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Segment Adjusted EBITDA before
    eliminations(4)                                                                                 |  | $         | 116.4  |               |  | $            | (131.3 | )     |  | $ | (28.9 | ) |  | $ | (43.8  | )
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Eliminations(3)                                                                                                                    |  |           |        |               |  |              |        |       |  |   |       |   |  |   | (22.1  | )
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Adjusted EBITDA(4)                                                                                                                 |  |           |        |               |  |              |        |       |  |   |       |   |  |   | (65.9  | )
|Depreciation and amortization(5)(6)                                                                                                |  | $         | (111.4 | )             |  | $            | (20.5  | )     |  | $ | (0.5  | ) |  |   | (132.4 | )
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Reorganization expenses due to bankruptcy                                                                                          |  |           |        |               |  |              |        |       |  |   |       |   |  |   | (8.8   | )
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Operating loss                                                                                                                     |  |           |        |               |  |              |        |       |  |   |       |   |  |   | (207.1 | )
|Interest and investment income                                                                                                     |  |           |        |               |  |              |        |       |  |   |       |   |  |   | 11.5   |  
|Interest expense                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   | (45.7  | )
|Income tax provision                                                                                                               |  |           |        |               |  |              |        |       |  |   |       |   |  |   | (4.5   | )
|Gain on investment                                                                                                                 |  |           |        |               |  |              |        |       |  |   |       |   |  |   | 17.9   |  
|Equity in net losses of affiliates, net of taxes                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   | (55.6  | )
|Minority interest, net of taxes                                                                                                    |  |           |        |               |  |              |        |       |  |   |       |   |  |   |       |  
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  
|Loss before cumulative effect of change in
    accounting principle and extraordinary gain on acquisition of
    minority interest |  |           |        |               |  |              |        |       |  |   |       |   |  | $ | (283.5 | )
|                                                                                                                                   |  |           |        |               |  |              |        |       |  |   |       |   |  |   |        |  

32



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Three Months Ended September 30,
2002

As Restated


|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|------------------------------------------------------------------- |  | --------- | ----- | ------------- |  | ------------ | ----- | ----- |  | - | ---- | - |  | - | ----- | -
|                                                                    |  |           |       | Satellite     |  |              |       |      
|                                                                    |  | Fixed     |       | Manufacturing |  |              |       |      
|                                                                    |  | Satellite |       | and           |  |              |       |      
|                                                                    |  | Services  |       | Technology    |  | Corporate(1) |       | Total
|                                                                    |  |           |       |               |  |              |       |      
|Revenues and Adjusted EBITDA:                                       |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Revenues from external customers(2)                                 |  | $         | 92.1  |               |  | $            | 119.5 |       |  |   |      |   |  | $ | 211.6 |  
|Intersegment revenues                                               |  |           | 1.1   |               |  |              | 88.4  |       |  |   |      |   |  |   | 89.5  |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating segment revenues                                          |  | $         | 93.2  |               |  | $            | 207.9 |       |  |   |      |   |  |   | 301.1 |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Eliminations(3)                                                     |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (90.1 | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating revenues as reported                                      |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | 211.0 |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Segment Adjusted EBITDA before
    eliminations(4)                  |  | $         | 49.4  |               |  | $            | 7.1   |       |  | $ | (8.7 | ) |  | $ | 47.8  |  
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Eliminations(3)                                                     |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (17.2 | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Adjusted EBITDA(4)                                                  |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 30.6  |  
|Depreciation and amortization(5)(6)                                 |  | $         | (38.3 | )             |  | $            | (7.9  | )     |  | $ | (0.2 | ) |  |   | (46.4 | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating loss                                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (15.8 | )
|Interest and investment income                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 1.1   |  
|Interest expense                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (19.5 | )
|Income tax benefit                                                  |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 7.7   |  
|Equity in net losses of affiliates, net of taxes                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (22.0 | )
|Minority interest, net of taxes                                     |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (0.2  | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Loss before cumulative effect of change in
    accounting principle |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | (48.7 | )
|                                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  

33



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Nine Months Ended September 30,
2002

As Restated


|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------------------------- |  | --------- | ------ | ------------- |  | ------------ | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                    |  |           |        | Satellite     |  |              |       |      
|                                                                    |  | Fixed     |        | Manufacturing |  |              |       |      
|                                                                    |  | Satellite |        | and           |  |              |       |      
|                                                                    |  | Services  |        | Technology    |  | Corporate(1) |       | Total
|                                                                    |  |           |        |               |  |              |       |      
|Revenues and Adjusted EBITDA:                                       |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Revenues from external customers(2)                                 |  | $         | 303.5  |               |  | $            | 532.5 |       |  |   |       |   |  | $ | 836.0   |  
|Intersegment revenues                                               |  |           | 3.2    |               |  |              | 168.0 |       |  |   |       |   |  |   | 171.2   |  
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating segment revenues                                          |  | $         | 306.7  |               |  | $            | 700.5 |       |  |   |       |   |  |   | 1,007.2 |  
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                                     |  |           |        |               |  |              |       |       |  |   |       |   |  |   | (171.7  | )
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating revenues as reported                                      |  |           |        |               |  |              |       |       |  |   |       |   |  | $ | 835.5   |  
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Segment Adjusted EBITDA before
    eliminations(4)                  |  | $         | 176.5  |               |  | $            | 27.6  |       |  | $ | (26.2 | ) |  | $ | 177.9   |  
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                                     |  |           |        |               |  |              |       |       |  |   |       |   |  |   | (28.7   | )
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Adjusted EBITDA(4)                                                  |  |           |        |               |  |              |       |       |  |   |       |   |  |   | 149.2   |  
|Depreciation and amortization(5)(6)                                 |  | $         | (116.6 | )             |  | $            | (24.4 | )     |  | $ | (0.6  | ) |  |   | (141.6  | )
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating income                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   | 7.6     |  
|Interest and investment income                                      |  |           |        |               |  |              |       |       |  |   |       |   |  |   | 10.9    |  
|Interest expense                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   | (56.5   | )
|Income tax provision                                                |  |           |        |               |  |              |       |       |  |   |       |   |  |   | (1.9    | )
|Equity in net losses of affiliates, net of taxes                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   | (51.1   | )
|Minority interest, net of taxes                                     |  |           |        |               |  |              |       |       |  |   |       |   |  |   | (0.1    | )
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  
|Loss before cumulative effect of change in
    accounting principle |  |           |        |               |  |              |       |       |  |   |       |   |  | $ | (91.1   | )
|                                                                    |  |           |        |               |  |              |       |       |  |   |       |   |  |   |         |  



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



| |         
| | --------
| | SFAS 143

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and the normal
operation of a long-lived asset, except for certain obligations
of lessees. The Company has determined that there was no effect
on its consolidated financial position or results of operations
upon the adoption of SFAS 143 on January 1, 2003.



| |       
| | ------
| | FIN 45

In November 2002, the FASB issued FIN 45
which elaborates on the disclosures to be made by the guarantor
in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also
requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this interpretation were applicable on
a prospective basis to guarantees issued or modified after
December 31, 2002; while the provisions of the disclosure
requirements were effective for financial statements

34



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of interim or annual reports ending after
December 15, 2002. The Company adopted the disclosure
provisions of FIN 45 during the fourth quarter of 2002. The
Company adopted the recognition provisions of FIN 45 on
January 1, 2003 and determined that there was no effect on
its consolidated financial position or results of operations.



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

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin
No. 51 (FIN 46). FIN 46 requires certain
variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support from other parties. FIN 46 is effective
for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of
FIN 46 will be applied by Loral as of December 31,
2003. The Company is currently evaluating the provisions of
FIN 46.



| |         
| | --------
| | SFAS 149

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 149). SFAS 149
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 is effective for contracts entered
into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003, except for
certain provisions that relate to SFAS 133 Implementation
Issues that have been effective for fiscal quarters prior to
June 15, 2003. Management determined that the adoption of
SFAS 149 did not have an impact on its consolidated
financial position or results of operations.



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

In May 2003, the FASB issued SFAS 150 which
establishes standards for how an issuer classifies and measures
in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity.
SFAS 150 requires that an issuer classify a financial
instrument that is within the scope as a liability (or an asset
in some circumstances) because that financial instrument
embodies an obligation of the issuer. As a result of the
Companys adoption of SFAS 150 on July 1, 2003, the
Company reclassified its preferred stock to liabilities and
increased the recorded values to their redemption values (with
an offsetting increase to other assets) and recorded a
cumulative effect of accounting change of $2 million, which
represents the amortization of expenses incurred on the issuance
of the securities from their issuance dates through
June 30, 2003, that were not previously amortized.



| |           
| | ----------
| | EITF 00-21

In November 2002, the Emerging Issues Task Force
of the FASB (EITF) reached a consensus on Issue
No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables (EITF 00-21).
EITF 00-21 addresses determination of whether an
arrangement involving more than one deliverable contains more
than one unit of accounting and how the related revenues should
be measured and allocated to the separate units of accounting.
EITF 00-21 applies to revenue arrangements entered into
after June 30, 2003; however, upon adoption, the EITF
allows the guidance to be applied on a retroactive basis, with
the change, if any, reported as a cumulative effect of
accounting change in the statement of operations. Management
determined that the adoption of EITF 00-21 did not have a
significant impact on its consolidated financial position or
results of operations.

35



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

Presented below is condensed consolidating
financial information for the Parent Company, the Subsidiary
Issuer, the Guarantor Subsidiaries and the other wholly-owned
subsidiaries (the Non-Guarantor Subsidiaries) as of
September 30, 2003 and December 31, 2002 and for the
three and nine months ended September 30, 2003 and 2002.
The condensed consolidating financial information has been
presented to show the nature of assets held, results of
operations and cash flows of the Parent Company, Subsidiary
Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
The supplemental condensed consolidating financial information
reflects the investments of the Parent Company in the Subsidiary
Issuer, the Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries using the equity method of accounting. The
Companys significant transactions with its subsidiaries,
other than the investment account and related equity in net loss
of unconsolidated subsidiaries, are intercompany payables and
receivables between its subsidiaries resulting primarily from
the funding of the construction of satellites for the fixed
satellite services segment.

36



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##### Table of Contents






CONDENSED CONSOLIDATING BALANCE
SHEET

September 30, 2003


|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |           |            |           | 
|-------------------------------------------- | -------------------------------------------------------- | ---------------------------------------- | ------------------------------------------- | ---------- | ---------- | ---------- | --------- | ------------- | ---------- | ------------ | -------- | ------------ | ------ | ------- | ---------- | ------- | ---------- | ------- | --------- | --------- | --------- | --------- | --------- | --------- | ---------- | --------- | 
|                                             |                                                          | Parent                                   |                                             | Subsidiary |            | Guarantor  |           | Non-Guarantor |            |              |          |             
|                                             |                                                          | Company                                  |                                             | Issuer     |            | Subsidiary |           | Subsidiaries  |            | Eliminations |          | Consolidated
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |             
|                                             |                                                          |                                         
|                                             |                                                          | (In thousands)                          
|Current assets:                              |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|                                             | Cash and cash equivalents                                |                                          | $                                           | 4,545      |            |            | $         | 52,798        |            |              | $        |             |        |         | $          | 45,462  |            |         | $         |          |           |           | $         | 102,805   |           
|                                             | Accounts receivable, net                                 |                                          |                                             |           |            |            |           | 7,418         |            |              |          | 518          |        |         |            | 14,059  |            |         |           |          |           |           |           | 21,995    |           
|                                             | Contracts-in-process                                     |                                          |                                             |           |            |            |           |              |            |              |          |             |        |         |            | 74,534  |            |         |           |          |           |           |           | 74,534    |           
|                                             | Inventories                                              |                                          |                                             |           |            |            |           |              |            |              |          |             |        |         |            | 61,384  |            |         |           |          |           |           |           | 61,384    |           
|                                             | Insurance proceeds receivable                            |                                          |                                             |           |            |            |           |              |            |              |          |             |        |         |            | 122,770 |            |         |           |          |           |           |           | 122,770   |           
|                                             | Other current assets                                     |                                          |                                             | 4,301      |            |            |           | 4,505         |            |              |          | 1,532        |        |         |            | 33,955  |            |         |           | (965      | )         |           |           | 43,328    |           
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|                                             |                                                          |                                          | Total current assets                        |            |            | 8,846      |           |               |            | 64,721       |          |              |        | 2,050   |            |         |            | 352,164 |           |           |           | (965      | )         |           |            | 426,816   | 
|Property, plant and equipment, net           |                                                          |                                          |                                            |            |            |            | 285,556   |               |            |              | 188,941  |              |        |         | 1,346,790  |         |            |         | (23,492   | )         |           |           | 1,797,795 |          
|Long-term receivables                        |                                                          |                                          |                                            |            |            |            |          |               |            |              |         |              |        |         | 57,062     |         |            |         |          |           |           |           | 57,062    |          
|Due (to) from unconsolidated subsidiaries    |                                                          |                                          | (849                                        | )          |            |            | (10,909   | )             |            |              | 18,105   |              |        |         | 30,872     |         |            |         | (37,219   | )         |           |           |          |          
|Investments in unconsolidated subsidiaries   |                                                          |                                          | (199,628                                    | )          |            |            | 309,853   |               |            |              | (271,698 | )            |        |         | (1,662,152 | )       |            |         | 1,823,625 |           |           |           |          |          
|Investments in and advances to affiliates    |                                                          |                                          | (30,120                                     | )          |            |            |          |               |            |              |         |              |        |         | 106,102    |         |            |         |          |           |           |           | 75,982    |          
|Deposits                                     |                                                          |                                          |                                            |            |            |            |          |               |            |              |         |              |        |         | 12,000     |         |            |         |          |           |           |           | 12,000    |          
|Other assets                                 |                                                          |                                          | 4,253                                       |            |            |            | 11,274    |               |            |              | 591      |              |        |         | 68,422     |         |            |         |          |           |           |           | 84,540    |          
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|                                             |                                                          |                                          | Total assets                                |            | $          | (217,498   | )         |               | $          | 660,495      |          |              | $      | (62,011 | )          |         | $          | 311,260 |           |           | $         | 1,761,949 |           |           | $          | 2,454,195 | 
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|Liabilities not subject to compromise:       |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|                                             | Current liabilities:                                     |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |           |           
|                                             |                                                          | Accounts payable                         |                                             | $          |           |            |           | $             | 249        |              |          | $            | 212    |         |            | $       | 16,421     |         |           | $         |          |           |           | $         | 16,882     |          
|                                             |                                                          | Accrued employment costs                 |                                             |            |           |            |           |               |           |              |          |              |       |         |            |         | 14,115     |         |           |           |          |           |           |           | 14,115     |          
|                                             |                                                          | Customer advances                        |                                             |            |           |            |           |               | 1,443      |              |          |              | 5      |         |            |         | 32,624     |         |           |           |          |           |           |           | 34,072     |          
|                                             |                                                          | Accrued interest and preferred dividends |                                             |            |           |            |           |               |           |              |          |              |       |         |            |         | 6,477      |         |           |           |          |           |           |           | 6,477      |          
|                                             |                                                          | Income taxes payable                     |                                             |            |           |            |           |               |           |              |          |              |       |         |            |         | 80         |         |           |           |          |           |           |           | 80         |          
|                                             |                                                          | Other current liabilities                |                                             |            | 1,792      |            |           |               |           |              |          |              |       |         |            |         | 5,843      |         |           |           |          |           |           |           | 7,635      |          
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|                                             |                                                          |                                          | Total current liabilities                   |            |            | 1,792      |           |               |            | 1,692        |          |              |        | 217     |            |         |            | 75,560  |           |           |           |          |           |           |            | 79,261    | 
|Pension and other postretirement liabilities |                                                          |                                          |                                            |            |            |            |          |               |            |              |         |              |        |         | 2,682      |         |            |         |          |           |           |           | 2,682     |          
|Long-term liabilities                        |                                                          |                                          | 52,233                                      |            |            |            | 4,089     |               |            |              | 13,812   |              |        |         | 139,521    |         |            |         | (35,438   | )         |           |           | 174,217   |          
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|                                             |                                                          |                                          | Total liabilities not subject to compromise |            |            | 54,025     |           |               |            | 5,781        |          |              |        | 14,029  |            |         |            | 217,763 |           |           |           | (35,438   | )         |           |            | 256,160   | 
|Liabilities subject to compromise            |                                                          |                                          | 434,306                                     |            |            |            | 1,128,725 |               |            |              | (116,663 | )            |        |         | 1,456,445  |         |            |         | (1,419    | )         |           |           | 2,901,394 |          
|Minority interest                            |                                                          |                                          |                                            |            |            |            |          |               |            |              |         |              |        |         | 2,470      |         |            |         |          |           |           |           | 2,470     |          
|Shareholders (deficit) equity:              |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|                                             | Common stock, par value $.01                             |                                          |                                             | 4,413      |            |            |           |              |            |              |          |             |        |         |            |        |            |         |           |          |           |           |           | 4,413     |           
|                                             | Paid-in capital                                          |                                          |                                             | 3,392,867  |            |            |           | 604,166       |            |              |          |             |        |         |            |        |            |         |           | (604,166  | )         |           |           | 3,392,867 |           
|                                             | Treasury stock, at cost                                  |                                          |                                             | (3,360     | )          |            |           |              |            |              |          |             |        |         |            |        |            |         |           |          |           |           |           | (3,360    | )         
|                                             | Unearned compensation                                    |                                          |                                             | (188       | )          |            |           |              |            |              |          |             |        |         |            |        |            |         |           |          |           |           |           | (188      | )         
|                                             | Due from related parties                                 |                                          |                                             |           |            |            |           | (57,747       | )          |              |          |             |        |         |            | 57,747  |            |         |           |          |           |           |           |          |           
|                                             |                                                          | Retained (deficit) earnings              |                                             |            | (4,060,669 | )          |           |               | (1,020,430 | )            |          |              | 40,623 |         |            |         | (1,423,165 | )       |           |           | 2,402,972 |           |           |           | (4,060,669 | )        
|                                             |                                                          | Accumulated other comprehensive income   |                                             |            | (38,892    | )          |           |               |           |              |          |              |       |         |            |         |           |         |           |           |          |           |           |           | (38,892    | )        
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|Total shareholders (deficit) equity         |                                                          |                                          | (705,829                                    | )          |            |            | (474,011  | )             |            |              | 40,623   |              |        |         | (1,365,418 | )       |            |         | 1,798,806 |           |           |           | (705,829  | )        
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          
|                                             | Total liabilities and shareholders
    (deficit) equity |                                          | $                                           | (217,498   | )          |            | $         | 660,495       |            |              | $        | (62,011      | )      |         | $          | 311,260 |            |         | $         | 1,761,949 |           |           | $         | 2,454,195 |           
|                                             |                                                          |                                          |                                             |            |            |            |           |               |            |              |          |              |        |         |            |         |            |         |           |           |           |           |           |          

37



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##### Table of Contents






CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Three Months Ended September 30,
2003


|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | -------------- | -------- | ---------- |  | ---------- | ------ | ------------- |  | ------------ | ----- | ------------ |  | - | ------- | ------ |  | - | ------- | ------- | - | - | -------- | ------ | 
|                                                                                                                                                                                         |                | Parent         |          | Subsidiary |  | Guarantor  |        | Non-Guarantor |  |              |       |             
|                                                                                                                                                                                         |                | Company        |          | Issuer     |  | Subsidiary |        | Subsidiaries  |  | Eliminations |       | Consolidated
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |             
|                                                                                                                                                                                         |                |               
|                                                                                                                                                                                         |                | (In thousands)
|Revenues from satellite sales                                                                                                                                                            |                | $              |         |            |  | $          |       |               |  | $            |      |              |  | $ | (21,213 | )      |  | $ | (2,355  | )       |   | $ | (23,568  | )     
|Revenues from satellite services                                                                                                                                                         |                |                |         |            |  |            | 22,631 |               |  |              | 9,906 |              |  |   | 49,293  |        |  |   | (10,939 | )       |   |   | 70,891   |       
|Management fee from parent                                                                                                                                                               |                |                |         |            |  |            |       |               |  |              |      |              |  |   | (109    | )      |  |   | 109     |         |   |   |         |       
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |       
|                                                                                                                                                                                         | Total revenues |                |          |           |  |            |        | 22,631        |  |              |       | 9,906        |  |   |         | 27,971 |  |   |         | (13,185 | ) |   |          | 47,323 | 
|Costs of satellite sales                                                                                                                                                                 |                |                |         |            |  |            |       |               |  |              |      |              |  |   | 16,559  |        |  |   | (1,566  | )       |   |   | 14,993   |       
|Costs of satellite services                                                                                                                                                              |                |                |         |            |  |            | 23,721 |               |  |              | 8,005 |              |  |   | 38,512  |        |  |   | (10,269 | )       |   |   | 59,969   |       
|Selling, general and administrative expenses                                                                                                                                             |                |                | 3,169    |            |  |            | 2,587  |               |  |              | 972   |              |  |   | 34,131  |        |  |   |        |         |   |   | 40,859   |       
|Management fee expense                                                                                                                                                                   |                |                | (109     | )          |  |            |       |               |  |              |      |              |  |   |        |        |  |   | 109     |         |   |   |         |       
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |       
|Operating income (loss) before
    reorganization expenses due to bankruptcy                                                                                                             |                |                | (3,060   | )          |  |            | (3,677 | )             |  |              | 929   |              |  |   | (61,231 | )      |  |   | (1,459  | )       |   |   | (68,498  | )     
|Reorganization expenses due to bankruptcy                                                                                                                                                |                |                | (814     | )          |  |            | (1,575 | )             |  |              |      |              |  |   | (6,371  | )      |  |   |        |         |   |   | (8,760   | )     
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |       
|Operating income (loss)                                                                                                                                                                  |                |                | (3,874   | )          |  |            | (5,252 | )             |  |              | 929   |              |  |   | (67,602 | )      |  |   | (1,459  | )       |   |   | (77,258  | )     
|Interest and investment income                                                                                                                                                           |                |                | 873      |            |  |            | 14     |               |  |              |      |              |  |   | 795     |        |  |   | (1,007  | )       |   |   | 675      |       
|Interest expense                                                                                                                                                                         |                |                | (2,005   | )          |  |            | (657   | )             |  |              |      |              |  |   | (8,925  | )      |  |   | 1,656   |         |   |   | (9,931   | )     
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |       
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates, minority
    interest and cumulative effect of change in accounting principle |                |                | (5,006   | )          |  |            | (5,895 | )             |  |              | 929   |              |  |   | (75,732 | )      |  |   | (810    | )       |   |   | (86,514  | )     
|Income tax benefit (provision)                                                                                                                                                           |                |                | (261     | )          |  |            | (788   | )             |  |              | (327  | )            |  |   | (7      | )      |  |   | 707     |         |   |   | (676     | )     
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |       
|(Loss) income before equity in net losses of
    subsidiaries and affiliates, minority interest and cumulative
    effect of change in accounting principle                              |                |                | (5,267   | )          |  |            | (6,683 | )             |  |              | 602   |              |  |   | (75,739 | )      |  |   | (103    | )       |   |   | (87,190  | )     
|Equity in net income (losses) of
    unconsolidated subsidiaries                                                                                                                         |                |                | (82,542  | )          |  |            | 602    |               |  |              |      |              |  |   |        |        |  |   | 81,940  |         |   |   |         |       
|Equity in net income (losses) of affiliates                                                                                                                                              |                |                | (38,100  | )          |  |            |       |               |  |              |      |              |  |   | (708    | )      |  |   |        |         |   |   | (38,808  | )     
|Minority interest                                                                                                                                                                        |                |                |         |            |  |            |       |               |  |              |      |              |  |   | 89      |        |  |   |        |         |   |   | 89       |       
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |       
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                                             |                |                | (125,909 | )          |  |            | (6,081 | )             |  |              | 602   |              |  |   | (76,358 | )      |  |   | 81,837  |         |   |   | (125,909 | )     
|Cumulative effect of change in accounting
    principle                                                                                                                                  |                |                | (1,970   | )          |  |            |       |               |  |              |      |              |  |   |        |        |  |   |        |         |   |   | (1,970   | )     
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |       
|Net (loss) income                                                                                                                                                                        |                | $              | (127,879 | )          |  | $          | (6,081 | )             |  | $            | 602   |              |  | $ | (76,358 | )      |  | $ | 81,837  |         |   | $ | (127,879 | )     
|                                                                                                                                                                                         |                |                |          |            |  |            |        |               |  |              |       |              |  |   |         |        |  |   |         |         |   |   |          |       

