##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

Form 10-Q

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

SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31,
2004

Commission file number 1-14180

Loral Space & Communications
Ltd.

c/o Loral SpaceCom Corporation

600 Third Avenue


New York, New York 10016


Telephone: (212) 697-1105


Jurisdiction of incorporation:
Bermuda

IRS identification number:
13-3867424

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

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

As of April 30, 2004, 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                   
|                                                 | Item 1. Financial Statements                                                                 
|                                                 |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                 | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                 | Item 4. Disclosure Controls and Procedures                                                   
|PART II.                                        
|OTHER INFORMATION                               
|                                                 | Item 1. Legal Proceedings                                                                    
|                                                 | Item 3. Defaults Upon Senior Securities                                                      
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|EXHIBIT INDEX                                   
|FORM OF LETTER OF CREDIT REIMBURSEMENT AGREEMENT
|FORM OF CASH COLLATERAL AGREEMENT               
|COMPUTATION OF DEFICIENCY OF EARNINGS           
|CERTIFICATION                                   
|CERTIFICATION                                   
|CERTIFICATION                                   
|CERTIFICATION                                   



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##### Table of Contents






PART 1.

FINANCIAL INFORMATION







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

LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION

CONDENSED CONSOLIDATED BALANCE
SHEETS

(In thousands, except par values)


(Unaudited)


|                                                               |                                              |                                                                   |                                             |              |         |           |           |            |         |           |  
|-------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------- | ------------ | ------- | --------- | --------- | ---------- | ------- | --------- | -
|                                                               |                                              | March 31,                                                         |                                             | December 31,
|                                                               |                                              | 2004                                                              |                                             | 2003        
|                                                               |                                              |                                                                   |                                             |             
|ASSETS                                                        
|Current assets:                                                |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               | Cash and cash equivalents                    |                                                                   | $                                           | 132,234      |         |           | $         | 141,644    |        
|                                                               | Accounts receivable, net                     |                                                                   |                                             | 18,142       |         |           |           | 22,969     |        
|                                                               | Contracts-in-process                         |                                                                   |                                             | 117,394      |         |           |           | 62,063     |        
|                                                               | Inventories                                  |                                                                   |                                             | 41,255       |         |           |           | 42,456     |        
|                                                               | Insurance proceeds receivable                |                                                                   |                                             |             |         |           |           | 122,770    |        
|                                                               | Other current assets                         |                                                                   |                                             | 29,820       |         |           |           | 36,004     |        
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total current assets                        |              |         | 338,845   |           |            |         | 427,906   |  
|Property, plant and equipment, net                             |                                              |                                                                   | 953,958                                     |              |         |           | 1,828,282 |           
|Long-term receivables                                          |                                              |                                                                   | 76,142                                      |              |         |           | 70,749    |           
|Investments in and advances to affiliates                      |                                              |                                                                   | 50,618                                      |              |         |           | 46,674    |           
|Deposits                                                       |                                              |                                                                   | 9,000                                       |              |         |           | 9,000     |           
|Other assets                                                   |                                              |                                                                   | 46,020                                      |              |         |           | 73,130    |           
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total assets                                |              | $       | 1,474,583 |           |            | $       | 2,455,741 |  
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                              
|LIABILITIES AND SHAREHOLDERS
    DEFICIT                     
|Liabilities not subject to compromise:                         |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               | Current liabilities:                         |                                                                   |                                             |              |         |           |           |            |        
|                                                               |                                              | Accounts payable                                                  |                                             | $            | 24,922  |           |           | $          | 50,656  |          
|                                                               |                                              | Accrued employment costs                                          |                                             |              | 22,885  |           |           |            | 23,532  |          
|                                                               |                                              | Customer advances and billings in excess of costs
    and profits |                                             |              | 320,579 |           |           |            | 239,225 |          
|                                                               |                                              | Deferred gain on sale of assets (Note 4)                          |                                             |              | 20,982  |           |           |            |        |          
|                                                               |                                              | Accrued interest and preferred dividends                          |                                             |              |        |           |           |            | 1,319   |          
|                                                               |                                              | Income taxes payable                                              |                                             |              | 5,965   |           |           |            | 269     |          
|                                                               |                                              | Other current liabilities                                         |                                             |              | 22,906  |           |           |            | 9,870   |          
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total current liabilities                   |              |         | 418,239   |           |            |         | 324,871   |  
|                                                               | Pension and other postretirement liabilities |                                                                   |                                             | 15,822       |         |           |           | 10,983     |        
|                                                               | Long-term liabilities                        |                                                                   |                                             | 46,783       |         |           |           | 66,947     |        
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total liabilities not subject to compromise |              |         | 480,844   |           |            |         | 402,801   |  
|Liabilities subject to compromise (Note 11)                    |                                              |                                                                   | 1,928,360                                   |              |         |           | 2,906,095 |           
|Minority interest                                              |                                              |                                                                   | 2,428                                       |              |         |           | 2,515     |           
|Commitments and contingencies (Notes 2, 9,
    11, 12, and 15) |                                              |                                                                   |                                             |              |         |           |           |           
|Shareholders deficit:                                         |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               | Common stock, $.10 par value                 |                                                                   |                                             | 4,413        |         |           |           | 4,413      |        
|                                                               | Paid-in capital                              |                                                                   |                                             | 3,392,829    |         |           |           | 3,392,829  |        
|                                                               | Treasury stock, at cost                      |                                                                   |                                             | (3,360       | )       |           |           | (3,360     | )      
|                                                               | Unearned compensation                        |                                                                   |                                             | (148         | )       |           |           | (168       | )      
|                                                               | Retained deficit                             |                                                                   |                                             | (4,251,172   | )       |           |           | (4,171,536 | )      
|                                                               | Accumulated other comprehensive loss         |                                                                   |                                             | (79,611      | )       |           |           | (77,848    | )      
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total shareholders deficit                 |              |         | (937,049  | )         |            |         | (855,670  | )
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           
|                                                               |                                              |                                                                   | Total liabilities and shareholders deficit |              | $       | 1,474,583 |           |            | $       | 2,455,741 |  
|                                                               |                                              |                                                                   |                                             |              |         |           |           |           

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

(In thousands, except per share
amounts)


(Unaudited)


|                                                                                                                   |                         |                    |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------------ | ----------------------- | ------------------ | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                   |                         |                   
|                                                                                                                   |                         | Three Months Ended
|                                                                                                                   |                         | March 31,         
|                                                                                                                   |                         |                   
|                                                                                                                   |                         | 2004               |         | 2003   
|                                                                                                                   |                         |                    |         |        
|Revenues from satellite services                                                                                   |                         | $                  | 29,251  |         |   | $ | 40,409  |        
|Revenues from satellite manufacturing                                                                              |                         |                    | 74,433  |         |   |   | 115,037 |        
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|                                                                                                                   | Total revenues          |                    |         | 103,684 |   |   |         | 155,446 |  
|Cost of satellite services                                                                                         |                         |                    | 63,581  |         |   |   | 46,893  |        
|Cost of satellite manufacturing                                                                                    |                         |                    | 68,299  |         |   |   | 130,136 |        
|Selling, general and administrative expenses                                                                       |                         |                    | 31,567  |         |   |   | 31,490  |        
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Loss from continuing operations before
    reorganization expenses due to bankruptcy                               |                         |                    | (59,763 | )       |   |   | (53,073 | )      
|Reorganization expenses due to bankruptcy                                                                          |                         |                    | (8,315  | )       |   |   |        |        
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Operating loss from continuing operations                                                                          |                         |                    | (68,078 | )       |   |   | (53,073 | )      
|Interest and investment income                                                                                     |                         |                    | 2,561   |         |   |   | 7,046   |        
|Interest expense (contractual interest was
    $10,876 for the three months ended March 31, 2004, see
    Note 12) |                         |                    | (1,987  | )       |   |   | (8,506  | )      
|Gain on investments                                                                                                |                         |                    |        |         |   |   | 1,107   |        
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Loss from continuing operations before income
    taxes, equity in net losses of affiliates and minority interest  |                         |                    | (67,504 | )       |   |   | (53,426 | )      
|Income tax (provision) benefit                                                                                     |                         |                    | (196    | )       |   |   | 3,833   |        
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Loss from continuing operations before equity in
    net losses of affiliates and minority interest                |                         |                    | (67,700 | )       |   |   | (49,593 | )      
|Equity in net losses of affiliates                                                                                 |                         |                    | (403    | )       |   |   | (8,503  | )      
|Minority interest                                                                                                  |                         |                    | 87      |         |   |   | (39     | )      
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Loss from continuing operations                                                                                    |                         |                    | (68,016 | )       |   |   | (58,135 | )      
|(Loss) income from discontinued operations
    (Note 4)                                                            |                         |                    | (11,620 | )       |   |   | 9,961   |        
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Net loss                                                                                                           |                         |                    | (79,636 | )       |   |   | (48,174 | )      
|Preferred dividends                                                                                                |                         |                    |        |         |   |   | (3,360  | )      
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Net loss applicable to common shareholders                                                                         |                         | $                  | (79,636 | )       |   | $ | (51,534 | )      
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Basic and diluted (loss) earnings per share
    (Note 16):                                                         |                         |                    |         |         |   |   |         |        
|                                                                                                                   | Continuing operations   |                    | $       | (1.54   | ) |   | $       | (1.42   | )
|                                                                                                                   | Discontinued operations |                    |         | (0.26   | ) |   |         | 0.23    |  
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|                                                                                                                   | Loss per share          |                    | $       | (1.80   | ) |   | $       | (1.19   | )
|                                                                                                                   |                         |                    |         |         |   |   |         |        
|Weighted average shares outstanding:                                                                               |                         |                    |         |         |   |   |         |        
|                                                                                                                   | Basic and diluted       |                    |         | 44,125  |   |   |         | 43,213  |  
|                                                                                                                   |                         |                    |         |         |   |   |         |        

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

(In thousands)


(Unaudited)


|                                                        |                                                                            |                    |          |          |   |   |         |         |  
|------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------ | -------- | -------- | - | - | ------- | ------- | -
|                                                        |                                                                            |                   
|                                                        |                                                                            | Three Months Ended
|                                                        |                                                                            | March 31,         
|                                                        |                                                                            |                   
|                                                        |                                                                            | 2004               |          | 2003    
|                                                        |                                                                            |                    |          |         
|Operating activities:                                   |                                                                            |                    |          |          |   |   |         |        
|Net loss                                                |                                                                            | $                  | (79,636  | )        |   | $ | (48,174 | )      
|Non-cash items:                                         |                                                                            |                    |          |          |   |   |         |        
|                                                        | Loss (income) from discontinued operations                                 |                    |          | 11,620   |   |   |         | (9,961  | )
|                                                        | Equity in net losses of affiliates                                         |                    |          | 403      |   |   |         | 8,503   |  
|                                                        | Minority interest                                                          |                    |          | (87      | ) |   |         | 39      |  
|                                                        | Deferred taxes                                                             |                    |          |         |   |   |         | 1,663   |  
|                                                        | Depreciation and amortization                                              |                    |          | 41,192   |   |   |         | 30,049  |  
|                                                        | Valuation allowance on vendor financing
    receivables                    |                    |          |         |   |   |         | 10,008  |  
|                                                        | Provisions for bad debts                                                   |                    |          | 164      |   |   |         | 3,963   |  
|                                                        | Impairment charge on satellite and related assets                          |                    |          | 11,989   |   |   |         |        |  
|                                                        | Loss on equipment disposals                                                |                    |          |         |   |   |         | 40      |  
|                                                        | Gain on investments and debt exchanges, net                                |                    |          |         |   |   |         | (1,107  | )
|                                                        | Non-cash net (gain) loss on foreign currency
    transactions and interest |                    |          | (733     | ) |   |         | 6,631   |  
|                                                        | Provision for inventory obsolescence                                       |                    |          | 287      |   |   |         |        |  
|Changes in operating assets and liabilities:            |                                                                            |                    |          |          |   |   |         |        
|                                                        | Accounts receivable, net                                                   |                    |          | 4,663    |   |   |         | (6,636  | )
|                                                        | Contracts-in-process                                                       |                    |          | (12,102  | ) |   |         | 36,656  |  
|                                                        | Inventories                                                                |                    |          | 914      |   |   |         | (606    | )
|                                                        | Long-term receivables                                                      |                    |          | (5,393   | ) |   |         | (860    | )
|                                                        | Other current assets and other assets                                      |                    |          | 925      |   |   |         | 3,750   |  
|                                                        | Accounts payable                                                           |                    |          | (9,015   | ) |   |         | 5,344   |  
|                                                        | Accrued expenses and other current liabilities                             |                    |          | 1,277    |   |   |         | (1,822  | )
|                                                        | Customer advances                                                          |                    |          | 46,095   |   |   |         | (28,019 | )
|                                                        | Income taxes payable                                                       |                    |          | (278     | ) |   |         | (391    | )
|                                                        | Pension and other postretirement liabilities                               |                    |          | 6,094    |   |   |         | 2,620   |  
|                                                        | Long-term liabilities                                                      |                    |          | 792      |   |   |         | (2,284  | )
|                                                        | Other                                                                      |                    |          | (43      | ) |   |         | 419     |  
|                                                        |                                                                            |                    |          |          |   |   |         |        
|Net cash provided by operating activities               |                                                                            |                    | 19,128   |          |   |   | 9,825   |        
|                                                        |                                                                            |                    |          |          |   |   |         |        
|Net cash provided by discontinued operations            |                                                                            |                    | 6,924    |          |   |   | 21,274  |        
|                                                        |                                                                            |                    |          |          |   |   |         |        
|Investing activities:                                   |                                                                            |                    |          |          |   |   |         |        
|                                                        | Capital expenditures for continuing operations                             |                    |          | (6,210   | ) |   |         | (15,001 | )
|                                                        | Capital expenditures for discontinued operations                           |                    |          | (11,185  | ) |   |         | (8,279  | )
|                                                        | Proceeds from the sales of assets, net of
    expenses (Note 2)            |                    |          | 953,619  |   |   |         |       |  
|                                                        | Proceeds from sale of investment                                           |                    |          |         |   |   |         | 9,704   |  
|                                                        | Investments in and advances to affiliates                                  |                    |          | (4,799   | ) |   |         | (514    | )
|                                                        |                                                                            |                    |          |          |   |   |         |        
|Net cash provided by (used in) investing
    activities |                                                                            |                    | 931,425  |          |   |   | (14,090 | )      
|                                                        |                                                                            |                    |          |          |   |   |         |        
|Financing activities:                                   |                                                                            |                    |          |          |   |   |         |        
|                                                        | Repayments of term loans                                                   |                    |          | (576,500 | ) |   |         | (16,250 | )
|                                                        | Repayments of revolving credit facilities                                  |                    |          | (390,387 | ) |   |         |        |  
|                                                        | Borrowings under revolving credit facilities                               |                    |          |         |   |   |         | 66,000  |  
|                                                        | Interest payments on 10% senior notes                                      |                    |          |         |   |   |         | (30,634 | )
|                                                        | Repayments of other long-term obligations                                  |                    |          |         |   |   |         | (534    | )
|                                                        | Proceeds from other stock issuances                                        |                    |          |         |   |   |         | 2,157   |  
|                                                        | Payment of bank amendment costs                                            |                    |          |         |   |   |         | (2,183  | )
|                                                        |                                                                            |                    |          |          |   |   |         |        
|Net cash (used in) provided by financing
    activities |                                                                            |                    | (966,887 | )        |   |   | 18,556  |        
|                                                        |                                                                            |                    |          |          |   |   |         |        
|(Decrease) increase in cash and cash equivalents        |                                                                            |                    | (9,410   | )        |   |   | 35,565  |        
|                                                        | Cash and cash equivalents  beginning
    of period                        |                    |          | 141,644  |   |   |         | 65,936  |  
|                                                        |                                                                            |                    |          |          |   |   |         |        
|                                                        | Cash and cash equivalents  end of
    period                              |                    | $        | 132,234  |   |   | $       | 101,501 |  
|                                                        |                                                                            |                    |          |          |   |   |         |        

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 a leading
satellite communications company with substantial activities in
satellite-based communications services and satellite
manufacturing. Loral is organized into two operating segments
(see Note 17):



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



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



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

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

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

As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization, all
of Lorals prepetition debt obligations (principal amounts
aggregating approximately $1.049 billion at March 31,
2004) have been accelerated (see below and Notes 11 and
12). On July 15, 2003, Loral suspended interest payments on
all of its senior unsecured notes, with an aggregate principal
amount of $1.049 billion. 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, has the right to be
heard on all matters that come before the Bankruptcy Court (see
Note 12).

During the duration of the Chapter 11 Cases,
Lorals businesses are subject to risks and uncertainties
of bankruptcy. For example, the Chapter 11 Cases could
adversely affect Lorals relationships with customers,
suppliers and employees, which, in turn could adversely affect
the going concern value of the business and of Lorals
assets, particularly if the Chapter 11 Cases are
protracted. Also, transactions outside the ordinary course of
business are subject to the prior approval of the Bankruptcy
Court which may limit Lorals ability to

4



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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. Accordingly, absent further order of the Bankruptcy Court,
a party is generally prohibited from taking any action to
recover any prepetition claims, enforce any lien against or
obtain possession of any 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 suspended trading of Lorals common stock and, on
September 2, 2003, removed Lorals securities from
listing and registration. Lorals common stock is being
quoted under the ticker symbol LRLSQ on the Pink Sheets 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 likely will be eliminated entirely.



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

On March 17, 2004, Loral Space &
Communications Corporation, Loral SpaceCom Corporation and Loral
Satellite, Inc. (collectively, the Sellers)
consummated the sale (the Sale) of the Sellers
North American fleet of satellites and related assets to certain
affiliates of Intelsat, Ltd. and Intelsat (Bermuda), Ltd.
(collectively, Intelsat or the
Purchasers). At closing, the Company received
approximately $1.011 billion, consisting of approximately
$961 million for the North American satellites and related
assets, after adjustments, and $50 million for an advance
on a new satellite to be built for Intelsat by SS/ L. The
Companys obligations with respect to the $50 million
advance are secured by the Telstar 14/Estrela do Sul-1 satellite
and related assets, including insurance proceeds relating to the
satellite. The Company used a significant portion of the funds
received to repay all $967 million of its outstanding
secured bank debt. In addition, after closing, the Sellers
received from the Purchasers approximately $16 million to
reimburse a deposit made by the Sellers for the launch of
Telstar 8, and the Sellers expect to receive an additional
$4 million as a purchase price adjustment resulting from
resolution of a regulatory issue relating to the purchased
assets. The Sale was completed after the Bankruptcy Court
approved, on March 16, 2004, the final amendment to the
asset purchase agreement, dated July 15, 2003, between the
Sellers and the Purchasers.

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



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

Loral intends to reorganize around its satellite
manufacturing operations and its remaining fleet of
international satellites and does not believe it will require
any additional financing to fund operations.

