UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number 1-14180

LORAL SPACE & COMMUNICATIONS LTD.

(Exact name of registrant specified in the charter)

Jurisdiction of incorporation: Bermuda

IRS identification number: 13-3867424

(Address of principal executive offices)

c/o Loral SpaceCom Corporation

600 Third Avenue

New York, New York 10016

(Registrant’s telephone number, including area code)

Telephone: (212) 697-1105

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      Indicate by check mark whether the registrant (1) 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 ( or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     Yes o          No þ

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

      The aggregate market value of the common shares held by non-affiliates of the registrant, based upon the closing sale price of the common shares on June 30, 2004, as reported on the Over-The-Counter Bulletin Board Service was $6,398,154.

      At February 1, 2005, 44,125,202 common shares of the registrant were outstanding.

PART I

THE COMPANY

Overview

      Loral Space & Communications Ltd. (“Loral,” the “Company,” “we,” “our” and “us,” terms that include our subsidiaries unless otherwise indicated or the context requires), together with its subsidiaries, is a leading satellite communications company. Managed by our Loral Skynet division, satellite services owns and operates a fleet of telecommunications satellites, manages a global network that integrates our satellites with terrestrial facilities and has rights to certain well-positioned orbital slots. We provide satellite capacity and network infrastructure to customers for video and direct to home (“DTH”) broadcasting, high-speed data distribution, Internet access, communications and networking services. Our subsidiary, Space Systems/ Loral, Inc. (“SS/ L”), is one of the world’s largest designers and manufacturers of satellites, space systems and components for commercial and government broadcasting applications including fixed satellite services, DTH broadcasting, broadband data distribution, wireless telephony, digital radio, military communications, weather monitoring and air traffic management. (See “Segment Overview” below for further details on each of our businesses.)

      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”). We and our Debtor Subsidiaries continue to manage our properties and operate our businesses as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code (see “Bankruptcy Filings”.)

      On March 17, 2004, Loral Space & Communications Corporation, Loral SpaceCom and Loral Satellite consummated the sale of our North American satellites and related assets to certain affiliates of Intelsat, Ltd. and Intelsat (Bermuda), Ltd. (collectively, “Intelsat”). (See Sale of Assets).

      We are reorganizing Loral around our remaining fleet of international satellites and our satellite manufacturing business (See Reorganization.)

      Loral was incorporated on January 12, 1996 as a Bermuda-exempt company and has its registered and principal executive offices at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.

Bankruptcy Filings

      We filed for reorganization under Chapter 11 on July 15, 2003 and continue to operate our businesses as debtors in possession.

      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 the Bermuda Group’s businesses under the control of their respective boards of directors and under the supervision of the Bankruptcy Court and the Bermuda Court. The JPLs have not audited the contents of this report.

      As a result of our voluntary petitions for reorganization, all of our prepetition debt obligations were accelerated. On July 15, 2003, we also suspended interest payments on all of our prepetition unsecured debt obligations. A creditors’ committee (the “Creditors Committee”) was appointed in the Chapter 11 Cases to

represent all unsecured creditors, including all debt holders, 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.

      For the duration of the Chapter 11 Cases, our businesses are subject to the risks and uncertainties of bankruptcy. For example, the Chapter 11 Cases could adversely affect our relationships with customers, suppliers and employees, which in turn could adversely affect the going concern value of our businesses and of our 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 our ability to respond to certain market events or take advantage of certain market opportunities, and, as a result, our operations could be materially adversely affected.

      Because we are in Chapter 11, the pursuit of claims and litigation pending against us that arose prior to or relate to events that occurred prior to our bankruptcy filings is generally subject to an automatic stay under Section 362 of the Bankruptcy Code. Accordingly, absent further order of the Bankruptcy Court, parties are generally prohibited from taking any action to recover any prepetition claims or enforce any lien against or obtain possession of any of our property. In addition, pursuant to Section 365 of the Bankruptcy Code, we may reject or assume prepetition executory contracts and unexpired leases. Parties affected by our rejections of contracts or leases may file claims with the Bankruptcy Court.

Sale of Assets

      On March 17, 2004, we consummated the sale of our North American satellites and related assets to Intelsat. At closing, we 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. Our 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. We used a significant portion of the funds received to repay all $967 million of our outstanding secured bank debt. In addition, after closing, we received from Intelsat approximately $16 million to reimburse a deposit made by us for the launch of Telstar 8, and we received an additional $4 million in May 2004 as a purchase price adjustment resulting from resolution of a regulatory issue.

      The North American satellites and related assets sold to Intelsat have been accounted for as a discontinued operation, resulting in the reclassification of our historical consolidated statements of operations and statements of cash flows to reflect them as discontinued operations separately from continuing operations.

Reorganization

      On December 5, 2004, we filed a revised plan of reorganization (the “Plan”) and a disclosure statement (the “Disclosure Statement”) with the Bankruptcy Court that reflected a consensual agreement on financial terms that had been reached between Loral and the Creditors Committee. Under the Plan, existing common and preferred stock will be cancelled and no distribution will be made to current stockholders. Objections to our motion for approval of the Disclosure Statement were filed by certain stockholders and creditors, including certain holders of trade claims against SS/ L, which challenged the provisions of the Plan relating to the substantive consolidation of certain of the Debtors. After a hearing on December 6, 2004, the Bankruptcy Court urged the parties to negotiate among themselves toward resolution of their issues. These negotiations are ongoing; there can be no assurance that they will be successful. Regardless of whether the negotiations are successful, it is likely that we will further amend the Plan and that distributions to certain creditors under such amended plan of reorganization will be significantly different from those contemplated by the Plan that is currently on file.

      Implementation of any plan of reorganization and the treatment of claims and equity interests as provided therein are subject to final documentation and confirmation of such plan of reorganization by the Bankruptcy Court. Neither the timing nor final terms of our plan of reorganization can be predicted with certainty. There can be no assurance that we will be able to obtain court approval of an amended disclosure statement or confirmation of an amended plan of reorganization.

      On December 17, 2004, the United States District Court for the Southern District of New York reversed the Bankruptcy Court’s decision denying the motion of the Ad Hoc Loral Stockholders Protective Committee for the appointment of an examiner under section 1104(c) of the Bankruptcy Code and remanded the matter to the Bankruptcy Court to appoint a qualified independent examiner. On December 20, 2004, the Bankruptcy Court ordered that the United States Trustee appoint an examiner to determine whether the Debtors, including their professionals, have used customary and appropriate processes and procedures to value their assets and businesses or, on the contrary, have employed improper processes and procedures in order to arrive at a materially reduced valuation of their assets and businesses. The Bankruptcy Court further ordered that the examiner shall complete his or her investigation within 30 days of appointment and shall file his or her final report within 60 days of appointment. The Bankruptcy Court established a budget of $200,000 for the examiner to be paid by the Debtors’ estates. The examiner was appointed on January 12, 2005, has completed his investigation and is finalizing his report, which is due on March 14, 2005. If the examiner’s final report were to indicate that our valuation processes and procedures were improper, this could further delay our reorganization process.

Segment Overview

      We formed our satellite services business through acquisitions and rapidly established Loral Skynet, which manages and operates our Satellite Services business, as one of the world’s leading satellite operators. We further grew our business through placing additional satellites in service and expanding our product offerings. Our satellites operate in geosynchronous earth orbit approximately 22,000 miles above the equator. In this orbit, satellites remain in a fixed position relative to points on the earth’s surface. They provide reliable, high-bandwidth services anywhere in their coverage areas and serve as the backbone for many forms of telecommunications.

      Customers lease transponder capacity for distribution of cable television programming, for DTH video transmission, for live video feeds from breaking news and sporting events and for broadband data distribution. Increasingly, satellite operators are using Internet Protocol (IP)-based technologies, and providing two-way, high-speed data services through very small aperture terminal (VSAT) networks to businesses and government customers who have growing needs for IP-based connectivity. Loral Skynet operates in a highly competitive market with other well-established satellite service companies including PanAmSat, Intelsat, SES Global, Eutelsat and New Skies. While we also compete with fiber optic cable and other terrestrial delivery systems, satellites are considerably more efficient for certain applications, such as broadcast or point-to-multipoint transmission of video and broadband data. For point-to-point applications, fiber may cost less, so satellites compete on the basis of superior reliability, or serve as a back-up service. Satellites also better serve areas with inadequate terrestrial infrastructures, low-density populations or difficult geographic terrain.

      The satellite services market has been characterized in recent years by over-capacity, pricing pressure and increased 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 Loral Skynet’s satellite capacity for the delivery of new applications failed to meet their business objectives. Skynet’s growth depends on its ability to differentiate itself from its competition through customized product offerings, regional ground support, superior customer service and 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.

      When we use the term “Loral Skynet” and “Skynet” in this report, we are, unless the context provides otherwise, referring to our satellite services business, the assets (including satellites) of which are held in various companies including Loral SpaceCom, Loral Orion, Loral Satellite, Loral Skynet do Brasil Ltda. (“Skynet do Brasil”), Loral Skynet Network Services, Inc. (formerly known as Loral Cyberstar, Inc., “Skynet Network Services”) and Cyberstar, LP (“Cyberstar”).

      Loral Skynet’s transponder leasing business provides a platform for the global distribution of television programming, video applications and data for large programmers and data service providers, including HBO, Disney, Cable & Wireless, Singapore Telecom (SingTel), Connexion by Boeing, Global Crossing, BT North America, Hung Kai Digital Technologies, Globecomm Systems, UPC and China Central TV.

      The following chart provides details on the satellites that comprise Loral’s fleet⁽¹⁾.

      We offer customers access services and transmission platforms that enable the rapid and reliable transport of content. Our hybrid satellite and ground-based network services solutions allow our customers to enter the market quickly and easily through a combination of applications that include broadband transport, bandwidth-on-demand, broadcast SCPC (single channel per carrier) platforms, and teleport services. Skynet Network Services’ newest offering is SkyReach^sm, a group of hub-based IP services that provides customers with secure private networks and high-speed Internet access using Skynet’s established satellite/fiber infrastructure. SkyReach can deliver a wide range of two-way IP services around the world.

      These services are currently provided through an integrated satellite and fiber network that interconnects terrestrially with customer networks through points of presence (POPs) in San Jose, California; Ashburn, Virginia; New York, New York; and London, England and interconnects via satellite and VSAT services through teleports in Mount Jackson (Virginia), Raisting (Germany), Hawaii and London.

      Our team of world-class network architects, engineers, program managers and satellite operations professionals, provides customized services tailored to unique customer requirements for deploying satellites and network services, including satellite operational services (TT&C), satellite construction oversight services, network architecture design, regulatory management including orbital slot acquisition and coordination and customized distribution solutions.

