##### 









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31,
2003

Commission File Number 1-14180

Loral Space & Communications
Ltd.

c/o Loral SpaceCom Corporation

600 Third Avenue

New York, New York 10016


Telephone: (212) 697-1105


Jurisdiction of incorporation:
Bermuda

IRS identification number:
13-3867424

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

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

As of April 30, 2003, there were 437,507,302
shares of Loral Space & Communications Ltd. common stock
outstanding.



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##### 



PART 1.

FINANCIAL INFORMATION

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATED BALANCE
SHEETS

(In thousands, except par values)


(Unaudited)


|                                                   |                                                                                                               |                                             |           |              |           |   |           |            |           |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------- | ------------ | --------- | - | --------- | ---------- | --------- | -
|                                                   |                                                                                                               | March 31,                                   |           | December 31,
|                                                   |                                                                                                               | 2003                                        |           | 2002        
|                                                   |                                                                                                               |                                             |           |             
|ASSETS                                            
|Current assets:                                    |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   | Cash and cash equivalents                                                                                     |                                             | $         | 101,501      |           |   | $         | 65,936     |          
|                                                   | Accounts receivable, net                                                                                      |                                             |           | 31,566       |           |   |           | 28,893     |          
|                                                   | Contracts-in-process                                                                                          |                                             |           | 77,467       |           |   |           | 113,154    |          
|                                                   | Vendor financing receivables                                                                                  |                                             |           |             |           |   |           | 38,016     |          
|                                                   | Inventories                                                                                                   |                                             |           | 96,339       |           |   |           | 95,733     |          
|                                                   | Other current assets                                                                                          |                                             |           | 69,845       |           |   |           | 48,695     |          
|                                                   |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   |                                                                                                               | Total current assets                        |           |              | 376,718   |   |           |            | 390,427   |  
|Property, plant and equipment, net                 |                                                                                                               |                                             | 1,882,532 |              |           |   | 1,897,343 |           
|Long-term receivables                              |                                                                                                               |                                             | 164,051   |              |           |   | 163,191   |           
|Investments in and advances to affiliates          |                                                                                                               |                                             | 87,454    |              |           |   | 95,443    |           
|Deposits                                           |                                                                                                               |                                             | 58,250    |              |           |   | 58,250    |           
|Other assets                                       |                                                                                                               |                                             | 84,622    |              |           |   | 88,148    |           
|                                                   |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   |                                                                                                               | Total assets                                |           | $            | 2,653,627 |   |           | $          | 2,692,802 |  
|                                                   |                                                                                                               |                                             |           |              |           |   |           |           
|LIABILITIES AND SHAREHOLDERS
    (DEFICIT) EQUITY
|Current liabilities:                               |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   | Current portion of long-term debt                                                                             |                                             | $         | 146,774      |           |   | $         | 131,898    |          
|                                                   | Accounts payable                                                                                              |                                             |           | 63,699       |           |   |           | 58,323     |          
|                                                   | Accrued employment costs                                                                                      |                                             |           | 42,173       |           |   |           | 34,531     |          
|                                                   | Customer advances                                                                                             |                                             |           | 81,718       |           |   |           | 114,080    |          
|                                                   | Accrued interest and preferred dividends                                                                      |                                             |           | 29,324       |           |   |           | 37,370     |          
|                                                   | Income taxes payable                                                                                          |                                             |           | 37,545       |           |   |           | 37,936     |          
|                                                   | Other current liabilities                                                                                     |                                             |           | 52,006       |           |   |           | 47,005     |          
|                                                   |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   |                                                                                                               | Total current liabilities                   |           |              | 453,239   |   |           |            | 461,143   |  
|Pension and other postretirement liabilities       |                                                                                                               |                                             | 126,813   |              |           |   | 124,193   |           
|Long-term liabilities                              |                                                                                                               |                                             | 209,271   |              |           |   | 207,835   |           
|Long-term debt                                     |                                                                                                               |                                             | 2,115,355 |              |           |   | 2,112,627 |           
|Minority interest                                  |                                                                                                               |                                             | 16,189    |              |           |   | 16,150    |           
|Convertible redeemable preferred stock:            |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   | 6% Series C ($118,496 and $106,009
    redemption value), $.01 par value                                      |                                             |           | 116,901      |           |   |           | 104,582    |          
|                                                   | 6% Series D ($23,610 and $21,122 redemption
    value), $.01 par value                                        |                                             |           | 22,913       |           |   |           | 20,499     |          
|Commitments and contingencies (Notes 8, 9 and 10)  |                                                                                                               |                                             |           |              |           |   |           |           
|Shareholders (deficit) equity:                    |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   | 6% Series C convertible redeemable preferred
    stock ($68,778 and $81,265 redemption value), $.01 par value |                                             |           | 67,852       |           |   |           | 80,171     |          
|                                                   | 6% Series D convertible redeemable preferred
    stock ($13,097 and $15,585 redemption value), $.01 par value |                                             |           | 12,711       |           |   |           | 15,125     |          
|                                                   | Common stock, $.01 par value                                                                                  |                                             |           | 4,356        |           |   |           | 4,293      |          
|                                                   | Paid-in capital                                                                                               |                                             |           | 3,391,220    |           |   |           | 3,389,035  |          
|                                                   | Treasury stock                                                                                                |                                             |           | (3,360       | )         |   |           | (3,360     | )        
|                                                   | Unearned compensation                                                                                         |                                             |           | (228         | )         |   |           | (151       | )        
|                                                   | Retained deficit                                                                                              |                                             |           | (3,833,641   | )         |   |           | (3,782,107 | )        
|                                                   | Accumulated other comprehensive loss                                                                          |                                             |           | (45,964      | )         |   |           | (57,233    | )        
|                                                   |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   |                                                                                                               | Total shareholders deficit                 |           |              | (407,054  | ) |           |            | (354,227  | )
|                                                   |                                                                                                               |                                             |           |              |           |   |           |           
|                                                   |                                                                                                               | Total liabilities and shareholders deficit |           | $            | 2,653,627 |   |           | $          | 2,692,802 |  
|                                                   |                                                                                                               |                                             |           |              |           |   |           |           

See notes to condensed consolidated financial
statements.

2



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##### 



LORAL SPACE & COMMUNICATIONS
LTD.



CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
amounts)


(Unaudited)


|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------ | ------- | ------- | - | - | -------- | ------- | -
|                                                                                                                                                         |                                                                |                   
|                                                                                                                                                         |                                                                | Three Months Ended
|                                                                                                                                                         |                                                                | March 31,         
|                                                                                                                                                         |                                                                |                   
|                                                                                                                                                         |                                                                | 2003               |         | 2002   
|                                                                                                                                                         |                                                                |                    |         |        
|Revenues from satellite sales                                                                                                                            |                                                                | $                  | 115,037 |         |   | $ | 198,471  |        
|Revenues from satellite services                                                                                                                         |                                                                |                    | 83,196  |         |   |   | 109,705  |        
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|                                                                                                                                                         | Total revenues                                                 |                    |         | 198,233 |   |   |          | 308,176 |  
|Cost of satellite sales                                                                                                                                  |                                                                |                    | 130,136 |         |   |   | 186,428  |        
|Cost of satellite services                                                                                                                               |                                                                |                    | 61,166  |         |   |   | 66,296   |        
|Selling, general and administrative expenses                                                                                                             |                                                                |                    | 35,930  |         |   |   | 40,747   |        
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|Operating (loss) income                                                                                                                                  |                                                                |                    | (28,999 | )       |   |   | 14,705   |        
|Interest and investment income                                                                                                                           |                                                                |                    | 7,046   |         |   |   | 5,409    |        
|Interest expense                                                                                                                                         |                                                                |                    | (16,804 | )       |   |   | (18,570  | )      
|Gain on investment                                                                                                                                       |                                                                |                    | 1,107   |         |   |   |         |        
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|(Loss) income before income taxes, equity in net
    losses of affiliates, minority interest and cumulative effect of
    change in accounting principle |                                                                |                    | (37,650 | )       |   |   | 1,544    |        
|Income tax expense                                                                                                                                       |                                                                |                    | (1,982  | )       |   |   | (5,528   | )      
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|Loss before equity in net losses of affiliates,
    minority interest and cumulative effect of change in accounting
    principle                        |                                                                |                    | (39,632 | )       |   |   | (3,984   | )      
|Equity in net losses of affiliates, net of taxes
    of $968 in 2002                                                                                     |                                                                |                    | (8,503  | )       |   |   | (15,950  | )      
|Minority interest, net of taxes                                                                                                                          |                                                                |                    | (39     | )       |   |   | 74       |        
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|Loss before cumulative effect of change in
    accounting principle                                                                                      |                                                                |                    | (48,174 | )       |   |   | (19,860  | )      
|Cumulative effect of change in accounting
    principle, net of taxes of $13,809 in 2002                                                                 |                                                                |                    |        |         |   |   | (876,500 | )      
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|Net loss                                                                                                                                                 |                                                                |                    | (48,174 | )       |   |   | (896,360 | )      
|Preferred dividends                                                                                                                                      |                                                                |                    | (3,360  | )       |   |   | (11,963  | )      
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|Net loss applicable to common shareholders                                                                                                               |                                                                | $                  | (51,534 | )       |   | $ | (908,323 | )      
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|Basic and diluted loss per share:                                                                                                                        |                                                                |                    |         |         |   |   |          |        
|                                                                                                                                                         | Before cumulative effect of change in accounting
    principle |                    | $       | (0.12   | ) |   | $        | (0.09   | )
|                                                                                                                                                         | Cumulative effect of change in accounting
    principle        |                    |         |        |   |   |          | (2.60   | )
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|                                                                                                                                                         | Loss per share                                                 |                    | $       | (0.12   | ) |   | $        | (2.69   | )
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        
|Weighted average shares outstanding:                                                                                                                     |                                                                |                    |         |         |   |   |          |        
|                                                                                                                                                         | Basic and diluted                                              |                    |         | 432,126 |   |   |          | 337,052 |  
|                                                                                                                                                         |                                                                |                    |         |         |   |   |          |        

See notes to condensed consolidated financial
statements.

3



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##### 



LORAL SPACE & COMMUNICATIONS
LTD.



CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


(Unaudited)


|                                                        |                                                                     |                                                                       |         |         |         |   |         |          |         |  
|------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------------------------------------------- | ------- | ------- | ------- | - | ------- | -------- | ------- | -
|                                                        |                                                                     |                                                                      
|                                                        |                                                                     | Three Months Ended                                                   
|                                                        |                                                                     | March 31,                                                            
|                                                        |                                                                     |                                                                      
|                                                        |                                                                     | 2003                                                                  |         | 2002   
|                                                        |                                                                     |                                                                       |         |        
|Operating activities:                                   |                                                                     |                                                                       |         |         |         |   |         |         
|                                                        | Net loss                                                            |                                                                       | $       | (48,174 | )       |   | $       | (896,360 | )      
|                                                        | Non-cash items:                                                     |                                                                       |         |         |         |   |         |          |        
|                                                        |                                                                     | Equity in net losses of affiliates, net of taxes                      |         |         | 8,503   |   |         |          | 15,950  |  
|                                                        |                                                                     | Minority interest, net of taxes                                       |         |         | 39      |   |         |          | (74     | )
|                                                        |                                                                     | Cumulative effect of change in accounting
    principle, net of taxes |         |         |        |   |         |          | 876,500 |  
|                                                        |                                                                     | Deferred taxes                                                        |         |         | 1,663   |   |         |          | 3,510   |  
|                                                        |                                                                     | Depreciation and amortization                                         |         |         | 44,817  |   |         |          | 47,066  |  
|                                                        |                                                                     | Charge on vendor financing receivables                                |         |         | 10,008  |   |         |          |        |  
|                                                        |                                                                     | Provisions for inventory obsolescence                                 |         |         |        |   |         |          | 3,013   |  
|                                                        |                                                                     | Provisions for bad debts                                              |         |         | 3,963   |   |         |          | 987     |  
|                                                        |                                                                     | Gain on investment                                                    |         |         | (1,107  | ) |         |          |        |  
|                                                        |                                                                     | Non-cash interest                                                     |         |         | (420    | ) |         |          | (141    | )
|                                                        | Changes in operating assets and liabilities:                        |                                                                       |         |         |         |   |         |          |        
|                                                        |                                                                     | Accounts receivable                                                   |         |         | (6,636  | ) |         |          | (4,063  | )
|                                                        |                                                                     | Contracts-in-process                                                  |         |         | 36,656  |   |         |          | 11,649  |  
|                                                        |                                                                     | Inventories                                                           |         |         | (606    | ) |         |          | (8,351  | )
|                                                        |                                                                     | Long-term receivables                                                 |         |         | (860    | ) |         |          | (4,416  | )
|                                                        |                                                                     | Deposits                                                              |         |         |        |   |         |          | (5,800  | )
|                                                        |                                                                     | Other current assets and other assets                                 |         |         | 12,342  |   |         |          | 11,526  |  
|                                                        |                                                                     | Accounts payable                                                      |         |         | 5,344   |   |         |          | 12,358  |  
|                                                        |                                                                     | Accrued expenses and other current liabilities                        |         |         | (1,466  | ) |         |          | (851    | )
|                                                        |                                                                     | Customer advances                                                     |         |         | (32,362 | ) |         |          | 28,115  |  
|                                                        |                                                                     | Income taxes payable                                                  |         |         | (391    | ) |         |          | 1,176   |  
|                                                        |                                                                     | Pension and other postretirement liabilities                          |         |         | 2,620   |   |         |          | 2,213   |  
|                                                        |                                                                     | Long-term liabilities                                                 |         |         | (2,737  | ) |         |          | (5,307  | )
|                                                        |                                                                     | Other                                                                 |         |         | 419     |   |         |          | (177    | )
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|Net cash provided by operating activities               |                                                                     |                                                                       | 31,615  |         |         |   | 88,523  |         
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|Investing activities:                                   |                                                                     |                                                                       |         |         |         |   |         |         
|                                                        | Capital expenditures                                                |                                                                       |         | (23,240 | )       |   |         | (51,035  | )      
|                                                        | Investments in and advances to affiliates                           |                                                                       |         | (514    | )       |   |         | (9,614   | )      
|                                                        | Proceeds from sale of investment                                    |                                                                       |         | 9,704   |         |   |         |         |        
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|Net cash used in investing activities                   |                                                                     |                                                                       | (14,050 | )       |         |   | (60,649 | )       
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|Financing activities:                                   |                                                                     |                                                                       |         |         |         |   |         |         
|                                                        | Borrowings under revolving credit facilities                        |                                                                       |         | 66,000  |         |   |         | 2,000    |        
|                                                        | Repayments under term loans                                         |                                                                       |         | (16,250 | )       |   |         | (16,250  | )      
|                                                        | Repayments under revolving credit facilities                        |                                                                       |         |        |         |   |         | (56,000  | )      
|                                                        | Interest payments on 10% senior notes                               |                                                                       |         | (30,634 | )       |   |         |         |        
|                                                        | Repayments of other long-term obligations                           |                                                                       |         | (1,090  | )       |   |         | (330     | )      
|                                                        | Payment of bank amendment costs                                     |                                                                       |         | (2,183  | )       |   |         |         |        
|                                                        | Preferred dividends                                                 |                                                                       |         |        |         |   |         | (11,963  | )      
|                                                        | Proceeds from stock issuances                                       |                                                                       |         | 2,157   |         |   |         | 2,857    |        
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|Net cash provided by (used in) financing
    activities |                                                                     |                                                                       | 18,000  |         |         |   | (79,686 | )       
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|Increase (decrease) in cash and cash
    equivalents    |                                                                     |                                                                       | 35,565  |         |         |   | (51,812 | )       
|Cash and cash equivalents  beginning
    of period     |                                                                     |                                                                       | 65,936  |         |         |   | 159,949 |         
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|Cash and cash equivalents  end of
    period           |                                                                     | $                                                                     | 101,501 |         |         | $ | 108,137 |         
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|Non-cash activities:                                    |                                                                     |                                                                       |         |         |         |   |         |         
|                                                        | Unrealized gains on available-for-sale
    securities, net of taxes |                                                                       | $       | 10,421  |         |   | $       | 6,494    |        
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|                                                        | Accrual of preferred dividends                                      |                                                                       | $       | 3,360   |         |   |         |          |        
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         
|                                                        | Unrealized net gains on derivatives, net of taxes                   |                                                                       | $       | 427     |         |   | $       | 72       |        
|                                                        |                                                                     |                                                                       |         |         |         |   |         |         

See notes to condensed consolidated financial
statements.

4



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##### 



LORAL SPACE & COMMUNICATIONS
LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS



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

Loral Space & Communications Ltd. together
with its subsidiaries (Loral or the
Company) is one of the worlds leading
satellite communications companies with substantial activities
in satellite-based communications services and satellite
manufacturing. Loral is organized into two operating businesses
(see Note 12):



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



|   |                      
|-- | ---------------------
|2. | Basis of Presentation

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



| |                        
| | -----------------------
| | Risks and Uncertainties

The Company had total long-term debt of
$2.3 billion, including current portion of
$147 million, outstanding at March 31, 2003, much of
which matures in 2005 and 2006. On March 31, 2003, the
Company amended its Loral SpaceCom Corporation (Loral
SpaceCom or LSC) and Loral Satellite, Inc.
(Loral Satellite) credit facilities which, among
other changes, amended its financial performance covenants and
imposed additional restrictions, including on its capital
expenditures. In addition to its debt service requirements, the
Companys business is capital intensive and requires
substantial investment. At March 31, 2003, the Company had
already incurred costs of approximately $291 million and
will need to incur costs of approximately $97 million more
in order to construct, launch and insure three new satellites
currently under construction for the Fixed Satellite Services
business and an additional $58 million to acquire
additional transponders in the future. In addition, the Company
has incurred costs of $266 million on a fourth satellite.
Additional expenditures to launch and insure such satellite,
however, will require the consent of the Companys lenders.
Subject to restrictions contained in the credit facilities, the
timing of when certain of these costs will be incurred is
largely discretionary.

At March 31, 2003, the Company had an
accumulated deficit of $407 million. The Company has
generated cash from operating activities of $32 million and
$89 million for the three months ended March 31, 2003 and
2002, respectively. The Company believes its existing cash, as
well as net cash provided by operating activities and the
proceeds from certain asset sales will be adequate to meet its
expected requirements through

5



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##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

at least March 31, 2004. A substantial
reduction in FSS revenues, the inability of SS/L to replace
existing backlog with several new contract awards in 2003 at
assumed terms or the failure to consummate certain of these
asset sales, including the sale of approximately
$60 million of certain long-term SS/L customer receivables
as described in Note 8, would, however, impact the
Companys ability to meet its cash requirements, possibly
in the near-term. In such event, the Company may seek to
postpone its planned satellite construction and launch plans,
which could impact the Companys ability to achieve
profitability. If the Company is unable to generate sufficient
cash from its operating activities and asset sales to satisfy
its debt service and operating requirements, the Company may be
required to seek alternative financing or renegotiate its
current financing agreements. There can be no assurance that the
Company will be able to do so, especially in light of current
market conditions.



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

Loral continues to record a 100% valuation
allowance against its domestic net deferred tax asset under the
criteria of SFAS No. 109, Accounting for Income Taxes.
Therefore, no benefit was recorded on the domestic loss in the
first quarter of 2003 while a provision was recorded on the
domestic income in the first quarter of 2002.



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

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



|   |                                            
|-- | -------------------------------------------
|3. | Accounting for Stock Based
    Compensation

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

6



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                                                                          |  |                    |       |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | ---- |  | - | ------ | -
|                                                                                                                          |  |                   
|                                                                                                                          |  | Three Months Ended
|                                                                                                                          |  | March 31,         
|                                                                                                                          |  |                   
|                                                                                                                          |  | 2003               |       | 2002
|                                                                                                                          |  |                    |       |     
|Reported loss before cumulative effect of change
    in accounting principle                                              |  | $                  | (48.2 | )    |  | $ | (19.9  | )
|Add: Total stock based compensation charged to
    operations under the intrinsic value method, net of taxes              |  |                    |      |      |  |   | 0.6    |  
|Less: Total stock based employee compensation
    determined under the fair value method for all awards, net of
    taxes |  |                    | (0.6  | )    |  |   | (2.8   | )
|                                                                                                                          |  |                    |       |      |  |   |        |  
|Pro forma net loss before cumulative effect of
    change in accounting principle                                         |  |                    | (48.8 | )    |  |   | (22.1  | )
|Cumulative effect of change in accounting
    principle, net of taxes                                                     |  |                    |      |      |  |   | (876.5 | )
|                                                                                                                          |  |                    |       |      |  |   |        |  
|Pro forma net loss                                                                                                        |  |                    | (48.8 | )    |  |   | (898.6 | )
|Preferred dividends                                                                                                       |  |                    | (3.4  | )    |  |   | (12.0  | )
|                                                                                                                          |  |                    |       |      |  |   |        |  
|Pro forma net loss applicable to common
    shareholders                                                                  |  | $                  | (52.2 | )    |  | $ | (910.6 | )
|                                                                                                                          |  |                    |       |      |  |   |        |  
|Reported basic and diluted loss per share before
    cumulative effect of change in accounting principle                  |  | $                  | (0.12 | )    |  | $ | (0.09  | )
|Pro forma basic and diluted loss per share before
    cumulative effect of change in accounting principle                 |  |                    | (0.12 | )    |  |   | (0.10  | )
|Reported loss per share applicable to common
    shareholders                                                             |  |                    | (0.12 | )    |  |   | (2.69  | )
|Pro forma loss per share applicable to common
    shareholders                                                            |  |                    | (0.12 | )    |  |   | (2.70  | )



|   |                   
|-- | ------------------
|4. | Comprehensive Loss

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

|                                                                                                                                         |  |                    |         |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---- |  | - | -------- | -
|                                                                                                                                         |  |                   
|                                                                                                                                         |  | Three Months Ended
|                                                                                                                                         |  | March 31,         
|                                                                                                                                         |  |                   
|                                                                                                                                         |  | 2003               |         | 2002
|                                                                                                                                         |  |                    |         |     
|Net loss                                                                                                                                 |  | $                  | (48,174 | )    |  | $ | (896,360 | )
|Cumulative translation adjustment                                                                                                        |  |                    | 421     |      |  |   | (244     | )
|Unrealized gains on available-for-sale
    securities, net of taxes                                                                      |  |                    | 10,421  |      |  |   | 6,494    |  
|Net increase in foreign currency exchange
    contracts                                                                                  |  |                    | 230     |      |  |   | 717      |  
|Reclassifications into revenue and cost of sales
    from other comprehensive income                                                     |  |                    | 642     |      |  |   | (645     | )
|Reclassifications into interest expense from
    other comprehensive income for anticipated transactions that are
    no longer probable |  |                    | (445    | )    |  |   |         |  
|                                                                                                                                         |  |                    |         |      |  |   |          |  
|Comprehensive loss                                                                                                                       |  | $                  | (36,905 | )    |  | $ | (890,038 | )
|                                                                                                                                         |  |                    |         |      |  |   |          |  

7



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                     
|-- | --------------------
|5. | Contracts-in-Process

|                     |  |                |        |              |  |   |         | 
|-------------------- |  | -------------- | ------ | ------------ |  | - | ------- | 
|                     |  | March 31,      |        | December 31,
|                     |  | 2003           |        | 2002        
|                     |  |                |        |             
|                     |  |               
|                     |  | (in thousands)
|Amounts billed       |  | $              | 75,815 |              |  | $ | 63,737  | 
|Unbilled receivables |  |                | 1,652  |              |  |   | 49,417  | 
|                     |  |                |        |              |  |   |         | 
|                     |  | $              | 77,467 |              |  | $ | 113,154 | 
|                     |  |                |        |              |  |   |         | 

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



|   |                                              
|-- | ---------------------------------------------
|6. | Investments in and Advances to
    Affiliates

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

|                          |                                                                            |           |        |              |  |   |        |        | 
|------------------------- | -------------------------------------------------------------------------- | --------- | ------ | ------------ |  | - | ------ | ------ | 
|                          |                                                                            | March 31, |        | December 31,
|                          |                                                                            | 2003      |        | 2002        
|                          |                                                                            |           |        |             
|Satmex equity investments |                                                                            | $         | 45,554 |              |  | $ | 50,761 |       
|XTAR equity investments   |                                                                            |           | 21,793 |              |  |   | 24,575 |       
|Globalstar:               |                                                                            |           |        |              |  |   |        |       
|                          | Acquired notes and loans ($630 million
    principal and accrued interest) |           |        | 20,107       |  |   |        | 20,107 | 
|                          | Vendor financing ($250 million principal and
    accrued interest)         |           |        |             |  |   |        |       | 
|                          |                                                                            |           |        |              |  |   |        |       
|                          |                                                                            | $         | 87,454 |              |  | $ | 95,443 |       
|                          |                                                                            |           |        |              |  |   |        |       

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

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

|                                                                          |  |                    |        |      |  |   |         |  
|------------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------- | -
|                                                                          |  |                   
|                                                                          |  | Three Months Ended
|                                                                          |  | March 31,         
|                                                                          |  |                   
|                                                                          |  | 2003               |        | 2002
|                                                                          |  |                    |        |     
|Satmex, net of taxes                                                      |  | $                  | (5,512 | )    |  | $ | (7,596  | )
|XTAR, net of taxes                                                        |  |                    | (3,195 | )    |  |   | (353    | )
|Europe*Star, net of taxes                                                 |  |                    |       |      |  |   | (6,115  | )
|Globalstar and Globalstar service provider
    partnerships, net of taxes |  |                    | 204    |      |  |   | (1,886  | )
|                                                                          |  |                    |        |      |  |   |         |  
|                                                                          |  | $                  | (8,503 | )    |  | $ | (15,950 | )
|                                                                          |  |                    |        |      |  |   |         |  



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

Satmex is currently arranging loans supported by
export credit agencies to raise additional financing for its
Satmex 6 satellite project. In April 2003, Coface, the French
export credit agency, approved an application to support
financing 85% of the cost of the launch services for the Satmex
6 satellite. Also in April 2003, the Export Import Bank of the
United States (Eximbank), pursuant to a meeting of
its Board of Directors, approved a commitment of the loan
guaranty with respect to 85% of the eligible costs of the Satmex
6 project. These export loans, which are subject to negotiations
of final documentation and satisfaction of conditions, and

8



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

certain additional financings, will be needed by
Satmex to fund the Satmex 6 project. In order to complete the
Eximbank and Coface financing, Satmex will have to repay,
refinance or restructure its senior secured notes and extend the
maturity of its fixed rate notes. If Satmex is unable to
successfully conclude the export loans and this additional
financing, the Companys investment in Satmex of
$46 million and receivables of $7 million at
March 31, 2003 may be adversely affected.



