##### Table of Contents






SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2001

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.

As of
October 31, 2001, there were 335,014,116 shares of Loral
Space & Communications Ltd. common stock outstanding.



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---

TABLE OF CONTENTS



|                                                                                                                        |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART 1. FINANCIAL INFORMATION LORAL SPACE & COMMUNICATIONS LTD.                                                        
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                                                        
|LORAL SPACE & COMMUNICATIONS LTD. CONDENSED CONSOLIDATED BALANCE SHEETS                                                
|LORAL SPACE & COMMUNICATIONS LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                      
|LORAL SPACE & COMMUNICATIONS LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                 
|LORAL SPACE & COMMUNICATIONS LTD. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
|Part II. OTHER INFORMATION                                                                                             
|SIGNATURES                                                                                                             
|EXHIBIT INDEX                                                                                                          
|EX-12: COMPUTATION OF DEFICIENCY OF EARNINGS                                                                           



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##### Table of Contents






PART 1.

FINANCIAL INFORMATION

LORAL SPACE & COMMUNICATIONS
LTD.






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(in thousands, except per share
amounts)


(unaudited)


|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | ------------------ | ------- | ----------------- | ------- | ---- | ------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                                                                                                                                                 |                   |                    |         |                  
|                                                                                                                                                 |                   | Three months ended |         | Nine months ended
|                                                                                                                                                 |                   | September 30,      |         | September 30,    
|                                                                                                                                                 |                   |                    |         |                  
|                                                                                                                                                 |                   | 2001               |         | 2000              |         | 2001 |         | 2000   
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |        
|Revenues from satellite sales                                                                                                                    |                   | $                  | 146,639 |                   |         | $    | 195,221 |         |         | $ | 454,625  |         |         | $ | 644,127  |        
|Revenues from satellite services                                                                                                                 |                   |                    | 114,424 |                   |         |      | 97,321  |         |         |   | 342,435  |         |         |   | 290,759  |        
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|                                                                                                                                                 |                   | Total revenues     |         |                   | 261,063 |      |         |         | 292,542 |   |          |         | 797,060 |   |          |         | 934,886 | 
|Cost of satellite sales                                                                                                                          |                   |                    | 141,829 |                   |         |      | 174,274 |         |         |   | 407,558  |         |         |   | 565,600  |        
|Cost of satellite services                                                                                                                       |                   |                    | 72,540  |                   |         |      | 73,205  |         |         |   | 221,684  |         |         |   | 225,979  |        
|Selling, general and administrative expenses                                                                                                     |                   |                    | 53,653  |                   |         |      | 56,155  |         |         |   | 164,043  |         |         |   | 170,255  |        
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|Operating income (loss)                                                                                                                          |                   |                    | (6,959  | )                 |         |      | (11,092 | )       |         |   | 3,775    |         |         |   | (26,948  | )      
|Interest and investment income                                                                                                                   |                   |                    | 5,946   |                   |         |      | 31,255  |         |         |   | 20,274   |         |         |   | 91,796   |        
|Interest expense                                                                                                                                 |                   |                    | (44,676 | )                 |         |      | (39,835 | )       |         |   | (141,120 | )       |         |   | (125,586 | )      
|Gain on investments                                                                                                                              |                   |                    |         |                   |         |      | 18,139  |         |         |   |          |         |         |   | 70,862   |        
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|Income (loss) before income taxes, equity in
	net loss of affiliates, minority interest and cumulative effect
	of change in accounting principle |                   |                    | (45,689 | )                 |         |      | (1,533  | )       |         |   | (117,071 | )       |         |   | 10,124   |        
|Income tax benefit (expense)                                                                                                                     |                   |                    | 5,849   |                   |         |      | (4,322  | )       |         |   | 7,799    |         |         |   | (19,445  | )      
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|Loss before equity in net loss of affiliates,
	minority interest and cumulative effect of change in accounting
	principle                        |                   |                    | (39,840 | )                 |         |      | (5,855  | )       |         |   | (109,272 | )       |         |   | (9,321   | )      
|Equity in net loss of affiliates, net of taxes                                                                                                   |                   |                    | (12,647 | )                 |         |      | (75,269 | )       |         |   | (55,708  | )       |         |   | (290,312 | )      
|Minority interest, net of taxes                                                                                                                  |                   |                    | 199     |                   |         |      | 387     |         |         |   | 728      |         |         |   | 1,951    |        
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|Loss before cumulative effect of change in
	accounting principle                                                                                 |                   |                    | (52,288 | )                 |         |      | (80,737 | )       |         |   | (164,252 | )       |         |   | (297,682 | )      
|Cumulative effect of change in accounting
	principle, net of taxes (Note 10)                                                                     |                   |                    |         |                   |         |      |         |         |         |   | (1,741   | )       |         |   |          |        
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|Net loss                                                                                                                                         |                   |                    | (52,288 | )                 |         |      | (80,737 | )       |         |   | (165,993 | )       |         |   | (297,682 | )      
|Preferred dividends                                                                                                                              |                   |                    | (11,963 | )                 |         |      | (15,923 | )       |         |   | (68,780  | )       |         |   | (51,404  | )      
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|Net loss applicable to common stockholders                                                                                                       |                   | $                  | (64,251 | )                 |         | $    | (96,660 | )       |         | $ | (234,773 | )       |         | $ | (349,086 | )      
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|Basic and diluted loss per share                                                                                                                 |                   | $                  | (0.19   | )                 |         | $    | (0.33   | )       |         | $ | (0.73    | )       |         | $ | (1.18    | )      
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|Weighted average shares outstanding:                                                                                                             |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        
|                                                                                                                                                 | Basic and diluted |                    |         | 333,745           |         |      |         | 296,580 |         |   |          | 319,754 |         |   |          | 295,257 |        
|                                                                                                                                                 |                   |                    |         |                   |         |      |         |         |         |   |          |         |         |   |          |        

See notes to condensed consolidated financial
statements.

1



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LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATED BALANCE
SHEETS

(in thousands, except share data)


|                                             |                                                                                                              |                            |           |              |           |   |           |            |           | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------------------------- | --------- | ------------ | --------- | - | --------- | ---------- | --------- | 
|                                             |                                                                                                              | September 30,              |           | December 31,
|                                             |                                                                                                              | 2001                       |           | 2000        
|                                             |                                                                                                              |                            |           |             
|                                             |                                                                                                              | (unaudited)                |           | (Note)      
|ASSETS                                       |                                                                                                              |                            |           |              |           |   |           |           
|Current assets:                              |                                                                                                              |                            |           |              |           |   |           |           
|                                             | Cash and cash equivalents                                                                                    |                            | $         | 180,576      |           |   | $         | 394,045    |          
|                                             | Accounts receivable, net                                                                                     |                            |           | 50,467       |           |   |           | 56,347     |          
|                                             | Contracts-in-process                                                                                         |                            |           | 221,614      |           |   |           | 180,868    |          
|                                             | Inventories                                                                                                  |                            |           | 122,962      |           |   |           | 120,608    |          
|                                             | Other current assets                                                                                         |                            |           | 99,138       |           |   |           | 79,713     |          
|                                             |                                                                                                              |                            |           |              |           |   |           |           
|                                             |                                                                                                              | Total current assets       |           |              | 674,757   |   |           |            | 831,581   | 
|Property, plant and equipment, net           |                                                                                                              |                            | 1,966,165 |              |           |   | 1,944,815 |           
|Cost in excess of net assets acquired, net   |                                                                                                              |                            | 898,399   |              |           |   | 918,826   |           
|Long-term receivables                        |                                                                                                              |                            | 167,017   |              |           |   | 145,504   |           
|Investments in and advances to affiliates    |                                                                                                              |                            | 181,077   |              |           |   | 251,658   |           
|Deposits                                     |                                                                                                              |                            | 155,490   |              |           |   | 161,790   |           
|Deferred tax assets                          |                                                                                                              |                            | 295,120   |              |           |   | 293,142   |           
|Other assets                                 |                                                                                                              |                            | 108,672   |              |           |   | 131,002   |           
|                                             |                                                                                                              |                            |           |              |           |   |           |           
|                                             |                                                                                                              | $                          | 4,446,697 |              |           | $ | 4,678,318 |           
|                                             |                                                                                                              |                            |           |              |           |   |           |           
|LIABILITIES AND SHAREHOLDERS
	EQUITY        |                                                                                                              |                            |           |              |           |   |           |           
|Current liabilities:                         |                                                                                                              |                            |           |              |           |   |           |           
|                                             | Current portion of long-term debt                                                                            |                            | $         | 150,083      |           |   | $         | 110,715    |          
|                                             | Accounts payable                                                                                             |                            |           | 156,293      |           |   |           | 139,104    |          
|                                             | Accrued employment costs                                                                                     |                            |           | 49,228       |           |   |           | 45,271     |          
|                                             | Customer advances                                                                                            |                            |           | 126,393      |           |   |           | 70,866     |          
|                                             | Accrued interest and preferred dividends                                                                     |                            |           | 30,262       |           |   |           | 51,645     |          
|                                             | Other current liabilities                                                                                    |                            |           | 51,531       |           |   |           | 45,049     |          
|                                             | Income taxes payable                                                                                         |                            |           | 31,857       |           |   |           | 31,904     |          
|                                             |                                                                                                              |                            |           |              |           |   |           |           
|                                             |                                                                                                              | Total current liabilities  |           |              | 595,647   |   |           |            | 494,554   | 
|Pension and other postretirement liabilities |                                                                                                              |                            | 57,273    |              |           |   | 51,619    |           
|Long-term liabilities                        |                                                                                                              |                            | 168,193   |              |           |   | 180,275   |           
|Long-term debt                               |                                                                                                              |                            | 2,238,183 |              |           |   | 2,346,129 |           
|Minority interest                            |                                                                                                              |                            | 18,419    |              |           |   | 19,353    |           
|Commitments and contingencies (Note 8)       |                                                                                                              |                            |           |              |           |   |           |           
|Shareholders equity:                        |                                                                                                              |                            |           |              |           |   |           |           
|                                             | 6% Series C convertible redeemable preferred
	stock ($491,994 and $674,893 redemption value), $.01 par value |                            |           | 485,371      |           |   |           | 665,809    |          
|                                             | 6% Series D convertible redeemable preferred
	stock ($305,539 and $400,000 redemption value), $.01 par value |                            |           | 296,529      |           |   |           | 388,204    |          
|                                             | Common stock, $.01 par value                                                                                 |                            |           | 3,350        |           |   |           | 2,983      |          
|                                             | Paid-in capital                                                                                              |                            |           | 2,762,327    |           |   |           | 2,448,519  |          
|                                             | Treasury stock                                                                                               |                            |           | (3,360       | )         |   |           | (3,360     | )        
|                                             | Unearned compensation                                                                                        |                            |           | (52          | )         |   |           | (148       | )        
|                                             | Retained deficit                                                                                             |                            |           | (2,181,280   | )         |   |           | (1,946,507 | )        
|                                             | Accumulated other comprehensive income                                                                       |                            |           | 6,097        |           |   |           | 30,888     |          
|                                             |                                                                                                              |                            |           |              |           |   |           |           
|                                             |                                                                                                              | Total shareholders equity |           |              | 1,368,982 |   |           |            | 1,586,388 | 
|                                             |                                                                                                              |                            |           |              |           |   |           |           
|                                             |                                                                                                              | $                          | 4,446,697 |              |           | $ | 4,678,318 |           
|                                             |                                                                                                              |                            |           |              |           |   |           |           




|      |                                                                                                                        
|----- | -----------------------------------------------------------------------------------------------------------------------
|Note: | The December 31, 2000 balance sheet has been
	derived from the audited consolidated financial statements at
	that date.

See notes to condensed consolidated financial
statements.

2



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LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in thousands)


(unaudited)