As provided by the Bankruptcy Code, the Debtors
had the exclusive right to submit their plan or plans of
reorganization for 120 days from the date of the
Chapter 11 filing. The Bankruptcy Court has extended this
exclusive period through July 12, 2004. If Loral and its
Debtor Subsidiaries fail to file their plan or plans of
reorganization during this exclusive period, or if a plan is
filed and 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

5



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 rejection of 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 plan or plans of reorganization
that provide for emergence from bankruptcy sometime in 2004,
Loral cannot now describe the components or features of the
plan, including whether the plan will provide for creditors to
be paid in whole or in part or whether consideration they will
receive will consist of cash, debt, equity or some combination
thereof. In addition, there can be no assurance that Loral will
be able to propose a plan, obtain court approval of any plan it
proposes, obtain acceptances from the number of creditors
necessary to confirm a plan, or actually confirm and consummate
a plan.



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

The accompanying unaudited condensed consolidated
financial statements have been prepared assuming the Company, in
its current structure, will continue as a going concern.
However, the factors mentioned in Note 2 above, among other
things, raise substantial doubt about the Company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 developing
a plan of reorganization, confirmation of the plan by the
Bankruptcy Court and Loral maintaining good relations with its
customers, suppliers and employees. 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 were forced to
liquidate (see Reorganization in Note 2).

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 months ended March 31,
2004 are not necessarily indicative of the results to be
expected for the full year. The December 31, 2003 balance
sheet has been derived from the audited consolidated financial
statements at that date. It is suggested that these condensed
consolidated financial statements be read in conjunction with
the audited consolidated financial statements included in the
Company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 carrying value 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 in conformity with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144) and

6



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 condensed
consolidated financial position and results of operations.



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

During 2004 and 2003, Loral continued to maintain
the 100% valuation allowance established at December 31,
2002 and recorded no benefit for its domestic loss. In 2004, the
Company recorded a provision for continuing operations relating
to foreign income taxes with no benefit for the loss from
discontinued operations. In 2003, the Company recorded a benefit
in continuing operations primarily for the provision
reclassified to income from discontinued operations offset by a
deferred tax liability for certain foreign entities.



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

The following table provides the components of
net periodic benefit cost for the Companys qualified and
supplemental retirement plans (the Pension Benefits)
and health care and life insurance benefits for retired
employees and dependents (the Other Benefits) for
the three months ended March 31, 2004 and 2003 respectively
(in thousands):

|                                   |  |                  |        |                |  |      |        |      |  |   |       |   |  |   |       |  
|---------------------------------- |  | ---------------- | ------ | -------------- |  | ---- | ------ | ---- |  | - | ----- | - |  | - | ----- | -
|                                   |  |                  |        |               
|                                   |  | Pension Benefits |        | Other Benefits
|                                   |  |                  |        |               
|                                   |  | 2004             |        | 2003           |  | 2004 |        | 2003
|                                   |  |                  |        |                |  |      |        |     
|Service cost                       |  | $                | 2,324  |                |  | $    | 3,049  |      |  | $ | 274   |   |  | $ | 836   |  
|Interest cost                      |  |                  | 5,548  |                |  |      | 5,498  |      |  |   | 1,069 |   |  |   | 1,300 |  
|Expected return on plan assets     |  |                  | (4,870 | )              |  |      | (4,596 | )    |  |   | (20   | ) |  |   | (37   | )
|Amortization of prior service cost |  |                  | (9     | )              |  |      | (9     | )    |  |   | (483  | ) |  |   | (318  | )
|Amortization of net loss           |  |                  | 1,164  |                |  |      | 1,314  |      |  |   | 564   |   |  |   | 428   |  
|                                   |  |                  |        |                |  |      |        |      |  |   |       |   |  |   |       |  
|                                   |  | $                | 4,157  |                |  | $    | 5,256  |      |  | $ | 1,404 |   |  | $ | 2,209 |  
|                                   |  |                  |        |                |  |      |        |      |  |   |       |   |  |   |       |  



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

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

|                          |                                                                              |                    |   |        |        |   |   |        |  | 
|------------------------- | ---------------------------------------------------------------------------- | ------------------ | - | ------ | ------ | - | - | ------ |  | 
|                          |                                                                              |                   
|                          |                                                                              | Three Months Ended
|                          |                                                                              | March 31,         
|                          |                                                                              |                   
|                          |                                                                              | 2004               |   | 2003  
|                          |                                                                              |                    |   |       
|Non-cash activities:      |                                                                              |                    |   |        |        |   |   |       
|                          | Unrealized (losses) gains on available-for-sale
    securities, net of taxes |                    | $ | (452   | )      |   | $ | 10,421 | 
|                          |                                                                              |                    |   |        |        |   |   |       
|                          | Unrealized net (losses) gains on derivatives, net
    of taxes               |                    | $ | (1,249 | )      |   | $ | 427    | 
|                          |                                                                              |                    |   |        |        |   |   |       
|                          | Accrual of preferred dividends                                               |                    |   |        |        |   | $ | 3,360  | 
|                          |                                                                              |                    |   |        |        |   |   |       
|Supplemental information: |                                                                              |                    |   |        |        |   |   |       
|                          | Cash (paid) received for reorganization
    items:                           |                    |   |        |        |   |   |        | 
|                          |                                                                              | Professional fees  |   | $      | (3,842 | ) |   |        |  | 
|                          |                                                                              |                    |   |        |        |   |   |       
|                          |                                                                              | Retention costs    |   | $      | (3,237 | ) |   |        |  | 
|                          |                                                                              |                    |   |        |        |   |   |       
|                          |                                                                              | Interest income    |   | $      | 213    |   |   |        |  | 
|                          |                                                                              |                    |   |        |        |   |   |       

7



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



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

As described in Note 2, on March 17,
2004, the Company completed the sale of its North American
satellites and related assets to Intelsat. The operating
revenues and expenses of the North American satellites and
related assets have been classified as discontinued operations
under SFAS No. 144 for all periods presented. Due to
certain unsettled contingencies, Loral has deferred the expected
gain of approximately $21 million on the sale on its
condensed consolidated balance sheet as of March 31, 2004.
The determination of the actual gain on the sale will be
finalized based on the resolution of certain contingencies.
Accordingly, the actual gain that will ultimately be recognized
may be different than the deferred gain reflected herein.

The following table summarizes certain statement
of operations data for the discontinued operations. In 2004, the
results of the discontinued operations are for the period from
January 1, 2004 to March 17, 2004, the date of the
sale and include the write-off of approximately $11 million of
debt issue costs to interest expense relating to the
Companys secured debt that was repaid. For the purposes of
this presentation, all indirect costs normally associated with
these operations have been included in continuing operations.
These indirect costs include telemetry, tracking and control,
access control, maintenance and engineering, selling and
marketing, and general and administrative.

|                                           |  |                    |         |      |  |   |        |  
|------------------------------------------ |  | ------------------ | ------- | ---- |  | - | ------ | -
|                                           |  |                   
|                                           |  | Three Months Ended
|                                           |  | March 31,         
|                                           |  |                   
|                                           |  | 2004               |         | 2003
|                                           |  |                    |         |     
|                                           |  |                   
|                                           |  | (In thousands)    
|Revenues of discontinued operations        |  | $                  | 29,106  |      |  | $ | 43,328 |  
|                                           |  |                    |         |      |  |   |        |  
|Operating income                           |  | $                  | 13,318  |      |  | $ | 24,074 |  
|Interest expense                           |  |                    | 24,938  |      |  |   | 8,298  |  
|                                           |  |                    |         |      |  |   |        |  
|(Loss) income before income taxes          |  |                    | (11,620 | )    |  |   | 15,776 |  
|Income tax provision                       |  |                    |        |      |  |   | (5,815 | )
|                                           |  |                    |         |      |  |   |        |  
|(Loss) income from discontinued operations |  | $                  | (11,620 | )    |  | $ | 9,961  |  
|                                           |  |                    |         |      |  |   |        |  

The net book value of the satellites to be sold
was $935 million (including insurance proceeds receivable on the
Companys consolidated balance sheet at December 31,
2003) and of the related assets and liabilities was $30 million
and $31 million, respectively, as of December 31, 2003.



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

In accordance with SFAS No. 148,
Accounting for Stock-Based Compensation  Transition
and Disclosure (SFAS 148), an amendment of
SFAS 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

8



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

valuation approach and forfeitures are recognized
as they occur. The following table summarizes what the
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
|                                                                                                                          |  | March 31,         
|                                                                                                                          |  |                   
|                                                                                                                          |  | 2004               |       | 2003
|                                                                                                                          |  |                    |       |     
|Reported loss from continuing operations                                                                                  |  | $                  | (68.0 | )    |  | $ | (58.1 | )
|Add: Total stock based compensation charged to
    operations under the intrinsic value method, net of taxes              |  |                    |      |      |  |   |      |  
|Less: Total stock based employee compensation
    determined under the fair value method for all awards, net of
    taxes |  |                    | (0.3  | )    |  |   | (0.6  | )
|                                                                                                                          |  |                    |       |      |  |   |       |  
|Pro forma loss from continuing operations                                                                                 |  |                    | (68.3 | )    |  |   | (58.7 | )
|Net (loss) income from discontinued operations,
    net of taxes                                                          |  |                    | (11.6 | )    |  |   | 9.9   |  
|                                                                                                                          |  |                    |       |      |  |   |       |  
|Pro forma net loss                                                                                                        |  |                    | (79.9 | )    |  |   | (48.8 | )
|Preferred dividends                                                                                                       |  |                    |      |      |  |   | (3.3  | )
|                                                                                                                          |  |                    |       |      |  |   |       |  
|Pro forma net loss applicable to common
    shareholders                                                                  |  | $                  | (79.9 | )    |  | $ | (52.1 | )
|                                                                                                                          |  |                    |       |      |  |   |       |  
|Reported basic and diluted loss per share from
    continuing operations                                                  |  | $                  | (1.54 | )    |  | $ | (1.42 | )
|Pro forma basic and diluted loss per share from
    continuing operations                                                 |  |                    | (1.55 | )    |  |   | (1.44 | )
|Reported basic and diluted loss
    (earnings) per share from discontinued operations                                     |  |                    | (0.26 | )    |  |   | 0.23  |  
|Reported loss per share applicable to common
    shareholders                                                             |  |                    | (1.80 | )    |  |   | (1.19 | )
|Pro forma loss per share applicable to common
    shareholders                                                            |  |                    | (1.81 | )    |  |   | (1.21 | )



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

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

|                                                                             |                                                                                                                                          |                    |         |        |   |   |         |      |  
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------- | ------ | - | - | ------- | ---- | -
|                                                                             |                                                                                                                                          |                   
|                                                                             |                                                                                                                                          | Three Months Ended
|                                                                             |                                                                                                                                          | March 31,         
|                                                                             |                                                                                                                                          |                   
|                                                                             |                                                                                                                                          | 2004               |         | 2003  
|                                                                             |                                                                                                                                          |                    |         |       
|Net loss                                                                     |                                                                                                                                          | $                  | (79,636 | )      |   | $ | (48,174 | )   
|Cumulative translation adjustment                                            |                                                                                                                                          |                    | (62     | )      |   |   | 421     |     
|Unrealized gains (losses) on available-for-sale
    securities, net of taxes |                                                                                                                                          |                    | (452    | )      |   |   | 10,421  |     
|Foreign currency hedging:                                                    |                                                                                                                                          |                    |         |        |   |   |         |     
|                                                                             | Net (decrease) increase in foreign currency
    exchange contracts                                                                       |                    |         |       |   |   |         | 230  |  
|                                                                             | Reclassifications into revenue and cost of sales
    from other comprehensive income                                                     |                    |         | (1,249 | ) |   |         | 642  |  
|                                                                             | Reclassifications into interest expense from
    other comprehensive income for anticipated transactions that are
    no longer probable |                    |         |       |   |   |         | (445 | )
|                                                                             |                                                                                                                                          |                    |         |        |   |   |         |     
|Comprehensive loss                                                           |                                                                                                                                          | $                  | (81,399 | )      |   | $ | (36,905 | )   
|                                                                             |                                                                                                                                          |                    |         |        |   |   |         |     

9



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

|                     |  |                |         |              |  |   |        | 
|-------------------- |  | -------------- | ------- | ------------ |  | - | ------ | 
|                     |  | March 31,      |         | December 31,
|                     |  | 2004           |         | 2003        
|                     |  |                |         |             
|                     |  |               
|                     |  | (In thousands)
|Amounts billed       |  | $              | 95,154  |              |  | $ | 14,104 | 
|Unbilled receivables |  |                | 22,240  |              |  |   | 47,959 | 
|                     |  |                |         |              |  |   |        | 
|                     |  | $              | 117,394 |              |  | $ | 62,063 | 
|                     |  |                |         |              |  |   |        | 

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.

The Company has estimated that it will incur
approximately $52 million to repair a satellite that was
damaged in transit. The Company expects to recover a significant
portion of these costs through insurance coverage. Management
believes that the resolution of the insurance claim will not
have a material adverse effect on its condensed consolidated
financial position or its results of operation.

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 March 31, 2004,
SS/L had the following amounts denominated in Japanese yen that
were unhedged (in millions):

|                     |  |              |       |        |  |   |      | 
|-------------------- |  | ------------ | ----- | ------ |  | - | ---- | 
|                     |  | Japanese Yen |       | U.S. $
|                     |  |              |       |       
|Future revenues      |  | ¥            | 1,332 |        |  | $ | 12.6 | 
|Future expenditures  |  |              | 1,128 |        |  |   | 10.7 | 
|Contracts-in-process |  |              | 4,411 |        |  |   | 41.8 | 

At March 31, 2004, SS/ L also had future
expenditures in euros of 1.8 million ($2.2 million
U.S.) that were unhedged.

10



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

|                                                                                  |  |                |           |              |  |   |           |  
|--------------------------------------------------------------------------------- |  | -------------- | --------- | ------------ |  | - | --------- | -
|                                                                                  |  |               
|                                                                                  |  | December 31,  
|                                                                                  |  |               
|                                                                                  |  | March 31,      |           | December 31,
|                                                                                  |  | 2004           |           | 2003        
|                                                                                  |  |                |           |             
|                                                                                  |  |               
|                                                                                  |  | (In thousands)
|Land and land improvements                                                        |  | $              | 24,827    |              |  | $ | 24,827    |  
|Buildings                                                                         |  |                | 87,576    |              |  |   | 86,065    |  
|Leasehold improvements                                                            |  |                | 17,000    |              |  |   | 16,995    |  
|Satellites in-orbit, including satellite
    transponder rights of $298.4 million |  |                | 1,008,799 |              |  |   | 1,454,511 |  
|Satellites under construction                                                     |  |                | 142,734   |              |  |   | 707,453   |  
|Earth stations                                                                    |  |                | 32,969    |              |  |   | 59,303    |  
|Equipment, furniture and fixtures                                                 |  |                | 293,728   |              |  |   | 290,257   |  
|Other construction in progress                                                    |  |                | 24,312    |              |  |   | 24,728    |  
|                                                                                  |  |                |           |              |  |   |           |  
|                                                                                  |  |                | 1,631,945 |              |  |   | 2,664,139 |  
|Accumulated depreciation and amortization                                         |  |                | (677,987  | )            |  |   | (835,857  | )
|                                                                                  |  |                |           |              |  |   |           |  
|                                                                                  |  | $              | 953,958   |              |  | $ | 1,828,282 |  
|                                                                                  |  |                |           |              |  |   |           |  

On March 17, 2004 the Company sold its North
American satellites and related assets (see Note 2).

In January 2004, the Companys Telstar 14/
Estrela do Sul-1 satellite only partially deployed its North
solar array after launch. At the end of March 2004, the
satellite began commercial service with the capability to
operate between 10 and 14 transponders of the 41 transponders on
the satellite. The life of the satellite is now expected to be
approximately six years (design life 15 years). During
March 2004, the Company recorded an impairment charge of
$12 million to reduce the carrying value of the satellite
and related assets to the expected proceeds from insurance. The
carrying value of Telstar 14/ Estrela do Sul-1 and related
assets at March 31, 2004 was $250 million, which is
substantially included in satellites in-orbit. It is insured for
partial and total losses up to a maximum of $250 million.



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

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

|                        |                                                                            |           |        |              |  |   |        |       | 
|----------------------- | -------------------------------------------------------------------------- | --------- | ------ | ------------ |  | - | ------ | ----- | 
|                        |                                                                            | March 31, |        | December 31,
|                        |                                                                            | 2004      |        | 2003        
|                        |                                                                            |           |        |             
|XTAR equity investments |                                                                            | $         | 47,778 |              |  | $ | 43,382 |      
|Globalstar:             |                                                                            |           |        |              |  |   |        |      
|                        | Acquired notes and loans ($630 million
    principal and accrued interest) |           |        | 2,840        |  |   |        | 3,292 | 
|                        | Vendor financing ($250 million principal and
    accrued interest)         |           |        |             |  |   |        |      | 
|                        |                                                                            |           |        |              |  |   |        |      
|                        |                                                                            | $         | 50,618 |              |  | $ | 46,674 |      
|                        |                                                                            |           |        |              |  |   |        |      

11



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                            |  |                    |      |      |  |   |        |  
|----------------------------------------------------------- |  | ------------------ | ---- | ---- |  | - | ------ | -
|                                                            |  |                   
|                                                            |  | Three Months Ended
|                                                            |  | March 31,         
|                                                            |  |                   
|                                                            |  | 2004               |      | 2003
|                                                            |  |                    |      |     
|XTAR                                                        |  | $                  | (403 | )    |  | $ | (3,195 | )
|Satmex                                                      |  |                    |     |      |  |   | (5,512 | )
|Globalstar and Globalstar service provider
    partnerships |  |                    |     |      |  |   | 204    |  
|                                                            |  |                    |      |      |  |   |        |  
|                                                            |  | $                  | (403 | )    |  | $ | (8,503 | )
|                                                            |  |                    |      |      |  |   |        |  

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
|                                                                                             |  | March 31,         
|                                                                                             |  |                   
|                                                                                             |  | 2004               |       | 2003
|                                                                                             |  |                    |       |     
|Revenues                                                                                     |  | $                  | 3,088 |      |  | $ | 15,276 |  
|Investment income                                                                            |  |                    |      |      |  |   | 294    |  
|Interest expense capitalized on development stage
    enterprise                             |  |                    | 478   |      |  |   | 428    |  
|Profits relating to affiliate transactions not
    eliminated                                |  |                    | 5     |      |  |   | 684    |  
|Elimination of Lorals proportionate share
    of profits relating to affiliate transactions |  |                    | (7    | )    |  |   | (1,119 | )
|Amortization of deferred credit and profits
    relating to investments in affiliate         |  |                    |      |      |  |   | 261    |  



| |     
| | ----
| | XTAR

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, is constructing and plans to launch an X-band
satellite to provide X-band services to government users in the
United States and Spain, as well as other friendly and allied
nations. 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 March 31, 2004, the partners in proportion
to their respective ownership interests have contributed
$95 million to XTAR.