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

On March 14, 2003, Loral signed a term sheet
with Globalstar, L.P. (Globalstar) and
Globalstars official creditors committee to resolve
certain issues related to Globalstar and Globalstars
restructuring. On April 14, 2003, the Bankruptcy Court
(the Court) approved this settlement. Among other
things, the settlement, which is subject to definitive
documentation and closing (as to which there can be no
assurance), provided that Globalstar would grant to Loral,
subject to certain conditions, a general release of all claims
Globalstar might have against Loral; the parties would seek to
provide Loral with one seat on the board of directors of
reorganized Globalstar; approximately 50% of Lorals
unsecured claims against Globalstar would be allowed, or
approximately $438 million; and the debt owed to Globalstar
by three foreign service providers in which Loral has a
substantial equity interest (Globalstar do Brasil, Globalstar de
Mexico and GlobalTel), of an aggregate of $7.2 million
would be eliminated. In consideration, Loral would transfer to
Globalstar eight spare satellites ordered by Globalstar but not
fully paid for; certain agreements that provided a joint venture
in which Loral is a participant with exclusivity in marketing
certain Globalstar services in the U.S. would be terminated,
with a new joint venture formed between Globalstar and Loral to
exclusively market Globalstar services to certain governmental
agencies in the U.S.; the FCC license authorizing the Globalstar
service, which in any event was being held by a joint venture in
which Loral is a participant for the exclusive benefit of
Globalstar, would be transferred to Globalstar; Lorals
equity interest in the Globalstar Canadian service provider
would be transferred to Globalstar; a $10 million
obligation of the Canadian service provider owed to Loral at
December 31, 2002 would be reduced by $7.2 million and
the remaining debt obligation would be converted from a demand
note into a five-year term note; Lorals unsecured claims
against Globalstar would be reduced by approximately 50% or
approximately $438 million; the unused prepayment
($2,260,000) on a Globalstar contract under which there is a
stop work order would be returned to Globalstar by Loral; a
$250,000 termination fee that may come due under that contract
would be waived; Loral would cooperate toward a reorganization
of Globalstar; and the Loral employees on Globalstars
management committee would resign. Loral does not expect any
material impact on its results of operations or financial
position as a result of this settlement.

On April 28, 2003, Globalstar and ICO Global
Communications (Holdings) Limited (ICO) received
Court approval for ICO to acquire a majority interest in a
reorganized Globalstar. The Court approved the sale of
Globalstars assets to a new company to be controlled by
ICO in exchange for an investment of $55 million for which
ICO will receive a 54% equity stake in the new operating
company. Closing of the transaction is subject to regulatory
approvals prior to any license transfers. The Court-approved
sale supercedes an earlier proposal that had been made by Thermo
Capital Partners. In addition to ICOs 54% stake in the
newly-formed company, the remaining equity will be distributed
to Globalstars creditors, which include Loral
(approximately 6%), Qualcomm Incorporated and holders of
Globalstar bonds. Globalstar will file a plan of reorganization
with the Court, and has stated that it expects to complete its
Chapter 11 process later this year.



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

In the fourth quarter of 2002, the Companys
investment in Europe*Star Limited (Europe*Star) was
reduced to zero. Accordingly, there is no longer any requirement
for Loral to provide for its allocated share of
Europe*Stars net losses subsequent to December 31,
2002.

9



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                                             |  |                    |        |      |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                                                                             |  |                   
|                                                                                             |  | Three Months Ended
|                                                                                             |  | March 31,         
|                                                                                             |  |                   
|                                                                                             |  | 2003               |        | 2002
|                                                                                             |  |                    |        |     
|Revenues                                                                                     |  | $                  | 15,690 |      |  | $ | 22,642 |  
|Investment income                                                                            |  |                    | 294    |      |  |   | 294    |  
|Interest expense capitalized on development stage
    enterprise                             |  |                    | 428    |      |  |   | 127    |  
|Profits relating to affiliate transactions not
    eliminated                                |  |                    | 684    |      |  |   | 1,157  |  
|Elimination of Lorals proportionate share
    of profits relating to affiliate transactions |  |                    | (1,119 | )    |  |   | (1,127 | )
|Amortization of deferred credit and profits
    relating to investments in affiliates        |  |                    | 261    |      |  |   | (135   | )

The following table presents summary statement of
operations data of Lorals affiliates Satmex and
Europe*Star (in thousands):

|                                           |  |                              |        |             |  |        |         |             |  |   |        |   |  |   |         |  
|------------------------------------------ |  | ---------------------------- | ------ | ----------- |  | ------ | ------- | ----------- |  | - | ------ | - |  | - | ------- | -
|                                           |  |                             
|                                           |  | Three Months Ended March 31,
|                                           |  |                             
|                                           |  |                              |        |            
|                                           |  | 2003                         |        | 2002       
|                                           |  |                              |        |            
|                                           |  | Satmex                       |        | Europe*Star |  | Satmex |         | Europe*Star
|                                           |  |                              |        |             |  |        |         |            
|Statement of operations data:              |  |                              |        |             |  |        |         |             |  |   |        |   |  |   |         |  
|Revenues                                   |  | $                            | 20,803 |             |  | $      | 4,491   |             |  | $ | 22,609 |   |  | $ | 4,497   |  
|Operating (loss) income                    |  |                              | (417   | )           |  |        | (6,643  | )           |  |   | 1,175  |   |  |   | (6,439  | )
|Net loss                                   |  |                              | (6,409 | )           |  |        | (17,630 | )           |  |   | (7,653 | ) |  |   | (14,101 | )
|Net loss applicable to common shareholders |  |                              | (6,786 | )           |  |        |         |             |  |   | (8,030 | ) |  |   |         |  
|Net loss applicable to shareholders        |  |                              |        |             |  |        | (17,630 | )           |  |   |        |   |  |   | (14,101 | )

|                      |  |                |         |                   |  |        |         |             |  |   |           |  |  |   |         |  
|--------------------- |  | -------------- | ------- | ----------------- |  | ------ | ------- | ----------- |  | - | --------- |  |  | - | ------- | -
|                      |  |                |         |                  
|                      |  | March 31, 2003 |         | December 31, 2002
|                      |  |                |         |                  
|                      |  | Satmex         |         | Europe*Star       |  | Satmex |         | Europe*Star
|                      |  |                |         |                   |  |        |         |            
|Balance sheet data:   |  |                |         |                   |  |        |         |             |  |   |           |  |  |   |         |  
|Current assets        |  | $              | 33,381  |                   |  | $      | 2,501   |             |  | $ | 51,857    |  |  | $ | 2,320   |  
|Total assets          |  |                | 991,705 |                   |  |        | 326,415 |             |  |   | 1,011,094 |  |  |   | 332,327 |  
|Current liabilities   |  |                | 21,015  |                   |  |        | 89,879  |             |  |   | 31,036    |  |  |   | 86,976  |  
|Long-term debt        |  |                | 523,124 |                   |  |        |        |             |  |   | 523,374   |  |  |   |        |  
|Long-term liabilities |  |                | 85,300  |                   |  |        | 852     |             |  |   | 88,005    |  |  |   | 4,088   |  
|Loans from partners  |  |                |        |                   |  |        | 275,266 |             |  |   |          |  |  |   | 263,215 |  
|Shareholders equity  |  |                | 362,266 |                   |  |        |        |             |  |   | 368,677   |  |  |   |        |  
|Net partners deficit |  |                |        |                   |  |        | (39,582 | )           |  |   |          |  |  |   | (21,952 | )



|   |                                                                 
|-- | ----------------------------------------------------------------
|7. | Accounting for Goodwill and Other Acquired
    Intangible Assets

On January 1, 2002, the Company adopted
SFAS 142, which addresses the initial recognition and
measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible
assets subsequent to their acquisition. SFAS 142 provides that
intangible assets with finite useful lives be amortized and that
goodwill and intangible assets with indefinite lives not be
amortized, but rather be tested at least annually for
impairment. SFAS 142 also changed the evaluation criteria
for testing goodwill for impairment from an undiscounted cash
flow approach, which was previously utilized under the guidance
in Accounting Principles Board Opinion No. 17, Intangible
Assets, to a test based on fair value. Fair

10



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

value is determined by the amount at which an
asset or liability could be bought or sold in a current
transaction between willing parties, that is, other than in a
forced or liquidation sale. Quoted market prices in active
markets are the best evidence of fair value and must be used as
the basis for the measurement, if available. If quoted market
prices are not available, the estimate of fair value must be
based on the best information available, including prices for
similar assets and liabilities and the results of using other
valuation techniques, such as public company trading multiples,
future discounted cash flows and merger and acquisition
transaction multiples.



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

In accordance with SFAS 142, the Companys
previously recognized cost in excess of net assets acquired
(goodwill) of $892 million for business
acquisitions accounted for under the purchase method of
accounting completed prior to July 1, 2001, was reviewed
under the new transitional guidance as of January 1, 2002.
Goodwill had been previously assigned to the Companys
business segments as follows (based on the net book value at
December 31, 2001): FSS $597 million, satellite
manufacturing and technology $286 million and data services
$9 million. The Company hired professionals in the
valuation consulting business to determine the fair value of
each of the Companys reporting units. Since there were no
quoted market prices in active markets for the Companys
reporting units, the measurement of fair value for each
reporting unit was based on the best information available for
that reporting unit, including reasonable and supportable
assumptions and projections, as follows:
(1) FSS  public company trading multiples,
(2) satellite manufacturing and technology 
future discounted cash flows, and (3) data
services  merger and acquisition transaction
multiples. Based on the fair values concluded on by those
professionals, management determined that the goodwill for each
of the Companys reporting units under the new guidance in
SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$892 million before taxes ($877 million after taxes).

The charge is the result of a change in the
evaluation criteria for goodwill from an undiscounted cash flow
approach which was previously utilized under the guidance in
Accounting Principles Board Opinion No. 17, Intangible
Assets, to the fair value approach which is stipulated in SFAS
142.



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

The Company evaluated the useful lives of its
other acquired intangible assets in connection with the adoption
of SFAS 142 and determined that no changes to the useful lives
were necessary.

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

|                  |       |                |      |                   |  |        |      |              |   |   |      |      |  |   |      |       |  
|----------------- | ----- | -------------- | ---- | ----------------- |  | ------ | ---- | ------------ | - | - | ---- | ---- |  | - | ---- | ----- | -
|                  |       |                |      |                  
|                  |       | March 31, 2003 |      | December 31, 2002
|                  |       |                |      |                  
|                  |       | Gross          |      | Accumulated       |  | Gross  |      | Accumulated 
|                  |       | Amount         |      | Amortization      |  | Amount |      | Amortization
|                  |       |                |      |                   |  |        |      |             
|Regulatory fees   |       | $              | 22.7 |                   |  | $      | (5.0 | )            |   | $ | 22.7 |      |  | $ | (4.6 | )    
|Other intangibles |       |                | 13.0 |                   |  |        | (8.8 | )            |   |   | 13.0 |      |  |   | (8.4 | )    
|                  |       |                |      |                   |  |        |      |              |   |   |      |      |  |   |      |      
|                  | Total |                | $    | 35.7              |  |        | $    | (13.8        | ) |   | $    | 35.7 |  |   | $    | (13.0 | )
|                  |       |                |      |                   |  |        |      |              |   |   |      |      |  |   |      |      

The weighted average remaining amortization
period for regulatory fees was eight years and for other
intangibles was two years, as of March 31, 2003.

11



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Total pre-tax amortization expense for other
acquired intangible assets was $0.8 for both the three months
ended March 31, 2003 and 2002. Annual pre-tax amortization
expense for other acquired intangible assets for the five years
ended December 31, 2007 is estimated to be as follows (in
millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2003 |  | $ | 3.4 | 
|2004 |  |   | 3.3 | 
|2005 |  |   | 2.5 | 
|2006 |  |   | 1.4 | 
|2007 |  |   | 1.4 | 



|   |               
|-- | --------------
|8. | Long Term Debt

|                                                                                                                         |                                                                                                                        |                |           |              |  |   |           |         | 
|------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------- | -------------- | --------- | ------------ |  | - | --------- | ------- | 
|                                                                                                                         |                                                                                                                        | March 31,      |           | December 31,
|                                                                                                                         |                                                                                                                        | 2003           |           | 2002        
|                                                                                                                         |                                                                                                                        |                |           |             
|                                                                                                                         |                                                                                                                        |               
|                                                                                                                         |                                                                                                                        | (in thousands)
|Loral Orion 10.00% Senior notes due 2006:                                                                                |                                                                                                                        |                |           |              |  |   |           |        
|                                                                                                                         | Principal amount                                                                                                       |                | $         | 612,704      |  |   | $         | 612,704 | 
|                                                                                                                         | Accrued interest (deferred gain on debt exchanges)                                                                     |                |           | 214,446      |  |   |           | 245,080 | 
|Loral Satellite term loan, 5.75% and 5.60% at
    March 31, 2003 and December 31, 2002, respectively                     |                                                                                                                        |                | 237,750   |              |  |   | 249,000   |        
|Loral Satellite revolving credit facility, 5.75%
    and 4.67% at March 31, 2003 and December 31, 2002,
    respectively |                                                                                                                        |                | 200,000   |              |  |   | 179,000   |        
|LSC term loan facility, 5.25% and 5.03% at
    March 31, 2003 and December 31, 2002, respectively                        |                                                                                                                        |                | 355,000   |              |  |   | 360,000   |        
|LSC revolving credit facility, 5.25% and 5.05% at
    March 31, 2003 and December 31, 2002, respectively                 |                                                                                                                        |                | 185,000   |              |  |   | 140,000   |        
|9.50% Senior notes due 2006                                                                                              |                                                                                                                        |                | 350,000   |              |  |   | 350,000   |        
|Export-import credit facility                                                                                            |                                                                                                                        |                | 6,434     |              |  |   | 6,434     |        
|Other                                                                                                                    |                                                                                                                        |                |          |              |  |   | 535       |        
|Non-recourse debt of Loral Orion:                                                                                        |                                                                                                                        |                |           |              |  |   |           |        
|                                                                                                                         | 11.25% Senior notes due 2007 (principal amount
    $37 million)                                                        |                |           | 39,597       |  |   |           | 39,762  | 
|                                                                                                                         | 12.50% Senior discount notes due 2007 (principal
    amount at maturity and accreted principal amount
    $49 million) |                |           | 53,727       |  |   |           | 53,982  | 
|                                                                                                                         | Other                                                                                                                  |                |           | 7,471        |  |   |           | 8,028   | 
|                                                                                                                         |                                                                                                                        |                |           |              |  |   |           |        
|Total debt                                                                                                               |                                                                                                                        |                | 2,262,129 |              |  |   | 2,244,525 |        
|Less, current maturities                                                                                                 |                                                                                                                        |                | 146,774   |              |  |   | 131,898   |        
|                                                                                                                         |                                                                                                                        |                |           |              |  |   |           |        
|                                                                                                                         |                                                                                                                        | $              | 2,115,355 |              |  | $ | 2,112,627 |        
|                                                                                                                         |                                                                                                                        |                |           |              |  |   |           |        

On March 31, 2003, Loral entered into
amendments of its Loral SpaceCom and Loral Satellite credit
facilities which among other changes, amended its financial
performance covenants. At March 31, 2003, the Company was
in compliance with all of the covenants and conditions under its
various lending and funding arrangements and believes that it
will continue to meet these covenants and conditions through at
least March 31, 2004, except that the Company was not in
compliance with a requirement under the LSC and Loral Satellite
credit facilities to hire a senior financial officer by
May 15, 2003. The Company believes, however, that it will
be able to comply with this requirement within the applicable
grace period.

Lorals business plan assumes the receipt of
approximately $60 million from the successful monetization
of certain long-term SS/L customer receivables in 2003. While
SS/L has reached an agreement in principle with the customer to
effect such monetization, there is no assurance that this
transaction will be consummated. In addition, one of SS/Ls
subcontractors has filed a lawsuit raising certain objections
relating to the

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LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

effect of the proposed transaction on the
subcontractor. SS/ L and the subcontractor are in discussions to
negotiate a mutually acceptable arrangement. SS/L believes,
although there can be no assurance, that it will be able to
resolve this matter. If SS/L and the subcontractor are unable to
reach a resolution, the subcontractor will likely seek to enjoin
the transaction. Also, the proposed transaction may be subject
to the approval of SS/ Ls banks, which, if required, SS/ L
believes it will be able to obtain. If Loral is unable to
consummate this transaction on a timely basis, or the proceeds
from such transaction are less than those assumed in the
business plan, Lorals ability to satisfy its covenants
would be adversely affected. A substantial reduction in FSS
revenues or the inability of SS/L to replace existing backlog
with new contracts at assumed terms would also adversely impact
Lorals ability to satisfy its covenants. In addition,
Lorals ability to fund the 2004 interest payments on its
9.5% senior notes will depend on its ability to successfully
execute its business plan, which includes further asset sales.
There is no assurance that Loral will be able to do so. If Loral
fails to pay interest on the 9.5% senior notes when due, this
will, upon expiration of a 30-day cure period, constitute an
event of default under Lorals senior note indenture, which
in turn would result in an event of default under the Loral
SpaceCom and the Loral Satellite credit facilities. If the
holders of the 9.5% senior notes, the lenders under the Loral
SpaceCom credit facility or the lenders under the Loral
Satellite credit facility were to accelerate their related debt
following such event of default, an event of default would also
occur with respect to Loral Orions 10% senior notes, which
are guaranteed by Loral.

Loral is likely to require and intends to seek
further amendments to the Loral SpaceCom and Loral Satellite
credit facilities to ensure compliance with financial
performance covenants for periods after March 31, 2004.
There can be no assurance that the lenders will consent to any
such amendment. Because of the cross-default provisions set
forth in the Loral SpaceCom and Loral Satellite credit
facilities, a failure by Loral to meet any financial performance
covenant set forth in either credit facility will result in an
event of default under both the Loral SpaceCom and the Loral
Satellite credit facilities. Moreover, if the lenders under
either credit facility were to accelerate their outstanding
loans, this would constitute an event of default under
Lorals 9.5% senior notes and Loral Orions 10% senior
notes, which are guaranteed by Loral.

9.     Equity

Under the New York Stock Exchange
(NYSE) criteria for continued listing, the NYSE will
normally give consideration to de-listing a companys stock
when the average closing price of the stock is less than $1.00
over a consecutive 30-trading day period. The average closing
price of Loral common stock was less than $1.00 for 30
consecutive trading days, and, on August 22, 2002, the
Company received notice from the NYSE that its stock price was
below the NYSEs price criteria. If Loral is unable to cure
this deficiency, the Companys common stock could be
de-listed from the NYSE. De-listing of the Companys common
stock by the NYSE could result in a material adverse effect on
the liquidity of the Companys common shares, have an
adverse effect on the trading value and impair the
Companys ability to raise funds in the capital markets.
The NYSE has informed Loral that the price is the only criteria
for listing that the Company does not currently meet. The
Company has notified the NYSE of its intent to cure this
deficiency. The NYSE rules provide a six-month period from
receipt of the notice letter from the NYSE to cure this
deficiency. In the event the actions the Company takes to cure
this deficiency require shareholder approval, the six-month cure
period will be extended until after the Companys next
annual shareholders meeting currently scheduled on
May 29, 2003. The Company is seeking shareholder approval
to implement a reverse stock split at its annual meeting, in
order to, among other things, restore the Companys
compliance with NYSE share price requirements. The Company
believes (although there can be no assurance) that it will be
able to cure this deficiency within this time frame.

The Companys 6% Series C convertible
redeemable preferred stock (the Series C Preferred
Stock) and 6% Series D convertible redeemable
preferred stock (the Series D Preferred Stock)
have mandatory redemption dates in 2006 and 2007, respectively.
The Company has the right to make mandatory redemption payments
to the holders in either cash or common stock, or a combination
of the two. Based upon the price of

13



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LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Companys common stock at March 31,
2003, the Company did not have available a sufficient number of
authorized shares of its common stock to effect payment of the
total mandatory redemptions in common stock in 2006 and 2007.
Accordingly, as of March 31, 2003, the Company classified
an aggregate of $140 million of its Series C Preferred
Stock and Series D Preferred Stock outside the
shareholders equity section of the balance sheet, based on
the average of the volume weighted average daily price of the
Companys common stock as defined (approximately $0.33 per
share at March 31, 2003). Had the volume weighted average
daily price of the Companys common stock as calculated
been above $0.88 at March 31, 2003, none of the
Companys preferred stock would have been classified
outside the shareholders equity section of the balance
sheet. The exact number of shares of the Companys common
stock that may be issued on a mandatory redemption date cannot
be determined at this time. That number will depend on a number
of factors not known today, such as the price of the
Companys common stock and the number of shares of the
Companys preferred stock outstanding at that time. The
Company is seeking shareholder approval at its next annual
shareholders meeting currently scheduled on May 29,
2003 an increase to the authorized number of shares of its
common stock from 750,000,000 to 1,250,000,000 which, based on
the volume weighted average daily price of the Companys
common stock as defined at March 31, 2003 and May 13,
2003, would enable the Company to effect payment of the total
mandatory redemptions in common stock. The amount, if any, of
the Series C Preferred Stock and Series D Preferred
Stock classified outside the shareholders equity section
will vary in future periods depending on these factors.