|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |          |          |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | -------- | -------- | ------- | - | -------- | -------- | -------- | -
|                                                     |                                                                                                                                                      |                                                                   
|                                                     |                                                                                                                                                      | Nine months ended                                                 
|                                                     |                                                                                                                                                      | September 30,                                                     
|                                                     |                                                                                                                                                      |                                                                   
|                                                     |                                                                                                                                                      | 2001                                                               |          | 2000    
|                                                     |                                                                                                                                                      |                                                                    |          |         
|Operating activities:                                |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|                                                     | Net loss                                                                                                                                             |                                                                    | $        | (165,993 | )       |   | $        | (297,682 | )       
|                                                     | Non-cash items:                                                                                                                                      |                                                                    |          |          |         |   |          |          |         
|                                                     |                                                                                                                                                      | Equity in net loss of affiliates, net of taxes                     |          |          | 55,708  |   |          |          | 290,312  |  
|                                                     |                                                                                                                                                      | Minority interest, net of taxes                                    |          |          | (728    | ) |          |          | (1,951   | )
|                                                     |                                                                                                                                                      | Cumulative effect of change in accounting
	principle, net of taxes |          |          | 1,741   |   |          |          |          |  
|                                                     |                                                                                                                                                      | Deferred taxes                                                     |          |          | (8,296  | ) |          |          | 4,728    |  
|                                                     |                                                                                                                                                      | Non-cash interest expense                                          |          |          | 30,259  |   |          |          | 27,552   |  
|                                                     |                                                                                                                                                      | Depreciation and amortization                                      |          |          | 166,067 |   |          |          | 160,578  |  
|                                                     |                                                                                                                                                      | Non-cash interest and investment income                            |          |          |         |   |          |          | (30,512  | )
|                                                     |                                                                                                                                                      | Gain on investments                                                |          |          |         |   |          |          | (70,862  | )
|                                                     | Changes in operating assets and liabilities:                                                                                                         |                                                                    |          |          |         |   |          |          |         
|                                                     |                                                                                                                                                      | Accounts receivable, net                                           |          |          | 5,880   |   |          |          | (11,627  | )
|                                                     |                                                                                                                                                      | Contracts-in-process                                               |          |          | (48,095 | ) |          |          | 143,676  |  
|                                                     |                                                                                                                                                      | Inventories                                                        |          |          | (2,354  | ) |          |          | (9,101   | )
|                                                     |                                                                                                                                                      | Long-term receivables                                              |          |          | (21,513 | ) |          |          | (24,785  | )
|                                                     |                                                                                                                                                      | Deposits                                                           |          |          | 9,300   |   |          |          | 34,085   |  
|                                                     |                                                                                                                                                      | Other current assets and other assets                              |          |          | 24,998  |   |          |          | (8,518   | )
|                                                     |                                                                                                                                                      | Accounts payable                                                   |          |          | 17,189  |   |          |          | (127,002 | )
|                                                     |                                                                                                                                                      | Accrued expenses and other current liabilities                     |          |          | (10,944 | ) |          |          | (9,580   | )
|                                                     |                                                                                                                                                      | Customer advances                                                  |          |          | 55,527  |   |          |          | 12,277   |  
|                                                     |                                                                                                                                                      | Income taxes payable                                               |          |          | (216    | ) |          |          | 17,780   |  
|                                                     |                                                                                                                                                      | Pension and other postretirement liabilities                       |          |          | 5,654   |   |          |          | 3,584    |  
|                                                     |                                                                                                                                                      | Long-term liabilities                                              |          |          | (19,489 | ) |          |          | 12,618   |  
|                                                     |                                                                                                                                                      | Other                                                              |          |          | 442     |   |          |          | (566     | )
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|Net cash provided by operating activities            |                                                                                                                                                      |                                                                    | 95,137   |          |         |   | 115,004  |         
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|Investing activities:                                |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|                                                     | Proceeds from sale leaseback of assets, net                                                                                                          |                                                                    |          | 17,393   |         |   |          |          |         
|                                                     | Capital expenditures                                                                                                                                 |                                                                    |          | (174,418 | )       |   |          | (332,596 | )       
|                                                     | Investments in and advances to affiliates                                                                                                            |                                                                    |          | (26,025  | )       |   |          | (172,539 | )       
|                                                     | Advances repaid by affiliates                                                                                                                        |                                                                    |          |          |         |   |          | 11,184   |         
|                                                     | Proceeds from sale of investments                                                                                                                    |                                                                    |          |          |         |   |          | 97,137   |         
|                                                     | Use and transfer of restricted and segregated cash                                                                                                   |                                                                    |          |          |         |   |          | 187,315  |         
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|Net cash used in investing activities                |                                                                                                                                                      |                                                                    | (183,050 | )        |         |   | (209,499 | )       
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|Financing activities:                                |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|                                                     | Borrowings under revolving credit facilities                                                                                                         |                                                                    |          | 95,000   |         |   |          |          |         
|                                                     | Repayments under term loans                                                                                                                          |                                                                    |          | (81,000  | )       |   |          | (56,250  | )       
|                                                     | Repayments under revolving credit facilities                                                                                                         |                                                                    |          | (110,000 | )       |   |          | (50,000  | )       
|                                                     | Repayments of export-import facility                                                                                                                 |                                                                    |          | (1,073   | )       |   |          | (1,073   | )       
|                                                     | Repayments of other long-term obligations                                                                                                            |                                                                    |          | (1,765   | )       |   |          | (1,004   | )       
|                                                     | Proceeds from other stock issuances                                                                                                                  |                                                                    |          | 13,537   |         |   |          | 20,418   |         
|                                                     | Proceeds from issuance of 6% Series D
	preferred stock, net                                                                                          |                                                                    |          |          |         |   |          | 388,000  |         
|                                                     | Preferred dividends                                                                                                                                  |                                                                    |          | (40,255  | )       |   |          | (45,522  | )       
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|Net cash (used in) provided by financing
	activities |                                                                                                                                                      |                                                                    | (125,556 | )        |         |   | 254,569  |         
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|Increase (decrease) in cash and cash
	equivalents    |                                                                                                                                                      |                                                                    | (213,469 | )        |         |   | 160,074  |         
|Cash and cash equivalents  beginning
	of period     |                                                                                                                                                      |                                                                    | 394,045  |          |         |   | 239,865  |         
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|Cash and cash equivalents  end of
	period           |                                                                                                                                                      | $                                                                  | 180,576  |          |         | $ | 399,939  |         
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|Non-cash activities:                                 |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|                                                     | Unrealized losses on available-for-sale
	securities, net of taxes                                                                                    |                                                                    | $        | (26,979  | )       |   | $        | (7,665   | )       
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|                                                     | Unrealized net gains on derivatives, net of taxes                                                                                                    |                                                                    | $        | 2,360    |         |   |          |          |         
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|                                                     | Conversion of Series A preferred stock to
	common stock                                                                                              |                                                                    |          |          |         |   | $        | 459      |         
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         
|                                                     | Conversion of Series C preferred stock and
	Series D preferred stock to common stock and related
	issuance of additional common shares on conversion |                                                                    | $        | 300,328  |         |   | $        | 75,449   |         
|                                                     |                                                                                                                                                      |                                                                    |          |          |         |   |          |         

See notes to condensed consolidated financial
statements.

3



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##### Table of Contents






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 manufacturing and satellite-based communications
services. Loral has assembled the building blocks necessary to
provide a seamless, global networking capability for the
information age. Loral is organized into three distinct
operating businesses (see Note 9):



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fixed Satellite Services (FSS):Leasing transponder capacity to
	customers for various applications, including broadcasting, news
	gathering, Internet access and transmission, private voice and
	data networks, business television, distance learning and
	direct-to-home television (DTH), through the
	activities of Loral Skynet, Loral CyberStar, Inc. (Loral
	CyberStar), Loral Skynet do Brasil Ltda. (Skynet do
	Brasil), Satélites Mexicanos, S.A. de C.V.
	(Satmex) and Europe*Star Limited
	(Europe*Star);
|
| | Satellite Manufacturing and Technology:Designing and manufacturing satellites
	and space systems and developing satellite technology for a
	broad variety of customers and applications through Space
	Systems/ Loral, Inc. (SS/L); and                                                                                                                                                                                                                                                                                         
|
| | Data Services:Providing managed communications
	networks and Internet and intranet services through Loral
	CyberStar and delivering high-speed broadband data
	communications and business television services through
	CyberStar, L.P. (CyberStar LP).                                                                                                                                                                                                                                                                         

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
such 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 and nine
months ended September 30, 2001 are not necessarily
indicative of the results to be expected for the full year. It
is suggested that these 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.

Reclassifications

Certain reclassifications have been made to
conform prior period amounts to the current period presentation.

4



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3)  Comprehensive Loss

The components of comprehensive loss for the nine
months ended September 30, 2001 and 2000 are as follows (in
thousands):

|                                                                            |  |      |          |      |  |   |          |  
|--------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                                                            |  | 2001 |          | 2000
|                                                                            |  |      |          |     
|Net loss                                                                    |  | $    | (165,993 | )    |  | $ | (297,682 | )
|Cumulative translation adjustment                                           |  |      | (171     | )    |  |   | (1,327   | )
|Unrealized net gains on derivatives, net of taxes
	(see Note 10)            |  |      | 2,360    |      |  |   |          |  
|Unrealized losses on available-for-sale
	securities, net of taxes           |  |      | (26,979  | )    |  |   | (7,665   | )
|Less: realized gains on available-for-sale
	securities included in net loss |  |      |          |      |  |   | (69,732  | )
|                                                                            |  |      |          |      |  |   |          |  
|Comprehensive loss                                                          |  | $    | (190,783 | )    |  | $ | (376,406 | )
|                                                                            |  |      |          |      |  |   |          |  

4)  Contracts-in-Process

|                           |                      |                |         |              |  |   |         |         | 
|-------------------------- | -------------------- | -------------- | ------- | ------------ |  | - | ------- | ------- | 
|                           |                      | September 30,  |         | December 31,
|                           |                      | 2001           |         | 2000        
|                           |                      |                |         |             
|                           |                      |               
|                           |                      | (in thousands)
|U.S. government contracts: |                      |                |         |              |  |   |         |        
|                           | Amounts billed       |                | $       | 12,029       |  |   | $       | 8,285   | 
|                           | Unbilled receivables |                |         | 779          |  |   |         | 4,098   | 
|                           |                      |                |         |              |  |   |         |        
|                           |                      |                | 12,808  |              |  |   | 12,383  |        
|                           |                      |                |         |              |  |   |         |        
|Commercial contracts:      |                      |                |         |              |  |   |         |        
|                           | Amounts billed       |                |         | 117,330      |  |   |         | 50,587  | 
|                           | Unbilled receivables |                |         | 91,476       |  |   |         | 117,898 | 
|                           |                      |                |         |              |  |   |         |        
|                           |                      |                | 208,806 |              |  |   | 168,485 |        
|                           |                      |                |         |              |  |   |         |        
|                           |                      | $              | 221,614 |              |  | $ | 180,868 |        
|                           |                      |                |         |              |  |   |         |        

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

5



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5)  Investments in and Advances to
Affiliates

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

|                                                                          |                                                                                                                                                        |               |         |              |  |   |         |        | 
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------- | ------- | ------------ |  | - | ------- | ------ | 
|                                                                          |                                                                                                                                                        | September 30, |         | December 31,
|                                                                          |                                                                                                                                                        | 2001          |         | 2000        
|                                                                          |                                                                                                                                                        |               |         |             
|Globalstar:                                                               |                                                                                                                                                        |               |         |              |  |   |         |       
|                                                                          | Acquired notes and loans ($615 million and
	$572 million principal and accrued interest as of
	September 30, 2001 and December 31, 2000, respectively) |               | $       | 10,053       |  |   | $       | 50,267 | 
|                                                                          | Vendor financing ($239 million and
	$229 million principal and accrued interest as of
	September 30, 2001 and December 31, 2000, respectively)         |               |         |             |  |   |         |       | 
|Globalstar service provider partnerships equity
	investments and advances |                                                                                                                                                        |               | 254     |              |  |   | 11,400  |       
|Satmex equity investments                                                 |                                                                                                                                                        |               | 75,537  |              |  |   | 84,290  |       
|Europe*Star equity investments and advances                               |                                                                                                                                                        |               | 92,023  |              |  |   | 104,593 |       
|Other affiliate equity investments                                        |                                                                                                                                                        |               | 3,210   |              |  |   | 1,108   |       
|                                                                          |                                                                                                                                                        |               |         |              |  |   |         |       
|                                                                          |                                                                                                                                                        | $             | 181,077 |              |  | $ | 251,658 |       
|                                                                          |                                                                                                                                                        |               |         |              |  |   |         |       

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. Accordingly,
Loral has discontinued providing for its allocated share of
Globalstars net losses beginning in 2001. 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.

The Company has contingent liabilities of
approximately $19 million in connection with Globalstar
service provider partnerships.

Equity in net income (loss) of affiliates
consists of (in thousands):

|                                                                       |  |                   |         |      |  |   |          |  
|---------------------------------------------------------------------- |  | ----------------- | ------- | ---- |  | - | -------- | -
|                                                                       |  |                  
|                                                                       |  | Nine months ended
|                                                                       |  | September 30,    
|                                                                       |  |                  
|                                                                       |  | 2001              |         | 2000
|                                                                       |  |                   |         |     
|Globalstar and Globalstar service provider
	partnerships, net of taxes |  | $                 | (27,023 | )    |  | $ | (301,922 | )
|Satmex                                                                 |  |                   | (8,804  | )    |  |   | 16,631   |  
|Europe*Star                                                            |  |                   | (18,584 | )    |  |   | (3,814   | )
|Other affiliates, net of taxes                                         |  |                   | (1,297  | )    |  |   | (1,207   | )
|                                                                       |  |                   |         |      |  |   |          |  
|                                                                       |  | $                 | (55,708 | )    |  | $ | (290,312 | )
|                                                                       |  |                   |         |      |  |   |          |  

6



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



5)  Investments in and Advances to
Affiliates  (Continued)


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

|                                                                                                              |  |                   |        |      |  |   |         | 
|------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ---- |  | - | ------- | 
|                                                                                                              |  |                  
|                                                                                                              |  | Nine months ended
|                                                                                                              |  | September 30,    
|                                                                                                              |  |                  
|                                                                                                              |  | 2001              |        | 2000
|                                                                                                              |  |                   |        |     
|Revenues                                                                                                      |  | $                 | 75,107 |      |  | $ | 110,463 | 
|Interest and investment income                                                                                |  |                   | 883    |      |  |   | 48,000  | 
|Interest expense capitalized on development stage
	enterprises                                                |  |                   |        |      |  |   | 3,543   | 
|Elimination of Lorals proportionate share
	of intercompany profits                                           |  |                   | 1,100  |      |  |   | 4,142   | 
|Amortization of excess carrying value,
	capitalized interest and intercompany profits related to
	investments |  |                   | (381   | )    |  |   | 22,253  | 

6)  Long Term Debt

|                                                                                                       |                                                                                                                                                                                                            |                |           |              |  |   |           |         | 
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | --------- | ------------ |  | - | --------- | ------- | 
|                                                                                                       |                                                                                                                                                                                                            | September 30,  |           | December 31,
|                                                                                                       |                                                                                                                                                                                                            | 2001           |           | 2000        
|                                                                                                       |                                                                                                                                                                                                            |                |           |             
|                                                                                                       |                                                                                                                                                                                                            |               
|                                                                                                       |                                                                                                                                                                                                            | (in thousands)
|Term loan, 7.23% and 10.45% at September 30,
	2001 and December 31, 2000, respectively                 |                                                                                                                                                                                                            | $              | 294,000   |              |  | $ | 300,000   |        
|Revolver, 6.73% and 9.95% at September 30,
	2001 and December 31, 2000, respectively                   |                                                                                                                                                                                                            |                | 160,000   |              |  |   | 200,000   |        
|Term loan facility, 3.06% and 7.04% at
	September 30, 2001 and December 31, 2000 respectively          |                                                                                                                                                                                                            |                | 100,000   |              |  |   | 175,000   |        
|Revolving credit facility, 3.06% and 7.04% at
	September  30, 2001 and December 31, 2000, respectively |                                                                                                                                                                                                            |                | 445,000   |              |  |   | 420,000   |        
|9.50% Senior notes due 2006                                                                            |                                                                                                                                                                                                            |                | 350,000   |              |  |   | 350,000   |        
|Export-Import credit facility                                                                          |                                                                                                                                                                                                            |                | 9,653     |              |  |   | 10,726    |        
|Other                                                                                                  |                                                                                                                                                                                                            |                | 560       |              |  |   | 576       |        
|Non-recourse debt of Loral CyberStar:                                                                  |                                                                                                                                                                                                            |                |           |              |  |   |           |        
|                                                                                                       | 11.25% Senior notes due 2007 (principal amount
	$443 million)                                                                                                                                              |                |           | 490,229      |  |   |           | 495,377 | 
|                                                                                                       | 12.50% Senior discount notes due 2007 (principal
	amount at maturity $484 million and accreted principal amount
	$467 million and $427 million at September 30, 2001 and
	December 31, 2000, respectively) |                |           | 527,250      |  |   |           | 491,841 | 
|                                                                                                       | Other                                                                                                                                                                                                      |                |           | 11,574       |  |   |           | 13,324  | 
|                                                                                                       |                                                                                                                                                                                                            |                |           |              |  |   |           |        
|Total debt                                                                                             |                                                                                                                                                                                                            |                | 2,388,266 |              |  |   | 2,456,844 |        
|Less, current maturities                                                                               |                                                                                                                                                                                                            |                | 150,083   |              |  |   | 110,715   |        
|                                                                                                       |                                                                                                                                                                                                            |                |           |              |  |   |           |        
|                                                                                                       |                                                                                                                                                                                                            | $              | 2,238,183 |              |  | $ | 2,346,129 |        
|                                                                                                       |                                                                                                                                                                                                            |                |           |              |  |   |           |        

Loral
CyberStar Exchange Offer

In October 2001, Loral CyberStar announced that
it will conduct a debt-for-debt exchange offer for its
11 1/4% Senior Notes due 2007 and its 12  1/2% Senior
Discount Notes due 2007, that would substantially reduce the
principal amount of Loral CyberStars outstanding debt
obligations. Loral CyberStar has in the aggregate $443 million
principal amount of senior notes outstanding and $484 principal
amount of senior discount notes outstanding as of
September 30, 2001.