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, with Lorals
contribution effected through the cancellation of amounts owed
under XTARs satellite construction contract with SS/L. The
proceeds from Hisdesats capital contributions have been
and will be used largely to fund the remaining amounts due under
the satellite construction contract. XTAR has entered into a
Launch Services Agreement with Arianespace, S.A. providing for
launch of its satellite on Arianespaces
Ariane 5 ECA launch vehicle. This flight represents
the resumption of the Ariane 5 ECAs missions
since the unsuccessful launch in late 2002. Arianespace has
agreed to provide a one-year loan for a portion of the launch
price, secured by certain of XTARs assets, including the
satellite, ground equipment and rights to the orbital slot. The
remainder of the launch price consists of a revenue-based fee to
be paid over time following commencement of operations by XTAR.
XTAR still requires additional funds to insure its satellite,
complete the ground station system and fund its operations. XTAR
is in discussions with its shareholders to obtain additional
contributions and is seeking additional funds through other
third-party financings.

In March 2004, after receiving Bankruptcy Court
approval, Loral funded an additional $2.8 million to XTAR,
which was matched by $2.2 million of contributions to XTAR
from Hisdesat. If XTAR is unable to

12



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

raise the substantial additional funds for launch
insurance, the Companys investment in XTAR of
$48 million at March 31, 2004, and any additional
investment effected as a result of the Contribution Agreement or
otherwise, could 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

On April 14, 2004, Globalstar announced the
completion of its financial restructuring following the formal
acquisition of its main business operations and assets by Thermo
Capital Partners LLC (Thermo), effectively resulting
in Globalstar exiting from bankruptcy. Thermo invested
$43 million in the newly formed Globalstar company
(New Globalstar) in exchange for an 81.25% equity
interest, with the remaining 18.75% of the equity to be
distributed to the creditors of Globalstar, L.P.
(Globalstar). Lorals share of such equity
interest allocation is estimated to be approximately 2.5% of New
Globalstar.

During the pendency of the Globalstar bankruptcy
cases, Loral entered into 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).
This Settlement was approved on April 14, 2003 by the
bankruptcy court overseeing Globalstars case and closed on
July 10, 2003. Among other things, the Settlement provided
that Globalstar grants to Loral, subject to certain conditions,
a general release of all claims Globalstar may have against
Loral in exchange for certain consideration including, effective
upon Globalstars emergence from Chapter 11
reorganization, an approximate 50% reduction in the amount of
Lorals unsecured claims against Globalstar of
approximately $875 million. Loral does not expect any
material impact on its results of operations or financial
position as a result of this Settlement.

On April 24, 2003, one of Globalstars
creditors filed a motion seeking reconsideration by
Globalstars bankruptcy court of its approval of the
Settlement. Globalstars bankruptcy court denied this
motion for reconsideration on May 30, 2003, and, on
June 9, 2003, the creditor filed a notice of appeal of the
bankruptcy courts order approving the Settlement. Although
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.



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

Other acquired intangible assets are included in
other assets in the Companys consolidated balance sheets
as follows (in millions):

|                              |  |                |      |                   |  |        |       |              |  |   |      |  |  |   |       |  
|----------------------------- |  | -------------- | ---- | ----------------- |  | ------ | ----- | ------------ |  | - | ---- |  |  | - | ----- | -
|                              |  |                |      |                  
|                              |  | March 31, 2004 |      | December 31, 2003
|                              |  |                |      |                  
|                              |  | Gross          |      | Accumulated       |  | Gross  |       | Accumulated 
|                              |  | Amount         |      | Amortization      |  | Amount |       | Amortization
|                              |  |                |      |                   |  |        |       |             
|Satellite related intangibles |  | $              |     |                   |  | $      |      |              |  | $ | 40.7 |  |  | $ | (23.4 | )
|Regulatory fees               |  |                | 22.5 |                   |  |        | (6.6  | )            |  |   | 22.7 |  |  |   | (6.2  | )
|Other intangibles             |  |                | 13.0 |                   |  |        | (10.6 | )            |  |   | 13.0 |  |  |   | (10.2 | )
|                              |  |                |      |                   |  |        |       |              |  |   |      |  |  |   |       |  
|                              |  | $              | 35.5 |                   |  | $      | (17.2 | )            |  | $ | 76.4 |  |  | $ | (39.8 | )
|                              |  |                |      |                   |  |        |       |              |  |   |      |  |  |   |       |  

As of March 31, 2004, the weighted average
remaining amortization period for regulatory fees was
approximately 11 years and approximately one year for other
intangibles.

Total pre-tax amortization expense for other
acquired intangible assets was $0.8 million and
$0.9 million for the three months in the period ended
March 31, 2004 and 2003, respectively. Annual pre-tax
amortization

13



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

expense for other acquired intangible assets for
the five years ended December 31, 2008 is estimated to be
as follows (in millions):

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



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

As discussed in Note 2, Loral and its Debtor
Subsidiaries have 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 carrying value 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. The Bankruptcy Court established
January 26, 2004 as the bar date in the Debtors
Chapter 11 Cases, which is the date by which prepetition
claims against Loral and its Debtor Subsidiaries were required
to have been filed for claimants to receive any distribution in
the Chapter 11 Cases. Differences between liability amounts
estimated by the Company and claims filed by creditors are being
investigated and the Bankruptcy Court will make a final
determination of the allowable claim. The determination of how
liabilities will ultimately be 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 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
March 31, 2004 and December 31, 2003 consisted of the
following (in thousands):

|                                                       |  |           |           |              |  |   |           | 
|------------------------------------------------------ |  | --------- | --------- | ------------ |  | - | --------- | 
|                                                       |  | March 31, |           | December 31,
|                                                       |  | 2004      |           | 2003        
|                                                       |  |           |           |             
|Debt obligations (Note 12)                             |  | $         | 1,269,977 |              |  | $ | 2,236,864 | 
|Accounts payable                                       |  |           | 51,225    |              |  |   | 50,605    | 
|Accrued employment costs                               |  |           | 4,122     |              |  |   | 6,295     | 
|Customer advances                                      |  |           | 26,012    |              |  |   | 36,430    | 
|Accrued interest and preferred dividends               |  |           | 40,428    |              |  |   | 44,610    | 
|Income taxes payable                                   |  |           | 39,540    |              |  |   | 39,514    | 
|Pension and other postretirement liabilities           |  |           | 140,308   |              |  |   | 130,981   | 
|Other liabilities(1)                                   |  |           | 132,767   |              |  |   | 136,815   | 
|6% Series C convertible redeemable preferred
    stock |  |           | 187,274   |              |  |   | 187,274   | 
|6% Series D convertible redeemable preferred
    stock |  |           | 36,707    |              |  |   | 36,707    | 
|                                                       |  |           |           |              |  |   |           | 
|                                                       |  | $         | 1,928,360 |              |  | $ | 2,906,095 | 
|                                                       |  |           |           |              |  |   |           | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes approximately $47 million of vendor
    financing that is non-recourse to SS/L in the event of
    non-payment by Globalstar due to bankruptcy. The Company expects
    to record $47 million of equity income relating to
    Globalstar in 2004 on the reversal of such non-recourse vendor
    financing obligations, upon the liquidation of Globalstar.

14



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

In August 2002, Lorals Board of Directors
approved a plan to suspend indefinitely the future payment of
dividends on its two series of preferred stock. Accordingly,
Loral has deferred the payments of quarterly dividends due on
its Series C preferred stock commencing on November 1,
2002 and the payments of quarterly dividends due on its
Series D preferred stock commencing on November 15,
2002. On July 15, 2003, as a result of the Companys
Chapter 11 filing, Loral stopped accruing dividends on the
two series of its preferred stock in its condensed consolidated
financial statements. Because Loral failed to pay dividends on
the Series C and the Series D preferred stock for six
consecutive quarters, holders of the majority of each class of
such preferred stock are now entitled, subject to the applicable
effects of the Chapter 11 Cases and Lorals Bermuda
insolvency proceedings, to elect two additional directors, for a
total of four directors, to Lorals Board of Directors.



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

|                                                                                     |                                                                           |                |           |              |  |   |           |         | 
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | -------------- | --------- | ------------ |  | - | --------- | ------- | 
|                                                                                     |                                                                           | March 31,      |           | December 31,
|                                                                                     |                                                                           | 2004           |           | 2003        
|                                                                                     |                                                                           |                |           |             
|                                                                                     |                                                                           |               
|                                                                                     |                                                                           | (In thousands)
|Loral Orion 10.00% senior notes due 2006:                                            |                                                                           |                |           |              |  |   |           |        
|                                                                                     | Principal amount                                                          |                | $         | 612,704      |  |   | $         | 612,704 | 
|                                                                                     | Accrued interest (deferred gain on debt exchanges)                        |                |           | 214,446      |  |   |           | 214,446 | 
|Bank debt:                                                                           |                                                                           |                |           |              |  |   |           |        
|                                                                                     | Loral Satellite term loan, 5.75% at
    December 31, 2003                 |                |           |             |  |   |           | 226,500 | 
|                                                                                     | Loral Satellite revolving credit facility, 5.75%
    at December 31, 2003 |                |           |             |  |   |           | 200,000 | 
|                                                                                     | LSC term loan facility, 5.25% at
    December 31, 2003                    |                |           |             |  |   |           | 350,000 | 
|                                                                                     | LSC revolving credit facility, 5.25% at
    December 31, 2003             |                |           |             |  |   |           | 190,387 | 
|9.50% Senior notes due 2006                                                          |                                                                           |                | 350,000   |              |  |   | 350,000   |        
|Non-recourse debt of Loral Orion:                                                    |                                                                           |                |           |              |  |   |           |        
|                                                                                     | 11.25% Senior notes due 2007 (principal
    amount $37 million)           |                |           | 39,402       |  |   |           | 39,402  | 
|                                                                                     | 12.50% Senior discount notes due 2007
    (principal amount $49 million)  |                |           | 53,425       |  |   |           | 53,425  | 
|                                                                                     |                                                                           |                |           |              |  |   |           |        
|Total debt                                                                           |                                                                           |                | 1,269,977 |              |  |   | 2,236,864 |        
|Less, current maturities included in liabilities
    subject to compromise (Note 11) |                                                                           |                | 1,269,977 |              |  |   | 2,236,864 |        
|                                                                                     |                                                                           |                |           |              |  |   |           |        
|                                                                                     |                                                                           | $              |          |              |  | $ |          |        
|                                                                                     |                                                                           |                |           |              |  |   |           |        

As a result of Lorals and the Debtor
Subsidiaries voluntary petitions for reorganization, all
of Lorals prepetition debt obligations with principal
amounts aggregating $1.049 billion at March 31, 2004
have been accelerated. On July 15, 2003, Loral suspended
interest payments on the 9.50% Senior Notes due 2006, on
the 10% Senior Notes due 2006, on the 11.25% Senior
Notes due 2007 and on the 12.50% Senior Notes due 2007.
Loral continued to pay interest only on its secured bank debt
from July 15, 2003 through March 18, 2004, which has
significantly reduced its cash interest payments. 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, it has the right to be heard on all
matters that come before the Bankruptcy Court (see Note 2).

15



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On March 17, 2004, Loral repaid all
$967 million of its outstanding secured bank debt (see
Note 2). Lorals secured bank lenders have agreed,
subject to Bankruptcy Court approval, that, except for liens on
a cash collateral account securing Lorals outstanding
letters of credit, all remaining liens on Lorals assets
held by them will be released.

On the date the Chapter 11 cases were
commenced, the Bankruptcy Court entered an order authorizing the
Debtors to use their existing cash and cash proceeds of the bank
lenders 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 secured bank lenders have agreed, subject to
Bankruptcy Court approval, that this order will be terminated,
and, accordingly the Company is free to use its cash (other than
cash held in collateral accounts supporting letters of credit)
without further restriction or requirement.

For the three months ended March 31, 2004,
Loral did not recognize $10.9 million of interest expense
on its senior notes and $15.3 million of a reduction to
accrued interest on its 10% senior notes as a result of the
suspension of interest payments on its debt obligations.



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

Reorganization expenses due to bankruptcy for the
three months ended March 31, 2004 include professional fees
associated with bankruptcy services, employee retention costs
and interest income earned, excluding interest earned related to
satellite activities, and were as follows (in thousands):

|                         |                                                 |   |       |       | 
|------------------------ | ----------------------------------------------- | - | ----- | ----- | 
|Professional fees        |                                                 | $ | 5,008 |      
|Employee retention costs |                                                 |   | 3,520 |      
|Interest income          |                                                 |   | (213  | )    
|                         |                                                 |   |       |      
|                         | Total reorganization expenses due to bankruptcy |   | $     | 8,315 | 
|                         |                                                 |   |       |      



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



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

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 and
reduced the number of shares of common stock then outstanding
from 440 million to 44 million. All share and per
share amounts for all periods presented have been retroactively
restated to reflect the reverse stock split.



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

SS/L has deferred revenue for performance
warranty obligations relating to satellites sold to customers
which could be affected by future performance. SS/L accounts for
satellite performance warranties in accordance with the product
warranty provisions of FIN 45 which requires disclosure,
but not initial recognition and measurement, of performance
guarantees. SS/L estimates the deferred revenue for its warranty
obligations based on historical satellite performance.
Management periodically reviews and adjusts the deferred revenue
for warranty reserves based on the actual performance of each
satellite and remaining

16



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

warranty period. A reconciliation of such
deferred amounts for the period ended March 31, 2004, is as
follows (in millions):

|                                                                                 |  |   |      | 
|-------------------------------------------------------------------------------- |  | - | ---- | 
|Balance of deferred amounts at January 1,
    2004                               |  | $ | 16.3 | 
|Accruals for deferred amounts issued during the
    period                       |  |   |     | 
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | 1.3  | 
|                                                                                 |  |   |      | 
|Balance of deferred amounts at March 31, 2004                                    |  | $ | 17.6 | 
|                                                                                 |  |   |      | 

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 provide for a warranty for
a period of two and one-half years to eight and one-half years
as of March 31, 2004, in the case of sales contracts and
other arrangements (seven transponders), and the lease term, in
the case of the prepaid leases (two 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.

Fourteen of the satellites built by SS/L and
launched since 1997, three 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. 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 condensed
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

17



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Chapter 11 filing, this arbitration is
subject to the automatic stay, and further proceedings in the
matter have been suspended. In April 2004, the Company reached
an agreement, which is subject to Bankruptcy Court approval, to
settle this matter with PanAmSat, and recorded a charge to
operations of $8 million in the fourth quarter of 2003.
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 March 31, 2004, SS/L had billed and
unbilled accounts receivable and vendor financing arrangements
of $58 million (including accrued interest of
$10 million) with this customer. Under the agreement, the
customer will pay the remainder of the purchase price under the
contract of $65 million plus accrued interest (including
$58 million owed to SS/L at March 31, 2004) in
installments over time, most 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. On
June 30, 2003, Loral, SS/L and Alcatel entered into a
master settlement agreement in settlement of all claims among
the parties, including arbitration claims brought by Alcatel
against Loral alleging breaches of the Operational Agreement and
Alliance Agreement. Pursuant to the master settlement agreement,
Loral paid Alcatel $5 million and agreed to pay an
additional $8 million within one year, resulting in a
charge to operations of $13 million. In addition, Alcatel
transferred to Loral its minority interest in CyberStar, and
Loral transferred to Alcatel its minority interests in
Europe*Star and SkyBridge Limited Partnership that Loral had
previously written off. As a result of receiving Alcatels
minority interest in CyberStar, Loral recognized an
extraordinary gain of $14 million in the second quarter of
2003, which represents the extinguishment of the minority
interest liability less the fair value of the acquired net
assets. Under the terms of the master settlement agreement, the
arbitration and a related court proceeding to confirm the
arbitral tribunals January partial award were suspended,
with termination of the arbitration to occur on the date of
confirmation of a plan of reorganization or a liquidation,
provided that if any action is commenced in the Chapter 11
Cases seeking the repayment, disgorgement or turnover of the
transfers made in connection with the master settlement
agreement, because of the commencement of the Chapter 11
Cases, the arbitration and related court confirmation proceeding
would not be terminated until such repayment, disgorgement or
turnover action had been dismissed. The master settlement
agreement also provides that Alcatel is entitled to reinstate
the arbitration if it is required by judicial order to repay,
disgorge or turn over the consideration paid to it under the
agreement in the context of the Chapter 11 Cases.

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

The launch of ChinaSat 8 has been delayed
pending SS/Ls obtaining the approvals required for the
launch. SS/L is continuing to seek the State Department
approvals required for the launch of ChinaSat 8. In

18



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

April, 2004 ChinaSat, SS/L and China Great Wall
Industry Corporation entered into a settlement agreement to
resolve a portion of the disputes outstanding among the parties.
This settlement agreement provides, among other things, for a
release by ChinaSat of any claim it may have against SS/L to
recover some or all of the $52 million that ChinaSat paid
to SS/L, and SS/L paid to China Great Wall, for a Chinese launch
vehicle. The effectiveness of this settlement agreement is
subject to receipt of Bankruptcy Court approval. Nothing in the
settlement agreement would, however, preclude ChinaSat from
seeking to terminate its contract with SS/L for ChinaSat 8
as a result of the delay caused by the inability to obtain
necessary U.S. government approvals to launch and transfer
the satellite to ChinaSat. In such event, ChinaSat may seek,
after giving effect to the settlement agreement, a refund of
$81.6 million for payments made to SS/L as well as
penalties of up to $6.5 million. The Company does not
believe that ChinaSat is entitled to such a refund or penalties
and would vigorously contest any such claims by ChinaSat. If the
ChinaSat 8 contract were terminated, SS/L estimates that it
would 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 was to initially
acquire 23% of the satellite in return for paying 25% of the
project cost, and was to pay to APT over time an additional 25%
of the project cost to acquire an additional 23% interest in the
satellite. At March 31, 2004, the project cost of the
satellite was estimated at $230 million.

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, Loral retains 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, ultimately to 54% of the
satellites transponder capacity. As a result of this
conversion from joint ownership to a lease arrangement in the
third quarter of 2003, Loral (a) reversed the cumulative
sales of $83 million and cost of satellite manufacturing of
$73 million and (b) recorded an increase to self
constructed assets of $73 million and recorded deferred
revenue of $80 million from APT.

In November 2003, Loral and APT agreed to further
revise their existing arrangement. Under this revised
arrangement, Loral agreed, among other things, to accelerate the
termination of APTs leasehold interest in 4.5 transponders
by assuming $20.4 million of project cost which otherwise
would have been initially paid by APT, decreasing APTs
initial leased transponder capacity from 77% to 69%. In
addition, Loral will provide to APT, free of charge, certain
unused 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 equivalent
Ku-band transponder capacity on Telstar 10/
Apstar IIR. As of March 31, 2004, the Company had
recorded $113 million of customer advances from APT.