Loral completed an exchange offer for certain of
its outstanding stock options on March 7, 2003. In
connection with this exchange offer, Loral accepted and
cancelled existing stock options to purchase an aggregate of
14,884,403 shares of common stock that were tendered in the
exchange offer and agreed to grant, in exchange, new stock
options to purchase an aggregate of 6,021,488 shares of
common stock. The new options will be granted, subject to the
terms and conditions of the exchange offer, on September 8,
2003, and will have an exercise price per share equal to the
fair market value of the common stock on the date of grant.

In August 2002, Lorals board of
directors approved a plan to suspend indefinitely the future
payment of dividends on its two series of preferred stock.
Accordingly, Loral has deferred the payments of quarterly
dividends due on its Series C Preferred Stock and the
payments of quarterly dividends due on its Series D
Preferred Stock. Dividends on the two series continue to accrue.
In the event accrued and unpaid dividends accumulate to an
amount equal to six quarterly dividends on the Series C
Preferred Stock, holders of the majority of the outstanding
Series C Preferred Stock will be entitled to elect two
additional members to Lorals board of directors. In the
event accrued and unpaid dividends accumulate to an amount equal
to six consecutive quarterly dividends on the Series D
Preferred Stock, holders of the majority of the outstanding
Series D Preferred will be entitled to elect two additional
members to Lorals board of directors. As of March 31,
2003, accrued and unpaid dividends of $9 million
represented two quarterly dividend payments outstanding.

10.     Commitments
and Contingencies

The Company has deferred revenue and established
warranty obligations relating to satellites sold to customers
which could be impacted by future performance. A reconciliation
of such deferred amounts for the three months ended
March 31, 2003 is as follows (in millions):

|                                                                                 |  |   |      |  
|-------------------------------------------------------------------------------- |  | - | ---- | -
|Balance of deferred amounts at January 1,
    2003                               |  | $ | 14.1 |  
|Accruals for deferred amounts issued during the
    period                       |  |   |     |  
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | (0.2 | )
|                                                                                 |  |   |      |  
|Balance of deferred amounts at March 31, 2003                                    |  | $ | 13.9 |  
|                                                                                 |  |   |      |  

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LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Thirteen of the satellites built by SS/L and
launched since 1997, six of which are owned and operated by
Lorals subsidiaries or affiliates, have experienced minor
losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected
satellites have experienced any degradation in performance,
there can be no assurance that one or more of the affected
satellites will not experience additional power loss that could
result in performance degradation, including loss of transponder
capacity or reduction in power transmitted. In the event of
additional power loss, the extent of the performance
degradation, if any, will depend on numerous factors, including
the amount of the additional power loss, the level of redundancy
built into the affected satellites design, when in the
life of the affected satellite the loss occurred and the number
and type of use being made of transponders then in service. It
is also possible that one or more transponders on a satellite
may need to be removed from service to accommodate the power
loss and to preserve full performance capabilities of the
remaining transponders. A complete or partial loss of satellites
could result in a loss of orbital incentive payments and, in the
case of satellites owned by Loral subsidiaries and affiliates, a
loss of revenues and profits. With respect to satellites under
construction and construction of new satellites, based on its
investigation of the matter, SS/L has identified and has
implemented remediation measures that SS/L believes will prevent
newly launched satellites from experiencing similar anomalies.
SS/L does not expect that implementation of these measures will
cause any significant delay in the launch of satellites under
construction or construction of new satellites. Based upon
information currently available, including design redundancies
to accommodate small power losses and that no pattern has been
identified as to the timing or specific location within the
solar arrays of the failures, the Company believes that this
matter will not have a material adverse effect on the
consolidated financial position or results of operations of
Loral.

In September 2001, the PAS 7 satellite
built by SS/L for PanAmSat experienced an electrical power
failure on its solar arrays that resulted in the loss of use of
certain transponders on the satellite. As a result, PanAmSat has
claimed that under its contract with SS/L it is entitled to be
paid $16 million. SS/L disputes this claim and is in
discussions with PanAmSat to resolve this matter. In addition, a
Loral Skynet satellite has experienced a minor loss of power
from its solar arrays, the cause of which may be similar to the
cause of the PAS 7 anomaly. SS/ L believes, however, that
these failures are isolated events and do not reflect a systemic
problem in either the satellite design or manufacturing process.
Accordingly, SS/L does not believe that these anomalies will
affect other on-orbit satellites built by SS/L. Also, the PAS 8
satellite has experienced minor losses of power from its solar
arrays, the cause of which is unrelated to the loss of power on
the PAS 7 satellite. PanAmSat has claimed that under its
contract with SS/L it is entitled to be paid $7.5 million
as a result of these minor power losses. SS/L disputes this
claim. SS/L and PanAmSat are in discussions to resolve this
matter.

15



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##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

SS/L has contracted to build a spot beam, Ka-band
satellite for a customer planning to offer broadband data
services directly to the consumer. SS/L had suspended work on
this program since December 2001 while the customer and
SS/L were in discussions to resolve a dispute under the
contract. In March 2003, SS/L and the customer reached an
agreement in principle to restart the satellite construction
program. As of March 31, 2003, SS/L had billed and unbilled
accounts receivable and vendor financing arrangements of
$49 million including accrued interest with this customer.
Under the agreement, which is subject to documentation in
definitive amendments to their contract, the customer will pay
the remainder of the purchase price under the contract of
$68.1 million (including $49 million owed to SS/L at
March 31, 2003) in installments over time, a portion of
which will be due subsequent to completion of the satellite.

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

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

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

16



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##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

On September 20, 2002, Loral entered into an
agreement with APT pursuant to which Loral will purchase a 50%
interest in the Telstar 18/ Apstar V satellite, a
satellite under construction by SS/L for APT. Lorals
aggregate purchase price for its 50% interest in the satellite
is $115.1 million, representing 50% of the estimated
project cost of constructing, launching and insuring the
Telstar 18/ Apstar V satellite, which purchase price
will be adjusted if the actual project cost is greater or less
than $230.2 million. Pursuant to Lorals agreement
with APT, Loral will pay one-half of the purchase price prior to
launch for 13.5 transponders on the satellite, a portion of
which will be funded by existing launch vehicle deposits. The
corresponding cumulative costs relating to these transponders
have been reflected as satellites under construction on
Lorals condensed consolidated balance sheet as of
December 31, 2002. Subject to certain acceleration rights
on the part of Loral, the remainder of the purchase price for
the second 13.5 transponders will be paid by Loral as follows:
on the second anniversary of the satellites in-service
date, $10.66 million for 2.5 additional transponders; on
the third anniversary of the satellites in-service date,
$12.79 million for three additional transponders; and on
each of the fourth and fifth anniversaries of the
satellites in-service date, $17.05 million for four
additional transponders. Title to these transponders will
pass to Loral upon its payments thereon. This agreement
results in a proportionate amount of the Telstar 18/
Apstar V satellite becoming a self-constructed asset in
Lorals condensed consolidated financial statements.
Amounts attributable to the transponders to be acquired from APT
in the future of $24 million are being treated for
accounting purposes as a repurchase obligation based on the
present value of such obligations and are included in satellites
under construction and long-term liabilities on Lorals
condensed consolidated balance sheet as of March 31, 2003.
As a result of finalizing the Telstar 18/ Apstar V
launch arrangements in March 2003, Loral agreed to take two
fewer transponders without any corresponding change to the
transponder cost borne by each of the parties. Loral and APT are
in the process of finalizing the definitive documents to reflect
this change.

Sirius, a customer of SS/L, is currently in the
process of rolling out its business. On March 7, 2003,
Sirius completed its recapitalization plan and received
$200 million in cash from third party investors and
exchanged approximately $636 million of its debt and all of
its $525 million of preferred stock into common stock. As
part of this recapitalization, SS/L converted all of its vendor
financing receivables of approximately $76 million into
58,964,981 shares of common stock of Sirius. In the first
quarter of 2003, SS/L recorded a

17



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LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

charge on the vendor financing receivables due
from Sirius of $10 million, representing the difference
between the carrying value of SS/Ls receivables of
$38 million and the value of the common shares received by
SS/L based on the trading price of Siriuss common stock on
March 7, 2003 of $28 million. The increase in the
value of Sirius common stock from March 7, 2003 to
March 31, 2003, of $10 million has been recorded as an
adjustment to accumulated other comprehensive income (loss) in
the condensed consolidated balance sheet as of March 31,
2003. During the quarter ended March 31, 2003, SS/L
realized net proceeds of $9.7 million from the sale of a
portion of its Sirius common stock and gains on such sales of
$1.1 million and as of March 31, 2003, the market
value of its remaining Sirius common stock was $30 million.
The Sirius stock is classified in other current assets at
March 31, 2003, due to the Companys intent to sell
all of the Sirius common stock within the next year. At
December 31, 2002, the receivables from Sirius were
classified as short-term vendor financing receivables.

SS/L has entered into several long-term launch
services agreements with various launch providers to secure
future launches for its customers, including Loral and its
affiliates. Through the assignment of satellites to launch
vehicles and refunds, SS/L has reduced its launch deposits by
$87 million from December 31, 2001 through
March 31, 2003. Nonetheless, SS/L may, as a result of
current market conditions, cancel some of the launchers to which
it has committed. SS/L had launch services agreements with
International Launch Services (ILS) which covered
three launches. In November 2002, SS/L terminated one of those
future launches, which had a termination liability equal to
SS/Ls deposit of $5 million. Subsequently, SS/L
received a letter from ILS alleging SS/Ls breach of the
agreements, purporting to terminate all three launches and
asserting a right to retain $42.5 million in deposits,
without prejudice to any other legal claims or remedies. Despite
ILSs termination of all three launches, to protect its
interest SS/L also terminated a second launch, which had a
termination liability equal to its deposit of $5 million,
and SS/L recognized a non-cash charge to earnings of
$10 million in the fourth quarter of 2002 with respect to
the two terminated launches. SS/L believes that ILSs
claims are without merit and intends to defend against them
vigorously and to seek recovery of its deposits and termination
liabilities. The Company does not believe that this matter will
have a material adverse effect on its consolidated financial
position and its results of operations, although no assurances
can be provided.

While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot guarantee that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past.
Telstar 10/Apstar IIR, manufactured by SS/L and owned
by Loral Orion, Inc. (Loral Orion) has the same
solar array configuration as two other 1300 class
satellites manufactured by SS/L that have experienced solar
array failures. SS/L believes that these failures are isolated
events and do not reflect a systemic problem in either the
satellite design or manufacturing process. Accordingly, the
Company does not believe that these anomalies will affect
Telstar 10/Apstar IIR. The insurance coverage for
Telstar 10/Apstar IIR provides for coverage of losses
due to solar array failures only in the event of a capacity loss
of 75% or more. Some of Loral Orions bondholders have
questioned whether this limitation is in compliance with the
insurance covenant in the Loral Orion indenture. Management
believes that Loral Orion is in compliance with the covenant as
properly interpreted. If, however, Loral Orions
bondholders were to give notice of a default under the indenture
because of such limitations, and a court ruled against Loral
Orion on this matter, the maturity of Loral Orions 10%
senior notes could be accelerated, and the bondholders could be
able to call on the Companys guarantee of Loral
Orions senior notes. Four other satellites owned by Loral
Skynet and Loral Orion have the same solar array configuration
as Telstar 10/ Apstar IIR. There can be no assurance
that the insurers will not require either exclusions of, or
similar limitations on, coverage due to solar array failures in
connection with renewals of insurance for these satellites in
2003 and 2004. An uninsured loss of a satellite would have a
material adverse effect on the Companys consolidated
financial position and its results of operations. Moreover, the
Company is required under the terms of its bank facilities to
use the

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LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

insurance proceeds from any launch or in-orbit
failure of a satellite owned by Loral SpaceCom or Loral
Satellite to prepay the bank loans, and as a result, these
insurance proceeds would not be available to Loral to build a
replacement for the lost satellite, which would result in an
adverse effect on its future revenue.

Loral Skynet has an application pending with the
FCC for authorization to use the C-Band frequency at
121 degrees W.L. in the U.S. using a non-U.S. ITU
filing. Telstar 13, which is currently under construction,
is scheduled for launch into this orbital slot. New Skies
Satellites has asserted that its non-U.S. ITU filing at
120.8 degrees W.L. has date priority over Loral
Skynets ITU filing and has filed comments with the FCC
seeking to impose conditions on Loral Skynets use of the
121 degrees W.L. slot. Loral Skynet has opposed New
Skies comments. Loral Skynet is continuing its
international coordination of the 121 degrees W.L.
slot. There can be no assurance, however, that coordination
discussions will be successful or that the FCC will grant Loral
Skynets application or grant the application without
adding conditions that may constrain Loral Skynets
operations at the 121 degrees W.L. slot.

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

The Company is subject to various other legal
proceedings and claims, either asserted or unasserted, that
arise in the ordinary course of business. Although the outcome
of these claims cannot be predicted with certainty, the Company
does not believe that any of these other existing legal matters
will have a material adverse effect on its consolidated
financial position or results of operations.

Globalstar
Related Matters.

On September 26, 2001, the nineteen separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of securities of Globalstar Telecommunications Limited
(GTL) and Globalstar against GTL, Loral, Bernard L.
Schwartz and other defendants were consolidated into one action
titled In re: Globalstar Securities Litigation. In
November 2001, plaintiffs in the consolidated action filed
a consolidated amended class action complaint against
Globalstar, GTL, Globalstar Capital Corporation, Loral and
Bernard L. Schwartz alleging (a) that all defendants
(except Loral) violated Section 10(b) of the Securities
Exchange Act of 1934 (the Exchange Act) and
Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about
Globalstars business and prospects, (b) that
defendants Loral and 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 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 Schwartz are secondarily
liable under Section 15 of the Securities Act for
GTLs primary violations of Sections 11 and 12(2)(a)
of the Securities Act as alleged controlling persons
of GTL. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of securities of
Globalstar, Globalstar Capital and GTL during the period from
December 6, 1999 through October 27, 2000, excluding
the defendants and certain persons related or affiliated

19



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##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

therewith. Loral and Mr. Schwartz have filed
a motion to dismiss the amended complaint in its entirety as to
Loral and Mr. Schwartz, which motion is pending before the
court. Loral believes that it has meritorious defenses to this
class action lawsuit and intends to pursue them vigorously.

On March 2, 2002, the seven separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of common stock of Loral Space & Communications
Ltd. (Loral) against Loral, Bernard L. Schwartz and
Richard Townsend were consolidated into one action titled In
re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint alleging (a) that all defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder by making material misstatements or
failing to state material facts about Lorals financial
condition and its investment in Globalstar and (b) that
Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged controlling person of
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Loral common stock
during the period from November 4, 1999 through
February 1, 2001, excluding the defendants and certain
persons related or affiliated therewith. Loral and
Messrs. Schwartz and Townsend have filed a motion to
dismiss the complaint in its entirety. At oral argument on the
motion on May 9, 2003, the Court indicated its intent to
dismiss the complaint but gave the plaintiffs thirty days to
amend their complaint to state a cause of action. In the
interim, the Court denied the motion without prejudice to its
renewal. In addition, the insurers under Lorals directors
and officers liability insurance policy have denied coverage for
the case filed by Loral shareholders under the policy and, on
March 24, 2003, filed a lawsuit in the Supreme Court of New
York county seeking a declaratory judgment upholding their
coverage position. Loral believes that the insurers have
wrongfully denied coverage and intends to defend against the
denial vigorously.

Loral holds debt obligations from Globalstar (see
Note 6). In other situations in the past, challenges have
been initiated seeking subordination or recharacterization of
debt held by an affiliate of an issuer. While Loral knows of no
reason why such a claim would prevail with respect to the debt
Loral holds in Globalstar, there can be no assurance that such
claims will not be made in Globalstars bankruptcy
proceeding. If such claims were to prove successful, it will
jeopardize the amount of equity interest Loral will ultimately
receive in the new Globalstar company. Moreover, actions may be
initiated in Globalstars bankruptcy proceeding seeking to
characterize payments previously made by Globalstar to Loral
prior to the filing date as preferential payments subject to
repayment. Loral may also find itself subject to other claims
brought by Globalstar creditors and securities holders, who may
seek to impose liabilities on Loral as a result of its
relationship with Globalstar. For instance, Globalstars
creditors may seek to pierce the corporate veil in an attempt to
recover Globalstar obligations owed to them that are recourse to
Lorals subsidiaries, which are general partners in
Globalstar and have filed for bankruptcy protection.
Globalstars cumulative partners deficit at
March 31, 2003, was $3.2 billion.

In May 2000, Globalstar finalized
$500 million of vendor financing arrangements with
Qualcomm. The original terms of this vendor financing provided
for interest at 6%, a maturity date of August 15, 2003 and
required repayment pro rata with the term loans due to Loral
under Globalstars $500 million credit facility. As of
December 31, 2002, $623 million was outstanding under
this facility (including $123 million of capitalized
interest). Loral has agreed that if the principal amount
outstanding under the Qualcomm vendor financing facility exceeds
the principal amount due Loral under Globalstars
$500 million credit facility, as determined on certain
measurement dates, then Loral will guarantee 50% of such excess
amount. As of March 31, 2003, Loral had no obligation under
the guarantee.

11.     Loss Per
Share

Basic loss per share is computed based upon the
weighted average number of shares of common stock outstanding.
For the three months ended March 31, 2003 and 2002, diluted
loss per share excludes the

20



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

assumed conversion of the Companys
outstanding Series C Preferred Stock and the Series D
Preferred Stock into shares of common stock, as their effect
would have been antidilutive. For the three months ended
March 31, 2003 and 2002, weighted options equating to zero
shares and approximately 1.5 million shares of common
stock, respectively, as calculated using the treasury stock
method, were excluded from the calculation of diluted loss per
share, as the effect would have been antidilutive.

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

|                                                  |                                                                                                 |                    |   |         |   |  |   |          |  
|------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------ | - | ------- | - |  | - | -------- | -
|                                                  |                                                                                                 |                   
|                                                  |                                                                                                 | Three Months Ended
|                                                  |                                                                                                 | March 31,         
|                                                  |                                                                                                 |                   
|                                                  |                                                                                                 | 2003               |   | 2002   
|                                                  |                                                                                                 |                    |   |        
|Numerator:                                        |                                                                                                 |                    |   |         |   |  |   |         
|                                                  | Loss before cumulative effect of change in
    accounting principle                             |                    | $ | (48,174 | ) |  | $ | (19,860  | )
|                                                  | Cumulative effect of change in accounting
    principle, net of taxes                           |                    |   |        |   |  |   | (876,500 | )
|                                                  |                                                                                                 |                    |   |         |   |  |   |         
|                                                  | Net loss                                                                                        |                    |   | (48,174 | ) |  |   | (896,360 | )
|                                                  | Preferred dividends                                                                             |                    |   | (3,360  | ) |  |   | (11,963  | )
|                                                  |                                                                                                 |                    |   |         |   |  |   |         
|                                                  | Numerator for basic and diluted loss per
    share  net loss applicable to common shareholders |                    | $ | (51,534 | ) |  | $ | (908,323 | )
|                                                  |                                                                                                 |                    |   |         |   |  |   |         
|Denominator for basic and diluted loss per share: |                                                                                                 |                    |   |         |   |  |   |         
|                                                  | Weighted average shares of common stock                                                         |                    |   | 432,126 |   |  |   | 337,052  |  
|                                                  |                                                                                                 |                    |   |         |   |  |   |         
|Basic and diluted loss per share:                 |                                                                                                 |                    |   |         |   |  |   |         
|                                                  | Before cumulative effect of change in accounting
    principle                                  |                    | $ | (0.12   | ) |  | $ | (0.09    | )
|                                                  | Cumulative effect of change in accounting
    principle                                         |                    |   |        |   |  |   | (2.60    | )
|                                                  |                                                                                                 |                    |   |         |   |  |   |         
|                                                  | Loss per share                                                                                  |                    | $ | (0.12   | ) |  | $ | (2.69    | )
|                                                  |                                                                                                 |                    |   |         |   |  |   |         

12.     Segments

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

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

21



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Three Months Ended March 31,
2003

|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|------------------------------------- |  | --------- | ------- | ------------- |  | ------------ | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                      |  |           |         | Satellite     |  |              |       |      
|                                      |  | Fixed     |         | Manufacturing |  |              |       |      
|                                      |  | Satellite |         | and           |  |              |       |      
|                                      |  | Services  |         | Technology    |  | Corporate(1) |       | Total
|                                      |  |           |         |               |  |              |       |      
|Revenues and EBITDA:                  |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Revenues from external customers(2)   |  | $         | 83.9    |               |  | $            | 115.0 |       |  |   |       |   |  | $ | 198.9   |  
|Intersegment revenues                 |  |           | 1.1     |               |  |              | 16.5  |       |  |   |       |   |  |   | 17.6    |  
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating segment revenues            |  | $         | 85.0    |               |  | $            | 131.5 |       |  |   |       |   |  |   | 216.5   |  
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (18.3   | )
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating revenues as reported        |  |           |         |               |  |              |       |       |  |   |       |   |  | $ | 198.2   |  
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Segment EBITDA before eliminations(4) |  | $         | 42.5    |               |  | $            | (12.5 | )     |  | $ | (9.1  | ) |  | $ | 20.9    |  
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (5.1    | )
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|EBITDA(4)                             |  |           |         |               |  |              |       |       |  |   |       |   |  |   | 15.8    |  
|Depreciation and amortization(5)(6)   |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (44.8   | )
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating loss                        |  |           |         |               |  |              |       |       |  |   |       |   |  | $ | (29.0   | )
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Other Data:                           |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Depreciation and amortization(5)(6)   |  | $         | 37.9    |               |  | $            | 6.7   |       |  | $ | 0.2   |   |  | $ | 44.8    |  
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Total assets(6)                       |  | $         | 1,876.9 |               |  | $            | 638.8 |       |  | $ | 137.9 |   |  | $ | 2,653.6 |  
|                                      |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support
    of the Companys operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) | Includes revenues from affiliates of
    $15.7 million and $22.6 million for the three months
    ended March 31, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | Represents the elimination of intercompany sales
    and EBITDA, primarily for satellites under construction by SS/ L
    for wholly owned subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(4) | EBITDA (which is equivalent to operating income
    (loss) before depreciation and amortization, including
    amortization of unearned stock compensation) is provided because
    it is a measure commonly used in the communications industry to
    analyze companies on the basis of operating performance,
    leverage and liquidity and is presented to enhance the
    understanding of Lorals operating results. EBITDA is not
    an alternative to net income as an indicator of a companys
    operating performance, or cash flow from operations as a measure
    of a companys liquidity. EBITDA may be calculated
    differently and, therefore, may not be comparable to similarly
    titled measures reported by other companies.
|   
|(5) | Includes amortization of unearned stock
    compensation charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(6) | Amounts are presented after the elimination of
    intercompany profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

22



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Three Months Ended March 31,
2002

|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|------------------------------------- |  | --------- | ----- | ------------- |  | ------------ | ----- | ----- |  | - | ---- | - |  | - | ----- | -
|                                      |  |           |       | Satellite     |  |              |       |      
|                                      |  | Fixed     |       | Manufacturing |  |              |       |      
|                                      |  | Satellite |       | and           |  |              |       |      
|                                      |  | Services  |       | Technology    |  | Corporate(1) |       | Total
|                                      |  |           |       |               |  |              |       |      
|Revenues and EBITDA:                  |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Revenues from external customers(2)   |  | $         | 109.4 |               |  | $            | 198.5 |       |  |   |      |   |  | $ | 307.9 |  
|Intersegment revenues                 |  |           | 1.1   |               |  |              | 44.1  |       |  |   |      |   |  |   | 45.2  |  
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating segment revenues            |  | $         | 110.5 |               |  | $            | 242.6 |       |  |   |      |   |  |   | 353.1 |  
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Eliminations(3)                       |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (44.9 | )
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating revenues as reported        |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | 308.2 |  
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Segment EBITDA before eliminations(4) |  | $         | 65.9  |               |  | $            | 11.4  |       |  | $ | (8.7 | ) |  | $ | 68.6  |  
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Eliminations(3)                       |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (6.8  | )
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|EBITDA(4)                             |  |           |       |               |  |              |       |       |  |   |      |   |  |   | 61.8  |  
|Depreciation and amortization(5)(6)   |  |           |       |               |  |              |       |       |  |   |      |   |  |   | (47.1 | )
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Operating income                      |  |           |       |               |  |              |       |       |  |   |      |   |  | $ | 14.7  |  
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Other Data:                           |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  
|Depreciation and amortization(5)(6)   |  | $         | 39.9  |               |  | $            | 7.0   |       |  | $ | 0.2  |   |  | $ | 47.1  |  
|                                      |  |           |       |               |  |              |       |       |  |   |      |   |  |   |       |  

13.     New
Accounting Pronouncements



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

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



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

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

23



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin
No. 51 (FIN 46). FIN 46 requires certain
variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support from other parties. FIN 46 is effective
for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Company is
currently evaluating the provisions of FIN 46.



