The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements (the "financial statements") included in Item 1 and our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission.
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Topic Location Overview Page 38

Loral Space & Communications Inc., a Delaware corporation, together with its subsidiaries is a leading satellite communications company with substantial activities in satellite manufacturing and investments in satellite-based communications services. Loral was formed on June 24, 2005 to succeed to the business conducted by its predecessor registrant, Loral Space & Communications Ltd. ("Old Loral"), which emerged from chapter 11 of the federal bankruptcy laws on November 21, 2005 (the "Effective Date").
The terms, "Loral," the "Company," "we," "our" and "us," when used in this report with respect to the period prior to the Effective Date, are references to Old Loral, and when used with respect to the period commencing on and after the Effective Date, are references to Loral Space & Communications Inc. These references include the subsidiaries of Old Loral or Loral Space & Communications Inc., as the case may be, unless otherwise indicated or the context otherwise requires. The term "Parent Company" is a reference to Loral Space & Communications Inc., excluding its subsidiaries. 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, including without limitation, those relating to Telesat, 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. 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 has two operating segments, satellite manufacturing and satellite services. Loral participates in satellite services operations principally through its investment in Telesat.

Satellite Manufacturing
Space Systems/Loral, Inc. ("SS/L"), designs and manufactures satellites, space systems and space system components for commercial and government customers whose applications include fixed satellite services ("FSS"), direct-to-home ("DTH") broadcasting, mobile satellite services ("MSS"), broadband data distribution, wireless telephony, digital radio, digital mobile broadcasting, military communications, weather monitoring and air traffic management. 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, including depreciation and amortization, with an average of four to five satellite awards a year depending on the size, power, pricing and complexity of the satellite. 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. SS/L's cash receipts are tied to the achievement of contract milestones that depend in part on the ability of its 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 align the workforce to the workflow. While its requirement for ongoing capital investment to maintain its current capacity is relatively low, over the past two years SS/L has modified and expanded its manufacturing facilities to accommodate an expanded backlog. SS/L can now accommodate as many as nine to 13 satellite awards per year, depending on the complexity and timing of the specific satellites, and can accommodate the integration and test of 13 to 14 satellites at any given time in its Palo Alto facility. The expansion has also reduced the company's reliance on outside suppliers for certain RF components and sub-assemblies.
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 2,400 personnel is one of our key competitive resources.
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. As most of SS/L's contracts are fixed price, cost increases in excess of these provisions reduce profitability and may result in losses to SS/L, which may be material. Because the satellite manufacturing industry is highly competitive, buyers have the advantage over suppliers in negotiating pricing and terms and conditions resulting in reduced margins and increased assumptions of risk by manufacturers such as SS/L. Satellite Services
The satellite services business is capital intensive and the build-out of a satellite fleet requires substantial time and investment. Once these investments are made, however, the costs to maintain and operate the fleet are relatively low with the exception of in-orbit insurance. Upfront investments are earned back through the leasing of transponders to customers over the life of the satellite. After nearly 40 years of operation, Telesat has established collaborative relationships with its customers so annual receipts from the satellite services business are fairly predictable with long term contracts and high contract renewal rates.
Competition in the satellite services market has been intense in recent years due to a number of factors, including transponder over-capacity in certain geographic regions and increased competition from fiber. This competition puts pressure on prices, depending on market conditions in various geographic regions and frequency bands.
At September 30, 2009, Telesat provided satellite services to customers from its fleet of 11 in-orbit satellites. A 12th satellite, Nimiq 5, was launched on September 17, 2009 and placed into commercial service on October 10, 2009. These 12 satellites had, as of September 30, 2009, an average of approximately 59.5% service life remaining, with an average service life remaining of approximately 8.6 years. These figures are calculated using, for each satellite, the lesser of its manufacturers' design service life or its expected end-of-service life. Telesat has contracted for the sale of all of the capacity on Nimiq 5 for 15 years or such later date as its customer may request. Telesat currently has one satellite under construction: Telstar 14R/Estrela do Sul 2, which it anticipates will be operational in the second half of 2011. Nimiq 3, a leased satellite, was removed from commercial service on June 1, 2009. In July 2009, Telesat terminated its leasehold interest in Telstar 10. Telesat anticipates that it will begin construction on a new satellite for its customer, Bell TV, in the first half of 2010.
Future Outlook
Critical success factors for SS/L include maintaining its reputation for reliability, quality and superior customer service. These factors are vital to securing new customers and retaining current ones. At the same time, we must continue to contain costs and maximize efficiencies. SS/L is focused on increasing bookings and backlog, while maintaining and improving upon the cost efficiencies and process improvements realized over the past several years. SS/L must continue to align its direct workforce with the level of awards. Additionally, long-term growth at SS/L generates working capital requirements, primarily for the orbital component of the satellite contract which is payable to SS/L over the life of the satellite.