7



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6)  Long Term Debt 
(Continued)

In the exchange offer, for every $1,000 principal
amount of senior notes, plus accrued interest tendered and
accepted for exchange, each holder will receive
(i) $750.247 principal amount of new Loral CyberStar 10%
Senior Notes due 2006, guaranteed by Loral and
(ii) warrants to purchase 7.40 shares of common stock of
Loral.

For every $1,000 principal amount of senior
discount notes tendered and accepted for exchange, each holder
will receive (i) $707.935 principal amount of Loral
CyberStars 10% Senior Notes due 2006, guaranteed by Loral
and (ii) warrants to purchase 6.98 shares of common stock
of Loral.

If the exchange offer is accepted in full,
holders will receive an aggregate of $675 million of new notes,
and warrants to purchase 6,657,096 shares of common stock of
Loral at 110% of the market price of Loral common stock
calculated over a 10 day period prior to closing of the
exchange offer. The indenture governing the new senior notes
offered under the exchange offer is expected to have more
restrictive limitations on Loral CyberStars ability to
incur additional debt and use assets as collateral for
indebtedness, as compared to the existing indentures of Loral
CyberStar.

By tendering their existing notes, holders will
also be consenting to the proposed amendments to the senior note
indenture and the senior discount note indenture to eliminate
substantially all of the covenants and events of default that
may be removed by majority consent of the holders consistent
with the applicable indentures and the requirements of the Trust
Indenture Act of 1939, as amended. Rights to receive principal
and interest on the existing notes not tendered will not be
impaired.

The exchange offer is subject to certain
conditions including, among other things, receiving tenders of
at least 85% in principal amount of the existing notes. To date,
holders of 50.29% of the existing notes (representing 49.04% in
principal amount of the senior notes and 51.43% in principal
amount of the senior discount notes) have agreed to tender their
notes and consent to the amendment of the indentures governing
any notes not tendered for exchange.

Assuming the exchange offer is accepted in full,
Lorals annual cash interest payments will be reduced by
approximately $43 million to $67.5 million. Further,
under generally accepted accounting principles dealing with debt
restructurings, the Company will recognize a gain of only
approximately $15 million after taxes upon completion of
the transaction and the carrying value of the new notes on the
balance sheet will be approximately $996 million, although
the actual principal amount of the new notes will be
$675 million. The difference between this carrying value
and the actual principal amount of the new notes will fully
offset interest expense over the life of the new notes.

The securities to be issued to public bondholders
in the exchange offer will be offered or sold pursuant to a
registration statement to be filed with the Securities and
Exchange Commission.

7)  Loss Per Share

Basic loss per share is computed based upon the
weighted average number of shares of common stock and the
Series A Preferred Stock outstanding in 2000. For the three
and nine months ended September 30, 2001 and 2000, diluted
loss per share excludes the assumed conversion of the
Companys Series C convertible redeemable preferred
stock (the Series C Preferred Stock) and its
Series D convertible redeemable preferred stock (the
Series D Preferred Stock) into shares of common
stock, as their effect would have been antidilutive. Weighted
options equating to approximately 0.5 million and 0.3 million
shares of common stock for the nine months ended
September 30, 2001 and 2000, 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.

8



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7)  Loss Per Share 
(Continued)

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

|             |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|------------ | -------------------------------------------------------------------------------------------- | ------------------------ | - | ----------------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|             |                                                                                              |                          |   |                  
|             |                                                                                              | Three months ended       |   | Nine months ended
|             |                                                                                              | September 30,            |   | September 30,    
|             |                                                                                              |                          |   |                  
|             |                                                                                              | 2001                     |   | 2000              |         | 2001 |   | 2000   
|             |                                                                                              |                          |   |                   |         |      |   |        
|Numerator:   |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |        
|             | Loss before cumulative effect of change in
	accounting principle                             |                          | $ | 52,288            |         |      | $ | 80,737  |         |  | $ | 164,252 |         |  | $ | 297,682 |        
|             | Cumulative effect of change in accounting
	principle, net of taxes                           |                          |   |                   |         |      |   |         |         |  |   | 1,741   |         |  |   |         |        
|             |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |        
|             | Net loss                                                                                     |                          |   | 52,288            |         |      |   | 80,737  |         |  |   | 165,993 |         |  |   | 297,682 |        
|             | Preferred dividends                                                                          |                          |   | 11,963            |         |      |   | 15,923  |         |  |   | 68,780  |         |  |   | 51,404  |        
|             |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |        
|             | Numerator for basic and diluted loss per
	share  net loss applicable to common stockholders |                          | $ | 64,251            |         |      | $ | 96,660  |         |  | $ | 234,773 |         |  | $ | 349,086 |        
|             |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |        
|Denominator: |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |        
|             | Weighted average shares:                                                                     |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |         |        
|             |                                                                                              | Common stock             |   |                   | 333,745 |      |   |         | 296,580 |  |   |         | 319,754 |  |   |         | 280,126 | 
|             |                                                                                              | Series A preferred stock |   |                   |         |      |   |         |         |  |   |         |         |  |   |         | 15,131  | 
|             |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |        
|             | Denominator for basic and diluted loss per share                                             |                          |   | 333,745           |         |      |   | 296,580 |         |  |   | 319,754 |         |  |   | 295,257 |        
|             |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |        
|             | Basic and diluted loss per share                                                             |                          | $ | 0.19              |         |      | $ | 0.33    |         |  | $ | 0.73    |         |  | $ | 1.18    |        
|             |                                                                                              |                          |   |                   |         |      |   |         |         |  |   |         |         |  |   |        

The cumulative effect of the change in accounting
principle did not affect the Companys loss per share
calculation (see Note 10).

On April 16, 2001, the Company completed
exchange offers for its Series C Preferred Stock and its
Series D Preferred Stock. As a result, 3.7 million shares
of its Series C Preferred Stock and 1.9 million shares of
its Series D Preferred Stock were tendered and exchanged
(representing approximately 27% and 24%, respectively, of the
outstanding shares of the two issues) into 30.9 million shares
of the Companys common stock. Loral incurred non-cash
dividend charges in the second quarter of 2001 of approximately
$29 million, which primarily relates to the difference between
the value of the common stock issued in the exchange offers and
the value of the shares that were issuable under the conversion
terms of the preferred stock. The non-cash dividend charges had
no impact on Lorals total shareholders equity as the
offset was an increase in common stock and paid-in capital. In
addition, Loral will save approximately $17 million annually in
preferred dividend payments and will avoid approximately $277
million in mandatory redemptions in 2006 and 2007.

During the first quarter of 2000, all of the
Companys Series A preferred stock and 1.4 million shares
of its Series C Preferred Stock were converted into the
Companys common stock.

8)  Commitments and
Contingencies

Loral Skynet has entered into prepaid leases and
sales contracts 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 (twelve
transponders), and the lease term, in the case of the prepaid
leases (nine transponders). Depending on the contract, Loral
Skynet may be required to replace transponders which do not meet
operating specifications. All customers are entitled to a refund
equal to the reimbursement value if there is no replacement. In

9



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



8)  Commitments and
Contingencies  (Continued)


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.

Twelve of the satellites built by SS/ L and
launched since 1997, five 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. 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. 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 is implementing remedial 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 delays 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 late 1998, following the launch of an SS/
L-built satellite sold to PanAmSat, a manufacturing error was
discovered that affected the geographical coverage of the
Ku-band transponders on the satellite. On January 6, 2000,
PanAmSat filed an arbitration proceeding in connection with this
error claiming damages of $225 million for lost profits and
increased sales and marketing costs. On May 25, 2001, the
Company settled this matter with PanAmSat. The charge for the
settlement was fully provided for in 2000.

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. SS/L believes that this
failure is an isolated event and does not reflect a systemic
problem in either the satellite design or manufacturing process.
Accordingly, the Company does not believe that this anomoly will
affect other on-orbit satellites built by SS/L. The Company is
currently providing the basis for this conclusion to its
insurance underwriters. However, in connection with the renewal
of the insurance for the Companys Telstar 10/
Apstar IIR satellite in October 2001, the insurance
underwriters have excluded losses due to solar array failures.
While the Company anticipates that this exclusion will be
removed upon further review by the insurance underwriters, there
can be no assurance that this exclusion will be removed or that
future renewals of insurance on other Company satellites will
not be subject to a similar exclusion.

SS/ L is a party to an Operational Agreement with
Alcatel Space Industries (Alcatel Space) pursuant to
which the parties cooperate on certain satellite programs. In
addition, pursuant to an Alliance Agreement with SS/ L, for so
long as it continues to hold at least 81.6% of the Loral
securities that it acquired in 1997 in exchange for SS/ L stock
that it previously owned, Alcatel has certain rights, including
two representatives on SS/ Ls seven-member board of
directors, and certain actions require the approval of its board
representatives. Alcatel Space also has certain rights to
purchase SS/ L shares at fair market value in the event of a
change of

10



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



8)  Commitments and
Contingencies  (Continued)


control (as defined) of either Loral or SS/ L,
including the right to use its Loral holdings as part of the SS/
L purchase price. These agreements are terminable upon
one-years notice by either party, and SS/ L gave the
one-year notice to Alcatel Space on February 22, 2001.
Alcatel Space filed suit on March 16, 2001 in the United
States District Court for the Southern District of New York
against Loral and SS/ L alleging various breaches of the
agreements, seeking declaratory and injunctive relief to enforce
its rights thereunder and challenging the effectiveness of the
termination. On April 26, 2001, the District Court issued
its decision (i) granting on consent the Companys
motion to compel arbitration and (ii) granting in part
Alcatels motion for a preliminary injunction by requiring
that the Company continue to comply with the agreements pending
resolution of the arbitration, or the expiration of the
agreements, whichever occurs earlier. The District Court also
held that the issue of the termination of the agreements is a
matter that is to be decided in arbitration, as required by the
agreements. The arbitration has commenced. In the arbitration,
in addition to challenging the effectiveness of the termination,
Alcatel has asserted, and is seeking $300 million in damages in
respect of, various alleged breaches of the agreements. The
Company believes that it will prevail on the termination issue,
that the claims for damages are without merit and that this
matter will not have a material adverse effect on the
consolidated financial position or results of operations of
Loral.

SS/ L was informed in 1998 that it was a target
of a grand jury investigation being conducted by the office of
the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have
occurred in connection with the participation of SS/ L employees
on a committee formed in the wake of the 1996 crash of a Long
March rocket in China and whose purpose was to consider whether
studies of the crash made by the Chinese had correctly
identified the cause of the failure. The Company is not in a
position to predict the direction or outcome of the
investigation. If SS/ L were to be indicted and convicted of a
criminal violation of the Arms Export Control Act, it would be
subject to a fine of $1 million per violation and could be
debarred from certain export privileges and, possibly, from
participation in government contracts. Since many of SS/
Ls satellites are built for foreign customers and/or
launched on foreign rockets, such a debarment would have a
material adverse effect on SS/ Ls business and, therefore,
the Company. Indictment for such violations would subject SS/ L
to discretionary debarment from further export licenses. Under
the applicable regulations, SS/ L could be debarred from export
privileges without being convicted of any crime if it is
indicted for these alleged violations, and loss of export
privileges would harm SS/ Ls business. Whether or not SS/
L is indicted or convicted, SS/ L remains subject to the State
Departments general statutory authority to prohibit
exports of satellites and related services if it finds a
violation of the Arms Export Control Act that puts SS/ Ls
reliability in question, and it can suspend export privileges
whenever it determines that grounds for debarment exist and that
such suspension is reasonably necessary to protect world
peace or the security or foreign policy of the United
States.

As far as SS/ L can determine, no sensitive
information or technology was conveyed to the Chinese, and no
secret or classified information was discussed with or reported
to them. SS/ L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct.
Accordingly, the Company does not believe that SS/ L has
committed a criminal violation of the export control laws. The
Company does not expect the grand jury investigation or its
outcome to result in a material adverse effect upon its
business. However, there can be no assurance as to these
conclusions.

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. According to ODTC, the purpose of the
temporary suspension was to permit that agency to review the
agreement for conformity with then newly-enacted legislation
(Section 74 of the Arms Export Control Act) with respect to
the export of missile equipment and technology. 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

11



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



8)  Commitments and
Contingencies  (Continued)


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. SS/ L and the State
Department are now in discussions regarding SS/ Ls
obtaining the approvals required for the launch of ChinaSat-8.

In December 1999, SS/ L reached an agreement
with ChinaSat to extend the date for delivery of the ChinaSat-8
satellite to July 31, 2000. In return for this extension
and other modifications to the contract, SS/L provided to
ChinaSat two 36 MHz and one 54 MHz transponders on Telstar 10/
Apstar IIR for ChinaSats use for the life of those
transponders. As a result, SS/ L recorded a charge to earnings
of $35 million in 1999. If ChinaSat were to terminate its
contract with SS/ L as a result of these delays, SS/ L may have
to refund $134 million in advances received from ChinaSat
and may incur penalties of up to $11 million and believes 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. To the extent that
SS/ L is able to recover some or all of its $52 million
deposit payment on the Chinese launch vehicle, this recovery
would offset a portion of such payments. 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.

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. Delays in
obtaining the necessary licenses and technical assistance
agreements may result in the cancellation of, or delay
SS/Ls performance on, existing contracts, and, as a
result, SS/L may incur penalties or lose incentive payments
under these contracts.

