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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

Commission file number 1-14180

Loral Space & Communications Ltd.

c/o Loral SpaceCom Corporation

600 Third Avenue
New York, New York 10016
Telephone: (212) 697-1105

Jurisdiction of incorporation: Bermuda

IRS identification number: 13-3867424

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

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

      As of July 31, 2004, there were 44,125,202 shares of Loral Space & Communications Ltd. common stock outstanding.

TABLE OF CONTENTS

PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended June 30, 2004
Six Months Ended June 30, 2004
Three Months Ended June 30, 2003(7)
Six Months Ended June 30, 2003(7)
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
COMPUTATION OF DEFICIENCY OF EARNINGS
CERTIFICATION
CERTIFICATION
CERTIFICATION
CERTIFICATION

Table of Contents

PART 1.

FINANCIAL INFORMATION
 
Item 1. Financial Statements

LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)
(Unaudited)
                       
June 30, December 31,
2004 2003
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 186,659     $ 141,644  
 
Accounts receivable, net
    13,816       22,969  
 
Contracts-in-process
    46,658       62,063  
 
Inventories
    38,929       42,456  
 
Insurance proceeds receivable
    —       122,770  
 
Other current assets
    23,614       36,004  
     
     
 
     
Total current assets
    309,676       427,906  
Property, plant and equipment, net
    929,350       1,828,282  
Long-term receivables
    82,105       70,749  
Investments in and advances to affiliates
    48,193       46,674  
Deposits
    9,000       9,000  
Other assets
    53,799       73,130  
     
     
 
     
Total assets
  $ 1,432,123     $ 2,455,741  
     
     
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Liabilities not subject to compromise:
               
 
Current liabilities:
               
   
Accounts payable
  $ 32,241     $ 50,656  
   
Accrued employment costs
    28,861       23,532  
   
Customer advances and billings in excess of costs and profits
    335,899       239,225  
   
Deferred gain on sale of assets (Note 4)
    20,646       —  
   
Accrued interest and preferred dividends
    —       1,319  
   
Income taxes payable
    5,236       269  
   
Other current liabilities
    19,193       9,870  
     
     
 
     
Total current liabilities
    442,076       324,871  
 
Pension and other postretirement liabilities
    21,116       10,983  
 
Long-term liabilities
    44,904       66,947  
     
     
 
     
Total liabilities not subject to compromise
    508,096       402,801  
Liabilities subject to compromise (Note 11)
    1,872,946       2,906,095  
Minority interest
    2,389       2,515  
Commitments and contingencies (Notes 2, 9, 11, 12, and 15)
               
Shareholders’ deficit:
               
 
Common stock, $.10 par value
    4,413       4,413  
 
Paid-in capital
    3,392,829       3,392,829  
 
Treasury stock, at cost
    (3,360 )     (3,360 )
 
Unearned compensation
    (127 )     (168 )
 
Retained deficit
    (4,273,841 )     (4,171,536 )
 
Accumulated other comprehensive loss
    (71,222 )     (77,848 )
     
     
 
     
Total shareholders’ deficit
    (951,308 )     (855,670 )
     
     
 
     
Total liabilities and shareholders’ deficit
  $ 1,432,123     $ 2,455,741  
     
     
 

See notes to condensed consolidated financial statements.

1

Table of Contents

LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)
(Unaudited)
                                   
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Revenues from satellite services
  $ 38,730     $ 38,792     $ 67,981     $ 79,201  
Revenues from satellite manufacturing
    74,973       71,207       149,406       186,244  
     
     
     
     
 
 
Total revenues
    113,703       109,999       217,387       265,445  
Cost of satellite services
    52,611       46,985       116,192       93,878  
Cost of satellite manufacturing
    79,232       153,281       147,531       283,417  
Selling, general and administrative expenses
    30,794       34,709       62,361       66,199  
     
     
     
     
 
Loss from continuing operations before reorganization expenses due to bankruptcy
    (48,934 )     (124,976 )     (108,697 )     (178,049 )
Reorganization expenses due to bankruptcy
    (9,555 )     —       (17,870 )     —  
     
     
     
     
 
Operating loss from continuing operations
    (58,489 )     (124,976 )     (126,567 )     (178,049 )
Interest and investment income
    2,473       3,795       5,034       10,841  
Interest expense (contractual interest was $12,722 and $25,585 for the three and six months ended June 30, 2004, respectively, see Note 12)
    (1,846 )     (7,942 )     (3,833 )     (16,448 )
Gain on investment
    —       16,793       —       17,900  
     
     
     
     
 
Loss from continuing operations before income taxes, equity income (losses) in affiliates and minority interest
    (57,862 )     (112,330 )     (125,366 )     (165,756 )
Income tax (provision) benefit
    (11,987 )     2,966       (12,183 )     6,799  
     
     
     
     
 
Loss from continuing operations before equity income (losses) in affiliates and minority interest
    (69,849 )     (109,364 )     (137,549 )     (158,957 )
Equity income (losses) in affiliates (Note 9)
    46,983       (8,335 )     46,580       (16,838 )
Minority interest
    39       15       126       (24 )
     