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 and purporting to terminate all three launches.
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.
As a result, SS/L recognized a non-cash charge to earnings of
$10 million in the fourth quarter of

19



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2002 with respect to the two terminated launches.
In June 2003, to protect its interest, SS/L also terminated a
third launch, which had a termination liability equal to
$23.5 million, and SS/L recognized a non-cash charge to
earnings of $23.5 million in the second quarter of 2003
with respect to this launch. ILS has asserted that it is
entitled to termination charges of up to $54.75 million
with respect to the three terminated launches. SS/L believes
that ILSs claims are without merit and intends to defend
against them vigorously. In April 2004, SS/L commenced an
adversary proceeding against ILS in the Bankruptcy Court to seek
recovery of $37.5 million of its deposits and termination
liabilities. The Company does not believe that this matter will
have a material adverse effect on its condensed 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 assure 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. Two satellites
owned by Loral Orion have the same solar array configuration as
one other 1300-class satellite manufactured by SS/L that has
experienced an event with a large loss of solar power. SS/L
believes that this failure is an isolated event and does not
reflect a systemic problem in either the satellite design or
manufacturing process. Accordingly, the Company does not believe
that this anomaly will affect the two Loral Orion satellites
with the same solar array configuration. The insurance coverage
for one of these satellites, however, provides for coverage of
losses due to solar array failures only in the event of a
capacity loss of 80% or more. The Company believes that the
insurers will require either exclusions of, or limitations on,
coverage due to solar array failures in connection with future
renewals of insurance for these two satellites. An uninsured
loss of a satellite would have a material adverse effect on the
Companys condensed consolidated financial position and
results of operations.

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. As of March 31, 2004,
the net book value of Telstar 11 was $19 million and its
end of life, as determined in the fourth quarter of 2003, is
June 2004.

On October 21, 2002, National Telecom of
India Ltd. (Natelco) filed suit against Loral and a
subsidiary in the United States District Court for the Southern
District of New York. The suit relates to a joint venture
agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a Loral Orion subsidiary, the effectiveness of
which was subject to express conditions precedent. In 1999, ONS
Mauritius had notified Natelco that Natelco had failed to
satisfy those conditions precedent. In Natelcos amended
complaint filed in March 2003, Natelco has alleged wrongful
termination of the joint venture agreement, has asserted claims
for breach of contract and fraud in the inducement and is
seeking damages and expenses in the amount of $97 million.
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.



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

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

20



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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2003, three other complaints against
Mr. Schwartz with substantially similar allegations were
consolidated into the Belesoncase. In February 2004, a
motion to dismiss the complaint in its entirety was denied by
the court. Defendant filed an answer in March 2004, and
discovery has commenced.

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

In December 2003, plaintiff Wendy Koch, a former
employee, filed a purported class action complaint against the
Loral Space & Communications Ltd. Savings Plan
Administrative Committee, all Loral directors, Richard J.
Townsend and certain other Loral officers and employees in the
United States District Court for the Southern District of
New York. The complaint alleges (a) that defendants
violated Section 404 of the Employee Retirement Income
Security Act (ERISA), by breaching their fiduciary
duties to prudently and loyally manage the assets of the Loral
Savings Plan (the Plan) by including Loral common
stock as an investment alternative and by providing matching
contributions under the Plan in Loral stock, (b) that the
director defendants violated Section 404 of ERISA by
breaching their fiduciary duties to monitor the committee
defendants and (c) that defendants violated
Sections 404 and 405 of ERISA by failing to provide
complete and accurate information to Plan participants and
beneficiaries. The class of plaintiffs on whose behalf the
lawsuit has been asserted consists of all participants in or
beneficiaries of the Plan at any time between November 4,
1999 and the present and whose accounts included investments in
Loral stock. One other similar complaint against the defendants
with substantially similar allegations has been filed, and the
two cases have been consolidated. Plaintiffs have been granted
until the beginning of July 2004 to file an amended complaint.

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



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

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 generally subject to the automatic stay
as a result of the commencement of the Chapter 11 Cases.



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

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

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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

plaintiffs in the consolidated action filed a
consolidated amended class action complaint against Globalstar,
GTL, Globalstar Capital Corporation, Loral and Bernard L.
Schwartz alleging (a) that all defendants (except Loral)
violated Section 10(b) of the Securities Exchange Act of
1934 (the Exchange Act) and Rule 10b-5
promulgated thereunder, by making material misstatements or
failing to state material facts about Globalstars business
and prospects, (b) that defendants Loral and
Mr. Schwartz are secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as alleged controlling persons of
Globalstar, (c) that defendants GTL and Mr. Schwartz
are liable under Section 11 of the Securities Act of 1933
(the Securities Act) for untrue statements of
material facts in or omissions of material facts from a
registration statement relating to the sale of shares of GTL
common stock in January 2000, (d) that defendant GTL is
liable under Section 12(2)(a) of the Securities Act for
untrue statements of material facts in or omissions of material
facts from a prospectus and prospectus supplement relating to
the sale of shares of GTL common stock in January 2000, and
(e) that defendants Loral and Mr. Schwartz are
secondarily liable under Section 15 of the Securities Act
for GTLs primary violations of Sections 11 and
12(2)(a) of the Securities Act as alleged controlling
persons of GTL. The class of plaintiffs on whose behalf
the lawsuit has been asserted consists of all buyers of
securities of Globalstar, Globalstar Capital and GTL during the
period from December 6, 1999 through October 27, 2000,
excluding the defendants and certain persons related to or
affiliated with them. 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,
however, this lawsuit is subject to the automatic stay and
further proceedings in the matter have been suspended insofar as
Loral is concerned but are proceeding as to GTL and
Mr. Schwartz. Loral is obligated to indemnify
Mr. Schwartz for any losses or costs he may incur as a
result of this lawsuit. Loral is unable to estimate the maximum
potential impact of these obligations on its future results of
operations. In December 2003, a motion to dismiss the amended
complaint in its entirety was denied by the court insofar as GTL
and Mr. Schwartz are concerned, and discovery has commenced.

On March 2, 2002, the seven separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by
various holders of Loral common stock against Loral,
Bernard L. Schwartz and Richard Townsend were consolidated
into one action titled In re: Loral Space &
Communications Ltd. Securities Litigation. On May 6,
2002, plaintiffs in the consolidated action filed a consolidated
amended class action complaint alleging (a) that all
defendants violated Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about
Lorals financial condition and its investment in
Globalstar and (b) that Mr. Schwartz is secondarily
liable for these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as an alleged
controlling person of Loral. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all
buyers of Loral common stock during the period from
November 4, 1999 through February 1, 2001, excluding
the defendants and certain persons related to or affiliated with
them. Loral and Messrs. Schwartz and Townsend have filed a
motion to dismiss the complaint in its entirety. After oral
argument on a motion to dismiss filed by Loral and
Messrs. Schwartz and Townsend, in June 2003, the plaintiffs
filed an amended complaint alleging essentially the same claims
as in the original amended complaint. Loral believes that it has
meritorious defenses to this class action lawsuit and intends to
pursue them vigorously. As a result of the commencement of the
Chapter 11 Cases, however, this lawsuit is subject to the
automatic stay, and further proceedings in the matter have been
suspended, insofar as Loral is concerned but are proceeding as
to the other defendants. Loral is obligated to indemnify
Messrs. Schwartz and Townsend for any losses or costs they
may incur as a result of this lawsuit. Loral is unable to
estimate the maximum potential impact of these obligations on
its future results of operations. In February 2004, a motion to
dismiss the amended complaint was granted by the court insofar
as Messrs. Schwartz and Townsend are concerned.

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

22



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LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Supreme Court of New York County seeking
a declaratory judgment upholding its 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, however, this lawsuit is subject to the
automatic stay and further proceedings in the matter have been
suspended insofar as Loral is concerned but are proceeding as to
the other defendants.



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

Basic loss per share is computed based upon the
weighted average number of shares of common stock outstanding.
Diluted loss per share excludes the assumed conversion of the
Series C Preferred Stock and the Series D Preferred
Stock, as their effect would have been antidilutive. For both
the three months ended March 31, 2004 and 2003, there were
no weighted options, as calculated using the treasury stock
method, to include in the calculation of diluted loss per share.

The following table sets forth the computation of
basic and diluted loss per share:

|                                                |                                            |                    |         |         |   |   |         |         |  
|----------------------------------------------- | ------------------------------------------ | ------------------ | ------- | ------- | - | - | ------- | ------- | -
|                                                |                                            |                   
|                                                |                                            | Three Months Ended
|                                                |                                            | March 31,         
|                                                |                                            |                   
|                                                |                                            | 2004               |         | 2003   
|                                                |                                            |                    |         |        
|Numerator for basic and diluted loss per share: |                                            |                    |         |         |   |   |         |        
|                                                | Loss from continuing operations            |                    | $       | (68,016 | ) |   | $       | (58,135 | )
|                                                | Preferred dividends                        |                    |         |        |   |   |         | (3,360  | )
|                                                |                                            |                    |         |         |   |   |         |        
|                                                |                                            |                    | (68,016 | )       |   |   | (61,495 | )      
|                                                | (Loss) income from discontinued operations |                    |         | (11,620 | ) |   |         | 9,961   |  
|                                                |                                            |                    |         |         |   |   |         |        
|                                                | Loss applicable to common stockholders     |                    | $       | (79,636 | ) |   | $       | (51,534 | )
|                                                |                                            |                    |         |         |   |   |         |        
|Denominator:                                    |                                            |                    |         |         |   |   |         |        
|                                                | Weighted average common shares outstanding |                    |         | 44,125  |   |   |         | 43,213  |  
|                                                |                                            |                    |         |         |   |   |         |        
|Basic and diluted (loss) earnings per share:    |                                            |                    |         |         |   |   |         |        
|                                                | Continuing operations                      |                    | $       | (1.54   | ) |   | $       | (1.42   | )
|                                                | Discontinued operations                    |                    |         | (0.26   | ) |   |         | 0.23    |  
|                                                |                                            |                    |         |         |   |   |         |        
|Loss per share                                  |                                            | $                  | (1.80   | )       |   | $ | (1.19   | )      
|                                                |                                            |                    |         |         |   |   |         |        



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

Loral is organized into two operating segments:
Satellite Services and Satellite Manufacturing (see Note 2
and Note 4 regarding the sale of the Companys North
American satellites and related assets).

The common definition of EBITDA is Earnings
Before Interest, Taxes, Depreciation and Amortization. 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) as the measure of a segments profit or loss.
Adjusted EBITDA is equivalent to the common definition of EBITDA
before amortization of stock compensation; reorganization
expenses due to bankruptcy; gain (loss) on investments and debt
exchanges; equity in net losses of affiliates, net of tax;
minority interest, net of tax; cumulative effect of change in
accounting principle, net of

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

tax; and extraordinary gain on acquisition of
minority interest, net of tax. Interest expense has been
excluded from Adjusted EBITDA to maintain comparability with the
performance of competitors with different capital structures
using similar measures. During the period we are in
Chapter 11, we only recognize interest expense on the
actual interest payments we make. During this period we do not
expect to make any further interest payments on debt obligations
subsequent to March 17, 2004, the date we repaid our bank
debt. Reorganization expenses are only incurred during the
period we are in Chapter 11. These expenses have been
excluded from Adjusted EBITDA to maintain comparability with our
results during periods we are not in Chapter 11 and with
the results of competitors using similar measures. Adjusted
EBITDA should be used in conjunction with U.S. GAAP
financial measures and is not presented as an alternative to
cash flow from operations as a measure of 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 competitors. 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.

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

24



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Three Months Ended March 31,
2004

|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|--------------------------------------------------- |  | --------- | ----- | ------------- |  | ------------ | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                    |  | Satellite |       | Satellite     |  |              |       |      
|                                                    |  | Services  |       | Manufacturing |  | Corporate(1) |       | Total
|                                                    |  |           |       |               |  |              |       |      
|Revenues and Adjusted EBITDA:                       |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Revenue from external customers(2)                  |  | $         | 30.0  |               |  | $            | 74.4  |       |  |   |       |   |  | $ | 104.4   |  
|Intersegment revenues                               |  |           | 1.1   |               |  |              | 26.6  |       |  |   |       |   |  |   | 27.7    |  
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating segment revenues                          |  | $         | 31.1  |               |  | $            | 101.0 |       |  |   |       |   |  |   | 132.1   |  
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                                     |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (28.4   | )
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating revenues as reported                      |  |           |       |               |  |              |       |       |  |   |       |   |  | $ | 103.7   |  
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Segment Adjusted EBITDA before eliminations
    (4) |  | $         | (10.2 | )             |  | $            | 3.6   |       |  | $ | (8.6  | ) |  | $ | (15.2   | )
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)(4)                                  |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (3.4    | )
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Adjusted EBITDA                                     |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (18.6   | )
|Depreciation and amortization(5)(6)                 |  | $         | (36.0 | )             |  | $            | (5.0  | )     |  | $ | (0.2  | ) |  |   | (41.2   | )
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Reorganization expenses due to bankruptcy           |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (8.3    | )
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating loss from continuing operations           |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (68.1   | )
|Interest and investment income                      |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 2.6     |  
|Interest expense                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (2.0    | )
|Income tax provision                                |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (0.2    | )
|Equity in net losses of affiliates                  |  |           |       |               |  |              |       |       |  |   |       |   |  |   | (0.4    | )
|Minority interest                                   |  |           |       |               |  |              |       |       |  |   |       |   |  |   | 0.1     |  
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Loss from continuing operations                     |  |           |       |               |  |              |       |       |  |   |       |   |  | $ | (68.0   | )
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Other Data:                                         |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  
|Total assets(6)                                     |  | $         | 953.9 |               |  | $            | 417.4 |       |  | $ | 103.3 |   |  | $ | 1,474.6 |  
|                                                    |  |           |       |               |  |              |       |       |  |   |       |   |  |   |         |  

25



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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 March 31,
2003(7)

|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|--------------------------------------------------- |  | --------- | ----- | ------------- |  | ------------ | ----- | ----- |  | - | ---- | - |  | - | ----- | -
|                                                    |  | Satellite |       | Satellite     |  |              |       |      
|                                                    |  | Services  |       | Manufacturing |  | Corporate(1) |       | Total
|                                                    |  |           |       |               |  |              |       |      
|Revenues and Adjusted EBITDA:                       |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Revenue from external customers(2)                  |  | $         | 41.6  |               |  | $            | 115.0 |       |  |   |      |   |  | $ | 156.6 |  
|Intersegment revenues                               |  |           | 0.6   |               |  |              | 16.5  |       |  |   |      |   |  |   | 17.1  |  
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating segment revenues                          |  | $         | 42.2  |               |  | $            | 131.5 |       |  |   |      |   |  |   | 173.7 |  
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Eliminations(3)                                     |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (18.3 | )
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating revenues as reported                      |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | 155.4 |  
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Segment Adjusted EBITDA before eliminations
    (8) |  | $         | 3.7   |               |  | $            | (12.5 | )     |  | $ | (9.1 | ) |  | $ | (17.9 | )
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Eliminations(3)                                     |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (5.1  | )
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Adjusted EBITDA                                     |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (23.0 | )
|Depreciation and amortization(5)(6)                 |  | $         | (23.1 | )             |  | $            | (6.7  | )     |  | $ | (0.2 | ) |  |   | (30.0 | )
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating loss from continuing operations           |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (53.0 | )
|Interest and investment income                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 7.0   |  
|Interest expense                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (8.5  | )
|Gain on investments                                 |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 1.1   |  
|Income tax benefit                                  |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 3.8   |  
|Equity in net losses of affiliates                  |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (8.5  | )
|Minority interest                                   |  |           |       |               |  |              |       |       |  |   |      |   |  |   |      |  
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Loss from continuing operations                     |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | (58.1 | )
|                                                    |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support
    of the Companys operations.                                                                                                                                                                                                                                                                                                                          
|   
|(2) | Includes revenues from affiliates of
    $3.1 million and $15.3 million for the three months
    ended March 31, 2004 and 2003, respectively.                                                                                                                                                                                                                                                               
|   
|(3) | Represents the elimination of intercompany sales
    and Adjusted EBITDA, primarily for satellites under construction
    by SS/L for wholly owned subsidiaries.                                                                                                                                                                                                                                            
|   
|(4) | Satellite Services includes an impairment charge
    of $12 million in 2004, relating to the Companys
    Telstar 14/Estrela do Sul-1 satellite and related assets.
    Satellite Manufacturing excludes a charge of $10.3 million
    in 2004, as a result of the settlement of all orbital
    receivables on satellites sold to Intelsat. This charge had no
    effect on Lorals consolidated results.
|   
|(5) | Includes amortization of unearned stock
    compensation charges.                                                                                                                                                                                                                                                                                                                                           
|   
|(6) | The amounts are presented after the elimination
    of intercompany profit.                                                                                                                                                                                                                                                                                                                                 
|   
|(7) | The 2003 segment information has been adjusted to
    remove the operations of the North American satellites and
    related assets sold, which has been reclassified to discontinued
    operations (see Note 4).                                                                                                                                                                                          
|   
|(8) | Satellite Manufacturing includes a charge of
    $10 million in 2003, on vendor financing receivables
    provided to a customer that were exchanged for the
    customers equity.                                                                                                                                                                                                                         

26



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD., A
DEBTOR IN POSSESSION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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



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

In January 2003 and revised in December 2003, the
FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51 (FIN 46) and an
amendment to FIN 46 entitled FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable
Interest Entities (FIN 46R). FIN 46R
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. The Company
determined that there was no effect on its condensed
consolidated financial position or results of operations from
the adoption of FIN 46R during the quarter ended March 31, 2004.



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

Loral is a holding company (the Parent
Company), which is the ultimate parent of all Loral
subsidiaries. In December 2001, the Companys wholly owned
subsidiary, Loral Orion (the Subsidiary Issuer),
issued new senior notes in an exchange offer (see
Note 12) which are fully and unconditionally
guaranteed, on a joint and several basis, by the Parent Company
and several of Loral Orions wholly owned subsidiaries (the
Guarantor Subsidiaries). The Parent Company, the
Subsidiary Issuer and the Guarantor Subsidiaries, as well as
certain other non-guarantor subsidiaries of the Parent Company
(including the Sellers and SS/L) filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code on
July 15, 2003.

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

The supplemental unaudited 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 Satellite Services segment
and the management fee charged by Loral SpaceCom to the Parent
Company (in 2001). Lorals $200 million note
receivable from unconsolidated subsidiaries is due from Loral
Space & Communications Corporation (LSCC)
and bears interest at 8.2% per annum. Loral SpaceCom (a
non-guarantor subsidiary) holds a $29.7 million
subordinated note receivable from the Subsidiary Issuer. The
note is subordinated to all existing and future indebtedness of
the Subsidiary Issuer and guaranteed by the Parent Company. The
note bears interest at a rate of 10% per annum. Loral
Satellite has provided $59.8 million to Loral as of
March 31, 2004, in the form of a note receivable which
bears no interest and is payable upon maturity of the Loral
Satellite Credit Agreement. As a result of filing
Chapter 11, the accrual of interest on all related party
notes in the following condensed consolidating financial
statements was suspended.