     Total satellite services assets were $781 million and $2 billion as of December 31, 2004 and 2003, respectively. As of December 31, 2004 and 2003, backlog was $543 million and $830 million, respectively, including intercompany backlog of $33 million and $37 million, respectively.

      SS/ L designs, manufactures and integrates satellites and space systems. SS/ L-built satellites have achieved over 1,100 years of cumulative on-orbit experience over SS/ L’s 40-year history. SS/ L is a leading supplier of commercial telecommunications satellites, high-powered direct-to-home broadcast satellites, commercial weather satellites, digital audio radio satellites and spot-beam satellites for data networking applications. SS/ L customers include satellite service providers and government organizations, such as Intelsat, DirecTV, EchoStar, Loral Skynet, PanAmSat, XTAR, Hisdesat, Optus, APT Satellite, SingTel, Shin Satellite, the National Oceanic & Atmospheric Administration (NOAA) of the U.S Department of Commerce and Japan’s Ministry of Transport and Civil Aviation Bureau.

      SS/ L has a history of technical innovation that includes the first three-axis spin stabilized satellites; bipropellant propulsion systems for commercial satellites that permit significant increases in the satellites’ payload and extend the satellites’ on-orbit lifetime; rechargeable nickel-hydrogen batteries; the use of advanced composites to significantly enhance satellite performance at lighter weights; and, as a result of these innovations, the first communications satellite with more than ten kilowatts of power. SS/ L was also the first satellite manufacturer to employ heat pipes to control heat transfer in commercial satellites, thereby providing a more benign temperature environment, increased reliability and high power. SS/ L also created the first multi-mission geostationary satellite and was one of the first U.S. companies to acquire space technology from Russia’s space industry, obtaining exclusive rights outside the former Eastern bloc to an electric propulsion subsystem that is five times more efficient than bipropellant propulsion systems.

      SS/ L offers a broad product line covering the vast majority of customer requirements for satellites with three to 23 kilowatts of power. The capacity offered on these satellites ranges from one to as many as 150 transponders.

      SS/ L competes principally on the basis of superior customer value, technical excellence, reliability and pricing with Boeing, Lockheed Martin, Alcatel Alenia Space and Astrium. Historically, SS/ L has provided customers with satellites that significantly exceed their designed life expectancies. SS/ L’s continued success depends on its ability to perform on a cost-effective and timely basis. The commercial satellite industry is highly competitive. In recent years, a combination of on-orbit over-capacity and economic pressures profoundly diminished demand for commercial satellites. After a period of nearly two years without being awarded a satellite contract, SS/ L received orders for the construction of six satellites between October 2003 and February 2005. Total SS/ L assets were $382 million and $362 million as of December 31, 2004 and 2003, respectively. Backlog at December 31, 2004 was $483 million, including intercompany backlog of $12 million. Backlog at December 31, 2003 was $536 million, including intercompany backlog of $145 million.

Investment in Affiliates

      We own 56 percent of XTAR, L.L.C. (“XTAR”), a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”). XTAR is accounted for under the equity method since we do not control certain significant operating decisions. XTAR was formed to construct and launch an X-band satellite to provide X-band services to government users in the United States and Spain, and to other friendly and allied nations. On February 12, 2005, XTAR’s satellite was successfully launched into its orbital slot. The satellite is currently undergoing in-orbit testing and is expected to begin commercial service in the second quarter of 2005. For more information on XTAR, see Note 8 to the consolidated financial statements.

      Loral holds various indirect ownership interests in three foreign companies that currently serve as exclusive service providers for Globalstar satellite telephone service in Brazil, Mexico and Russia and an indirect ownership interest in a U.S.-based distributor that has the exclusive right to sell Globalstar services to certain agencies within the U.S. government. We do not currently intend to invest material amounts in the Globalstar joint ventures.

REGULATION

Telecommunications Regulation

      As an operator of a privately owned global satellite system, we are subject to: the regulatory authority of the U.S. government; the regulatory authority of other countries in which we operate; and the frequency coordination process of the International Telecommunications Union (“ITU”). Our ability to provide satellite services in a particular country or region is subject also to the technical constraints of our satellites, international coordination, local regulatory approval and any limitation to those approvals.

      The Federal Communications Commission (“FCC”) regulates our U.S.-licensed satellites as well as our non-U.S. licensed satellites authorized to operate in the U.S. We are subject to the FCC’s jurisdiction primarily for the licensing of satellites and earth stations, avoidance of interference with radio stations and compliance with FCC rules. Violations of the FCC’s rules can result in various sanctions including fines, loss of authorizations, forfeiture of bonds, or the denial of new or renewal authorizations. We are not regulated as a common carrier and, therefore, are not subject to rate regulation or the obligation not to discriminate among customers. We must pay FCC filing fees in connection with our space station and earth station applications and annual fees to defray the FCC’s regulatory expenses. We must file annual status reports with the FCC and, to the extent Loral is deemed to be providing interstate/international telecommunications, we must contribute funds supporting universal service. Loral has petitioned the FCC for exemptions from having to pay certain of such fees and contributions. These petitions are under review by the FCC.

      Pursuant to satellite licensing rules issued in 2003, the FCC grants satellite authorizations on a first-come, first-served basis to satellite operators that meet its legal and technical qualification requirements. The FCC often receives multiple applications to operate a satellite at a given orbital slot. There can be no assurance that our applications will be granted. Most satellite authorizations include specific construction and launch milestones; failure to meet them may result in license revocation. Under licensing rules, we must post a bond for up to $3,000,000 when we are granted a satellite authorization. Some or all of the amount of the bond may be forfeited if we fail to meet any of the milestones for satellite construction, launch and commencement of operation. In accordance with the current licensing rules, the FCC will issue new satellite licenses for an initial fifteen-year term and will provide a licensee with an “expectancy” that a subsequent license will be granted for the replacement of an authorized satellite using the same frequencies. At the end of a fifteen-year term, a satellite that has not been replaced, or that has been relocated to another orbital location following its replacement, may be allowed to continue operations for a limited period of time subject to certain restrictions.

      We have final FCC authorization for the following existing or planned satellites which operate or will operate in the C-band, the Ku-band, or both bands: Telstar 9 at 69° W.L., Telstar 11 at 37.5°W.L., Telstar 12 at 15° W.L. and Orion A at 47°W.L. In addition, we have final authorization to operate at the following orbital slots: Ka-band at 15° W.L., 67° W.L., 93° W.L., 115° W.L., 139° E.L., and 126.5° E.L. Certain of our authorizations are subject to pending petitions for reconsideration or review submitted to the FCC by third parties. The final FCC authorizations for certain of the satellites that are not yet in orbit also do not cover certain design changes or milestone extension requests that are the subject of pending modification applications. There can be no assurance that such design changes or milestone extensions will be granted by the FCC. The failure to obtain a milestone extension could result in the loss of the related FCC authorization. If we are unable to obtain FCC approval to implement its requested technical modifications for any particular authorization, we will be obligated to operate the related satellite in accordance with the original authorization. We also have an application pending before the FCC at 126° E.L. for use of the Ku-band. There can be no assurance that the FCC will grant this application.

      Under the FCC’s rules, an applicant may commence satellite construction prior to receiving an authorization to launch and operate, but must notify the FCC of its intention to do so. The applicant

undertakes construction at its own risk. Although we may begin construction, the FCC may not grant the application, may not assign the satellite to its proposed orbital location, or otherwise may reduce or eliminate the value of the construction begun on the satellite.

      In 1996, the FCC largely eliminated the regulatory distinction between U.S. domestic satellites and U.S.-licensed international satellites. As a result, each of our FCC-licensed satellites may be used, to the extent technically feasible, to provide both U.S. domestic and international services.

      The FCC requires applicants to demonstrate that their proposed satellites would be compatible with the operations of adjacent satellites. Adjacent satellite operators must coordinate with one another to minimize frequency conflicts. The FCC reserves the right to require that an FCC-licensed satellite be relocated if it deems such a change to be in the public interest.

      Foreign laws and regulatory practices governing the provision of satellite services to licensed entities and directly to end-users vary substantially from country to country. Some countries may require us to confirm that we have successfully completed technical consultation with other satellite service providers before offering services on a given satellite. In addition, we may be subject to varying communications and/or broadcasting laws with respect to our provision of international satellite services.

      Foreign laws and regulatory practices may be applied or changed in ways that may adversely affect our ability to operate or provide service. There are no guarantees that other countries will grant our applications to construct, launch, operate or provide service via satellites, or extend construction or launch milestones, or that we will be permitted to retain or renew our authorizations. As in the U.S., violations of other countries’ laws and rules may result in sanctions, fines, loss of authorizations or denial of applications for new or renewal authorizations. Application and other administrative fees may be required in other countries. License terms for non-U.S. authorizations held by Loral vary but generally authorize operation for at least the life of the satellite and include rights to operate a replacement satellite. Loral’s failure to operate or maintain operation of a satellite pursuant to a non-U.S. authorization may result in revocation.

      Many countries have liberalized their regulations for the provision of voice, data or video services. This trend should accelerate with the commitments by many World Trade Organization (“WTO”) members, in the context of the WTO Agreement on Basic Telecommunications Services, to open their satellite markets to competition. Other countries, however, have maintained strict monopoly regimes. In such markets, the provision of service from Loral and other U.S.-licensed satellites may be more complicated.

      In addition to the orbital slots licensed by the FCC, Loral has been assigned orbital slots by certain other countries. For example, we have been authorized to use numerous C-, Ku- and Ka-band orbital slots by the Isle of Man government. In March 1999, the Brazilian telecommunications authority announced that Loral had won Brazil’s auction for its 63° W.L. Ku-band orbital slot. Telstar 14/ Estrela do Sul-1 is licensed by Brazil and is authorized to operate in the U.S. by the FCC. Pursuant to a lease, Loral operates all of the capacity (with the exception of one transponder) on the Telstar 10/ Apstar IIR C/ Ku-band satellite licensed by China and located at 76.5° E.L. We also operate the C/extended C-band and Ku-band payloads on Telstar 18 at 138° E.L. using licenses provided by Tonga and China, respectively.

      All satellite systems are subject to ITU frequency coordination requirements and must obtain appropriate authority to provide service in a given territory. The required international coordination process may limit the extent to which all or some portion of a particular authorized orbital slot may be used for commercial operations, with a corresponding impact on the useable capacity of a satellite at that location.

      All of our satellite registrations are or will be subject to the ITU coordination process. There may be more than one ITU filing submitted for a particular orbital slot, or one adjacent to it, thus requiring coordination between or among the affected operators. Loral cannot guarantee successful frequency coordination for its satellites.