Under an agreement reached with Eutelsat, Loral
CyberStar agreed to operate Telstar 12, which was originally
intended to operate at 12 degrees W.L., at 15 degrees W.L. while
Eutelsat continued to develop its services at 12.5 degrees W.L.
Eutelsat has in turn agreed not to use its 14.8 degrees W.L.
orbital slot and will assert its priority rights over such
location on Loral CyberStars behalf. As part of this
coordination effort, Loral CyberStar agreed to provide to
Eutelsat four transponders on Telstar 12 for the life of the
satellite and has retained risk of loss with respect to such
transponders. Eutelsat also has the right to acquire, at cost,
four transponders on the next replacement satellite for Telstar
12. As part of the international coordination process, Loral
continues to conduct discussions with various administrations
regarding Telstar 12s operations at 15 degrees W.L.
If these discussions are not successful, Telstar 12s
useable capacity may be reduced.

The Company estimated the recovery of certain
insurance proceeds in its 2000 consolidated financial statements
in connection with an insurance claim with its insurance carrier
and received the proceeds in May 2001.

Globalstar Related Matters.Loral holds debt obligations from
Globalstar (see Note 5). In a bankruptcy or restructuring
proceeding involving Globalstar, challenges could be initiated
seeking subordination or recharacterization of the debt Loral
holds from Globalstar. While we know 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 any restructuring or bankruptcy proceeding involving
Globalstar. Moreover, there can be no assurance that actions
will not be initiated in a Globalstar bankruptcy proceeding to
characterize payments previously made by Globalstar to Loral as
preferential payments subject to repayment. Loral also may be
subject to other claims brought by Globalstar creditors and
securities holders, who may seek to impose liabilities on the
Company as a result of the Companys relationships with
Globalstar.

On February 28, 2001, plaintiff Eric Eismann
filed a purported class action complaint against Globalstar
Telecommunications Limited (GTL) in the United
States District Court for the Southern District of New York. The
other defendants named in the complaint are Loral Space &
Communications Ltd. and Bernard

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



8)  Commitments and
Contingencies  (Continued)


Schwartz. The complaint alleges that (a) GTL
and Mr. Schwartz 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
GTLs business and prospects; and (b) that Loral and
Mr. Schwartz are secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as alleged controlling persons of GTL.
The class of plaintiffs on whose behalf this lawsuit has been
asserted consists of all buyers of GTL common stock from
December 6, 1999 through October 27, 2000, excluding
the defendants and certain persons related or affiliated
therewith (the Excluded Persons).

Eighteen additional purported class action
complaints have been filed in the United States District Court
for the Southern District of New York by plaintiffs Chaim Kraus,
L.A. Murphy, Eddie Maiorino, Damon Davis, Iskander Batyrev,
Shelly Garfinkel, Sequoia Land Development and Phil Sigel,
Michael Ceasar as Trustee for Howard Gunty Profit Sharing Plan,
Colin Barry, James D. Atlas, Lawrence Phillips, Kent A.
Hillemeir, Sarah Harman, Pablo Lozza, Joseph and Eudice Meyers,
The 60223 Trust, Antonio and Lucia Maddalena and Chaim Troman on
each of March 2, March 2, March 6, March 7,
March 7, March 9, March 16, March 21,
March 21, March 22, March 23, March 28,
March 28, April 2, April 3, April 11,
April 27, and May 1, 2001, respectively. These
complaints allege claims against GTL, Loral, and
Mr. Schwartz (and, in the case of the Sequoia, Atlasand Meyerscomplaints, two additional individual
defendants, Messrs. Navarra and DeBlasio) that are
substantially identical to those set forth in the Eismannaction. The class of plaintiffs on whose behalf these
lawsuits have been allegedly asserted are: with respect to the
Kraus, Davis, Maiorino, Batyrev, Ceasar, Phillips, Hillemeir,
Harmanand The 60223 Trustactions, buyers of GTL
common stock in the period from December 6, 1999, through
October 27, 2000; with respect to the Murphy, Barryand Tromanactions, buyers of GTL securities in the
period from December 6, 1999, through October 27,
2000; with respect to the Sequoia/ Sigel, Atlasand
Meyersactions, buyers of GTL common stock in the period
from December 6, 1999, through July 19, 2000; with
respect to the Garfinkeland Lozzaactions, buyers
of GTL debt securities in the period from December 6, 1999,
through October 27, 2000; and with respect to the
Maddalenaaction, buyers of GTL securities in the period
from October 11, 1999 through October 27, 2000. In
each case, the Excluded Persons are excepted from the class.

On May 22, 2001, plaintiffs Philip J. Hage,
Jr. and Ron Maggiaro filed a purported class action complaint
against Loral in the United States District Court for the
Southern District of New York. The other defendants named in the
complaint are Bernard Schwartz and Richard Townsend. The
complaint alleges that (a) the 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 Globalstars and
Lorals business and prospects; and (b) that
Messrs. Schwartz and Townsend are secondarily liable for
these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as alleged
controlling persons of Loral. The class of
plaintiffs on whose behalf this lawsuit has been asserted
consists of all buyers of Loral common stock from
November 4, 1999 through February 1, 2001, excluding
the defendants and certain persons related or affiliated
therewith.

Six additional purported class action complaints
have been filed in the United States District Court for the
Southern District of New York by plaintiffs Merchants TNS
Pension Trust, Laura S. Dalton, Michael T. Benson,
Marilyn Funt and Trident, Ltd., Profit Sharing Plan, Alexander
Igdalski and James Dwyer on May 25, May 29,
June 1, June 6, June 28, and July 23, 2001
respectively. These complaints allege claims against Loral and
Messrs. Schwartz and Townsend that are substantially
identical to those set forth in the Hage action, and the
class of plaintiffs on whose behalf these lawsuits have been
asserted is the same as the purported class in the Hage
action.

Loral believes that it has meritorious defenses
to the above Globalstar Related Matters and intends to pursue
them vigorously.

13



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



8)  Commitments and
Contingencies  (Continued)


In May 2000, Globalstar finalized $531.1
million of vendor financing arrangements (including $31.1
million of capitalized interest as of May 2000) 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
September 30, 2001, $598 million was outstanding under this
facility (including $98 million of capitalized interest).

Loral has agreed that if the principal amount
(excluding capitalized interest of $98 million at
September 30, 2001) 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 September 30, 2001, Loral had no
guarantee obligation.

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.

9)  Segments

Loral is organized into three distinct operating
businesses: fixed satellite services, satellite manufacturing
and technology and data services (see Note 1).

In evaluating financial performance, management
uses revenues and earnings before interest, taxes, depreciation
and amortization (EBITDA) as the measure of a
segments profit or loss. Segment results include the
results of its subsidiaries and its affiliates, Satmex and
Europe*Star, which are accounted for using the equity method in
these condensed consolidated financial statements. Intersegment
revenues primarily consist of satellites under construction by
satellite manufacturing and technology for fixed satellite
services and the leasing of transponder capacity by satellite
manufacturing and technology and data services from fixed
satellite services. In 2001, the Company no longer considered
global mobile telephone service to be a reportable segment and
has excluded it from its segment presentation and restated the
information for 2000 accordingly.

14



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9)  Segments 
(Continued)


Summarized financial information concerning
Lorals reportable segments is as follows (in millions):

Three Months Ended September 30,
2001

|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|----------------------------------------------------------------- |  | ----------- | ------- | ------------- |  | ----------- | ------- | ------------ |  | ----- | ----- | - |  | - | ----- | - |  | - | -------- | -
|                                                                  |  |             |         | Satellite     |  |             |         |              |  |      
|                                                                  |  | Fixed       |         | Manufacturing |  |             |         |              |  |      
|                                                                  |  | Satellite   |         | And           |  | Data        |         |              |  |      
|                                                                  |  | Services(1) |         | Technology(2) |  | Services(3) |         | Corporate(4) |  | Total
|                                                                  |  |             |         |               |  |             |         |              |  |      
|Revenues and EBITDA:                                              |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Revenues from external customers                                  |  | $           | 124.7   |               |  | $           | 132.9   |              |  | $     | 22.3  |   |  |   |       |   |  | $ | 279.9    |  
|Intersegment revenues                                             |  |             | 9.9     |               |  |             | 50.0    |              |  |       | 0.1   |   |  |   |       |   |  |   | 60.0     |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Operating segment revenues                                        |  | $           | 134.6   |               |  | $           | 182.9   |              |  | $     | 22.4  |   |  |   |       |   |  |   | 339.9    |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Revenues of unconsolidated
	affiliates(5)                         |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   | (34.8    | )
|Intercompany revenues(6)                                          |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   | (44.0    | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Operating revenues as reported                                    |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  | $ | 261.1    |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Segment EBITDA before eliminations                                |  | $           | 86.6    |               |  | $           | 1.3     |              |  | $     | (2.6  | ) |  | $ | (11.9 | ) |  | $ | 73.4     |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|EBITDA of unconsolidated affiliates(5)                            |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   | (15.5    | )
|Intercompany EBITDA(6)                                            |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   | (8.5     | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|EBITDA(7)                                                         |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   | 49.4     |  
|Depreciation and amortization(8)                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   | (56.4    | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Operating loss                                                    |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  | $ | (7.0     | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Other Data:                                                       |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Depreciation and amortization before affiliate
	eliminations(8)   |  | $           | 58.8    |               |  | $           | 9.6     |              |  | $     | 6.7   |   |  | $ | 0.5   |   |  | $ | 75.6     |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Depreciation and amortization of unconsolidated
	affiliates(5)(8) |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   | (19.2    | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Depreciation and amortization(8)                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  | $ | 56.4     |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Total assets before affiliate eliminations                        |  | $           | 4,125.8 |               |  | $           | 1,165.4 |              |  | $     | 182.1 |   |  | $ | 449.2 |   |  | $ | 5,922.5  |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Total assets of unconsolidated affiliates
	(5)                    |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   | (1,475.8 | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  
|Total assets                                                      |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  | $ | 4,446.7  |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |       |   |  |   |          |  

15



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9)  Segments 
(Continued)




---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 100% of Europe*Stars and
	Satmexs revenues and EBITDA (Europe*Star commenced revenue
	service in 2001). Also includes Lorals subsidiary, Loral
	Skynet do Brasil since November  2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(2) | Satellite manufacturing and technology consists
	of 100% of SS/ Ls results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | Data services consists of 100% of CyberStar LP
	and Loral CyberStars data services business. Equipment
	sales for data services were $2.0 million and $2.3 million for
	the three months ended September 30, 2001 and 2000
	respectively, and $5.9 million and $8.8 million for the nine
	months ended September 30, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                    
|   
|(4) | Represents corporate expenses incurred in support
	of the Companys operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(5) | Represents amounts related to unconsolidated
	affiliates (Satmex and Europe*Star), which are eliminated in
	order to arrive at Lorals consolidated results.
	Lorals proportionate share of these affiliates is included
	in equity in net loss of affiliates, net of taxes in
	Lorals consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(6) | Represents the elimination of intercompany sales
	and EBITDA, primarily for satellites under construction by SS/ L
	for wholly-owned subsidiaries; as well as eliminating revenues
	for the lease of transponder capacity by satellite manufacturing
	and technology and data services from fixed satellite services.                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(7) | 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.
|   
|(8) | Includes amortization of unearned stock
	compensation charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

16



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9)  Segments 
(Continued)


Nine Months Ended September 30,
2001

|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|----------------------------------------------------------------- |  | ----------- | ----- | ------------- |  | ----------- | ----- | ------------ |  | ----- | ----- | - |  | - | ----- | - |  | - | ------- | -
|                                                                  |  |             |       | Satellite     |  |             |       |              |  |      
|                                                                  |  | Fixed       |       | Manufacturing |  |             |       |              |  |      
|                                                                  |  | Satellite   |       | And           |  | Data        |       |              |  |      
|                                                                  |  | Services(1) |       | Technology(2) |  | Services(3) |       | Corporate(4) |  | Total
|                                                                  |  |             |       |               |  |             |       |              |  |      
|Revenues and EBITDA:                                              |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Revenues from external customers                                  |  | $           | 360.5 |               |  | $           | 403.7 |              |  | $     | 77.1  |   |  |   |       |   |  | $ | 841.3   |  
|Intersegment revenues                                             |  |             | 36.8  |               |  |             | 192.3 |              |  |       | 0.1   |   |  |   |       |   |  |   | 229.2   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Operating segment revenues                                        |  | $           | 397.3 |               |  | $           | 596.0 |              |  | $     | 77.2  |   |  |   |       |   |  |   | 1,070.5 |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Revenues of unconsolidated
	affiliates(5)                         |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (106.3  | )
|Intercompany revenues(6)                                          |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (167.1  | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Operating revenues as reported                                    |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  | $ | 797.1   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Segment EBITDA before eliminations                                |  | $           | 260.0 |               |  | $           | 36.3  |              |  | $     | (16.2 | ) |  | $ | (33.8 | ) |  | $ | 246.3   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|EBITDA of unconsolidated affiliates(5)                            |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (54.1   | )
|Intercompany EBITDA(6)                                            |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (22.4   | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|EBITDA(7)                                                         |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | 169.8   |  
|Depreciation and amortization(8)                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (166.0  | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Operating income                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  | $ | 3.8     |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Other Data:                                                       |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Depreciation and amortization before affiliate
	eliminations(8)   |  | $           | 171.2 |               |  | $           | 27.2  |              |  | $     | 18.9  |   |  | $ | 1.6   |   |  | $ | 218.9   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Depreciation and amortization of unconsolidated
	affiliates(5)(8) |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (52.9   | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Depreciation and amortization(8)                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  | $ | 166.0   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  

17



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9)  Segments 
(Continued)