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

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and
for hedging activities under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities.
SFAS 149 is effective for contracts entered into or
modified after June 30, 2003, except as stated in the
statement for hedging relationships designated after
June 30, 2003. The Company is currently evaluating the
provisions of SFAS 149.

14.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries

Loral is a holding company (the Parent
Company), which is the ultimate parent of all Loral
subsidiaries. The senior notes of Loral Orion (the
Subsidiary Issuer), Lorals wholly-owned
subsidiary, are fully and unconditionally guaranteed, on a joint
and several basis, by the Parent Company and several of Loral
Orions wholly-owned subsidiaries (the Guarantor
Subsidiaries).

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

24



---



##### 



LORAL SPACE & COMMUNICATIONS LTD &
SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONDENSED CONSOLIDATING BALANCE
SHEET

March 31, 2003


(in thousands)


|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |            |           |  
|---------------------------------------------------------- | ------------------------------------------------------ | -------------------------------------------------------- | ------- | ---------- | -------- | ------------ | -------- | ------------- | -------- | ------------ | -------- | ------------ | ------ |  | ---------- | ---------- | ---------- | - | --------- | --------- | --------- | - | --------- | ---------- | --------- | -
|                                                           |                                                        | Parent                                                   |         | Subsidiary |          | Guarantor    |          | Non-Guarantor |          |              |          |             
|                                                           |                                                        | Company                                                  |         | Issuer     |          | Subsidiaries |          | Subsidiaries  |          | Eliminations |          | Consolidated
|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |             
|Current assets:                                            |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           | Cash and cash equivalents                              |                                                          | $       | 2,556      |          |              | $        | 18,662        |          |              | $        |             |        |  | $          | 80,283     |            |   | $         |          |           |   | $         | 101,501    |          
|                                                           | Accounts receivable, net                               |                                                          |         |           |          |              |          | 9,327         |          |              |          | 121          |        |  |            | 22,118     |            |   |           |          |           |   |           | 31,566     |          
|                                                           | Contracts-in-process                                   |                                                          |         |           |          |              |          |              |          |              |          |             |        |  |            | 77,467     |            |   |           |          |           |   |           | 77,467     |          
|                                                           | Inventories                                            |                                                          |         |           |          |              |          |              |          |              |          |             |        |  |            | 96,339     |            |   |           |          |           |   |           | 96,339     |          
|                                                           | Other current assets                                   |                                                          |         | 206        |          |              |          | 6,370         |          |              |          | 6,224        |        |  |            | 57,956     |            |   |           | (911      | )         |   |           | 69,845     |          
|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total current assets                                     |         |            | 2,762    |              |          |               | 34,359   |              |          |              | 6,345  |  |            |            | 334,163    |   |           |           | (911      | ) |           |            | 376,718   |  
|Property, plant and equipment, net                         |                                                        |                                                          |        |            |          |              | 308,533  |               |          |              | 199,447  |              |        |  | 1,395,742  |            |            |   | (21,190   | )         |           |   | 1,882,532 |           
|Long-term receivables                                      |                                                        |                                                          |        |            |          |              |         |               |          |              |         |              |        |  | 164,051    |            |            |   |          |           |           |   | 164,051   |           
|Notes receivable (payable) unconsolidated
    subsidiaries |                                                        |                                                          | 140,216 |            |          |              | (33,126  | )             |          |              |         |              |        |  | (107,090   | )          |            |   |          |           |           |   |          |           
|Due to (from) unconsolidated subsidiaries                  |                                                        |                                                          | 40,855  |            |          |              | (108,741 | )             |          |              | 118,025  |              |        |  | (12,923    | )          |            |   | (37,216   | )         |           |   |          |           
|Investments in unconsolidated subsidiaries                 |                                                        |                                                          | (44,436 | )          |          |              | 306,398  |               |          |              | (271,698 | )            |        |  | (1,653,339 | )          |            |   | 1,663,075 |           |           |   |          |           
|Investments in and advances to affiliates                  |                                                        |                                                          | 16,006  |            |          |              |         |               |          |              |         |              |        |  | 71,448     |            |            |   |          |           |           |   | 87,454    |           
|Deposits                                                   |                                                        |                                                          |        |            |          |              |         |               |          |              |         |              |        |  | 58,250     |            |            |   |          |           |           |   | 58,250    |           
|Other assets                                               |                                                        |                                                          | 2,934   |            |          |              | 15,439   |               |          |              | 666      |              |        |  | 65,583     |            |            |   |          |           |           |   | 84,622    |           
|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total assets                                             |         | $          | 158,337  |              |          | $             | 522,862  |              |          | $            | 52,785 |  |            | $          | 315,885    |   |           | $         | 1,603,758 |   |           | $          | 2,653,627 |  
|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|Current liabilities:                                       |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           | Current portion of long-term debt                      |                                                          | $       |           |          |              | $        | 64,628        |          |              | $        |             |        |  | $          | 82,146     |            |   | $         |          |           |   | $         | 146,774    |          
|                                                           | Accounts payable                                       |                                                          |         | 1,327      |          |              |          | 224           |          |              |          | 963          |        |  |            | 61,185     |            |   |           |          |           |   |           | 63,699     |          
|                                                           | Accrued employment costs                               |                                                          |         |           |          |              |          |              |          |              |          |             |        |  |            | 42,173     |            |   |           |          |           |   |           | 42,173     |          
|                                                           | Customer advances                                      |                                                          |         |           |          |              |          | 1,453         |          |              |          | 248          |        |  |            | 80,017     |            |   |           |          |           |   |           | 81,718     |          
|                                                           | Accrued interest and preferred dividends               |                                                          |         | 15,887     |          |              |          | 5,166         |          |              |          |             |        |  |            | 8,271      |            |   |           |          |           |   |           | 29,324     |          
|                                                           | Income taxes payable                                   |                                                          |         | 8,123      |          |              |          |              |          |              |          |             |        |  |            | 30,841     |            |   |           | (1,419    | )         |   |           | 37,545     |          
|                                                           | Other current liabilities                              |                                                          |         |           |          |              |          |              |          |              |          | 41           |        |  |            | 51,965     |            |   |           |          |           |   |           | 52,006     |          
|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total current liabilities                                |         |            | 25,337   |              |          |               | 71,471   |              |          |              | 1,252  |  |            |            | 356,598    |   |           |           | (1,419    | ) |           |            | 453,239   |  
|Pension and other postretirement liabilities               |                                                        |                                                          |        |            |          |              |         |               |          |              |         |              |        |  | 126,813    |            |            |   |          |           |           |   | 126,813   |           
|Long-term liabilities                                      |                                                        |                                                          | 50,240  |            |          |              | 7,624    |               |          |              | 12,523   |              |        |  | 172,090    |            |            |   | (33,206   | )         |           |   | 209,271   |           
|Long-term debt                                             |                                                        |                                                          | 350,000 |            |          |              | 863,317  |               |          |              |         |              |        |  | 902,038    |            |            |   |          |           |           |   | 2,115,355 |           
|Minority interest                                          |                                                        |                                                          |        |            |          |              |         |               |          |              |         |              |        |  | 16,189     |            |            |   |          |           |           |   | 16,189    |           
|6% Series C convertible redeemable preferred
    stock     |                                                        |                                                          | 116,901 |            |          |              |         |               |          |              |         |              |        |  |           |            |            |   |          |           |           |   | 116,901   |           
|6% Series D convertible redeemable preferred
    stock     |                                                        |                                                          | 22,913  |            |          |              |         |               |          |              |         |              |        |  |           |            |            |   |          |           |           |   | 22,913    |           
|Shareholders (deficit) equity:                            |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           | 6% Series C convertible redeemable preferred
    stock |                                                          |         | 67,852     |          |              |          |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 67,852     |          
|                                                           | 6% Series D convertible redeemable preferred
    stock |                                                          |         | 12,711     |          |              |          |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 12,711     |          
|                                                           | Common stock, par value $.01                           |                                                          |         | 4,356      |          |              |          |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 4,356      |          
|                                                           | Paid-in capital                                        |                                                          |         | 3,391,220  |          |              |          | 604,166       |          |              |          |             |        |  |            |           |            |   |           | (604,166  | )         |   |           | 3,391,220  |          
|                                                           | Treasury stock, at cost                                |                                                          |         | (3,360     | )        |              |          |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (3,360     | )        
|                                                           | Unearned compensation                                  |                                                          |         | (228       | )        |              |          |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (228       | )        
|                                                           | Retained (deficit) earnings                            |                                                          |         | (3,833,641 | )        |              |          | (1,023,716    | )        |              |          | 39,010       |        |  |            | (1,257,843 | )          |   |           | 2,242,549 |           |   |           | (3,833,641 | )        
|                                                           | Accumulated other comprehensive income                 |                                                          |         | (45,964    | )        |              |          |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (45,964    | )        
|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total shareholders (deficit) equity                     |         |            | (407,054 | )            |          |               | (419,550 | )            |          |              | 39,010 |  |            |            | (1,257,843 | ) |           |           | 1,638,383 |   |           |            | (407,054  | )
|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total liabilities and shareholders
    (deficit) equity |         | $          | 158,337  |              |          | $             | 522,862  |              |          | $            | 52,785 |  |            | $          | 315,885    |   |           | $         | 1,603,758 |   |           | $          | 2,653,627 |  
|                                                           |                                                        |                                                          |         |            |          |              |          |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           

25



---



##### 



LORAL SPACE & COMMUNICATIONS LTD &
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Three Months Ended March 31,
2003


(in thousands)


|                                                                                                                                 |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------- | ---------- |  | ------------ | ------ | ------------- |  | ------------ | ------ | ------------ |  | - | ------- | ------- |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                                 |                | Parent  |         | Subsidiary |  | Guarantor    |        | Non-Guarantor |  |              |        |             
|                                                                                                                                 |                | Company |         | Issuer     |  | Subsidiaries |        | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                 |                |         |         |            |  |              |        |               |  |              |        |             
|Revenues from satellite sales                                                                                                    |                | $       |        |            |  | $            |       |               |  | $            |       |              |  | $ | 118,893 |         |  | $ | (3,856  | )       |   | $ | 115,037 |        
|Revenues from satellite services                                                                                                 |                |         |        |            |  |              | 23,075 |               |  |              | 10,937 |              |  |   | 60,846  |         |  |   | (11,662 | )       |   |   | 83,196  |        
|Management fee from parent                                                                                                       |                |         |        |            |  |              |       |               |  |              |       |              |  |   |        |         |  |   |        |         |   |   |        |        
|                                                                                                                                 |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|                                                                                                                                 | Total revenues |         |         |           |  |              |        | 23,075        |  |              |        | 10,937       |  |   |         | 179,739 |  |   |         | (15,518 | ) |   |         | 198,233 | 
|Costs of satellite sales                                                                                                         |                |         |        |            |  |              |       |               |  |              |       |              |  |   | 133,273 |         |  |   | (3,137  | )       |   |   | 130,136 |        
|Costs of satellite services                                                                                                      |                |         |        |            |  |              | 24,602 |               |  |              | 7,883  |              |  |   | 39,581  |         |  |   | (10,900 | )       |   |   | 61,166  |        
|Selling, general and administrative expenses                                                                                     |                |         | 1,422   |            |  |              | 3,976  |               |  |              | 274    |              |  |   | 30,258  |         |  |   |        |         |   |   | 35,930  |        
|                                                                                                                                 |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|Operating income (loss)                                                                                                          |                |         | (1,422  | )          |  |              | (5,503 | )             |  |              | 2,780  |              |  |   | (23,373 | )       |  |   | (1,481  | )       |   |   | (28,999 | )      
|Interest and investment income                                                                                                   |                |         | 5,547   |            |  |              | 37     |               |  |              |       |              |  |   | 7,822   |         |  |   | (6,360  | )       |   |   | 7,046   |        
|Interest expense                                                                                                                 |                |         | (10,917 | )          |  |              | (2,920 | )             |  |              |       |              |  |   | (9,977  | )       |  |   | 7,010   |         |   |   | (16,804 | )      
|Gain on investment                                                                                                               |                |         | 1,107   |            |  |              |       |               |  |              |       |              |  |   |        |         |  |   |        |         |   |   | 1,107   |        
|                                                                                                                                 |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates, minority
    interest |                |         | (5,685  | )          |  |              | (8,386 | )             |  |              | 2,780  |              |  |   | (25,528 | )       |  |   | (831    | )       |   |   | (37,650 | )      
|Income tax benefit (provision)                                                                                                   |                |         | (1,663  | )          |  |              | (192   | )             |  |              | (972   | )            |  |   | (371    | )       |  |   | 1,216   |         |   |   | (1,982  | )      
|                                                                                                                                 |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|(Loss) income before equity in net losses of
    unconsolidated subsidiaries and affiliates, minority interest                   |                |         | (7,348  | )          |  |              | (8,578 | )             |  |              | 1,808  |              |  |   | (25,899 | )       |  |   | 385     |         |   |   | (39,632 | )      
|Equity in net income (losses) of
    unconsolidated subsidiaries, net of taxes                                                   |                |         | (35,520 | )          |  |              | 1,808  |               |  |              |       |              |  |   |        |         |  |   | 33,712  |         |   |   |        |        
|Equity in net (losses) of affiliates                                                                                             |                |         | (5,306  | )          |  |              |       |               |  |              |       |              |  |   | (3,197  | )       |  |   |        |         |   |   | (8,503  | )      
|Minority interest                                                                                                                |                |         |        |            |  |              |       |               |  |              |       |              |  |   | (39     | )       |  |   |        |         |   |   | (39     | )      
|                                                                                                                                 |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        
|Net (loss) income                                                                                                                |                | $       | (48,174 | )          |  | $            | (6,770 | )             |  | $            | 1,808  |              |  | $ | (29,135 | )       |  | $ | 34,097  |         |   | $ | (48,174 | )      
|                                                                                                                                 |                |         |         |            |  |              |        |               |  |              |        |              |  |   |         |         |  |   |         |         |   |   |         |        

26



---



##### 



LORAL SPACE & COMMUNICATIONS LTD &
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Three Months Ended March 31,
2003


(in thousands)


|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |         |         |  
|------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------- | ------- | ---------- | ------ | ------------ | ------- | ------------- | ------ | ------------ | - | ------------ | ------- | - | ------ | ------- | ------- | - | ------ | ------ | ------- | - | ------- | ------- | ------- | -
|                                                        |                                                                | Parent                                                  |         | Subsidiary |        | Guarantor    |         | Non-Guarantor |        |              |   |             
|                                                        |                                                                | Company                                                 |         | Issuer     |        | Subsidiaries |         | Subsidiaries  |        | Eliminations |   | Consolidated
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |             
|Operating activities:                                   |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|                                                        | Net (loss) income                                              |                                                         | $       | (48,174    | )      |              | $       | (6,770        | )      |              | $ | 1,808        |         |   | $      | (29,135 | )       |   | $      | 34,097 |         |   | $       | (48,174 | )      
|                                                        | Non-cash items:                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |         |        
|                                                        |                                                                | Equity in net losses of affiliates                      |         |            | 5,306  |              |         |               |       |              |   |              |        |   |        |         | 3,197   |   |        |        |        |   |         |         | 8,503   |  
|                                                        |                                                                | Minority interest                                       |         |            |       |              |         |               |       |              |   |              |        |   |        |         | 39      |   |        |        |        |   |         |         | 39      |  
|                                                        |                                                                | Equity in net losses of unconsolidated
    subsidiaries |         |            | 35,520 |              |         |               | (1,808 | )            |   |              |        |   |        |         |        |   |        |        | (33,712 | ) |         |         |        |  
|                                                        |                                                                | Deferred taxes                                          |         |            | 1,663  |              |         |               |       |              |   |              | 1,150   |   |        |         | 65      |   |        |        | (1,215  | ) |         |         | 1,663   |  
|                                                        |                                                                | Depreciation and amortization                           |         |            | 14     |              |         |               | 13,569 |              |   |              | 5,254   |   |        |         | 25,980  |   |        |        |        |   |         |         | 44,817  |  
|                                                        |                                                                | Charge on vendor financing receivables                  |         |            |       |              |         |               |       |              |   |              |        |   |        |         | 10,008  |   |        |        |        |   |         |         | 10,008  |  
|                                                        |                                                                | Provisions for bad debts                                |         |            |       |              |         |               | 2,146  |              |   |              | (11     | ) |        |         | 1,828   |   |        |        |        |   |         |         | 3,963   |  
|                                                        |                                                                | Gain on investments                                     |         |            |       |              |         |               |       |              |   |              |        |   |        |         | (1,107  | ) |        |        |        |   |         |         | (1,107  | )
|                                                        |                                                                | Non-cash interest (income) expense                      |         |            |       |              |         |               | 1,165  |              |   |              |        |   |        |         | (1,585  | ) |        |        |        |   |         |         | (420    | )
|                                                        | Changes in operating assets and liabilities:                   |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |         |        
|                                                        |                                                                | Accounts receivable, net                                |         |            |       |              |         |               | (3,996 | )            |   |              | 28      |   |        |         | (2,668  | ) |        |        |        |   |         |         | (6,636  | )
|                                                        |                                                                | Contracts-in-process                                    |         |            |       |              |         |               |       |              |   |              |        |   |        |         | 36,656  |   |        |        |        |   |         |         | 36,656  |  
|                                                        |                                                                | Inventories                                             |         |            |       |              |         |               |       |              |   |              |        |   |        |         | (606    | ) |        |        |        |   |         |         | (606    | )
|                                                        |                                                                | Long-term receivables                                   |         |            |       |              |         |               |       |              |   |              |        |   |        |         | (860    | ) |        |        |        |   |         |         | (860    | )
|                                                        |                                                                | Due (to) from unconsolidated subsidiaries               |         |            | 710    |              |         |               | 5,713  |              |   |              | (10,109 | ) |        |         | (230    | ) |        |        | 3,916   |   |         |         |        |  
|                                                        |                                                                | Other current assets and other assets                   |         |            | 874    |              |         |               | 757    |              |   |              | 2,389   |   |        |         | 8,322   |   |        |        |        |   |         |         | 12,342  |  
|                                                        |                                                                | Accounts payable                                        |         |            |       |              |         |               | (3,532 | )            |   |              | (232    | ) |        |         | 9,108   |   |        |        |        |   |         |         | 5,344   |  
|                                                        |                                                                | Accrued expenses and other current liabilities          |         |            | (9,389 | )            |         |               |       |              |   |              |        |   |        |         | 7,923   |   |        |        |        |   |         |         | (1,466  | )
|                                                        |                                                                | Customer advances                                       |         |            |       |              |         |               | 1,243  |              |   |              | (277    | ) |        |         | (33,328 | ) |        |        |        |   |         |         | (32,362 | )
|                                                        |                                                                | Income taxes payable                                    |         |            |       |              |         |               |       |              |   |              |        |   |        |         | (391    | ) |        |        |        |   |         |         | (391    | )
|                                                        |                                                                | Pension and other postretirement liabilities            |         |            |       |              |         |               |       |              |   |              |        |   |        |         | 2,620   |   |        |        |        |   |         |         | 2,620   |  
|                                                        |                                                                | Long-term liabilities                                   |         |            |       |              |         |               |       |              |   |              |        |   |        |         | (2,737  | ) |        |        |        |   |         |         | (2,737  | )
|                                                        |                                                                | Other                                                   |         |            |       |              |         |               |       |              |   |              |        |   |        |         | 419     |   |        |        |        |   |         |         | 419     |  
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Net cash provided by (used in) operating
    activities |                                                                |                                                         | (13,476 | )          |        |              | 8,487   |               |        |              |  |              |         |   | 33,518 |         |         |   | 3,086  |        |         |   | 31,615  |        
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Investing activities:                                   |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|                                                        | Capital expenditures                                           |                                                         |         |           |        |              |         | (1,599        | )      |              |   |             |         |   |        | (18,555 | )       |   |        | (3,086 | )       |   |         | (23,240 | )      
|                                                        | Investments in and advances to unconsolidated
    subsidiaries |                                                         |         | 195        |        |              |         |              |        |              |   |             |         |   |        | (195    | )       |   |        |       |         |   |         |        |        
|                                                        | Investments in and advances to affiliates                      |                                                         |         |           |        |              |         |              |        |              |   |             |         |   |        | (514    | )       |   |        |       |         |   |         | (514    | )      
|                                                        | Proceeds from the sales of investment                          |                                                         |         |           |        |              |         |              |        |              |   |             |         |   |        | 9,704   |         |   |        |       |         |   |         | 9,704   |        
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Net cash used in investing activities                   |                                                                |                                                         | 195     |            |        |              | (1,599  | )             |        |              |  |              |         |   | (9,560 | )       |         |   | (3,086 | )      |         |   | (14,050 | )      
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Financing activities:                                   |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|                                                        | Borrowings under revolving credit facilities                   |                                                         |         |           |        |              |         |              |        |              |   |             |         |   |        | 66,000  |         |   |        |       |         |   |         | 66,000  |        
|                                                        | Repayments under term loans                                    |                                                         |         |           |        |              |         |              |        |              |   |             |         |   |        | (16,250 | )       |   |        |       |         |   |         | (16,250 | )      
|                                                        | Interest payments on 10% senior notes                          |                                                         |         |           |        |              |         | (30,634       | )      |              |   |             |         |   |        |        |         |   |        |       |         |   |         | (30,634 | )      
|                                                        | Payment of bank amendment costs                                |                                                         |         |           |        |              |         |              |        |              |   |             |         |   |        | (2,183  | )       |   |        |       |         |   |         | (2,183  | )      
|                                                        | Repayments of other long-term obligations                      |                                                         |         |           |        |              |         | (556          | )      |              |   |             |         |   |        | (534    | )       |   |        |       |         |   |         | (1,090  | )      
|                                                        | Note receivable from unconsolidated affiliate                  |                                                         |         | 17,284     |        |              |         |              |        |              |   |             |         |   |        | (17,284 | )       |   |        |       |         |   |         |        |        
|                                                        | Proceeds from stock issuances                                  |                                                         |         | 2,157      |        |              |         |              |        |              |   |             |         |   |        |        |         |   |        |       |         |   |         | 2,157   |        
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Net cash provided by (used in) financing
    activities |                                                                |                                                         | 19,441  |            |        |              | (31,190 | )             |        |              |  |              |         |   | 29,749 |         |         |   |       |        |         |   | 18,000  |        
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Increase (decrease) in cash and cash equivalents        |                                                                |                                                         | 6,160   |            |        |              | (24,302 | )             |        |              |  |              |         |   | 53,707 |         |         |   |       |        |         |   | 35,565  |        
|Cash and cash equivalents  beginning
    of period     |                                                                |                                                         | 1,514   |            |        |              | 42,964  |               |        |              |  |              |         |   | 21,458 |         |         |   |       |        |         |   | 65,936  |        
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        
|Cash and cash equivalents  end of
    period           |                                                                | $                                                       | 7,674   |            |        | $            | 18,662  |               |        | $            |  |              |         | $ | 75,165 |         |         | $ |       |        |         | $ | 101,501 |        
|                                                        |                                                                |                                                         |         |            |        |              |         |               |        |              |   |              |         |   |        |         |         |   |        |        |         |   |         |        