      In addition to the ITU filings associated with our satellite authorizations and applications noted above, we have ITU filings at 98° E.L., 122° E.L., 130° E.L., 167.45° E.L., 175° W.L., and 115° W.L. for use of the C- and Ku-band frequencies. We also have ITU filings at 9.9° E.L., 16.1° E.L., 22.3° E.L., 115.5° E.L., and 97° W.L. for the use of C-, Ku-and Ka-band frequencies and at 37.5° W.L. for the use of C- and Ka-band frequencies. We have filings at 96.5° W.L. and 123.5° W.L. for Broadcast Satellite Service. Loral also has ITU filings at 1° E.L., 3.5° E.L., 8°E.L., 10° E.L., 11° E.L., 30° E.L., 81° E.L., 105.5° E.L., 135° E.L., 135° W.L., 115° W.L., 95° W.L., 58° W.L. for use of the V-band frequency.

Export Regulation

      Commercial communication satellites and certain related items, technical data and services, are subject to United States export controls. These laws and regulations affect the export of products and services to foreign launch providers, subcontractors, insurers, customers, potential customers, and business partners, as well as to foreign Loral employees, foreign regulatory bodies, foreign national telecommunications authorities and to foreign persons generally. Commercial communications satellites and certain related items, technical data and services are on the United States Munitions List and are subject to the Arms Export Control Act and the International Traffic in Arms Regulations. Export jurisdiction over these products and services resides with the U.S. Department of State. Other Loral exports remain subject to the jurisdiction of the U.S. Department of Commerce, pursuant to the Export Administration Act and the Export Administration Regulations.

      U.S. Government licenses or other approvals generally must be obtained before satellites and related items, technical data and services are exported and may be required before they are re-exported or transferred from one foreign person to another foreign person. There can be no assurance that such licenses or approvals will be granted. Also, licenses or approvals may be granted with limitations, provisos or other requirements imposed by the U.S. Government as a condition of approval, which may affect the scope of permissible activity under the license or approval.

PATENTS AND PROPRIETARY RIGHTS

      SS/ L relies, in part, on patents, trade secrets and know-how to develop and maintain its competitive position. It holds 217 patents in the United States and has applications for 25 patents pending in the United States. SS/ L patents include those relating to communications, station keeping, power control systems, antennae, filters and oscillators, phased arrays and thermal control as well as assembly and inspections technology. The SS/ L patents that are currently in force expire between 2005 and 2022.

      Satellite services has 13 patents in the United States and has six patents abroad. Our satellite services segment has six patents pending in the United States and has two patents pending abroad. Satellite services patents that are currently in force expire between 2019 and 2020.

      There can be no assurance that any of our pending patent applications will be issued. Moreover, because the U.S. patent application process is confidential, there can be no assurance that third parties, including competitors, do not have patents pending that could result in issued patents which we would infringe. In such an event, we could be required to pay royalties to obtain a license, which could increase costs.

FOREIGN OPERATIONS

      Sales to foreign customers, primarily in Asia, Europe and Mexico, represented 42%, 39% and 55% of our consolidated revenues for 2004, 2003 and 2002, respectively. As of December 31, 2004 and 2003, substantially

all of our long-lived assets were located in the United States with the exception of our in-orbit satellites. See Commitments and Contingencies in Management’s Discussion and Analysis of Results of Operations and Financial Condition for a discussion of the risks related to operating internationally.

EMPLOYEES

      As of December 31, 2004, we had approximately 1,650 full-time employees, approximately 2% of whom are subject to collective bargaining agreements. We consider our employee relations to be good.

AVAILABLE INFORMATION

      We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission. Our Internet address is www.loral.com. Loral.com is an inactive textual reference only, meaning that the information contained on the website is not part of this report and is not incorporated in this report by reference.

      We lease approximately 39,000 square feet of space for our corporate offices in New York and 4,000 square feet in Arlington, Virginia.

      Loral Skynet owns three telemetry, tracking and control stations covering approximately 73,000 square feet on 219 acres in Hawley, Pennsylvania, Three Peaks, California and Mt. Jackson, Virginia and on three leased acres in Richmond, California. Loral Skynet leases space for three telemetry, tracking and control stations covering approximately 9,000 square feet in Rio de Janeiro, Brazil, Utive, Panama and Quito, Equador. Loral Skynet also leases approximately 86,000 square feet of office space in Bedminster, New Jersey and Rockville, Maryland and 49,000 square feet in various locations around the world.

      SS/ L’s research, production and testing are conducted in SS/ L-owned facilities covering approximately 563,000 square feet on 29 acres in Palo Alto, California. In addition, SS/ L leases approximately 300,000 square feet of space on 19 acres from various third parties primarily in Palo Alto, Menlo Park and Mountain View, California.

      Management believes that the facilities are sufficient for its current operations.

      Consent Agreement. On January 9, 2002, Loral, SS/ L and the United States Department of State (“Department of State”) entered into a consent agreement (the “Consent Agreement”) settling and disposing of all civil charges, penalties and sanctions associated with alleged violations by SS/ L of the Arms Export Control Act and its implementing regulations. Under the Consent Agreement, among other things, the Department of State has a claim against SS/ L for $10 million payable through January 2009, and SS/ L is obligated to implement enhanced export control compliance measures.

      Alcatel Settlement. 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, in 2003 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 Limited (“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 the arbitral tribunal’s 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.

      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 L.P. (“Globalstar”) against GTL, Loral, Bernard L. Schwartz and other defendants were consolidated into one action titled In re: Globalstar Securities Litigation. In November 2001, plaintiffs in the consolidated action filed a consolidated amended class action complaint against Globalstar, GTL, Globalstar Capital Corporation (“Globalstar Capital”), 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. We believe that we have meritorious defenses to this class action lawsuit and intend 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 Mr. Schwartz. Loral is obligated to indemnify Mr. Schwartz for any losses or costs he may incur as a result of this lawsuit, subject to the effect of the Chapter 11 Cases. We are unable to estimate the maximum potential impact of these obligations on our 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 and is ongoing. In December 2004, plaintiffs’ motion for certification of the class was granted. In June 2004, Globalstar was dissolved, and in October 2004, GTL was liquidated pursuant to chapter 7 of the Bankruptcy Code.

      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 J. 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. 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. In February 2004, a motion to dismiss the amended complaint was granted by the court insofar as Messrs. Schwartz and Townsend are concerned. 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 continued 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, subject to the effect of the Chapter 11 Cases. We are unable to estimate the maximum potential impact of these obligations on our future results of operations.

      In addition, the primary insurer under Loral’s directors and officers liability insurance policy has denied coverage under the policy for the In re: Loral Space & Communications Ltd. Securities Litigation case and, on March  24, 2003, filed a lawsuit in the Supreme Court of New York County seeking a declaratory judgment upholding its coverage position. In May 2003, we and the other defendants served our 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, we and the other defendants also filed a third party complaint against the excess insurers seeking a declaration that they are obligated to provide coverage. We believe that the insurers have wrongfully denied coverage and intend 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.

      The Plan does not provide for recovery for claims arising from the rescission of, or damages arising from, the purchase or sale of any security of the Debtors and their affiliates, including the claims described above.

      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 our 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 him. In November 2003, three other complaints against Mr. Schwartz with substantially similar allegations were consolidated into the Beleson case. 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 and is ongoing.

      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 each of the 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. In October 2004, a motion to dismiss the complaint in its entirety was denied by the court. Defendants filed an answer to the complaint in December 2004, and discovery has commenced.

      In April 2004, two separate purported class action lawsuits filed in the United States District Court for the Southern District of New York by former Loral employees and participants in the Loral Savings Plan (the “Savings Plan”) were consolidated into one action titled In re: Loral Space ERISA Litigation. In July 2004, plaintiffs in the consolidated action filed an amended consolidated complaint against the members of the Loral Space & Communications Ltd. Savings Plan Administrative Committee and certain existing and former members of the Board of Directors of SS/ L, including Bernard L. Schwartz. The amended 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 Savings Plan by including Loral common stock as an investment alternative and by providing matching contributions under the Savings 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 to provide them with accurate information, (c) that defendants violated Sections 404 and 405 of ERISA by failing to provide complete and accurate information to Savings Plan participants and beneficiaries, and (d) that defendants violated Sections 404 and 405 of ERISA by breaching their fiduciary duties to avoid conflicts of interest. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all participants in or beneficiaries of the Savings Plan at any time between November 4, 1999 and the present and whose accounts included investments in Loral stock. In October 2004, defendants filed a motion to dismiss the amended complaint in its entirety which is pending before the court.

      In addition, two insurers under Loral’s directors and officers liability insurance policies have denied coverage with respect to the case titled In re: Loral Space ERISA Litigation, each claiming that coverage should be provided under the other’s policy. In December 2004, one of the defendants in that case filed a lawsuit in the United States District Court for the Southern District of New York seeking a declaratory judgment as to his right to receive coverage under the policies. This case is in its preliminary stages, and the defendants have not yet answered the complaint.

      We are obligated to indemnify our directors and officers for any losses or costs they may incur as a result of these lawsuits, subject to the effect of the Chapter 11 Cases. We are unable to estimate the maximum potential impact of these obligations on our future results of operations.

      Natelco. 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. We believe that the claims are without merit and intend 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.

      Environmental Regulation. Our operations are subject to regulation by various federal, state and local agencies concerned with environmental control. We believe that our facilities are in substantial compliance with all existing federal, state and local environmental regulations. With regard to certain sites, environmental remediation is being performed by prior owners who retained liability for such remediation arising from occurrences during their period of ownership. To date, these prior owners have been fulfilling these obligations;

their size and current financial condition make it probable that they will be able to complete their remediation obligations without cost to us.

      We are 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, we do not believe that any of these other existing legal matters will have a material adverse effect on our consolidated financial position or results of operations.

      None.

PART II

      As a result of the commencement of our Chapter 11 Cases, on July 15, 2003, the NYSE suspended trading of Loral’s common stock and removed our securities from listing and registration on September 2, 2003. Loral’s common stock is being quoted under the ticker symbol LRLSQ on the Over-The-Counter (“OTC”) Bulletin Board Service and the Pink Sheets Service (“Pink Sheets”). In addition, on June 4, 2003, our Board of Directors approved a reverse stock split of Loral’s common stock at a ratio of one-for-ten, resulting in a new par value of $0.10 per common share. The reverse stock split became effective after the close of business on June 13, 2003. The following table presents the reported high and low closing prices of our common stock as reported on the OTC Bulletin Board Service for 2004 and the OTC Bulletin Board Service and NYSE for 2003:

      At February 1, 2005, there were 2,430 holders of record of Loral’s common stock.

      We have never paid dividends on our common stock. In August 2002, Loral’s Board of Directors approved a plan to suspend indefinitely the future payment of dividends on our two series of preferred stock. Accordingly, we have deferred the payments of quarterly dividends due on our Series C and Series D preferred stock. The Debtors will not pay any dividends or make any distributions during the pendency of the Chapter 11 Cases. The ability of the Debtors to pay dividends or distributions on any class of equity issued following any emergence from Chapter 11 will depend on various factors that cannot be determined at this time.