27



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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE
SHEET

March 31, 2004


(In thousands)


|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |            |         |           |  
|-------------------------------------------- | ------------------------------------ | ----------------------------------------------------------------- | -------------------------------------------------------- | ---------- | ----- | ---------- | --------- | ------------- | ------- | ------------ | -------- | ------------ | --- | ------- | ---------- | ---------- | ------- | ---------- | --------- | --------- | - | --------- | --------- | ---------- | ------- | --------- | -
|                                             |                                      | Parent                                                            |                                                          | Subsidiary |       | Guarantor  |           | Non-Guarantor |         |              |          |             
|                                             |                                      | Company                                                           |                                                          | Issuer     |       | Subsidiary |           | Subsidiaries  |         | Eliminations |          | Consolidated
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |             
|Current assets:                              |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             | Cash and cash equivalents            |                                                                   | $                                                        | 4,125      |       |            | $         | 49,670        |         |              | $        |             |     |         | $          | 78,439     |         |            | $         |          |   |           | $         | 132,234    |        
|                                             | Accounts receivable, net             |                                                                   |                                                          |           |       |            |           | 6,644         |         |              |          | 1,340        |     |         |            | 10,158     |         |            |           |          |   |           |           | 18,142     |        
|                                             | Contracts-in-process                 |                                                                   |                                                          |           |       |            |           |              |         |              |          |             |     |         |            | 117,394    |         |            |           |          |   |           |           | 117,394    |        
|                                             | Inventories                          |                                                                   |                                                          |           |       |            |           |              |         |              |          |             |     |         |            | 41,255     |         |            |           |          |   |           |           | 41,255     |        
|                                             | Other current assets                 |                                                                   |                                                          | 504        |       |            |           | 2,256         |         |              |          | 4,356        |     |         |            | 23,668     |         |            |           | (964      | ) |           |           | 29,820     |        
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                                                   | Total current assets                                     |            |       | 4,629      |           |               |         | 58,570       |          |              |     | 5,696   |            |            |         | 270,914    |           |           |   | (964      | )         |            |         | 338,845   |  
|Property, plant and equipment, net           |                                      |                                                                   |                                                         |            |       |            | 364,011   |               |         |              | 178,435  |              |     |         | 431,892    |            |         |            | (20,380   | )         |   |           | 953,958   |           
|Long-term receivables                        |                                      |                                                                   |                                                         |            |       |            |          |               |         |              |         |              |     |         | 76,142     |            |         |            |          |           |   |           | 76,142    |           
|Due (to) from unconsolidated subsidiaries    |                                      |                                                                   | (3,908                                                   | )          |       |            | (24,051   | )             |         |              | 25,413   |              |     |         | 55,877     |            |         |            | (53,331   | )         |   |           |          |           
|Investments in unconsolidated subsidiaries   |                                      |                                                                   | (454,003                                                 | )          |       |            | 311,464   |               |         |              | (271,698 | )            |     |         | (1,624,074 | )          |         |            | 2,038,311 |           |   |           |          |           
|Investments in and advances to affiliates    |                                      |                                                                   | 20                                                       |            |       |            |          |               |         |              |         |              |     |         | 50,598     |            |         |            |          |           |   |           | 50,618    |           
|Deposits                                     |                                      |                                                                   |                                                         |            |       |            |          |               |         |              |         |              |     |         | 9,000      |            |         |            |          |           |   |           | 9,000     |           
|Other assets                                 |                                      |                                                                   | 4,253                                                    |            |       |            | 4,410     |               |         |              | 506      |              |     |         | 36,851     |            |         |            |          |           |   |           | 46,020    |           
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                                                   | Total assets                                             |            | $     | (449,009   | )         |               | $       | 714,404      |          |              | $   | (61,648 | )          |            | $       | (692,800   | )         |           | $ | 1,963,636 |           |            | $       | 1,474,583 |  
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|Liabilities not subject to compromise:       |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             | Current liabilities:                 |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |            |        
|                                             |                                      | Accounts payable                                                  |                                                          | $          |      |            |           | $             | 1,414   |              |          | $            | 250 |         |            | $          | 23,258  |            |           | $         |  |           |           | $          | 24,922  |          
|                                             |                                      | Accrued employment costs                                          |                                                          |            |      |            |           |               |        |              |          |              |    |         |            |            | 22,885  |            |           |           |  |           |           |            | 22,885  |          
|                                             |                                      | Customer advances and billings in excess of costs
    and profits |                                                          |            |      |            |           |               | 120,585 |              |          |              | 14  |         |            |            | 199,980 |            |           |           |  |           |           |            | 320,579 |          
|                                             |                                      | Deferred gain on sales of assets                                  |                                                          |            |      |            |           |               |        |              |          |              |    |         |            |            | 20,982  |            |           |           |  |           |           |            | 20,982  |          
|                                             |                                      | Income taxes payable                                              |                                                          |            |      |            |           |               |        |              |          |              |    |         |            |            | 5,965   |            |           |           |  |           |           |            | 5,965   |          
|                                             |                                      | Other current liabilities                                         |                                                          |            | 1,356 |            |           |               |        |              |          |              |    |         |            |            | 21,550  |            |           |           |  |           |           |            | 22,906  |          
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                                                   | Total current liabilities                                |            |       | 1,356      |           |               |         | 121,999      |          |              |     | 264     |            |            |         | 294,620    |           |           |   |          |           |            |         | 418,239   |  
|Pension and other postretirement liabilities |                                      |                                                                   |                                                         |            |       |            |          |               |         |              |         |              |     |         | 15,822     |            |         |            |          |           |   |           | 15,822    |           
|Long-term liabilities                        |                                      |                                                                   | 52,233                                                   |            |       |            | 4,190     |               |         |              | 14,985   |              |     |         | 11,986     |            |         |            | (36,611   | )         |   |           | 46,783    |           
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                                                   | Total liabilities not subject to compromise              |            |       | 53,589     |           |               |         | 126,189      |          |              |     | 15,249  |            |            |         | 322,428    |           |           |   | (36,611   | )         |            |         | 480,844   |  
|Liabilities subject to compromise            |                                      |                                                                   | 434,451                                                  |            |       |            | 1,113,234 |               |         |              | (116,663 | )            |     |         | 501,534    |            |         |            | (4,196    | )         |   |           | 1,928,360 |           
|Minority interest                            |                                      |                                                                   |                                                         |            |       |            |          |               |         |              |         |              |     |         | 2,428      |            |         |            |          |           |   |           | 2,428     |           
|Shareholders (deficit) equity:              |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             | Common stock                         |                                                                   |                                                          | 4,413      |       |            |           |              |         |              |          |             |     |         |            |           |         |            |           |          |   |           |           | 4,413      |        
|                                             | Paid-in capital                      |                                                                   |                                                          | 3,392,829  |       |            |           | 604,166       |         |              |          |             |     |         |            |           |         |            |           | (604,166  | ) |           |           | 3,392,829  |        
|                                             | Treasury stock, at cost              |                                                                   |                                                          | (3,360     | )     |            |           |              |         |              |          |             |     |         |            |           |         |            |           |          |   |           |           | (3,360     | )      
|                                             | Unearned compensation                |                                                                   |                                                          | (148       | )     |            |           |              |         |              |          |             |     |         |            |           |         |            |           |          |   |           |           | (148       | )      
|                                             | Due from related parties             |                                                                   |                                                          |           |       |            |           | (54,081       | )       |              |          |             |     |         |            | 54,081     |         |            |           |          |   |           |           |           |        
|                                             | Retained (deficit) earnings          |                                                                   |                                                          | (4,251,172 | )     |            |           | (1,075,104    | )       |              |          | 39,766       |     |         |            | (1,573,271 | )       |            |           | 2,608,609 |   |           |           | (4,251,172 | )      
|                                             | Accumulated other comprehensive loss |                                                                   |                                                          | (79,611    | )     |            |           |              |         |              |          |             |     |         |            |           |         |            |           |          |   |           |           | (79,611    | )      
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                                                   | Total shareholders
    (deficit) equity                 |            |       | (937,049   | )         |               |         | (525,019     | )        |              |     | 39,766  |            |            |         | (1,519,190 | )         |           |   | 2,004,443 |           |            |         | (937,049  | )
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           
|                                             |                                      |                                                                   | Total liabilities and shareholders
    (deficit) equity |            | $     | (449,009   | )         |               | $       | 714,404      |          |              | $   | (61,648 | )          |            | $       | (692,800   | )         |           | $ | 1,963,636 |           |            | $       | 1,474,583 |  
|                                             |                                      |                                                                   |                                                          |            |       |            |           |               |         |              |          |              |     |         |            |            |         |            |           |           |   |           |           |           

28



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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Three Months Ended March 31,
2004


(In thousands)


|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------- | ------- | ---------- | - | ---------- | ------- | ------------- | - | ------------ | ----- | ------------ | - | - | ------- | ------- | - | - | ------ | ------ | - | - | ------- | ------- | -
|                                                                                                                                                               |                   | Parent  |         | Subsidiary |   | Guarantor  |         | Non-Guarantor |   |              |       |             
|                                                                                                                                                               |                   | Company |         | Issuer     |   | Subsidiary |         | Subsidiaries  |   | Eliminations |       | Consolidated
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |             
|Revenues from satellite services                                                                                                                               |                   | $       |        |            |   | $          | 18,915  |               |   | $            | 7,426 |              |   | $ | 11,713  |         |   | $ | (8,803 | )      |   | $ | 29,251  |        
|Revenues from satellite manufacturing                                                                                                                          |                   |         |        |            |   |            |        |               |   |              |      |              |   |   | 74,352  |         |   |   | 81     |        |   |   | 74,433  |        
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |        
|                                                                                                                                                               | Total revenues    |         |         |           |   |            |         | 18,915        |   |              |       | 7,426        |   |   |         | 86,065  |   |   |        | (8,722 | ) |   |         | 103,684 |  
|Cost of satellite services                                                                                                                                     |                   |         |        |            |   |            | 35,904  |               |   |              | 7,081 |              |   |   | 28,728  |         |   |   | (8,132 | )      |   |   | 63,581  |        
|Cost of satellite manufacturing                                                                                                                                |                   |         |        |            |   |            |        |               |   |              |      |              |   |   | 68,259  |         |   |   | 40     |        |   |   | 68,299  |        
|Selling, general and administrative expenses                                                                                                                   |                   |         | 2,234   |            |   |            | 4,344   |               |   |              | 385   |              |   |   | 24,604  |         |   |   |       |        |   |   | 31,567  |        
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |        
|Operating (loss) income from continuing
    operations before reorganization expenses due to bankruptcy                                                        |                   |         | (2,234  | )          |   |            | (21,333 | )             |   |              | (40   | )            |   |   | (35,526 | )       |   |   | (630   | )      |   |   | (59,763 | )      
|Reorganization expenses due to bankruptcy                                                                                                                      |                   |         | (956    | )          |   |            | (1,878  | )             |   |              |      |              |   |   | (5,481  | )       |   |   |       |        |   |   | (8,315  | )      
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |        
|Operating (loss) income from continuing operations                                                                                                             |                   |         | (3,190  | )          |   |            | (23,211 | )             |   |              | (40   | )            |   |   | (41,007 | )       |   |   | (630   | )      |   |   | (68,078 | )      
|Interest and investment income                                                                                                                                 |                   |         |        |            |   |            |        |               |   |              |      |              |   |   | 2,561   |         |   |   |       |        |   |   | 2,561   |        
|Interest expense                                                                                                                                               |                   |         |        |            |   |            |        |               |   |              |      |              |   |   | (2,596  | )       |   |   | 609    |        |   |   | (1,987  | )      
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |        
|(Loss) income from continuing operations before
    income taxes, equity in net losses of unconsolidated
    subsidiaries and affiliates and minority interest |                   |         | (3,190  | )          |   |            | (23,211 | )             |   |              | (40   | )            |   |   | (41,042 | )       |   |   | (21    | )      |   |   | (67,504 | )      
|Income tax (provision) benefit                                                                                                                                 |                   |         |        |            |   |            | (707    | )             |   |              | 14    |              |   |   | 497     |         |   |   |       |        |   |   | (196    | )      
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |        
|(Loss) income from continuing operations before
    equity in net losses of unconsolidated subsidiaries and
    affiliates and minority interest               |                   |         | (3,190  | )          |   |            | (23,918 | )             |   |              | (26   | )            |   |   | (40,545 | )       |   |   | (21    | )      |   |   | (67,700 | )      
|Equity in net income (losses) of unconsolidated
    subsidiaries                                                                                               |                   |         | (76,446 | )          |   |            | (26     | )             |   |              |      |              |   |   |        |         |   |   | 76,472 |        |   |   |        |        
|Equity in net income (losses) of affiliates                                                                                                                    |                   |         |        |            |   |            |        |               |   |              |      |              |   |   | (403    | )       |   |   |       |        |   |   | (403    | )      
|Minority interest                                                                                                                                              |                   |         |        |            |   |            |        |               |   |              |      |              |   |   | 87      |         |   |   |       |        |   |   | 87      |        
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |        
|(Loss) income from continuing operations                                                                                                                       |                   |         | (79,636 | )          |   |            | (23,944 | )             |   |              | (26   | )            |   |   | (40,861 | )       |   |   | 76,451 |        |   |   | (68,016 | )      
|Loss from discontinued operations                                                                                                                              |                   |         |        |            |   |            |        |               |   |              |      |              |   |   | (11,620 | )       |   |   |       |        |   |   | (11,620 | )      
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |        
|                                                                                                                                                               | Net loss (income) |         | $       | (79,636    | ) |            | $       | (23,944       | ) |              | $     | (26          | ) |   | $       | (52,481 | ) |   | $      | 76,451 |   |   | $       | (79,636 | )
|                                                                                                                                                               |                   |         |         |            |   |            |         |               |   |              |       |              |   |   |         |         |   |   |        |        |   |   |         |        

29



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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Three Months Ended March 31,
2004


(In thousands)


|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |          |        |  
|------------------------------------------------------- | ------------------------------------------------- | -------------------------------------------------------------------------- | ----- | ---------- | ------ | ---------- | ------ | ------------- | ------ | ------------ | - | ------------ | ----- | - | -------- | -------- | ------ | - | ------- | ------- | ------- | - | -------- | -------- | ------ | -
|                                                        |                                                   | Parent                                                                     |       | Subsidiary |        | Guarantor  |        | Non-Guarantor |        |              |   |             
|                                                        |                                                   | Company                                                                    |       | Issuer     |        | Subsidiary |        | Subsidiaries  |        | Eliminations |   | Consolidated
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |             
|Operating activities:                                   |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|                                                        | Net (loss) income                                 |                                                                            | $     | (79,636    | )      |            | $      | (23,944       | )      |              | $ | (26          | )     |   | $        | (52,481  | )      |   | $       | 76,451  |         |   | $        | (79,636  | )     
|                                                        | Non-cash items:                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |          |       
|                                                        |                                                   | Loss from discontinued operations                                          |       |            |       |            |        |               |       |              |   |              |      |   |          |          | 11,620 |   |         |         |        |   |          |          | 11,620 |  
|                                                        |                                                   | Equity in net losses of affiliates                                         |       |            |       |            |        |               |       |              |   |              |      |   |          |          | 403    |   |         |         |        |   |          |          | 403    |  
|                                                        |                                                   | Minority interest                                                          |       |            |       |            |        |               |       |              |   |              |      |   |          |          | (87    | ) |         |         |        |   |          |          | (87    | )
|                                                        |                                                   | Equity in net losses of unconsolidated
    subsidiaries                    |       |            | 76,446 |            |        |               |       |              |   |              |      |   |          |          | 93     |   |         |         | (76,539 | ) |          |          |       |  
|                                                        |                                                   | Deferred taxes                                                             |       |            |       |            |        |               |       |              |   |              |      |   |          |          | 1,166  |   |         |         | (1,166  | ) |          |          |       |  
|                                                        |                                                   | Depreciation and amortization                                              |       |            |       |            |        |               | 27,317 |              |   |              | 5,253 |   |          |          | 8,622  |   |         |         |        |   |          |          | 41,192 |  
|                                                        |                                                   | Provisions for bad debts on billed receivables                             |       |            |       |            |        |               | (104   | )            |   |              | (46   | ) |          |          | 314    |   |         |         |        |   |          |          | 164    |  
|                                                        |                                                   | Provision for inventory obsolescence                                       |       |            |       |            |        |               |       |              |   |              |      |   |          |          | 287    |   |         |         |        |   |          |          | 287    |  
|                                                        |                                                   | Impairment charge on satellite and related assets                          |       |            |       |            |        |               |       |              |   |              |      |   |          |          | 11,989 |   |         |         |        |   |          |          | 11,989 |  
|                                                        |                                                   | Non-cash net (gain) loss on foreign currency
    transactions and interest |       |            |       |            |        |               |       |              |   |              |      |   |          |          | (733   | ) |         |         |        |   |          |          | (733   | )
|Changes in operating assets and liabilities:            |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|                                                        | Accounts receivable, net                          |                                                                            |       |           |        |            |        | 372           |        |              |   | (326         | )     |   |          | 4,617    |        |   |         |        |         |   |          | 4,663    |       
|                                                        | Contracts-in-process                              |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | (12,102  | )      |   |         |        |         |   |          | (12,102  | )     
|                                                        | Inventories                                       |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | 914      |        |   |         |        |         |   |          | 914      |       
|                                                        | Long-term receivables                             |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | (5,393   | )      |   |         |        |         |   |          | (5,393   | )     
|                                                        | Due (to) from unconsolidated subsidiaries         |                                                                            |       | 813        |        |            |        | (1,616        | )      |              |   | (6,650       | )     |   |          | (8,757   | )      |   |         | 16,210  |         |   |          |         |       
|                                                        | Other current assets and other assets             |                                                                            |       | 1,857      |        |            |        | 789           |        |              |   | 1,530        |       |   |          | (3,251   | )      |   |         |        |         |   |          | 925      |       
|                                                        | Accounts payable                                  |                                                                            |       |           |        |            |        | 590           |        |              |   | 250          |       |   |          | (9,855   | )      |   |         |        |         |   |          | (9,015   | )     
|                                                        | Accrued expenses and other current liabilities    |                                                                            |       | 164        |        |            |        | 52            |        |              |   |             |       |   |          | 1,061    |        |   |         |        |         |   |          | 1,277    |       
|                                                        | Customer advances and billing in excess of cost   |                                                                            |       |           |        |            |        | 30            |        |              |   | 15           |       |   |          | 46,050   |        |   |         |        |         |   |          | 46,095   |       
|                                                        | Income taxes payable                              |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | (278     | )      |   |         |        |         |   |          | (278     | )     
|                                                        | Pension and other postretirement liabilities      |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | 6,094    |        |   |         |        |         |   |          | 6,094    |       
|                                                        | Long-term liabilities                             |                                                                            |       |           |        |            |        | (469          | )      |              |   |             |       |   |          | 1,261    |        |   |         |        |         |   |          | 792      |       
|                                                        | Other                                             |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | (43      | )      |   |         |        |         |   |          | (43      | )     
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|Net cash provided by operating activities               |                                                   |                                                                            | (356  | )          |        |            | 3,017  |               |        |              |  |              |       |   | 1,511    |          |        |   | 14,956  |         |         |   | 19,128   |         
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|Net cash provided by discontinued operations            |                                                   |                                                                            |      |            |        |            |       |               |        |              |  |              |       |   | 6,924    |          |        |   |        |         |         |   | 6,924    |         
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|Investing activities:                                   |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|                                                        | Capital expenditures for continuing operations    |                                                                            |       |           |        |            |        | (178          | )      |              |   |             |       |   |          | 8,924    |        |   |         | (14,956 | )       |   |          | (6,210   | )     
|                                                        | Capital expenditures for discontinued operations  |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | (11,185  | )      |   |         |        |         |   |          | (11,185  | )     
|                                                        | Proceeds from the sale of assets, net of expenses |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | 953,619  |        |   |         |        |         |   |          | 953,619  |       
|                                                        | Investments in and advances to affiliates         |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | (4,799   | )      |   |         |        |         |   |          | (4,799   | )     
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|Net cash used in investing activities                   |                                                   |                                                                            |      |            |        |            | (178   | )             |        |              |  |              |       |   | 946,559  |          |        |   | (14,956 | )       |         |   | 931,425  |         
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|Financing activities:                                   |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|                                                        | Repayments of term loans                          |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | (576,500 | )      |   |         |        |         |   |          | (576,500 | )     
|                                                        | Repayments of revolving credit facilities         |                                                                            |       |           |        |            |        |              |        |              |   |             |       |   |          | (390,387 | )      |   |         |        |         |   |          | (390,387 | )     
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|Net cash provided by (used in) financing
    activities |                                                   |                                                                            |      |            |        |            |       |               |        |              |  |              |       |   | (966,887 | )        |        |   |        |         |         |   | (966,887 | )       
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|Increase (decrease) in cash and cash equivalents        |                                                   |                                                                            | (356  | )          |        |            | 2,839  |               |        |              |  |              |       |   | (11,893  | )        |        |   |        |         |         |   | (9,410   | )       
|Cash and cash equivalents  beginning
    of period     |                                                   |                                                                            | 4,481 |            |        |            | 46,831 |               |        |              |  |              |       |   | 90,332   |          |        |   |        |         |         |   | 141,644  |         
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         
|Cash and cash equivalents  end of
    period           |                                                   | $                                                                          | 4,125 |            |        | $          | 49,670 |               |        | $            |  |              |       | $ | 78,439   |          |        | $ |        |         |         | $ | 132,234  |         
|                                                        |                                                   |                                                                            |       |            |        |            |        |               |        |              |   |              |       |   |          |          |        |   |         |         |         |   |          |         