27



---



##### 



LORAL SPACE & COMMUNICATIONS LTD &
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2002


(in thousands)


|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |            |           |  
|---------------------------------------------------------- | ------------------------------------------------------ | -------------------------------------------------------- | ------- | ---------- | -------- | ------------ | ------- | ------------- | -------- | ------------ | -------- | ------------ | ------ |  | ---------- | ---------- | ---------- | - | --------- | --------- | --------- | - | --------- | ---------- | --------- | -
|                                                           |                                                        | Parent                                                   |         | Subsidiary |          | Guarantor    |         | Non-Guarantor |          |              |          |             
|                                                           |                                                        | Company                                                  |         | Issuer     |          | Subsidiaries |         | Subsidiaries  |          | Eliminations |          | Consolidated
|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |             
|Current assets:                                            |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           | Cash and cash equivalents                              |                                                          | $       | 1,514      |          |              | $       | 42,964        |          |              | $        |             |        |  | $          | 21,458     |            |   | $         |          |           |   | $         | 65,936     |          
|                                                           | Accounts receivable, net                               |                                                          |         |           |          |              |         | 7,477         |          |              |          | 138          |        |  |            | 21,278     |            |   |           |          |           |   |           | 28,893     |          
|                                                           | Contracts-in-process                                   |                                                          |         |           |          |              |         |              |          |              |          |             |        |  |            | 113,154    |            |   |           |          |           |   |           | 113,154    |          
|                                                           | Vendor financing receivable                            |                                                          |         |           |          |              |         |              |          |              |          |             |        |  |            | 38,016     |            |   |           |          |           |   |           | 38,016     |          
|                                                           | Inventories                                            |                                                          |         |           |          |              |         |              |          |              |          |             |        |  |            | 95,733     |            |   |           |          |           |   |           | 95,733     |          
|                                                           | Other current assets                                   |                                                          |         | 823        |          |              |         | 5,540         |          |              |          | 8,584        |        |  |            | 34,659     |            |   |           | (911      | )         |   |           | 48,695     |          
|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total current assets                                     |         |            | 2,337    |              |         |               | 55,981   |              |          |              | 8,722  |  |            |            | 324,298    |   |           |           | (911      | ) |           |            | 390,427   |  
|Property, plant and equipment, net                         |                                                        |                                                          |        |            |          |              | 319,998 |               |          |              | 204,701  |              |        |  | 1,396,920  |            |            |   | (24,276   | )         |           |   | 1,897,343 |           
|Long-term receivables                                      |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  | 163,191    |            |            |   |          |           |           |   | 163,191   |           
|Notes receivable (payable) unconsolidated
    subsidiaries |                                                        |                                                          | 157,500 |            |          |              | (31,540 | )             |          |              |         |              |        |  | (125,960   | )          |            |   |          |           |           |   |          |           
|Due to (from) unconsolidated subsidiaries                  |                                                        |                                                          | 36,448  |            |          |              | (97,652 | )             |          |              | 107,917  |              |        |  | (13,413    | )          |            |   | (33,300   | )         |           |   |          |           
|Investments in unconsolidated subsidiaries                 |                                                        |                                                          | (20,185 | )          |          |              | 304,590 |               |          |              | (271,698 | )            |        |  | (1,642,070 | )          |            |   | 1,629,363 |           |           |   |          |           
|Investments in and advances to affiliates                  |                                                        |                                                          | 21,507  |            |          |              |        |               |          |              |         |              |        |  | 73,936     |            |            |   |          |           |           |   | 95,443    |           
|Deposits                                                   |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  | 58,250     |            |            |   |          |           |           |   | 58,250    |           
|Deferred tax assets                                        |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  |           |            |            |   |          |           |           |   |          |           
|Other assets                                               |                                                        |                                                          | 3,191   |            |          |              | 16,622  |               |          |              | 696      |              |        |  | 67,639     |            |            |   |          |           |           |   | 88,148    |           
|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total assets                                             |         | $          | 200,798  |              |         | $             | 567,999  |              |          | $            | 50,338 |  |            | $          | 302,791    |   |           | $         | 1,570,876 |   |           | $          | 2,692,802 |  
|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|Current liabilities:                                       |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           | Current portion of long-term debt                      |                                                          | $       |           |          |              | $       | 64,727        |          |              | $        |             |        |  | $          | 67,171     |            |   | $         |          |           |   | $         | 131,898    |          
|                                                           | Accounts payable                                       |                                                          |         | 2,404      |          |              |         | 1,194         |          |              |          | 1,193        |        |  |            | 53,532     |            |   |           |          |           |   |           | 58,323     |          
|                                                           | Accrued employment costs                               |                                                          |         |           |          |              |         |              |          |              |          |             |        |  |            | 34,531     |            |   |           |          |           |   |           | 34,531     |          
|                                                           | Customer advances                                      |                                                          |         |           |          |              |         | 1,208         |          |              |          | 521          |        |  |            | 112,351    |            |   |           |          |           |   |           | 114,080    |          
|                                                           | Accrued interest and preferred dividends               |                                                          |         | 20,840     |          |              |         | 4,700         |          |              |          |             |        |  |            | 11,830     |            |   |           |          |           |   |           | 37,370     |          
|                                                           | Income taxes payable                                   |                                                          |         | 8,123      |          |              |         |              |          |              |          |             |        |  |            | 31,232     |            |   |           | (1,419    | )         |   |           | 37,936     |          
|                                                           | Other current liabilities                              |                                                          |         |           |          |              |         | 1,968         |          |              |          | 35           |        |  |            | 45,002     |            |   |           |          |           |   |           | 47,005     |          
|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total current liabilities                                |         |            | 31,367   |              |         |               | 73,797   |              |          |              | 1,749  |  |            |            | 355,649    |   |           |           | (1,419    | ) |           |            | 461,143   |  
|Pension and other postretirement liabilities               |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  | 124,193    |            |            |   |          |           |           |   | 124,193   |           
|Long-term liabilities                                      |                                                        |                                                          | 48,577  |            |          |              | 7,743   |               |          |              | 11,387   |              |        |  | 172,119    |            |            |   | (31,991   | )         |           |   | 207,835   |           
|Long-term debt                                             |                                                        |                                                          | 350,000 |            |          |              | 894,829 |               |          |              |         |              |        |  | 867,798    |            |            |   |          |           |           |   | 2,112,627 |           
|Minority interest                                          |                                                        |                                                          |        |            |          |              |        |               |          |              |         |              |        |  | 16,150     |            |            |   |          |           |           |   | 16,150    |           
|                                                           | 6% Series C convertible redeemable preferred
    stock |                                                          |         | 104,582    |          |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 104,582    |          
|                                                           | 6% Series D convertible redeemable preferred
    stock |                                                          |         | 20,499     |          |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 20,499     |          
|Shareholders (deficit) equity:                            |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           | 6% Series C convertible redeemable preferred
    stock |                                                          |         | 80,171     |          |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 80,171     |          
|                                                           | 6% Series D convertible redeemable preferred
    stock |                                                          |         | 15,125     |          |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 15,125     |          
|                                                           | Common stock, par value $.01                           |                                                          |         | 4,293      |          |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | 4,293      |          
|                                                           | Paid-in capital                                        |                                                          |         | 3,389,035  |          |              |         | 604,166       |          |              |          |             |        |  |            |           |            |   |           | (604,166  | )         |   |           | 3,389,035  |          
|                                                           | Treasury stock, at cost                                |                                                          |         | (3,360     | )        |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (3,360     | )        
|                                                           | Unearned compensation                                  |                                                          |         | (151       | )        |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (151       | )        
|                                                           | Retained (deficit) earnings                            |                                                          |         | (3,782,107 | )        |              |         | (1,012,536    | )        |              |          | 37,202       |        |  |            | (1,233,118 | )          |   |           | 2,208,452 |           |   |           | (3,782,107 | )        
|                                                           | Accumulated other comprehensive loss                   |                                                          |         | (57,233    | )        |              |         |              |          |              |          |             |        |  |            |           |            |   |           |          |           |   |           | (57,233    | )        
|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total shareholders (deficit) equity                     |         |            | (354,227 | )            |         |               | (408,370 | )            |          |              | 37,202 |  |            |            | (1,233,118 | ) |           |           | 1,604,286 |   |           |            | (354,227  | )
|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           
|                                                           |                                                        | Total liabilities and shareholders
    (deficit) equity |         | $          | 200,798  |              |         | $             | 567,999  |              |          | $            | 50,338 |  |            | $          | 302,791    |   |           | $         | 1,570,876 |   |           | $          | 2,692,802 |  
|                                                           |                                                        |                                                          |         |            |          |              |         |               |          |              |          |              |        |  |            |            |            |   |           |           |           |   |           |           

28



---



##### 



LORAL SPACE & COMMUNICATIONS LTD &
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Three Months Ended March 31,
2002


(in thousands)


|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | -------- | ---------- |  | ------------ | -------- | ------------- |  | ------------ | ------ | ------------ |  | - | -------- | ------- |  | - | ------- | ------- | - | - | -------- | ------- | 
|                                                                                                                                                                                         |                | Parent  |          | Subsidiary |  | Guarantor    |          | Non-Guarantor |  |              |        |             
|                                                                                                                                                                                         |                | Company |          | Issuer     |  | Subsidiaries |          | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |             
|Revenues from satellite sales                                                                                                                                                            |                | $       |         |            |  | $            |         |               |  | $            |       |              |  | $ | 198,471  |         |  | $ |        |         |   | $ | 198,471  |        
|Revenues from satellite services                                                                                                                                                         |                |         |         |            |  |              | 26,836   |               |  |              | 12,892 |              |  |   | 84,738   |         |  |   | (14,761 | )       |   |   | 109,705  |        
|Management fee from parent                                                                                                                                                               |                |         |         |            |  |              |         |               |  |              |       |              |  |   | 291      |         |  |   | (291    | )       |   |   |         |        
|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|                                                                                                                                                                                         | Total revenues |         |          |           |  |              |          | 26,836        |  |              |        | 12,892       |  |   |          | 283,500 |  |   |         | (15,052 | ) |   |          | 308,176 | 
|Costs of satellite sales                                                                                                                                                                 |                |         |         |            |  |              |         |               |  |              |       |              |  |   | 186,428  |         |  |   |        |         |   |   | 186,428  |        
|Costs of satellite services                                                                                                                                                              |                |         |         |            |  |              | 25,775   |               |  |              | 7,098  |              |  |   | 47,126   |         |  |   | (13,703 | )       |   |   | 66,296   |        
|Selling, general and administrative expenses                                                                                                                                             |                |         | 19       |            |  |              | 2,704    |               |  |              | 404    |              |  |   | 37,915   |         |  |   | (295    | )       |   |   | 40,747   |        
|Management fee expense                                                                                                                                                                   |                |         | 291      |            |  |              |         |               |  |              |       |              |  |   |         |         |  |   | (291    | )       |   |   |         |        
|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Operating income (loss)                                                                                                                                                                  |                |         | (310     | )          |  |              | (1,643   | )             |  |              | 5,390  |              |  |   | 12,031   |         |  |   | (763    | )       |   |   | 14,705   |        
|Interest and investment income                                                                                                                                                           |                |         | 5,230    |            |  |              | 220      |               |  |              |       |              |  |   | 7,405    |         |  |   | (7,446  | )       |   |   | 5,409    |        
|Interest expense                                                                                                                                                                         |                |         | (9,847   | )          |  |              | (3,258   | )             |  |              |       |              |  |   | (13,598  | )       |  |   | 8,133   |         |   |   | (18,570  | )      
|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates, minority
    interest and cumulative effect of change in accounting principle |                |         | (4,927   | )          |  |              | (4,681   | )             |  |              | 5,390  |              |  |   | 5,838    |         |  |   | (76     | )       |   |   | 1,544    |        
|Income tax (provision) benefit                                                                                                                                                           |                |         | (1,549   | )          |  |              | 3,412    |               |  |              | (1,857 | )            |  |   | (3,718   | )       |  |   | (1,816  | )       |   |   | (5,528   | )      
|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|(Loss) income before equity in net losses of
    unconsolidated subsidiaries and affiliates, minority interest
    and cumulative effect of change in accounting principle               |                |         | (6,476   | )          |  |              | (1,269   | )             |  |              | 3,533  |              |  |   | 2,120    |         |  |   | (1,892  | )       |   |   | (3,984   | )      
|Equity in net (losses) income of unconsolidated
    subsidiaries, net of taxes                                                                                                           |                |         | (874,287 | )          |  |              | 3,533    |               |  |              |       |              |  |   |         |         |  |   | 870,754 |         |   |   |         |        
|Equity in net losses of affiliates, net of taxes                                                                                                                                         |                |         | (15,597  | )          |  |              |         |               |  |              |       |              |  |   | (353     | )       |  |   |        |         |   |   | (15,950  | )      
|Minority interest, net of taxes                                                                                                                                                          |                |         |         |            |  |              |         |               |  |              |       |              |  |   | 74       |         |  |   |        |         |   |   | 74       |        
|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Loss before cumulative effect of change in
    accounting principle                                                                                                                      |                |         | (896,360 | )          |  |              | 2,264    |               |  |              | 3,533  |              |  |   | 1,841    |         |  |   | 868,862 |         |   |   | (19,860  | )      
|Cumulative effect of change in accounting
    principle                                                                                                                                  |                |         |          |            |  |              | (562,201 | )             |  |              |       |              |  |   | (314,299 | )       |  |   |        |         |   |   | (876,500 | )      
|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        
|Net (loss) income                                                                                                                                                                        |                | $       | (896,360 | )          |  | $            | (559,937 | )             |  | $            | 3,533  |              |  | $ | (312,458 | )       |  | $ | 868,862 |         |   | $ | (896,360 | )      
|                                                                                                                                                                                         |                |         |          |            |  |              |          |               |  |              |        |              |  |   |          |         |  |   |         |         |   |   |          |        

29



---



##### 



LORAL SPACE & COMMUNICATIONS LTD &
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Three Months Ended March 31,
2002


(in thousands)


|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |          |         |  
|------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------------------------------------- | ------- | ---------- | ------- | ------------ | ------ | ------------- | ------- | ------------ | - | ------------ | ----- | - | -------- | -------- | -------- | - | -------- | -------- | ------ | - | ------- | -------- | ------- | -
|                                                        |                                                              | Parent                                                                |         | Subsidiary |         | Guarantor    |        | Non-Guarantor |         |              |   |             
|                                                        |                                                              | Company                                                               |         | Issuer     |         | Subsidiaries |        | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |             
|Operating activities:                                   |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|                                                        | Net (loss) income                                            |                                                                       | $       | (896,360   | )       |              | $      | (559,937      | )       |              | $ | 3,533        |       |   | $        | (312,458 | )        |   | $        | 868,862  |        |   | $       | (896,360 | )      
|                                                        | Non-cash items:                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |          |        
|                                                        |                                                              | Equity in net losses of affiliates, net of taxes                      |         |            | 15,597  |              |        |               |        |              |   |              |      |   |          |          | 353      |   |          |          |       |   |         |          | 15,950  |  
|                                                        |                                                              | Minority interest, net of taxes                                       |         |            |        |              |        |               |        |              |   |              |      |   |          |          | (74      | ) |          |          |       |   |         |          | (74     | )
|                                                        |                                                              | Cumulative effect of change in accounting
    principle, net of taxes |         |            |        |              |        |               | 562,201 |              |   |              |      |   |          |          | 314,299  |   |          |          |       |   |         |          | 876,500 |  
|                                                        |                                                              | Equity in net losses of unconsolidated
    subsidiaries, net of taxes |         |            | 874,287 |              |        |               | (3,533  | )            |   |              |      |   |          |          | (870,754 | ) |          |          |       |   |         |          |        |  
|                                                        |                                                              | Deferred taxes                                                        |         |            | 1,536   |              |        |               |        |              |   |              | 752   |   |          |          | 2,842    |   |          |          | (1,620 | ) |         |          | 3,510   |  
|                                                        |                                                              | Non-cash interest expense                                             |         |            |        |              |        |               | (141    | )            |   |              |      |   |          |          |         |   |          |          |       |   |         |          | (141    | )
|                                                        |                                                              | Depreciation and amortization                                         |         |            |        |              |        |               | 13,570  |              |   |              | 5,253 |   |          |          | 28,243   |   |          |          |       |   |         |          | 47,066  |  
|                                                        |                                                              | Provisions for inventory obsolescence                                 |         |            |        |              |        |               |        |              |   |              |      |   |          |          | 3,013    |   |          |          |       |   |         |          | 3,013   |  
|                                                        |                                                              | Provisions for bad debts                                              |         |            |        |              |        |               | 434     |              |   |              | 192   |   |          |          | 361      |   |          |          |       |   |         |          | 987     |  
|Changes in operating assets and liabilities:            |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|                                                        | Accounts receivable, net                                     |                                                                       |         |           |         |              |        | 2,513         |         |              |   | (1,822       | )     |   |          | (4,754   | )        |   |          |         |        |   |         | (4,063   | )      
|                                                        | Contracts-in-process                                         |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | 11,649   |          |   |          |         |        |   |         | 11,649   |        
|                                                        | Inventories                                                  |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | (8,351   | )        |   |          |         |        |   |         | (8,351   | )      
|                                                        | Long-term receivables                                        |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | (4,416   | )        |   |          |         |        |   |         | (4,416   | )      
|                                                        | Deposits                                                     |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | (5,800   | )        |   |          |         |        |   |         | (5,800   | )      
|                                                        | Other current assets                                         |                                                                       |         | 165        |         |              |        | 817           |         |              |   | 800          |       |   |          | 3,164    |          |   |          |         |        |   |         | 4,946    |        
|                                                        | Due to (from) unconsolidated subsidiaries                    |                                                                       |         | (4,300     | )       |              |        | 6,463         |         |              |   | (9,838       | )     |   |          | 335      |          |   |          | 7,340    |        |   |         |         |        
|                                                        | Other assets                                                 |                                                                       |         | 290        |         |              |        | (1,089        | )       |              |   |             |       |   |          | 7,379    |          |   |          |         |        |   |         | 6,580    |        
|                                                        | Accounts payable                                             |                                                                       |         | (277       | )       |              |        | (2,170        | )       |              |   |             |       |   |          | 14,805   |          |   |          |         |        |   |         | 12,358   |        
|                                                        | Accrued expenses and other current liabilities               |                                                                       |         | (8,312     | )       |              |        | 247           |         |              |   |             |       |   |          | 7,214    |          |   |          |         |        |   |         | (851     | )      
|                                                        | Customer advances                                            |                                                                       |         |            |         |              |        | (487          | )       |              |   |             |       |   |          | 28,602   |          |   |          |         |        |   |         | 28,115   |        
|                                                        | Income taxes payable                                         |                                                                       |         | 13         |         |              |        |              |         |              |   |             |       |   |          | 1,163    |          |   |          |         |        |   |         | 1,176    |        
|                                                        | Pension and other postretirement liabilities                 |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | 2,213    |          |   |          |         |        |   |         | 2,213    |        
|                                                        | Long-term liabilities                                        |                                                                       |         |           |         |              |        | (1,686        | )       |              |   | 1,130        |       |   |          | (4,751   | )        |   |          |         |        |   |         | (5,307   | )      
|                                                        | Other                                                        |                                                                       |         | (166       | )       |              |        |              |         |              |   |             |       |   |          | (11      | )        |   |          |         |        |   |         | (177     | )      
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|Net cash provided by (used in) operating
    activities |                                                              |                                                                       | (17,527 | )          |         |              | 17,202 |               |         |              |  |              |       |   | (785,734 | )        |          |   | 874,582  |          |        |   | 88,523  |         
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|Investing activities:                                   |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|                                                        | Investments in and advances to affiliates                    |                                                                       |         | (1,557     | )       |              |        |              |         |              |   |             |       |   |          | 866,230  |          |   |          | (874,287 | )      |   |         | (9,614   | )      
|                                                        | Investments in and advances to unconsolidated
    affiliates |                                                                       |         | 172        |         |              |        |              |         |              |   |             |       |   |          | (172     | )        |   |          |         |        |   |         |         |        
|                                                        | Capital expenditures                                         |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | (50,740  | )        |   |          | (295     | )      |   |         | (51,035  | )      
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|Net cash used in investing activities                   |                                                              |                                                                       | (1,385  | )          |         |              |       |               |         |              |  |              |       |   | 815,318  |          |          |   | (874,582 | )        |        |   | (60,649 | )       
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|Financing activities:                                   |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|                                                        | Borrowings under revolving credit facilities                 |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | 2,000    |          |   |          |         |        |   |         | 2,000    |        
|                                                        | Repayments under term loans                                  |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | (16,250  | )        |   |          |         |        |   |         | (16,250  | )      
|                                                        | Repayments under revolving credit facilities                 |                                                                       |         |           |         |              |        |              |         |              |   |             |       |   |          | (56,000  | )        |   |          |         |        |   |         | (56,000  | )      
|                                                        | Repayments of other long-term obligations                    |                                                                       |         |           |         |              |        | (324          | )       |              |   |             |       |   |          | (6       | )        |   |          |         |        |   |         | (330     | )      
|                                                        | Proceeds from other stock issuances                          |                                                                       |         | 2,857      |         |              |        |              |         |              |   |             |       |   |          |         |          |   |          |         |        |   |         | 2,857    |        
|                                                        | Preferred dividends                                          |                                                                       |         | (11,963    | )       |              |        |              |         |              |   |             |       |   |          |         |          |   |          |         |        |   |         | (11,963  | )      
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|Net cash (used in) financing activities                 |                                                              |                                                                       | (9,106  | )          |         |              | (324   | )             |         |              |  |              |       |   | (70,256  | )        |          |   |         |          |        |   | (79,686 | )       
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|(Decrease) increase in cash and cash
    equivalents    |                                                              |                                                                       | (28,018 | )          |         |              | 16,878 |               |         |              |  |              |       |   | (40,672  | )        |          |   |         |          |        |   | (51,812 | )       
|Cash and cash equivalentsbeginning of period           |                                                              |                                                                       | 46,068  |            |         |              | 19,399 |               |         |              |  |              |       |   | 94,482   |          |          |   |         |          |        |   | 159,949 |         
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         
|Cash and cash equivalentsend of period                 |                                                              | $                                                                     | 18,050  |            |         | $            | 36,277 |               |         | $            |  |              |       | $ | 53,810   |          |          | $ |         |          |        | $ | 108,137 |         
|                                                        |                                                              |                                                                       |         |            |         |              |        |               |         |              |   |              |       |   |          |          |          |   |          |          |        |   |         |         

30



---



##### 



LORAL SPACE & COMMUNICATIONS
LTD.

MANAGEMENTS DISCUSSION AND ANALYSIS
OF

RESULTS OF OPERATIONS AND FINANCIAL
CONDITION


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

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



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

Consolidated Operating Results

In evaluating financial performance, management
uses revenues and operating income (loss) before depreciation
and amortization including amortization of unearned stock
compensation (EBITDA) as a measure of a
segments profit or loss. The following discussion of
revenues and EBITDA reflects the results of Lorals
operating businesses for the three months ended March 31,
2003 and 2002, respectively. See Note 12 to the condensed
consolidated financial statements for additional information on
segment results. The remainder of the discussion relates to the
consolidated results of Loral, unless otherwise noted.