      The following consolidated selected financial data has been derived from, and should be read in conjunction with, the related consolidated financial statements.

LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION

(In thousands, except per share data)

      The following discussion and analysis should be read in conjunction with our consolidated financial statements (the “financial statements”) included in Item 15 of this Annual Report on Form 10-K.

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

Disclosure Regarding Forward-Looking Statements

      Except for the historical information contained in the following discussion and analysis, the matters discussed below are not historical facts, but are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, we or our representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts. 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 confirmation of a plan of reorganization by the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), and our ability to maintain good relations with our customers, suppliers and employees. For a detailed discussion of these and other factors and conditions, please refer to the Commitments and Contingencies section below and to our other periodic reports filed with the Securities and Exchange Commission (“SEC”). We operate in an industry sector in which the value of securities may be volatile and may be influenced by economic and other factors beyond our control. We undertake no obligation to update any forward-looking statements.

Overview

Businesses

      Loral is a leading satellite communications company organized into two operating segments: Satellite Services and Satellite Manufacturing.

      Through our Loral Skynet division, we provide satellite capacity and networking infrastructure 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, given the harsh and unpredictable environment in which the satellites operate. Annual receipts from this business are fairly predictable because they are derived from an established base of long-term customer contracts. As of December 31, 2004, Satellite Services had four satellites in-orbit (including Telstar 14/ Estrela do Sul-1 launched in January 2004 that did not fully deploy one of its solar arrays, see Note 7 to the financial statements).

      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 failed to meet their business objectives. Skynet’s growth depends 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.

      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 fixed 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 1,300 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 three to four satellite awards a year. Between October 2003 and February 2005, SS/ L received orders for the construction of six satellites. 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 reduce 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, have had the advantage over suppliers in negotiating prices, terms and conditions resulting in reductions in margins and increased assumptions of risk by SS/ L.

     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 over the last two and one-half years, 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 filed voluntary petitions for reorganization (the “Chapter 11 Cases”) under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”). As a result of our Chapter 11 filing, all of our prepetition debt obligations were accelerated. On July 15, 2003, we also suspended interest payments on all of our prepetition unsecured debt obligations. As of December 31, 2004, the remaining principal amounts of our prepetition outstanding debt obligations totaled $1.049 billion.

      For the duration of the bankruptcy proceedings, our businesses are subject to risks and uncertainties of bankruptcy (see Commitments and Contingencies below for a description of such risks and uncertainties.)

     Sale of Assets

      In order to strengthen our balance sheet, on July 15, 2003 we agreed to sell our North American satellites and related assets to Intelsat. 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 of the financial statements).

     Future Outlook

      On December 5, 2004, we filed a revised plan of reorganization (the “Plan”) and a disclosure statement (the “Disclosure Statement”) with the Bankruptcy Court that reflected a consensual agreement on financial terms that had been reached between Loral and the Creditors Committee. Under the Plan, existing common and preferred stock will be cancelled and no distribution will be made to current stockholders. Objections to our motion for approval of the Disclosure Statement were filed by certain stockholders and creditors, including certain holders of trade claims against SS/ L, which challenged the provisions of the Plan relating to the substantive consolidation of certain of the Debtors. After a hearing on December 6, 2004, the Bankruptcy Court urged the parties to negotiate among themselves toward resolution of their issues. These negotiations are ongoing; there can be no assurance that they will be successful. Regardless of whether the negotiations are successful, it is likely that we will further amend the Plan and that distributions to certain creditors under such amended plan of reorganization will be significantly different from those contemplated by the Plan that is currently on file.

      Implementation of any plan of reorganization is subject to final documentation and confirmation by the Bankruptcy Court.

      We are reorganizing around our satellite manufacturing operations and our remaining fleet of international satellites, which will cover regions with growth potential, such as 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.

      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. At the same time, 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 2005.

      See Part 1, Item 1 of this Annual Report on Form 10-K, for a complete description of Loral’s businesses, our Chapter 11 Cases, the sale of our satellite assets serving the North American market and our reorganization plan.

Consolidated Operating Results

      Please refer to Critical Accounting Matters set forth below in this section.

      The accompanying 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 financial statements do not include any adjustments that might result from this uncertainty. Our ability to continue as a going concern is dependent on a number of factors including, but not limited to, the Bankruptcy Court’s confirmation of our plan of reorganization 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. We cannot give any assurance of the level of recovery our creditors would receive in a liquidation. The 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 we were forced to liquidate.

      The following discussion of revenues and Adjusted EBITDA (see note 18 to the financial statements) reflects the results of our operating businesses for 2004, 2003 and 2002. The balance of the discussion relates to our 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 in March 2004, has been accounted for as a discontinued operation, resulting in our historical statements of operations and statements of cash flows being reclassified to reflect such discontinued operations separately from continuing operations (see Note 2 and 4 to the financial statements).

Revenues:

Adjusted EBITDA:

Reconciliation of Adjusted EBITDA to Net Loss:

⁽³⁾

2004 Compared with 2003 and 2002

      Revenues from Satellite Services as reported increased $76 million in 2004 as compared to 2003, primarily due to $87 million of revenues recognized for a sales-type lease arrangement for satellite capacity (see Note 7 to the financial statements) and higher customer lease termination and settlement fees of $7 million. This was offset by a $17 million decrease resulting from lower transponder and network utilization and a $2 million decrease due to lower rates for services. 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 Services as reported decreased $45 million in 2003 as compared to 2002, primarily resulting from a $42 million decrease in rates for services and a $2 million decrease resulting from lower transponder and network utilization.

     Revenues from Satellite Manufacturing

      Revenues from Satellite Manufacturing before eliminations decreased by $37 million in 2004 as compared to 2003, primarily resulting from a decrease in revenues from satellite programs nearing completion under the percentage of completion method of $213 million, offset by a $167 million increase in revenues from the new satellite orders received in the fourth quarter of 2003 and lower write-offs of long-term receivables of $9 million due to contract modifications. Eliminations consist primarily of revenues from satellites under construction by SS/ L for Satellite Services, and in 2003, includes the reversal of $83 million of cumulative sales on a satellite program that was changed to a lease arrangement in 2003 (see Note 7 to the financial statements). As a result, revenues from Satellite Manufacturing as reported increased $55 million in 2004 as compared to 2003.

      Revenues from Satellite Manufacturing before eliminations decreased $379 million in 2003 as compared to 2002, primarily resulting from satellite programs nearing completion under the percentage of completion method with no new satellite orders from December 2001 to October 2003 and the write-off of $20 million of long-term receivables due to contract modifications. Eliminations consist primarily of revenues from satellites under construction by SS/ L for Satellite Services, and in 2003, includes the reversal of $83 million of cumulative sales on a satellite program that was changed to a lease arrangement in 2003 (see Note 7 to the financial statements). As a result, revenues from Satellite Manufacturing as reported decreased $463 million in 2003 as compared to 2002.

     Cost of Satellite Services

      Cost of Satellite Services before specific identified charges decreased $20 million in 2004 as compared to 2003, primarily due to reduced external satellite capacity costs of $10 million, lower costs of $5 million due to headcount and other cost reductions and decreased insurance costs of $5 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 coverage, offset by the insurance cost for Telstar 18 which commenced service at the beginning of September 2004. Depreciation and amortization expense increased $5 million in 2004 as compared to 2003, primarily resulting from higher depreciation expense of $12 million for our Telstar 14/ Estrela do Sul-1 satellite which commenced service at the end of March 2004 and our Telstar 18 satellite, offset in part by a reduction of $6 million due to our Telstar 11 satellite being fully depreciated in 2004 and a reduction of $1 million due to the timing of assets placed in service and assets that became fully depreciated. In 2004 we incurred $80 million of costs for a sales-type lease arrangement and recognized an impairment charge of $12 million for the Telstar 14/ Estrela do Sul-1 satellite and related assets to reduce the carrying values to the expected proceeds from insurance of $250 million (see Note 7 to the financial statements). As a result, cost of Satellite Services increased $77 million in 2004 as compared to 2003.

      Cost of Satellite Services before specific identified charges decreased $20 million in 2003 as compared to 2002, primarily due to reduced external satellite capacity costs of $14 million, lower network service costs of $3 million and other cost reductions of $3 million. Depreciation and amortization expense increased $11 million in 2003 as compared to 2002, primarily due to the shortening in the estimated life of our Telstar 11 satellite and the timing of assets placed in service and assets that became fully depreciated. As a result, cost of Satellite Services decreased $9 million in 2003 as compared to 2002.

     Cost of Satellite Manufacturing

      Cost of Satellite Manufacturing decreased $104 million in 2004 as compared to 2003. Cost of Satellite Manufacturing before specific identified charges decreased $60 million in 2004 as compared to 2003, primarily due to lower overall volume as satellite programs neared completion under the percentage of completion method and lower costs due to headcount reductions, offset in part by $141 million of increased costs for the satellite orders received in the fourth quarter of 2003. Cost of Satellite Manufacturing also decreased in 2004 as compared to 2003, due to lower depreciation expense of $4 million primarily resulting from reduced capital spending and the charges incurred in 2003 as compared to those in 2004, as detailed in the above table. These decreases were partially offset by the reversal of $73 million of costs on a satellite program that was changed to a lease arrangement in 2003 (see Note 7 to the financial statements).

      Cost of Satellite Manufacturing decreased $338 million in 2003 as compared to 2002. Cost of Satellite Manufacturing before specific identified charges decreased $281 million in 2003 as compared to 2002, primarily due to lower overall sales as satellite programs neared completion under the percentage of completion method with no new satellite awards from December 2001 until October 2003, offset in part by $31 million of costs incurred in 2003 on the new satellite orders received in the fourth quarter of 2003. Cost of Satellite Manufacturing also decreased in 2003 as compared to 2002, due to lower depreciation expense of $6 million primarily resulting from reduced capital spending and the reversal of $73 million of costs on a satellite program that was changed to a lease arrangement in 2003 (see Note 7 to the financial statements). These decreases were offset in part by the charges incurred in 2003 as compared to 2002, as detailed in the above table. The increase in cost of Satellite Manufacturing as a percentage of revenues in 2003 as compared to 2002 was affected by reduced revenues for overhead cost absorption.

     Selling, General and Administrative Expenses

      The decrease of $23 million in selling, general and administrative expenses in 2004 as compared to 2003, was primarily due to decreased bad debt expense of $10 million and lower headcount and employee related expenses of $4 million for Satellite Services and lower research and development costs of $3 million, professional fees of $4 million and sales and marketing costs of $1 million for Satellite Manufacturing.