30



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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2003


(In thousands)


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

31



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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Three Months Ended March 31,
2003


(In thousands)


|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ | ------------ |  | - | ------- | ------- |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                                                               |                | Parent  |         | Subsidiary |  | Guarantor    |        | Non-Guarantor |  |              |        |             
|                                                                                                                                                               |                | Company |         | Issuer     |  | Subsidiaries |        | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |             
|Revenues from satellite services                                                                                                                               |                | $       |        |            |  | $            | 23,075 |               |  | $            | 10,937 |              |  | $ | 18,059  |         |  | $ | (11,662 | )       |   | $ | 40,409  |        
|Revenues from satellite manufacturing                                                                                                                          |                |         |        |            |  |              |       |               |  |              |       |              |  |   | 118,893 |         |  |   | (3,856  | )       |   |   | 115,037 |        
|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|                                                                                                                                                               | Total revenues |         |         |           |  |              |        | 23,075        |  |              |        | 10,937       |  |   |         | 136,952 |  |   |         | (15,518 | ) |   |         | 155,446 | 
|Costs of satellite services                                                                                                                                    |                |         |        |            |  |              | 24,602 |               |  |              | 7,883  |              |  |   | 25,308  |         |  |   | (10,900 | )       |   |   | 46,893  |        
|Costs of satellite manufacturing                                                                                                                               |                |         |        |            |  |              |       |               |  |              |       |              |  |   | 133,273 |         |  |   | (3,137  | )       |   |   | 130,136 |        
|Selling, general and administrative expenses                                                                                                                   |                |         | 1,422   |            |  |              | 3,976  |               |  |              | 274    |              |  |   | 25,818  |         |  |   |        |         |   |   | 31,490  |        
|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|Operating (loss) income from continuing operations                                                                                                             |                |         | (1,422  | )          |  |              | (5,503 | )             |  |              | 2,780  |              |  |   | (47,447 | )       |  |   | (1,481  | )       |   |   | (53,073 | )      
|Interest and investment income                                                                                                                                 |                |         | 5,547   |            |  |              | 37     |               |  |              |       |              |  |   | 7,822   |         |  |   | (6,360  | )       |   |   | 7,046   |        
|Interest expense                                                                                                                                               |                |         | (10,917 | )          |  |              | (2,920 | )             |  |              |       |              |  |   | (1,679  | )       |  |   | 7,010   |         |   |   | (8,506  | )      
|Gain on investment                                                                                                                                             |                |         | 1,107   |            |  |              |       |               |  |              |       |              |  |   |        |         |  |   |        |         |   |   | 1,107   |        
|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|(Loss) income from continuing operations before
    income taxes, equity in net losses of unconsolidated
    subsidiaries and affiliates and minority interest |                |         | (5,685  | )          |  |              | (8,386 | )             |  |              | 2,780  |              |  |   | (41,304 | )       |  |   | (831    | )       |   |   | (53,426 | )      
|Income tax benefit (provision)                                                                                                                                 |                |         | (1,663  | )          |  |              | (192   | )             |  |              | (972   | )            |  |   | 5,444   |         |  |   | 1,216   |         |   |   | 3,833   |        
|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|(Loss) income from continuing operations before
    equity in net losses of unconsolidated subsidiaries and
    affiliates and minority interest               |                |         | (7,348  | )          |  |              | (8,578 | )             |  |              | 1,808  |              |  |   | (35,860 | )       |  |   | 385     |         |   |   | (49,593 | )      
|Equity in net income (losses) of unconsolidated
    subsidiaries, net of taxes                                                                                 |                |         | (35,520 | )          |  |              | 1,808  |               |  |              |       |              |  |   |        |         |  |   | 33,712  |         |   |   |        |        
|Equity in net losses of affiliates                                                                                                                             |                |         | (5,306  | )          |  |              |       |               |  |              |       |              |  |   | (3,197  | )       |  |   |        |         |   |   | (8,503  | )      
|Minority interest                                                                                                                                              |                |         |        |            |  |              |       |               |  |              |       |              |  |   | (39     | )       |  |   |        |         |   |   | (39     | )      
|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|(Loss) income from continuing operations                                                                                                                       |                |         | (48,174 | )          |  |              | (6,770 | )             |  |              | 1,808  |              |  |   | (39,096 | )       |  |   | 34,097  |         |   |   | (58,135 | )      
|Income from discontinued operations                                                                                                                            |                |         |        |            |  |              |       |               |  |              |       |              |  |   | 9,961   |         |  |   |        |         |   |   | 9,961   |        
|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|Net (loss) income                                                                                                                                              |                | $       | (48,174 | )          |  | $            | (6,770 | )             |  | $            | 1,808  |              |  | $ | (29,135 | )       |  | $ | 34,097  |         |   | $ | (48,174 | )      
|                                                                                                                                                               |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        

32



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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Three Months Ended March 31,
2003


(In thousands)


|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |         |         |  
|------------------------------------------------------- | -------------------------------------------- | -------------------------------------------------------------------------- | ------- | ---------- | ------ | ------------ | ------- | ------------- | ------- | ------------ | - | ------------ | ------- | - | ------ | ------- | ------- | - | ------ | ------ | ------- | - | ------- | ------- | ------- | -
|                                                        |                                              | Parent                                                                     |         | Subsidiary |        | Guarantor    |         | Non-Guarantor |         |              |   |             
|                                                        |                                              | Company                                                                    |         | Issuer     |        | Subsidiaries |         | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |             
|Operating activities:                                   |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|                                                        | Net (loss) income                            |                                                                            | $       | (48,174    | )      |              | $       | (6,770        | )       |              | $ | 1,808        |         |   | $      | (29,135 | )       |   | $      | 34,097 |         |   | $       | (48,174 | )      
|                                                        | Non-cash items:                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |         |        
|                                                        |                                              | Income from discontinued operations                                        |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (9,961  | ) |        |        |        |   |         |         | (9,961  | )
|                                                        |                                              | Equity in net losses of affiliates                                         |         |            | 5,306  |              |         |               |        |              |   |              |        |   |        |         | 3,197   |   |        |        |        |   |         |         | 8,503   |  
|                                                        |                                              | Minority interest                                                          |         |            |       |              |         |               |        |              |   |              |        |   |        |         | 39      |   |        |        |        |   |         |         | 39      |  
|                                                        |                                              | Equity in net losses of unconsolidated
    subsidiaries                    |         |            | 35,520 |              |         |               | (1,808  | )            |   |              |        |   |        |         |        |   |        |        | (33,712 | ) |         |         |        |  
|                                                        |                                              | Deferred taxes                                                             |         |            | 1,663  |              |         |               |        |              |   |              | 1,150   |   |        |         | 65      |   |        |        | (1,215  | ) |         |         | 1,663   |  
|                                                        |                                              | Depreciation and amortization                                              |         |            | 14     |              |         |               | 13,569  |              |   |              | 5,254   |   |        |         | 11,212  |   |        |        |        |   |         |         | 30,049  |  
|                                                        |                                              | Valuation allowance on vendor financing
    receivables                    |         |            |       |              |         |               |        |              |   |              |        |   |        |         | 10,008  |   |        |        |        |   |         |         | 10,008  |  
|                                                        |                                              | Provisions for bad debts                                                   |         |            |       |              |         |               | 2,146   |              |   |              | (11     | ) |        |         | 1,828   |   |        |        |        |   |         |         | 3,963   |  
|                                                        |                                              | Loss on equipment disposals                                                |         |            |       |              |         |               |        |              |   |              |        |   |        |         | 40      |   |        |        |        |   |         |         | 40      |  
|                                                        |                                              | Gain on investment                                                         |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (1,107  | ) |        |        |        |   |         |         | (1,107  | )
|                                                        |                                              | Non-cash net interest and (gain) loss on
    foreign currency transactions |         |            |       |              |         |               | 1,165   |              |   |              |        |   |        |         | 5,466   |   |        |        |        |   |         |         | 6,631   |  
|                                                        | Changes in operating assets and liabilities: |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |         |        
|                                                        |                                              | Accounts receivable, net                                                   |         |            |       |              |         |               | (3,996  | )            |   |              | 28      |   |        |         | (2,668  | ) |        |        |        |   |         |         | (6,636  | )
|                                                        |                                              | Contracts-in-process                                                       |         |            |       |              |         |               |        |              |   |              |        |   |        |         | 36,656  |   |        |        |        |   |         |         | 36,656  |  
|                                                        |                                              | Inventories                                                                |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (606    | ) |        |        |        |   |         |         | (606    | )
|                                                        |                                              | Long-term receivables                                                      |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (860    | ) |        |        |        |   |         |         | (860    | )
|                                                        |                                              | Due (to) from unconsolidated subsidiaries                                  |         |            | 710    |              |         |               | 5,713   |              |   |              | (10,109 | ) |        |         | (230    | ) |        |        | 3,916   |   |         |         |        |  
|                                                        |                                              | Other current assets and other assets                                      |         |            | 874    |              |         |               | 757     |              |   |              | 2,389   |   |        |         | (270    | ) |        |        |        |   |         |         | 3,750   |  
|                                                        |                                              | Accounts payable                                                           |         |            |       |              |         |               | (2,332  | )            |   |              | (232    | ) |        |         | 7,908   |   |        |        |        |   |         |         | 5,344   |  
|                                                        |                                              | Accrued expenses and other current liabilities                             |         |            | (9,389 | )            |         |               | (1,342  | )            |   |              |        |   |        |         | 8,909   |   |        |        |        |   |         |         | (1,822  | )
|                                                        |                                              | Customer advances                                                          |         |            |       |              |         |               | 1,243   |              |   |              | (277    | ) |        |         | (28,985 | ) |        |        |        |   |         |         | (28,019 | )
|                                                        |                                              | Income taxes payable                                                       |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (391    | ) |        |        |        |   |         |         | (391    | )
|                                                        |                                              | Pension and other postretirement liabilities                               |         |            |       |              |         |               |        |              |   |              |        |   |        |         | 2,620   |   |        |        |        |   |         |         | 2,620   |  
|                                                        |                                              | Long-term liabilities                                                      |         |            |       |              |         |               | (414    | )            |   |              |        |   |        |         | (1,870  | ) |        |        |        |   |         |         | (2,284  | )
|                                                        |                                              | Other                                                                      |         |            |       |              |         |               |        |              |   |              |        |   |        |         | 419     |   |        |        |        |   |         |         | 419     |  
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Net cash provided by (used in) operating
    activities |                                              |                                                                            | (13,476 | )          |        |              | 7,931   |               |         |              |  |              |         |   | 12,284 |         |         |   | 3,086  |        |         |   | 9,825   |        
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Net cash provided by discontinued operations            |                                              |                                                                            |        |            |        |              |        |               |         |              |  |              |         |   | 21,274 |         |         |   |       |        |         |   | 21,274  |        
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Investing activities:                                   |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|                                                        |                                              | Capital expenditures for continuing operations                             |         |            |       |              |         |               | (1,599  | )            |   |              |        |   |        |         | (10,316 | ) |        |        | (3,086  | ) |         |         | (15,001 | )
|                                                        |                                              | Capital expenditures for discontinued operations                           |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (8,279  | ) |        |        |        |   |         |         | (8,279  | )
|                                                        |                                              | Investments in and advances to unconsolidated
    subsidiaries             |         |            | 195    |              |         |               |        |              |   |              |        |   |        |         | (195    | ) |        |        |        |   |         |         |        |  
|                                                        |                                              | Investments in and advances to affiliates                                  |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (514    | ) |        |        |        |   |         |         | (514    | )
|                                                        |                                              | Proceeds from sale of investment                                           |         |            |       |              |         |               |        |              |   |              |        |   |        |         | 9,704   |   |        |        |        |   |         |         | 9,704   |  
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Net cash (used in) provided by investing
    activities |                                              |                                                                            | 195     |            |        |              | (1,599  | )             |         |              |  |              |         |   | (9,600 | )       |         |   | (3,086 | )      |         |   | (14,090 | )      
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Financing activities:                                   |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|                                                        |                                              | Borrowings under revolving credit facilities                               |         |            |       |              |         |               |        |              |   |              |        |   |        |         | 66,000  |   |        |        |        |   |         |         | 66,000  |  
|                                                        |                                              | Repayments under term loans                                                |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (16,250 | ) |        |        |        |   |         |         | (16,250 | )
|                                                        |                                              | Interest payments on 10% senior notes                                      |         |            |       |              |         |               | (30,634 | )            |   |              |        |   |        |         |        |   |        |        |        |   |         |         | (30,634 | )
|                                                        |                                              | Payment of bank amendment costs                                            |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (2,183  | ) |        |        |        |   |         |         | (2,183  | )
|                                                        |                                              | Repayments of other long-term obligations                                  |         |            |       |              |         |               |        |              |   |              |        |   |        |         | (534    | ) |        |        |        |   |         |         | (534    | )
|                                                        |                                              | Note receivable from unconsolidated affiliate                              |         |            | 17,284 |              |         |               |        |              |   |              |        |   |        |         | (17,284 | ) |        |        |        |   |         |         |        |  
|                                                        |                                              | Proceeds from stock issuances                                              |         |            | 2,157  |              |         |               |        |              |   |              |        |   |        |         |        |   |        |        |        |   |         |         | 2,157   |  
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Net cash provided by (used in) financing
    activities |                                              |                                                                            | 19,441  |            |        |              | (30,634 | )             |         |              |  |              |         |   | 29,749 |         |         |   |       |        |         |   | 18,556  |        
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Increase (decrease) in cash and cash equivalents        |                                              |                                                                            | 6,160   |            |        |              | (24,302 | )             |         |              |  |              |         |   | 53,707 |         |         |   |       |        |         |   | 35,565  |        
|Cash and cash equivalents  beginning
    of period     |                                              |                                                                            | 1,514   |            |        |              | 42,964  |               |         |              |  |              |         |   | 21,458 |         |         |   |       |        |         |   | 65,936  |        
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Cash and cash equivalents  end of
    period           |                                              | $                                                                          | 7,674   |            |        | $            | 18,662  |               |         | $            |  |              |         | $ | 75,165 |         |         | $ |       |        |         | $ | 101,501 |        
|                                                        |                                              |                                                                            |         |            |        |              |         |               |         |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        

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

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

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

Disclosure Regarding Forward-Looking
Statements

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

Overview



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

Loral is a leading satellite communications
company organized into two operating segments: Satellite
Services and Satellite Manufacturing. Revenues as reported for
the three months ended March 31, 2004 were
$101 million.



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

Through our Loral Skynet division we lease
satellite capacity and platforms to our customers for video and
direct-to-home (DTH) broadcasting, high-speed data
distribution, Internet access, communications and networking
services. The satellite services business is capital intensive
and highly competitive. We compete with other satellite
operators and with ground-based service providers. The build-out
of a satellite fleet requires substantial investment. Once these
investments are made, however, the costs to maintain and operate
the fleet are relatively low. The upfront investments are earned
back through the leasing of transponders to customers over the
life of the satellite. Beyond construction, one of the major
cost factors is in-orbit insurance, an essential component given
the harsh and unpredictable environment in which the satellites
operate. Annual receipts from this business are fairly
predictable because they are based on an established base of
long-term customer contracts. For the three months ended
March 31, 2004, Satellite Services sales were
$31 million before eliminations of $2 million.
Worldwide satellite services industry sales in 2002 were
approximately $7 billion, according to available industry
estimates.

The satellite services market has been
characterized in recent years by over-capacity, pricing pressure
and competition from fiber. The downturn in the
telecommunications sector led many existing Skynet customers,
hampered by a slow-down in demand and lack of access to the
capital markets, to postpone expansion plans. Similarly, several
start-up companies that leased Skynets satellite capacity
for the delivery of new applications

34



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##### Table of Contents



failed to meet their business objectives.
Following the closing of the Intelsat transaction on
March 17, 2004, Skynets growth will depend upon on
its ability to differentiate itself from the competition through
customized product offerings, its superior customer service and
its successful marketing of available capacity on its
international fleet which is well positioned to serve regions of
the world where we expect demand to grow.




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

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

While its requirement for ongoing capital
investment is low, the satellite manufacturing industry is a
knowledge-intensive business, the success of which relies
heavily on its technological heritage and the skills of its
workforce. The breadth and depth of talent and experience
resident in SS/Ls workforce of approximately
1,500 employees is one of our key competitive advantages.

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

Satellites are extraordinarily complex devices
designed to operate in the very hostile environment of space.
This complexity may lead to unanticipated costs during the
design, manufacture and testing of a satellite. SS/L establishes
provisions for costs based on historical experience and program
complexity to cover anticipated costs. Since most of SS/Ls
contracts are fixed price, cost increases in excess of the
provisions reduces profitability and may result in losses borne
solely by SS/L, which may be material. The satellite
manufacturing industry is highly competitive and, in recent
years, order levels reached an unprecedented low level,
resulting in manufacturing over-capacity. Buyers, as a result,
are in the advantageous position of being able to negotiate
contracts with favorable prices, terms and conditions. In the
latter part of 2003, the order rate for new commercial
satellites picked up and is expected to continue into 2004. This
pickup has been driven by the need for replacement satellites
and the resumption of some customers expansion plans.
SS/Ls sales for the three months ended March 31, 2004
were $101 million, including $27 million for internal
satellites. Commercial satellite manufacturing industry sales in
2002 totaled $3.5 billion worldwide, according to available
industry sources.