38



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##### Table of Contents






CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Nine Months Ended September 30,
2003


|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | -------------- | -------- | ---------- |  | ---------- | ------- | ------------- |  | ------------ | ------ | ------------ |  | - | -------- | ------- |  | - | ------- | ------- | - | - | -------- | ------- | 
|                                                                                                                                                                                                                                                     |                | Parent         |          | Subsidiary |  | Guarantor  |         | Non-Guarantor |  |              |        |             
|                                                                                                                                                                                                                                                     |                | Company        |          | Issuer     |  | Subsidiary |         | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |             
|                                                                                                                                                                                                                                                     |                |               
|                                                                                                                                                                                                                                                     |                | (In thousands)
|Revenues from satellite sales                                                                                                                                                                                                                        |                | $              |         |            |  | $          |        |               |  | $            |       |              |  | $ | 172,477  |         |  | $ | (9,801  | )       |   | $ | 162,676  |        
|Revenues from satellite services                                                                                                                                                                                                                     |                |                |         |            |  |            | 68,655  |               |  |              | 30,575 |              |  |   | 159,797  |         |  |   | (33,498 | )       |   |   | 225,529  |        
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|                                                                                                                                                                                                                                                     | Total revenues |                |          |           |  |            |         | 68,655        |  |              |        | 30,575       |  |   |          | 332,274 |  |   |         | (43,299 | ) |   |          | 388,205 | 
|Costs of satellite sales                                                                                                                                                                                                                             |                |                |         |            |  |            |        |               |  |              |       |              |  |   | 305,140  |         |  |   | (6,730  | )       |   |   | 298,410  |        
|Costs of satellite services                                                                                                                                                                                                                          |                |                |         |            |  |            | 71,917  |               |  |              | 23,770 |              |  |   | 108,777  |         |  |   | (31,485 | )       |   |   | 172,979  |        
|Selling, general and administrative expenses                                                                                                                                                                                                         |                |                | 7,353    |            |  |            | 6,948   |               |  |              | 1,542  |              |  |   | 99,346   |         |  |   |        |         |   |   | 115,189  |        
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Operating (loss) income before
    reorganization expenses due to bankruptcy                                                                                                                                                                         |                |                | (7,353   | )          |  |            | (10,210 | )             |  |              | 5,263  |              |  |   | (180,989 | )       |  |   | (5,084  | )       |   |   | (198,373 | )      
|Reorganization expenses due to bankruptcy                                                                                                                                                                                                            |                |                | (814     | )          |  |            | (1,575  | )             |  |              |       |              |  |   | (6,371   | )       |  |   |        |         |   |   | (8,760   | )      
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Operating (loss) income                                                                                                                                                                                                                              |                |                | (8,167   | )          |  |            | (11,785 | )             |  |              | 5,263  |              |  |   | (187,360 | )       |  |   | (5,084  | )       |   |   | (207,133 | )      
|Interest and investment income                                                                                                                                                                                                                       |                |                | 12,201   |            |  |            | 19      |               |  |              |       |              |  |   | 13,263   |         |  |   | (13,967 | )       |   |   | 11,516   |        
|Interest expense                                                                                                                                                                                                                                     |                |                | (21,674  | )          |  |            | (6,305  | )             |  |              |       |              |  |   | (33,601  | )       |  |   | 15,916  |         |   |   | (45,664  | )      
|Gain on investment                                                                                                                                                                                                                                   |                |                |         |            |  |            |        |               |  |              |       |              |  |   | 17,900   |         |  |   |        |         |   |   | 17,900   |        
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates, minority
    interest, cumulative effect of change in accounting principle
    and extraordinary gain on acquisition of minority interest |                |                | (17,640  | )          |  |            | (18,071 | )             |  |              | 5,263  |              |  |   | (189,798 | )       |  |   | (3,135  | )       |   |   | (223,381 | )      
|Income tax (provision) benefit                                                                                                                                                                                                                       |                |                | (3,656   | )          |  |            | (1,678  | )             |  |              | (1,842 | )            |  |   | (742     | )       |  |   | 3,393   |         |   |   | (4,525   | )      
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before equity in net losses of
    subsidiaries and affiliates, minority interest, cumulative
    effect of change in accounting principle and extraordinary gain
    on acquisition of minority interest                              |                |                | (21,296  | )          |  |            | (19,749 | )             |  |              | 3,421  |              |  |   | (190,540 | )       |  |   | 258     |         |   |   | (227,906 | )      
|Equity in net income (losses) of
    unconsolidated subsidiaries                                                                                                                                                                                     |                |                | (197,683 | )          |  |            | 3,421   |               |  |              |       |              |  |   |         |         |  |   | 194,262 |         |   |   |         |        
|Equity in net income (losses) of affiliates                                                                                                                                                                                                          |                |                | (50,893  | )          |  |            |        |               |  |              |       |              |  |   | (4,753   | )       |  |   |        |         |   |   | (55,646  | )      
|Minority interest                                                                                                                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |       |              |  |   | 65       |         |  |   |        |         |   |   | 65       |        
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before cumulative effect of change
    in accounting principle and extraordinary gain on acquisition of
    minority interest                                                                                                          |                |                | (269,872 | )          |  |            | (16,328 | )             |  |              | 3,421  |              |  |   | (195,228 | )       |  |   | 194,520 |         |   |   | (283,487 | )      
|Cumulative effect of change in accounting
    principle                                                                                                                                                                                              |                |                | (1,970   | )          |  |            |        |               |  |              |       |              |  |   |         |         |  |   |        |         |   |   | (1,970   | )      
|Extraordinary gain on acquisition of minority
    interest                                                                                                                                                                                           |                |                |         |            |  |            |        |               |  |              |       |              |  |   | 13,615   |         |  |   |        |         |   |   | 13,615   |        
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Net (loss) income                                                                                                                                                                                                                                    |                | $              | (271,842 | )          |  | $          | (16,328 | )             |  | $            | 3,421  |              |  | $ | (181,613 | )       |  | $ | 194,520 |         |   | $ | (271,842 | )      
|                                                                                                                                                                                                                                                     |                |                |          |            |  |            |         |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        

39



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##### Table of Contents






CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Nine Months Ended September 30,
2003


|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |          |         |  
|------------------------------------------------------- | -------------------------------------------------------------- | ---------------------------------------------------------- | ------- | ---------- | ------- | ---------- | ------- | ------------- | ------ | ------------ | - | ------------ | ------ | - | ------- | -------- | ------- | - | ---- | ------- | -------- | - | ------- | -------- | ------- | -
|                                                        |                                                                | Parent                                                     |         | Subsidiary |         | Guarantor  |         | Non-Guarantor |        |              |   |             
|                                                        |                                                                | Company                                                    |         | Issuer     |         | Subsidiary |         | Subsidiaries  |        | Eliminations |   | Consolidated
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |             
|                                                        |                                                                |                                                           
|                                                        |                                                                | (In thousands)                                            
|Operating activities:                                   |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|                                                        | Net (loss) income                                              |                                                            | $       | (271,842   | )       |            | $       | (16,328       | )      |              | $ | 3,421        |        |   | $       | (181,613 | )       |   | $    | 194,520 |          |   | $       | (271,842 | )      
|                                                        | Non-cash items:                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |          |        
|                                                        |                                                                | Equity in net losses of affiliates                         |         |            | 50,893  |            |         |               |       |              |   |              |       |   |         |          | 4,753   |   |      |         |         |   |         |          | 55,646  |  
|                                                        |                                                                | Minority interest                                          |         |            |        |            |         |               |       |              |   |              |       |   |         |          | (65     | ) |      |         |         |   |         |          | (65     | )
|                                                        |                                                                | Cumulative effect of change in accounting
    principle    |         |            | 1,970   |            |         |               |       |              |   |              |       |   |         |          |        |   |      |         |         |   |         |          | 1,970   |  
|                                                        |                                                                | Extraordinary gain on acquisition of minority
    interest |         |            |        |            |         |               |       |              |   |              |       |   |         |          | (13,615 | ) |      |         |         |   |         |          | (13,615 | )
|                                                        |                                                                | Equity in net losses of unconsolidated
    subsidiaries    |         |            | 197,683 |            |         |               | (3,421 | )            |   |              |       |   |         |          |        |   |      |         | (194,262 | ) |         |          |        |  
|                                                        |                                                                | Deferred taxes                                             |         |            | 3,656   |            |         |               |       |              |   |              | 3,393  |   |         |          |        |   |      |         | (3,393   | ) |         |          | 3,656   |  
|                                                        |                                                                | Depreciation and amortization                              |         |            |        |            |         |               | 40,710 |              |   |              | 15,760 |   |         |          | 75,907  |   |      |         |         |   |         |          | 132,377 |  
|                                                        |                                                                | Provisions for inventory obsolescence                      |         |            |        |            |         |               |       |              |   |              |       |   |         |          | 35,107  |   |      |         |         |   |         |          | 35,107  |  
|                                                        |                                                                | Loss on cancellation of deposit                            |         |            |        |            |         |               |       |              |   |              |       |   |         |          | 23,500  |   |      |         |         |   |         |          | 23,500  |  
|                                                        |                                                                | Loss on sale of orbital receivables                        |         |            |        |            |         |               |       |              |   |              |       |   |         |          | 10,893  |   |      |         |         |   |         |          | 10,893  |  
|                                                        |                                                                | Change from contract to lease                              |         |            |        |            |         |               |       |              |   |              |       |   |         |          | 10,098  |   |      |         |         |   |         |          | 10,098  |  
|                                                        |                                                                | Charge on vendor financing receivables                     |         |            |        |            |         |               |       |              |   |              |       |   |         |          | 10,008  |   |      |         |         |   |         |          | 10,008  |  
|                                                        |                                                                | Accrual for Alcatel settlement                             |         |            |        |            |         |               |       |              |   |              |       |   |         |          | 8,000   |   |      |         |         |   |         |          | 8,000   |  
|                                                        |                                                                | Provisions for bad debts                                   |         |            |        |            |         |               | 1,423  |              |   |              | 155    |   |         |          | 6,136   |   |      |         |         |   |         |          | 7,714   |  
|                                                        |                                                                | Gain on investment                                         |         |            |        |            |         |               |       |              |   |              |       |   |         |          | (17,900 | ) |      |         |         |   |         |          | (17,900 | )
|                                                        |                                                                | Interest                                                   |         |            |        |            |         |               | 669    |              |   |              |       |   |         |          | (1,585  | ) |      |         |         |   |         |          | (916    | )
|Changes in operating assets and liabilities:            |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|                                                        | Accounts receivable, net                                       |                                                            |         |           |         |            |         | (1,364        | )      |              |   | (535         | )      |   |         | 1,083    |         |   |      |        |          |   |         | (816     | )      
|                                                        | Contracts-in-process                                           |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | 26,331   |         |   |      |        |          |   |         | 26,331   |        
|                                                        | Inventories                                                    |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | (758     | )       |   |      |        |          |   |         | (758     | )      
|                                                        | Long-term receivables                                          |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | 75,612   |         |   |      |        |          |   |         | 75,612   |        
|                                                        | Deposits                                                       |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | 22,750   |         |   |      |        |          |   |         | 22,750   |        
|                                                        | Due (to) from unconsolidated subsidiaries                      |                                                            |         | 152        |         |            |         | 21,733        |        |              |   | (29,053      | )      |   |         | 3,249    |         |   |      | 3,919   |          |   |         |         |        
|                                                        | Other current assets and other assets                          |                                                            |         | (2,924     | )       |            |         | 4,867         |        |              |   | 7,158        |        |   |         | 22,140   |         |   |      |        |          |   |         | 31,241   |        
|                                                        | Accounts payable                                               |                                                            |         |           |         |            |         | (155          | )      |              |   | 20           |        |   |         | 11,564   |         |   |      |        |          |   |         | 11,429   |        
|                                                        | Accrued expenses and other current liabilities                 |                                                            |         | 1,492      |         |            |         | 384           |        |              |   |             |        |   |         | (4,542   | )       |   |      |        |          |   |         | (2,666   | )      
|                                                        | Customer advances                                              |                                                            |         |           |         |            |         | (2,014        | )      |              |   | (319         | )      |   |         | (56,380  | )       |   |      |        |          |   |         | (58,713  | )      
|                                                        | Income taxes payable                                           |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | (598     | )       |   |      |        |          |   |         | (598     | )      
|                                                        | Pension and other postretirement liabilities                   |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | 8,016    |         |   |      |        |          |   |         | 8,016    |        
|                                                        | Long-term liabilities                                          |                                                            |         |           |         |            |         | (1,284        | )      |              |   |             |        |   |         | (10,163  | )       |   |      |        |          |   |         | (11,447  | )      
|                                                        | Other                                                          |                                                            |         | 64         |         |            |         |              |        |              |   |             |        |   |         | 170      |         |   |      |        |          |   |         | 234      |        
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|Net cash provided by (used in) operating
    activities |                                                                |                                                            | (18,856 | )          |         |            | 45,220  |               |        |              |  |              |        |   | 68,098  |          |         |   | 784  |         |          |   | 95,246  |         
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|Investing activities:                                   |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|                                                        | Capital expenditures                                           |                                                            |         |           |         |            |         | (4,751        | )      |              |   |             |        |   |         | (80,728  | )       |   |      | (784    | )        |   |         | (86,263  | )      
|                                                        | Proceeds from the sale of investment                           |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | 45,908   |         |   |      |        |          |   |         | 45,908   |        
|                                                        | Investments in and advances to unconsolidated
    subsidiaries |                                                            |         | 734        |         |            |         |              |        |              |   |             |        |   |         | (734     | )       |   |      |        |          |   |         |         |        
|                                                        | Investments in and advances to affiliates                      |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | (18,591  | )       |   |      |        |          |   |         | (18,591  | )      
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|Net cash used in investing activities                   |                                                                |                                                            | 734     |            |         |            | (4,751  | )             |        |              |  |              |        |   | (54,145 | )        |         |   | (784 | )       |          |   | (58,946 | )       
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|Financing activities:                                   |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|                                                        | Borrowings under revolving credit facilities                   |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | 71,400   |         |   |      |        |          |   |         | 71,400   |        
|                                                        | Repayments under term loans                                    |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | (32,500  | )       |   |      |        |          |   |         | (32,500  | )      
|                                                        | Interest payments on 10% senior notes                          |                                                            |         |           |         |            |         | (30,635       | )      |              |   |             |        |   |         |         |         |   |      |        |          |   |         | (30,635  | )      
|                                                        | Repayments of other long-term obligations                      |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         |         |         |   |      |        |          |   |         |         |        
|                                                        | Repayments of export credit facility                           |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | (6,434   | )       |   |      |        |          |   |         | (6,434   | )      
|                                                        | Payment of bank amendment costs                                |                                                            |         |           |         |            |         |              |        |              |   |             |        |   |         | (5,131   | )       |   |      |        |          |   |         | (5,131   | )      
|                                                        | Note receivable from unconsolidated affiliate                  |                                                            |         | 17,284     |         |            |         |              |        |              |   |             |        |   |         | (17,284  | )       |   |      |        |          |   |         |         |        
|                                                        | Proceeds from stock issuances                                  |                                                            |         | 3,869      |         |            |         |              |        |              |   |             |        |   |         |         |         |   |      |        |          |   |         | 3,869    |        
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|Net cash provided by (used in) financing
    activities |                                                                |                                                            | 21,153  |            |         |            | (30,635 | )             |        |              |  |              |        |   | 10,051  |          |         |   |     |         |          |   | 569     |         
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|Increase (decrease) in cash and cash equivalents        |                                                                |                                                            | 3,031   |            |         |            | 9,834   |               |        |              |  |              |        |   | 24,004  |          |         |   |     |         |          |   | 36,869  |         
|Cash and cash equivalents  beginning
    of period     |                                                                |                                                            | 1,514   |            |         |            | 42,964  |               |        |              |  |              |        |   | 21,458  |          |         |   |     |         |          |   | 65,936  |         
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         
|Cash and cash equivalents  end of
    period           |                                                                | $                                                          | 4,545   |            |         | $          | 52,798  |               |        | $            |  |              |        | $ | 45,462  |          |         | $ |     |         |          | $ | 102,805 |         
|                                                        |                                                                |                                                            |         |            |         |            |         |               |        |              |   |              |        |   |         |          |         |   |      |         |          |   |         |         

40



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##### Table of Contents






CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2002


|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |            |           |  
|------------------------------------------------------------------ | ------------------------------------------------------ | -------------------------------------------------------- | ------- | ---------- | -------- | ------------ | ------- | ------------- | -------- | ------------ | -------- | ------------ | ------ |  | ---------- | ---------- | ---------- | - | --------- | --------- | --------- | - | --------- | ---------- | --------- | -
|                                                                   |                                                        | Parent                                                   |         | Subsidiary |          | Guarantor    |         | Non-Guarantor |          |              |          |             
|                                                                   |                                                        | Company                                                  |         | Issuer     |          | Subsidiaries |         | Subsidiaries  |          | Eliminations |          | Consolidated
|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |             
|                                                                   |                                                        |                                                         
|                                                                   |                                                        | (In thousands)                                          
|Current assets:                                                    |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                                   | Cash and cash equivalents                              |                                                          | $       | 1,514      |          |              | $       | 42,964        |          |              | $        |             |        |  | $          | 21,458     |            |   | $         |          |           |   | $         | 65,936     |          
|                                                                   | Accounts receivable, net                               |                                                          |         |           |          |              |         | 7,477         |          |              |          | 138          |        |  |            | 21,278     |            |   |           |          |           |   |           | 28,893     |          
|                                                                   | Contracts-in-process                                   |                                                          |         |           |          |              |         |              |          |              |          |             |        |  |            | 113,154    |            |   |           |          |           |   |           | 113,154    |          
|                                                                   | Vendor financing receivable                            |                                                          |         |           |          |              |         |              |          |              |          |             |        |  |            | 38,016     |            |   |           |          |           |   |           | 38,016     |          
|                                                                   | Inventories                                            |                                                          |         |           |          |              |         |              |          |              |          |             |        |  |            | 95,733     |            |   |           |          |           |   |           | 95,733     |          
|                                                                   | Other current assets                                   |                                                          |         | 823        |          |              |         | 5,540         |          |              |          | 8,584        |        |  |            | 34,659     |            |   |           | (911      | )         |   |           | 48,695     |          
|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                                   |                                                        | Total current assets                                     |         |            | 2,337    |              |         |               | 55,981   |              |          |              | 8,722  |  |            |            | 324,298    |   |           |           | (911      | ) |           |            | 390,427   |  
|Property, plant and equipment, net                                 |                                                        |                                                          |        |            |          |              | 319,998 |               |          |              | 204,701  |              |        |  | 1,377,714  |            |            |   | (24,276   | )         |           |   | 1,878,137 |           
|Long-term receivables                                              |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  | 163,191    |            |            |   |          |           |           |   | 163,191   |           
|Notes receivable from (payable to) unconsolidated
    subsidiaries |                                                        |                                                          | 157,500 |            |          |              | (31,540 | )             |          |              |         |              |        |  | (125,960   | )          |            |   |          |           |           |   |          |           
|Due from (to) unconsolidated subsidiaries                          |                                                        |                                                          | 36,448  |            |          |              | (97,652 | )             |          |              | 107,917  |              |        |  | (13,413    | )          |            |   | (33,300   | )         |           |   |          |           
|Investments in unconsolidated subsidiaries                         |                                                        |                                                          | (20,185 | )          |          |              | 304,590 |               |          |              | (271,698 | )            |        |  | (1,642,070 | )          |            |   | 1,629,363 |           |           |   |          |           
|Investments in and advances to affiliates                          |                                                        |                                                          | 21,507  |            |          |              |        |               |          |              |         |              |        |  | 73,936     |            |            |   |          |           |           |   | 95,443    |           
|Deposits                                                           |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  | 58,250     |            |            |   |          |           |           |   | 58,250    |           
|Other assets                                                       |                                                        |                                                          | 3,191   |            |          |              | 16,622  |               |          |              | 696      |              |        |  | 86,845     |            |            |   |          |           |           |   | 107,354   |           
|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                                   |                                                        | Total assets                                             |         | $          | 200,798  |              |         | $             | 567,999  |              |          | $            | 50,338 |  |            | $          | 302,791    |   |           | $         | 1,570,876 |   |           | $          | 2,692,802 |  
|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|Current liabilities:                                               |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                                   | Current portion of long-term debt                      |                                                          | $       |           |          |              | $       | 62,996        |          |              | $        |             |        |  | $          | 67,171     |            |   | $         |          |           |   | $         | 130,167    |          
|                                                                   | Accounts payable                                       |                                                          |         | 2,404      |          |              |         | 1,194         |          |              |          | 1,193        |        |  |            | 53,532     |            |   |           |          |           |   |           | 58,323     |          
|                                                                   | Accrued employment costs                               |                                                          |         |           |          |              |         |              |          |              |          |             |        |  |            | 34,531     |            |   |           |          |           |   |           | 34,531     |          
|                                                                   | Customer advances                                      |                                                          |         |           |          |              |         | 3,176         |          |              |          | 556          |        |  |            | 110,348    |            |   |           |          |           |   |           | 114,080    |          
|                                                                   | Accrued interest and preferred dividends               |                                                          |         | 20,840     |          |              |         | 4,700         |          |              |          |             |        |  |            | 11,830     |            |   |           |          |           |   |           | 37,370     |          
|                                                                   | Income taxes payable                                   |                                                          |         | 8,123      |          |              |         |              |          |              |          |             |        |  |            | 31,232     |            |   |           | (1,419    | )         |   |           | 37,936     |          
|                                                                   | Other current liabilities                              |                                                          |         |           |          |              |         | 1,731         |          |              |          |            |        |  |            | 47,005     |            |   |           |          |           |   |           | 48,736     |          
|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                                   |                                                        | Total current liabilities                                |         |            | 31,367   |              |         |               | 73,797   |              |          |              | 1,749  |  |            |            | 355,649    |   |           |           | (1,419    | ) |           |            | 461,143   |  
|Pension and other postretirement liabilities                       |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  | 124,193    |            |            |   |          |           |           |   | 124,193   |           
|Long-term liabilities                                              |                                                        |                                                          | 48,577  |            |          |              | 14,040  |               |          |              | 11,387   |              |        |  | 172,119    |            |            |   | (31,991   | )         |           |   | 214,132   |           
|Long-term debt                                                     |                                                        |                                                          | 350,000 |            |          |              | 888,532 |               |          |              |         |              |        |  | 867,798    |            |            |   |          |           |           |   | 2,106,330 |           
|Minority interest                                                  |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  | 16,150     |            |            |   |          |           |           |   | 16,150    |           
|6% Series C convertible redeemable preferred
    stock             |                                                        |                                                          | 104,582 |            |          |              |        |               |          |              |         |              |        |  |           |            |            |   |          |           |           |   | 104,582   |           
|6% Series D convertible redeemable preferred
    stock             |                                                        |                                                          | 20,499  |            |          |              |        |               |          |              |         |              |        |  |           |            |            |   |          |           |           |   | 20,499    |           
|Shareholders (deficit) equity:                                    |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                                   | 6% Series C convertible redeemable preferred
    stock |                                                          |         | 80,171     |          |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 80,171     |          
|                                                                   | 6% Series D convertible redeemable preferred
    stock |                                                          |         | 15,125     |          |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 15,125     |          
|                                                                   | Common stock                                           |                                                          |         | 4,293      |          |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 4,293      |          
|                                                                   | Paid-in capital                                        |                                                          |         | 3,389,035  |          |              |         | 604,166       |          |              |          |             |        |  |            |           |            |   |           | (604,166  | )         |   |           | 3,389,035  |          
|                                                                   | Treasury stock, at cost                                |                                                          |         | (3,360     | )        |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (3,360     | )        
|                                                                   | Unearned compensation                                  |                                                          |         | (151       | )        |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (151       | )        
|                                                                   | Retained (deficit) earnings                            |                                                          |         | (3,782,107 | )        |              |         | (1,012,536    | )        |              |          | 37,202       |        |  |            | (1,233,118 | )          |   |           | 2,208,452 |           |   |           | (3,782,107 | )        
|                                                                   | Accumulated other comprehensive loss                   |                                                          |         | (57,233    | )        |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (57,233    | )        
|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                                   |                                                        | Total shareholders (deficit) equity                     |         |            | (354,227 | )            |         |               | (408,370 | )            |          |              | 37,202 |  |            |            | (1,233,118 | ) |           |           | 1,604,286 |   |           |            | (354,227  | )
|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                                   |                                                        | Total liabilities and shareholders
    (deficit) equity |         | $          | 200,798  |              |         | $             | 567,999  |              |          | $            | 50,338 |  |            | $          | 302,791    |   |           | $         | 1,570,876 |   |           | $          | 2,692,802 |  
|                                                                   |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           