     
     
     
 
Loss from continuing operations
    (22,827 )     (117,684 )     (90,843 )     (175,819 )
(Loss) income from discontinued operations (Note 4)
    158       8,280       (11,462 )     18,241  
     
     
     
     
 
Loss before extraordinary gain on acquisition of minority interest
    (22,669 )     (109,404 )     (102,305 )     (157,578 )
Extraordinary gain on acquisition of minority interest
    —       13,615       —       13,615  
     
     
     
     
 
Net loss
    (22,669 )     (95,789 )     (102,305 )     (143,963 )
Preferred dividends
    —       (3,359 )     —       (6,719 )
     
     
     
     
 
Net loss applicable to common shareholders
  $ (22,669 )   $ (99,148 )   $ (102,305 )   $ (150,682 )
     
     
     
     
 
Basic and diluted (loss) earnings per share (Note 16):
                               
 
Continuing operations
  $ (0.51 )   $ (2.76 )   $ (2.06 )   $ (4.19 )
 
Discontinued operations
    —       0.19       (0.26 )     0.42  
     
     
     
     
 
 
Loss before extraordinary gain on acquisition of minority interest
    (0.51 )     (2.57 )     (2.32 )     (3.77 )
 
Extraordinary gain on acquisition of minority interest
    —       0.31       —       0.31  
     
     
     
     
 
 
Loss per share
  $ (0.51 )   $ (2.26 )   $ (2.32 )   $ (3.46 )
     
     
     
     
 
Weighted average shares outstanding:
                               
 
Basic and diluted
    44,125       43,850       44,125       43,531  
     
     
     
     
 

See notes to condensed consolidated financial statements.

2

Table of Contents

LORAL SPACE & COMMUNICATIONS LTD., A DEBTOR IN POSSESSION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)
</
                   
Six Months Ended
June 30,
2004 2003
Operating activities:
               
Net loss
  $ (102,305 )   $ (143,963 )
Non-cash items:
               
 
Loss (income) from discontinued operations
    11,462       (18,241 )
 
Equity (income) losses in affiliates
    (46,580 )     16,838  
 
Minority interest
    (126 )     24  
 
Extraordinary gain on acquisition of minority interest
    —       (13,615 )
 
Deferred taxes
    11,434       3,395  
 
Depreciation and amortization
    84,121       59,648  
 
Valuation allowance on vendor financing receivables
    —       10,008  
 
Provisions for bad debts
    358       1,799  
 
Loss on cancellation of deposits
    —       23,500  
 
Loss on acceleration of receipt of long-term receivables
    —       10,893  
 
Accrual for Alcatel settlement
    —       8,000  
 
Impairment charge on satellite and related assets
    11,989       —  
 
Loss on equipment disposals
    —       86  
 
Adjustment to revenue straightlining assessment
    1,149       2,547  
 
Gain on investment
    —       (17,900 )
 
Non-cash net (gain) loss on foreign currency transactions and interest
    (2,230 )     6,801  
 
Provisions for inventory obsolescence
    287       23,957  
Changes in operating assets and liabilities:
               
 
Accounts receivable, net
    8,086       (4,509 )
 
Contracts-in-process
    29,856       68,359  
 
Inventories
    3,240       (1,683 )
 
Long-term receivables
    (6,264 )     54,588  
 
Other current assets and other assets
    (2,699 )     7,224  
 
Accounts payable
    (8,452 )     (13,480 )
 
Accrued expenses and other current liabilities
    (1,964 )     (9,058 )
 
Customer advances
    72,220       (46,182 )
 
Income taxes payable
    (814 )     (872 )
 
Pension and other postretirement liabilities
    9,039       5,479  
 
Long-term liabilities
    (3,362 )     (5,180 )
 
Other
    6       (82 )
     
     
 
Net cash provided by operating activities
    68,451       28,381  
     
     
 
Net cash provided by discontinued operations
    29,445       48,764  
     
     
 
Investing activities:
               
 
Capital expenditures for continuing operations
    (23,630 )     (32,950 )
 
Capital expenditures for discontinued operations
    (11,185 )     (17,036 )
 
Proceeds from the sales of assets, net of expenses (Note 2)
    953,619       —  
 
Proceeds from sale of investment
    —       45,908  
 
Investments in and advances to affiliates
    (4,798 )     (11,715 )
     
     
 
Net cash provided by (used in) investing activities
    914,006       (15,793 )
     
     
 
Financing activities:
               
 
Repayments of term loans
    (576,500 )     (32,500 )
 
Repayments of revolving credit facilities
    (390,387 )     —  
 
Borrowings under revolving credit facilities
    —       66,000  
 
Interest payments on 10% senior notes
    —       (30,635 )
 
Repayments of other long-term obligations
    —       (1,072 )
 
Proceeds from other stock issuances
    —       3,817  
 
Payment of bank amendment costs
    —       (5,131 )
     
     
 
Net cash (used in) provided by financing activities
    (966,887 )     479  
     
     
 
Increase in cash and cash equivalents
    45,015       61.831  
 
Cash and cash equivalents — beginning of period
    141,644       65,936