      The decrease of $6 million in selling, general and administrative expenses in 2003 as compared to 2002 was primarily due to lower research and development costs of $7 million and sales and marketing costs of $2 million for Satellite Manufacturing. This decrease was offset in part by an expense increase of $4 million for Satellite Services, primarily due to higher bad debt expense of $5 million, offset by cost reductions for headcount and employee related expenses and marketing expenses of $2 million.

     Reorganization Expenses Due to Bankruptcy

      Reorganization expenses due to bankruptcy in 2004 include professional fees of $21 million, employee retention costs of $10 million, severance costs of $5 million and facility closing costs of $2 million, offset by lease rejection gains of $6 million and interest income of $2 million. Reorganization expenses due to bankruptcy from July 15, 2003 (filing date) to December 31, 2003, include professional fees of $15 million, lease rejection claims of $6 million and employee retention costs of $5 million, offset by interest income of $1 million. See Note 11 to the financial statements.

     Interest and Investment Income

      The decrease in interest and investment income of $5 million in 2004 as compared to 2003 was primarily due to lower interest income earned on satellite manufacturing programs. The increase in interest and investment income of $2 million in 2003 as compared to 2002, was primarily due to higher interest income earned on satellite manufacturing programs, offset in part by lower interest income earned on lower average cash balances prior to filing for bankruptcy and interest income earned on cash balances subsequent to filing for bankruptcy being reclassified into reorganization expenses.

     Interest Expense

      Interest expense decreased $11 million in 2004 as compared to 2003, primarily attributable to the fact that subsequent to our voluntary petitions for reorganization on July 15, 2003, we stopped recognizing and paying interest on all outstanding prepetition debt obligations (except our secured bank debt which interest expense is included in discontinued operations) and preferred stock. Capitalized interest decreased to $1 million in 2004, which was due to us no longer incurring interest expense on our secured bank debt that we repaid in March 2004. Interest cost will continue to be minimal while we are in Chapter 11.

      Interest expense decreased $27 million in 2003, as compared to 2002. Interest cost before capitalized interest decreased $23 million in 2003 as compared to 2002, which was primarily attributable to the fact that subsequent to our voluntary petitions for reorganization on July 15, 2003, we stopped recognizing and paying interest on all outstanding prepetition debt obligations (except our secured bank debt which interest expense is included in discontinued operations) and preferred stock. Capitalized interest increased $4 million in 2003 as compared to 2002, primarily due to higher satellite under construction balances.

      Other income (expense) represents gains and (losses) on foreign currency transactions.

      During 2003, we realized an $18 million gain from the sale of all 59 million shares of common stock of Sirius Satellite Radio Inc. (“Sirius”) received by us in settlement of the vendor financing owed to SS/ L by Sirius.

      During 2004 and 2003, we continued to maintain the 100% valuation allowance against the net deferred tax assets of our U.S. consolidated tax group, established at December 31, 2002. Also during 2004 and 2003 we recorded no benefit for our domestic loss. For 2004, we recorded an income tax provision of $13.3 million on a pre-tax loss of $208 million as compared to an income tax benefit of $6.3 million for 2003 and a provision of $322.4 million for 2002 on pre-tax losses of $368 million and $238 million, respectively.

      With the dissolution of Globalstar, L.P. on June 29, 2004, we wrote-off the remaining book value of our investment in Globalstar’s $500 million credit facility and reduced to zero the unrealized gains and related deferred tax liabilities previously reflected in accumulated other comprehensive loss. The reversal of this deferred tax liability resulted in a net deferred tax asset of $11.4 million against which we recorded a full valuation allowance. See Notes 5 and 8 to the financial statements.

      During 2004, we also reduced the balance for certain deferred gains on derivative transactions and the related deferred tax liability included in accumulated other comprehensive loss. The reversal of this deferred tax liability resulted in a net deferred tax asset of $0.7 million against which we recorded a full valuation allowance.

      Therefore, for 2004, we recorded a deferred income tax provision for continuing operations that increased our valuation allowance by $12.1 million and a current provision for state, local and foreign income taxes of $1.1 million with no benefit for our losses from continuing and discontinued operations.

      For 2003, we recorded an income tax benefit in continuing operations related to an $11.0 million reclassification of a provision to income from discontinued operations offset by a deferred tax liability of $3.7 million recorded for certain foreign entities and a current provision for state, local and foreign income taxes of $1.0 million.

      For 2002, we recorded an income tax provision in continuing operations of $322.4 million primarily relating to our having increased the valuation allowance against the net deferred tax assets of our U.S. consolidated tax group to 100% under the criteria of SFAS No. 109, Accounting for Income Taxes (“SFAS 109”) as well as a deferred tax liability for certain foreign entities offset by a reclassification of a provision to income from discontinued operations. See Critical Accounting Matters.

      In connection with Globalstar’s dissolution in June 2004, we recorded equity income of $47 million relating to Globalstar on the reversal of vendor financing that was non-recourse to SS/ L in the event of non-payment by Globalstar. During 2004, we did not provide for our allocated share of net losses of Satélites Mexicanos, S.A. de C.V. (“Satmex”), due to our write-off of our remaining investment in Satmex in 2003. Our equity losses in Satmex in 2003 of $52 million include the write-off of our remaining investment in Satmex of $29 million. See Note 8 to the financial statements.

      The decrease in equity losses of $25 million in 2003 as compared to 2002, primarily resulted from the decrease in Europe*Star Limited (Europe*Star) equity losses of $42 million, as we wrote off our remaining investment in Europe*Star in 2002. This was offset in part by an increase in Satmex equity losses of $27 million, primarily because we wrote off our remaining investment of $29 million in Satmex in 2003. Accordingly, there is no longer any requirement for us to provide for our allocated share of Satmex’s net losses and Europe*Star’s net losses subsequent to the write-off of each investment. Our losses from XTAR, LLC (“XTAR”) decreased in 2003 as compared to 2002 primarily due to lower profit elimination. See Note 8 to the financial statements.

      Discontinued operations represents the revenues and expenses of the North American satellites and related assets sold to Intelsat on March 17, 2004 and includes interest expense on our secured bank debt through March 18, 2004 (see Interest Expense above). 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 includes the write-off of approximately $11 million of debt issue costs to interest expense relating to our secured debt that was repaid and $9 million of income in the fourth quarter of 2004 from the settlement of an insurance claim for a satellite that was sold. For the purpose of this presentation, in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), all indirect costs normally associated with these operations are 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 financial statements.

      On July 1, 2003, we adopted SFAS 150, and as a result, recorded a charge of $2 million for the amortization of expenses incurred on the issuance of our preferred stock from their issuance dates through June 30, 2003, that were not previously amortized, as a cumulative effect of change in accounting principle. See Note 10 to the financial statements.

      On January 1, 2002, we adopted SFAS 142, which resulted in us recording a charge to write-off all $890 million of our goodwill as the cumulative effect of change in accounting principle. See Note 9 to the financial statements.

      As a result of receiving Alcatel’s minority interest in CyberStar, L.P. on June 30, 2003 (as part of a settlement arrangement with Alcatel, see Note 17 to the financial statements), we recognized an extraordinary gain of $14 million, which represents the extinguishment of the minority interest liability less the fair value of the acquired net assets.

      Preferred Dividends decreased $7 million in 2004 as compared to 2003, primarily due to the adoption of SFAS 150 on July 1, 2003, which requires that dividends since adoption be included in interest expense.

      Preferred Dividends decreased $82 million in 2003 as compared to 2002, primarily due to dividend charges of $60 million ($46 million non-cash charges and $13 million cash charges) and the reduction in our dividend obligations in 2002. Both resulted from our 2002 exchange offers and privately negotiated exchange transactions where 11.5 million shares of our 6% Series C convertible redeemable preferred stock (the “Series C Preferred Stock”) and 6% Series D convertible redeemable preferred stock (the “Series D Preferred Stock”) were converted into 7.7 million shares of our common stock (see Note 13 to the financial statements). Preferred dividends also decreased in 2003 from 2002, as a result of the adoption of SFAS 150 on July 1, 2003, which requires that dividends since adoption be included in interest expense. Commencing November 2002, we stopped paying dividends on the Series C and Series D Preferred Stock.

      Backlog as of December 31, 2004 and 2003, was as follows (in millions):

      Backlog as of December 31, 2004 includes $93 million for Satellite Services on Telstar 14/ Estrela do Sul-1, which was reduced by $178 million in the third quarter of 2004, as a result of the shortening of the life of Telstar 14/ Estrela do Sul-1 (see Note 7 to the financial statements). Backlog as of December 31, 2003 (as adjusted to remove the backlog related to the North American satellites sold), includes $282 million for

Satellite Services on Telstar 14/ Estrela do Sul-1. Backlog as of December 31, 2004 and December 31, 2003, includes $22 million and $24 million, respectively, as a result of transactions entered into with affiliates for the construction of satellites (primarily with XTAR).

      The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses reported for the period. Actual results could differ from estimates.

      The majority of our Satellite Manufacturing revenue is associated with long-term fixed-price contracts. Revenue and profit from satellite sales under these long-term contracts are recognized using the cost-to-cost percentage of completion method, which requires significant estimates. We use this method because reasonably dependable estimates can be made based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. These estimates include forecasts of costs and schedules, estimating contract revenue related to contract performance (including estimated amounts for penalties, performance incentives and orbital incentives that will be received as the satellite performs on orbit) and the potential for component obsolescence in connection with long-term procurements. These estimates are assessed continually during the term of the contract and revisions are reflected when the conditions become known. Provisions for losses on contracts are recorded when estimates determine that a loss will be incurred on a contract at completion. Under firm fixed-price contracts, work performed and products shipped are paid for at a fixed price without adjustment for actual costs incurred in connection with the contract; accordingly, favorable changes in estimates in a period will result in additional revenue and profit, and unfavorable changes in estimates will result in a reduction of revenue and profit or the recording of a loss that will be borne solely by us.

      Depreciation is provided for on the straight-line method for satellites over the estimated useful life of the satellite, which is determined by engineering analyses performed at the satellite’s in-service date and re-evaluated periodically. A decrease in the useful life of a satellite would result in increased depreciation expense.

      We are required to estimate the collectibility of our billed receivables, vendor financing and long-term receivables. A considerable amount of judgment is required in assessing the collectibility of these receivables, including the current creditworthiness of each customer and related aging of the past due balances. Charges for (recoveries of) bad debts recorded to the income statement on billed receivables during 2004, 2003, and 2002 were $(2.1) million, $7.2 million and $2.8 million, respectively. At December 31, 2004 and 2003, billed receivables were net of allowances for doubtful accounts of $6.4 million and $11.7 million, respectively. At December 31, 2004 and 2003, long-term receivables were net of an allowance of $20.2 million. We evaluate specific accounts when we become aware of a situation where a customer may not be able to meet its financial obligations due to a deterioration of its financial condition, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are re-evaluated periodically.