41



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##### Table of Contents






CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Three Months Ended September 30,
2002


As Restated


|                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------- | -------------- | -------------- | ------- | ---------- |  | ---------- | ------ | ------------- |  | ------------ | ------ | ------------ |  | - | ------- | ------- |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                                    |                | Parent         |         | Subsidiary |  | Guarantor  |        | Non-Guarantor |  |              |        |             
|                                                                                                                                    |                | Company        |         | Issuer     |  | Subsidiary |        | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |        |             
|                                                                                                                                    |                |               
|                                                                                                                                    |                | (In thousands)
|Revenues from satellite sales                                                                                                       |                | $              |        |            |  | $          |       |               |  | $            |       |              |  | $ | 148,667 |         |  | $ | (29,242 | )       |   | $ | 119,425 |        
|Revenues from satellite services                                                                                                    |                |                |        |            |  |            | 23,383 |               |  |              | 12,052 |              |  |   | 68,637  |         |  |   | (12,515 | )       |   |   | 91,557  |        
|Management fee from parent                                                                                                          |                |                |        |            |  |            |       |               |  |              |       |              |  |   | (4      | )       |  |   | 4       |         |   |   |        |        
|                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|                                                                                                                                    | Total revenues |                |         |           |  |            |        | 23,383        |  |              |        | 12,052       |  |   |         | 217,300 |  |   |         | (41,753 | ) |   |         | 210,982 | 
|Costs of satellite sales                                                                                                            |                |                |        |            |  |            |       |               |  |              |       |              |  |   | 149,650 |         |  |   | (25,003 | )       |   |   | 124,647 |        
|Costs of satellite services                                                                                                         |                |                |        |            |  |            | 25,208 |               |  |              | 7,090  |              |  |   | 50,038  |         |  |   | (17,234 | )       |   |   | 65,102  |        
|Selling, general and administrative expenses                                                                                        |                |                | 1,203   |            |  |            | 2,743  |               |  |              | 61     |              |  |   | 33,031  |         |  |   |        |         |   |   | 37,038  |        
|Management fee expense                                                                                                              |                |                | (4      | )          |  |            |       |               |  |              |       |              |  |   |        |         |  |   | 4       |         |   |   |        |        
|                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|Operating income (loss)                                                                                                             |                |                | (1,199  | )          |  |            | (4,568 | )             |  |              | 4,901  |              |  |   | (15,419 | )       |  |   | 480     |         |   |   | (15,805 | )      
|Interest and investment income                                                                                                      |                |                | 5,341   |            |  |            | 208    |               |  |              |       |              |  |   | 1,631   |         |  |   | (6,104  | )       |   |   | 1,076   |        
|Interest expense                                                                                                                    |                |                | (9,831  | )          |  |            | (3,062 | )             |  |              |       |              |  |   | (13,408 | )       |  |   | 6,791   |         |   |   | (19,510 | )      
|                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates and
    minority interest |                |                | (5,689  | )          |  |            | (7,422 | )             |  |              | 4,901  |              |  |   | (27,196 | )       |  |   | 1,167   |         |   |   | (34,239 | )      
|Income tax benefit (provision)                                                                                                      |                |                | (1,581  | )          |  |            | 3,848  |               |  |              | (1,714 | )            |  |   | 8,051   |         |  |   | (919    | )       |   |   | 7,685   |        
|                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|(Loss) income before equity in net losses of
    unconsolidated subsidiaries and affiliates and minority interest                   |                |                | (7,270  | )          |  |            | (3,574 | )             |  |              | 3,187  |              |  |   | (19,145 | )       |  |   | 248     |         |   |   | (26,554 | )      
|Equity in net income (losses) of
    unconsolidated subsidiaries, net of taxes                                                      |                |                | (20,951 | )          |  |            | 3,187  |               |  |              |       |              |  |   |        |         |  |   | 17,764  |         |   |   |        |        
|Equity in net income (losses) of affiliates,
    net of taxes                                                                       |                |                | (20,491 | )          |  |            |       |               |  |              |       |              |  |   | (1,518  | )       |  |   |        |         |   |   | (22,009 | )      
|Minority interest, net of taxes                                                                                                     |                |                |        |            |  |            |       |               |  |              |       |              |  |   | (149    | )       |  |   |        |         |   |   | (149    | )      
|                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|Net (loss) income                                                                                                                   |                | $              | (48,712 | )          |  | $          | (387   | )             |  | $            | 3,187  |              |  | $ | (20,812 | )       |  | $ | 18,012  |         |   | $ | (48,712 | )      
|                                                                                                                                    |                |                |         |            |  |            |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        

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CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Nine Months Ended September 30,
2002


As Restated


|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | -------------- | -------- | ---------- |  | ---------- | -------- | ------------- |  | ------------ | ------ | ------------ |  | - | -------- | ------- |  | - | ------- | ------- | - | - | -------- | ------- | 
|                                                                                                                                                                                         |                | Parent         |          | Subsidiary |  | Guarantor  |          | Non-Guarantor |  |              |        |             
|                                                                                                                                                                                         |                | Company        |          | Issuer     |  | Subsidiary |          | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |             
|                                                                                                                                                                                         |                |               
|                                                                                                                                                                                         |                | (In thousands)
|Revenues from satellite sales                                                                                                                                                            |                | $              |         |            |  | $          |         |               |  | $            |       |              |  | $ | 561,717  |         |  | $ | (29,242 | )       |   | $ | 532,475  |        
|Revenues from satellite services                                                                                                                                                         |                |                |         |            |  |            | 75,190   |               |  |              | 36,225 |              |  |   | 230,602  |         |  |   | (38,974 | )       |   |   | 303,043  |        
|Management fee from parent                                                                                                                                                               |                |                |         |            |  |            |         |               |  |              |       |              |  |   | 23       |         |  |   | (23     | )       |   |   |         |        
|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|                                                                                                                                                                                         | Total revenues |                |          |           |  |            |          | 75,190        |  |              |        | 36,225       |  |   |          | 792,342 |  |   |         | (68,239 | ) |   |          | 835,518 | 
|Costs of satellite sales                                                                                                                                                                 |                |                |         |            |  |            |         |               |  |              |       |              |  |   | 538,968  |         |  |   | (25,003 | )       |   |   | 513,965  |        
|Costs of satellite services                                                                                                                                                              |                |                |         |            |  |            | 75,087   |               |  |              | 21,286 |              |  |   | 134,157  |         |  |   | (36,710 | )       |   |   | 193,820  |        
|Selling, general and administrative expenses                                                                                                                                             |                |                | 3,660    |            |  |            | 8,372    |               |  |              | 775    |              |  |   | 107,351  |         |  |   |        |         |   |   | 120,158  |        
|Management fee expense                                                                                                                                                                   |                |                | 23       |            |  |            |         |               |  |              |       |              |  |   |         |         |  |   | (23     | )       |   |   |         |        
|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Operating income (loss)                                                                                                                                                                  |                |                | (3,683   | )          |  |            | (8,269   | )             |  |              | 14,164 |              |  |   | 11,866   |         |  |   | (6,503  | )       |   |   | 7,575    |        
|Interest and investment income                                                                                                                                                           |                |                | 15,958   |            |  |            | 509      |               |  |              |       |              |  |   | 12,527   |         |  |   | (18,057 | )       |   |   | 10,937   |        
|Interest expense                                                                                                                                                                         |                |                | (29,483  | )          |  |            | (9,812   | )             |  |              |       |              |  |   | (37,288  | )       |  |   | 20,118  |         |   |   | (56,465  | )      
|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates, minority
    interest and cumulative effect of change in accounting principle |                |                | (17,208  | )          |  |            | (17,572  | )             |  |              | 14,164 |              |  |   | (12,895  | )       |  |   | (4,442  | )       |   |   | (37,953  | )      
|Income tax benefit (provision)                                                                                                                                                           |                |                | (4,735   | )          |  |            | 6,197    |               |  |              | (4,942 | )            |  |   | (527     | )       |  |   | 2,121   |         |   |   | (1,886   | )      
|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before equity in net losses of
    unconsolidated subsidiaries and affiliates, minority interest
    and cumulative effect of change in accounting principle               |                |                | (21,943  | )          |  |            | (11,375  | )             |  |              | 9,222  |              |  |   | (13,422  | )       |  |   | (2,321  | )       |   |   | (39,839  | )      
|Equity in net income (losses) of
    unconsolidated subsidiaries, net of taxes                                                                                                           |                |                | (888,951 | )          |  |            | 9,222    |               |  |              |       |              |  |   |         |         |  |   | 879,729 |         |   |   |         |        
|Equity in net income (losses) of affiliates,
    net of taxes                                                                                                                            |                |                | (56,747  | )          |  |            |         |               |  |              |       |              |  |   | 5,588    |         |  |   |        |         |   |   | (51,159  | )      
|Minority interest, net of taxes                                                                                                                                                          |                |                |         |            |  |            |         |               |  |              |       |              |  |   | (143     | )       |  |   |        |         |   |   | (143     | )      
|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                                             |                |                | (967,641 | )          |  |            | (2,153   | )             |  |              | 9,222  |              |  |   | (7,977   | )       |  |   | 877,408 |         |   |   | (91,141  | )      
|Cumulative effect of change in accounting
    principle, net of taxes                                                                                                                    |                |                |         |            |  |            | (562,201 | )             |  |              |       |              |  |   | (314,299 | )       |  |   |        |         |   |   | (876,500 | )      
|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Net (loss) income                                                                                                                                                                        |                | $              | (967,641 | )          |  | $          | (564,354 | )             |  | $            | 9,222  |              |  | $ | (322,276 | )       |  | $ | 877,408 |         |   | $ | (967,641 | )      
|                                                                                                                                                                                         |                |                |          |            |  |            |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        

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CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Nine Months Ended September 30,
2002


As Restated


|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |          |          |  
|---------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------------------------- | ------- | ---------- | ------- | ---------- | ------- | ------------- | ------- | ------------ | - | ------------ | ------- | - | -------- | -------- | -------- | - | ------ | ------- | -------- | - | -------- | -------- | -------- | -
|                                                           |                                              | Parent                                                                |         | Subsidiary |         | Guarantor  |         | Non-Guarantor |         |              |   |             
|                                                           |                                              | Company                                                               |         | Issuer     |         | Subsidiary |         | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |             
|                                                           |                                              |                                                                      
|                                                           |                                              | (In thousands)                                                       
|Operating activities:                                      |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|                                                           | Net loss                                     |                                                                       | $       | (967,641   | )       |            | $       | (564,354      | )       |              | $ | 9,222        |         |   | $        | (322,276 | )        |   | $      | 877,408 |          |   | $        | (967,641 | )       
|                                                           | Non-cash items:                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |          |         
|                                                           |                                              | Equity in net losses of affiliates, net of taxes                      |         |            | 56,747  |            |         |               |        |              |   |              |        |   |          |          | 2,610    |   |        |         |         |   |          |          | 59,357   |  
|                                                           |                                              | Minority interest, net of taxes                                       |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 143      |   |        |         |         |   |          |          | 143      |  
|                                                           |                                              | Cumulative effect of change in accounting
    principle, net of taxes |         |            |        |            |         |               | 562,201 |              |   |              |        |   |          |          | 314,299  |   |        |         |         |   |          |          | 876,500  |  
|                                                           |                                              | Equity in net losses of unconsolidated
    subsidiaries, net of taxes |         |            | 888,951 |            |         |               | (9,222  | )            |   |              |        |   |          |          |         |   |        |         | (879,729 | ) |          |          |         |  
|                                                           |                                              | Deferred taxes                                                        |         |            | 4,735   |            |         |               |        |              |   |              | 3,388   |   |          |          | 3,870    |   |        |         | (5,680   | ) |          |          | 6,313    |  
|                                                           |                                              | Depreciation and amortization                                         |         |            |        |            |         |               | 40,709  |              |   |              | 15,760  |   |          |          | 85,163   |   |        |         |         |   |          |          | 141,632  |  
|                                                           |                                              | Provisions for inventory obsolescence                                 |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 14,013   |   |        |         |         |   |          |          | 14,013   |  
|                                                           |                                              | Charge on vendor financing receivables                                |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 11,190   |   |        |         |         |   |          |          | 11,190   |  
|                                                           |                                              | Provisions for bad debts                                              |         |            |        |            |         |               | 1,069   |              |   |              | 24      |   |          |          | 1,103    |   |        |         |         |   |          |          | 2,196    |  
|                                                           |                                              | Loss on equipment disposals                                           |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 1,977    |   |        |         |         |   |          |          | 1,977    |  
|                                                           |                                              | Interest income                                                       |         |            |        |            |         |               | 909     |              |   |              |        |   |          |          | (1,840   | ) |        |         |         |   |          |          | (931     | )
|                                                           | Changes in operating assets and liabilities: |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |          |         
|                                                           |                                              | Accounts receivable, net                                              |         |            |        |            |         |               | 1,764   |              |   |              | (162    | ) |          |          | (1,372   | ) |        |         |         |   |          |          | 230      |  
|                                                           |                                              | Contracts-in-process                                                  |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 74,982   |   |        |         |         |   |          |          | 74,982   |  
|                                                           |                                              | Inventories                                                           |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (3,023   | ) |        |         |         |   |          |          | (3,023   | )
|                                                           |                                              | Long-term receivables                                                 |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 4,172    |   |        |         |         |   |          |          | 4,172    |  
|                                                           |                                              | Deposits                                                              |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 30,700   |   |        |         |         |   |          |          | 30,700   |  
|                                                           |                                              | Due from (to) unconsolidated subsidiaries                             |         |            | (12,899 | )          |         |               | 37,384  |              |   |              | (31,272 | ) |          |          | (2,670   | ) |        |         | 9,457    |   |          |          |         |  
|                                                           |                                              | Other current assets and other assets                                 |         |            | (446    | )          |         |               | 2,989   |              |   |              | 3,015   |   |          |          | 21,454   |   |        |         |         |   |          |          | 27,012   |  
|                                                           |                                              | Accounts payable                                                      |         |            | 171     |            |         |               | (2,363  | )            |   |              | 250     |   |          |          | (22,964  | ) |        |         |         |   |          |          | (24,906  | )
|                                                           |                                              | Accrued expenses and other current liabilities                        |         |            | (10,210 | )          |         |               | 42      |              |   |              |        |   |          |          | (22,010  | ) |        |         |         |   |          |          | (32,178  | )
|                                                           |                                              | Customer advances                                                     |         |            |        |            |         |               | (3,660  | )            |   |              | (225    | ) |          |          | 1,560    |   |        |         | 2,564    |   |          |          | 239      |  
|                                                           |                                              | Income taxes payable                                                  |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 2,262    |   |        |         | (2,705   | ) |          |          | (443     | )
|                                                           |                                              | Pension and other postretirement liabilities                          |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 6,638    |   |        |         |         |   |          |          | 6,638    |  
|                                                           |                                              | Long-term liabilities                                                 |         |            |        |            |         |               | (1,325  | )            |   |              |        |   |          |          | (5,698   | ) |        |         | (2,564   | ) |          |          | (9,587   | )
|                                                           |                                              | Other                                                                 |         |            | 97      |            |         |               |        |              |   |              |        |   |          |          | 154      |   |        |         |         |   |          |          | 251      |  
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|Net cash provided by (used in) operating
    activities    |                                              |                                                                       | (40,495 | )          |         |            | 66,143  |               |         |              |  |              |         |   | 194,437  |          |          |   | (1,249 | )       |          |   | 218,836  |         
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|Investing activities:                                      |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|                                                           |                                              | Capital expenditures                                                  |         |            |        |            |         |               | (14,628 | )            |   |              |        |   |          |          | (128,330 | ) |        |         | 1,249    |   |          |          | (141,709 | )
|                                                           |                                              | Investments in and advances to unconsolidated
    subsidiaries        |         |            | (2,240  | )          |         |               |        |              |   |              |        |   |          |          | 2,240    |   |        |         |         |   |          |          |         |  
|                                                           |                                              | Investments in and advances to affiliates                             |         |            | (12,092 | )          |         |               |        |              |   |              |        |   |          |          | (29,229  | ) |        |         |         |   |          |          | (41,321  | )
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|Net cash (used in) provided by in investing
    activities |                                              |                                                                       | (14,332 | )          |         |            | (14,628 | )             |         |              |  |              |         |   | (155,319 | )        |          |   | 1,249  |         |          |   | (183,030 | )       
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|Financing activities:                                      |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|                                                           |                                              | Borrowings under revolving credit facilities                          |         |            |        |            |         |               |        |              |   |              |        |   |          |          | 118,000  |   |        |         |         |   |          |          | 118,000  |  
|                                                           |                                              | Repayments under term loans                                           |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (48,750  | ) |        |         |         |   |          |          | (48,750  | )
|                                                           |                                              | Repayments under revolving credit facilities                          |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (99,000  | ) |        |         |         |   |          |          | (99,000  | )
|                                                           |                                              | Interest payments on 10% senior notes                                 |         |            |        |            |         |               | (45,952 | )            |   |              |        |   |          |          |         |   |        |         |         |   |          |          | (45,952  | )
|                                                           |                                              | Repayment of export-import facility                                   |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (1,073   | ) |        |         |         |   |          |          | (1,073   | )
|                                                           |                                              | Repayments of other long-term obligations                             |         |            |        |            |         |               |        |              |   |              |        |   |          |          | (16      | ) |        |         |         |   |          |          | (16      | )
|                                                           |                                              | Note payable to Loral Satellite                                       |         |            | 29,500  |            |         |               |        |              |   |              |        |   |          |          | (29,500  | ) |        |         |         |   |          |          |         |  
|                                                           |                                              | Preferred dividends                                                   |         |            | (29,485 | )          |         |               |        |              |   |              |        |   |          |          |         |   |        |         |         |   |          |          | (29,485  | )
|                                                           |                                              | Proceeds from stock issuances                                         |         |            | 9,967   |            |         |               |        |              |   |              |        |   |          |          |         |   |        |         |         |   |          |          | 9,967    |  
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|Net cash used in financing activities                      |                                              |                                                                       | 9,982   |            |         |            | (45,952 | )             |         |              |  |              |         |   | (60,339  | )        |          |   |       |         |          |   | (96,309  | )       
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|Increase (decrease) in cash and cash equivalents           |                                              |                                                                       | (44,845 | )          |         |            | 5,563   |               |         |              |  |              |         |   | (21,221  | )        |          |   |       |         |          |   | (60,503  | )       
|Cash and cash equivalents  beginning
    of period        |                                              |                                                                       | 46,068  |            |         |            | 19,399  |               |         |              |  |              |         |   | 94,482   |          |          |   |       |         |          |   | 159,949  |         
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         
|Cash and cash equivalents  end of
    period              |                                              | $                                                                     | 1,223   |            |         | $          | 24,962  |               |         | $            |  |              |         | $ | 73,261   |          |          | $ |       |         |          | $ | 99,446   |         
|                                                           |                                              |                                                                       |         |            |         |            |         |               |         |              |   |              |         |   |          |          |          |   |        |         |          |   |          |         

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION






MANAGEMENTS DISCUSSION AND ANALYSIS
OF


RESULTS OF OPERATIONS AND FINANCIAL
CONDITION


Except for the historical information
contained herein, the matters discussed in the following
Managements Discussion and Analysis of Results of
Operations and Financial Condition of Loral Space &
Communications Ltd.(Loral or the
Company, which terms shall include its subsidiaries
unless otherwise indicated or the context requires) and its
subsidiaries are not historical facts, but are
forward-looking statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. In
addition, the Company or its representatives have made and may
continue to make forward-looking statements, orally or in
writing, in other contexts, such as in reports filed with the
SEC, press releases or statements made with the approval of an
authorized executive officer of the Company. These
forward-looking statements can be identified by the use of
forward-looking terminology such as believes,
expects, plans, may,
will, would, could,
should, anticipates,
estimates, project, intend,
or outlook or the negative of these words or other
variations of these words or other comparable words, or by
discussion of strategy that involves risks and uncertainties.
These forward-looking statements are only predictions, and
actual events or results may differ materially as a result of a
wide variety of factors and conditions, many of which are beyond
the Companys control. These include the Company developing
a plan of reorganization, confirmation of the plan by the
Bankruptcy Court, customer and employee retention and the
Companys ability to continue to provide high quality
services. For a detailed discussion of additional factors and
conditions, please also refer to the section of Lorals
latest Annual Report on Form 10-K titled Certain
Factors that May Affect Future Results beginning on page
13 and to the other periodic reports filed with the SEC by
Loral, its wholly-owned subsidiary Loral Orion, Inc.
(Loral Orion), and the Companys affiliate
Satelites de Mexico, S.A. de C.V. (Satmex). In
addition, we caution you that the Company operates in an
industry sector where securities values may be volatile and may
be influenced by economic and other factors beyond the
Companys control. The Company undertakes no obligation to
update any forward-looking statements.