31



---



##### 



Revenues:

|                                       |  |                    |       |      |  |   |       |  
|-------------------------------------- |  | ------------------ | ----- | ---- |  | - | ----- | -
|                                       |  |                   
|                                       |  | Three Months Ended
|                                       |  | March 31,         
|                                       |  |                   
|                                       |  | 2003               |       | 2002
|                                       |  |                    |       |     
|Fixed satellite services               |  | $                  | 85.0  |      |  | $ | 110.5 |  
|Satellite manufacturing and technology |  |                    | 131.5 |      |  |   | 242.6 |  
|                                       |  |                    |       |      |  |   |       |  
|Segment revenues                       |  |                    | 216.5 |      |  |   | 353.1 |  
|Eliminations(1)                        |  |                    | (18.3 | )    |  |   | (44.9 | )
|                                       |  |                    |       |      |  |   |       |  
|Revenues as reported(2)                |  | $                  | 198.2 |      |  | $ | 308.2 |  
|                                       |  |                    |       |      |  |   |       |  

EBITDA(3):

|                                              |  |                    |       |      |  |   |       |  
|--------------------------------------------- |  | ------------------ | ----- | ---- |  | - | ----- | -
|                                              |  |                   
|                                              |  | Three Months Ended
|                                              |  | March 31,         
|                                              |  |                   
|                                              |  | 2003               |       | 2002
|                                              |  |                    |       |     
|Fixed satellite services                      |  | $                  | 42.5  |      |  | $ | 65.9  |  
|Satellite manufacturing and
    technology(4) |  |                    | (12.5 | )    |  |   | 11.4  |  
|Corporate expenses(5)                         |  |                    | (9.1  | )    |  |   | (8.7  | )
|                                              |  |                    |       |      |  |   |       |  
|Segment EBITDA before eliminations            |  |                    | 20.9  |      |  |   | 68.6  |  
|Eliminations(1)                               |  |                    | (5.1  | )    |  |   | (6.8  | )
|                                              |  |                    |       |      |  |   |       |  
|EBITDA as reported                            |  |                    | 15.8  |      |  |   | 61.8  |  
|Depreciation and amortization                 |  |                    | (44.8 | )    |  |   | (47.1 | )
|                                              |  |                    |       |      |  |   |       |  
|Operating (loss) income                       |  | $                  | (29.0 | )    |  | $ | 14.7  |  
|                                              |  |                    |       |      |  |   |       |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the elimination of intercompany sales
    and EBITDA, primarily for satellites under construction by SS/L
    for wholly owned subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | Includes revenues from affiliates of
    $15.7 million and $22.6 million for the three months
    ended March 31, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | EBITDA (which is equivalent to operating
    income/(loss) before depreciation and amortization, including
    amortization of unearned stock compensation) is provided because
    it is a measure commonly used in the communications industry to
    analyze companies on the basis of operating performance,
    leverage and liquidity and is presented to enhance the
    understanding of Lorals operating results. EBITDA is not
    an alternative to net income as an indicator of a companys
    operating performance, or cash flow from operations as a measure
    of a companys liquidity. EBITDA may be calculated
    differently and, therefore, may not be comparable to similarly
    titled measures reported by other companies.                                
|   
|(4) | Satellite manufacturing and technology EBITDA
    includes a charge of $10 million recorded on SS/L-provided
    vendor financing receivables to Sirius in exchange for
    Sirius equity for the three months ended March 31,
    2003. During the quarter ended March 31, 2003, Loral
    realized gains of $1.1 million on the sale of a portion of
    such stock and as of March 31, 2003, had recorded
    unrealized gains of $10.4 million relating to
    40.9 million unsold shares. Subsequent to March 31,
    2003, Loral realized $13.0 million of gains on the sale of
    a portion of such stock. As of May 13, 2003, Loral had
    4.3 million shares remaining with unrealized gains of
    $3.2 million. The above mentioned gains are not recognized
    in EBITDA.
|   
|(5) | Represents corporate expenses incurred in support
    of the Companys operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



| |                            
| | ---------------------------
| | Critical accounting matters

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

32



---



##### 



First Quarter 2003 Compared With
2002

Revenues as reported for Lorals operating
businesses decreased to $198 million as compared to
$308 million, after eliminations of $18 million and
$45 million, for the three months ended March 31, 2003
and 2002, respectively. The decrease in revenues was due to
lower SS/L revenues which primarily resulted from a lack of new
satellite orders at SS/L since December 2001 and the timing of
work performed and costs incurred on satellite programs under
the percentage of completion method and lower FSS revenues which
was primarily due to a decrease in volume and prices in both
transponder leasing and network services. Both of the
Companys segments have been adversely affected by the
global economic downturn, which has caused a delay in demand for
new telecommunications applications and services. Eliminations
primarily consist of revenues from satellites under construction
by SS/L for FSS.

EBITDA as reported for Lorals operating
businesses decreased to $16 million as compared to
$62 million, after eliminations of $5 million and
$7 million, for the three months ended March 31, 2003
and 2002, respectively. The decrease in the first quarter of
2003 arose primarily from lower FSS EBITDA primarily resulting
from lower revenues and decreased SS/L EBITDA primarily due to
lower sales volume and a charge of $10 million recorded on
SS/L-provided vendor financing, representing the difference
between the carrying value of SS/Ls receivables of
$38 million and the value of the common shares received by
SS/L based on the trading price of Siriuss common stock on
March 7, 2003 of $28 million (see discussion below for
gains realized subsequent to receipt of the shares).

Depreciation and amortization was
$45 million and $47 million for the three months ended
March 31, 2003 and 2002, respectively.

As a result of the above, the Company had an
operating loss of $29 million as compared to operating
income of $15 million for the three months ended
March 31, 2003 and 2002, respectively.

Interest and investment income was
$7 million as compared to $5 million for the three
months ended March 31, 2003 and 2002, respectively. This
increase was principally due to higher interest earned relating
to satellite programs in 2003.

Interest costs remained constant as interest
expense was $17 million, net of capitalized interest of
$9 million, as compared to $19 million, net of
capitalized interest of $7 million for the three months
ended March 31, 2003 and 2002, respectively.

During the first quarter of 2003 the Company
realized $1 million of gains from the sale of Sirius common
stock, which is reflected as gain on investment on the condensed
consolidated statement of operations. Subsequent to
March 31, 2003, Loral realized $13 million of gains on
the sale of a portion of such stock. As of May 13, 2003,
Loral had 4.3 million shares remaining with unrealized gains of
$3 million.

Loral, as a Bermuda company, is subject to
U.S. federal, state and local income taxation at regular
corporate rates plus an additional 30% branch
profits tax on any income that is effectively connected
with the conduct of a U.S. trade or business. Loral has,
cumulatively from its inception, received no tax benefit as a
result of being established in Bermuda because of substantial
losses incurred outside the U.S. Lorals
U.S. subsidiaries are subject to regular corporate tax on
their worldwide income. The Company recorded an income tax
provision of $2 million on a pre-tax loss of
$38 million, as compared to an income tax provision of
$6 million on pre-tax income of $2 million for the
three months ended March 31, 2003 and 2002, respectively.
Loral continues to record a 100% valuation allowance against its
domestic net deferred tax asset under the criteria of SFAS
No. 109, Accounting for Income Taxes. Therefore, no benefit
was recorded on the domestic loss in the first quarter of 2003
while a provision was recorded on the domestic income in the
first quarter of 2002.

Equity in net losses of affiliates was
$9 million as compared to $16 million for the three
months ended March 31, 2003 and 2002, respectively.
Lorals share of equity in net losses of Satmex was
$6 million as compared to $8 million for the three
months ended March 31, 2003 and 2002, respectively.
Lorals share of equity in net losses of Xtar was
$3 million as compared to $0.4 million for the three
months ended March 31, 2003 and 2002, respectively.
Lorals share of equity in net losses of Europe*Star,
managed by Alcatel, was

33



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##### 



zero as compared to $6 million for the three
months ended March 31, 2003 and 2002, respectively. In the
fourth quarter of 2002, Lorals investment in Europe*Star
was reduced to zero. Accordingly, there is no longer any
requirement for Loral to provide for its allocated share of
Europe*Stars net losses subsequent to December 31,
2002. Lorals share of equity income (losses) attributable
to Globalstar related activities was $0.2 million as
compared to $(2) million for the three months ended
March 31, 2003 and 2002, respectively. (see Note 6 to
the condensed consolidated financial statements).


On January 1, 2002 the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets, which
resulted in the Company recording a charge of $892 million
($877 million after taxes) to write-off all of its goodwill
for the cumulative effect of change in accounting principle (see
Accounting Pronouncements).

Preferred dividends were $3 million as
compared to $12 million for the three months ended
March 31, 2003 and 2002, respectively. The decrease was
primarily due to the conversion of 6.1 million shares of
Lorals 6% Series C convertible redeemable preferred
stock (the Series C Preferred Stock) and
5.4 million shares of Lorals 6% Series D
convertible redeemable preferred stock (the Series D
Preferred Stock) into an aggregate 76.6 million
shares of the Companys common stock in connection with
Lorals exchange offers and privately negotiated exchange
transactions for the year ended 2002.

As a result of the above, net loss applicable to
common shareholders was $52 million or $0.12 per basic and
diluted share as compared to net loss applicable to common
shareholders before the cumulative effect of the change in
accounting principle relating to cost in excess of net assets
acquired (goodwill) of $32 million or $0.09 per
basic and diluted share for the three months ended
March 31, 2003 and 2002, respectively. Basic and diluted
weighted average shares were 432 million and
337 million for the three months ended March 31, 2003
and 2002, respectively. The increase in weighted average shares
was primarily due to the aforementioned conversions of the
Companys preferred stock into common stock in 2002.

Results by Operating Segment for the First
Quarter 2003 and 2002

The satellite industry continues to suffer from
the downturn in the global economy and the resultant decline in
demand for or postponement of new satellite-based applications
and services. The Companys businesses have also been
negatively effected by customers difficulty obtaining
funding for new projects in the capital markets and by
competition from fiber and other terrestrial alternatives.



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

FSS revenues were $85 million and
$111 million for the three months ended March 31, 2003
and 2002, respectively. FSS revenues without network services
were $73 million and $90 million for the three months ended
March 31, 2003 and 2002, respectively. Network services
revenues were $12 million and $21 million for the
three months ended March 31, 2003 and 2002, respectively.
These decreases were primarily due to a decline in prices and
volume for both transponder leasing and network services due to
the global economic downturn and the delay in demand for new
applications and services. EBITDA was $43 million as
compared to $66 million for the three months ended
March 31, 2003 and 2002, respectively. The decrease in
EBITDA in 2003 was primarily due to lower sales, partially
offset by cost reductions. As of March 31, 2003, FSS had
seven operational satellites. Funded backlog for the segment
totaled $1.5 billion at March 31, 2003 and
$1.4 billion at December 31, 2002, including
intercompany backlog of $40 million and $41 million at
March 31, 2003 and December 31, 2002, respectively.
Net bookings for the segment increased by $125 million for
the three months ended March 31, 2003 to $252 million
as compared to 2002, primarily due to a substantial booking for
in-flight internet services.



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

Revenues at SS/L, before eliminations, were
$132 million and $243 million for the three months
ended March 31, 2003 and 2002, respectively. The decrease
in revenues resulted from a lack of new satellite orders since
December 2001 and the timing of work performed and costs
incurred on satellite programs under the percentage of
completion method. EBITDA before eliminations was a loss of
$13 million as compared to income of $11 million for
the three months ended March 31, 2003 and 2002,
respectively. The decrease in

34



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SS/L EBITDA in 2003 was primarily due to lower
sales volume and a charge of $10 million recorded on
SS/L-provided vendor financing, representing the difference
between the carrying value of SS/Ls receivables of
$38 million and the value of the common shares received by
SS/L based on the trading price of Siriuss common stock on
March 7, 2003 of $28 million. Funded backlog for SS/L
as of March 31, 2003 and December 31, 2002 was
$641 million and $763 million, respectively, including
intercompany backlog of $259 million as of March 31,
2003 and $275 million as of December 31, 2002.
Realization of the intercompany backlog is subject to the
limitations contained in the Companys credit agreements,
and in certain cases may require the consent of the lenders. The
decline in backlog is due to a lack of new satellite orders, due
to sluggish economic conditions that have had a negative impact
industry-wide.


Transactions With Affiliates

Consolidated funded backlog was $1.9 billion
and $1.8 billion at March 31, 2003 and
December 31, 2002 which includes $114 million and
$142 million, respectively, as a result of transactions
entered into with affiliates and related parties (primarily with
Satmex, XTAR and Hisdesat) for the construction of satellites.

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

|                                                                                             |  |                    |        |      |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|                                                                                             |  |                   
|                                                                                             |  | Three Months Ended
|                                                                                             |  | March 31,         
|                                                                                             |  |                   
|                                                                                             |  | 2003               |        | 2002
|                                                                                             |  |                    |        |     
|Revenues                                                                                     |  | $                  | 15,690 |      |  | $ | 22,642 |  
|Investment income                                                                            |  |                    | 294    |      |  |   | 294    |  
|Interest expense capitalized on development stage
    enterprise                             |  |                    | 428    |      |  |   | 127    |  
|Profits relating to affiliate transactions not
    eliminated                                |  |                    | 684    |      |  |   | 1,157  |  
|Elimination of Lorals proportionate share
    of profits relating to affiliate transactions |  |                    | (1,119 | )    |  |   | (1,127 | )
|Amortization of deferred credit and profits
    relating to investments in affiliates        |  |                    | 261    |      |  |   | (135   | )

Liquidity and Capital Resources

Loral capitalizes on its innovative capabilities,
market position and advanced technologies to offer value-added
satellite-based services as part of the evolving worldwide
communications networks. Loral regularly engages in discussions
with telecommunications service providers, equipment
manufacturers and others regarding possible strategic
transactions and alliances. These include joint ventures;
strategic relationships involving its fixed satellite services
operations and satellite manufacturing operations, which could
involve business combinations; participation in the Loral Global
Alliance; and dispositions of assets. In order to pursue such
opportunities, Loral may utilize funds generated by growth in
operations, may seek funds from strategic partners and other
investors, may incur debt or may issue additional equity.

The Company believes its existing cash, as well
as net cash provided by operating activities and the proceeds
from certain asset sales will be adequate to meet its expected
requirements through at least March 31, 2004. A substantial
reduction in FSS revenues, the inability of SS/L to replace
existing backlog with several new contract awards in 2003 at
assumed terms or the failure to consummate certain of these
asset sales, including the sale of approximately
$60 million of certain long-term SS/L customer receivables
as described below, would, however, impact the Companys
ability to meet its cash requirements, possibly in the
near-term. In such event, the Company may seek to postpone its
planned satellite construction and launch plans, which could
impact the Companys ability to achieve profitability. If
the Company is unable to generate sufficient cash from its
operating activities and asset sales to satisfy its debt service
and operating requirements, the Company may be required to seek
alternative financing or renegotiate its current financing
agreements. There can be no assurance that the Company will be
able to do so, especially in light of current market conditions.

35



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On March 31, 2003, Loral entered into
amendments to its Loral SpaceCom (Loral SpaceCom or
LSC) and Loral Satellite, Inc. (Loral
Satellite) credit facilities, which, among other changes,
amended its financial performance covenants. At March 31,
2003, the Company was in compliance with all of the covenants
and conditions under its various lending and funding
arrangements and believes that it will continue to meet these
covenants and conditions through at least March 31, 2004,
except that the Company was not in compliance with a requirement
under the LSC and Loral Satellite credit facilities to hire a
senior financial officer by May 15, 2003. The Company
believes, however, that it will be able to comply with this
requirement within the applicable grace period.

Lorals business plan assumes the receipt of
approximately $60 million from the successful monetization
of certain long-term SS/L customer receivables in 2003. While
SS/L has reached an agreement in principle with the customer to
effect such monetization, there is no assurance that this
transaction will be consummated. In addition, one of SS/Ls
subcontractors has filed a lawsuit raising certain objections
relating to the effect of the proposed transaction on the
subcontractor. SS/L and the subcontractor are in discussions to
negotiate a mutually acceptable arrangement. SS/L believes,
although there can be no assurance, that it will be able to
resolve this matter. If SS/L and the subcontractor are unable to
reach a resolution, the subcontractor will likely seek to enjoin
the transaction. Also, the proposed transaction may be subject
to the approval of SS/Ls banks, which, if required, SS/L
believes it will be able to obtain. If Loral is unable to
consummate this transaction on a timely basis, or the proceeds
from such transaction are less than those assumed in the
business plan, Lorals ability to satisfy its covenants
would be adversely affected. A substantial reduction in FSS
revenues or the inability of SS/L to replace existing backlog
with new contracts at assumed terms would also adversely impact
Lorals ability to satisfy its covenants. In addition,
Lorals ability to fund the 2004 interest payments on its
9.5% senior notes will depend on its ability to successfully
execute its business plan, which includes further asset sales.
There is no assurance that Loral will be able to do so. If Loral
fails to pay interest on the 9.5% senior notes when due, this
will, upon expiration of a 30-day cure period, constitute an
event of default under Lorals senior note indenture, which
in turn would result in an event of default under the LSC
Amended Credit Agreement and the Loral Satellite Credit
Agreement. If the holders of the 9.5% senior notes, the lenders
under the LSC credit facility or the lenders under the Loral
Satellite credit facility were to accelerate their related debt
following such event of default, an event of default would also
occur with respect to Loral Orions 10% senior notes, which
are guaranteed by Loral.

Loral is likely to require and intends to seek
further amendments to the LSC and Loral Satellite credit
facilities to ensure compliance with financial performance
covenants for periods after March 31, 2004. There can be no
assurance that the lenders will consent to any such amendment.
Because of the cross-default provisions set forth in the LSC and
Loral Satellite credit facilities, a failure by Loral to meet
any financial performance covenant set forth in either credit
facility will result in an event of default under both the LSC
and the Loral Satellite credit facilities. Moreover, if the
lenders under either credit facility were to accelerate their
outstanding loans, this would constitute an event of default
under Lorals 9.5% senior notes and Loral Orions 10%
senior notes, which are guaranteed by Loral.

Telstar 10/Apstar IIR, manufactured by SS/L and
owned by Loral Orion, has the same solar array configuration as
two other 1300-class satellites manufactured by SS/L that have
experienced solar array failures. SS/L believes that these
failures are isolated events and do not reflect a systemic
problem in either the satellite design or manufacturing process.
Accordingly, the Company does not believe that these anomalies
will affect Telstar 10/Apstar IIR. However, the insurance
coverage for Telstar 10/Apstar IIR provides for coverage of
losses due to solar array failures only in the event of a
capacity loss of 75% or more. Some of Loral Orions
bondholders have questioned whether this limitation is in
compliance with the insurance covenant in the Loral Orion
indenture. Management believes that Loral Orion is in compliance
with the covenant as properly interpreted. If, however, Loral
Orions bondholders were to give notice of a default under
the indenture because of such limitations, and a court ruled
against Loral Orion on this matter, the maturity of Loral
Orions 10% senior notes could be accelerated, and the
bondholders could be able to call on the Companys
guarantee of Loral Orions senior notes.

36



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| |     
| | ----
| | Debt



| |                
| | ---------------
| | Bank Facilities



| |                           
| | --------------------------
| | Satellite Credit Agreement

On December 21, 2001, Loral Satellite, a
subsidiary of Loral Space & Communications Corporation,
which in turn is a subsidiary of Loral, entered into the first
amendment to the $500 million secured credit agreement
dated as of November 17, 2000 by and among Loral Satellite,
Bank of America as Administrative Agent, and the other lending
parties thereto (the Satellite Credit Agreement).
The first amendment provides for a $200 million revolving
credit facility expiring January 7, 2005 and a term loan of
which $237.8 million was outstanding as of March 31,
2003, subject to the following remaining amortization payment
schedule: $11.25 million per quarter on June 30, 2003
through September 30, 2004 and $170 million on
January 7, 2005. During the first quarter of 2003, Loral
had drawn down the full amount of the revolving credit facility.
The first amendment also effected certain changes to provisions
relating to the collateral pool provided to lenders under the
Loral Satellite credit facility and imposed additional
limitations on the application of proceeds from any sale of
assets from this collateral pool.

Borrowings under the Satellite Credit Agreement
bear interest, at Loral Satellites option, at various
rates based on fixed margins over the lead banks base rate
or the London Interbank Offer Rate for specified periods. Loral
Satellite pays a commitment fee on the unused portion of the
revolver. The Satellite Credit Agreement contains financial
covenants, including maintenance of a minimum collateral
coverage ratio, minimum net worth and minimum EBITDA. The
Satellite Credit Agreement also contains customary limitations,
including those on indebtedness, fundamental changes, asset
sales, dividends, investments, capital expenditures, creating
liens (other than those created pursuant to the Satellite Credit
Agreement), prepayments or amendments of indebtedness, and
transactions with affiliates. During the first quarter of 2003,
Loral Satellite paid dividends of $18 million to its parent.

The Satellite Credit Agreement is secured by
certain assets of Loral Satellite, including the Telstar 6
and Telstar 7 satellites and the payments due to Loral
Satellite under Globalstars $500 million credit
facility (see below). Based on third party valuations,
management believes that the fair value of Telstar 6 and
Telstar 7 is in excess of $500 million. As of
March 31, 2003, the net book value of Telstar 6 and
Telstar 7 was approximately $301 million. In addition,
as part of the first amendment, lenders under the Satellite
Credit Agreement received a junior lien on the assets of Loral
SpaceCom and its subsidiaries pledged in favor of the banks
under the LSC Amended Credit Agreement. Loral has also agreed to
guarantee Loral Satellites obligations under the Satellite
Credit Agreement, which guarantee agreement contains a minimum
net worth covenant.

On March 31, 2003, Loral Satellite amended
the Satellite Credit Agreement to provide for certain
modifications, including to its financial covenants (the
Loral Satellite Amendment). This amendment increased
the margin levels on amounts outstanding to 4.25% at
March 31, 2003, reduced the maximum LIBOR period to three
months and imposed additional requirements on Loral Satellite
and its subsidiaries, including adding minimum cumulative EBITDA
and minimum cash balance requirements and increasing the
circumstances under which mandatory prepayment of the loans are
required, including from insurance proceeds received in
connection with any launch or in-orbit failure of Loral
Satellites satellites. Loral Satellites ability to
dividend funds to its parent has been substantially reduced in
connection with this amendment. Under the Loral Satellite
Amendment, Loral Satellite may now make dividends or loans to
its parent or Loral only if such dividends or loans are applied
either to effect payments on Lorals 9.5% senior notes or
to effect a maximum of $5 million of payments on an
intercompany note between Loral and Loral SpaceCom Corporation.

The Loral guarantee was also amended in March
2003 to provide for an adjustment to Lorals financial
covenants and to impose additional restrictions on Lorals
ability to pay dividends and to effect voluntary repayment or
purchase of indebtedness. Moreover, under the amended guarantee,
Lorals ability to make investments or otherwise make
payment to any of its subsidiaries is limited to a maximum
amount of $5 million.

37



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##### 





| |                             
| | ----------------------------
| | LSC Amended Credit Agreement

On December 21, 2001, LSC entered into an
Amended and Restated Credit Agreement with Bank of America,
N.A., as Administrative Agent, and the other lenders parties
thereto (the LSC Amended Credit Agreement). The LSC
Amended Credit Agreement provides for a $200 million
revolving credit facility expiring January 7, 2005 and a
term loan of which $355 million was outstanding at
March 31, 2003, subject to the following remaining
amortization payment schedule: $5 million on each of
June 30, September 30 and December 31, 2003;
$20 million on each of March 31, June 30 and
September 30, 2004; and $280 million on
January 7, 2005. During the first quarter of 2003, Loral
had fully utilized the revolving credit facility through draw
downs and letters of credit. Borrowings under the LSC Amended
Credit Agreement bear interest, at LSCs option, at various
rates based on margins over the lead banks base rate or
the London Interbank Offered Rate for specified periods. In
December 2001, the margin levels were increased under the new
amended agreement and were fixed through September 30,
2002. As a result of this increase in margin levels, interest
costs have increased by approximately $11 million annually.
Subsequent to September 30, 2002, the margin levels
increased by one percentage point and are expected to remain
that way for the foreseeable future. LSC pays a commitment fee
on the unused portion of the revolver.

The LSC Amended Credit Agreement contains
financial covenants of LSC and its subsidiaries, such as
maintenance of interest coverage, leverage ratios and minimum
net worth. The LSC Amended Credit Agreement also contains
limitations on LSC and its subsidiaries, including those on
indebtedness, liens, fundamental changes, asset sales,
dividends, investments, capital expenditures, transactions with
affiliates and certain other intercompany transactions. The LSC
Amended Credit Agreement allows dividend payments to Loral if
cumulative dividend payments do not exceed 50% of its cumulative
consolidated net income and the ratio of its funded debt to
EBITDA is less than 3.0 to 1.0. As of March 31, 2003, Loral
SpaceCom had no capacity under this covenant to pay Loral any
dividends.