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

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

On July 15, 2003, Loral and certain of its
subsidiaries (the Debtor Subsidiaries and
collectively with Loral, the Debtors), including
Loral Space & Communications Corporation, Loral
SpaceCom Corporation (Loral SpaceCom), Loral
Satellite, Inc. (Loral Satellite), SS/L and Loral
Orion, Inc. (Loral Orion),

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filed voluntary petitions for reorganization
under chapter 11 of title 11
(Chapter 11) of the United States Code (the
Bankruptcy Code) in the United States Bankruptcy
Court for the Southern District of New York (the
Bankruptcy Court) (Lead Case No. 03-41710
(RDD), Case Nos. 03-41709 (RDD) through 03-41728 (RDD))
(the Chapter 11 Cases). 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. As a result of our
Chapter 11 filing, all of our prepetition debt obligations
(with principal amounts aggregating $1.049 billion at
March 31, 2004) were accelerated. On July 15, 2003, we
suspended interest payments on all of our senior unsecured
notes, with an aggregate principal amount of $1.049 billion.


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



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

In a further effort to strengthen our balance
sheet, on July 15, 2003 we agreed to sell our North
American satellites and related assets to Intelsat. On
March 5, 2004, we and Intelsat entered into the final
amendment to the Asset Purchase Agreement, which was approved by
the Bankruptcy Court and Intelsats bank lenders on
March 16, 2004. On March 17, 2004, we completed the
sale of such assets to Intelsat. We used the proceeds from the
sale of the assets to repay our outstanding secured bank debt
(see Note 2 to the condensed consolidated financial
statements).



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

We intend to reorganize around our satellite
manufacturing operations and our remaining fleet of
international satellites, which will cover regions with high
growth potential, such as Southeast Asia, the Middle East and
South America, where the ground infrastructure is inadequate to
support increased demand. We consider these operations to be a
viable foundation for the further expansion of our company. We
anticipate using excess cash flows from operations to populate
our available slots with new satellites to meet market demand.
We are in the process now of completing our long-term business
plan. We believe that we will not require any additional
financing to fund operations. At this time, however, it is
impossible to predict accurately the effect of the
Chapter 11 reorganization on Loral, when we may emerge from
Chapter 11 and what our capital structure will be. The
rights and claims of various creditors and security holders will
be determined by our plan of reorganization. No assurance can be
given as to what values, if any, will be ascribed in the
bankruptcy proceedings to each of these constituencies. We
anticipate that, in any plan of reorganization ultimately
confirmed by the Bankruptcy Court, our common and preferred
stock likely will be eliminated entirely. Accordingly, we urge
that appropriate caution be exercised with respect to existing
and future investments in any of such securities and claims.

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

See Note 2 and Note 4 to the condensed
consolidated financial statements for a description of our
Chapter 11 Cases and the sale of our North American
satellites and related assets.

Consolidated Operating Results

See Critical Accounting Matters in our latest
Annual Report on Form 10-K filed with the SEC and
Note 17 to the condensed consolidated financial statements.

36



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##### Table of Contents



The accompanying condensed consolidated financial
statements have been prepared assuming Loral in its current
structure will continue as a going concern. However, the factors
mentioned above, among other things, raise substantial doubt
about our ability to continue as a going concern. The condensed
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. The
ability of Loral to continue as a going concern is dependent on
a number of factors including, but not limited to, developing a
plan of reorganization, confirmation of the plan by the
Bankruptcy Court and maintaining good relations with our
customers, suppliers and employees. If a plan of reorganization
is not confirmed and implemented, we may be forced to liquidate
under applicable provisions of the Bankruptcy Code. There can be
no assurance of the level of recovery that Lorals
creditors would receive in the event of a 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 Loral were forced to liquidate.

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

We believe the use of Adjusted EBITDA along with
GAAP financial measures enhances the understanding of our
operating results and is useful to investors in comparing
performance with competitors, estimating enterprise value and
making investment decisions. Adjusted EBITDA allows investors to
compare operating results of competitors exclusive of
depreciation and amortization, net losses of affiliates and
minority interest, 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 Loral. Adjusted EBITDA as
used here may not be comparable to similarly titled measures
reported by competitors. We also use Adjusted EBITDA to evaluate
operating performance, to allocate resources and capital, to
measure performance for incentive compensation programs, and to
evaluate future growth opportunities. See the table below for
reconciliations of Adjusted EBITDA to net loss.

The following discussion of revenues and Adjusted
EBITDA reflects the results of our operating businesses for the
three months ended March 31, 2004 and 2003. The balance of
the discussion relates to our condensed consolidated results,
unless otherwise noted. Both of our business segments have been
adversely affected by the downturn in the telecommunications
sector, which has caused a delay in demand for new
telecommunications applications and services.

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

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##### Table of Contents



Revenues:

|                        |                         |                 |       |       |  |   |       |       | 
|----------------------- | ----------------------- | --------------- | ----- | ----- |  | - | ----- | ----- | 
|                        |                         |                
|                        |                         | Three Months   
|                        |                         | Ended March 31,
|                        |                         |                
|                        |                         | 2004            |       | 2003 
|                        |                         |                 |       |      
|                        |                         |                
|                        |                         | (In millions)  
|Satellite services      |                         | $               | 31.1  |       |  | $ | 42.2  |      
|Satellite manufacturing |                         |                 | 101.0 |       |  |   | 131.5 |      
|                        |                         |                 |       |       |  |   |       |      
|Segment revenues        |                         |                 | 132.1 |       |  |   | 173.7 |      
|Eliminations(1)         |                         |                 | (28.4 | )     |  |   | (18.3 | )    
|                        |                         |                 |       |       |  |   |       |      
|                        | Revenues as reported(2) |                 | $     | 103.7 |  |   | $     | 155.4 | 
|                        |                         |                 |       |       |  |   |       |      

Adjusted EBITDA:

|                           |                                             |                 |       |       |   |   |       |       |  
|-------------------------- | ------------------------------------------- | --------------- | ----- | ----- | - | - | ----- | ----- | -
|                           |                                             |                
|                           |                                             | Three Months   
|                           |                                             | Ended March 31,
|                           |                                             |                
|                           |                                             | 2004            |       | 2003 
|                           |                                             |                 |       |      
|                           |                                             |                
|                           |                                             | (In millions)  
|Satellite services(3)      |                                             | $               | (10.2 | )     |   | $ | 3.7   |      
|Satellite manufacturing(4) |                                             |                 | 3.6   |       |   |   | (12.5 | )    
|Corporate expenses(5)      |                                             |                 | (8.6  | )     |   |   | (9.1  | )    
|                           |                                             |                 |       |       |   |   |       |      
|                           | Segment Adjusted EBITDA before eliminations |                 |       | (15.2 | ) |   |       | (17.9 | )
|Eliminations(1)            |                                             |                 | (3.4  | )     |   |   | (5.1  | )    
|                           |                                             |                 |       |       |   |   |       |      
|                           | Adjusted EBITDA                             |                 | $     | (18.6 | ) |   | $     | (23.0 | )
|                           |                                             |                 |       |       |   |   |       |      

Reconciliation of Adjusted EBITDA to Net
Loss:

|                                                             |                                           |                 |       |       |   |   |       |       |  
|------------------------------------------------------------ | ----------------------------------------- | --------------- | ----- | ----- | - | - | ----- | ----- | -
|                                                             |                                           |                
|                                                             |                                           | Three Months   
|                                                             |                                           | Ended March 31,
|                                                             |                                           |                
|                                                             |                                           | 2004            |       | 2003 
|                                                             |                                           |                 |       |      
|                                                             |                                           |                
|                                                             |                                           | (In millions)  
|Adjusted EBITDA                                              |                                           | $               | (18.6 | )     |   | $ | (23.0 | )    
|Depreciation and amortization                                |                                           |                 | (41.2 | )     |   |   | (30.0 | )    
|Reorganization expenses due to bankruptcy                    |                                           |                 | (8.3  | )     |   |   |      |      
|                                                             |                                           |                 |       |       |   |   |       |      
|                                                             | Operating loss from continuing operations |                 |       | (68.1 | ) |   |       | (53.0 | )
|Interest and investment income                               |                                           |                 | 2.6   |       |   |   | 7.0   |      
|Interest expense                                             |                                           |                 | (2.0  | )     |   |   | (8.5  | )    
|Gain on investment                                           |                                           |                 |      |       |   |   | 1.1   |      
|Income tax benefit (provision)                               |                                           |                 | (0.2  | )     |   |   | 3.8   |      
|Equity in net losses of affiliates                           |                                           |                 | (0.4  | )     |   |   | (8.5  | )    
|Minority interest                                            |                                           |                 | 0.1   |       |   |   |      |      
|                                                             |                                           |                 |       |       |   |   |       |      
|Loss from continuing operations                              |                                           |                 | (68.0 | )     |   |   | (58.1 | )    
|(Loss) income from discontinued operations, net
    of taxes |                                           |                 | (11.6 | )     |   |   | 9.9   |      
|                                                             |                                           |                 |       |       |   |   |       |      
|                                                             | Net loss                                  |                 | $     | (79.6 | ) |   | $     | (48.2 | )
|                                                             |                                           |                 |       |       |   |   |       |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the elimination of intercompany sales
    and intercompany Adjusted EBITDA, primarily for satellites under
    construction by SS/L for wholly owned subsidiaries                                                                                                                                                                                           
|   
|(2) | Includes revenues from affiliates of
    $3.1 million and $15.3 million for the three months
    ended March 31, 2004 and 2003, respectively.                                                                                                                                                                                                                          
|   
|(3) | Includes an impairment charge of $12 million
    relating to our Telstar 14/ Estrela do Sul-1 satellite and
    related assets in 2004.                                                                                                                                                                                                                                
|   
|(4) | Excludes a charge of $10.3 million in 2004,
    as a result of the settlement of all orbital receivables on
    satellites sold to Intelsat. This charge had no effect on
    Lorals consolidated results. Includes a charge of
    $10 million in 2003, on vendor financing receivables
    provided to a customer that were exchanged for the
    customers equity.
|   
|(5) | Represents corporate expenses incurred in support
    of our operations.                                                                                                                                                                                                                                                                                               

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##### Table of Contents



Three Months Ended March 31, 2004
Compared With 2003



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

|                                             |  |               |    |             |  |            |    |   |  |  |     |   
|-------------------------------------------- |  | ------------- | -- | ----------- |  | ---------- | -- | - |  |  | --- | --
|                                             |  |               |    |            
|                                             |  | Three Months  |    |            
|                                             |  | Ended         |    |            
|                                             |  | March 31,     |    |            
|                                             |  |               |    | % Increase/
|                                             |  | 2004          |    | 2003        |  | (Decrease)
|                                             |  |               |    |             |  |           
|                                             |  |               |    |            
|                                             |  | (In millions) |    |            
|Revenues from satellite services             |  | $             | 31 |             |  | $          | 42 |   |  |  | (26 | )%
|Eliminations                                 |  |               | (2 | )           |  |            | (2 | ) |  |  |    |   
|                                             |  |               |    |             |  |            |    |   |  |  |     |   
|Revenues from satellite services as reported |  | $             | 29 |             |  | $          | 40 |   |  |  | (28 | )%
|                                             |  |               |    |             |  |            |    |   |  |  |     |   

Revenues from Satellite Services decreased
$11 million in 2004 as compared to 2003, primarily due to
decreases in prices of $3 million and reduced transponder
and network utilization of $8 million. Eliminations
primarily consist of revenues from leasing transponder capacity
to Satellite Manufacturing and an adjustment to reduce revenues
for the implicit interest discount provided to customers who
have made prepayments under long-term contracts.



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

|                                                  |  |               |     |             |  |            |     |   |  |  |     |   
|------------------------------------------------- |  | ------------- | --- | ----------- |  | ---------- | --- | - |  |  | --- | --
|                                                  |  |               |     |            
|                                                  |  | Three Months  |     |            
|                                                  |  | Ended         |     |            
|                                                  |  | March 31,     |     |            
|                                                  |  |               |     | % Increase/
|                                                  |  | 2004          |     | 2003        |  | (Decrease)
|                                                  |  |               |     |             |  |           
|                                                  |  |               |     |            
|                                                  |  | (In millions) |     |            
|Revenues from satellite manufacturing             |  | $             | 101 |             |  | $          | 132 |   |  |  | (23 | )%
|Eliminations                                      |  |               | (27 | )           |  |            | (17 | ) |  |  | 61  | % 
|                                                  |  |               |     |             |  |            |     |   |  |  |     |   
|Revenues from satellite manufacturing as reported |  | $             | 74  |             |  | $          | 115 |   |  |  | (35 | )%
|                                                  |  |               |     |             |  |            |     |   |  |  |     |   

Revenues from Satellite Manufacturing decreased
$31 million in 2004 as compared to 2003, primarily
resulting from satellite programs nearing completion under the
percentage of completion method, offset by a $29 million
increase in revenues from the new orders received in the fourth
quarter of 2003. Eliminations primarily consist of revenues from
satellites under construction by SS/L for Satellite Services
which increased due to the timing of work performed and costs
incurred under the percentage of completion method. As a result
of the above, revenues from Satellite Manufacturing as reported
decreased $41 million in 2004 as compared to 2003.



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

|                                                  |  |               |     |            |  |            |     |   |  |  |    |  
|------------------------------------------------- |  | ------------- | --- | ---------- |  | ---------- | --- | - |  |  | -- | -
|                                                  |  |               |     |           
|                                                  |  | Three Months  |     |           
|                                                  |  | Ended         |     |           
|                                                  |  | March 31,     |     |           
|                                                  |  |               |     | % Increase
|                                                  |  | 2004          |     | 2003       |  | (Decrease)
|                                                  |  |               |     |            |  |           
|                                                  |  |               |     |           
|                                                  |  | (In millions) |     |           
|Cost of satellite services                        |  | $             | 64  |            |  | $          | 47  |   |  |  | 36 | %
|% of revenues from satellite services as reported |  |               | 217 | %          |  |            | 116 | % |  |  |    |  

The increase of $17 million in 2004 as
compared to 2003 was primarily due to a net increase in
depreciation expense of $13 million primarily relating to
the shortening in the estimated life of the Telstar 11
satellite, which, we determined in the fourth quarter of 2003,
would go out of service in June 2004 (earlier than its
previously expected end of life of March 2005) and an impairment
charge of $12 million relating to of our Telstar 14/
Estrela do Sul-1 satellite and related assets to reduce the
carrying values to the expected proceeds from insurance. This
was offset by reduced external satellite capacity costs of
$4 million ($1 million due to lower network services
revenues and $3 million due to expirations of interim
capacity leases) and decreased insurance costs of
$2 million primarily resulting from non-renewal of
insurance for Telstar 11 in the fourth quarter of 2003 and from
the lower premium on renewal for Telstar 10/
Apstar IIR due to changes to

39



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##### Table of Contents



coverage. The increases in cost of satellite
services as a percentage of revenues in 2004 as compared to
2003, was primarily due to reduced revenues.




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

|                                                           |  |               |    |            |  |            |     |   |  |  |     |   
|---------------------------------------------------------- |  | ------------- | -- | ---------- |  | ---------- | --- | - |  |  | --- | --
|                                                           |  |               |    |           
|                                                           |  | Three Months  |    |           
|                                                           |  | Ended         |    |           
|                                                           |  | March 31,     |    |           
|                                                           |  |               |    | % Increase
|                                                           |  | 2004          |    | 2003       |  | (Decrease)
|                                                           |  |               |    |            |  |           
|                                                           |  |               |    |           
|                                                           |  | (In millions) |    |           
|Cost of satellite manufacturing                            |  | $             | 68 |            |  | $          | 130 |   |  |  | (48 | )%
|% of revenues from satellite manufacturing as
    reported |  |               | 92 | %          |  |            | 113 | % |  |  |     |   

The decrease of $62 million in 2004 as
compared to 2003 was primarily due to lower overall volume as
satellite programs neared completion under the percentage of
completion method in 2004 and a $10 million charge recorded
in 2003 on SS/L-provided vendor financing. This was offset in
part by costs incurred on the new satellite orders received in
the fourth quarter of 2003.



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

|                                             |  |               |    |            |  |            |    |   |  |  |   | 
|-------------------------------------------- |  | ------------- | -- | ---------- |  | ---------- | -- | - |  |  | - | 
|                                             |  |               |    |           
|                                             |  | Three Months  |    |           
|                                             |  | Ended         |    |           
|                                             |  | March 31,     |    |           
|                                             |  |               |    | % Increase
|                                             |  | 2004          |    | 2003       |  | (Decrease)
|                                             |  |               |    |            |  |           
|                                             |  |               |    |           
|                                             |  | (In millions) |    |           
|Selling, general and administrative expenses |  | $             | 32 |            |  | $          | 31 |   |  |  |  | 
|% of revenues as reported                    |  |               | 30 | %          |  |            | 20 | % |  |  |   | 

The increase in selling, general and
administrative expenses as a percentage of revenues in 2004 as
compared to 2003 was primarily due to reduced revenues.



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

Reorganization expenses due to bankruptcy in 2004
were $8 million, which includes professional fees of
$5 million associated with bankruptcy services and employee
retention costs of $3 million.



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

|                               |  |               |   |            |  |            |   |  |  |  |     |   
|------------------------------ |  | ------------- | - | ---------- |  | ---------- | - |  |  |  | --- | --
|                               |  |               |   |           
|                               |  | Three Months  |   |           
|                               |  | Ended         |   |           
|                               |  | March 31,     |   |           
|                               |  |               |   | % Increase
|                               |  | 2004          |   | 2003       |  | (Decrease)
|                               |  |               |   |            |  |           
|                               |  |               |   |           
|                               |  | (In millions) |   |           
|Interest and investment income |  | $             | 3 |            |  | $          | 7 |  |  |  | (64 | )%

The decrease of $4 million in 2004 as
compared to 2003 was principally due to lower interest income
earned on satellite manufacturing programs.



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

|                                          |  |               |    |            |  |            |    |   |  |  |     |   
|----------------------------------------- |  | ------------- | -- | ---------- |  | ---------- | -- | - |  |  | --- | --
|                                          |  |               |    |           
|                                          |  | Three Months  |    |           
|                                          |  | Ended         |    |           
|                                          |  | March 31,     |    |           
|                                          |  |               |    | % Increase
|                                          |  | 2004          |    | 2003       |  | (Decrease)
|                                          |  |               |    |            |  |           
|                                          |  |               |    |           
|                                          |  | (In millions) |    |           
|Interest cost before capitalized interest |  | $             | 3  |            |  | $          | 13 |   |  |  | (76 | )%
|Capitalized interest                      |  |               | (1 | )          |  |            | (4 | ) |  |  | (75 | )%
|                                          |  |               |    |            |  |            |    |   |  |  |     |   
|Interest expense                          |  | $             | 2  |            |  | $          | 9  |   |  |  | (77 | )%
|                                          |  |               |    |            |  |            |    |   |  |  |     |   

40



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##### Table of Contents



Interest cost before capitalized interest
decreased $10 million in 2004 as compared to 2003, which
was primarily attributable to the fact that subsequent to
Lorals voluntary petitions for reorganization on
July 15, 2003, we recognized and paid interest only on our
secured bank debt and stopped recognizing and paying interest on
all other outstanding debt obligations and preferred stock.
Interest cost before capitalized interest will continue to
decrease for the foreseeable future due to the repayment of all
of our bank debt on March 17, 2004. Capitalized interest
decreased in 2004, primarily as a result of the timing of costs
incurred on satellites under construction and are expected to
decrease for the remainder of 2004. As a result of the above,
interest expense decreased $7 million in 2004 as compared
to 2003.