Loral is one of the worlds leading
satellite communications companies with substantial activities
in satellite-based communications services and satellite
manufacturing. Loral is organized into two operating businesses:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fixed Satellite Services (FSS).The Company leases transponder
    capacity to customers for various applications, including
    television and cable broadcasting, news gathering, Internet
    access and transmission, private voice and data networks,
    business television, distance learning and direct-to-home
    television (DTH) and provides satellite telemetry,
    tracking and control (TT&C) and related
    professional services to its customers. Loral also provides
    network services such as managed communications networks,
    Internet and intranet services, business television and business
    media services to its customers.
|
| | Satellite Manufacturing and Technology.The Company designs and manufactures
    satellites and space systems and develops satellite technology
    for a broad variety of customers and applications through Space
    Systems/ Loral, Inc. (SS/L).                                                                                                                                                                                                                                                                                                                                                                                                                   

Sale of Assets, Bankruptcy Filings and Telstar
4 Failure

On July 15, 2003, Loral Space &
Communications Corporation, Loral SpaceCom Corporation and Loral
Satellite, Inc. (collectively, the Sellers), direct
or indirect subsidiaries of Loral, entered into a definitive
agreement (the Asset Purchase Agreement) to sell to
Intelsat, Ltd. and Intelsat (Bermuda), Ltd. (together, the
Purchasers), all of the Sellers domestic fixed
satellite services satellites, then comprised of four satellites
in-orbit (one of which failed in September 2003, see below) and
two under construction (one of which has been successfully
launched and completed in-orbit testing and was placed into
service on September 12, 2003 and one scheduled for launch
in 2004), as well as certain other net assets.

Also on July 15, 2003, Loral and certain of
its subsidiaries (the Debtor Subsidiaries and
collectively, the Debtors), including the Sellers,
SS/L and Loral Orion, filed voluntary petitions for
reorganization under

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Chapter 11 of Title 11 of the United States
Code (the Bankruptcy Code) in the United States
Bankruptcy Court for the Southern District of New York (the
Bankruptcy Court) (Lead Case No. 03-41710
(RDD), Case Nos. 03-41709 (RDD) through 03-41728 (RDD))
(the Chapter 11 Cases). Loral and its Debtor
Subsidiaries, including the Sellers, continue to manage their
properties and operate their businesses as debtors in
possession under the jurisdiction of the Bankruptcy Court
and in accordance with the provisions of the Bankruptcy Code.


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

On October 20, 2003, the Sellers held a
Bankruptcy Court ordered auction in respect of the assets to be
sold. At the auction, Purchasers agreed, among other things, to
increase the base purchase price under the Asset Purchase
Agreement from $1 billion to $1.025 billion (subject
to certain purchase price adjustments, which include a reduction
for the insurance proceeds received from the Telstar 4
failuresee below), and, in consideration of a new
transponder lease agreement entered into on October 22,
2003 with a customer, which contract will be assumed by
Purchasers following the closing, to pay an additional $50
million at closing and accelerate orbital incentive payments to
SS/L in the amount of $25 million. The effectiveness of
this new transponder lease agreement is subject to receipt of
approvals from the Board of Directors of the customer and the
Bankruptcy Court. Purchasers offer, as revised at the
auction, was determined to be the highest and best offer, and,
accordingly, Purchasers were declared the winning bidder. On
October 24, 2003, after a hearing on the matter, the
Bankruptcy Court approved the transactions contemplated by the
Asset Purchase Agreement. Consummation of the transactions is
still subject to a number of conditions, including that certain
operating parameters continue to be met with respect to the
assets being sold, receipt of the approval of the Federal
Communications Commission and certain other closing conditions
typical for transactions of this type. Loral expects to use most
of the proceeds from the sale of the assets to repay its
outstanding secured bank debt. The Chapter 11 Cases will
enable the Sellers to sell the North American satellites to the
Purchasers free and clear of any interests. There can be no
assurance, however, that the transactions contemplated by the
Asset Purchase Agreement will be consummated. The net book value
of the satellites to be sold was approximately $805 million
and the other net assets of the disposal group was approximately
$9 million as of September 30, 2003.

As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization,
certain of Lorals prepetition debt obligations
(aggregating approximately $2.1 billion at
September 30, 2003) have been accelerated and are
immediately due and Lorals other prepetition debt
obligations of $93 million at September 30, 2003 are
subject to acceleration (see below and Note 10 to the
condensed consolidated financial statements). On July 15,
2003, Loral failed to make interest payments of
$16.6 million on its 9.50% Senior Notes due 2006, and Loral
Orion failed to make interest payments of $30.6 million on
its 10% Senior Notes due 2006, $2.1 million on its 11.25%
Senior Notes due 2007 and $3.1 million on its 12.50% Senior
Notes due 2007. A creditors committee has been appointed
in the Chapter 11 Cases to represent all unsecured
creditors, including all holders of Lorals and Loral
Orions senior unsecured notes, and, in accordance with the
provisions of the Bankruptcy Code, will have the right to be
heard on all matters that come before the Bankruptcy Court.

As provided by the Bankruptcy Code, Loral and its
Debtor Subsidiaries have the exclusive right to submit their
plan or plans of reorganization for 120 days from the date
of the filing of the voluntary petitions. On November 12,
2003, the Bankruptcy Court extended this exclusive period to
March 12, 2004. Further extension may be sought and may be
granted or rejected by the Bankruptcy Court. If Loral and its
Debtor Subsidiaries fail to file their plan or plans of
reorganization during such period, or if such plan or plans is
not accepted by the required number of creditors and equity
holders within the required period, any party in interest may
subsequently file its own plan or plans of reorganization for
Loral and its Debtor Subsidiaries. A

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plan of reorganization must be confirmed by the
Bankruptcy Court, upon certain findings being made by the
Bankruptcy Court which are required by the Bankruptcy Code. The
Bankruptcy Court may confirm a plan of reorganization
notwithstanding an objection to the plan by an impaired class of
creditors or equity holders if certain requirements of the
Bankruptcy Code are met. Although Loral and its Debtor
Subsidiaries expect to file a reorganization plan or plans that
provide for emergence from bankruptcy sometime during 2004,
there can be no assurance that a reorganization plan or plans
will be proposed by Loral and its Debtor Subsidiaries or
confirmed by the Bankruptcy Court or that any such plan will be
consummated.


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

As a result of the commencement of the
Chapter 11 Cases, the pursuit of all pending claims and
litigation against Loral and its Debtor Subsidiaries arising
prior to or relating to events which occurred prior to the
commencement of the Chapter 11 Cases is generally subject
to an automatic stay under Section 362 of the Bankruptcy Code,
and, absent further order of the Bankruptcy Court, no party may
take any action to recover any prepetition claims, enforce any
lien against or obtain possession of any property from Loral or
its Debtor Subsidiaries. In addition, pursuant to
Section 365 of the Bankruptcy Code, Loral and its Debtor
Subsidiaries may reject or assume prepetition executory
contracts and unexpired leases, and parties affected by
rejections of these contracts or leases may file claims with the
Bankruptcy Court which will be addressed in the context of the
Chapter 11 Cases.

As part of its Chapter 11 Cases, Loral and
its Debtor Subsidiaries routinely file pleadings, documents and
reports with the Bankruptcy Court, which may contain updated,
additional or more detailed information about the Company, its
assets and liabilities or financial performance. Copies of the
filings for Lorals Chapter 11 Cases are available,
for a fee, during regular business hours at the office of the
Clerk of the Bankruptcy Court or from the Bankruptcy
Courts website located at http://www.nysb.uscourts.gov.

On July 15, 2003, the New York Stock
Exchange (NYSE) suspended trading of Lorals
common stock and removed Lorals securities from listing
and registration on September 2, 2003. Lorals common
stock is being quoted under the ticker symbol LRLSQ on the Pink
Sheets Electronic Quotation Service and on the Over-The-Counter
Bulletin Board service. The Company anticipates that, in any
plan of reorganization ultimately confirmed by the Bankruptcy
Court, the common and preferred stock of the Company will, at
best, be severely diluted and may be eliminated entirely, with
the result that common and preferred stockholders could receive
no distribution.

In September 2003, Lorals Telstar 4
satellite experienced a short circuit of its high voltage bus
causing the satellite to cease operations. Loral has been unable
to reestablish contact with the satellite and has declared the
satellite a total loss. At the time of the satellites
failure, Loral initiated a comprehensive restoration plan that
has provided capacity to nearly all Telstar 4 customers on other
Loral satellites. Loral and Lockheed Martin, the manufacturer of
the satellite, continue to work to identify the cause of the
failure of the high voltage bus. The satellite is insured for
$141 million, for which the agent for secured lenders of
Loral SpaceCom is named as the loss payee on the insurance
policy. During October 2003, Loral filed the proof of loss with
the insurance underwriters. Under Lorals agreement to sell
its North American satellites discussed above, the purchase
price will be reduced by any insurance proceeds received for
Telstar 4 by Loral, net of any payments by Loral to customers
for warranty claims. As previously planned, Loral expects to
replace Telstar 4 at 89 degrees West in mid-2004 with the larger
and more powerful Telstar 8 satellite currently under
construction. Of the $141 million of insurance proceeds
that the Company expects to receive, a receivable for insurance
proceeds for Telstar 4 of $123 million was recorded at
September 30, 2003, primarily representing the carrying
value of Telstar 4 and the estimated costs of warranty
obligations to customers directly associated with the failure of
Telstar 4. Any gain to be recorded for the difference between
the receivable of $123 million

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for insurance proceeds and the insurance policy
value of $141 million will be recorded upon approval for
payment by the insurance underwriters and a full release by
Loral of the satisfaction of the claim. As of September 30,
2003 customer cancellations resulting from the failure of
Telstar 4 have reduced the future minimum lease receipts
due from customers under long-term operating leases for
transponder capacity by approximately $47 million.


The accompanying condensed consolidated financial
statements have been prepared assuming the Company in its
current structure will continue as a going concern. The factors
mentioned above, however, among other things, raise substantial
doubt about Lorals ability to continue as a going concern.
The condensed consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty. The ability of the Company to continue as a going
concern is dependent on a number of factors including, but not
limited to, the Companys development of a plan of
reorganization, confirmation of the plan by the Bankruptcy
Court, customer and employee retention and the Companys
ability to continue to provide high quality services. If a plan
of reorganization is not confirmed and implemented, the Company
may be forced to liquidate under applicable provisions of the
Bankruptcy Code. There can be no assurance of the level of
recovery that the Companys creditors would receive in such
liquidation. The condensed consolidated financial statements do
not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or
the amounts and classification of liabilities if the Company is
forced to liquidate.

Consolidated Operating Results

In evaluating financial performance, management
uses revenues and operating income (loss) before depreciation
and amortization including amortization of unearned stock
compensation, and reorganization expenses due to bankruptcy
(Adjusted EBITDA see Note 2 to the table below) as a
measure of a segments profit or loss. The following
discussion of revenues and Adjusted EBITDA reflects the results
of Lorals operating businesses for the three and nine
months ended September 30, 2003 and 2002, respectively. See
Note 16 to the condensed consolidated financial statements
for additional information on segment results. The remainder of
the discussion relates to the consolidated results of Loral,
unless otherwise noted.

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

Prior to the first quarter of 2003, management
evaluated the financial performance of the satellite
manufacturing and technology segment in accordance with
accounting principles applicable to government contracts,
whereby all costs incurred, including general and administrative
expenses (G&A), were allocated to programs.
G&A can be capitalized on government contracts, in
accordance with the AICPA Audit and Accounting Guide, Audits of
Federal Government Contractors; however, U.S. generally
accepted accounting principles require that G&A on
non-government contracts be expensed in the period incurred. The
required adjustment to conform to U.S. generally accepted
accounting principles for commercial contracts and
self-constructed assets was reflected in consolidation
eliminations. Subsequent to the filing of the Companys
September 30, 2002 Form 10-Q, the Company determined
that it had miscalculated this adjustment in its eliminations
and has restated its reported results for the second and third
quarters of 2002 to reflect the correct amounts. See Note 4 to
the condensed consolidated financial statements.

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Revenues (in millions):

|                                              |  |                    |        |                   |  |      |       |      |  |   |        |   |  |   |         |  
|--------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ------- | -
|                                              |  |                    |        |                  
|                                              |  | Three Months Ended |        | Nine Months Ended
|                                              |  | September 30,      |        | September 30,    
|                                              |  |                    |        |                  
|                                              |  | 2003               |        | 2002              |  | 2003 |       | 2002
|                                              |  |                    |        |                   |  |      |       |     
|Fixed satellite services(1)                   |  | $                  | 72.7   |                   |  | $    | 93.2  |      |  | $ | 230.8  |   |  | $ | 306.7   |  
|Satellite manufacturing and
    technology(1) |  |                    | 99.1   |                   |  |      | 207.9 |      |  |   | 311.7  |   |  |   | 700.5   |  
|                                              |  |                    |        |                   |  |      |       |      |  |   |        |   |  |   |         |  
|Segment revenues                              |  |                    | 171.8  |                   |  |      | 301.1 |      |  |   | 542.5  |   |  |   | 1,007.2 |  
|Eliminations(2)                               |  |                    | (124.5 | )                 |  |      | (90.1 | )    |  |   | (154.3 | ) |  |   | (171.7  | )
|                                              |  |                    |        |                   |  |      |       |      |  |   |        |   |  |   |         |  
|Revenues as reported(1)                       |  | $                  | 47.3   |                   |  | $    | 211.0 |      |  | $ | 388.2  |   |  | $ | 835.5   |  
|                                              |  |                    |        |                   |  |      |       |      |  |   |        |   |  |   |         |  

Adjusted
EBITDA(3)(in millions):

|                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---- | ----- | ----------- |  | - | ------ | - |  | - | ------ | -
|                                                                         |  |                    |        |                  
|                                                                         |  | Three Months Ended |        | Nine Months Ended
|                                                                         |  | September 30,      |        | September 30,    
|                                                                         |  |                    |        |                  
|                                                                         |  | 2003               |        | 2002              |  | 2003 |       | 2002       
|                                                                         |  |                    |        |                   |  |      |       |            
|                                                                         |  |                    |        | As Restated       |  |      |       | As Restated
|Adjusted EBITDA(3):                                                      |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |        |  
|Fixed satellite services                                                 |  | $                  | 29.7   |                   |  | $    | 49.4  |             |  | $ | 116.4  |   |  | $ | 176.5  |  
|Satellite manufacturing and
    technology(4)                            |  |                    | (30.3  | )                 |  |      | 7.1   |             |  |   | (131.3 | ) |  |   | 27.6   |  
|Corporate expenses(5)                                                    |  |                    | (9.9   | )                 |  |      | (8.7  | )           |  |   | (28.9  | ) |  |   | (26.2  | )
|                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |        |  
|Segment Adjusted EBITDA before eliminations                              |  |                    | (10.5  | )                 |  |      | 47.8  |             |  |   | (43.8  | ) |  |   | 177.9  |  
|Eliminations(2)                                                          |  |                    | (14.8  | )                 |  |      | (17.2 | )           |  |   | (22.1  | ) |  |   | (28.7  | )
|                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |        |  
|Adjusted EBITDA                                                          |  |                    | (25.3  | )                 |  |      | 30.6  |             |  |   | (65.9  | ) |  |   | 149.2  |  
|Depreciation and amortization                                            |  |                    | (43.2  | )                 |  |      | (46.4 | )           |  |   | (132.4 | ) |  |   | (141.6 | )
|Reorganization expenses due to bankruptcy                                |  |                    | (8.8   | )                 |  |      |      |             |  |   | (8.8   | ) |  |   |       |  
|                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |        |  
|Operating (loss) income                                                  |  |                    | (77.3  | )                 |  |      | (15.8 | )           |  |   | (207.1 | ) |  |   | 7.6    |  
|Interest and investment income                                           |  |                    | 0.7    |                   |  |      | 1.1   |             |  |   | 11.5   |   |  |   | 10.9   |  
|Interest expense                                                         |  |                    | (9.9   | )                 |  |      | (19.5 | )           |  |   | (45.7  | ) |  |   | (56.5  | )
|Gain on investment                                                       |  |                    |       |                   |  |      |      |             |  |   | 17.9   |   |  |   |       |  
|Income tax (provision) benefit                                           |  |                    | (0.7   | )                 |  |      | 7.7   |             |  |   | (4.5   | ) |  |   | (1.9   | )
|Equity in net losses of affiliates, net of taxes                         |  |                    | (38.8  | )                 |  |      | (22.0 | )           |  |   | (55.6  | ) |  |   | (51.1  | )
|Minority interest, net of taxes                                          |  |                    | 0.1    |                   |  |      | (0.2  | )           |  |   | 0.1    |   |  |   | (0.1   | )
|Cumulative effect of change in accounting
    principle, net of taxes    |  |                    | (2.0   | )                 |  |      |      |             |  |   | (2.0   | ) |  |   | (876.5 | )
|Extraordinary gain on acquisition of minority
    interest, net of taxes |  |                    |       |                   |  |      |      |             |  |   | 13.6   |   |  |   |       |  
|                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |        |  
|Net loss                                                                 |  | $                  | (127.9 | )                 |  | $    | (48.7 | )           |  | $ | (271.8 | ) |  | $ | (967.6 | )
|                                                                         |  |                    |        |                   |  |      |       |             |  |   |        |   |  |   |        |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes aggregate revenues from affiliates of
    $(4.9) million and $20.0 million for the three months ended
    September 30, 2003 and 2002, respectively and revenues of
    $19.0 million and $70.6 million for the nine months
    ended September 30, 2003 and 2002, respectively.                                                                                                             
|   
|(2) | Represents the elimination of intercompany sales
    and intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/L for wholly-owned subsidiaries and the
    reversal of sales of $83 million and profits of
    $10 million on a satellite program that was changed to a
    lease arrangement in the third quarter of 2003 (see Fixed
    Satellite Services Liquidity).
|   
|(3) | The common definition of EBITDA is Earnings
    Before Interest, Taxes, Depreciation and Amortization. The
    Company defines Adjusted EBITDA as EBITDA before
    amortization of stock compensa-                                                                                                                                                                                               

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | tion; reorganization expenses due to bankruptcy;
    gain on investment; equity in net losses of affiliates, net of
    tax; minority interest, net of tax; cumulative effect of change
    in accounting principle, net of tax, and extraordinary gain on
    acquisition of minority interest, net of tax. Adjusted EBITDA
    should be used in conjunction with GAAP financial measures and
    is not presented as an alternative to cash flow from operations
    as a measure of the Companys liquidity or as an
    alternative to net income as an indicator of the Companys
    operating performance.

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



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Satellite manufacturing and technology Adjusted
    EBITDA for the three and nine months ended September 30,
    2003 includes provisions for inventory obsolescence of
    $11 million and the write-off of long-term receivables from
    an affiliate of $9 million. Satellite manufacturing and
    technology Adjusted EBITDA for the nine months ended
    September 30, 2003 includes: (i) a charge of
    $24 million due to cancellation of a deposit on a launch
    vehicle contract; (ii) provisions for inventory
    obsolescence of $35 million due to the absence of new
    satellite awards until October 2003; (iii) a charge of
    $13 million on the settlement of all outstanding issues
    with Alcatel including a contract dispute that was in
    arbitration; (iv) a loss of $11 million on the
    acceleration of receipt of long-term receivables and (v) a
    charge of $10 million on SS/ L-provided vendor financing
    receivables to a customer in exchange for the customers
    common stock. During the nine months ended September 30,
    2003, Loral realized gains of $18 million on the sale of
    59 million shares of such stock. The gains on the sale of
    stock are not recognized in Adjusted EBITDA. As of
    September 30, 2003, Loral had sold all of its shares of
    Sirius common stock.

Satellite manufacturing and technology Adjusted
EBITDA for the three and nine months ended September 30,
2002 includes provisions for inventory obsolescence of
$2 million and $14 million, respectively, due to the
absence of new satellite awards and an $11 million
valuation allowance recorded in connection with an agreement
reached with a customer to convert vendor financing receivables
into the customers equity. Satellite manufacturing and
technology Adjusted EBITDA for the nine months ended
September 30, 2002 includes $13 million of income from
a recovery of a claim from a vendor.



|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(5) | Represents corporate expenses incurred in support
    of the Companys operations.



| |                            
| | ---------------------------
| | Critical Accounting Matters

See the Companys latest Annual Report on
Form 10-K filed with the SEC and Other Matters 
Accounting Pronouncements below.

Three Months Ended September 30, 2003
Compared With September 30, 2002

Revenues as reported for Lorals operating
businesses decreased to $47 million as compared to
$211 million, after eliminations of $125 million and
$90 million, for the three months ended September 30, 2003
and 2002, respectively. Eliminations primarily consist of
revenues from satellites under construction by SS/L for FSS and
the reversal of $83 million of sales on a satellite program
that was changed to a lease arrangement in the third quarter of
2003 (which became an internal program that will be leased to a
third party in the future  see Fixed Satellite
Services Liquidity), which resulted in negative satellite
manufacturing sales for the quarter. The decrease in revenues in
2003 was due to lower SS/L revenues of $109 million which
primarily resulted from satellite programs nearing completion
under the percentage of completion method with no new satellite
orders at SS/L from December 2001 to October 2003, higher
eliminations, and

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lower FSS revenues of $21 million which was
primarily due to decreases in prices of $14 million, volume
of $3 million and lease termination fees of $3 million in both
transponder leasing and network services. Both of the
Companys segments have been adversely affected by the
global economic downturn, which has caused a delay in demand for
new telecommunications applications and services.


Cost of satellite sales were $15 million and
$125 million for the three months ended September 30,
2003 and 2002, respectively. The decrease was primarily due to
the reversal of $73 million of costs of sales due to a
satellite program that was changed to a lease arrangement in the
third quarter of 2003 (which became an internal program that
will be leased to a third party in the future  See
Fixed Satellite Services Liquidity) and satellite programs
nearing completion under the percentage of completion method
with no new satellite awards at SS/L, which was offset by
provisions for inventory obsolescence of $11 million. Cost
of satellite sales for the three months ended September 30,
2002 includes an $11 million valuation allowance recorded
in connection with an agreement reached with a customer to
convert vendor financing receivables into the customers
equity.