Three Months Ended September 30,
2000

|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|----------------------------------------------------------------- |  | ----------- | ------- | ------------- |  | ----------- | ------- | ------------ |  | ----- | ----- | - |  | - | ------- | - |  | - | -------- | -
|                                                                  |  |             |         | Satellite     |  |             |         |              |  |      
|                                                                  |  | Fixed       |         | Manufacturing |  |             |         |              |  |      
|                                                                  |  | Satellite   |         | And           |  | Data        |         |              |  |      
|                                                                  |  | Services(1) |         | Technology(2) |  | Services(3) |         | Corporate(4) |  | Total
|                                                                  |  |             |         |               |  |             |         |              |  |      
|Revenues and EBITDA:                                              |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Revenues from external customers                                  |  | $           | 101.3   |               |  | $           | 170.9   |              |  | $     | 28.5  |   |  |   |         |   |  | $ | 300.7    |  
|Intersegment revenues                                             |  |             | 13.4    |               |  |             | 56.9    |              |  |       | 0.6   |   |  |   |         |   |  |   | 70.9     |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Operating segment revenues                                        |  | $           | 114.7   |               |  | $           | 227.8   |              |  | $     | 29.1  |   |  |   |         |   |  |   | 371.6    |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Revenues of unconsolidated Affiliates
	(5)                        |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   | (35.0    | )
|Intercompany revenues(6)                                          |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   | (44.1    | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Operating revenues as reported                                    |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  | $ | 292.5    |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Segment EBITDA before eliminations                                |  | $           | 69.0    |               |  | $           | 20.3    |              |  | $     | (9.9  | ) |  | $ | (12.8   | ) |  | $ | 66.6     |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|EBITDA of unconsolidated affiliates(5)                            |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   | (19.2    | )
|Intercompany EBITDA(6)                                            |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   | (5.2     | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|EBITDA(7)                                                         |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   | 42.2     |  
|Depreciation and amortization(8)                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   | (53.3    | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Operating loss                                                    |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  | $ | (11.1    | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Other Data:                                                       |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Depreciation and amortization before affiliate
	eliminations(8)   |  | $           | 52.7    |               |  | $           | 9.2     |              |  | $     | 5.1   |   |  | $ | 0.6     |   |  | $ | 67.6     |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Depreciation and amortization of Unconsolidated
	affiliates(5)(8) |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   | (14.3    | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Depreciation and amortization(8)                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  | $ | 53.3     |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Total assets before affiliate eliminations                        |  | $           | 3,960.8 |               |  | $           | 1,498.0 |              |  | $     | 219.4 |   |  | $ | 1,043.7 |   |  | $ | 6,721.9  |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Total assets of unconsolidated
	affiliates(5)                     |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   | (1,457.3 | )
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  
|Total assets                                                      |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  | $ | 5,264.6  |  
|                                                                  |  |             |         |               |  |             |         |              |  |       |       |   |  |   |         |   |  |   |          |  

18



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9)  Segments 
(Continued)


Nine Months Ended September 30,
2000

|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|----------------------------------------------------------------- |  | ----------- | ----- | ------------- |  | ----------- | ----- | ------------ |  | ----- | ----- | - |  | - | ----- | - |  | - | ------- | -
|                                                                  |  |             |       | Satellite     |  |             |       |              |  |      
|                                                                  |  | Fixed       |       | Manufacturing |  |             |       |              |  |      
|                                                                  |  | Satellite   |       | And           |  | Data        |       |              |  |      
|                                                                  |  | Services(1) |       | Technology(2) |  | Services(3) |       | Corporate(4) |  | Total
|                                                                  |  |             |       |               |  |             |       |              |  |      
|Revenues and EBITDA:                                              |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Revenues from external customers                                  |  | $           | 295.3 |               |  | $           | 533.7 |              |  | $     | 90.2  |   |  |   |       |   |  | $ | 919.2   |  
|Intersegment revenues                                             |  |             | 33.6  |               |  |             | 240.2 |              |  |       | 0.6   |   |  |   |       |   |  |   | 274.4   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Operating segment revenues                                        |  | $           | 328.9 |               |  | $           | 773.9 |              |  | $     | 90.8  |   |  |   |       |   |  |   | 1,193.6 |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Revenues of unconsolidated
	affiliates(5)                         |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (101.2  | )
|Intercompany revenues(6)                                          |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (157.5  | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Operating revenues as reported                                    |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  | $ | 934.9   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Segment EBITDA before eliminations                                |  | $           | 200.9 |               |  | $           | 72.0  |              |  | $     | (31.2 | ) |  | $ | (33.1 | ) |  | $ | 208.6   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|EBITDA of unconsolidated affiliates(5)                            |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (58.9   | )
|Intercompany EBITDA(6)                                            |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (16.0   | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|EBITDA(7)                                                         |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | 133.7   |  
|Depreciation and amortization(1)                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (160.6  | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Operating loss                                                    |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  | $ | (26.9   | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Other Data:                                                       |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Depreciation and amortization before affiliate
	eliminations(8)   |  | $           | 161.8 |               |  | $           | 27.3  |              |  | $     | 14.9  |   |  | $ | 1.7   |   |  | $ | 205.7   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Depreciation and amortization of unconsolidated
	affiliates(5)(8) |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   | (45.1   | )
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  
|Depreciation and amortization(8)                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  | $ | 160.6   |  
|                                                                  |  |             |       |               |  |             |       |              |  |       |       |   |  |   |       |   |  |   |         |  

10)  Accounting Pronouncements

On January 1, 2001, the Company adopted SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives that do not qualify, or are not
effective as hedges, must be recognized currently in earnings.
Upon adoption, the Company recorded a $1.7 million
reduction in net income, net of tax, and a $1.2 million
increase in other comprehensive income (OCI), net of
tax, relating to the cumulative effect of the change in adopting
this new accounting principle. The Company recorded these
adjustments to recognize the fair value of foreign currency
forward contracts that qualify as derivatives under

19



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



10)  Accounting
Pronouncements  (Continued)


SFAS 133 and to recognize the fair value of firm
commitments designated as hedged items in fair value hedge
relationships. Furthermore, the transition adjustments reflect
the derecognition of any deferred gains or losses recorded on
the balance sheet prior to the effective date of SFAS
No. 133 on foreign exchange contracts designated as hedges
of foreign currency exposures on long-term construction
contracts in process.

Foreign Exchange Exposure Management

The Company enters into long-term construction
contracts with customers and vendors, some of which are
denominated in foreign currencies, and hedges substantially all
of the foreign currency risks with foreign currency exchange
contracts (forwards) with maturities matching the expected
cash flows. Derivatives are used to eliminate, reduce, or
transfer substantially all foreign currency risks that can be
identified and quantified in order to minimize the risk of
foreign exchange rate fluctuations to operating results and cash
flows. Hedges of expected foreign currency denominated contract
revenues and related purchases are designated and documented at
inception as cash flow hedges, evaluated for effectiveness at
least quarterly, and have maturities through 2006. As the
critical terms of the currency exchange contracts and expected
cash flows from long-term construction contracts are matched at
hedge inception, currency exchange contract effectiveness is
calculated by comparing the fair value of the derivative to the
change in value of the expected cash flow, with the effective
portion of highly effective hedges reflected on the balance
sheet and accumulated in OCI. Forward points are excluded from
effectiveness testing on derivatives that are adjusted due to
accelerated or delayed cash flows within the contract. OCI
associated with hedges of foreign currency contract revenues and
costs are reclassified to revenue and cost of sales,
respectively, based on a percentage of contract completion,
while gains and losses associated with hedges of receivables and
payables are reclassified to interest income or expense.

The Company also enters into firm commitments
with unrelated parties to purchase required component and
subassembly inventory from vendors, some of which are
denominated in foreign currencies, and hedges substantially all
of the foreign currency risk with foreign currency forward
contracts or, for short periods, with foreign currency balances.
Hedges of firm commitments are designated and documented at
inception as fair value hedges and evaluated for effectiveness
at least quarterly. As the critical terms of the forward
contracts and firm commitments are matched at hedge inception,
forward contract effectiveness is calculated by comparing the
fair value of the derivative to the change in value of the
expected inventory purchase. Forward points are excluded from
effectiveness testing on hedges that are adjusted due to
accelerated or delayed payments and cash balances. Changes in
the value of both highly effective hedges and the designated
firm commitment are reflected on the balance sheet and
recognized currently in interest income or expense.

Ineffectiveness from all hedging activity was
immaterial for the three and nine months ended
September 30, 2001. For the three and nine months ended
September 30, 2001, SS/ L recognized charges of zero and
$0.9 million, respectively, for hedges that no longer qualify as
fair value hedges and $0.8 million and $1.4 million,
respectively, for excluded forward points on accelerated or
delayed cash flows, which were recorded as interest expense.

20



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



10)  Accounting
Pronouncements  (Continued)


Unrealized Net Gains on Derivatives

The following table summarizes the activity in
OCI (net of taxes) related to derivatives classified as cash
flow hedges for the nine months ended September 30, 2001
(in thousands):

|                                                           |  |   |        |  
|---------------------------------------------------------- |  | - | ------ | -
|Cumulative transition adjustment                           |  | $ | 1,220  |  
|Net increase in foreign currency exchange
	contracts       |  |   | 8,485  |  
|Reclassifications into revenue and cost of sales
	from OCI |  |   | (7,345 | )
|                                                           |  |   |        |  
|Unrealized net gains on derivatives at
	September 30, 2001 |  | $ | 2,360  |  
|                                                           |  |   |        |  

At September 30, 2001, the Company
anticipates reclassifying $1.6 million of the balance in
OCI to earnings in the next twelve months.

New Accounting Pronouncements

In September 2000, the FASB issued SFAS
No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS
No. 140 replaces SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. It revises the standards for accounting for
securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over
most of SFAS No. 125s provisions without
reconsideration. The Company adopted the applicable disclosure
requirements of SFAS No. 140 in its consolidated financial
statements for the year ending December 31, 2000. The
Company has determined that there was no effect on the
Companys consolidated financial position or results of
operations relating to the adoption of the other provisions of
SFAS No. 140.

In June 2001, the FASB issued SFAS
No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires
that all business combinations initiated after June 30,
2001, be accounted for under the purchase method and addresses
the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS
No. 142 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 No. 142 provides that
intangible assets with finite useful lives be amortized and that
goodwill and intangible assets with indefinite lives not be
amortized, but will rather be tested at least annually for
impairment. The Company will adopt SFAS No. 142 on
January 1, 2002. Upon adoption of SFAS 142, the
Company will stop the amortization of goodwill with an expected
net carrying value of approximately $892 million at the date of
adoption and annual amortization of approximately
$27 million that resulted from business combinations
completed prior to the adoption of SFAS 141. The Company will
evaluate goodwill under the new transitional impairment test in
SFAS 142 and accordingly, has not yet determined whether or
not there will be an impairment loss. Any transitional
impairment loss will be recognized as a change in accounting
principle.

In June 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement Obligations. 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 not yet determined
the impact that the adoption of SFAS 143 will have on its
results of operations or its financial position.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS 144 addresses financial accounting
and reporting for the impairment or disposal of long-

21



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



10)  Accounting
Pronouncements  (Continued)


lived assets. It supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal
of a segment of a business. The Company is required to adopt
SFAS 144 on January 1, 2002. The Company has not yet
determined the impact that the adoption of SFAS 144 will have on
its results of operations or its financial position.

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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 these factors and conditions
include: (i) the Company and its subsidiaries and
affiliates have significant debt and guarantee obligations;
(ii) the Company may be required to take further charges
relating to its investment in connection with Globalstar related
activities and may be subject to claims brought by third parties
seeking to impose liabilities on the Company as a result of its
relationships with Globalstar, L.P. (Globalstar);
(iii) if the Companys business plan does not succeed,
its operations might not generate enough cash to pay its
obligations; (iv) launch failures may delay operations;
(v) some of the satellites the Company currently has in
orbit have experienced operational problems; (vi) Space
Systems/ Loral, Inc. (SS/ L) is subject to export
control restrictions and is the target of a grand jury
investigation that may adversely affect its ability to export;
(vii) severe competition in the Companys industries;
and (viii) governmental or regulatory changes. For a
detailed discussion of these factors and conditions, please
refer to the periodic reports filed with the SEC by Loral, Loral
CyberStar, Inc. (Loral CyberStar) and 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 manufacturing and satellite-based communications
services. Loral has assembled the building blocks necessary to
provide a seamless, global networking capability for the
information age. Loral is organized into three distinct
operating businesses:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fixed Satellite Services (FSS).Through the Loral Global Alliance,
	which currently consists of Loral Skynet, Loral CyberStar, Loral
	Skynet do Brasil Ltda. (Skynet do Brasil), its 49%
	owned affiliate Satmex, and its 42% owned affiliate Europe*Star
	Limited (Europe*Star), Loral has become one of the
	worlds leading providers of satellite services using
	geostationary communications satellites. The Company leases
	transponder capacity on its satellites to its customers for
	various applications, including broadcasting, news gathering,
	Internet access and transmission, private voice and data
	networks, business television, distance learning and
	direct-to-home television (DTH). The Loral Global
	Alliance currently has ten high-powered geosynchronous
	satellites in orbit: the seven satellite Telstar fleet, two
	Satmex satellites and one Europe*Star satellite, with footprints
	covering almost all of the worlds population;
|
| | Satellite Manufacturing and Technology.Designing and manufacturing satellites
	and space systems and developing satellite technology for a
	broad variety of customers and applications through SS/ L; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Data Services:Providing managed communications
	networks and Internet and intranet services through Loral
	CyberStar and delivering high-speed broadband data
	communications and business television and infomedia services
	through CyberStar, L.P. (CyberStar LP).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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Consolidated Operating Results

In evaluating financial performance, management
uses revenues and earnings before interest, taxes, depreciation
and amortization (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 and nine months ended
September 30, 2001 and 2000 respectively. See Note 9
to Lorals 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.