As of September 30, 2009, SS/L had booked five satellite awards for the year in addition to the seven satellites booked last year. While we expect the replacement market to be reliable over the next year, given the current condition of the credit markets, potential customers who are highly leveraged or in the development stage may not be able to obtain the financing necessary to purchase satellites. If SS/L's satellite awards fall below, on average, four to five awards per year, we expect that we will reduce costs and capital expenditures to accommodate this lower level of business. The timing of any reduced demand for satellites is difficult to predict. It is therefore also difficult to anticipate when to reduce costs and capital expenditures to match any slowdown in business, especially when SS/L has significant backlog business to perform. A delay in matching the timing of a reduction in business with a reduction in expenditures would adversely affect our results of operations and liquidity. In addition, in order to maintain its ability to compete as one of the leading prime contractors for technologically advanced space satellites, SS/L must continuously retain the services of a core group of specialists in a wide variety of disciplines for each phase of the design, development, manufacture and testing of its products, thus reducing SS/L's flexibility to take action to reduce workforce costs in the event of a slowdown or downturn in its business.
Loral holds a 64% economic interest and a 33 1/3% voting interest in Telesat, the world's fourth largest satellite operator with approximately $4.4 billion of backlog as of September 30, 2009.
Telesat is committed to continuing to provide the strong customer service and focus on innovation and technical expertise that has allowed it to successfully build its business to date. Building on its industry leading backlog and significant contracted growth, Telesat's focus is on taking disciplined steps to grow the core business and sell newly launched and existing in-orbit satellite capacity, and, in a disciplined manner, use the strong cash flow generated by existing business, contracted expansion satellites and cost savings to strengthen the business.
On July 16, 2009 Telesat announced its decision to procure a replacement for Telstar 14/Estrela do Sul at its current 63 degrees West orbital location. The new high powered Ku-band satellite will be known as Telstar 14R in most service regions and Estrela do Sul 2 in Brazil, and will have 58 transponder equivalents (36 MHz). Telesat anticipates the new satellite will be operational in the second half of 2011 - in time to assure continuity of service for customers of Telstar 14/Estrela do Sul.
Telesat has selected SS/L as the manufacturer for Telstar 14R and International Launch Services for the satellite's launch into geostationary orbit. Telstar 14R will have five coverage beams: Brazil, the Continental United States (including the Gulf of Mexico and northern Caribbean), the Southern Cone of South America, the Andean region (including Central America and southern Caribbean), and the North and Mid-Atlantic Ocean. The satellite's Atlantic beam will expand on the coverage of the Atlantic Ocean Region capacity of both Telstar 14 and Telstar 11N. Telstar 14R will utilize the SS/L1300 platform, will have a 15 year mission life, and a launch mass of approximately 5000 kg. Total spacecraft power will be approximately 11 kilowatts. Telesat will have the capability to switch amplifiers to different regions resulting in flexibility to match satellite capacity to market need.
On July 9, 2009 Telesat completed the transfer of its leasehold interests in Telstar 10 and related contracts to APT Satellite Company for a total consideration of approximately $69 million. As announced on June 1, 2009, Telstar 10 accounted for approximately 5% of Telesat's revenue and less than 1% of its contracted backlog. Telesat is presently not considering the sale of any of its remaining satellites.
Telesat believes it has a strong combination of backlog on existing satellites (including Nimiq 4 which started service in the fourth quarter of 2008 and Nimiq 5 which started service in October 2009) and additional capacity (on Telstar 11N which started service on March 31, 2009, on Telstar 14R which recently commenced construction and on the new satellite for Bell TV) which provide a solid foundation upon which it will seek to grow its revenues and cash flows. Telesat believes that it is well-positioned to serve its customers and the markets in which it participates. Telesat actively pursues opportunities to develop new satellites, particularly in conjunction with current or prospective customers, who will commit to a substantial amount of capacity at the time the satellite construction contract is signed. Although Telesat regularly pursues opportunities to develop new satellites, it does not procure additional or replacement satellites unless it believes there is a demonstrated need and a sound business plan for such capacity.