Cost of satellite services were $60 million
and $65 million for the three months ended
September 30, 2003 and 2002, respectively. The decrease in
2003 was primarily due to reduced external satellite capacity
leasing requirements of $4 million and a decrease in
depreciation expense of $1 million due to the timing of
assets being placed in service and assets that became fully
depreciated at the end of 2002 and during 2003, offset by
increased satellite insurance costs of $2 million resulting
from higher premiums on renewal and changes in coverage
requirements and the launch of Telstar 13. Cost of
satellite services for the three months ended September 30,
2002 includes a $2 million loss on equipment disposals.

Selling, general and administrative expenses were
$41 million and $37 million for the three months ended
September 30, 2003 and 2002, respectively. This increase in
2003 was primarily due to higher bad debt expense of
$4 million, directors and officers insurance costs of
$1 million and professional fees relating to reorganization
prior to filing for bankruptcy of $2 million, offset by
lower marketing and selling expenses of $3 million and
corporate compensation costs of $1 million.

Reorganization expenses due to bankruptcy in 2003
were $9 million for the period from July 15, 2003
(date of filing) to September 30, 2003, which includes a
charge for lease rejection claims of $6 million and
professional fees of $5 million, offset by interest and
investment income earned of $2 million (which represents
the interest earned subsequent to filing bankruptcy excluding
orbital interest).

As a result of the above, the Company had an
operating loss of $77 million, as compared to an operating
loss of $16 million for the three months ended
September 30, 2003 and 2002, respectively.

Interest and investment income was
$1 million in both the three months ended
September 30, 2003 and 2002.

Interest costs were $10 million, net of
capitalized interest of $8 million, as compared to
$20 million, net of capitalized interest of $9 million
for the three months ended September 30, 2003 and 2002,
respectively. The decrease was primarily as a result of
Lorals voluntary petitions for reorganization, as the
Company only pays interest on its bank debt subsequent to
July 14, 2003 and has stopped accruing interest on its
other outstanding borrowings.

Loral, as a Bermuda company, is subject to U.S.
federal, state and local income taxation at regular corporate
rates plus an additional 30% branch profits tax on
any income that is effectively connected with the conduct of a
U.S. trade or business. Loral has, cumulatively from its
inception, received no tax benefit as a result of being
established in Bermuda because of substantial losses incurred
outside the U.S. Lorals U.S. subsidiaries are subject to
regular corporate tax on their worldwide income. At
December 31, 2002, Loral recorded a 100% valuation
allowance against its domestic net deferred tax assets under the
criteria of SFAS No. 109, Accounting for Income Taxes.
During 2003, Loral continued to maintain the 100% valuation
allowance and recorded no benefit for its domestic loss. The
Company recorded an income tax provision of $1 million on a
pre-tax loss of $87 million, as compared to an income tax
benefit of $8 million on a pre-tax loss of $34 million
for the three months ended September 30, 2003 and 2002,
respectively. The provision for 2003

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is primarily state, local and foreign income
taxes and a deferred tax liability recorded for certain foreign
entities while for 2002 the Company also recorded a benefit for
its domestic loss.


Equity in net losses of affiliates was
$39 million as compared to $22 million for the three months
ended September 30, 2003 and 2002, respectively. Loral
recorded equity losses relating to Satmex of $38 million as
compared to $6 million for the three months ended
September 30, 2003 and 2002. This increase primarily
related to Loral writing off its remaining investment in Satmex
of $29 million in the third quarter of 2003. Accordingly,
there is no longer any requirement for Loral to provide for its
allocated share of Satmexs net losses subsequent to
September 30, 2003 (see Affiliate Matters). Lorals
share of equity in net losses of XTAR, L.L.C (XTAR)
was $1 million in both the three months ended
September 30, 2003 and 2002. Lorals share of equity
in net losses of Europe*Star Limited (Europe*Star),
managed by Alcatel, was zero as compared to $16 million for
the three months ended September 30, 2003 and 2002,
respectively. In the fourth quarter of 2002, Lorals
investment in Europe*Star was reduced to zero. Accordingly,
there is no longer any requirement for Loral to provide for its
allocated share of Europe*Stars net losses subsequent to
December 31, 2002. See Note 8 to the condensed consolidated
financial statements.

On July 1, 2003, the Company adopted
SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity
(SFAS 150), which resulted in the Company
recording a charge of $2 million for the amortization of
expenses incurred on the issuance of the securities from their
issuance dates through June 30, 2003, that were not
previously amortized as a cumulative effect of change in
accounting principle (see Accounting Pronouncements).

Preferred dividends were zero as compared to
$9 million for the three months ended September 30,
2003 and 2002, respectively. The decrease in 2003, was due to
the adoption of SFAS 150 on July 1, 2003 as the
related dividends since adoption have been included in interest
expense (see Accounting Pronouncements).

As a result of the above, net loss applicable to
common shareholders before the cumulative effect of change in
accounting principle was $126 million or $2.86 per basic
and diluted share, as compared to $57 million or
$1.53 per basic and diluted share for the three months
ended September 30, 2003 and 2002, respectively. Basic and
diluted weighted average shares were 44 million and
37 million for the three months ended September 30,
2003 and 2002, respectively. The increase in weighted average
shares was primarily due to the conversions of the
Companys preferred stock into common stock as (see Equity
below).

Nine Months Ended September 30, 2003
Compared With September 30, 2002

Revenues as reported for Lorals operating
businesses decreased to $388 million as compared to
$836 million, after eliminations of $154 million and
$172 million, for the nine months ended September 30,
2003 and 2002, respectively. Eliminations primarily consist of
revenues from satellites under construction by SS/L for FSS and
the reversal of $83 million of sales on a satellite program
that was changed to a lease arrangement in the third quarter of
2003 (which became an internal program that will be leased to a
third party in the future  see Fixed Satellite
Services Liquidity). The decrease in revenues in 2003 was due to
lower SS/ L revenues of $389 million which primarily
resulted from satellite programs nearing completion under the
percentage of completion method with no new satellite orders at
SS/L from December 2001 to October 2003 and lower FSS revenues
of $76 million which was primarily due to a decrease in
prices of $37 million, volume of $19 million and lease
termination fees of $15 million in both transponder leasing and
network services. Both of the Companys segments have been
adversely affected by the global economic downturn, which has
caused a delay in demand for new telecommunications applications
and services.

Cost of satellite sales were $298 million
and $514 million for the nine months ended
September 30, 2003 and 2002, respectively. The decrease in
2003 was primarily due to the reversal of $73 million of
costs of sales on a satellite program that was changed to a
lease arrangement in the third quarter of 2003 (which became an
internal program that will be leased to a third party in the
future  see Fixed Satellite Services Liquidity) and
satellite programs nearing completion under the percentage of
completion method with no new satellite awards at SS/ L and
lower depreciation expense of $4 million due to the timing
of assets being placed in service, offset by the following for
the nine months ended September 30, 2003: (i) a charge
of $24 million due to cancellation of a deposit on a launch
vehicle contract; (ii) provisions for inventory
obsolescence of $

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35 million due to the absence of new
satellite awards until October 2003; (iii) a charge of
$13 million on the settlement of all outstanding issues
with Alcatel including a contract dispute that was in
arbitration; (iv) a loss of $11 million on the
acceleration of receipt of long-term receivables; and (v) a
charge of $10 million recorded on SS/L-provided vendor
financing, representing the difference between the carrying
value of SS/ Ls receivables of $38 million and the
value of the common shares received by SS/L based on the trading
price of Siriuss common stock on March 7, 2003 of
$28 million (see discussion below for gains realized
subsequent to receipt of the shares. Cost of satellite sales for
the nine months ended September 30, 2002 includes
provisions for inventory obsolescence of $14 million due to
the absence of new satellite awards and an $11 million
valuation allowance recorded in connection with an agreement
reached with a customer to convert vendor financing receivables
into the customers equity, offset by $13 million of
income recorded from a recovery of a claim from a vendor.


Cost of satellite services were $173 million
and $194 million for the nine months ended
September 30, 2003 and 2002, respectively. The decrease in
2003 was primarily due to an insurance claim recovery on a
satellite of $9 million during the second quarter of 2003,
reduced satellite capacity and network services costs totaling
$11 million and a decrease in depreciation expense of
$4 million due to the timing of assets being placed in
service and assets that became fully depreciated at the end of
2002 and during 2003, offset by increased insurance costs of
$4 million resulting from higher premiums on renewals,
changes in coverage requirements and the launch of Telstar 13.

Selling, general and administrative expenses were
$115 million and $120 million for the nine months ended
September 30, 2003 and 2002, respectively. The decrease in
2003 was primarily due to lower marketing and selling expenses
of $6 million, research and development costs of
$4 million and corporate compensation costs of
$2 million, offset by higher directors and officers
insurance costs of $2 million, professional fees relating
to reorganization prior to filing for bankruptcy of
$2 million, bad debt expense of $2 million and bank
restructuring costs of $1 million.

Reorganization expenses due to bankruptcy in 2003
were $9 million for the period from July 15, 2003
(date of filing) to September 30, 2003, which includes a
charge for lease rejection claims of $6 million and
professional fees of $5 million, offset by interest and
investment income earned of $2 million (which represents
the interest earned subsequent to filing bankruptcy excluding
orbital interest).

As a result of the above, the Company had an
operating loss of $207 million, as compared to operating income
of $8 million for the nine months ended September 30,
2003 and 2002, respectively.

Interest and investment income was
$12 million, as compared to $11 million for the nine
months ended September 30, 2003 and 2002, respectively.

Interest costs were $46 million, net of
capitalized interest of $26 million, as compared to
$56 million, net of capitalized interest of
$25 million for the nine months ended September 30,
2003 and 2002, respectively. The decrease was primarily as a
result of Lorals voluntary petitions for reorganization as
the Company only pays interest on its bank debt subsequent to
July 14, 2003 and has stopped accruing interest on its
other outstanding borrowings.

During the nine months ended September 30,
2003 the Company realized $18 million of gains from the
sale of all 59 million shares of its Sirius common stock,
which is reflected as gain on investment on the condensed
consolidated statement of operations. As of June 30, 2003,
SS/L had sold all of its shares of Sirius common stock.

Loral, as a Bermuda company, is subject to U.S.
federal, state and local income taxation at regular corporate
rates plus an additional 30% branch profits tax on
any income that is effectively connected with the conduct of a
U.S. trade or business. Loral has, cumulatively from its
inception, received no tax benefit as a result of being
established in Bermuda because of substantial losses incurred
outside the U.S. Lorals U.S. subsidiaries are subject to
regular corporate tax on their worldwide income. At
December 31, 2002, Loral recorded a 100% valuation
allowance against its domestic net deferred tax assets under the
criteria of SFAS No. 109, Accounting for Income Taxes.
During 2003, Loral continued to maintain the 100% valuation
allowance and recorded no benefit for its domestic loss. The
Company recorded an income tax provision of

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$5 million on a pre-tax loss of
$223 million, as compared to an income tax provision of
$2 million on a pre-tax loss of $38 million for the
nine months ended September 30, 2003 and 2002,
respectively. The provision for 2003 is primarily state, local
and foreign income taxes and a deferred tax liability recorded
for certain foreign entities while for 2002 the Company also
recorded a benefit for its domestic loss.


Equity in net losses of affiliates was
$56 million as compared to $51 million for the nine months
ended September 30, 2003 and 2002, respectively. Loral
recorded equity losses relating to Satmex of $52 million as
compared to $17 million for the nine months ended
September 30, 2003 and 2002, respectively. This increase
was primarily related to Loral writing off its remaining
investment in Satmex of $29 million in the third quarter of
2003. Accordingly, there is no longer any requirement for Loral
to provide for its allocated share of Satmexs net losses
subsequent to September 30, 2003 (see Affiliate Matters).
Lorals share of equity in net losses of XTAR was $5
million as compared to $2 million for the nine months ended
September 30, 2003 and 2002, respectively. Lorals
share of equity in net losses of Europe*Star, managed by
Alcatel, was zero as compared to $29 million for the nine
months ended September 30, 2003 and 2002, respectively. In
the fourth quarter of 2002, Lorals investment in
Europe*Star was reduced to zero. Accordingly, there is no longer
any requirement for Loral to provide for its allocated share of
Europe*Stars net losses subsequent to December 31,
2002. Lorals share of equity income
(losses) attributable to Globalstar, L.P.
(Globalstar) related activities was $1 million
as compared to $(3) million for the nine months ended
September 30, 2003 and 2002, respectively. The 2002 amount
for Globalstar related activities includes the recovery of a
claim from a vendor on the Globalstar program of which
$14 million ($8 million after taxes) was recorded as a
benefit to equity in net losses of affiliates and reduced equity
in net losses of Globalstar service provider partnerships
recorded, offset by a $9 million charge relating to liabilities
the Company guaranteed in connection with a Globalstar service
provider partnership in 2002. See Note 8 to the condensed
consolidated financial statements.

On July 1, 2003, the Company adopted SFAS
150, which resulted in the Company recording a charge of
$2 million for the amortization of expenses incurred on the
issuance of the securities from their issuance dates through
June 30, 2003, that were not previously amortized as a
cumulative effect of change in accounting principle (see
Accounting Pronouncements). On January 1, 2002 the Company
adopted SFAS No. 142, Goodwill and Other Intangible Assets,
which resulted in the Company recording a charge of
$892 million ($877 million after taxes) to write-off
all of its cost in excess of net assets acquired
(goodwill) for the cumulative effect of change in
accounting principle (see Accounting Pronouncements).

As a result of receiving Alcatels minority
interest in CyberStar, L.P. on June 30, 2003, Loral
recognized an extraordinary gain of $14 million, which
represents the minority interest liability in excess of the fair
value of the acquired net assets.

Preferred dividends were $7 million as
compared to $67 million for the nine months ended
September 30, 2003 and 2002, respectively. The decrease in
2003 was primarily due to the adoption of SFAS 150 on
July 1, 2003 as the related dividends since adoption have
been included in interest expense, and the reduction in dividend
obligations resulting from the conversion of 1.8 million
shares of the Series C Preferred Stock and 2.7 million
shares of the Series D Preferred Stock into an aggregate
3.1 million shares of the Companys common stock and
the non-cash dividend charges of $38 million incurred in
the second quarter of 2002 in connection with Lorals
privately negotiated exchange transactions and the reduction in
dividend obligations resulting from the Companys October
2002 exchange offers of its Series C and Series D
preferred stock, which converted 6.1 million shares of the
Series C Preferred Stock and 5.4 million shares of the
Series D Preferred Stock into 4.6 million shares of
the Companys common stock and $13.4 million in cash
(see Liquidity and Capital Resources).

As a result of the above, net loss applicable to
common shareholders before the cumulative effect of change in
accounting principle and extraordinary gain on acquisition of
minority interest was $290 million or $6.64 per basic and
diluted share, as compared to $159 million or $4.45 per
basic and diluted share for the nine months ended
September 30, 2003 and 2002, respectively. Basic and
diluted weighted average shares were 44 million and 36
million for the nine months ended September 30, 2003 and
2002, respectively. The increase

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in weighted average shares was primarily due to
the conversions of the Companys preferred stock into
common stock as mentioned above.


Results by Operating Segment for the Three and
Nine Months Ended September 30, 2003 and 2002

The satellite industry has suffered from the
downturn in the global economy and the resultant decline in
demand for or postponement of new satellite-based applications
and services. The Companys businesses have also been
negatively affected by customers difficulty obtaining
funding for new projects in the capital markets, by competition
from fiber and other terrestrial alternatives and Lorals
financial condition. In October 2003, SS/L received three new
satellite orders from existing customers (two from DIRECTV and
one from PanAmSat). In connection with these orders, the
Bankruptcy Court approved binding authorizations to proceed for
their construction. PanAmSat also has an option to order an
in-orbit spare for one of its existing satellites from SS/ L on
terms to be agreed upon. The aggregated value of the three new
awards is in excess of $320 million. In October 2003,
DIRECTV made advance payments of $25 million on each of its
two new satellite orders and PanAmSat made an advance payment of
$25 million on its new satellite order, for combined cash
advances received by SS/L of $75 million. In addition, in
connection with contract negotiations on the nearly completed
DIRECTV 7S satellite, DIRECTV increased the total contract
value for the construction of DIRECTV 7S by $25 million to
approximately $165 million, for which SS/ L received the
$25 million payment in November 2003.



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

FSS revenues were $73 million and
$93 million for the three months ended September 30,
2003 and 2002, respectively and $231 million and
$307 million for the nine months ended September 30,
2003 and 2002, respectively. FSS revenues without network
services were $63 million and $78 million for the
three months ended September 30, 2003 and 2002,
respectively and $197 million and $254 million for the
nine months ended September 30, 2003 and 2002,
respectively. Network services revenues were $10 million
and $15 million for the three months ended
September 30, 2003 and 2002, respectively and
$34 million and $53 million for the nine months ended
September 30, 2003 and 2002, respectively. The decrease for
the three months ended September 30, 2003, was primarily
due to a decline in prices of $14 million, volume of $3 million
and lease termination fees of $3 million. The decrease for the
nine months ended September 30, 2003, was primarily due to a
decline in prices of $37 million, volume of $19 and lease
termination fees of $15 million. These decreases were in both
transponder leasing and network services due to the global
economic downturn and the delay in demand for new application
and services. Adjusted EBITDA was $30 million as compared
to $49 million for the three months ended
September 30, 2003 and 2002, respectively and
$116 million and $177 million for the nine months
ended September 30, 2003 and 2002, respectively. The
decrease in Adjusted EBITDA for the three and nine months ended
September 30, 2003, were primarily due to decreases in
revenues for both transponder leasing and network services and
increased satellite insurance costs resulting from higher
premiums on renewal and changes in coverage requirements,
partially offset for the nine months ended September 30,
2003, by an insurance claim recovery on a satellite of
$9 million. As of September 30, 2003, FSS had seven
operational satellites. Funded backlog for the segment totaled
$1.4 billion (including $83 million relating to a
satellite program that was converted to a lease arrangement) at
September 30, 2003 and $1.4 billion at
December 31, 2002, including intercompany backlog of
$37 million and $41 million at September 30, 2003
and December 31, 2002, respectively. Net bookings for the
segment were $229 million (including $83 million
relating to a satellite program that was converted to a lease
arrangement) and $272 million for the nine months ended
September 30, 2003 and 2002, respectively.



| |                                           
| | ------------------------------------------
| | Satellite Manufacturing and
    Technology

Revenues at SS/L, before eliminations, were
$99 million and $208 million for the three months
ended September 30, 2003 and 2002, respectively and
$312 million and $701 million for the nine months
ended September 30, 2003 and 2002, respectively. The
decreases in revenues in 2003 primarily resulted from satellite
programs nearing completion under the percentage of completion
method with no new satellite orders at SS/L

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since December 2001 (until October 2003).
Adjusted EBITDA before eliminations was a loss of
$30 million, as compared to income of $7 million for
the three months ended September 30, 2003 and 2002,
respectively and a loss of $131 million, as compared to
income of $28 million for the nine months ended
September 30, 2003 and 2002, respectively. The decrease in
Adjusted EBITDA for the three and nine months ended
September 30, 2003 was primarily due to satellite programs
nearing completion under the percentage of completion method
with no new satellite awards at SS/L, which resulted in
provisions for inventory obsolescence of $11 million. The
decrease in Adjusted EBITDA for the nine months ended
September 30, 2003 included the following: (i) a
charge of $24 million due to cancellation of a deposit on a
launch vehicle contract; (ii) provisions for inventory
obsolescence of $35 million due to the absence of new
satellite awards at SS/ L until October 2003; (iii) a
charge of $13 million on the settlement of all outstanding
issues with Alcatel including a contract dispute that was in
arbitration; (iv) a loss of $11 million on the
acceleration of receipt of long-term receivables; (v) a
charge of $10 million recorded on SS/L-provided vendor
financing, representing the difference between the carrying
value of SS/Ls receivables of $38 million and the
value of the common shares received by SS/L based on the trading
price of Siriuss common stock on March 7, 2003 of
$28 million); (vi) an adjustment to estimated contract
revenues from an affiliate of $9 million. Adjusted EBITDA
for the three and nine months ended September 30, 2002
includes provisions for inventory obsolescence of
$2 million and $14 million, respectively, due to the
absence of new satellite awards and an $11 million
valuation allowance recorded in connection with an agreement
reached with a customer to convert vendor financing receivables
into the customers equity. Adjusted EBITDA for the nine
months ended September 30, 2002 includes $13 million
of income from a recovery of a claim from a vendor. Funded
backlog for SS/L as of September 30, 2003 and
December 31, 2002 was $444 million and
$763 million, respectively, including intercompany backlog
of $218 million as of September 30, 2003 and
$275 million as of December 31, 2002. Realization of
the intercompany backlog is subject to the limitations contained
in the Companys credit agreements and cash collateral
order, and in certain cases may require the consent of the
lenders. The decline in backlog is due to a lack of new
satellite orders until October 2003, due to sluggish economic
conditions that have had a negative impact industry-wide and
Lorals financial condition.


Transactions With Affiliates

Consolidated funded backlog was $1.6 billion
and $1.8 billion at September 30, 2003 and
December 31, 2002 which includes $79 million and
$142 million, respectively, as a result of transactions
entered into with affiliates and related parties (primarily with
Satmex, XTAR and Hisdesat) for the construction of satellites.

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

|                                                                                                           |  |                    |        |                   |  |      |        |             |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ----------- |  | - | ------ | - |  | - | ------ | -
|                                                                                                           |  |                    |        |                  
|                                                                                                           |  | Three Months Ended |        | Nine Months Ended
|                                                                                                           |  | September 30,      |        | September 30,    
|                                                                                                           |  |                    |        |                  
|                                                                                                           |  | 2003               |        | 2002              |  | 2003 |        | 2002       
|                                                                                                           |  |                    |        |                   |  |      |        |            
|                                                                                                           |  |                    |        | As Restated       |  |      |        | As Restated
|Revenues                                                                                                   |  | $                  | (4,914 | )                 |  | $    | 19,980 |             |  | $ | 19,020 |   |  | $ | 70,569 |  
|Investment income                                                                                          |  |                    | 297    |                   |  |      | 294    |             |  |   | 886    |   |  |   | 882    |  
|Interest expense capitalized on development stage
    enterprise                                           |  |                    |      |                   |  |      | 447    |             |  |   | 428    |   |  |   | 844    |  
|Profits relating to affiliate transactions not
    eliminated, net of taxes                                |  |                    | (499   | )                 |  |      | 1,857  |             |  |   | 1,789  |   |  |   | 4,465  |  
|Elimination of Lorals proportionate share
    of profits relating to affiliate transactions, net of taxes |  |                    | 374    |                   |  |      | (1,900 | )           |  |   | (2,440 | ) |  |   | (4,539 | )
|Amortization of deferred credit and profits
    relating to investments in affiliates                      |  |                    | 261    |                   |  |      | 127    |             |  |   | 784    |   |  |   | 381    |  

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Liquidity and Capital Resources

Lorals principal challenge has been to
overcome a confluence of events that have severely affected the
satellite industry in recent years. These include a downturn in
the global economy in general, the inability of Lorals
customers to access the capital markets which led to the
declining utilization of services by existing customers and a
lack of new customers, in particular telecommunications and
Internet access providers entering the market, and reduced
demand resulting in an overabundance of transponder capacity for
satellite services and a severe drought in satellite orders. In
addition, Lorals financial condition has been further
affected by the significant investments it made and wrote-off in
Globalstar. As a result of these and other factors, on
July 15, 2003, Loral and certain of its subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of
Title 11 of the Bankruptcy Code in the Bankruptcy Court. On
July 15, 2003, Loral also filed parallel insolvency
proceedings in Bermuda, where it is incorporated.