      Inventories are reviewed for estimated obsolescence or unusable items and, if appropriate, is written down to the net realizable value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those we project, additional inventory write-downs may be required. These are considered permanent adjustments to the cost basis of the inventory. Charges for

inventory obsolescence recorded to the income statement during 2004, 2003, and 2002 were $3.3 million, $49.5 million and $14.0 million, respectively.

      We periodically evaluate potential impairment loss relating to our satellites and other long-lived assets, when a change in circumstances occurs, by assessing whether the carrying amount of these assets can be recovered over their remaining lives through future undiscounted expected cash flows generated by those assets (excluding financing costs). If the expected undiscounted future cash flows were less than the carrying value of the long-lived asset, an impairment charge would be recorded. Changes in estimates of future cash flows could result in a write-down of the asset in a future period. Estimated future cash flows could be impacted by, among other things:

      If an impairment loss was indicated for a satellite, such amount would be recognized in the period of occurrence, net of any insurance proceeds to be received so long as such amounts are determinable and receipt is probable. If no impairment loss was indicated in accordance with SFAS 144, and we received insurance proceeds, the proceeds would be recognized in our consolidated statement of operations. In the event that the insurance proceeds received exceeded the carrying value of the satellite, the excess of the proceeds over the carrying value of the satellite would be recognized in our consolidated statement of operations.

      Loral, as a Bermuda company, is subject to U.S. federal, state and local income taxation at regular corporate rates on any income that is effectively connected with the conduct of a U.S. trade or business. When such income is deemed removed from the U.S. business, it is subject to an additional 30% “branch profits” tax. While any portion of Loral’s income from sources outside the United States may also be subject to taxation by foreign countries, the extent to which these countries may require Loral to pay tax or to make payments in lieu of tax cannot be determined in advance. From its inception, Loral has not received any cumulative benefit as a result of being established in Bermuda because of substantial losses incurred outside the U.S. Loral’s U.S. subsidiaries are subject to U.S. taxes on their worldwide income. In addition, a 30% U.S. withholding tax will be imposed on dividends and interest paid by such subsidiaries to Loral.

      We use the liability method in accounting for taxes whereby income taxes are recognized during the year in which transactions enter into the determination of financial statement income or loss. Deferred taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying statutory tax rates in effect for the year during which the differences are expected to reverse. We assess the recoverability of our deferred tax assets and, based upon this analysis, record a valuation allowance against the deferred tax assets to the extent recoverability does not satisfy the “more likely than not” recognition criteria in SFAS 109.

      Based upon this analysis, we concluded during the fourth quarter of 2002 that, due to insufficient positive evidence substantiating recoverability, a 100% valuation allowance should be established for the entire balance of the net deferred tax assets of our U.S. consolidated tax group. During 2004, we recorded no benefit for our domestic loss and continued to maintain the valuation allowance, decreasing the reserve by $11.1 million to a balance of $659.8 million.

      We will maintain the valuation allowance until sufficient positive evidence exists to support its reversal. If we were to determine that we will be able to realize all or a part of the benefit from our deferred tax assets, reversal of the valuation allowance would increase income in the period the determination was made.

      Our policy is to establish a tax contingency liability for potential audit issues. The tax contingency liability is based on our estimate of whether additional taxes will be due in the future. Any additional taxes due will be determined only upon completion of current and future federal, state and international tax audits. The timing of such payments cannot be determined but we expect they will not be made within one year. Any such liability would be unsecured pre-petition liabilities in our bankruptcy proceedings. Therefore, the tax contingency liability is included in “Liabilities Subject to Compromise” in the accompanying Consolidated Balance Sheets.

      We maintain a pension plan and a supplemental retirement plan. These plans are defined benefit pension plans. In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees and dependents. These pension and other employee benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate and expected long-term rate of return on plan assets. Material changes in these pension and other employee postretirement benefit costs may occur in the future due to changes in these assumptions, as well as our actual experience.

      The discount rate is subject to change each year, consistent with changes in applicable high-quality long-term corporate bond indices, such as the Moody’s AA Corporate Bond Index. The discount rate determined on this basis was 6.0% as of December 31, 2004, a decline of 25 basis points from December 31, 2003. This had the effect of increasing our accumulated benefit obligations (“ABO”) for pensions by $10.3 million and for other employee benefits by $2.4 million as of December 31, 2004.

      The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the plan’s projected benefit obligation, asset mix and the fact that its assets are actively managed to mitigate risk. Allowable investment types include equity investments and fixed income investments. Pension plan assets are managed by Russell Investment Corp. (“Russell”), which allocates the assets into specified Russell-designed funds as we direct. Each specified Russell fund is then managed by investment managers chosen by Russell. The targeted short and long-term allocation of our pension plan assets is 60% in equity investments and 40% in fixed income investments. Based on this target allocation, the fifteen-year historical return of our investment managers has been 10.7%. The expected long-term rate of return on plan assets determined on this basis was 9.0% for 2004 and 2003, a decline of 50 basis points from 2002.

      These pension and other employee postretirement benefit costs are expected to increase to approximately $28 million in 2005 from $26 million in 2004, primarily due to the drop in discount rate, an update of the mortality table and expected increase in health care claims, offset by a full year effect of recognizing DIMA (as defined below). Lowering the discount rate, and the expected long-term rate of return each by 0.5% would have increased these pensions and other employee postretirement benefits costs by approximately $2.6 million and $1.1 million, respectively, in 2004.

      On December 8, 2003, President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“DIMA”). DIMA introduces a federal subsidy for sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, the FASB released Financial Accounting Standards Board Position 106-2 (“FSP 106-2”) to provide guidance on accounting and disclosure requirements related to DIMA. We adopted FSP 106-2 effective as of the beginning of the fourth quarter of 2004, the earliest the required actuarial information was available. As a result of the adoption of FSP 106-2 our net periodic cost for the fourth quarter of 2004 was reduced by $0.2 million and the accumulated benefit obligation was reduced by $6.7 million.

      The ABO for the pension plan exceeded the fair value of plan assets by $128 million at December 31, 2004 (the “unfunded ABO”). This was primarily due to the negative returns on the pension funds in previous years arising from the overall decline in the equity markets, and a decline in the discount rate used to estimate the pension liability as a result of declining interest rates. Therefore, Loral was required to establish a minimum liability and record an additional $19.0 million during 2004, for a total charge to equity of $88.3 million for the unfunded ABO, to the extent not already reflected as a liability. The ABO was measured

using a discount rate of 6.0% as of December 31, 2004. Lowering the discount rate by 0.5% would have increased the ABO and the resulting minimum liability and charge to equity by approximately $20.7 million. Market conditions and interest rates significantly affect future assets and liabilities of Loral’s pension plans. This charge to equity will be revalued based upon plan assets and the measurement of plan obligations at the end of each fiscal year.

      Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. The most important contingencies affecting our financial statements are detailed below under Commitments and Contingencies.

Liquidity and Capital Resources

      As of December 31, 2004, we had $148 million of available cash and $13 million of restricted cash ($1 million included in other current assets and $12 million included in other assets on our consolidated balance sheet). On March  17, 2004, we repaid all $967 million of our secured bank debt and had no further available credit. Cash flow from Satellite Services is fairly predictable because it is derived from 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.

      See Note 2 (Reorganization) to the financial statements, regarding cash and our ability to continue to fund our operations in 2005.

Contractual Obligations and Other Commercial Commitments

      The following tables aggregate our contractual obligations and other commercial commitments as of December 31, 2004 (in thousands).

      Net cash provided by continuing operating activities for 2004 was $35 million. This was primarily due to an increase in customer advances of $35 million from new satellite programs receipts and a decrease of contracts-in-process of $29 million primarily resulting from net collections on customer contracts, which was offset by the net loss adjusted for non-cash items of $59 million.

      Net cash provided by continuing operating activities for 2003 was $143 million, due primarily to (i) a $61 million decrease in long-term receivables arising from the accelerated collection of orbital receivables, (ii) a $41 million increase in accounts payable due primarily to the timing of satellite related payments, including the start up of the three new satellite programs in the fourth quarter of 2003 and unpaid prepetition liabilities, (iii) a $28 million decrease in other current assets and other assets primarily resulting from a decrease in prepaid insurance and pension costs recorded in 2003, (iv) a $36 million decrease in contracts-in-process primarily resulting from net collections on customer contracts, (v) a $39 million increase in customer advances primarily due to the start up of the three new satellite programs in the fourth quarter of 2003 and (vi) a $26 million decrease in deposits primarily arising from the assignment of launch vehicles to satellite programs. These factors were offset by the net loss as adjusted for non-cash items of $94 million.

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

      Net cash provided by investing activities was $912 million for 2004, primarily resulting from 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 $25 million and capital expenditures for discontin-

ued operations of $11 million, mainly for the construction of satellites, and investments in and advances to affiliates of $6 million, primarily for XTAR.

      Net cash used in investing activities was $150 million for 2003, primarily reflecting capital expenditures for continuing operations of $115 million and capital expenditures for discontinued operations of $61 million, mainly for the construction of satellites, and investments in and advances to affiliates of $19 million (primarily for XTAR), offset by proceeds of $46 million from the sale of Sirius common stock.

      Net cash used in financing activities was $967 million in 2004, resulting from our repayment of our secured bank debt, primarily with the proceeds from the sale of the North America satellites and related assets.

      Net cash provided by financing activities in 2003 was $1 million, primarily due to net borrowings under revolving credit facilities of $71 million, offset by debt amortization payments of $70 million (including $31 million of interest payments on our 10% senior notes) and payment of bank amendment costs of $5 million.

      During 2004, we contributed $13.3 million to the qualified pension plan. During 2005, based on current estimates, we expect to contribute approximately $13 million to the qualified pension plan and expect to fund approximately $5 million for other employee postretirement benefit plans.

      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 8 to the financial statements and Commitments and Contingencies in this Management’s Discussion and Analysis of Results of Operations and Financial Condition for further information on affiliate matters.

      Our consolidated statements of operations reflect the effects of the following amounts related to transactions with or investments in affiliates (in millions).

      Our revenues from affiliates have declined from 2002 to 2004, primarily because satellite construction programs are nearing completion. We expect that revenues from affiliates will continue to decline for the foreseeable future.

Commitments and Contingencies

      Our business and operations are subject to a number of significant risks, the most significant of which are summarized below.

We filed for bankruptcy protection on July 15, 2003 and are subject to its associated risks and uncertainties.

      The Chapter 11 Cases could adversely affect relationships with our customers, suppliers and employees. This in turn could adversely affect the going concern value of the business and of its assets, particularly if the Chapter 11 Cases are protracted. Also, transactions outside the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit our ability to respond to certain market events or take advantage of certain market opportunities, and, as a result, our operations could be materially adversely affected.