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

During 2004, we continued to maintain a 100%
valuation allowance against our net deferred tax assets and
recorded no benefit for our domestic loss. For 2004, we recorded
an income tax provision of $0.2 million on a pre-tax loss
of $67.5 million, which is primarily for foreign income
taxes. For 2003, we recorded an income tax benefit of
$3.8 million on a pre-tax loss of $53.4 million, which
is primarily a benefit for the provision reclassified to income
from discontinued operations, offset by a deferred tax liability
recorded for certain foreign entities.



| |                                       
| | --------------------------------------
| | Equity in Net Losses of
    Affiliates

|                                                            |  |               |      |      |  |   |      |  
|----------------------------------------------------------- |  | ------------- | ---- | ---- |  | - | ---- | -
|                                                            |  |              
|                                                            |  | Three Months 
|                                                            |  | Ended        
|                                                            |  | March 31,    
|                                                            |  |              
|                                                            |  | 2004          |      | 2003
|                                                            |  |               |      |     
|                                                            |  |              
|                                                            |  | (In millions)
|XTAR                                                        |  | $             | (0.4 | )    |  | $ | (3.2 | )
|Satmex                                                      |  |               |     |      |  |   | (5.5 | )
|Globalstar and Globalstar service provider
    partnerships |  |               |     |      |  |   | 0.2  |  
|                                                            |  |               |      |      |  |   |      |  
|                                                            |  | $             | (0.4 | )    |  | $ | (8.5 | )
|                                                            |  |               |      |      |  |   |      |  

The decrease in equity in net losses of
$8 million in 2004 as compared to 2003, primarily resulted
from a decrease in equity losses in Satmex of $6 million,
because we wrote-off our remaining investment of
$29 million in Satmex in the third quarter of 2003.
Accordingly, there is no longer any requirement for us to
provide for our allocated share of Satmexs net losses
subsequent to September 30, 2003. Our losses from XTAR also
decreased in 2004 as compared to 2003 primarily due to lower
profit elimination as the satellite nears completion. See
Note 9 to the condensed consolidated financial statements.



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

Represents the results of the North American
satellites and related assets sold to Intelsat. In 2004, the
results of the discontinued operations are for the period from
January 1, 2004 to March 17, 2004, the date of the
sale and include the write-off of approximately $11 million of
debt issue costs to interest expense relating to the
Companys secured debt that was repaid. For the purpose of
this presentation, all indirect costs normally associated with
these operations have been included in continuing operations.
These indirect costs include telemetry, tracking and control,
access control, maintenance and engineering, selling and
marketing and general and administrative. See Note 4 to the
condensed consolidated financial statements.



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

|                    |  |               |   |             |  |            |   |  |  |  |        | 
|------------------- |  | ------------- | - | ----------- |  | ---------- | - |  |  |  | ------ | 
|                    |  |               |   |            
|                    |  | Three Months  |   |            
|                    |  | Ended         |   |            
|                    |  | March 31,     |   |            
|                    |  |               |   | % Increase/
|                    |  | 2004          |   | 2003        |  | (Decrease)
|                    |  |               |   |             |  |           
|                    |  |               |   |            
|                    |  | (In millions) |   |            
|Preferred dividends |  | $             |  |             |  | $          | 3 |  |  |  | (100)% | 

41



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The $3 million decrease in 2004 as compared
to 2003 was primarily due to the adoption of SFAS 150 on
July 1, 2003, which requires that dividends since adoption
be included in interest expense (see Interest expense).



| |                     
| | --------------------
| | Consolidated Backlog

Backlog before eliminations was $1.3 billion
at March 31, 2004 (including approximately
$280 million for Telstar 14/Estrela do Sul-1 that
the Company will fully realize assuming a replacement satellite
is put in service) and $1.7 billion (including
$479 million related to the North American satellites sold
to Intelsat) at December 31, 2003, which includes
$40 million and $45 million, respectively, as a result
of transactions entered into with affiliates and related parties
for the construction of satellites (primarily with XTAR).
Backlog at March 31, 2004 does not include approximately
$195 million for the construction of two satellites for
satellite orders currently being finalized. Backlog at
December 31, 2003, did not include approximately
$240 million for the construction of two satellites for
satellite orders that are currently being finalized.

Results by Operating Segment



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

|                                             |  |               |     |             |  |            |     |   |  |  |      |   
|-------------------------------------------- |  | ------------- | --- | ----------- |  | ---------- | --- | - |  |  | ---- | --
|                                             |  |               |     |            
|                                             |  | Three Months  |     |            
|                                             |  | Ended         |     |            
|                                             |  | March 31,     |     |            
|                                             |  |               |     | % Increase/
|                                             |  | 2004          |     | 2003        |  | (Decrease)
|                                             |  |               |     |             |  |           
|                                             |  |               |     |            
|                                             |  | (In millions) |     |            
|Satellite services revenues                  |  | $             | 31  |             |  | $          | 42  |   |  |  | (26  | )%
|Cost of satellite services                   |  |               | 64  |             |  |            | 46  |   |  |  | 39   | % 
|Selling, general and administrative expenses |  |               | 13  |             |  |            | 15  |   |  |  | (13  | )%
|                                             |  |               |     |             |  |            |     |   |  |  |      |   
|Operating loss                               |  |               | (46 | )           |  |            | (19 | ) |  |  | 142  | % 
|Add: depreciation and amortization           |  |               | 36  |             |  |            | 23  |   |  |  | 57   | % 
|                                             |  |               |     |             |  |            |     |   |  |  |      |   
|Adjusted EBITDA before eliminations          |  | $             | (10 | )           |  | $          | 4   |   |  |  | (350 | )%
|                                             |  |               |     |             |  |            |     |   |  |  |      |   

See Revenues from Satellite Services, Cost of
Satellite Servicesand Selling, General and
Administrative Expenses, for an explanation of the changes
in these items for the periods presented. During
March 2004, Satellite Services recorded an impairment
charge of $12 million to reduce the carrying value of our
Telstar 14/Estrela do Sul-1 satellite and related
assets to the expected proceeds from insurance (see Note 8
to the condensed consolidated financial statements). The net
increase in depreciation and amortization expense of
$13 million in 2004 as compared to 2003 was primarily due
to the shortening in the estimated life of a satellite. As a
result of the above, Adjusted EBITDA before eliminations
decreased $14 million in 2004 as compared to 2003.

As of March 31, 2004, Satellite Services had
four satellites in-orbit (including one launched in
January 2004 that has a problem with its solar array
deployment, see above) and one under construction. At
March 31, 2004, Satellite Services backlog totaled
approximately $827 million, including intercompany backlog
of approximately $36 million. At December 31, 2003,
Satellite Services backlog totaled approximately $
$1.3 billion (including $479 million related to the
North American satellites sold to Intelsat and intercompany
backlog of approximately $37 million).

Approximately 70 employees of Loral Skynet are
union members and are subject to a collective bargaining
agreement that expires in late May 2004. Loral Skynet and the
union are in discussions concerning the terms upon which the
agreement will be extended. There is no assurance that an
agreement will be reached or, if not reached, whether the union
will strike.

42



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##### Table of Contents





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

|                                             |  |               |     |            |  |            |     |   |  |  |     |   
|-------------------------------------------- |  | ------------- | --- | ---------- |  | ---------- | --- | - |  |  | --- | --
|                                             |  |               |     |           
|                                             |  | Three Months  |     |           
|                                             |  | Ended         |     |           
|                                             |  | March 31,     |     |           
|                                             |  |               |     | % Increase
|                                             |  | 2004          |     | 2003       |  | (Decrease)
|                                             |  |               |     |            |  |           
|                                             |  |               |     |           
|                                             |  | (In millions) |     |           
|Satellite manufacturing revenues             |  | $             | 101 |            |  | $          | 132 |   |  |  | (23 | )%
|Cost of satellite manufacturing              |  |               | 93  |            |  |            | 145 |   |  |  | (56 | )%
|Selling, general and administrative expenses |  |               | 9   |            |  |            | 7   |   |  |  | 25  | % 
|                                             |  |               |     |            |  |            |     |   |  |  |     |   
|Operating loss                               |  |               | (1  | )          |  |            | (20 | ) |  |  | (95 | )%
|Add: depreciation and amortization           |  |               | 5   |            |  |            | 7   |   |  |  | (25 | )%
|                                             |  |               |     |            |  |            |     |   |  |  |     |   
|Adjusted EBITDA before eliminations          |  | $             | 4   |            |  | $          | (13 | ) |  |  | 131 | % 
|                                             |  |               |     |            |  |            |     |   |  |  |     |   

See Revenues from Satellite Manufacturing,
Cost of Satellite Manufacturing and Selling, General and
Administrative Expenses,for an
explanation of the changes in these items for the periods
presented. SS/Ls results for 2004 exclude a charge of
$10.3 million as a result of the settlement of all orbital
receivables on satellites sold to Intelsat. This charge had no
effect on our consolidated results. During 2003, SS/ L recorded
a charge of $10 million on vendor financing receivables
provided to a customer that were exchanged for the
customers equity. The decrease of $2 million in
depreciation and amortization in 2004 as compared to 2003 was
primarily due to reduced capital spending from 2001 to 2003. As
a result of the above, Adjusted EBITDA before eliminations
increased $17 million in 2004 as compared to 2003.

As of March 31, 2004, backlog for SS/L was
approximately $495 million (which does not include
approximately $195 million for the construction of two
satellites for satellite orders that are currently being
finalized), including intercompany backlog of approximately
$119 million. At December 31, 2003 backlog for SS/L
was approximately $536 million (which did not include
approximately $240 million for the construction of two
satellites for satellite orders that are currently being
finalized), including intercompany backlog of approximately
$145 million.

Liquidity and Capital Resources



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

As of March 31, 2004, we had
$132 million of cash (excluding $6 million of
restricted cash supporting letters of credit) after repayment of
all $967 million of our secured bank debt on March 17,
2004 and had no further available credit. Cash flow from
Satellite Services is fairly predictable because it is based on
an existing base of long-term customer contracts. Cash flow from
Satellite Manufacturing, however, is not as predictable, because
it depends on a number of factors, some of which are not within
SS/Ls control. For example, most satellite contracts are
long-term (two to three years) fixed price contracts that
require significant estimates when they are competitively bid
(which may include cost estimates for new technologies). In
addition, various component manufacturers that provided goods to
SS/L may not meet required manufacturing specifications or
timetables, which may cause SS/L to miss milestones and incur
penalties. Customers may also require SS/L to have a source of
liquidity to support new satellite orders in light of
Lorals financial condition.



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

Contractual obligations as previously disclosed
in our latest Annual Report on Form 10-K have been reduced
by $967 million due to the repayment of all of our
outstanding secured bank debt on March 17, 2004 (see Note 2
to the condensed consolidated financial statements). Our secured
bank lenders have agreed, subject to Bankruptcy Court approval,
that, except for liens on a cash collateral account securing
Lorals outstanding letters of credit, all remaining liens
on our assets held by them will be released.

43



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##### Table of Contents





| |                
| | ---------------
| | Cash Collateral

On the date the Chapter 11 Cases were
commenced, the Bankruptcy Court entered an order authorizing the
Debtors to use their existing cash and cash proceeds of the bank
lenders 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 secured bank lenders have agreed, subject to
Bankruptcy Court approval, that this order will be terminated,
and, accordingly we are free to use our cash (other than cash
held in collateral accounts supporting letters of credit)
without further restriction or requirement.



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

Net cash provided by operating activities in 2004
was $19 million. This was primarily due to an increase in
customer advances of $46 million primarily due to the start
up of new satellite programs in 2004, offset by net loss
adjusted for non-cash items of $15 million, an increase in
contracts-in-process of $12 million due to continued progress on
satellite programs and achievement of milestones and a decrease
in accounts payable of $9 million primarily due to the
timing of satellite related payments.

Net cash provided by operating activities in 2003
was $10 million. This was primarily due to a decrease in
contracts-in-process of $37 million primarily resulting
from net collections on customer contracts, offset by a decrease
in customer advances of $28 million primarily due to
progress on satellite programs.



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

Represents the net cash provided from the North
American satellites and related equipment sold.



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

Net cash provided by investing activities was
$931 million in 2004, primarily reflecting the
$954 million of proceeds from the sale of our North
American satellites and related assets, net of expenses, offset
by capital expenditures for continuing operations of
$6 million and capital expenditures for discontinued
operations of $11 million, mainly for the construction of
satellites, and investments in and advances to affiliates of
$5 million (primarily for XTAR).

Net cash used in investing activities was
$14 million in 2003, primarily as a result of capital
expenditures for continuing operations of $15 million and
capital expenditures for discontinued operations of
$8 million, mainly for the construction of satellites,
offset by $10 million of proceeds from the sale of Sirius
common stock.



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

Net cash used in financing activities for the
three months ended March 31, 2004 was $967 million,
resulting from our repayment of our bank term loans and
revolving credit facilities primarily with the proceeds from the
sale of the North America satellites and related assets.

Net cash provided by financing activities was
$19 million for the three months ended March 31, 2003,
primarily due to net borrowings under revolving credit
facilities of $66 million, offset by debt amortization
payments of $47 million (including $31 million of
interest payments on the 10% senior notes).



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

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

44



---



##### Table of Contents





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

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

Commitments and Contingencies



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

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



| |              
| | -------------
| | Other Matters



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

During the first quarter of 2004, we adopted
certain new accounting pronouncements (see Note 18 to the
condensed consolidated financial statements).






|        |                                                               
|------- | --------------------------------------------------------------
|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 March 31, 2004,
SS/L had the following amounts denominated in Japanese yen that
were unhedged (in millions):

|                                            |  |              |       |        |  |   |      | 
|------------------------------------------- |  | ------------ | ----- | ------ |  | - | ---- | 
|                                            |  | Japanese Yen |       | U.S. $
|                                            |  |              |       |       
|Future revenues                             |  | ¥            | 1,332 |        |  | $ | 12.6 | 
|Future expenditures                         |  |              | 1,128 |        |  |   | 10.7 | 
|Contracts-in-process (unbilled receivables) |  |              | 4,411 |        |  |   | 41.8 | 

At March 31, 2004, SS/L also had future
expenditures in EUROs of 1.8 million
($2.2 million U.S.) that were unhedged.






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

(a) Disclosure controls and
procedures. Our chief executive officer and our chief
financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in
the Securities and Exchange Act of 1934 Rules 13a-15(e) or
15d-15(e)) as of March 31, 2004, have concluded that our
disclosure controls and procedures were effective and designed
to ensure that material information relating to Loral and its
consolidated subsidiaries required to be in our filings under
the Securities and Exchange Act of 1934 would be made known to
them by others within those entities in a timely manner.

(b) Internal control over financial
reporting. There were no changes in our internal control
over financial reporting during the most recent fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

45



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##### Table of Contents






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 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, a party
is generally prohibited from taking any action to recover any
prepetition claims, enforce any lien against or obtain
possession of any property from 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 15 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 $1.3 billion at March 31,
2004, have been accelerated (see Note 12 to the condensed
consolidated financial statements). On July 15, 2003, Loral
suspended interest payments on all of its unsecured senior
notes, with an aggregate principal amount of $1.049 billion.

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

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.

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

(a) Exhibits

The following exhibits are filed as part of this
report:

Exhibit 10.43  Form of Letter of
Credit Reimbursement Agreement between Space
Systems/Loral, Inc. and JPMorgan Chase Bank dated
April 2, 2004

Exhibit 10.44  Form of Cash
Collateral Agreement between Space Systems/Loral, Inc. and
JPMorgan Chase Bank dated April 2, 2004

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                                                                                                                                                                                                                                 
|                  |  |                                                                                                           |  |                                                                                                                                                                                                                                             
|January 6, 2004   |  | Item 9  Regulation FD
    disclosure                                                                     |  | Monthly Operating Report for the Period of
    November 22, 2003 through December 31, 2003 as filed
    with the U.S. Bankruptcy Court for the Southern District of
    New York.                                                           
|January 14, 2004  |  | Item 5  Other Events                                                                                     |  | Telstar 14/ Estrela do Sul partial North solar
    array deployment.                                                                                                                                                                        
|February 5, 2004  |  | Item 9  Regulation FD
    disclosure                                                                     |  | Amended Monthly Operating Report for the Period
    of November 22, 2003 through December 31, 2003 as
    filed with the U.S. Bankruptcy Court for the Southern
    District of New York.                                                   
|February 10, 2004 |  | Item 5  Other Events
    Item 7  Financial Statements, Pro Forma
    Financial Information and Exhibits |  | Filing of Exhibits 12, 21, 23.1 and 23.2 for
    the Annual Report on Form 10-K.                                                                                                                                                            
|March 9, 2004     |  | Item 9  Regulation FD
    disclosure                                                                     |  | Monthly Operating Report for the Period of
    January 1, 2004 through January 23, 2004 as filed with
    the U.S. Bankruptcy Court for the Southern District of
    New York.                                                              
|March 18, 2004    |  | Item 7  Financial Statements, Pro
    Forma Financial Information and Exhibits                           |  | Press release detailing closing of Intelsat
    transactions.                                                                                                                                                                               
|March 19, 2004    |  | Item 9  Regulation FD
    disclosure                                                                     |  | Amended Monthly Operating Report for the Period
    of November 22, 2003 through December 31, 2003 as
    filed with the U.S. Bankruptcy Court for the Southern
    District of New York.                                                   
|March 24, 2004    |  | Item 9  Regulation FD
    disclosure                                                                     |  | Amended Monthly Operating Reports for the Periods
    of November 22, 2003 through December 31, 2003 and
    January 1, 2004 through January 23, 2004 as filed with
    the U.S. Bankruptcy Court for the Southern District of
    New York.

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SIGNATURES

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



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

Date: May 10, 2004

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EXHIBIT INDEX

|              |  |   |  |                                                                                                                                              
|------------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.   |  |   |  | Description                                                                                                                                  
|              |  |   |  |                                                                                                                                              
|Exhibit 10.43 |  |  |  | Form of Letter of Credit Reimbursement Agreement
    between Space Systems/Loral, Inc. and JPMorgan Chase Bank
    dated April 2, 2004       
|Exhibit 10.44 |  |  |  | Form of Cash Collateral Agreement between Space
    Systems/Loral, Inc. and JPMorgan Chase Bank dated
    April 2, 2004                      
|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

49