Also on July 15, 2003, Loral entered into a
definitive agreement to sell all of its North American
telecommunications satellites, then comprised of four satellites
in-orbit (one of which failed in September 2003, see below) and
two under construction (one of which has been successfully
launched and completed in-orbit testing and was placed into
service on September 12, 2003 and one scheduled for launch
in 2004), as well as certain other net assets. In addition,
Intelsat has agreed to order a new satellite from SS/L and will
make a $100 million down payment on that order upon closing
of the sale of the North American satellites, subject to
obtaining a security interest from Loral on assets related to
its Brazilian FSS business.

On October 20, 2003, the Sellers held a
Bankruptcy Court ordered auction in respect of the assets to be
sold. At the auction, Purchasers agreed, among other things, to
increase the base purchase price under the Asset Purchase
Agreement from $1 billion to $1.025 billion (subject
to certain purchase price adjustments, which includes a
reduction for the insurance proceeds received from the
Telstar 4 failure  see below), and, in
consideration of a new transponder lease agreement entered into
on October 22, 2003 with a customer, which contract will be
assumed by Purchasers following the closing, to pay an
additional $50 million at closing and accelerate orbital
incentive payments to SS/L in the amount of $25 million.
The effectiveness of this new transponder lease agreement is
subject to receipt of approvals from the Board of Directors of
the customer and the Bankruptcy Court. Purchasers offer,
as revised at the auction, was determined to be the highest and
best offer, and, accordingly, Purchasers were declared the
winning bidder. On October 24, 2003, after a hearing on the
matter, the Bankruptcy Court approved the transactions
contemplated by the Asset Purchase Agreement. Consummation of
the transactions is still subject to a number of conditions,
including that certain operating parameters continue to be met
with respect to the assets being sold, receipt of the approval
of the Federal Communications Commission and certain other
closing conditions typical for transactions of this type. Loral
expects to use most of the proceeds from the sale of the assets
to repay its outstanding secured bank debt. The Chapter 11
Cases will enable the Sellers to sell the North American
satellites to the Purchasers free and clear of any interests.
There can be no assurance, however, that the transactions
contemplated by the Asset Purchase Agreement will be consummated.

Lorals intention is to reorganize around
its remaining fleet of five satellites (two under construction)
and its satellite manufacturing operations, allowing it to
emerge as a viable enterprise with opportunities for future
growth There is no assurance, however, that Loral will be able
to formulate a viable reorganization plan or to obtain
confirmation of such a plan pursuant to the provisions of the
Bankruptcy Code.

Loral currently has approximately
$2.2 billion in debt (including future accrued interest of
$214 million associated with the deferred gain on the Loral
Orion debt exchanges), which mainly resulted from its
investments in Globalstar as well as the rapid build-up of its
FSS fleet, which has demonstrated its value over time through
its strong cash flow and Adjusted EBITDA performance. This debt
includes $967 million of bank debt that is secured by liens
on the assets of Loral SpaceCom Corporation (Loral
SpaceCom) and Loral Satellite, Inc. (Loral
Satellite), consisting primarily of Lorals satellite
manufacturing and domestic FSS assets. As a result of the
commencement of its Chapter 11 Cases, Loral continues to
pay interest only on its bank debt, which has significantly
reduced its cash interest payments. Loral expects to use most of
the proceeds from the sale of the North American satellites to
the Purchasers to repay its outstanding secured bank debt.

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As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization,
Lorals prepetition debt obligations (aggregating
approximately $2.1 billion at September 30, 2003) have
been accelerated and are immediately due and Lorals other
prepetition debt obligations of $93 million at
September 30, 2003 are subject to acceleration (see Note 10
to the condensed consolidated financial statements). On
July 15, 2003, Loral failed to make interest payments of
$16.6 million on its 9.50% Senior Notes due 2006, and Loral
Orion failed to make interest payments of $30.6 million on
its 10% Senior Notes due 2006, $2.1 million on its 11.25% Senior
Notes due 2007 and $3.1 million on its 12.50% Senior Notes
due 2007. A creditors committee has been appointed to
represent all unsecured creditors, including all holders of
Lorals and Loral Orions senior unsecured notes, and,
in accordance with the provisions of the Bankruptcy Code, will
have the right to be heard on all matters that come before the
Bankruptcy Court.

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

As a result of the commencement of the
Chapter 11 Cases, the pursuit of all pending claims and
litigation against Loral and its Debtor Subsidiaries arising
prior to or relating to events which occurred prior to the
commencement of the Chapter 11 Cases is generally subject
to an automatic stay under Section 362 of the Bankruptcy
Code, and, absent further order of the Bankruptcy Court, no
party may take any action to recover any prepetition claims,
enforce any lien against or obtain possession of any property
from Loral or its Debtor Subsidiaries. In addition, pursuant to
Section 365 of the Bankruptcy Code, Loral and its Debtor
Subsidiaries may reject or assume prepetition executory
contracts and unexpired leases, and parties affected by
rejections of these contracts or leases may file claims with the
Bankruptcy Court which will be addressed in the context of the
Chapter 11 Cases.

During 2002 and the nine months ended
September 30, 2003, Loral took a number of steps to
conserve cash on hand by reducing its operating expenses,
suspending payment of cash dividends on its preferred stock and
closely monitoring capital expenditures. In addition, in October
2003, SS/L received three new satellite orders from existing
customers. In connection with these orders, the Bankruptcy Court
approved binding authorizations to proceed for their
construction and SS/L received advance payments of
$75 million. In addition, in connection with contract
negotiations on a nearly completed satellite, the customer
increased the total contract value for the construction by
$25 million, for which SS/L received payment in November
2003 (see Results by Operating Segment for the three and nine
months ended September 30, 2003 and 2002). As a result of
these recent events, Loral believes that it currently has
adequate cash on hand and cash flow from operations to continue
normal operations beyond September 30, 2004.



| |                                      
| | -------------------------------------
| | Liabilities Subject to
    Compromise

As discussed above, the Company has been
operating as a debtor-in-possession under the jurisdiction of
the Bankruptcy Court and in accordance with the provisions of
the Bankruptcy Code.

In the condensed consolidated balance sheet, the
caption liabilities subject to compromise reflects
Lorals current estimate of the amount of prepetition
claims that will be restructured in Lorals and its Debtor
Subsidiaries Chapter 11 Cases. Pursuant to court
order, Loral has been authorized to pay certain prepetition
operating liabilities incurred in the ordinary course of
business (e.g. salaries and insurance). Since July 15,
2003, as permitted under the Bankruptcy Code, the Company has
rejected certain of its prepetition obligations. Loral is in the
process of calculating its estimated liability to the unsecured
creditors affected by these contract rejections. Loral will
notify all known claimants subject to the bar date of their need
to file a proof of claim with the Bankruptcy Court. A bar date
is the date by which claims against Loral and its Debtor
Subsidiaries must be filed if the claimants wish to receive any
distribution in the Chapter 11 Cases. No bar date has yet
been set by the Bankruptcy Court. Differences between liability
amounts estimated by the

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Company and claims filed by creditors will be
investigated and the Bankruptcy Court will make a final
determination of the allowable claim. The determination of how
liabilities will ultimately be settled and treated cannot be
made until the Bankruptcy Court approves a Chapter 11 plan
of reorganization. Loral and its Debtor Subsidiaries will
continue to evaluate the amount and classification of their
prepetition liabilities in general through the remainder of
their Chapter 11 Cases. Should Loral or its Debtor
Subsidiaries, through this ongoing evaluation, identify
additional liabilities subject to compromise, such amounts will
be recognized accordingly. As a result, liabilities
subject to compromise are subject to change. Claims
classified as liabilities subject to compromise
represent secured as well as unsecured claims. Liabilities
subject to compromise at September 30, 2003 consisted of
the following (in thousands):


|                                                       |                                         |   |           |           | 
|------------------------------------------------------ | --------------------------------------- | - | --------- | --------- | 
|Debt obligations                                       |                                         | $ | 2,236,864 |          
|Accounts payable                                       |                                         |   | 54,423    |          
|Accrued employment costs                               |                                         |   | 17,087    |          
|Customer advances                                      |                                         |   | 19,938    |          
|Accrued interest and preferred dividends               |                                         |   | 40,432    |          
|Income taxes payable                                   |                                         |   | 37,258    |          
|Pension and other postretirement liabilities           |                                         |   | 129,527   |          
|Other liabilities(1)                                   |                                         |   | 141,884   |          
|6% Series C convertible redeemable preferred
    stock |                                         |   | 187,274   |          
|6% Series D convertible redeemable preferred
    stock |                                         |   | 36,707    |          
|                                                       |                                         |   |           |          
|                                                       | Total liabilities subject to compromise |   | $         | 2,901,394 | 
|                                                       |                                         |   |           |          



---



|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $47 million of vendor financing that is
    non-recourse to SS/L in the event of non payment by Globalstar
    due to bankruptcy(see Affiliate Matters).



| |                
| | ---------------
| | Preferred Stock

The Companys 6% Series C convertible
redeemable preferred stock (the Series C Preferred
Stock) and 6% Series D convertible redeemable
preferred stock (the Series D Preferred Stock)
have mandatory redemption dates in 2006 and 2007, respectively.
The Company has the right to make mandatory redemption payments
to the holders in either cash or common stock, or a combination
of the two. As a result of adopting SFAS 150 on July 1,
2003, the Company reclassified its preferred stock to
liabilities from shareholders deficit as of June 30,
2003 and the related dividends since adoption have been included
in interest expense (see Accounting Pronouncements).

In August 2002, Lorals Board of Directors
approved a plan to suspend indefinitely the future payment of
dividends on its two series of preferred stock. Accordingly,
Loral has deferred the payments of quarterly dividends due on
its Series C Preferred Stock and the payments of quarterly
dividends due on its Series D Preferred Stock. Dividends on
the two series continued to accrue through July 14, 2003.
In the event accrued and unpaid dividends accumulate to an
amount equal to six quarterly dividends on the Series C
Preferred Stock, subject to the applicable effects of the
Chapter 11 Cases and Lorals Bermuda insolvency
proceedings, the terms of the Series C Preferred Stock
provide that holders of the majority of the outstanding
Series C Preferred Stock will be entitled to elect two
additional members to Lorals Board of Directors. In the
event accrued and unpaid dividends accumulate to an amount equal
to six consecutive quarterly dividends on the Series D
Preferred Stock, subject to the applicable effects of the
Chapter 11 Cases and Lorals Bermuda insolvency
proceedings, the terms of the Series D Preferred Stock
provide that holders of the majority of the outstanding
Series D Preferred will be entitled to elect two additional
members to Lorals Board of Directors. As of
September 30, 2003, accrued and unpaid dividends of
$13 million represented four quarterly dividend payments
outstanding, which were accrued through July 14, 2003 (See
Equity below).

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



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

In August 2002, the Company received notice from
the NYSE that its common stock price failed to meet the NYSE
listing requirement of maintaining a trading price over $1.00.
In response, the Company requested from its shareholders, and
received at its May 29, 2003 annual shareholders
meeting, authority to effect a reverse stock split of the
Companys common stock. On June 4, 2003, the
Companys Board of Directors approved the reverse stock
split of the Companys common stock at a ratio of
one-for-ten, resulting in a new par value of $0.10 per common
share (previously $0.01 par value per common share). The reverse
stock split became effective after the close of business on
June 13, 2003 and reduced the number of shares of common
stock then outstanding from approximately 440 million to
approximately 44 million.

At its annual shareholders meeting on
May 29, 2003, the Company obtained shareholder approval to
increase the authorized number of shares of its common stock
from 75,000,000 to 125,000,000 (as adjusted for the
above-mentioned reverse stock split).

Loral completed an exchange offer for certain of
its outstanding stock options on March 7, 2003. In
connection with this exchange offer, Loral accepted and
cancelled existing stock options to purchase an aggregate of
1,488,440 shares of common stock that were tendered in the
exchange offer and agreed to grant, in exchange, new stock
options to purchase an aggregate of 602,149 shares of common
stock. The new options were to have been granted, subject to the
terms and conditions of the exchange offer, on September 8,
2003. As a result of Lorals Chapter 11 filing,
however, Loral will not be able to grant the new stock options.
Any claims or rights that option holders whose options were
cancelled may have, will be addressed in the context of the
Chapter 11 Cases.



| |                
| | ---------------
| | Preferred Stock

Based upon the price of the Companys common
stock at December 31, 2002, the Company did not have
available a sufficient number of authorized shares of its common
stock to effect payment of the total mandatory redemptions in
common stock in 2006 and 2007. Accordingly, as of
December 31, 2002, the Company classified an aggregate of
$125 million of its Series C Preferred Stock and
Series D Preferred Stock outside the shareholders
deficit section of the balance sheet, based on the average of
the volume weighted average daily price of the Companys
common stock as defined. As a consequence of the Chapter 11
Cases, it is not likely that a mandatory redemption will occur.

On October 8, 2002, Loral completed exchange
offers for its Series C and Series D preferred stock
and converted 4.3 million shares of its Series C
Preferred Stock and 2.7 million shares of its Series D
Preferred Stock for 4.6 million shares of its common stock
and $13.4 million in cash. In connection with the exchange
offers, Loral incurred $21.6 million of dividend charges,
comprised of the $13.4 million in cash and non-cash
dividend charges of $8.2 million. The non-cash dividend
charges relate to the difference between the value of the common
stock issued in the exchanges and the value of the shares that
were issuable under the stated conversion terms of the preferred
stock and had no impact on Lorals total shareholders
deficit as the offset was an increase in common stock and
paid-in capital.

During the second quarter of 2002, in privately
negotiated exchange transactions, Loral converted
1.8 million shares of its Series C Preferred Stock and
2.7 million shares of its Series D Preferred Stock
into 3.1 million shares of its common stock. In connection
with these transactions, Loral incurred non-cash dividend
charges of $38 million, which primarily relate to the
difference between the value of the common stock issued in the
exchanges and the value of the shares that were issuable under
the stated conversion terms of the preferred stock. The non-cash
dividend charges had no impact on Lorals total
shareholders deficit as the offset was an increase in
common stock and paid-in capital.



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

In 2002, there was no contribution required to
the Companys qualified pension plan, under the Internal
Revenue Code and regulations thereunder. However, the
significant declines experienced in the financial

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markets have unfavorably impacted pension plan
asset performance. This, coupled with historically low interest
rates (a key factor when estimating pension plan liabilities),
caused the Company to recognize $65 million of non-cash
charges to accumulated other comprehensive loss at
December 31, 2002. These charges did not impact the
Companys reported earnings. However, in the future if
either interest rates or market performance or plan returns
change, the Company may reverse such charges or incur additional
charges.




| |     
| | ----
| | Cash

As of September 30, 2003, Loral had
$103 million of cash and had no further available credit
from its credit facilities, except for $6 million of
outstanding letters of credit.

As stated above, substantially all of the assets
of Loral SpaceCom and Loral Satellite constitute collateral
security for the obligations that are owed to their bank
lenders. Under the provisions of the Bankruptcy Code, Loral
SpaceCom and Loral Satellite are not authorized to use the
existing cash or cash proceeds of this collateral (the
Cash Collateral) without either an order of the
Bankruptcy Court authorizing the use of the Cash Collateral or
the consent of their bank lenders.

On the date the Chapter 11 Cases were
commenced, the Bankruptcy Court entered an order authorizing the
Debtors to use the Cash Collateral to fund all operating
expenses associated with their businesses in accordance with an
agreed upon budget and in accordance with certain other terms
set forth in the order. The use of the Cash Collateral can be
terminated by the bank lenders upon the occurrence of certain
events specified in the order, including the failure of the
Debtors and the bank lenders to agree on a budget for the
further use of the Cash Collateral for the period subsequent to
January 16, 2004, the failure of the Debtors to comply with
certain obligations contained in the order, or the failure of
the Debtors to achieve certain milestones with respect to the
proposed sale of certain of the Debtors assets to the
Purchasers. In the event the Debtors ability to use the
Cash Collateral were terminated, the Debtors would still have
the right to seek the authority of the Bankruptcy Court to use
the Cash Collateral notwithstanding any objection by the bank
lenders. There can be no assurance that the Bankruptcy Court
would grant such request.



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

Net cash provided by operating activities for the
nine months ended September 30, 2003 was $95 million.
This was primarily due to a decrease in long-term receivables of
$76 million primarily from accelerated collections of
orbital receivables, a decrease in other current assets and
other assets of $31 primarily due to a decrease in prepaid
insurance and pension costs recorded in 2003, a decrease in
contracts-in-process of $26 million primarily resulting
from net collections on customer contracts and a decrease in
deposits of $23 million resulting from the assignment of
launch vehicles to satellite programs, offset by net loss as
adjusted for non-cash items of $5 million and decrease in
customer advances of $59 million primarily due to progress
on satellite programs.

Net cash provided by operating activities for the
nine months ended September 30, 2002 was $219 million.
This was primarily due to net income as adjusted for non-cash
items of $145 million, a decrease in contracts-in-process
of $75 million primarily resulting from net collections on
customer contracts and a decrease in deposits of
$31 million resulting from the assignment of launch
vehicles to satellite programs, offset by a decrease in accrued
expenses and other current liabilities of $32 million
primarily resulting from vendor payments.



| |                                          
| | -----------------------------------------
| | Net Cash Used in Investing
    Activities

Net cash used in investing activities was
$59 million for the nine months ended September 30,
2003, primarily as a result of capital expenditures of
$86 million mainly for the construction of satellites and
investments and advances to affiliates of $19 million
(including $18 million for XTAR), offset by proceeds
received from the sale of Sirius common stock of
$46 million.

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Net cash used in investing activities was
$183 million for the nine months ended September 30,
2002, primarily as a result of capital expenditures of
$142 million mainly for the construction of satellites and
investments in and advances to affiliates of $41 million
(including $29 million for XTAR).



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

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

Net cash used in financing activities was
$96 million for the nine months ended September 30,
2002, primarily due to debt amortization payments of
$96 million (including $46 million of interest
payments on the 10% senior notes) and net cash used in equity
transactions of $20 million, offset by net borrowings
(repayments) under revolving credit facilities of
$19 million.



| |                                       
| | --------------------------------------
| | Fixed Satellite Services
    Liquidity

Satellites are carefully built and tested and
have some redundant components to permit the continued operation
of a satellite in case of a component failure. Due to the
failure of primary components, certain of the Companys and
its affiliates satellites are currently operating using
back-up components. If these back-up components fail and the
primary components cannot be restored, these satellites could
lose a significant amount of capacity or be total losses which,
until replacement satellites are placed in-orbit, would result
in lost revenues and lost profits.

On September 20, 2002, and as further
amended in March 2003, Loral agreed with APT Satellite Company
Limited (APT) to jointly acquire the Apstar V
satellite, a satellite then under construction by SS/L for APT
pursuant to which Loral and APT agreed to share, on a 50/50
basis, the project cost of constructing, launching and insuring
the satellite. Under this agreement, Loral would initially
acquire 23% of the satellite in return for paying 25% of the
project cost, and would pay to APT over time an additional 25%
of the project cost to acquire an additional 23% interest in the
satellite. In August 2003, in order to expedite the receipt of
necessary export licenses from the U.S. government, Loral and
APT amended their various agreements to convert their
arrangement from a joint ownership arrangement to a lease
arrangement, but leaving unchanged the cost allocation between
the parties relating to the project cost of the satellite. Under
this arrangement approved by the Bankruptcy Court in October
2003, Loral will retain title to the entire satellite, now known
as Telstar 18, and will lease to APT transponders
representing initially 77% of the transponder capacity on the
satellite. The number of transponders leased to APT would be
reduced over time upon repayment by Loral of the second 25% of
the satellites project cost. Upon payment in full by Loral
of 50% of the project cost of the satellite, the lease to APT
would be reduced from 77% to 54% of the satellites
transponder capacity. At September 30, 2003, the project
cost of the satellite was estimated at $230 million. The second
25% of the project cost of the satellite to be repaid by Loral
to APT, are estimated as follows: $7 million to terminate
APTs leasehold interest in 2.5 additional
transponders on the second anniversary of the satellites
in-service date; $13 million for three additional
transponders on the third anniversary; and $18 million for
four additional transponders on each of the fourth and fifth
anniversary. Loral may at its option, elect to accelerate the
terminations of APTs leasehold interest in certain of the
foregoing transponders upon earlier payment of the related
termination fee. Loral has agreed that if so requested by APT,
it will seek further government approval to transfer a portion
of the satellite to APT. If it is successful in doing so, the
parties will revert back to the original joint ownership
arrangement. As a result of the above changes to the agreement,
whereby Loral will retain title and provide capacity to APT
under a lease arrangement, Loral has reversed the cumulative
sales of $83 million and profits of $10 million and
has established a self constructed asset of $73 million
(resulting in a total satellite asset value of
$123 million) and deferred revenue of $80 million
during the quarter ended September 30, 2003. In addition,
amounts received from APT and subject to repayment have been
recorded at their estimated present value of $26 million at
September 30, 2003 and are presented in long-term
liabilities.

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In October 2003, Loral and APT have engaged in
discussions to further revise their existing arrangement. Under
this proposed arrangement, Loral would accelerate the
termination of APTs leasehold interest in 4.5 transponders
by assuming $20.4 million of project cost which otherwise
would have initially been borne by APT, increasing Lorals
initial economic interest in the satellite from 23% to 31%. In
addition, Loral would provide to APT, free of charge, available
capacity on Telstar 10/Apstar IIR, during an interim
period, and provide APT with certain rights to exchange Ku-band
transponder capacity on Telstar 18 for Ku-band transponder
capacity on Telstar 10/Apstar IIR. The effectiveness of any
revised arrangement agreed to between APT and Loral will be
subject to the approval of the Bankruptcy Court.

Affiliate Matters



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

In order to fund the construction, insurance and
launch of Satmex 6, Satmex is pursuing export credit agency
financings and is working on a proposed private placement of
$80 million aggregate principal amount of secured notes,
which are expected to yield $70 million in net proceeds to
Satmex net of original issue discount. In addition to funding
Satmex 6, these financings would replace Satmexs existing
floating rate notes. These financings, however, are subject to,
among other things, the extension of Satmexs 2004 debt
maturities on its high yield bonds. Satmex is in discussions
with an ad hoc committee of holders of its high yield bonds
regarding such extensions, but has not yet reached any agreement
with the committee.