      As a result of the Chapter 11 Cases, all remaining $1.049 billion principal amount of our debt has been accelerated. During the pendency of the Chapter 11 Cases, we have not paid, and will not pay, interest on our prepetition unsecured debt. Although we and our Debtor Subsidiaries have filed a plan of reorganization and a disclosure statement, objections to our motion for approval of the disclosure statement were filed by certain stockholders and creditors. We are currently negotiating with our creditors in an effort to reach a consensual plan of reorganization, but there can be no assurance that such negotiations will be successful. In any event, regardless of whether the negotiations are successful, it is likely that we will further amend our plan of reorganization and that distributions to certain creditors under such amended plan will be significantly different from those contemplated by the plan of reorganization that is currently on file. There can be no assurance that we will be able to propose a plan, obtain Bankruptcy Court approved of any plan we propose, obtain acceptances from the number of creditors necessary to confirm a plan, or actually confirm and consummate a plan.

      Our proposed plan of reorganization provides that our common and preferred stock will be eliminated entirely, with the result that common and preferred stockholders will receive no distribution.

Our emergence from Chapter 11 reorganization depends on the success of our business plan and our ability to generate enough cash to pay our obligations and fund our operations.

      We are reorganizing around our remaining fleet of international satellites and our satellite manufacturing operations. As discussed in Item 1, Business — Overview of this Annual Report on Form 10-K, we operate in highly competitive markets. Our overall financial condition and outstanding debt, and that of our subsidiaries, are factors that potential customers will consider prior to contracting for satellite services or making a satellite procurement decision. In particular, SS/ L has experienced difficulties in obtaining orders from customers that it might otherwise have been awarded due to the Chapter 11 Cases. Our success depends on our ability to respond to our customers’ financial concerns and perform on a cost-effective and timely basis.

      We have filed an insurance claim for $250 million with respect to the constructive total loss of the Telstar 14/ Estrela do Sul-1 satellite. Our business plan assumes timely receipt of these proceeds. Until the claim process with the insurers has been completed, however, there can be no assurance as to the amount of proceeds that we will receive or when they will be received. If we do not receive substantially all of the proceeds in a timely manner, our financial condition would be materially and adversely affected, and our reorganization process may be adversely affected. Without receipt of the insurance proceeds or other financing, we believe that Loral as a whole has sufficient cash to operate through the end of August 2005.

      Although our cash is mostly unrestricted, it resides in different Debtor Subsidiaries and we are not able to move cash freely between or among certain of our Debtor Subsidiaries without Bankruptcy Court approval. Accordingly, one or more of our Debtor Subsidiaries may not have sufficient cash to operate while another Debtor Subsidiary may have surplus cash. In particular, if SS/ L does not receive a significant portion of the EDS insurance proceeds during the second quarter of 2005, SS/ L will need additional cash to operate, which it must obtain either from other Debtor Subsidiaries or third parties. There can be no assurance that SS/ L will be able to obtain the funds it requires.

      Two contracts that SS/ L has entered into recently provide that SS/ L’s customer may defer milestone payments otherwise due until after SS/ L emerges from bankruptcy. Accordingly, SS/ L expects to incur, through June 30, 2005, costs of approximately $33 million in performance on these contracts without corresponding payments and expects to have vendor termination liability exposure of approximately $12 million.

If SS/ L has not emerged from bankruptcy by June 30, 2005, SS/ L will incur additional costs in performing on these contracts which will further increase its cash needs during the pendency of the Chapter 11 Cases.

Our plan of reorganization contains conditions that will restrict our ability to raise funds after emergence.

      Our plan of reorganization contemplates that the new satellite services division will issue secured debt obligations. Although the terms of these notes have not yet been finalized, the indebtedness likely will be governed by an indenture with covenants that will restrict our ability to incur additional debt or access the capital markets. Our inability to raise funds will adversely affect our ability to expand or replace our existing satellite fleet.

There may be certain tax implications upon our emergence from Chapter 11 reorganization.

      As of December 31, 2004, our U.S. subsidiaries had net operating loss carryforwards, or NOLs, of approximately $1.4 billion that can be used to offset future taxable income. Our ability to use these NOLs, however, may be impaired in the future, depending upon various factors relating to our plan of reorganization such as how creditor claims are satisfied, how the equity interests in the reorganized company are distributed, the extent of any capital infusion by new investors, and our value and level of debt at the time we emerge from bankruptcy, which cannot be fully determined at this time. Moreover, if it is determined that an “ownership change” occurred in the three-year period preceding our emergence from bankruptcy, future use of these NOLs would be severely limited. An ownership change would be triggered if shareholders owning 5% or more of our total equity value change their holdings during this three-year period by more than 50% in the aggregate. On August 22, 2003, the Bankruptcy Court entered an order to assist us in protecting our NOLs by establishing procedures that require certain proposed acquirers of our securities to notify us about a prospective acquisition, thus giving us an opportunity to file an objection with the Bankruptcy Court if we deem necessary. There is no guarantee that the Bankruptcy Court will rule in our favor in the event of a dispute between a proposed acquirer and us. A ruling against us could jeopardize a substantial portion of our NOLs.

Launch failures have delayed some of our operations in the past and may do so again in the future.

      We depend on third parties, in the United States and abroad, to launch our satellites. Satellite launches are risky, and some launch attempts have ended in complete or partial failure. We ordinarily insure against launch failures, but at considerable cost. The cost and the availability of insurance vary depending on market conditions and the launch vehicle used. Our insurance typically does not cover business interruption; launch failures may therefore result in uninsured economic losses. Replacing a lost satellite typically requires at least 24 months from contract execution to launch.

      For example, on January 10, 2004, Loral’s Telstar 14/ Estrela do Sul-1 communications satellite was launched by Boeing Sea Launch, but only partially deployed its North solar array. Although insured for partial and total losses up to a maximum of $250 million, the failed solar array deployment has resulted in only 15 of the satellite’s 41 Ku-band transponders currently being available to customers and a life expectancy of only seven years as compared to a design life of 15 years. This reduced capacity and life will impact the roll out of our Brazilian business and will reduce operating revenues pending construction of a replacement satellite.

After launch, our satellites remain vulnerable to in-orbit failures which may result in reduced revenues and profits and other financial consequences.

      In-orbit damage to or loss of a satellite before the end of its expected life results from various causes, some random, including component failure, degradation of solar panels, loss of power or fuel, inability to maintain the satellite’s position, solar and other astronomical events, and space debris. Satellites are built with redundant components to permit their continued operation in case of a component failure. Certain of our satellites are currently operating using back-up components because of the failure of primary components. If these back-up components fail and the primary components cannot be restored, these satellites could lose capacity or be total losses resulting in a loss of revenues and profits. Repair of satellites in space is not feasible.

      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 may be required to replace transponders that do not meet operating specifications. Failure to replace such transponders may result in a payment obligation on the part of Loral Skynet.

Some satellites built by SS/ L, including three satellites operated by subsidiaries or affiliates of Loral, have experienced minor losses of power from their solar arrays.

      Eighteen satellites built by SS/ L have experienced minor losses of power from their solar arrays. None of these, however, has exhibited any performance problems but there can be no assurance that one or more will not experience an additional power loss that could lead to a loss of transponder capacity and performance degradation. A partial or complete loss of a satellite could result in a loss of orbital incentive payments to SS/ L and a loss of revenues and profits for Loral Skynet or other affiliates. SS/ L has instituted remedial measures to prevent similar anomalies from occurring on satellites under construction or in development. For further details see Note 17 to the financial statements.

Some satellites built by SS/ L have the same design as another SS/ L-built satellite that has experienced a partial failure.

      In November 2004, Intelsat Americas 7 (formerly Telstar 7) experienced an anomaly which caused it to completely cease operations for several days before it was partially recovered. Four other satellites manufactured by SS/ L have designs similar to Intelsat Americas 7 and, therefore, could be susceptible to similar anomalies in the future. A partial or complete loss of a satellite could result in a loss of orbital incentive payments to SS/ L.

It may be difficult to obtain full insurance coverage for satellites that have, or are part of a family of satellites that has, experienced problems in the past.

      We normally insure the on-orbit performance of the satellites in our satellite services segment. Typically such insurance is for one year subject to renewal. We cannot assure that, upon the expiration of an insurance policy, we will be able to renew the policy on terms acceptable to us. Insurers may require either exclusions of certain components or may place similar limitations on coverage in connection with insurance renewals for such satellites in the future. An uninsured loss of a satellite would have a material adverse effect on our financial performance. For further details see Note 17 to the financial statements.

Like other satellite operators, we are faced with increased launch and in-orbit insurance premiums and shorter coverage periods.

      Insurers also have made more stringent the coverage terms of our launch and in-orbit insurance. At the same time, the cost of obtaining this insurance has increased significantly. While these developments in the insurance industry have increased our cost of doing business, there can be no assurance that we will be able to pass the cost on to our customers. For further details see Note 17 to the consolidated financial statements.

Our satellite services businesses compete with other providers for market share and customers.

      We face significant competition in the transponder leasing business from companies such as PanAmSat, SES Global, New Skies, Intelsat and Eutelsat, many of which are larger and better capitalized. Competition may cause downward pressure on prices and may result in the reduced utilization of our fleet capacity, both of which may have an adverse effect on our financial performance.

      Furthermore, as a result of the sale of our North American fleet to Intelsat in March 2004, we are prohibited, subject to certain exceptions, until March 17, 2006, from engaging in the following activities:

      Our transponder leasing business also competes with fiber optic cable and other terrestrial delivery systems, which have a cost advantage in point-to-point applications. Competition in this sector has increased because there is an over-supply of transponders in the global market, existing customers are using less capacity and fewer new customers are entering the market than in past years. Moreover, we have had a higher rate of customer defaults than in previous years, a trend, if it continues, that may further increase overcapacity.

      Similarly, our network services business faces competition not only from other satellite-based providers, but also from providers of land-based data communications services, such as cable, DSL (digital subscriber line), wireless local loop and traditional telephone service providers. We will face further price pressure from these companies as they continue to compete for our Internet services.

      As land-based telecommunications services expand and become more sophisticated, demand for some satellite-based services may be reduced. New technology could render satellite-based services less competitive by satisfying consumer demand in other ways. We also compete for local regulatory approval in places where more than one provider may want to operate, and for scarce frequency assignments and fixed orbital positions.

The satellite manufacturing market continues to be highly competitive.

      SS/ L competes with several large, well-capitalized companies such as: Boeing and Lockheed Martin in the United States, and Alcatel Alenia Space and Astrium in Europe. In recent years the level of commercial awards per year has declined from the level of several years ago. In 2004, 2003 and 2002, 15, 19 and seven orders, respectively, were placed for commercial satellites of which only six, 16 and one were subject to a competitive bidding process. This compares to approximately 25 to 30 awards across the industry in each of 2001 and 2000. U.S. satellite manufacturers also must contend with export control regulations that put them at a disadvantage when competing for foreign customers. SS/ L, which had not won an order since December 2001, received orders for the construction of six satellites between October 2003 and February 2005. If SS/ L is not successful in sustaining a similar order rate and increasing its backlog this year and beyond, our financial performance would be materially and adversely affected.