The LSC Amended Credit Agreement is secured by
substantially all of the assets of and the stock of LSC and its
subsidiaries, including SS/L. LSCs obligations under the
LSC Amended Credit Agreement have been guaranteed by certain of
LSCs subsidiaries, including SS/L. As of March 31,
2003, the net book value of the assets that secure the LSC
Amended Credit Agreement was approximately $642 million.

On March 31, 2003, LSC further amended the
LSC Amended Credit Agreement to provide for additional
modifications, including to LSCs financial covenants (the
LSC Amendment). This amendment increased the margin
levels on outstanding amounts by 50 basis points to 3.75% at
March 31, 2003, reduced the maximum LIBOR period to three
months and imposed additional requirements on LSC and its
subsidiaries, including adding minimum cumulative EBITDA and
cash balance requirements and increasing the circumstances under
which mandatory prepayment of the loans are required, including
from insurance proceeds received in connection with any launch
or in orbit failure of Loral Skynets satellites. The
amendment also imposed additional restrictions on LSC and its
subsidiaries, including further restricting their ability to
incur capital expenditures, sell assets, incur debt, provide
vendor financing and make investments. Under the LSC Amendment,
LSC requires the consent of its lenders in order to make further
expenditures for the launch and insurance of Telstar 8, for
which $266 million is included in satellites under
construction at March 31, 2003. Moreover, if LSC is not
successful in effecting certain asset sales by June 30,
2003, LSC may not, subject to certain limited exceptions, incur
any further capital expenditures. The lenders under the LSC
facilities also received a junior lien on the stock of Loral
Satellite as part of this amendment.

In connection with the amendment of the LSC and
the Loral Satellite credit facilities, Loral agreed to the
continued retention of a financial advisor to assist it in
various matters, including advising the Company on strategic
alternatives, which may include asset sales and other actions to
reduce indebtedness. Loral has also agreed to hire a financial
officer, whose appointment and, scope of work and authority will
be subject to the reasonable approval of certain of the lenders
under the two credit facilities. This financial officer will
work closely with Lorals management and financial advisor
regarding various matters, including communicating with the
lenders under the two bank facilities.

38



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| |                       
| | ----------------------
| | Loral Orion Indentures

On December 21, 2001, Loral Orion issued
$613 million principal amount of 10% senior notes due 2006
and guaranteed by Loral, in exchange for the extinguishment of
$841 million principal amount of Loral Orion 11.25% senior
notes due in 2007 and 12.5% senior discount notes due 2007 as
discussed below. As part of the exchange, Loral issued to the
new note holders 6.04 million five-year warrants to
purchase Loral common stock at a price of $2.37 per share. The
warrants were valued at $7 million using the Black Scholes
option pricing model with the following assumptions: stock
volatility, 75%, risk free interest rate, 4.36%, and no
dividends during the expected term. As of March 31, 2003,
principal amount of $37 million of the existing 11.25%
senior notes and principal amount of $49 million of the
existing 12.5% senior discount notes remain outstanding at their
original maturities and interest rates.

The interest rate on the 10% senior notes is a
reduction from the 11.25% interest rate on the existing senior
notes and the 12.5% rate on the existing senior discount notes.
Interest is payable semi-annually on July 15 and
January 15, beginning July 15, 2002. As a result of
the lower interest rate and the $229 million reduction in
principal amount of debt, Loral Orions annual cash
interest payments will be reduced by approximately
$39 million. Under U.S. generally accepted accounting
principles dealing with debt restructurings, in December 2001
the Company recorded a gain of $34 million on the exchange,
after expenses of $8 million. The carrying value of the 10%
senior notes on the balance sheet at December 31, 2002 was
$858 million, although the actual principal amount of the
10% senior notes is $613 million. The difference between
this carrying value and the actual principal amount of the 10%
senior notes is being amortized over the remaining life of the
10% senior notes, fully offsetting interest expense through
maturity of the 10% senior notes. The indenture relating to the
10% senior notes contains covenants, including, without
limitation, restrictions on Loral Orions ability to pay
dividends or make loans to Loral.



| |                        
| | -----------------------
| | Loral 9.5% Senior Notes

In January 1999, Loral sold $350 million of
9.5% senior notes due 2006. The related indenture contains
customary covenants, including, without limitation, restrictions
on incurring indebtedness and paying dividends. Interest is
payable semi-annually on January 15, and July 15.

The Satellite Credit Agreement, the LSC Amended
Credit Agreement, the indenture relating to Loral Orions
new senior notes and the indenture relating to Lorals 9.5%
senior notes provide in certain circumstances for cross default
or cross acceleration.



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



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

Under the New York Stock Exchange
(NYSE) criteria for continued listing, the NYSE will
normally give consideration to de-listing a companys stock
when the average closing price of the stock is less than $1.00
over a consecutive 30-trading day period. The average closing
price of Loral common stock was less than $1.00 for 30
consecutive trading days, and, on August 22, 2002, the
Company received notice from the NYSE that its stock price was
below the NYSEs price criteria. If Loral is unable to cure
this deficiency, the Companys common stock could be
de-listed from the NYSE. De-listing of the Companys common
stock by the NYSE could result in a material adverse effect on
the liquidity of the Companys common shares, have an
adverse effect on the trading value and impair the
Companys ability to raise funds in the capital markets.
The NYSE has informed Loral that the price is the only criteria
for listing that the Company does not currently meet. The
Company has notified the NYSE of its intent to cure this
deficiency. The NYSE rules provide for a six-month period from
receipt of the notice letter from the NYSE to cure this
deficiency. In the event the actions the Company takes to cure
this deficiency require shareholder approval, the six-month cure
period will be extended until after the Companys next
annual shareholders meeting scheduled on May 29,
2003. The Company is seeking shareholder approval to implement a
reverse stock split at its annual meeting, in order to, among
other things, restore the Companys compliance with NYSE
share price requirements. The Company believes (although there
can be no assurance) that it will be able to cure this
deficiency within this time frame.

39



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

The Companys Series C Preferred Stock
and Series D Preferred Stock have mandatory redemption
dates in 2006 and 2007, respectively. The Company has the right
to make mandatory redemption payments to the holders in either
cash or common stock, or a combination of the two. Based upon
the price of the Companys common stock at March 31,
2003, the Company did not have available a sufficient number of
authorized shares of its common stock to effect payment of the
total mandatory redemptions in common stock in 2006 and 2007.
Accordingly, as of March 31, 2003, the Company classified
an aggregate of $140 million of its Series C Preferred
Stock and Series D Preferred Stock outside the
shareholders (deficit) equity section of the balance
sheet, based on the average of the volume weighted average daily
price of the Companys common stock as defined
(approximately $0.33 per share at March 31, 2003). Had the
volume weighted average daily price of the Companys common
stock as calculated been above $0.88 at March 31, 2003,
none of the Companys preferred stock would have been
classified outside the shareholders equity section of the
balance sheet. The exact number of shares of the Companys
common stock that may be issued on a mandatory redemption date
cannot be determined at this time. That number will depend on a
number of factors not known today, such as the price of the
Companys common stock and the number of shares of the
Companys preferred stock outstanding at that time. The
Company is seeking shareholder approval at its next annual
shareholders meeting scheduled on May 29, 2003, an
increase to the authorized number of shares of its common stock
from 750,000,000 to 1,250,000,000 which, based on the volume
weighted average daily price of the Companys common stock
as defined at March 31, 2003 and May 13, 2003, would
enable the Company to effect payment of the total mandatory
redemptions in common stock. The amount, if any, of the
Series C Preferred Stock and Series D Preferred Stock
classified outside the shareholders equity section will
vary in future periods depending on these factors.

In August 2002, Lorals board of directors
approved a plan to suspend indefinitely the future payment of
dividends on its two series of preferred stock. Accordingly,
Loral has deferred the payments of quarterly dividends due on
its Series C Preferred Stock and the payments of quarterly
dividends due on its Series D Preferred Stock. Dividends on
the two series continue to accrue. In the event accrued and
unpaid dividends accumulate to an amount equal to six quarterly
dividends on the Series C Preferred Stock, holders of the
majority of the outstanding Series C Preferred Stock will
be entitled to elect two additional members to Lorals
board of directors. In the event accrued and unpaid dividends
accumulate to an amount equal to six consecutive quarterly
dividends on the Series D Preferred Stock, holders of the
majority of the outstanding Series D Preferred will be
entitled to elect two additional members to Lorals board
of directors. As of March 31, 2003, accrued and unpaid
dividends of $9 million represented two quarterly dividend
payments outstanding.



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

The Companys qualified pension plan, under
the Internal Revenue Code and regulations thereunder, is
considered fully funded (i.e. assets are greater than
liabilities) and there was no contribution required. However,
the significant declines experienced in the financial markets
have unfavorably impacted pension plan asset performance. This,
coupled with historically low interest rates (a key factor when
estimating pension plan liabilities), caused the Company to
recognize $65 million of non-cash charges to accumulated
other comprehensive loss. These charges did not impact the
Companys reported earnings, and will be reversible in the
future if either interest rates increase or market performance
and plan returns improve.



| |     
| | ----
| | Cash

As of March 31, 2003, Loral had
$102 million of cash and had no further available credit
from the credit facilities described above under the captions
Satellite Credit Agreement and LSC Amended
Credit Agreement.

40



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

Net cash provided by operating activities for the
three months ended March 31, 2003 was $32 million.
This was primarily due to net income as adjusted for non-cash
items of $19 million and a decrease in contracts-in-process
of $37 million primarily resulting from net collections on
customer contracts, offset by a decrease in customer advances of
$32 million primarily due to progress on satellite programs.

Net cash provided by operating activities for the
three months ended March 31, 2002 was $89 million.
This was primarily due to net income as adjusted for non-cash
items of $50 million, an increase in customer advances of
$28 million, primarily resulting from the timing of
satellite program milestone payments.



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

Net cash used in investing activities was
$14 million and $61 million for the three months ended
March 31, 2003 and 2002, respectively, primarily as a
result of capital expenditures of $23 million and $51 million
for the three months ended March 31, 2003 and 2002,
respectively, mainly for the construction of satellites and
investments in and advances to affiliates, offset by the $10
million of proceeds received from the sale of Sirius common
stock for the three months ended March 31, 2003.



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

Net cash provided by (used in) financing
activities was $18 million and $(80) million for the
three months ended March 31, 2003 and 2002, respectively,
primarily due to net borrowings (repayments) under
revolving credit facilities of $66 million and $(54)
million for three months ended March 31, 2003 and 2002,
respectively, debt amortization payments of $48 million and
$17 million for the three months ended March 31, 2003
and 2002, respectively (including $31 million of interest
payments on the 10% senior notes for the three months ended
March 31, 2003 (see Loral Orion Indentures) and net cash
provided by (used in) equity transactions of $2 million and
$(9) million for the three months ended March 31, 2003
and 2002, respectively.



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

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

On September 20, 2002, Loral entered into an
agreement with APT pursuant to which Loral will purchase a 50%
interest in the Telstar 18/ Apstar V satellite, a
satellite under construction by SS/L for APT. Lorals
aggregate purchase price for its 50% interest in the satellite
is $115.1 million, representing 50% of the estimated
project cost of constructing, launching and insuring the
Telstar 18/ Apstar V satellite, which purchase price
will be adjusted if the actual project cost is greater or less
than $230.2 million. Telstar 18/Apstar V will
have a total of 54 transponders, comprised of
24 standard C-band transponders, 14 extended C-band
transponders and 16 Ku-band transponders. Under this
transaction, Loral has agreed to purchase 12 standard
C-band, 7 extended C-band and 8 Ku-band transponders
on Telstar 18/ Apstar V, which capacity will be
designated Telstar 18. Loral will also have the option to
enter into similar arrangements with APT on replacement
satellites upon the end of life of Telstar 18/
Apstar V. To be located at 138 degrees East Longitude,
Telstar 18/ Apstar V will be capable of providing
Ku-band voice, video and data services to China, India and East
Asia, and broadbeam C-band services throughout the Asia-Pacific
region, including Australia and Hawaii. To ensure a timely
launch of Telstar 18/ Apstar V, Loral and APT have
agreed that a non-Chinese launch provider will be used.

Pursuant to Lorals agreement with APT,
Loral will pay one-half of its purchase price prior to launch
for 13.5 transponders on the satellite, a portion of which
will be funded by existing launch vehicle deposits. The
corresponding cumulative costs relating to these transponders
have been reflected as satellites under

41



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##### 



construction on Lorals condensed
consolidated balance sheet as of March 31, 2003. Subject to
certain acceleration rights on the part of Loral, the remainder
of the purchase price for the second 13.5 transponders will
be paid by Loral as follows: on the second anniversary of the
satellites in-service date, $10.66 million for 2.5
additional transponders; on the third anniversary of the
satellites in-service date, $12.79 million for three
additional transponders; and on each of the fourth and fifth
anniversaries of the satellites in-service date,
$17.05 million for four additional transponders. Title to
these transponders will pass to Loral upon its payments thereon.
This agreement results in a proportionate amount of the
Telstar 18/ Apstar V satellite becoming a
self-constructed asset in Lorals condensed consolidated
financial statements. Amounts attributable to the transponders
to be acquired from APT in the future of $24 million are
being treated for accounting purposes as a repurchase obligation
based on the present value of such obligations and are included
in satellites under construction and long-term liabilities on
Lorals condensed consolidated balance sheet as of
March 31, 2003. As a result of finalizing the
Telstar 18/ Apstar V launch arrangements in March
2003, Loral agreed to take two fewer transponders without any
corresponding change to the transponder cost borne by each of
the parties. Loral and APT are in the process of finalizing the
definitive documents to reflect this change.


Affiliate Matters



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

In connection with the privatization of Satmex by
the Mexican Government of its fixed satellite services business,
Loral and Principia formed a joint venture, Firmamento Mexicano,
S.A. de R.L. de C.V. (Holdings). In 1997, Holdings
acquired 75% of the outstanding capital stock of Satmex. As part
of the acquisition, Servicios Corporativos Satelitales, S.A. de
C.V. (Servicios), a wholly owned subsidiary of
Holdings, issued a seven-year Government Obligation
(Government Obligation) to the Mexican Government in
consideration for the assumption by Satmex of the debt incurred
by Servicios in connection with the acquisition. The Government
Obligation had an initial face amount of $125 million,
which accretes at 6.03% and expires in December 2004. The debt
of Satmex and Holdings is non-recourse to Loral and Principia.
However, Loral and Principia have agreed to maintain assets in a
collateral trust in an amount equal to the value of the
Government Obligation through December 30, 2000 and,
thereafter, in an amount equal to 1.2 times the value of the
Government Obligation until maturity. As of March 31, 2003,
Loral and Principia have pledged their respective shares in
Holdings in such trust. Loral has a 65% economic interest in
Holdings and a 49% indirect economic interest in Satmex. Loral
accounts for Satmex using the equity method. The covenants of
Satmexs debt instruments restrict the ability of Satmex to
pay dividends to Loral.

Satmex is currently arranging loans supported by
export credit agencies to raise additional financing for its
Satmex 6 satellite project. In April 2003, Coface, the French
export credit agency, approved an application to support
financing 85% of the cost of the launch services for the Satmex
6 satellite. Also in April 2003, the Export Import Bank of the
United States (Eximbank), pursuant to a meeting of
its Board of Directors, approved a commitment of the loan
guaranty with respect to 85% of the eligible costs of the Satmex
6 project. These export loans, which are subject to negotiations
of final documentation and satisfaction of conditions, and
certain additional financings, will be needed by Satmex to fund
the Satmex 6 project. In order to complete the Eximbank and
Coface financing, Satmex will have to repay, refinance or
restructure its senior secured notes and extend the maturity of
its fixed rate notes. If Satmex is unable to successfully
conclude the export loans and this additional financing, the
Companys investment in Satmex of $46 million and
receivables of $7 million at March 31, 2003 may
be adversely affected.

At March 31, 2003, Solidaridad 2 had a
remaining estimated useful life of six years. Solidaridad 2
was manufactured by Boeing and is similar in design to
Solidaridad 1 and to other Boeing satellites which have
experienced in-orbit component failures. While Satmex was able
to obtain a renewal of the in-orbit insurance for
Solidaridad 2 in November 2002, this policy does not insure
against an in-orbit failure due to the loss of the
satellites control processor, the same component that
caused the loss of Solidaridad 1 and other Boeing
satellites. An uninsured loss of the satellite could have a
material adverse effect on Satmexs results of operations
and financial condition.

42



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##### 



Revenues for Satmex were $21 million and
$23 million for the three months ended March 31, 2003
and 2002, respectively. Operating (loss) income was
$(0.4) million and $1.2 million for the three months
ended March 31, 2003 and 2002, respectively.



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

Europe*Star, a joint venture between Loral and
Alcatel owns and operates the Europe*Star 1 satellite. In
the fourth quarter of 2002, the Companys investment in
Europe*Star was reduced to zero. Accordingly, there is no longer
any requirement for Loral to provide for its allocated share of
Europe*Stars net losses subsequent to December 31,
2002. As of March 31, 2003, Loral owned 47% of Europe*Star.
Pursuant to the terms of the shareholders agreement, Loral has
permitted Alcatel to fund additional expenditures to develop
Europe*Stars business and infrastructure through
$181 million in loans to the venture, which Alcatel claims
are payable by Europe*Star on demand. Such loans are
non-recourse to Loral.



| |             
| | ------------
| | XTAR, L.L.C.

XTAR, a joint venture between Loral and Hisdesat
Servicios Estrategicos, S.A. (Hisdesat), a
consortium comprised of leading Spanish telecommunications
companies, including Hispasat, S.A., and agencies of the Spanish
government, plans to construct and launch an X-band satellite to
provide X-band services to government users in the United States
and Spain, as well as other friendly and allied nations. XTAR is
owned 56% by Loral (accounted for under the equity method since
the Company does not control certain significant operating
decisions) and 44% by Hisdesat. In addition, XTAR has agreed to
lease certain transponders on the Spainsat satellite, which is
being constructed by SS/L for Hisdesat. As of March 31,
2003, the partners in proportion to their respective ownership
interests have contributed $55 million to XTAR. XTAR is
seeking to raise the remaining amount of the funds it needs to
construct and launch its satellite through vendor and other
third-party financings. If XTAR is unable to raise the remaining
funds it needs to construct, launch and operate its satellite,
the Companys investment in XTAR of $22 million and
receivables of $2 million at March 31, 2003 would be
adversely affected.



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

The Company accounts for its investment in
Globalstar on the equity method due to its inability to control
significant operating decisions at Globalstar. In 2000,
Lorals allocated share of Globalstars losses and
Globalstars impairment charges reduced Lorals
investment in and advances to Globalstar to zero (see below).
Accordingly, there is no longer any requirement for Loral to
provide for its allocated share of Globalstars net losses
subsequent to December 31, 2000. The Company accounts for
its investment in Globalstars $500 million credit
facility at fair value, with changes in the value (net of tax)
recorded as a component of other comprehensive loss (see
Note 4 to the condensed consolidated financial statements).
The Company recorded unrealized net (losses) gains after taxes
as a component of other comprehensive (loss) income of zero and
$13 million for the three months ended March 31, 2003
and 2002, respectively, in connection with this security.

On February 15, 2002, Globalstar and certain
of its direct subsidiaries filed voluntary bankruptcy petitions
under Chapter 11 of Title 11, United States Code in
the United States Bankruptcy Court for the District of Delaware
(the Court). In connection therewith, Loral/
Qualcomm Satellite Services, L.P., the managing general partner
of Globalstar, its general partner, Loral/ Qualcomm Partnership,
L.P. (LQP), and certain of Lorals subsidiaries
that serve as general partners of LQP also filed voluntary
bankruptcy petitions with the Court. As a result of
Globalstars bankruptcy petition, several of
Globalstars debt facilities and other debt obligations
have been accelerated and are immediately due and payable.
Subcontractors have assumed $72 million of vendor financing
that SS/L has provided to Globalstar at March 31, 2003,
which includes $47 million which is non-recourse to SS/L in
the event of non-payment by Globalstar due to bankruptcy and is
included in long-term liabilities in Lorals condensed
consolidated balance sheets.

On March 14, 2003, Loral signed a term sheet
with Globalstar, L.P. (Globalstar) and
Globalstars official creditors committee to resolve
certain issues related to Globalstar and Globalstars
restructuring. On

43



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April 14, 2003, the Bankruptcy Court
(the Court) approved this settlement. Among other
things, the settlement, which is subject to definitive
documentation and closing (as to which there can be no
assurance), provided that Globalstar would grant to Loral,
subject to certain conditions, a general release of all claims
Globalstar might have against Loral; the parties would seek to
provide Loral with one seat on the board of directors of
reorganized Globalstar; approximately 50% of Lorals
unsecured claims against Globalstar would be allowed, or
approximately $438 million; and the debt owed to Globalstar
by three foreign service providers in which Loral has a
substantial equity interest (Globalstar do Brasil, Globalstar de
Mexico and GlobalTel), of an aggregate of $7.2 million
would be eliminated. In consideration, Loral would transfer to
Globalstar eight spare satellites ordered by Globalstar but not
fully paid for; certain agreements that provided a joint venture
in which Loral is a participant with exclusivity in marketing
certain Globalstar services in the U.S. would be terminated,
with a new joint venture formed between Globalstar and Loral to
exclusively market Globalstar services to certain governmental
agencies in the U.S.; the FCC license authorizing the Globalstar
service, which in any event was being held by a joint venture in
which Loral is a participant for the exclusive benefit of
Globalstar, would be transferred to Globalstar; Lorals
equity interest in the Globalstar Canadian service provider
would be transferred to Globalstar; a $10 million
obligation of the Canadian service provider owed to Loral at
December 31, 2002 would be reduced by $7.2 million and
the remaining debt obligation would be converted from a demand
note into a five-year term note; Lorals unsecured claims
against Globalstar would be reduced by approximately 50% or
approximately $438 million; the unused prepayment
($2,260,000) on a Globalstar contract under which there is a
stop work order would be returned to Globalstar by Loral; a
$250,000 termination fee that may come due under that contract
would be waived; Loral would cooperate toward a reorganization
of Globalstar; and the Loral employees on Globalstars
management committee would resign. Loral does not expect any
material impact on its results of operations or financial
position as a result of this settlement.


On April 28, 2003, Globalstar and ICO Global
Communications (Holdings) Limited (ICO) received
Court approval for ICO to acquire a majority interest in a
reorganized Globalstar. The Court approved the sale of
Globalstars assets to a new company to be controlled by
ICO in exchange for an investment of $55 million for which
ICO will receive a 54% equity stake in the new operating
company. Closing of the transaction is subject to regulatory
approvals prior to any license transfers. The Court-approved
sale supercedes an earlier proposal that had been made by Thermo
Capital Partners. In addition to ICOs 54% stake in the
newly-formed company, the remaining equity will be distributed
to Globalstars creditors, which include Loral
(approximately 6%), Qualcomm Incorporated and holders of
Globalstar bonds. Globalstar will file a plan of reorganization
with the Court, and has stated that it expects to complete its
Chapter 11 process later this year.

As of March 31, 2003, the Companys
investment in Globalstar related activities was
$20 million, representing the fair value of its investment
in Globalstars $500 million credit facility, which
was based on the trading values of Globalstars public debt
at March 31, 2003. If Globalstar were unable to effectuate
a successful restructuring, the Companys remaining
investment in Globalstars $500 million credit
facility would be impaired, which, as discussed above, would
have no effect on the Companys results of operations.
Lorals investment in the operations of those Globalstar
service provider ventures in which it participates as an equity
owner was zero in the first quarter of 2003. Globalstar service
providers own and operate gateways, are licensed to provide
services and, through their sales and marketing organizations,
are actively selling Globalstar service, in their respective
territories.



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

Contractual obligations as previously disclosed
in the Companys Latest Annual Report on Form 10-K
have not materially changed.