To conserve cash, Satmex did not make the
August 1, 2003 interest payment of $16.2 million on
its high yield bonds and is currently in default. Although
Satmex is current on interest due on its floating rate notes,
the default on its high yield bonds triggered a cross-default
provision under the indenture for its existing floating rate
notes. In addition, on September 30, 2003, an additional
default occurred under Satmexs existing floating rate
notes as a result of its failure to complete financings by such
date. Satmexs parent company, Servicios, defaulted on the
Government Obligation on September 30, 2003, as a result of
its failure to maintain a minimum coverage ratio, which in turn
caused another cross-default on the existing floating rate
notes. The occurrence of the events of default under each of the
high yield bonds and the existing floating rate notes gives the
holders of such notes the right to accelerate Satmexs
principal repayment obligations on such notes. Should this
occur, Satmex may seek to reorganize under either
Chapter 11 of the United States Bankruptcy Code or Mexican
reorganization law or both.

Although Satmex has made progress in completing
its proposed financing transactions, if it is unable to do so,
it will not have sufficient liquidity to complete the launch of
Satmex 6 or service all its debt. In that case, Satmex may seek
to reorganize under either Chapter 11 of the United States
Bankruptcy Code or Mexican reorganization law or both. As a
result of these recent events, under U.S. generally accepted
accounting principles, Loral wrote-off its investment in Satmex
of $29 million (as an increase to its equity loss) in the
third quarter of 2003. Accordingly, there is no longer any
requirement for Loral to provide for its allocated share of
Satmexs net losses subsequent to September 30, 2003.
In addition, Loral recorded reserves against receivables and
estimated contract revenues from Satmex resulting in an
aggregate charge of $11 million during the third quarter of
2003 (which primarily represents long-term receivables). Such
reserves will be re-evaluated pending the outcome of
Satmexs liquidity concerns or the receipt of payment from
the Company.

At September 30, 2003, Solidaridad 2
had a remaining estimated useful life of six years.
Solidaridad 2 was manufactured by Boeing and is similar in
design to Solidaridad 1 and to other Boeing satellites
which have experienced in-orbit component failures. While Satmex
was able to obtain a renewal of the in-orbit insurance for
Solidaridad 2 in November 2002, this policy does not insure
against an in-orbit failure due to the loss of the
satellites control processor, the same component that
caused the loss of Solidaridad 1 and other Boeing
satellites. An uninsured loss of the satellite could have a
material adverse effect on Satmexs results of operations
and financial condition.

Revenues for Satmex were $19 million for
both the three months ended September 30, 2003 and 2002 and
$59 million and $62 million for the nine months ended
September 30, 2003 and 2002, respectively. Operating loss
was $2 million and $1 million for the three months
ended September 30, 2003 and 2002,

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respectively and $4 million and
$1 million for the nine months ended September 30,
2003 and 2002, respectively.




| |     
| | ----
| | XTAR

XTAR, L.L.C. (XTAR), a joint venture
between Loral and Hisdesat Servicios Estrategicos, S.A.
(Hisdesat), a consortium comprised of leading
Spanish telecommunications companies, including Hispasat, S.A.,
and agencies of the Spanish government, plans to construct and
launch an X-band satellite to provide X-band services to
government users in the United States and Spain, as well as
other friendly and allied nations. XTAR is owned 56% by Loral
(accounted for under the equity method since the Company does
not control certain significant operating decisions) and 44% by
Hisdesat. In addition, XTAR has agreed to lease certain
transponders on the Spainsat satellite, which is being
constructed by SS/L for Hisdesat. As of September 30, 2003,
the partners in proportion to their respective ownership
interests have contributed $55 million to XTAR.

Due to uncertainties regarding XTARs
ability to raise funds necessary to complete and launch its
satellite, Loral stopped recognizing revenues and profits
associated with the construction of the satellite as of
April 1, 2003, and has treated the unpaid costs incurred
during the second and third quarters of 2003 associated with
such satellite (aggregating $18 million) as an increase to
Lorals investment account balance. In October 2003, Loral
and Hisdesat entered into an agreement (the Contribution
Agreement) to contribute over time an additional
$25.4 million and $20.0 million, respectively, into
XTAR, such agreement to go into effect upon SS/L and Hisdesat
reaching an agreement as to certain amendments to the satellite
construction contract between XTAR and SS/L. Lorals
contribution will be effected through the cancellation of
amounts owed under XTARs satellite construction contract
with SS/ L while Hisdesats contribution will be made in
cash. The proceeds from Hisdesats capital contributions
will be largely used to fund the remaining amounts due under the
satellite construction contract. In September 2003, XTAR entered
into a Launch Services Agreement with Arianespace, S.A.
providing for launch of its satellite on Arianespaces
return to flight launch vehicle. Arianespace has agreed to
provide a one-year loan for a portion of the launch price, which
loan is secured by certain of XTARs assets, including the
satellite, ground equipment and rights to the orbital slot. The
remainder of the launch price consists of a revenue-based fee to
be paid over time following commencement of operations by XTAR.
While the cost of satellite construction and launch have been
addressed by the above two transactions, XTAR still requires
additional funds to insure its satellite and fund its
operations. XTAR is seeking such funds through vendor and other
third-party financings. If XTAR is unable to raise such funds,
the Companys investment in XTAR of $38 million at
September 30, 2003, and any additional investment effected
as a result of the Contribution Agreement, would be adversely
affected. Moreover, if XTAR is unable to repay the Arianespace
loan when due, Arianespace will have the right to foreclose on
the XTAR assets pledged as collateral, which will also adversely
affect the Companys investment in XTAR.



| |                   
| | ------------------
| | Globalstar and GTL

The Company accounts for its investment in
Globalstar on the equity method due to its inability to control
significant operating decisions at Globalstar. In 2000,
Lorals allocated share of Globalstars losses and
Globalstars impairment charges reduced Lorals
investment in and advances to Globalstar to zero (see below).
Accordingly, there is no longer any requirement for Loral to
provide for its allocated share of Globalstars net losses
subsequent to December 31, 2000. The Company accounts for
its investment in Globalstars $500 million credit
facility at fair value, with changes in the value (net of tax)
recorded as a component of other comprehensive loss (see
Note 8 to the condensed consolidated financial statements).
The Company recorded unrealized gains after taxes as a component
of other comprehensive loss of $18 million for the nine
months ended September 30, 2003, in connection with this
security.

On February 15, 2002, Globalstar and certain
of its direct subsidiaries filed voluntary bankruptcy petitions
under Chapter 11 of Title 11, United States Code in
the United States Bankruptcy Court for the District of Delaware
(the Court). In connection therewith, Loral/
Qualcomm Satellite Services, L.P., the managing general partner
of Globalstar, its general partner, Loral/ Qualcomm Partnership,
L.P. (LQP), and certain of

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Lorals subsidiaries that serve as general
partners of LQP also filed voluntary bankruptcy petitions with
the Court. As a result of Globalstars bankruptcy petition,
several of Globalstars debt facilities and other debt
obligations have been accelerated and are immediately due and
payable. Subcontractors have assumed $70 million of vendor
financing that SS/ L has provided to Globalstar at
September 30, 2003, which includes $47 million which
is non-recourse to SS/ L in the event of non-payment by
Globalstar due to bankruptcy and is included in long-term
liabilities in Lorals condensed consolidated balance
sheets.


On April 8, 2003, Loral signed a settlement
and release agreement with Globalstar and Globalstars
official creditors committee to resolve certain issues related
to Globalstar and Globalstars restructuring (the
Settlement). The Settlement was approved on
April 14, 2003 by the Court and closed on July 10,
2003. Among other things, the Settlement provided that
Globalstar grants to Loral, subject to certain conditions, a
general release of all claims Globalstar might have against
Loral; approximately 50% of Lorals unsecured claims
against Globalstar are allowed, or approximately
$438 million; and the debt owed to Globalstar by three
foreign service providers, in which Loral has a substantial
equity interest (Globalstar do Brasil, Globalstar de Mexico and
GlobalTel), of an aggregate of $5.5 million has been set
off against amounts otherwise due to Loral from the Globalstar
Canadian service providers. In consideration, Loral has
transferred to Globalstar eight spare satellites ordered by
Globalstar but not fully paid for; certain agreements relating
to a joint venture in which Loral is a participant and that
provided the joint venture with exclusivity in marketing certain
Globalstar services in the U.S. have been terminated, with a new
joint venture formed between Globalstar (75%) and Loral (25%),
which is under the management and control of Globalstar, to be
the exclusive reseller of Globalstar encrypted, end-to-end
services to certain governmental agencies in the U.S. and
non-exclusively to other customers in the U.S.; the FCC license
authorizing the Globalstar service, which in any event was being
held by a joint venture in which Loral is a participant for the
exclusive benefit of Globalstar, will be transferred to
Globalstar; Lorals equity interest in the Globalstar
Canadian service providers has been transferred to Globalstar; a
$11.5 million obligation of the Canadian service providers
owed to Loral has been reduced by $5.5 million (described
above) and the remaining debt obligation has been converted from
a demand note into two five-year term notes of $4.4 million
and $1.6 million, respectively; Lorals unsecured
claims against Globalstar will be reduced by approximately 50%
or approximately $438 million when Globalstar emerges from
bankruptcy; the unused prepayment ($2,260,000) on a Globalstar
contract under which there is a stop work order has been
returned to Globalstar by Loral; a $250,000 termination fee that
may come due under that contract has been waived; Loral will
cooperate toward a reorganization of Globalstar; and the Loral
employees on Globalstars management committee have
resigned. Loral does not expect any material impact on its
results of operations or financial position as a result of this
Settlement.

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

On April 28, 2003, Globalstar and ICO Global
Communications (Holdings) Limited (ICO) received
Court approval for ICO to acquire a majority interest in a
reorganized Globalstar. The Court approved the sale of
Globalstars assets to a new company to be controlled by
ICO in exchange for an investment of $55 million for which
ICO would have received a 54% equity stake in the new operating
company. Globalstars transaction with ICO was subject to a
number of material closing conditions, and, in October 2003, ICO
informed Globalstar that it had determined that certain of the
conditions were unlikely to be satisfied, and, accordingly, the
transaction was unlikely to close. Globalstar is now in the
process of seeking other investors to purchase its assets and
has had discussions with several parties including Thermo
Capital Partners and the New Valley Group both of whom had
previously made proposals to enter into a transaction with
Globalstar. In filings with the Court, Globalstar has described
its current bidding process, and has stated that, if it is
unable to find another investor by November 20, 2003, it
will commence an orderly liquidation on November 21, 2003.
There can be no assurance that Globalstar will be successful in
finding one or more other investors, that Globalstar and its
creditors will be able to reach an agreement with any interested
investors, that any proposed plan of

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reorganization for Globalstar will be approved by
the Court, that Globalstar will be successfully reorganized or,
if successfully reorganized, what percentage of the new
Globalstar Loral will receive, if any.


As of September 30, 2003, the Companys
investment in Globalstar related activities was
$38 million, representing the fair value of its investment
in Globalstars $500 million credit facility, which
was based on the trading values of Globalstars public debt
at September 30, 2003. If Globalstar were unable to
effectuate a successful restructuring, the Companys
remaining investment in Globalstars $500 million
credit facility would be impaired, which, as discussed above,
would have no effect on the Companys results of
operations. Lorals investment in the operations of those
Globalstar service provider ventures in which it participates as
an equity owner was zero in the first nine months of 2003.
Globalstar service providers own and operate gateways, are
licensed to provide services and, through their sales and
marketing organizations, are actively selling Globalstar
service, in their respective territories.



| |            
| | -----------
| | Europe*Star

In the fourth quarter of 2002, the Companys
investment in Europe*Star was reduced to zero. Accordingly,
there is no longer any requirement for Loral to provide for its
allocated share of Europe*Stars net losses subsequent to
December 31, 2002. In addition, pursuant to the master
settlement agreement with Alcatel, on June 30, 2003, Loral
transferred to Alcatel its minority interest in Europe*Star (see
Commitments and Contingencies). Accordingly, Loral does not have
access to any financial information of Europe*Star subsequent to
June 30, 2003.



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

Contractual obligations as previously disclosed
in the Companys Latest Annual Report on Form 10-K
have not materially changed. However, as a result of the
Companys Chapter 11 filing, debt obligations of
approximately $2.2 billion have been accelerated or are
subject to acceleration.

Upon filing Chapter 11, SS/ Ls hedges
with counterparties (primarily yen denominated forward
contracts) were cancelled leaving SS/ L vulnerable to foreign
currency fluctuations in the future. The inability to enter into
forward contracts exposes SS/ Ls future revenues, costs
and cash associated with anticipated yen denominated receipts
and payments to currency fluctuations. As of September 30,
2003, SS/ L had the following amounts denominated in Japanese
Yen that were unhedged (in millions):

|                                            |  |              |        |        |  |   |      | 
|------------------------------------------- |  | ------------ | ------ | ------ |  | - | ---- | 
|                                            |  | Japanese Yen |        | U.S. $
|                                            |  |              |        |       
|Future revenues                             |  |              | ¥3,283 |        |  | $ | 29.6 | 
|Future expenditures                         |  |              | 1,193  |        |  |   | 10.8 | 
|Contracts-in-process (unbilled receivables) |  |              | 2,272  |        |  |   | 20.5 | 

Commitments and Contingencies

SS/ L has deferred revenue for performance
warranty obligations relating to satellites sold to customers
which could be impacted by future performance. SS/ L accounts
for satellite performance warranties in accordance with the
product warranty provisions of FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees and Indebtedness of
Others (FIN 45), which requires disclosure, but
not initial recognition and measurement, of performance
guarantees. SS/ L estimates the deferred revenue for its
warranty obligation based on historical satellite performance.
Management periodically reviews and adjusts the deferred revenue
for warranty reserves based

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on the actual performance of each satellite and
remaining warranty period. A reconciliation of such deferred
amounts for the nine months ended September 30, 2003 is as
follows (in millions):


|                                                           |                       |   |      |     | 
|---------------------------------------------------------- | --------------------- | - | ---- | --- | 
|Balance of deferred amounts at January 1,
    2003.        |                       | $ | 14.1 |    
|Accruals for deferred amounts issued during the
    period |                       |   |     |    
|Accruals relating to pre-existing contracts
    (including |                       |   |      |    
|                                                           | changes in estimates) |   |      | 1.8 | 
|                                                           |                       |   |      |    
|Balance of deferred amounts at September 30,
    2003.     |                       | $ | 15.9 |    
|                                                           |                       |   |      |    

Loral Skynet has in the past entered into prepaid
leases, sales contracts and other arrangements relating to
transponders on its satellites. Under the terms of these
agreements, Loral Skynet continues to operate the satellites
which carry the transponders and originally provided for a
warranty for a period of 10 to 14 years, in the case of
sales contracts and other arrangements (19 transponders), and
the lease term, in the case of the prepaid leases (six
transponders). Depending on the contract, Loral Skynet may be
required to replace transponders which do not meet operating
specifications. Substantially all customers are entitled to a
refund equal to the reimbursement value if there is no
replacement, which is normally covered by insurance. In the case
of the sales contracts, the reimbursement value is based on the
original purchase price plus an interest factor from the time
the payment was received to acceptance of the transponder by the
customer, reduced on a straight-line basis over the warranty
period. In the case of prepaid leases, the reimbursement value
is equal to the unamortized portion of the lease prepayment made
by the customer. In the case of other arrangements, in the event
of transponder failure where replacement capacity is not
available on the satellite, one customer is not entitled to
reimbursement, and the other customers reimbursement value
is based on contractually prescribed amounts that decline over
time. As a result of the Telstar 4 failure, during the third
quarter 2003 Loral Skynet established warranty liabilities of
$11 million for previously sold transponders to customers
who were restored and who were not restored (three transponders)
on other Loral satellites (See Note 2).

Fourteen of the satellites built by SS/ L and
launched since 1997, seven of which are owned and operated by
Lorals subsidiaries or affiliates, have experienced minor
losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected
satellites have experienced any degradation in performance,
there can be no assurance that one or more of the affected
satellites will not experience additional power loss that could
result in performance degradation, including loss of transponder
capacity or reduction in power transmitted. In the event of
additional power loss, the extent of the performance
degradation, if any, will depend on numerous factors, including
the amount of the additional power loss, the level of redundancy
built into the affected satellites design, when in the
life of the affected satellite the loss occurred and the number
and type of use being made of transponders then in service. It
is also possible that one or more transponders on a satellite
may need to be removed from service to accommodate the power
loss and to preserve full performance capabilities of the
remaining transponders. In the case of one satellite, Loral
Skynet has removed one transponder from service in order to
maintain proper power balance for the remaining transponders,
none of which have been degraded in performance as a result of
the power loss. A complete or partial loss of satellites could
result in a loss of orbital incentive payments and, in the case
of satellites owned by Loral subsidiaries and affiliates, a loss
of revenues and profits. With respect to satellites under
construction and construction of new satellites, based on its
investigation of the matter, SS/ L has identified and has
implemented remediation measures that SS/ L believes will
prevent newly launched satellites from experiencing similar
anomalies. SS/ L does not expect that implementation of these
measures will cause any significant delay in the launch of
satellites under construction or construction of new satellites.
Based upon information currently available, including design
redundancies to accommodate small power losses and that no
pattern has been identified as to the timing or specific
location within the solar arrays of the failures, the Company
believes that this matter will not have a material adverse
effect on the consolidated financial position or results of
operations of Loral.

In September 2001, the PAS 7 satellite built
by SS/ L for PanAmSat experienced an electrical power failure on
its solar arrays that resulted in the loss of use of certain
transponders on the satellite. Also, the PAS 8 satellite
has experienced minor losses of power from its solar arrays, the
cause of which is unrelated to

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the loss of power on the PAS 7 satellite. On
June 30, 2003, PanAmSat commenced an arbitration claiming
that under its contract with SS/ L it is entitled to
$23.7 million as a result of these losses. As a result of
SS/ Ls Chapter 11 filing, this arbitration is subject
to the automatic stay and further proceedings in the matter have
been suspended. See Part II, Item 1, Legal Proceedings. In
addition, a Loral Skynet satellite has experienced a minor loss
of power from its solar arrays, the cause of which may be
similar to the cause of the PAS 7 anomaly. SS/ L believes,
however, that these failures are isolated events and do not
reflect a systemic problem in either the satellite design or
manufacturing process. Accordingly, SS/ L does not believe that
these anomalies will affect other on-orbit satellites built by
SS/ L.


SS/ L has contracted to build a spot beam,
Ka-band satellite for a customer planning to offer broadband
data services directly to the consumer. SS/ L had suspended work
on this program since December 2001 while the customer and SS/ L
were in discussions to resolve a dispute under the contract. In
March 2003, SS/ L and the customer reached an agreement in
principle to restart the satellite construction program, and in
June 2003, SS/ L and the customer executed a definitive
agreement. As of September 30, 2003, SS/ L had billed and
unbilled accounts receivable and vendor financing arrangements
of $53 million (including accrued interest of
$8 million) with this customer. Under the agreement, the
customer will pay the remainder of the purchase price under the
contract of $68.1 million plus accrued interest (including
$53 million owed to SS/ L at September 30, 2003) in
installments over time, a portion of which will be due
subsequent to completion of the satellite.

SS/ L was a party to an Operational Agreement
with Alcatel Space Industries, pursuant to which the parties had
agreed to cooperate on certain satellite programs, and an
Alliance Agreement with Alcatel Space (together with Alcatel
Space Industries, Alcatel), pursuant to which
Alcatel had certain rights with respect to SS/ L. The agreements
between Alcatel and SS/ L were terminable on one years
notice, and, on February 22, 2001, Loral gave notice to
Alcatel that they would expire on February 22, 2002. In
April 2001, Alcatel commenced an arbitration proceeding
challenging the effectiveness of Lorals notice of
termination and asserting various alleged breaches of the
agreements by SS/ L relating to the exchange of information and
other procedural or administrative matters. In February 2002,
the arbitral tribunal issued a partial decision, which upheld
the validity of Lorals termination effective
February 22, 2002 and Alcatels claims as to certain
breaches. The partial decision was confirmed by the District
Court for the Southern District of New York on June 25,
2002. The arbitral tribunal provided both parties with an
opportunity to file any additional claims or counterclaims they
had. In March 2002, Alcatel submitted additional claims against
Loral and SS/ L and sought at least $350 million in damages
in respect of all of its claims. On January 27, 2003, Loral
and SS/ L received from the arbitral tribunal a partial decision
on the additional claims and counterclaims. The arbitral
tribunal ruled in favor of Alcatel on most of its claims
alleging breaches of the Operational Agreement or Alliance
Agreement and ruled against Loral and SS/ L on the
counterclaims. The arbitral tribunal deferred, pending
additional submissions and hearings, a determination whether any
of the breaches caused Alcatel to suffer injury and a
determination of the amount of damages, if any.

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

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

The launch of ChinaSat-8 has been delayed pending
SS/ Ls obtaining the approvals required for the launch. On
December 23, 1998, the Office of Defense Trade Controls, or
ODTC, of the U.S. Department of State temporarily suspended
a previously approved technical assistance agreement under which
SS/ L had been preparing for the launch of the ChinaSat-8
satellite. In addition, SS/ L was required to re-apply for new
export licenses from the State Department to permit the launch
of ChinaSat-8 on a Long March launch vehicle when the old export
licenses issued by the Commerce Department, the agency that
previously had jurisdiction over satellite licensing, expired in
March 2000. On January 4, 2001, the ODTC, while not
rejecting these license applications, notified SS/ L that they
were being returned without action. On January 9, 2002,
Loral, SS/ L and the U.S. Department of State entered into
a consent agreement (the Consent Agreement) settling
and disposing of all civil charges, penalties and sanctions
associated with alleged violations by SS/ L of the Arms Export
Control Act and its implementing regulations. The Company
recorded a $12 million charge in 2001 for the penalties
associated with the Consent Agreement. The Consent Agreement
provides that the State Department agrees, assuming the
Companys and SS/ Ls faithful adherence to the terms
of the Consent Agreement, and the Arms Export Control Act and
its implementing regulations, that decisions concerning export
licenses for the ChinaSat-8 spacecraft will be made on the basis
of the security and foreign policy interests of the United
States, including matters relating to U.S. relations with the
Peoples Republic of China, without reference to the State
Departments previously expressed concerns regarding SS/
Ls reliability, which concerns are considered to be
appropriately mitigated through the operation of various
provisions of the Consent Agreement. Discussions between SS/ L
and the State Department regarding SS/ Ls obtaining the
approvals required for the launch of ChinaSat-8 are continuing.

If ChinaSat were to terminate its contract with
SS/ L for ChinaSat-8 as a result of these delays, ChinaSat may
seek a refund of $134 million for payments made to SS/ L as
well as penalties of up to $11 million. The Company does
not believe that ChinaSat is entitled to such a refund or
penalties and would vigorously contest any such claims by
ChinaSat. A portion of the potential claim relates to amounts
that were paid to a launch vehicle provider. To the extent that
SS/ L or ChinaSat is able to recover some or all of the
$52 million deposit payment on the Chinese launch vehicle,
this recovery would reduce the amount of any claim. SS/ L
believes that ChinaSat bears the risk of loss in the event that
the deposit payments are not refunded by the launch vehicle
provider. SS/ L has commenced discussions with the launch
vehicle provider to recover this deposit. There can be no
assurance, however, that SS/ L will be able either to obtain a
refund from the launch provider or to find a replacement
customer for the Chinese launch vehicle. If ChinaSat were to
terminate the contract, SS/ L estimates that it would incur
costs of approximately $38 million to refurbish and
retrofit the satellite so that it could be sold to another
customer, which resale cannot be guaranteed.