|                                           |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  
|------------------------------------------ |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ------- | - |  | - | ------- | -
|                                           |  |                    |       |                  
|                                           |  | Three months ended |       | Nine months ended
|                                           |  | September 30,      |       | September 30,    
|                                           |  |                    |       |                  
|                                           |  | 2001               |       | 2000              |  | 2001 |       | 2000
|                                           |  |                    |       |                   |  |      |       |     
|                                           |  |                    |       |                  
|                                           |  | (in millions)      |       | (in millions)    
|Revenues:                                  |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  
|Fixed satellite services(1)                |  | $                  | 134.6 |                   |  | $    | 114.7 |      |  | $ | 397.3   |   |  | $ | 328.9   |  
|Satellite manufacturing and
	technology(2) |  |                    | 182.9 |                   |  |      | 227.8 |      |  |   | 596.0   |   |  |   | 773.9   |  
|Data services(3)                           |  |                    | 22.4  |                   |  |      | 29.1  |      |  |   | 77.2    |   |  |   | 90.8    |  
|                                           |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  
|Segment revenues                           |  |                    | 339.9 |                   |  |      | 371.6 |      |  |   | 1,070.5 |   |  |   | 1,193.6 |  
|Affiliate eliminations(4)                  |  |                    | (34.8 | )                 |  |      | (35.0 | )    |  |   | (106.3  | ) |  |   | (101.2  | )
|Intercompany eliminations(5)               |  |                    | (44.0 | )                 |  |      | (44.1 | )    |  |   | (167.1  | ) |  |   | (157.5  | )
|                                           |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  
|Revenues as reported                       |  | $                  | 261.1 |                   |  | $    | 292.5 |      |  | $ | 797.1   |   |  | $ | 934.9   |  
|                                           |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  
|EBITDA(6):                                 |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  
|Fixed satellite services(1)                |  | $                  | 86.6  |                   |  | $    | 69.0  |      |  | $ | 260.0   |   |  | $ | 200.9   |  
|Satellite manufacturing and
	technology(2) |  |                    | 1.3   |                   |  |      | 20.3  |      |  |   | 36.3    |   |  |   | 72.0    |  
|Data services(3)                           |  |                    | (2.6  | )                 |  |      | (9.9  | )    |  |   | (16.2   | ) |  |   | (31.2   | )
|Corporate expenses(7)                      |  |                    | (11.9 | )                 |  |      | (12.8 | )    |  |   | (33.8   | ) |  |   | (33.1   | )
|                                           |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  
|Segment EBITDA before eliminations         |  |                    | 73.4  |                   |  |      | 66.6  |      |  |   | 246.3   |   |  |   | 208.6   |  
|Affiliate eliminations(4)                  |  |                    | (15.5 | )                 |  |      | (19.2 | )    |  |   | (54.1   | ) |  |   | (58.9   | )
|Intercompany eliminations(5)               |  |                    | (8.5  | )                 |  |      | (5.2  | )    |  |   | (22.4   | ) |  |   | (16.0   | )
|                                           |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  
|EBITDA as reported                         |  | $                  | 49.4  |                   |  | $    | 42.2  |      |  | $ | 169.8   |   |  | $ | 133.7   |  
|                                           |  |                    |       |                   |  |      |       |      |  |   |         |   |  |   |         |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 100% of Europe*Stars and
	Satmexs revenues and EBITDA (Europe*Star commenced revenue
	service in 2001). Also includes Lorals subsidiary, Loral
	Skynet do Brasil since November  2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | Satellite manufacturing and technology consists
	of 100% of SS/ Ls results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | Data services consists of 100% of CyberStar LP
	and Loral CyberStars data services business. Equipment
	sales for data services were $2.0 million and $2.3 million for
	the three months ended September 30, 2001 and 2000
	respectively, and $5.9 million and $8.8 million for the nine
	months ended September 30, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) | Represents amounts related to unconsolidated
	affiliates (Satmex and Europe*Star), which are eliminated in
	order to arrive at Lorals consolidated results.
	Lorals proportionate share of these affiliates is included
	in equity in net loss of affiliates, net of taxes in
	Lorals consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(5) | Represents the elimination of intercompany sales
	and EBITDA, primarily for satellites under construction by SS/ L
	for wholly-owned subsidiaries; as well as eliminating revenues
	for the lease of transponder capacity by satellite manufacturing
	and technology and data services from fixed satellite services.                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(6) | 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.
|   
|(7) | Represents corporate expenses incurred in support
	of the Companys operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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Three Months Ended September 30, 2001
Compared with September 30, 2000

Segment revenues for Lorals operating
businesses were $340 million in 2001 as compared to $372 million
in 2000, before intercompany and affiliate eliminations of $79
million in both 2001 and 2000. The decrease in revenues was due
primarily to lower revenues in satellite manufacturing and
technology due primarily to the timing and quantity of bookings,
offset by strong growth in FSS sales due to the increased number
of transponders leased and higher revenue per transponder in
2001 as compared to 2000. Intercompany eliminations primarily
consists of revenues from satellites under construction by
satellite manufacturing and technology for FSS.

EBITDA as reported increased to $49 million in
2001 as compared to $42 million in 2000. This increase arose
primarily from strong revenue growth in FSS without a
proportionate growth in costs, and smaller losses from data
services resulting from cost savings realized from streamlining
operations, offset by lower satellite manufacturing and
technology EBITDA, which was due to lower revenues and start-up
costs associated with the introduction of several new
technologies.

Depreciation and amortization was $56 million and
$53 million for the three months ended September 30, 2001
and 2000, respectively. In 2002, amortization expense is
expected to decrease by approximately $7 million per
quarter, as a result of the Company adopting SFAS No. 142
(see Accounting Pronouncements).

Interest and investment income was
$6 million in 2001 as compared to $31 million in 2000. This
decrease was principally due to non-cash interest income in 2000
related to warrants received in connection with the guarantees
provided by Loral subsidiaries of Globalstars $500 million
credit facility, dividend income in 2000 related to the
Companys investment in Globalstar Telecommunications
Limited preferred stock, as well as lower average cash balances
for investment in 2001.

Interest expense was $45 million in 2001, net of
capitalized interest of $6 million, as compared to $40
million in 2000, net of capitalized interest of $5 million. The
increase is due primarily to interest expense incurred in
connection with the Companys $500 million credit facility.
If the Loral CyberStar exchange offer is accepted in full, Loral
does not expect it will recognize any interest expense on the
new senior notes and as a result, interest expense on its
statement of operations will be reduced significantly (see
Liquidity and Capital Resources).

In 2000, the Company realized an $18 million gain
from the sale of a portion of its investment in
available-for-sale securities.

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s U.S. subsidiaries are
subject to regular corporate tax on their worldwide income. For
2001, income tax was a benefit of $6 million on a pre-tax
loss of $46 million, yielding an effective rate of 13%,
which is lower than the statutory rate of 35%, primarily because
of the impact from non-deductible losses incurred outside the
U.S. For 2000, income tax was an expense of $4 million on a
pre-tax loss of $2 million primarily because of the impact
from non-deductible amortization of costs in excess of net
assets acquired and state and local income tax expense during
that period. When comparing 2001 to 2000, the decrease in tax
expense is primarily attributable to a lower amount of income
subject to U.S. tax during the current period.

The equity in net loss of affiliates was $13
million in 2001 compared to $75 million in 2000. Lorals
share of equity in net losses attributable to Globalstar related
activities, net of the related tax benefit, was $4 million in
2001 as compared to $102 million in 2000. This decrease is
primarily due to the Company recording its share of
Globalstars equity losses and impairment charges in the
fourth quarter of 2000, which reduced its investment in and
advances in connection with Globalstar to zero. Lorals
share of equity in net loss of Satmex was zero in 2001, as
compared to Lorals share of equity in net income of Satmex
of $28 million in 2000. Satmex had net income in 2000 as a
result of the gain on loss of a satellite (see Other Liquidity
Matters). Also included in equity in net loss of affiliates is
Lorals share of losses from Europe*Star, managed by
Alcatel, (which commenced service in 2001) and other affiliates.

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The minority interest benefit primarily reflects
the portion of CyberStar LPs loss attributed to CyberStar
LPs other investor, who owned 17.6% as of
September 30, 2001.

Preferred dividends were $12 million in 2001 as
compared to $16 million in 2000. This decrease was primarily due
to lower dividends as a result of the conversion of 3.7 million
shares of Lorals 6% Series C convertible redeemable
preferred stock (the Series C Preferred Stock)
and 1.9 million shares of Lorals 6% Series D
convertible redeemable preferred stock (the Series D
Preferred Stock) into the Companys common stock in
April 2001, in connection with the Companys exchange
offers (see Liquidity and Capital Resources). The exchange
offers will result in the annual elimination of approximately
$17 million of future dividend payments and will eliminate
approximately $277 million in mandatory redemptions in 2006 and
2007.

As a result of the above, the net loss applicable
to common stockholders was $64 million or $0.19 per basic and
diluted share for 2001, compared to the net loss of $97 million
or $0.33 per basic and diluted share for 2000. Basic and diluted
weighted average shares were 334 million in 2001 and 297 million
in 2000. The increase in shares was primarily due to the 30.9
million shares of common stock issued in connection with the
Companys exchange offers (see Liquidity and Capital
Resources).

Nine Months Ended September 30, 2001
Compared with September 30, 2000

Segment revenues for Lorals operating
businesses were $1.1 billion in 2001 as compared to $1.2 billion
in 2000, before intercompany and affiliate eliminations of $273
million in 2001 and $259 million in 2000. The decrease in
revenues was due primarily to lower revenues in satellite
manufacturing and technology due primarily to the timing and
quantity of bookings, offset by strong growth in FSS sales due
to the increased number of transponders leased and higher
revenue per transponder in 2001 as compared to 2000.

EBITDA as reported increased to $170 million in
2001 as compared to $134 million in 2000. This increase arose
primarily from strong revenue growth in FSS without a
proportionate growth in costs, and smaller losses from data
services resulting from cost savings realized from streamlining
operations, offset by lower satellite manufacturing and
technology EBITDA, which was due to lower revenues and start-up
costs associated with the introduction of several new
technologies.

Depreciation and amortization was $166 million
and $161 million for the nine months ended September 30,
2001 and 2000, respectively. In 2002, amortization expense is
expected to decrease by approximately $7 million per quarter, as
a result of the Company adopting SFAS No. 142 (see
Accounting Pronouncements).

Interest and investment income was $20 million in
2001 as compared to $92 million in 2000. This decrease was
principally due to non-cash interest income in 2000 related to
warrants received in connection with the guarantees provided by
Loral subsidiaries of Globalstars $500 million credit
facility, dividend income in 2000 related to the Companys
investment in Globalstar Telecommunications Limited preferred
stock, as well as lower average cash balances for investment in
2001.

Interest expense was $141 million in 2001, net of
capitalized interest of $17 million, as compared to $126 million
in 2000, net of capitalized interest of $11 million. The
increase is due primarily to interest expense incurred in
connection with the Companys $500 million credit facility.
If the Loral CyberStar exchange offer is accepted in full, Loral
does not expect it will recognize any interest expense on the
new senior notes and as a result, interest expense on its
statement of operations will be reduced significantly (see
Liquidity and Capital Resources).

In 2000, the Company realized a $71 million gain
from the sale of a portion of its investments in
available-for-sale securities.

For 2001, income tax was a benefit of $8 million
on a pre-tax loss of $117 million, yielding an effective rate of
6.5%, which is lower than the statutory rate of 35%, primarily
because of the impact from non-deductible losses incurred
outside the U.S. For 2000, income tax was an expense of $19
million on pre-tax income of $10 million primarily because of
the impact from non-deductible amortization of costs in excess
of net assets acquired and state and local income tax expense
during that period. When comparing 2001 to 2000,

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the decrease in tax expense is primarily
attributable to a lower amount of income subject to U.S. tax
during the current period.


The equity in net loss of affiliates was $56
million in 2001 as compared to $290 million in 2000.
Lorals share of equity in net losses of affiliates
attributable to Globalstar related activities, net of the
related tax benefit, was $27 million in 2001 as compared to $302
million in 2000. This decrease is primarily due to the Company
recording its share of Globalstars equity losses and
impairment charges in the fourth quarter of 2000, which reduced
its investment in and advances in connection with Globalstar to
zero. Lorals share of equity in net loss of Satmex was $9
million in 2001, as compared to Lorals share of equity in
net income of Satmex of $17 million in 2000. Satmex had net
income in 2000 as a result of the gain on loss of a satellite
(see Other Liquidity Matters). Also included in equity in net
loss of affiliates is Lorals share of losses from
Europe*Star and other affiliates.

The minority interest benefit primarily reflects
the portion of CyberStar LPs loss attributed to CyberStar
LPs other investor, who owned 17.6% as of
September 30, 2001.

On January 1, 2001, the Company adopted SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities, which resulted in the Company recording a charge for
the cumulative effect of a change in accounting principle, net
of taxes, of $1.7 million (see Accounting Pronouncements).

Preferred dividends were $69 million in 2001 as
compared to $51 million for 2000. This increase was primarily
due to non-cash dividend charges of approximately $29 million
incurred on the conversion of 3.7 million shares of Lorals
6% Series C Preferred Stock and 1.9 million shares of
Lorals 6% Series D Preferred Stock into the
Companys common stock in the second quarter of 2001, in
connection with the Companys exchange offers (see
Liquidity and Capital Resources).

As a result of the above, the net loss applicable
to common stockholders was $235 million or $0.73 per basic and
diluted share for 2001, compared to the net loss of $349 million
or $1.18 per basic and diluted share, for 2000. Basic and
diluted weighted average shares were 320 million in 2001 and 295
million in 2000. The increase in shares was primarily due to the
30.9 million shares of common stock issued in connection with
the Companys exchange offers (see Liquidity and Capital
Resources).

Results by Operating Segment for the Three and
Nine Months Ended September 30, 2001 and 2000

Fixed
Satellite Services

FSS revenues (including 100% of Satmex and
Europe*Star) were $135 million as compared to $115 million for
the three months ended September 30, 2001 and 2000,
respectively, and $397 million as compared to $329 million for
the nine months ended September 30, 2001 and 2000,
respectively. These increases were primarily due to the
increased number of transponders leased and higher revenue per
transponder in 2001 as compared to 2000. EBITDA (including 100%
of Satmex and Europe*Star) was $87 million as compared to $69
million for the three months ended September 30, 2001 and
2000, respectively, and $260 million as compared to $201 million
for the nine months ended September 30, 2001 and 2000,
respectively. These increases were primarily due to strong
revenue growth without a proportionate growth in costs. As of
September 30, 2001, FSS had 10 operational satellites
(three of which are owned by affiliates). Funded backlog for the
segment totaled $2.0 billion at September 30, 2001 as
compared to $2.4 billion as of December 31, 2000, including
intercompany backlog of $99 million and $65 million as of
September 30, 2001 and December 31, 2000,
respectively, and affiliate backlog for Satmex and Europe*Star
of $432 million as of September 30, 2001 and $546 million
as of December 31, 2000. The reduction in total funded
backlog resulted from a contract termination in the third
quarter of 2001 and de-bookings arising largely from the
restructuring of two customer contracts in the second quarter of
2001. In one case, Loral reduced the length of a lease agreement
and allowed a reduction in the number of transponders leased
under a multi-year contract. In the other case, Loral reduced
the length of a lease agreement from 13 years to eight. In
both instances Loral received appropriate compensation in
exchange for meeting its customers requirements and,
accordingly, these de-bookings did not have an adverse impact on
results of operations in the current period, nor are they
expected to have an adverse impact on near-term results of
operations.

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Satellite Manufacturing and Technology

Over the past three years, SS/L has developed a
series of technical advances in response to customers
expressed desire for expanded capabilities. These advances
include the development of spot beam technology, Ka-band
frequency usage, increased power levels, lithium-ion batteries
and advanced propulsion systems. In addition, SS/L has
introduced a new family of satellite buses, designated the 1300E
and comprising a number of models of varying size, power and
capabilities based on the heritage 1300 bus. These improvements
are part of the evolutionary technology developments typical to
the satellite manufacturing industry and are essential to the
maintenance of the companys strong market share position.
To counter the challenges that typically accompany new product
or technology introductions, SS/L has reinforced its design and
testing disciplines to provide maximum reliability and to
control added costs and potential delays.