44



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Commitments and Contingencies

The Company has deferred revenue and established
warranty obligations relating to satellites sold to customers
which could be impacted by future performance. A reconciliation
of such deferred amounts for the three months ended
March 31, 2003 is as follows (in millions):

|                                                                                 |  |   |      |  
|-------------------------------------------------------------------------------- |  | - | ---- | -
|Balance of deferred amounts at January 1,
    2003.                              |  | $ | 14.1 |  
|Accruals for deferred amounts issued during the
    period                       |  |   |     |  
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | (0.2 | )
|                                                                                 |  |   |      |  
|Balance of deferred amounts at March 31,
    2003.                               |  | $ | 13.9 |  
|                                                                                 |  |   |      |  

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

Thirteen of the satellites built by SS/L and
launched since 1997, six of which are owned and operated by
Lorals subsidiaries or affiliates, have experienced minor
losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected
satellites have experienced any degradation in performance,
there can be no assurance that one or more of the affected
satellites will not experience additional power loss that could
result in performance degradation, including loss of transponder
capacity or reduction in power transmitted. In the event of
additional power loss, the extent of the performance
degradation, if any, will depend on numerous factors, including
the amount of the additional power loss, the level of redundancy
built into the affected satellites design, when in the
life of the affected satellite the loss occurred and the number
and type of use being made of transponders then in service. It
is also possible that one or more transponders on a satellite
may need to be removed from service to accommodate the power
loss and to preserve full performance capabilities of the
remaining transponders. A complete or partial loss of satellites
could result in a loss of orbital incentive payments and, in the
case of satellites owned by Loral subsidiaries and affiliates, a
loss of revenues and profits. With respect to satellites under
construction and construction of new satellites, based on its
investigation of the matter, SS/L has identified and has
implemented remediation measures that SS/L believes will prevent
newly launched satellites from experiencing similar anomalies.
SS/L does not expect that implementation of these measures will
cause any significant delay in the launch of satellites under
construction or construction of new satellites. Based upon
information currently available, including design redundancies
to accommodate small power losses and that no pattern has been
identified as to the timing or specific location within the
solar arrays of the failures, the Company believes that this
matter will not have a material adverse effect on the
consolidated financial position or results of operations of
Loral.

In September 2001, the PAS 7 satellite built by
SS/L for PanAmSat experienced an electrical power failure on its
solar arrays that resulted in the loss of use of certain
transponders on the satellite. As a result, PanAmSat has claimed
that under its contract with SS/L it is entitled to be paid
$16 million. SS/L disputes this claim and is in discussions
with PanAmSat to resolve this matter. In addition, a Loral
Skynet satellite has experienced a minor loss of power from its
solar arrays, the cause of which may be similar to the cause of
the PAS 7 anomaly. SS/L believes, however, that these
failures are isolated events and do not reflect a systemic

45



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##### 



problem in either the satellite design or
manufacturing process. Accordingly, SS/L does not believe that
these anomalies will affect other on-orbit satellites built by
SS/L. Also, the PAS 8 satellite has experienced minor losses of
power from its solar arrays, the cause of which is unrelated to
the loss of power on the PAS 7 satellite. PanAmSat has
claimed that under its contract with SS/L it is entitled to be
paid $7.5 million as a result of these minor power losses.
SS/L disputes this claim. SS/L and PanAmSat are in discussions
to resolve this matter.


SS/L has contracted to build a spot beam, Ka-band
satellite for a customer planning to offer broadband data
services directly to the consumer. SS/L had suspended work on
this program since December 2001 while the customer and SS/L
were in discussions to resolve a dispute under the contract. In
March 2003, SS/L and the customer reached an agreement in
principle to restart the satellite construction program. As of
March 31, 2003, SS/L had billed and unbilled accounts
receivable and vendor financing arrangements of $49 million
including accrued interest with this customer. Under the
agreement, which is subject to documentation in definitive
amendments to their contract, the customer will pay the
remainder of the purchase price under the contract of
$68.1 million (including $49 million owed to SS/L at
March 31, 2003) in installments over time, a portion of
which will be due subsequent to completion of the satellite.

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

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

The launch of ChinaSat-8 has been delayed pending
SS/Ls obtaining the approvals required for the launch. On
December 23, 1998, the Office of Defense Trade Controls, or
ODTC, of the U.S. Department of State temporarily suspended a
previously approved technical assistance agreement under which
SS/L had been preparing for the launch of the ChinaSat-8
satellite. In addition, SS/L was required to re-apply for new
export licenses from the State Department to permit the launch
of ChinaSat-8 on a Long March launch vehicle when the old export
licenses issued by the Commerce Department, the agency that
previously had jurisdiction over satellite licensing, expired in
March 2000. On January 4, 2001, the ODTC, while not
rejecting these license applications, notified SS/L that they
were being returned without action. On January 9,

46



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##### 



2002, Loral, SS/L and the United States
Department of State entered into a consent agreement (the
Consent Agreement) settling and disposing of all
civil charges, penalties and sanctions associated with alleged
violations by SS/L of the Arms Export Control Act and its
implementing regulations. The Company recorded a
$12 million charge in 2001 for the penalties associated
with the Consent Agreement. The Consent Agreement provides that
the State Department agrees, assuming the Companys and
SS/Ls faithful adherence to the terms of the Consent
Agreement, and the Arms Export Control Act and its implementing
regulations, that decisions concerning export licenses for the
ChinaSat-8 spacecraft will be made on the basis of the security
and foreign policy interests of the United States, including
matters relating to U.S. relations with the Peoples
Republic of China, without reference to the State
Departments previously expressed concerns regarding
SS/Ls reliability, which concerns are considered to be
appropriately mitigated through the operation of various
provisions of the Consent Agreement. Discussions between SS/L
and the State Department regarding SS/Ls obtaining the
approvals required for the launch of ChinaSat-8 are continuing.


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

Sirius, a customer of SS/L, is currently in the
process of rolling out its business. On March 7, 2003,
Sirius completed its recapitalization plan and received
$200 million in cash from third party investors and
exchanged approximately $636 million of its debt and all of
its $525 million of preferred stock into common stock. As
part of this recapitalization, SS/L converted all of its vendor
financing receivables of approximately $76 million into
58,964,981 shares of common stock of Sirius. In the first
quarter of 2003, SS/L recorded a charge on the vendor financing
receivables due from Sirius of $10 million, representing
the difference between the carrying value of SS/Ls
receivables of $38 million, and the value of the common shares
received by SS/L based on the trading price of Siriuss
common stock on March 7, 2003 of $28 million. The increase
in the value of Sirius common stock from March 7,
2003 to March 31, 2003 of $10 million has been
recorded as an adjustment to accumulated other comprehensive
income (loss) in the condensed consolidated balance sheet at
March 31, 2003. During the quarter ended March 31,
2003, SS/L realized net proceeds of $9.7 million from the
sale of a portion of its Sirius common stock and gains on such
sales of $1.1 million and as of March 31, 2003, the market
value of its remaining Sirius common stock was $30 million.
The Sirius stock is classified in other current assets at
March 31, 2003, due to the Companys intent to sell
all of the Sirius common stock within the next year. At
December 31, 2002, the receivables from Sirius were
classified as short-term vendor financing receivables.

SS/L has entered into several long-term launch
services agreements with various launch providers to secure
future launches for its customers, including us and our
affiliates. Through the assignment of satellites to launch
vehicles and refunds, SS/L has reduced its launch deposits by
$87 million from December 31, 2001 through
March 31, 2003. Nonetheless, SS/ L may, as a result of
current market conditions, cancel some of the launchers to which
it has committed. SS/L had launch services agreements with
International Launch Services (ILS) which covered
three launches. In November 2002, SS/L terminated one of those
future launches, which had a termination liability equal to
SS/Ls deposit of $5 million. Subsequently, SS/L received a
letter from ILS alleging SS/Ls breach of the agreements,
purporting to terminate all three launches and asserting a right
to retain $42.5 million in deposits, without prejudice to
any other legal claims or remedies. Despite ILSs
termination of all three launches, to protect its interest SS/L
also terminated a second launch, which had a termination
liability equal to its deposit of $5 million, and SS/L
recognized a non-

47



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##### 



cash charge to earnings of $10 million in
the fourth quarter of 2002 with respect to the two terminated
launches. SS/L believes that ILSs claims are without merit
and intends to defend against them vigorously and to seek
recovery of its deposits and termination liabilities. The
Company does not believe that this matter will have a material
adverse effect on its consolidated financial position and its
results of operations, although no assurances can be provided.


While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot guarantee that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past. Telstar 10/
Apstar IIR, manufactured by SS/L and owned by Loral Orion,
has the same solar array configuration as two other 1300-class
satellites manufactured by SS/L that have experienced solar
array failures. SS/L believes that these failures are isolated
events and do not reflect a systemic problem in either the
satellite design or manufacturing process. Accordingly, the
Company does not believe that these anomalies will affect
Telstar 10/ Apstar IIR. The insurance coverage for
Telstar 10/ Apstar IIR provides for coverage of losses
due to solar array failures only in the event of a capacity loss
of 75% or more. Some of Loral Orions bondholders have
questioned whether this limitation is in compliance with the
insurance covenant in the Loral Orion indenture. Management
believes that Loral Orion is in compliance with the covenant as
properly interpreted. If, however, Loral Orions
bondholders were to give notice of a default under the indenture
because of such limitations, and a court ruled against Loral
Orion on this matter, the maturity of Loral Orions 10%
senior notes could be accelerated, and the bondholders could be
able to call on the Companys guarantee of Loral
Orions senior notes. Four other satellites owned by Loral
Skynet and Loral Orion have the same solar array configuration
as Telstar 10/ Apstar IIR. There can be no assurance
that the insurers will not require either exclusions of, or
similar limitations on, coverage due to solar array failures in
connection with renewals of insurance for these satellites in
2003 and 2004. An uninsured loss of a satellite would have a
material adverse effect on the Companys consolidated
financial position and its results of operations. Moreover, the
Company is required under the terms of its bank facilities to
use the insurance proceeds from any launch or in-orbit failure
of a satellite owned by Loral SpaceCom or Loral Satellite to
prepay the bank loans, and as a result, these insurance proceeds
would not be available to us to build a replacement for the lost
satellite, which would result in an adverse effect on our future
revenue.

Loral Skynet has an application pending with the
FCC for authorization to use the C-Band frequency at
121 degrees W.L. in the U.S. using a non-U.S. ITU filing.
Telstar 13, which is currently under construction, is
scheduled for launch into this orbital slot. New Skies
Satellites has asserted that its non-U.S. ITU filing at
120.8 degrees W.L. has date priority over Loral
Skynets ITU filing and has filed comments with the FCC
seeking to impose conditions on Loral Skynets use of the
121 degrees W.L. slot. Loral Skynet has opposed New
Skies comments. Loral Skynet is continuing its
international coordination of the 121 degrees W.L. slot.
There can be no assurance, however, that coordination
discussions will be successful or that the FCC will grant Loral
Skynets application or grant the application without
adding conditions that may constrain Loral Skynets
operations at the 121 degrees W.L. slot.

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

The Company is subject to various other legal
proceedings and claims, either asserted or unasserted, that
arise in the ordinary course of business. Although the outcome
of these claims cannot be predicted with certainty, the Company
does not believe that any of these other existing legal matters
will have a material adverse effect on its consolidated
financial position or results of operations.

48



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##### 



Globalstar Related Matters.On September 26, 2001, the
nineteen separate purported class action lawsuits filed in the
United States District Court for the Southern District of New
York by various holders of securities of Globalstar
Telecommunications Limited (GTL) and Globalstar
against GTL, Loral, Bernard L. Schwartz and other
defendants were consolidated into one action titled In re:
Globalstar Securities Litigation. In November 2001,
plaintiffs in the consolidated action filed a consolidated
amended class action complaint against Globalstar, GTL,
Globalstar Capital Corporation, Loral and Bernard L. Schwartz
alleging (a) that all defendants (except Loral) violated
Section 10(b) of the Securities Exchange Act of 1934 (the
Exchange Act) and Rule 10b-5 promulgated
thereunder, by making material misstatements or failing to state
material facts about Globalstars business and prospects,
(b) that defendants Loral and 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 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 Schwartz
are secondarily liable under Section 15 of the Securities
Act for GTLs primary violations of Sections 11 and
12(2)(a) of the Securities Act as alleged controlling
persons of GTL. The class of plaintiffs on whose behalf
the lawsuit has been asserted consists of all buyers of
securities of Globalstar, Globalstar Capital and GTL during the
period from December 6, 1999 through October 27, 2000,
excluding the defendants and certain persons related or
affiliated therewith. Loral and Mr. Schwartz have filed a
motion to dismiss the amended complaint in its entirety as to
Loral and Mr. Schwartz, which motion is pending before the
court. Loral believes that it has meritorious defenses to this
class action lawsuit and intends to pursue them vigorously.

On March 2, 2002, the seven separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of common stock of Loral Space & Communications
Ltd. (Loral) against Loral, Bernard L. Schwartz
and Richard Townsend were consolidated into one action titled
In re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint alleging (a) that all defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder by making material misstatements or
failing to state material facts about Lorals financial
condition and its investment in Globalstar and (b) that
Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged controlling person of
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Loral common stock
during the period from November 4, 1999 through
February 1, 2001, excluding the defendants and certain
persons related or affiliated therewith. Loral and
Messrs. Schwartz and Townsend have filed a motion to
dismiss the complaint in its entirety. At oral argument on the
motion on May 9, 2003, the Court indicated its intent to
dismiss the complaint but gave the plaintiffs thirty days to
amend their complaint to state a cause of action. In the
interim, the Court denied the motion without prejudice to its
renewal. In addition, the insurers under Lorals directors
and officers liability insurance policy have denied coverage for
the case filed by Loral shareholders under the policy and, on
March 24, 2003, filed a lawsuit in the Supreme Court of New
York county seeking a declaratory judgment upholding their
coverage position. Loral believes that the insurers have
wrongfully denied coverage and intends to defend against the
denial vigorously.

Loral holds debt obligations from Globalstar (see
Note 7). In other situations in the past, challenges have been
initiated seeking subordination or recharacterization of debt
held by an affiliate of an issuer. While Loral knows of no
reason why such a claim would prevail with respect to the debt
Loral holds in Globalstar, there can be no assurance that such
claims will not be made in Globalstars bankruptcy
proceeding. If such claims were to prove successful, it will
jeopardize the amount of equity interest Loral will ultimately
receive in the new Globalstar company. Moreover, actions may be
initiated in Globalstars bankruptcy proceeding seeking to
characterize payments previously made by Globalstar to Loral
prior to the filing date as preferential payments subject to
repayment. Loral may also find itself subject to other claims
brought by Globalstar creditors and securities holders, who may
seek to impose liabilities on Loral as a result of its
relationship with Globalstar. For instance, Globalstars
creditors may seek to pierce the corporate veil in an attempt to
recover Globalstar

49



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##### 



obligations owed to them that are recourse to
Lorals subsidiaries, which are general partners in
Globalstar and have filed for bankruptcy protection.
Globalstars cumulative partners deficit at
March 31, 2003, was $3.2 billion.


In May 2000, Globalstar finalized
$500 million of vendor financing arrangements with
Qualcomm. The original terms of this vendor financing provided
for interest at 6%, a maturity date of August 15, 2003 and
required repayment pro rata with the term loans due to Loral
under Globalstars $500 million credit facility. As of
December 31, 2002, $623 million was outstanding under
this facility (including $123 million of capitalized
interest). Loral has agreed that if the principal amount
outstanding under the Qualcomm vendor financing facility exceeds
the principal amount due Loral under Globalstars
$500 million credit facility, as determined on certain
measurement dates, then Loral will guarantee 50% of such excess
amount. As of March 31, 2003, Loral had no obligation under
the guarantee.

Other Matters



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

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

While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot guarantee that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past. Telstar 10/
Apstar IIR, manufactured by SS/L and owned by Loral Orion,
has the same solar array configuration as two other 1300-class
satellites manufactured by SS/L that have experienced solar
array failures. SS/L believes that these failures are isolated
events and do not reflect a systemic problem in either the
satellite design or manufacturing process. Accordingly, we do
not believe that these anomalies will affect Telstar 10/
Apstar IIR. The insurance coverage for Telstar 10/
Apstar IIR provides for coverage of losses due to solar
array failures only in the event of a capacity loss of 75% or
more. Four other satellites owned by Loral Skynet and Loral
Orion have the same solar array configuration as
Telstar 10/ Apstar IIR. There can be no assurance that
the insurers will not require either exclusions of, or similar
limitations on, coverage due to solar array failures in
connection with renewals of insurance for these satellites in
2003 and 2004. An uninsured loss of a satellite would have a
material adverse effect on the Companys consolidated
financial position and its results of operations. Moreover, the
Company is required under the terms of the Loral SpaceCom and
Loral Satellite credit facilities to use the insurance proceeds
from any launch or in-orbit failure of a satellite owned by
Loral SpaceCom or Loral Satellite to prepay the bank loans, and
as a result, these insurance proceeds would not be available to
the Company to build a replacement for the lost satellite, which
would result in an adverse effect on our future revenue.



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



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

On January 1, 2002, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets
(SFAS 142) which addresses the initial
recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for
goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with
finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives not be amortized, but
rather be tested at least annually for impairment. SFAS 142
also changed the evaluation criteria for testing goodwill for
impairment from an undiscounted cash flow approach, which was
previously utilized under the guidance in Accounting Principles

50



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##### 



Board Opinion No. 17, Intangible Assets, to
a test based on fair value. Fair value is determined by the
amount at which an asset or liability could be bought or sold in
a current transaction between willing parties, that is, other
than in a forced or liquidation sale. Quoted market prices in
active markets are the best evidence of fair value and must be
used as the basis for the measurement, if available. If quoted
market prices are not available, the estimate of fair value must
be based on the best information available, including prices for
similar assets and liabilities and the results of using other
valuation techniques, such as public company trading multiples,
future discounted cash flows and merger and acquisition
transaction multiples.


In accordance with SFAS 142, the Companys
previously recognized cost in excess of net assets acquired
(goodwill) of $892 million for business
acquisitions accounted for under the purchase method of
accounting completed prior to July 1, 2001, was reviewed
under the new transitional guidance as of January 1, 2002.
Goodwill had been previously assigned to the Companys
business segments as follows (based on the net book value at
December 31, 2001): FSS $597 million, satellite
manufacturing and technology $286 million and data services
$9 million. The Company hired professionals in the
valuation consulting business to determine the fair value of
each of the Companys reporting units. Since there were no
quoted market prices in active markets for the Companys
reporting units, the measurement of fair value for each
reporting unit was based on the best information available for
that reporting unit, including reasonable and supportable
assumptions and projections, as follows:
(1) FSS  public company trading multiples,
(2) satellite manufacturing and technology 
future discounted cash flows, and (3) data
services  merger and acquisition transaction
multiples. Based on the fair values concluded on by those
professionals, management determined that the goodwill for each
of the Companys reporting units under the new guidance in
SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$892 million before taxes ($877 million after taxes).

The charge is the result of a change in the
evaluation criteria for goodwill from an undiscounted cash flow
approach which was previously utilized under the guidance in
Accounting Principles Board Opinion No. 17, Intangible
Assets, to the fair value approach which is stipulated in SFAS
142.



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

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



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

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

51



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##### 





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

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin
No. 51 (FIN 46). FIN 46 requires certain
variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support from other parties. FIN 46 is effective
for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Company is
currently evaluating the provisions of FIN 46.



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

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 149). SFAS 149
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 is effective for contracts entered
into or modified after June 30, 2003, except as stated in
the statement for hedging relationships designated after
June 30, 2003. The Company is currently evaluating the
provisions of SFAS 149.

Item 4.     Evaluation
of Disclosure Controls and Procedures

(a) Evaluation of disclosure controls and
procedures.Lorals chief executive officer and its
chief financial officer, after evaluating the effectiveness of
the Companys disclosure controls and
procedures (as defined in the Securities and Exchange Act
of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the
Evaluation Date) within 90 days before the
filing date of this quarterly report, have concluded that as of
the Evaluation Date, the Companys disclosure controls and
procedures were adequate and designed to ensure that material
information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those
entities.

(b) Changes in internal controls.There were no significant changes in the Companys
internal controls or, in other factors that could significantly
affect the Companys disclosure controls and procedures
subsequent to the Evaluation Date.

52



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##### 



Part II.

OTHER INFORMATION



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

See Note 10 to the condensed consolidated
financial statements.



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

(a) Exhibits

The following exhibits are filed as part of this
report:



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



| |                |                                                                                                                                              
| | -------------- | ---------------------------------------------------------------------------------------------------------------------------------------------
| | Exhibit 99.1  | Certification of Chief Executive Officer pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002
|
| | Exhibit 99.2  | Certification of Chief Financial Officer pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

|                 |  |                                                                                 |  |                         
|---------------- |  | ------------------------------------------------------------------------------- |  | ------------------------
|Date of Report   |  |                                                                                 |  | Description             
|                 |  |                                                                                 |  |                         
|January 27, 2003 |  | Item 5  Other Events                                                           |  | Alcatel partial decision
|March 31, 2003   |  | Item 7  Financial Statements, Pro
    Forma Financial Information and Exhibits |  | 2002 earnings release   

53



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##### 



SIGNATURES

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



| |  |                                  
| |  | ---------------------------------
| |  | LORAL SPACE & COMMUNICATIONS LTD.

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

Date: May 15, 2003

54



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##### 



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,


AS ADOPTED PURSUANT TO


SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


In connection with the Quarterly Report of Loral
Space & Communications Ltd. (the registrant) on
Form 10-Q for the period ending March 31, 2003 as
filed with the Securities and Exchange Commission on the date
hereof (the Quarterly Report), I, Bernard L.
Schwartz, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 2002, that:

(1) I have reviewed this Quarterly Report on
Form 10-Q of Loral Space & Communications Ltd.;

(2) Based on my knowledge, this Quarterly
Report does not contain any untrue statement of material fact or
omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by
this Quarterly Report;

(3) Based on my knowledge, the financial
statements, and other financial information included in this
Quarterly Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this
Quarterly Report;

(4) The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Quarterly Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    Quarterly Report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this Quarterly Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

(5) The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or
persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weakness in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                  

(6) The registrants other certifying
officers and I have indicated in this Quarterly Report whether
or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                        
| | -----------------------
| | /s/ BERNARD L. SCHWARTZ
| |                        
| | Bernard L. Schwartz    
| | Chief Executive Officer

May 15, 2003

55



---



##### 



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,


AS ADOPTED PURSUANT TO


SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


In connection with the Quarterly Report of Loral
Space & Communications Ltd. (the registrant) on
Form 10-Q for the period ending March 31, 2003 as
filed with the Securities and Exchange Commission on the date
hereof (the  Quarterly Report ), I, Richard J.
Townsend, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 302 of the Sarbanes-Oxley Act of 2002, that:

(1) I have reviewed this Quarterly Report on
Form 10-Q of Loral Space & Communications Ltd.;

(2) Based on my knowledge, this Quarterly
Report does not contain any untrue statement of material fact or
omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by
this Quarterly Report;

(3) Based on my knowledge, the financial
statements, and other financial information included in this
Quarterly Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this
Quarterly Report;

(4) The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Quarterly Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    Quarterly Report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this Quarterly Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

(5) The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or
persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weakness in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                  

(6) The registrants other certifying
officers and I have indicated in this Quarterly Report whether
or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                            
| | ---------------------------
| | /s/ RICHARD J. TOWNSEND    
| |                            
| | Richard J. Townsend        
| | Executive Vice President   
| | and Chief Financial Officer

May 15, 2003

56



---



##### 



EXHIBIT INDEX

|             |  |   |  |                                                                                                                                              
|------------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  |   |  | Description                                                                                                                                  
|             |  |   |  |                                                                                                                                              
|Exhibit 12   |  |  |  | Computation of Deficiency of Earnings to Cover
    Fixed Charges                                                                             
|Exhibit 99.1 |  |  |  | Certification of Chief Executive Officer pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002
|Exhibit 99.2 |  |  |  | Certification of Chief Financial Officer pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002