Sirius, a customer of SS/ L, is currently in the
process of rolling out its business. On March 7, 2003,
Sirius completed its recapitalization plan and received
$200 million in cash from third party investors and
exchanged approximately $636 million of its debt and all of
its $525 million of preferred stock into common stock. As
part of this recapitalization, SS/ L converted all of its vendor
financing receivables of approximately $76 million into
58,964,981 shares of common stock of Sirius. For the nine months
ended September 30, 2003, SS/ L realized net proceeds of
$46 million from the sale of all of the shares of Sirius
common stock that it received in the recapitalization, and
realized gains on such sales of $18 million. At
December 31, 2002, the receivables from Sirius were
classified as short-term vendor financing receivables. In the
first quarter of 2003, SS/ L recorded a charge on the vendor
financing receivables due from Sirius of $10 million,
representing the difference between the carrying value of SS/
Ls receivables of $38 million, and the value of the
common shares received by SS/ L based on the trading price of
Siriuss common stock on March 7, 2003 of
$28 million.

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SS/ L has entered into several long-term launch
services agreements with various launch providers to secure
future launches for its customers, including Loral and its
affiliates. SS/ L had launch services agreements with
International Launch Services (ILS) which covered
three launches. In November 2002, SS/ L terminated one of those
future launches, which had a termination liability equal to SS/
Ls deposit of $5 million. Subsequently, SS/ L
received a letter from ILS alleging SS/ Ls breach of the
agreements, purporting to terminate all three launches and
asserting a right to retain $42.5 million in deposits,
without prejudice to any other legal claims or remedies. Despite
ILSs termination of all three launches, to protect its
interest SS/ L also terminated a second launch, which had a
termination liability equal to its deposit of $5 million,
and SS/ L recognized a non-cash charge to earnings of
$10 million in the fourth quarter of 2002 with respect to
the two terminated launches. In June 2003, to protect its
interest, SS/ L also terminated a third launch, which had a
termination liability equal to $23.5 million, and SS/ L
recognized a non-cash charge to earnings of $23.5 in the second
quarter of 2003 with respect to this launch. SS/ L believes that
ILSs claims are without merit and intends to defend
against them vigorously and to seek recovery of its deposits and
termination liabilities. The Company does not believe that this
matter will have a material adverse effect on its consolidated
financial position and its results of operations, although no
assurances can be provided.

While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot guarantee that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past. Five satellites
owned by Loral Skynet and Loral Orion have the same solar array
configuration as two other 1300-class satellites manufactured by
SS/ L that have experienced solar array failures. SS/ L believes
that these failures are isolated events and do not reflect a
systemic problem in either the satellite design or manufacturing
process. Accordingly, the Company does not believe that these
anomalies will affect these satellites. The insurance coverage
for Telstar 10/ Apstar IIR, however, provides for coverage
of losses due to solar array failures only in the event of a
capacity loss of 80% or more. The Company believes that the
insurers will require either exclusions of, or limitations on,
coverage due to solar array failures in connection with renewals
of insurance for the other four satellites in 2003 and 2004. An
uninsured loss of a satellite would have a material adverse
effect on the Companys consolidated financial position and
its results of operations. Moreover, the Company is required
under the terms of its bank facilities and cash collateral order
to use the insurance proceeds from any launch or in-orbit
failure of a satellite owned by Loral SpaceCom or Loral
Satellite to prepay the bank loans (see Sale of Assets and
Bankruptcy filings), and as a result, these insurance proceeds
would not be available to Loral to build a replacement for the
lost satellite, which would result in an adverse effect on its
future revenue. In addition, Loral Orion did not renew its
in-orbit insurance policy on Telstar 11 due to the high
cost of such insurance and the relative age of the satellite. A
loss of the satellite would have a material adverse effect on
the Company.

In an order released on August 8, 2003, the
FCC added Telstar 13 to the Permitted Space Station
List in the C-Band frequency at 121 degrees W.L. As a
result of this action, earth stations located in the U.S. will
be able to communicate with the Telstar 13 satellite, which
was successfully launched on August 7, 2003, and
Telstar 13 will be permitted to operate in the U.S. using a
non-U.S. ITU filing. The order contains several conditions on
this authorization, including (1) a requirement that
Telstar 13 be in compliance with all applicable current and
future operational requirements as a result of coordination
agreements reached with other satellite systems; and
(2) that, in the absence of a coordination agreement with a
satellite network with higher ITU priority, Telstar 13 must
cease service to the U.S. market immediately upon launch and
operation of the higher ITU priority satellite, or be subject to
further conditions designed to address potential harmful
interference to a satellite with ITU date precedence. New Skies
Satellites has asserted that its non-U.S. ITU filing at
120.8 degrees W.L. has ITU priority over Telstar 13.
Loral Skynet is continuing its international coordination of the
121 degrees W.L. slot. There can be no assurance, however,
that coordination discussions will be successful.

On October 21, 2002, National Telecom of
India Ltd. (Natelco) filed suit against Loral and
Loral CyberStar in the United States District Court for the
Southern District of New York. The suit relates to a joint
venture agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a Loral Orion

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subsidiary, the effectiveness of which was
subject to express conditions precedent. In 1999, ONS Mauritius
had notified Natelco that Natelco had failed to satisfy those
conditions precedent. In Natelcos amended complaint filed
in March 2003, Natelco has alleged wrongful termination of the
joint venture agreement, has asserted claims for breach of
contract and fraud in the inducement and is seeking damages and
expenses in the amount of $97 million. Loral believes that
the claims are without merit and intends to vigorously defend
against them. As a result of the commencement of the
Chapter 11 Cases, this lawsuit is subject to the automatic
stay and further proceedings in the matter have been suspended.
See Part II, Item 1, Legal Proceedings.


The Company is subject to various other legal
proceedings and claims, either asserted or unasserted, that
arise in the ordinary course of business. Although the outcome
of these claims cannot be predicted with certainty, the Company
does not believe that any of these other existing legal matters
will have a material adverse effect on its consolidated
financial position or results of operations. These claims
against the Company are subject to the automatic stay as a
result of the commencement of the Chapter 11 Cases. See
Part II, Item 1, Legal Proceedings.

Globalstar Related Matters.On September 26, 2001, the
nineteen separate purported class action lawsuits filed in the
United States District Court for the Southern District of New
York by various holders of securities of Globalstar
Telecommunications Limited (GTL) and Globalstar
against GTL, Loral, Bernard L. Schwartz and other defendants
were consolidated into one action titled In re: Globalstar
Securities Litigation. In November 2001, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint against Globalstar, GTL, Globalstar Capital
Corporation, Loral and Bernard L. Schwartz alleging
(a) that all defendants (except Loral) violated
Section 10(b) of the Securities Exchange Act of 1934 (the
Exchange Act) and Rule 10b-5 promulgated
thereunder, by making material misstatements or failing to state
material facts about Globalstars business and prospects,
(b) that defendants Loral and Mr. Schwartz are
secondarily liable for these alleged misstatements and omissions
under Section 20(a) of the Exchange Act as alleged
controlling persons of Globalstar, (c) that
defendants GTL and Mr. Schwartz are liable under
Section 11 of the Securities Act of 1933 (the
Securities Act) for untrue statements of material
facts in or omissions of material facts from a registration
statement relating to the sale of shares of GTL common stock in
January 2000, (d) that defendant GTL is liable under
Section 12(2)(a) of the Securities Act for untrue
statements of material facts in or omissions of material facts
from a prospectus and prospectus supplement relating to the sale
of shares of GTL common stock in January 2000, and (e) that
defendants Loral and Mr. Schwartz are secondarily liable
under Section 15 of the Securities Act for GTLs
primary violations of Sections 11 and 12(2)(a) of the
Securities Act as alleged controlling persons of
GTL. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of securities of
Globalstar, Globalstar Capital and GTL during the period from
December 6, 1999 through October 27, 2000, excluding
the defendants and certain persons related or affiliated
therewith. Loral and Mr. Schwartz have filed a motion to
dismiss the amended complaint in its entirety as to Loral and
Mr. Schwartz, which motion is pending before the court.
Loral believes that it has meritorious defenses to this class
action lawsuit and intends to pursue them vigorously. As a
result of the commencement of the Chapter 11 Cases, this
lawsuit is subject to the automatic stay and further proceedings
in the matter have been suspended insofar as Loral is concerned
but are proceeding as to the other defendants. See Part II,
Item 1, Legal Proceedings.

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

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affiliated therewith. Loral and
Messrs. Schwartz and Townsend have filed a motion to
dismiss the complaint in its entirety. At oral argument on the
motion on May 9, 2003, the Court indicated its intent to
dismiss the complaint but gave the plaintiffs thirty days to
amend their complaint to state a cause of action. In the
interim, the Court denied the motion without prejudice to its
renewal. On June 9, 2003, the plaintiffs filed an amended
complaint alleging essentially the same claims as in the
original amended complaint. As a result of the commencement of
the Chapter 11 Cases, this lawsuit is subject to the
automatic stay and further proceedings in the matter have been
suspended, insofar as Loral is concerned but are proceeding as
to the other defendants who served a motion to dismiss the
amended complaint on July 31, 2003. See Part II,
Item 1, Legal Proceedings.


In addition, the primary insurer under
Lorals directors and officers liability insurance policy
has denied coverage for the case filed by Loral shareholders
under the policy and, on March 24, 2003, filed a lawsuit in
the Supreme Court of New York county seeking a declaratory
judgment upholding their coverage position. In May 2003, Loral
and the other defendants served their answer and filed
counterclaims seeking a declaration that the insurer is
obligated to provide coverage and damages for breach of contract
and the implied covenant of good faith. In May 2003, Loral and
the other defendants also filed a third party complaint against
the excess insurers seeking a declaration that they are
obligated to provide coverage. Loral believes that the insurers
have wrongfully denied coverage and intends to defend against
the denial vigorously. As a result of the commencement of the
Chapter 11 Cases, this lawsuit is subject to the automatic
stay and further proceedings in the matter have been suspended
insofar as Loral is concerned but are proceeding as to the other
defendants. See Part II, Item 1, Legal Proceedings.

Other Matters



| |                  
| | -----------------
| | Insurance Matters

The Company, like others in the satellite
industry, is faced with significantly higher premiums on launch
and in-orbit insurance, increasing thresholds in determining
total losses for satellites in orbit and significantly shorter
coverage periods than those that have been available in the
past, which is due in part to the events of September 11,
2001. This development in the insurance industry has increased
the cost of doing business. The Company intends to pass on some
of the increased cost to its customers. There can be no
assurance, however, that it will be able to do so. Insurance
market conditions have historically been cyclical in nature.
While the Company anticipates that these conditions will improve
in the future, there can be no assurance that they will. See
Commitments and Contingencies.



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



| |         
| | --------
| | SFAS 142

On January 1, 2002, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS
142) which addresses the initial recognition and
measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible
assets subsequent to their acquisition. SFAS 142 provides
that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives not be
amortized, but rather be tested at least annually for
impairment. SFAS 142 also changed the evaluation criteria for
testing goodwill for impairment from an undiscounted cash flow
approach, which was previously utilized under the guidance in
SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121) and Accounting Principles Board
Opinion No. 17, Intangible Assets
(APB 17), to a test based on fair value. Fair
value is determined by the amount at which an asset or liability
could be bought or sold in a current transaction between willing
parties, that is, other than in a forced or liquidation sale.
Quoted market prices in active markets are the best evidence of
fair value and must be used as the basis for the measurement, if
available. If quoted market prices are not available, the
estimate of fair value must be based on the best information
available, including prices for similar assets and liabilities
and the results of using other valuation techniques, such as
public company trading multiples, future discounted cash flows
and merger and acquisition transaction multiples.

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In accordance with SFAS 142, the
Companys previously recognized cost in excess of net
assets acquired (goodwill) of $892 million for
business acquisitions accounted for under the purchase method of
accounting completed prior to July 1, 2001, was reviewed
under the new transitional guidance as of January 1, 2002.
Goodwill had been previously assigned to the Companys
business segments as follows (based on the net book value at
December 31, 2001): FSS $606 million and satellite
manufacturing and technology $286 million. The Company hired
professionals in the valuation consulting business to determine
the fair value of each of the Companys reporting units.
Since there were no quoted market prices in active markets for
the Companys reporting units, the measurement of fair
value for each reporting unit was based on the best information
available for that reporting unit, including reasonable and
supportable assumptions and projections, as follows:
(1) FSS  public company trading multiples merger
and acquisition transaction multiples and (2) satellite
manufacturing and technology  future discounted cash
flows. Based on the fair values concluded on by those
professionals, management determined that the goodwill for each
of the Companys reporting units under the new guidance in
SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$892 million before taxes ($877 million after taxes).

The charge is the result of a change in the
evaluation criteria for goodwill from an undiscounted cash flow
approach, which was previously utilized under the guidance in
SFAS 121 and APB 17, to the fair value approach which
is stipulated in SFAS 142.



| |         
| | --------
| | SFAS 143

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and the normal
operation of a long-lived asset, except for certain obligations
of lessees. The Company has determined that there was no effect
on its consolidated financial position or results of operations
upon the adoption of SFAS 143 on January 1, 2003.



| |       
| | ------
| | FIN 45

In November 2002, the FASB issued FIN 45
which elaborates on the disclosures to be made by the guarantor
in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also
requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this interpretation were applicable on
a prospective basis to guarantees issued or modified after
December 31, 2002; while the provisions of the disclosure
requirements were effective for financial statements of interim
or annual reports ending after December 15, 2002. The
Company adopted the disclosure provisions of FIN 45 during the
fourth quarter of 2002. The Company adopted the recognition
provisions of FIN 45 on January 1, 2003 and determined that
there was no effect on its consolidated financial position or
results of operations.



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

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin
No. 51 (FIN 46). FIN 46 requires
certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective for all new variable interest entities created or
acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 will be applied by Loral as of
December 31, 2003. The Company is currently evaluating the
provisions of FIN 46.

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| |         
| | --------
| | SFAS 149

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 149). SFAS 149
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003, except for certain
provisions that relate to SFAS 133 Implementation Issues
that have been effective for fiscal quarters prior to
June 15, 2003. Management determined that the adoption of
SFAS 149 did not have an impact on its consolidated financial
position or results of operations.



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

In May 2003, the FASB issued SFAS 150 which
establishes standards for how an issuer classifies and measures
in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity.
SFAS 150 requires that an issuer classify a financial
instrument that is within the scope as a liability (or an asset
in some circumstances) because that financial instrument
embodies an obligation of the issuer. As a result of the
Companys adoption of SFAS 150 on July 1, 2003,
the Company reclassified its preferred stock to liabilities and
increased the recorded values to their redemption values (with
an offsetting increase to other assets) and recorded a
cumulative effect of accounting change of $2 million, which
represents the amortization of expenses incurred on the issuance
of the securities from their issuance dates through
June 30, 2003, that were not previously amortized.



| |           
| | ----------
| | EITF 00-21

In November 2002, the Emerging Issues Task Force
of the FASB (EITF) reached a consensus on Issue
No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables (EITF 00-21).
EITF 00-21 addresses determination of whether an
arrangement involving more than one deliverable contains more
than one unit of accounting and how the related revenues should
be measured and allocated to the separate units of accounting.
EITF 00-21 applies to revenue arrangements entered into
after June 30, 2003; however, upon adoption, the EITF
allows the guidance to be applied on a retroactive basis, with
the change, if any, reported as a cumulative effect of
accounting change in the statement of operations. Management
determined that the adoption of EITF 00-21 did not have a
significant impact on its consolidated financial position or
results of operations






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

Upon filing Chapter 11, SS/Ls hedges
with counterparties (primarily yen denominated forward
contracts) were cancelled leaving SS/L vulnerable to foreign
currency fluctuations in the future. The inability to enter into
forward contracts exposes SS/Ls future revenues, costs and
cash associated with anticipated yen denominated receipts and
payments to currency fluctuations. As of September 30,
2003, SS/L had the following amounts denominated in Japanese Yen
that were unhedged (in millions):

|                                            |  |              |       |        |  |   |      | 
|------------------------------------------- |  | ------------ | ----- | ------ |  | - | ---- | 
|                                            |  | Japanese Yen |       | U.S. $
|                                            |  |              |       |       
|Future revenues                             |  | ¥            | 3,283 |        |  | $ | 29.6 | 
|Future expenditures                         |  |              | 1,193 |        |  |   | 10.8 | 
|Contracts-in-process (unbilled receivables) |  |              | 2,272 |        |  |   | 20.5 | 






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

(a) Disclosure controls and
procedures. Lorals chief executive officer and its
chief financial officer, after evaluating the effectiveness of
the Companys disclosure controls and
procedures (as defined in the Securities and Exchange Act
of 1934 Rules 13a-15(e) or 15d-15(e)) as of
September 30, 2003 have concluded that as of
September 30, 2003, the Companys disclosure controls
and procedures were effective

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and designed to ensure that material information
relating to the Company and its consolidated subsidiaries would
be made known to them by others within those entities.


(b) Internal control over financial
reporting. There were no changes in the Companys
internal control over financial reporting during the quarterly
period ended September 30, 2003, that have materially
effected or are reasonably likely to materially effect the
Companys control over financial reporting.




PART II.

OTHER INFORMATION






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

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

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

As a result of the commencement of the
Chapter 11 Cases, the pursuit of all pending claims and
litigation against Loral and its Debtor Subsidiaries arising
prior to or relating to events which occurred prior to the
commencement of the Chapter 11 Cases is generally subject
to an automatic stay under Section 362 of the Bankruptcy
Code, and, absent further order of the Bankruptcy Court, no
party may take any action to recover any prepetition claims,
enforce any lien against or obtain possession of any property
from Loral or its Debtor Subsidiaries. In addition, pursuant to
Section 365 of the Bankruptcy Code, Loral and its Debtor
Subsidiaries may reject or assume prepetition executory
contracts and unexpired leases, and parties affected by
rejections of these contracts or leases may file claims with the
Bankruptcy Court which will be addressed in the context of the
Chapter 11 Cases.

See Note 14 to the condensed consolidated
financial statements.






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

(a) On July 15, 2003, Loral and the
Debtor Subsidiaries filed voluntary petitions for reorganization
under the Bankruptcy Code in the Bankruptcy Court (Lead Case
No. 03-41710 (RDD), Case Nos. 03-41709 (RDD) through
03-41728 (RDD)). As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization,
Lorals prepetition debt obligations (aggregating
approximately $2.1 billion at September 30, 2003) have
been accelerated and are immediately due and Lorals other
prepetition debt obligations of $93 million at
September 30, 2003 are subject to acceleration (see Note 10
to the condensed consolidated financial statements). On
July 15, 2003, Loral failed to make interest payments of
$16.6 million on its 9.50% Senior Notes due 2006, and Loral
Orion failed to make interest payments of $30.6 million on
its 10% Senior Notes due 2006, $2.1 million on its 11.25%
Senior Notes due 2007 and $3.1 million on its 12.50% Senior
Notes due 2007.

(b) In August 2002, Lorals Board of
Directors approved a plan to suspend indefinitely the future
payment of dividends on its two series of preferred stock.
Accordingly, Loral has deferred the payments of quarterly
dividends due on its Series C Preferred Stock and the
payments of quarterly dividends due on its

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Series D Preferred Stock. Dividends on the
two series continue to accrue. In the event accrued and unpaid
dividends accumulate to an amount equal to six quarterly
dividends on the Series C Preferred Stock, subject to the
applicable effects of the Chapter 11 Cases and Lorals
Bermuda insolvency proceedings, the terms of the Series C
Preferred Stock provide that holders of the majority of the
outstanding Series C Preferred Stock will be entitled to
elect two additional members to Lorals Board of Directors.
In the event accrued and unpaid dividends accumulate to an
amount equal to six consecutive quarterly dividends on the
Series D Preferred Stock, subject to the applicable effects
of the Chapter 11 Cases and Lorals Bermuda insolvency
proceedings, the terms of the Series D Preferred Stock
provide that holders of the majority of the outstanding
Series D Preferred will be entitled to elect two additional
members to Lorals Board of Directors. As of
September 30, 2003, accrued and unpaid dividends of
$13 million represented four quarterly dividend payments
outstanding, which were accrued through July 14, 2003.


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






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

(a) Exhibits

The following exhibits are filed as part of this
report:

Exhibit 12  Computation of
Deficiency of Earnings to Cover Fixed Charges

Exhibit 31.1  Certification of
Chief Executive Officer pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 302 of the Sarbanes-Oxley Act
of 2002

Exhibit 31.2  Certification of
Chief Financial Officer pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 302 of the Sarbanes-Oxley Act
of 2002

Exhibit 32.1  Certification of
Chief Executive Officer pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 906 of the Sarbanes-Oxley Act
of 2002

Exhibit 32.2  Certification of
Chief Financial Officer pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 906 of the Sarbanes-Oxley Act
of 2002

(b) Reports on Form 8-K

|                   |  |                                                                                                                                                   |  |                                                                                                                                                                                              
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report     |  |                                                                                                                                                   |  | Description                                                                                                                                                                                  
|                   |  |                                                                                                                                                   |  |                                                                                                                                                                                              
|July 2, 2003       |  | Item 5  Other Events
    Item 7  Financial Statements, Pro Forma
    Financial Information and Exhibits                                         |  | Amendment of Loral SpaceCom Corporations
    Credit Agreement and Press Releases on Lorals Alcatel
    settlement and Intelsat orbital sale                                                
|July 23, 2003      |  | Item 3  Bankruptcy or
    Receivership
    Item 5  Other Events and Regulation FD
    Disclosure
    Item 7  Financial Statements and Exhibits |  | Asset Purchase Agreement with Intelsat; Voluntary
    petitions for reorganization under Chapter 11 of the
    Bankruptcy Code; and Insolvency proceeding in the Supreme Court
    of Bermuda
|August 19, 2003    |  | Item 7  Financial Statements, Pro
    Forma Financial Information and Exhibits
    Item 12  Results of Operations and Financial
    Condition   |  | Second Quarter 2003 earnings release                                                                                                                                                         
|September 23, 2003 |  | Item 5  Other Events
    Item 7  Financial Statements, Pro Forma
    Financial Information and Exhibits                                         |  | Telstar 4 satellite ceases operations and
    deemed a total loss                                                                                                                            

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SIGNATURES

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



| |                                        
| | ---------------------------------------
| | LORAL SPACE & COMMUNICATIONS LTD.      
|
| | Registrant                             
|
| | /s/ RICHARD J. TOWNSEND                
| |                                        
| | Richard J. Townsend                    
| | Executive Vice President and           
| | Chief Financial Officer                
| | (Principal Financial Officer)          
| | and Registrants Authorized
    Officer

Date: November 14, 2003

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EXHIBIT INDEX

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

78