Revenues at SS/ L, the Companys satellite
manufacturing and technology subsidiary, before intercompany
eliminations were $183 million as compared with $228 million for
the three months ended September 30, 2001 and 2000,
respectively, and $596 million as compared to $774 million for
the nine months ended September 30, 2001 and 2000,
respectively. These decreases were primarily due to the timing
and quantity of bookings. EBITDA was $1 million as compared to
$20 million for the three months ended September 30, 2001
and 2000, respectively, and $36 million as compared to $72
million for the nine months ended September 30, 2001 and
2000, respectively. These decreases were primarily due to lower
revenues and start-up costs associated with the introduction of
several new technologies. Funded backlog for SS/ L was $1.4
billion as of September 30, 2001 as compared to $1.7
billion as of December 31, 2000, including intercompany
backlog of $317 million as of September 30, 2001 and $477
million as of December 31, 2000.

Data
Services

Revenues are derived primarily from Loral
CyberStars corporate data networking and Internet and
intranet services businesses, which have been impacted by the
slowdown of worldwide demand for telecommunications and Internet
services. Revenues for data services were $22 million as
compared to $29 million for the three months ended
September 30, 2001 and 2000, respectively, and $77 million
as compared to $91 million for the nine months ended
September 30, 2001 and 2000, respectively. The decreases
were primarily due to lower volume from the VSAT business,
Internet services and occasional use revenues from business
television services. EBITDA was a loss of $3 million as
compared to a loss of $10 million for the three months ended
September 30, 2001 and 2000, respectively, and a loss of
$16 million as compared to a loss of $31 million for the nine
months ended September 30, 2001 and 2000, respectively.
This substantial improvement in EBITDA resulted primarily from
cost savings realized from streamlining operations, savings
related to the exit from the direct-to-consumer broadband
business in 2001 and a non-recurring facility and equipment
write-off in the first quarter of 2000. As of September 30,
2001, funded backlog was $126 million, as compared to $191
million as of December 31, 2000 (all from external
sources). The decrease in backlog resulted from de-bookings, due
to the continued softness in the Internet business worldwide.

Liquidity and Capital Resources

Loral intends to capitalize on its innovative
capabilities, market position and advanced technologies to offer
value-added satellite-based services as part of the evolving
worldwide communications networks and, where appropriate, to
form strategic alliances with major telecommunications service
providers and equipment manufacturers to enhance and expand its
satellite-based communications service opportunities. Where
appropriate, Loral seeks to further this strategy through
acquisitions or joint ventures and through dispositions of
non-core assets. In order to pursue such opportunities, Loral
may seek funds from strategic partners and other investors, and
through incurrence of debt or the issuance of additional equity.

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Debt

$500 Million Credit Agreement

In November 2000, a subsidiary of Loral
entered into a $500 million secured credit agreement with Bank
of America, National Association and the other lenders party
thereto (the $500 Million Credit Agreement). The
$500 Million Credit Agreement provides for a $200 million
three-year revolving credit facility (the Revolver)
and a $300 million term loan (the Term Loan). The
Term Loan is subject to a remaining amortization payment
schedule as follows: 15% of the principal amount on
September 30, 2002; 25% of the principal amount on
March 31, 2003; and 58% of the principal amount on
August 15, 2003. All amounts outstanding under the Revolver
are due and payable on August 15, 2003.

The $500 Million Credit Agreement is secured by
certain assets of a subsidiary of Loral, including the Telstar 6
and Telstar 7 satellites and the loans due to Loral under
Globalstars $500 million credit facility. 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
September 30, 2001, the net book value of Telstar 6 and
Telstar 7 was approximately $334 million. Loral has also agreed
to guarantee its subsidiarys obligations under the $500
Million Credit Agreement.

Loral SpaceCom Credit Agreement

The Amended and Restated Credit Agreement, dated
as of November 14, 1997, as amended, among Loral SpaceCom
Corporation (Loral SpaceCom), SS/ L and the banks
party thereto (the Credit Agreement), consists of a
$100 million term loan and a $500 million revolving credit
facility and matures in November 2002. As of
September 30, 2001, $545 million was outstanding under the
Credit Agreement. The Credit Agreement requires four principal
payments of $25 million each at the end of the next four
quarters, with the remaining balance due at maturity. The Credit
Agreement is secured by the stock of Loral SpaceCom Corporation
and SS/ L. As of September 30, 2001, the net book value of
the assets that secure the Credit Agreement was approximately
$1.15 billion.

Other Debt Agreements

Loral also has outstanding $350 million of 9.5%
senior notes due in 2006.

Loral CyberStars outstanding debt as of
September 30, 2001, of $1.029 billion, is non-recourse to
Loral, and includes certain restrictions on Loral
CyberStars ability to pay dividends or make loans to Loral.

In October 2001, Loral CyberStar announced that
it will conduct a debt-for-debt exchange offer for its
11 1/4% Senior Notes due 2007 and its 12 1/2% Senior
Discount Notes due 2007, that would substantially reduce the
principal amount of Loral CyberStars outstanding debt
obligations. Loral CyberStar has in the aggregate $443 million
principal amount of senior notes outstanding and $484 principal
amount of senior discount notes outstanding as of
September 30, 2001.

In the exchange offer, for every $1,000 principal
amount of senior notes, plus accrued interest tendered and
accepted for exchange, each holder will receive
(i) $750.247 principal amount of new Loral CyberStar 10%
Senior Notes due 2006, guaranteed by Loral and
(ii) warrants to purchase 7.40 shares of common stock of
Loral.

For every $1,000 principal amount of senior
discount notes tendered and accepted for exchange, each holder
will receive (i) $707.935 principal amount of Loral
CyberStars 10% Senior Notes due 2006, guaranteed by Loral
and (ii) warrants to purchase 6.98 shares of common stock
of Loral.

If the exchange offer is accepted in full,
holders will receive an aggregate of $675 million of new notes,
and warrants to purchase 6,657,096 shares of common stock of
Loral at 110% of the market price of Loral common stock
calculated over a 10 day period prior to closing of the exchange
offer. The indenture governing the new senior notes offered
under the exchange offer is expected to have more restrictive
limitations on Loral CyberStars ability to incur
additional debt and use assets as collateral for indebtedness,
as compared to the existing indentures of Loral CyberStar.

By tendering their existing notes, holders will
also be consenting to the proposed amendments to the senior note
indenture and the senior discount note indenture to eliminate
substantially all of the covenants and

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events of default that may be removed by majority
consent of the holders consistent with the applicable indentures
and the requirements of the Trust Indenture Act of 1939, as
amended. Rights to receive principal and interest on the
existing notes not tendered will not be impaired.


The exchange offer is subject to certain
conditions including, among other things, receiving tenders of
at least 85% in principal amount of the existing notes. To date,
holders of 50.29% of the existing notes (representing 49.04% in
principal amount of the senior notes and 51.43% in principal
amount of the senior discount notes) have agreed to tender their
notes and consent to the amendment of the indentures governing
any notes not tendered for exchange.

Assuming the exchange offer is accepted in full,
Lorals annual cash interest payments will be reduced by
approximately $43 million to $67.5 million. Further,
under generally accepted accounting principles dealing with debt
restructurings, the Company will recognize a gain of only
approximately $15 million after taxes upon completion of
the transaction and the carrying value of the new notes on the
balance sheet will be approximately $996 million, although
the actual principal amount of the new notes will be
$675 million. The difference between this carrying value
and the actual principal amount of the new notes will fully
offset interest expense over the life of the new notes.

The securities to be issued to public bondholders
in the exchange offer will be offered or sold pursuant to a
registration statement to be filed with the Securities and
Exchange Commission.

As of September 30, 2001, Loral
believes it was in compliance with all covenants pertaining to
its debt facilities.

Equity

On April 16, 2001, the Company completed
exchange offers for its Series C Preferred Stock and its
Series D Preferred Stock. As a result, 3.7 million shares
of its Series C Preferred Stock and 1.9 million shares of
its Series D Preferred Stock were tendered and exchanged
(representing approximately 27% and 24%, respectively, of the
outstanding shares of the two issues) into 30.9 million shares
of the Companys common stock. Loral incurred non-cash
dividend charges in the second quarter of 2001 of approximately
$29 million, which primarily relates to the difference between
the value of the common stock issued in the exchange offers and
the value of the shares that were issuable under the conversion
terms of the preferred stock. The non-cash dividend charges had
no impact on Lorals total shareholders equity as the
offset was an increase in common stock and paid-in capital. In
addition, Loral will save approximately $17 million annually in
preferred dividend payments and will avoid approximately $277
million in mandatory redemptions in 2006 and 2007.

Cash
and Available Credit

As of September 30, 2001, Loral had $246
million of cash and available credit (including $66 million of
available credit from the above credit facilities). Loral
intends to utilize its existing capital base to further develop
satellite technologies and hardware and to build out its fixed
satellite services business.

Net
Cash Provided by Operating Activities

Net cash provided by operating activities for the
nine months ended September 30, 2001 was $95 million,
primarily due to the net loss as adjusted by non-cash operating
items of $79 million and the increase in customer advances
of $56 million, primarily resulting from the timing of satellite
program milestone payments, offset by an increase in
contracts-in-process of $48 million, primarily due to continued
progress on satellite contracts and achievement of milestones.

Net cash provided by operating activities for the
nine months ended September 30, 2000 was $115 million,
primarily due to the net loss as adjusted for non-cash operating
items of $82 million, decreases in contracts-in-process of $144
million primarily as a result of collections on two significant
customers contracts

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in 2000, and deposits of $34 million primarily
due to the assignment of launch vehicles for satellite programs,
offset by decreases in accounts payable of $127 million
primarily due to launch vehicle payments in 2000 and an increase
in long term receivables of $25 million due to progress on
satellite programs.


Net
Cash Used in Investing Activities

Net cash used in investing activities for 2001
was $183 million, as a result of capital expenditures of $174
million primarily for the construction of satellites and $26
million of investments in and advances to affiliates, partially
offset by net proceeds from the sale leaseback of assets of $17
million.

Net cash used in investing activities for 2000
was $209 million, as a result of capital expenditures of $333
million primarily for the construction or acquisition of
satellites (including $181 million for the final payment for
Telstar 10/ Apstar IIR), and $161 million of investments in and
advances to affiliates, offset by a reduction in restricted and
segregated cash of $187 million and proceeds from sales of
available-for-sale securities of $97 million.

Net
Cash (Used in) Provided by Financing Activities

Net cash used in financing activities for 2001
was $126 million, due to net repayments of debt obligations of
$99 million and preferred dividend payments of $40 million,
partially offset by proceeds from common stock issuance of $14
million.

Net cash provided by financing activities for
2000 was $255 million, due to net proceeds of $388 million from
the Companys issuance of Series D Preferred Stock and
$20 million from the sale of common stock, offset by repayments
of debt obligations of $108 million and preferred dividends of
$46 million.

Other
Liquidity Matters

Fixed Satellite Services

Loral Skynet

On April 22, 2001, the Companys
Telstar 6 satellite experienced a component failure on its
primary central processing unit (CPU). As designed,
the satellite switched to its backup CPU, which is fully
operational, and returned to normal operation. The Company is
investigating whether the primary CPU can be restarted, in which
case it would serve as the backup CPU. If the primary CPU cannot
be restarted, a subsequent failure of the currently operating
CPU would result in the loss of Telstar 6 (which is fully
insured), and, until a replacement satellite is placed in-orbit,
lost revenues and profits to the Company.

Satmex

On August 30, 2000, Satmex announced that
its Solidaridad 1 satellite ceased operation and was
irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite.
Solidaridad 1, which was built by Hughes Space and
Communications (Hughes) and launched in 1994,
experienced a failure of its primary control processor in
April 1999, and had been operating on its back-up processor
since that time. The majority of Solidaridad 1s
customers have been provided replacement capacity on other
Satmex satellites or on satellites operated by Loral Skynet.
Satmex received net insurance proceeds of $235 million relating
to the loss of Solidaridad 1. In connection with this lost
satellite, Satmex recognized an after-tax gain of $67 million,
which resulted from the insurance proceeds in excess of the
carrying amount of the satellite and the incremental costs
associated with providing replacement capacity, as required by
its contracts with its customers. Satmex has contracted with SS/
L to build a replacement satellite. This satellite, known as
Satmex 6, is scheduled to be launched in 2003, and is designed
to provide broader coverage and higher power levels than any
other satellite currently in the Satmex fleet.

At September 30, 2001, Solidaridad 2 had a
remaining estimated useful life of eight years.
Solidaridad 2 was manufactured by Hughes and is similar in
design to Solidaridad 1 and to other Hughes satellites
which have experienced in-orbit component failures. While Satmex
has obtained in-orbit insurance for Solidaridad 2, a
satellite failure may result in a drop in Satmexs profits,
which loss of profits would not be insured. The in-

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orbit insurance for Solidaridad 2 expires in
November 2002. Satmex cannot guarantee that it will be able
to renew the insurance at the end of this period, or that if
renewal is available, that it would be on acceptable terms. For
example, a renewal policy for Solidaridad 2 may 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 Hughes
satellites. An uninsured loss would have a material adverse
effect on Satmexs results of operations and financial
condition.


In connection with the privatization 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 September 30,
2001, Loral and Principia have pledged their respective shares
in Holdings in such trust.

Europe*Star

Through September 30, 2001, Loral has
invested $76 million in 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 approximately $175 million in loans
to the venture. Loral has the right to elect either to make a
contribution to retain its current ownership stake or permit
Alcatel to convert approximately $21 million of the loans into
equity, which could dilute Lorals equity in the venture to
as little as approximately 39%.

Loral CyberStar

Loral CyberStar anticipates it will have
additional requirements over the next three years to fund the
growth in the business, the purchase of VSATs and other capital
expenditures, senior note interest payments, the replacement of
Telstar 11 which is expected to reach the end of its useful
life in 2005, and other operating needs. Loral CyberStar will
need to secure funding from Loral, or raise additional financing
to fund these requirements. Sources of additional capital may
include public or private debt, equity financings or strategic
investments. To the extent that Loral CyberStar seeks to raise
additional debt financing, its indentures limit the amount of
such additional debt and prohibit Loral CyberStar from using
Telstar 11, Telstar 10/ Apstar IIR and Telstar 12 as
collateral for indebtedness. If Loral CyberStar requires
additional financing and is unable to obtain such financing from
Loral or from outside sources in the amounts and at the times
needed, there would be a material adverse effect on Loral
CyberStar. If the exchange offer is accepted, Loral
CyberStars liquidity will improve as a result of the
reduction in annual cash interest payments and the principal
amount of indebtedness (see Other Debt Agreements).