The satellite industry is characterized by a relatively fixed cost base that allows significant revenue growth with relatively minimal increases in operating costs, particularly for sales of satellite capacity. Thus, Telesat anticipates that it can increase its revenue without proportional increases in operating expenses, allowing for margin expansion. The fixed cost nature of the business, combined with contracted revenue growth and other growth opportunities is expected to produce growth in operating income and cash flow.
For the remainder of 2009, Telesat is focused on the execution of its business plan to serve its customers and the markets in which it participates, the sale of capacity on its existing satellites, the continuing efforts to achieve operating efficiencies, and on the completion and launch of its in-construction satellite (Telstar 14R) and its planned satellite for Bell TV.
We regularly explore and evaluate possible strategic transactions and alliances. We also periodically engage in discussions with satellite service providers, satellite manufacturers and others regarding such matters, which may include joint ventures and strategic relationships as well as business combinations or the acquisition or disposition of assets. In order to pursue certain of these opportunities, we may require additional funds. There can be no assurance that we will enter into additional strategic transactions or alliances, nor do we know if we will be able to obtain any necessary financing for the potential transactions on acceptable terms, if at all. In connection with the Telesat transaction, Loral has agreed that, subject to certain exceptions described in Telesat's shareholders agreement, for so long as Loral has an interest in Telesat, it will not compete in the business of leasing, selling or otherwise furnishing fixed satellite service, broadcast satellite service or audio and video broadcast direct to home service using transponder capacity in the C-band, Ku-band and Ka-band (including in each case extended band) frequencies and the business of providing end-to-end data solutions on networks comprised of earth terminals, space segment, and, where appropriate, networking hubs. Consolidated Operating Results
See Critical Accounting Matters in our latest Annual Report on Form 10-K filed with the SEC and Note 2 to the financial statements.
Changes in Critical Accounting Policies - There have been no changes in our critical accounting policies during the nine months ended September 30, 2009. Consolidated Operating Results - The following discussion of revenues and Adjusted EBITDA reflects the results of our operating business segments for the three and nine months ended September 30, 2009 and 2008. The balance of the discussion relates to our consolidated results, unless otherwise noted. The common definition of EBITDA is "Earnings Before Interest, Taxes, Depreciation and Amortization." In evaluating financial performance, we use revenues and operating (loss) income before depreciation, amortization and stock-based compensation (including stock-based compensation from SS/L phantom stock appreciation rights expected to be settled in Loral common stock) ("Adjusted EBITDA") as the measure of a segment's profit or loss. Adjusted EBITDA is equivalent to the common definition of EBITDA before gain on litigation recovery, impairment of available for sale securities, Satellite Services gain on disposition of long-lived assets, other expense and equity in net income (losses) of affiliates.
Adjusted EBITDA allows us and investors to compare our operating results with that of competitors exclusive of depreciation and amortization, interest and investment income, interest expense, gain on litigation recovery, impairment of available for sale securities, Satellite Services gain on disposition of long-lived assets, other expense and equity in net income (losses) of affiliates. Financial results of competitors in our industry have significant variations that can result from timing of capital expenditures, the amount of intangible assets recorded, the differences in assets' lives, the timing and amount of investments, the effects of other income (expense), which are typically for non-recurring transactions not related to the on-going business, and effects of investments not directly managed. The use of Adjusted EBITDA allows us and investors to compare operating results exclusive of these items. Competitors in our industry have significantly different capital structures. The use of Adjusted EBITDA maintains comparability of performance by excluding interest expense.
We believe the use of Adjusted EBITDA along with U.S. GAAP financial measures enhances the understanding of our operating results and is useful to us and investors in comparing performance with competitors, estimating enterprise value and making investment decisions. Adjusted EBITDA as used here may not be comparable to similarly titled measures reported by competitors. We also use Adjusted EBITDA to evaluate operating performance of our segments, to allocate resources and capital to such segments, to measure performance for incentive compensation programs and to evaluate future growth opportunities. Adjusted EBITDA should be used in conjunction with U.S. GAAP financial measures and is not presented as an alternative to cash flow from operations as a measure of our liquidity or as an alternative to net income as an indicator of our operating performance.

Loral has two segments: Satellite Manufacturing and Satellite Services. Our segment reporting data includes unconsolidated affiliates that meet the reportable segment criteria. The satellite services segment includes 100% of the results reported by Telesat. Although we analyze Telesat's revenue and expenses under the satellite services segment, we eliminate its results in our consolidated financial statements, where we report our 64% share of Telesat's results under the equity method of accounting.
The following reconciles Revenues and Adjusted EBITDA on a segment basis to the information as reported in our financial statements:
Revenues:

                                        Three Months                 Nine Months
                                    Ended September 30,          Ended September 30,
                                     2009           2008          2009          2008
                                       (In thousands)               (In thousands)
      Satellite Manufacturing     $     253.5     $  216.3     $    745.8     $   646.3
      Satellite Services                170.5        169.7          507.9         508.6