SS/ L’s contracts are subject to adjustments, cost overruns and termination.

      SS/ L’s accounting for long-term contracts requires adjustments to profit and loss based on estimates revised during the execution of the contract. These adjustments may have a material effect on our consolidated financial position and our results of operations in the period in which they are made. The estimates giving rise to these risks, which are inherent in long-term, fixed-price contracts, include the forecasting of costs and schedules, contract revenues related to contract performance, and the potential for component obsolescence due to procurement long before assembly.

      SS/ L’s major contracts are primarily firm fixed-price contracts under which work performed and products shipped are paid for at a fixed price without adjustment for actual costs incurred. While cost savings under these fixed-price contracts result in gains to SS/ L, cost increases result in losses, borne solely by SS/ L. Under such contracts, SS/ L may receive progress payments, or it may receive partial payments upon the occurrence of certain program milestones. Moreover, some of SS/ L’s customers are start-up companies, and there can be no assurance that these companies will be able to fulfill their payment obligations under their contracts with SS/ L.

      SS/ L’s contracts are terminable for default for non-performance, including schedule delays. In that event, SS/ L is generally obligated to refund to the customer all payments received plus penalties, and SS/ L may be liable for damages. A termination for default could have a material adverse effect on SS/ L and us.

      In addition, many of SS/ L’s contracts and subcontracts may be terminated at will by the customer or the prime contractor. In the event of such a termination, SS/ L is normally entitled to recover the purchase price for delivered items, reimbursement for allowable costs for work in process, and an allowance for profit or an adjustment for loss, depending on whether completion of the project would have resulted in a profit or loss.

SS/ L may forfeit payments from customers as a result of satellite failures or losses after launch, or may be liable for penalty payments under certain circumstances, and these losses may be uninsured.

      Some of SS/ L’s satellite manufacturing contracts provide that some of the total price is payable as “incentive” payments earned over the life of the satellite. SS/ L generally does not insure for these payments and in some cases agrees with its customers not to insure them.

      SS/ L records the present value of incentive payments as revenue during the construction of the satellite. SS/ L generally receives the present value of these incentive payments if there is a launch failure or a failure caused by customer error. SS/ L forfeits some or all of these payments, however, if the loss is caused by satellite failure or as a result of its own error.

      Some of SS/ L’s contracts call for in-orbit delivery, transferring the launch risk to SS/ L. SS/ L generally insures against that exposure. In addition, some of SS/ L’s contracts provide that SS/ L may be liable to a customer for penalty payments under certain circumstances, including late delivery or that a portion of the price paid by the customer is subject to “warranty payback” in the event satellite anomalies were to develop (see Note 17 to the financial statements). These contingent liabilities are not insured by SS/ L.

We are subject to export controls, which may result in delays and additional costs.

      SS/ L is required by the U.S. State Department to obtain licenses and enter into technical assistance agreements to export satellites and related equipment, and to disclose technical data to foreign persons. The delayed receipt of or the failure to obtain the necessary licenses and agreements may interrupt the completion of a satellite contract by SS/ L and could lead to a customer’s cancellation of a contract, monetary penalties and/or the loss of incentive payments.

      Some of our customers and potential customers, along with insurance underwriters and brokers have raised concerns that U.S. export control laws and regulations excessively restrict their access to information about the satellite during construction and on-orbit. To the extent that our non-U.S. competitors are not subject to these export control laws and regulations, they may enjoy a competitive advantage with foreign customers, and, to the extent that our foreign competitors continue to gain market share, it could become increasingly difficult for the U.S. satellite manufacturing industry, including SS/ L, to recapture this lost market share.

Our business is regulated, causing uncertainty and additional costs.

      Multiple authorities regulate our business, including the Federal Communications Commission, the International Telecommunication Union (ITU) and the European Union. Regulatory authorities can modify, withdraw or impose charges or conditions upon, or deny or delay action on applications for, the licenses we need, and so increase our costs.

      To prevent frequency interference, the regulatory process requires potentially lengthy and costly negotiations with third parties who operate or intend to operate satellites at or near the locations of our satellites. For example, as part of our coordination effort on Telstar 12, we agreed to provide four 54 MHz transponders on Telstar 12 to Eutelsat for the life of the satellite and have retained risk of loss with respect to those transponders. We also granted Eutelsat the right to acquire, at cost, four transponders on the replacement satellite for Telstar 12. We are in discussions with various administrations regarding Telstar 12’s continued operation at 15 degrees W.L. If these coordination discussions are not successful, Telstar 12’s useable capacity may be reduced.

      Failure to successfully coordinate our satellites’ frequencies or to resolve other required regulatory approvals could have an adverse effect on our consolidated financial position and our results of operations. For further details, see Note 17 to the financial statements.

We face risks in conducting business internationally.

      For the year ended December 31, 2004, approximately 42% of our revenue was generated from customers outside of the United States. We could be harmed financially and operationally by changes in foreign regulations and telecommunications standards, tariffs or taxes and other trade barriers. Almost all of our contracts with foreign customers require payment in U.S. dollars, and customers in developing countries could have difficulty obtaining U.S. dollars to pay us due to currency exchange controls and other factors. Exchange rate fluctuations may adversely affect the ability of our customers to pay us in U.S. dollars. If we need to pursue legal remedies against our foreign business partners or customers, we may have to sue them abroad where it could be difficult for us to enforce our rights.

We share control of our affiliates with third parties.

      As a result, we do not have control over management of these entities. The rights of these third parties and fiduciary duties under applicable law could result in others acting or omitting to act in ways that are not in our best interest. To the extent that these entities are or become customers of SS/ L, these conflicts could become acute. For example, Hisdesat enjoys certain approval rights in XTAR, our X-band joint venture.

We rely on key personnel.

      We need highly qualified personnel. Except for Bernard L. Schwartz, our Chairman and Chief Executive Officer, none of our officers has an employment contract nor do we maintain “key man” life insurance. The departure of any of our key executives could have an adverse effect on our business.

      Litigation and disputes. We are involved in a number of ongoing lawsuits. For further details see Item 3, Legal Proceedings of this Annual Report on Form  10-K. In addition, we are involved in a number of disputes which might result in litigation. For example, we have brought an adversary proceeding against International Launch Services in the Bankruptcy Court seeking recovery of $37.5 million of deposits held by ILS. ILS has filed counterclaims in which it is seeking to recover damages, in an unspecified amount, as a result of our alleged failure to assign to ILS two satellite launches and $38 million in lost revenue due to our alleged failure to comply with a contractual obligation to assign to ILS the launch of another satellite. For further details, see Note 17 to the financial statements. If any of these lawsuits or disputes are decided against us it could have a material adverse affect on our financial condition and our results of operation.

      Globalstar. In April 2003, one of Globalstar’s creditors filed a motion seeking reconsideration of court approval of an agreement (the “Settlement Agreement”) between Loral and Globalstar and Globalstar’s official creditor’s committee in which, among other things, Globalstar granted to Loral, subject to certain conditions, a general release of all claims Globalstar might have against Loral. The court denied this motion for reconsideration in May 2003, and, in June 2003, the creditor filed with the Federal Appeals Court a notice of appeal of the court’s order approving the Settlement Agreement. 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.

      Shareholder Rights. Since we are a Bermuda company, the principles of law that govern shareholder rights, the validity of corporate procedures and other matters are different from those that would apply if we were a U.S. company. For example, it is not certain whether a Bermuda court would enforce liabilities against us or our officers and directors based upon United States securities laws either in an original action in Bermuda or under a United States judgment. Bermuda law giving shareholders the right to sue directors is less developed than in the United States and may provide shareholders fewer rights.

Other Matters

      We adopted certain new accounting pronouncements. See Consolidated Operating Results — Cumulative Effect of Change in Accounting Principle above and Note 3 to the financial statements.

      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 December 31, 2004, SS/ L had the following amounts denominated in Japanese Yen (which have been translated into U.S. dollars based on the December 31, 2004 exchange rate) that were unhedged (in millions):

      At December 31, 2004, SS/ L also had future expenditures in EUROs of 78,000 ($106,000 U.S.) that were unhedged.

      As a result of our Chapter 11 filing, all remaining $1.049 billion principal amount of our unsecured debt obligations at December 31, 2004 was accelerated and is included in liabilities subject to compromise.

      As of December 31, 2003, our primary interest rate exposure was from loss of earnings and cash flow that could result from the movement in market rates on our bank debt of $967 million, which had a blended interest rate of 5.47% and was repaid in full in March 2004. As a result of our Chapter 11 filing, all $2.2 billion principal amount of our debt at December 31, 2003 was accelerated and was included in liabilities subject to compromise.

      As of December 31, 2004, the carrying value of our debt obligations was $1.3 billion and its fair value was $475 million. As of December 31, 2003, the carrying value of our long-term debt was $2.2 billion and its fair value was $1.7 billion. The fair value of our debt obligations is based on the carrying value for those obligations that have short-term variable interest rates on the outstanding borrowings and quoted market prices for obligations with long-term or fixed interest rates. As of December 31, 2003, the fair value for the Loral Orion 11.25% and 12.5% senior notes was based on the quoted market price of the Loral Orion 10% senior notes, as there was no active market for those senior notes. Approximately $214 million of the difference between the carrying amount and the fair value of our debt obligations as of December 31, 2004 and 2003, is attributable to the accounting for the Loral Orion exchange offers (see Note 10 to the financial statements).

      See Index to Financial Statements and Financial Statement Schedules on page F-1.

      Not applicable.

      Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2004, have concluded that our disclosure controls and procedures were effective and designed to ensure that information relating to Loral and its consolidated subsidiaries required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission rules and forms.

      Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under such criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2004. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which is included below.

      There were no changes in our internal control over financial reporting during the quarter ended December 31, 2004 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

      Our management, including our chief executive officer and our chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

      To the Shareholders of Loral Space & Communications Ltd. (a Debtor In Possession)

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Loral Space & Communications Ltd. (a Bermuda Company) and its subsidiaries (collectively, the “Company”) (a Debtor In Possession) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of the Company and our report dated March 14, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule and included explanatory paragraphs which indicate that (1) the Company has classified certain of its operations as discontinued

operations in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and (2) the Company has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code and that (i) the consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings and (ii) the aforementioned matter, among others, raises substantial doubt about its ability to continue as a going concern.

/s/ DELOITTE & TOUCHE LLP

New York, NY

March 14, 2005

PART III

Directors

      The following sets forth information concerning Loral’s directors as of March 1, 2005.