      Segment revenues                  424.0        386.0        1,253.7       1,154.9
      Eliminations(1)                    (4.3 )       (3.8 )        (12.6 )        (7.2 )
      Affiliate eliminations(2)        (170.5 )     (169.7 )       (507.9 )      (508.6 )

      Revenues as reported(3)     $     249.2     $  212.5     $    733.2     $   639.1

Satellite Manufacturing segment revenues increased by $37 million for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008, primarily as a result of increased revenues from new orders received subsequent to September 30, 2008, partially offset by reduced revenue from programs completed or nearing completion. Satellite Services segment revenues increased $1 million for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008 due primarily to revenues generated by the Nimiq 4 and Telstar 11N satellites, which entered service subsequent to September 30, 2008, substantially offset by lower revenues from the impact of U.S. dollar/Canadian dollar exchange rate changes on Canadian dollar denominated revenues, the cancellation of Telesat's lease on Telstar 10 in July 2009, the removal from service of Nimiq 4i and Nimiq 3 in the first half of 2009 and the scheduled turndown of certain transponders on Nimiq 2. Satellite Services segment revenues would have increased by approximately $5 million for the three months ended September 30, 2009 as compared with the three months ended September 30, 2008 if the U.S. dollar / Canadian dollar exchange rate had been unchanged between the two periods.
Satellite Manufacturing segment revenues increased by $100 million for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008 primarily as a result of increased revenues from new orders received subsequent to September 30, 2008, partially offset by reduced revenues from programs completed or nearing completion. Satellite Services segment revenues decreased by $1 million for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008 primarily due to the impact of U.S. dollar/Canadian dollar exchange rate changes on Canadian dollar denominated revenues, the cancellation of Telesat's lease on Telstar 10 in July 2009, the removal from service of Nimiq 4i and Nimiq 3 in the first half of 2009 and the scheduled turndown of certain transponders on Nimiq 2, substantially offset by revenues generated by the Nimiq 4 and Telstar 11N satellites, which entered service subsequent to September 30, 2008. Satellite Services segment revenues would have increased by approximately $40 million for the nine months ended September 30, 2009 as compared with the nine months ended September 30, 2008 if the U.S. dollar / Canadian dollar exchange rate had been unchanged between the two periods.
Adjusted EBITDA:

                                              Three Months                    Nine Months
                                          Ended September 30,             Ended September 30,
                                          2009            2008            2009            2008
                                             (In thousands)                  (In thousands)
Satellite Manufacturing                $      31.6      $     9.6      $      54.2      $    24.5
Satellite Services                           117.8          108.2            352.0          319.4
Corporate expenses(4)                         (4.4 )         (3.4 )          (15.2 )         (9.7 )

Segment Adjusted EBITDA before
eliminations                                 145.0          114.4            391.0          334.2
Eliminations(1)                               (0.3 )         (0.3 )           (1.4 )         (0.8 )
Affiliate eliminations(2)                   (117.8 )       (108.2 )         (352.0 )       (313.2 )

Adjusted EBITDA                        $      26.9      $     5.9      $      37.6      $    20.2

Satellite Manufacturing segment Adjusted EBITDA increased $22 million for the three months ended September 30, 2009 compared with the three months ended September 30, 2008 primarily due to an improvement in margins of $22 million resulting primarily from scope increases and improved performance on certain satellite construction contracts, a decrease of $4 million in losses on foreign exchange forward contracts and a reduction in research and development expense of $4 million as a result of completion of a significant project that was being performed in 2008, partially offset by a $3 million increase in the allowance for billed receivables, a $4 million reduction in accruals for orbital support costs in 2008 and a $3 million increase in pension costs. Satellite Services segment Adjusted EBITDA increased by $10 million for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008 primarily due to the revenue increase described above, expense reductions in 2009 and the impact of U.S. dollar/Canadian dollar exchange rate changes on Canadian dollar denominated expenses. Satellite Services segment Adjusted EBITDA would have increased by approximately $15 million for the three months ended September 30, 2009 as compared with the three months ended September 30, 2008 if the U.S. dollar / Canadian dollar exchange rate had been unchanged between the two periods. Corporate expenses increased by $1 million for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008 primarily due to an increase in charges for deferred compensation resulting from an increase in the fair value of our common stock.
Satellite Manufacturing segment Adjusted EBITDA increased $30 million for the nine months ended September 30, 2009 compared with the nine months ended September 30, 2008 primarily due to an improvement in margins of $34 million . . .