Commitments and Contingencies

Loral Skynet has entered into prepaid leases and
sales contracts 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 (twelve
transponders), and the lease term, in the case of the prepaid
leases (nine transponders). Depending on the contract, Loral
Skynet may be required to replace transponders which do not meet
operating specifications. All customers are entitled to a refund
equal to the reimbursement value if there is no replacement. In
the case of the sales contracts, the reimbursement value is
based on the original purchase price plus an interest

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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.


Twelve of the satellites built by SS/ L and
launched since 1997, five 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. 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. 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 is implementing remedial 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 delays 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 late 1998, following the launch of an SS/
L-built satellite sold to PanAmSat, a manufacturing error was
discovered that affected the geographical coverage of the
Ku-band transponders on the satellite. On January 6, 2000,
PanAmSat filed an arbitration proceeding in connection with this
error claiming damages of $225 million for lost profits and
increased sales and marketing costs. On May 25, 2001, the
Company settled this matter with PanAmSat. The charge for the
settlement was fully provided for in 2000.

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. SS/L believes that this
failure is an isolated event and does not reflect a systemic
problem in either the satellite design or manufacturing process.
Accordingly, the Company does not believe that this anomoly will
affect other on-orbit satellites built by SS/L. The Company is
currently providing the basis for this conclusion to its
insurance underwriters. However, in connection with the renewal
of the insurance for the Companys Telstar 10/Apstar IIR
satellite in October 2001, the insurance underwriters have
excluded losses due to solar array failures. While the Company
anticipates that this exclusion will be removed upon further
review by the insurance underwriters, there can be no assurance
that this exclusion will be removed or that future renewals of
insurance on other Company satellites will not be subject to a
similar exclusion.

SS/L is a party to an Operational Agreement with
Alcatel Space Industries (Alcatel Space) pursuant to
which the parties cooperate on certain satellite programs. In
addition, pursuant to an Alliance Agreement with SS/L, for so
long as it continues to hold at least 81.6% of the Loral
securities that it acquired in 1997 in exchange for SS/L stock
that it previously owned, Alcatel has certain rights, including
two representatives on SS/Ls seven-member board of
directors, and certain actions require the approval of its board
representatives. Alcatel Space also has certain rights to
purchase SS/L shares at fair market value in the event of a
change of control (as defined) of either Loral or SS/L,
including the right to use its Loral holdings as part of the
SS/L purchase price. These agreements are terminable upon
one-years notice by either party, and SS/L gave the
one-year notice to Alcatel Space on February 22, 2001.
Alcatel Space filed suit on March 16, 2001 in the United
States District Court for the Southern District of New York
against Loral and SS/L alleging various breaches of the
agreements, seeking declaratory and injunctive relief to enforce
its rights thereunder and challenging the effectiveness of the
termination. On April 26, 2001, the District Court issued
its decision (i) granting on consent the Companys
motion to compel arbitration and (ii) granting in part
Alcatels motion for a preliminary injunction by requiring
that the Company continue to comply with the agreements pending

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resolution of the arbitration, or the expiration
of the agreements, whichever occurs earlier. The District Court
also held that the issue of the termination of the agreements is
a matter that is to be decided in arbitration, as required by
the agreements. The arbitration has commenced. In the
arbitration, in addition to challenging the effectiveness of the
termination, Alcatel has asserted, and is seeking $300 million
in damages in respect of, various alleged breaches of the
agreements. The Company believes that it will prevail on the
termination issue, that the claims for damages are without merit
and that this matter will not have a material adverse effect on
the consolidated financial position or results of operations of
Loral.


SS/L was informed in 1998 that it was a target of
a grand jury investigation being conducted by the office of the
U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have
occurred in connection with the participation of SS/L employees
on a committee formed in the wake of the 1996 crash of a Long
March rocket in China and whose purpose was to consider whether
studies of the crash made by the Chinese had correctly
identified the cause of the failure. The Company is not in a
position to predict the direction or outcome of the
investigation. If SS/L were to be indicted and convicted of a
criminal violation of the Arms Export Control Act, it would be
subject to a fine of $1 million per violation and could be
debarred from certain export privileges and, possibly, from
participation in government contracts. Since many of SS/Ls
satellites are built for foreign customers and/or launched on
foreign rockets, such a debarment would have a material adverse
effect on SS/Ls business and, therefore, the Company.
Indictment for such violations would subject SS/L to
discretionary debarment from further export licenses. Under the
applicable regulations, SS/L could be debarred from export
privileges without being convicted of any crime if it is
indicted for these alleged violations, and loss of export
privileges would harm SS/Ls business. Whether or not SS/ L
is indicted or convicted, SS/ L remains subject to the State
Departments general statutory authority to prohibit
exports of satellites and related services if it finds a
violation of the Arms Export Control Act that puts SS/ Ls
reliability in question, and it can suspend export privileges
whenever it determines that grounds for debarment exist and that
such suspension is reasonably necessary to protect world
peace or the security or foreign policy of the United
States.

As far as SS/ L can determine, no sensitive
information or technology was conveyed to the Chinese, and no
secret or classified information was discussed with or reported
to them. SS/ L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct.
Accordingly, the Company does not believe that SS/ L has
committed a criminal violation of the export control laws. The
Company does not expect the grand jury investigation or its
outcome to result in a material adverse effect upon its
business. However, there can be no assurance as to these
conclusions.

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. According to ODTC, the purpose of the
temporary suspension was to permit that agency to review the
agreement for conformity with then newly-enacted legislation
(Section 74 of the Arms Export Control Act) with respect to
the export of missile equipment and technology. 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. SS/ L and the State Department are now
in discussions regarding SS/ Ls obtaining the approvals
required for the launch of ChinaSat-8.

In December 1999, SS/ L reached an agreement
with ChinaSat to extend the date for delivery of the ChinaSat-8
satellite to July 31, 2000. In return for this extension
and other modifications to the contract, SS/L provided to
ChinaSat two 36 MHz and one 54 MHz transponders on
Telstar 10/ Apstar IIR for ChinaSats use for the life of
those transponders. As a result, SS/ L recorded a charge to
earnings of $35 million in 1999. If ChinaSat were to terminate
its contract with SS/ L as a result of these delays, SS/ L may
have to refund $134 million in advances received from ChinaSat
and may incur penalties of up to $11 million and believes 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. To the extent that
SS/ L is able to recover some or all of its $52 million deposit
payment on the Chinese launch vehicle, this recovery would

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offset a portion of such payments. 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.


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. Delays in
obtaining the necessary licenses and technical assistance
agreements may result in the cancellation of, or delay
SS/Ls performance on, existing contracts, and, as a
result, SS/L may incur penalties or lose incentive payments
under these contracts.

Under an agreement reached with Eutelsat, Loral
CyberStar agreed to operate Telstar 12, which was originally
intended to operate at 12 degrees W.L., at 15 degrees W.L. while
Eutelsat continued to develop its services at 12.5 degrees W.L.
Eutelsat has in turn agreed not to use its 14.8 degrees W.L.
orbital slot and will assert its priority rights over such
location on Loral CyberStars behalf. As part of this
coordination effort, Loral CyberStar agreed to provide to
Eutelsat four transponders on Telstar 12 for the life of the
satellite and has retained risk of loss with respect to such
transponders. Eutelsat also has the right to acquire, at cost,
four transponders on the next replacement satellite for Telstar
12. As part of the international coordination process, Loral
continues to conduct discussions with various administrations
regarding Telstar 12s operations at 15 degrees W.L.
If these discussions are not successful, Telstar 12s
useable capacity may be reduced.

The Company estimated the recovery of certain
insurance proceeds in its 2000 consolidated financial statements
in connection with an insurance claim with its insurance carrier
and received the proceeds in May 2001.

Globalstar Related Matters.Loral holds debt obligations from
Globalstar (see Note 5). In a bankruptcy or restructuring
proceeding involving Globalstar, challenges could be initiated
seeking subordination or recharacterization of the debt Loral
holds from Globalstar. While we know 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 any restructuring or bankruptcy proceeding involving
Globalstar. Moreover, there can be no assurance that actions
will not be initiated in a Globalstar bankruptcy proceeding to
characterize payments previously made by Globalstar to Loral as
preferential payments subject to repayment. Loral also may be
subject to other claims brought by Globalstar creditors and
securities holders, who may seek to impose liabilities on the
Company as a result of the Companys relationships with
Globalstar.

On February 28, 2001, plaintiff Eric Eismann
filed a purported class action complaint against Globalstar
Telecommunications Limited (GTL) in the United
States District Court for the Southern District of New York. The
other defendants named in the complaint are Loral Space &
Communications Ltd. and Bernard Schwartz. The complaint alleges
that (a) GTL and Mr. Schwartz 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 GTLs business and prospects; and
(b) that Loral and Mr. Schwartz are secondarily liable for
these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as alleged
controlling persons of GTL. The class of plaintiffs
on whose behalf this lawsuit has been asserted consists of all
buyers of GTL common stock from December 6, 1999 through
October 27, 2000, excluding the defendants and certain
persons related or affiliated therewith (the Excluded
Persons).

Eighteen additional purported class action
complaints have been filed in the United States District Court
for the Southern District of New York by plaintiffs Chaim Kraus,
L.A. Murphy, Eddie Maiorino, Damon Davis, Iskander Batyrev,
Shelly Garfinkel, Sequoia Land Development and Phil Sigel,
Michael Ceasar as Trustee for Howard Gunty Profit Sharing Plan,
Colin Barry, James D. Atlas, Lawrence Phillips,
Kent A. Hillemeir, Sarah Harman, Pablo Lozza, Joseph and
Eudice Meyers, The 60223 Trust, Antonio and Lucia Maddalena and
Chaim Troman on each of March 2, March 2,
March 6, March 7, March 7, March 9,
March 16, March 21, March 21, March 22,
March 23, March 28, March 28, April 2,
April 3, April 11, April 27, and May 1,
2001, respectively. These complaints allege claims against GTL,
Loral, and Mr. Schwartz (and, in the case of the
Sequoia, Atlasand Meyerscomplaints, two
additional individual defendants, Messrs. Navarra and
DeBlasio) that are substantially identical to those set forth in
the Eismannaction. The class of plaintiffs on whose
behalf these lawsuits have been allegedly asserted are: with
respect to the Kraus, Davis, Maiorino, Batyrev, Ceasar,
Phillips, Hillemeir, Harmanand The 60223 Trustactions, buyers of GTL common stock in the period from
December 6, 1999, through October 27, 2000; with
respect to

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the Murphy, Barryand Tromanactions, buyers of GTL securities in the period from
December 6, 1999, through October 27, 2000; with
respect to the Sequoia/ Sigel, Atlasand Meyersactions, buyers of GTL common stock in the period from
December 6, 1999, through July 19, 2000; with respect
to the Garfinkeland Lozzaactions, buyers of GTL
debt securities in the period from December 6, 1999,
through October 27, 2000; and with respect to the
Maddalenaaction, buyers of GTL securities in the period
from October 11, 1999 through October 27, 2000. In
each case, the Excluded Persons are excepted from the class.


On May 22, 2001, plaintiffs Philip J. Hage,
Jr. and Ron Maggiaro filed a purported class action complaint
against Loral in the United States District Court for the
Southern District of New York. The other defendants named in the
complaint are Bernard Schwartz and Richard Townsend. The
complaint alleges that (a) the 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 Globalstars and
Lorals business and prospects; and (b) that
Messrs. Schwartz and Townsend are secondarily liable for
these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as alleged
controlling persons of Loral. The class of
plaintiffs on whose behalf this lawsuit has been asserted
consists of all buyers of Loral common stock from
November 4, 1999 through February 1, 2001, excluding
the defendants and certain persons related or affiliated
therewith.

Six additional purported class action complaints
have been filed in the United States District Court for the
Southern District of New York by plaintiffs Merchants TNS
Pension Trust, Laura S. Dalton, Michael T. Benson,
Marilyn Funt and Trident, Ltd., Profit Sharing Plan, Alexander
Igdalski and James Dwyer on May 25, May 29,
June 1, June 6, June 28, and July 23, 2001
respectively. These complaints allege claims against Loral and
Messrs. Schwartz and Townsend that are substantially
identical to those set forth in the Hageaction, and the
class of plaintiffs on whose behalf these lawsuits have been
asserted is the same as the purported class in the Hageaction.

Loral believes that it has meritorious defenses
to the above Globalstar Related Matters and intends to pursue
them vigorously.

In May 2000, Globalstar finalized $531.1
million of vendor financing arrangements (including $31.1
million of capitalized interest as of May 2000) 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
September 30, 2001, $598 million was outstanding under this
facility (including $98 million of capitalized interest).

Loral has agreed that if the principal amount
(excluding capitalized interest of $98 million at
September 30, 2001) 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 September 30, 2001, Loral had no
guarantee obligation.

The Company has contingent liabilities of
approximately $19 million in connection with Globalstar
service provider partnerships.

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.

Other Matters

Insurance Costs

The Company has received preliminary indication
that the satellite industry will likely be faced with
significantly higher premiums on launch and in-orbit insurance
in the future. Any such increase will increase the cost of doing
business for the industry, including both the Companys
satellite manufacturing and fixed satellite services segments.
The Company intends to pass on such increased cost to its
customers. There can be no assurance, however, that it will be
able to do so.

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Accounting Pronouncements

On January 1, 2001, the Company adopted SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives that do not
qualify, or are not effective as hedges, must be recognized
currently in earnings. Upon adoption, the Company recorded a
$1.7 million reduction in net income, net of tax, and a $1.2
million increase in other comprehensive income (OCI), net of
tax, relating to the cumulative effect of the change in adopting
this new accounting principle. The Company recorded these
adjustments to recognize the fair value of foreign currency
forward contracts that qualify as derivatives under
SFAS 133 and to recognize the fair value of firm
commitments designated as hedged items in fair value hedge
relationships. Furthermore, the transition adjustments reflect
the derecognition of any deferred gains or losses recorded on
the balance sheet prior to the effective date of SFAS
No. 133 on foreign exchange contracts designated as hedges
of foreign currency exposures on long-term construction
contracts in process.

In September 2000, the FASB issued SFAS
No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS
No. 140 replaces SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. It revises the standards for accounting for
securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over
most of SFAS No. 125s provisions without
reconsideration. The Company adopted the applicable disclosure
requirements of SFAS No. 140 in its consolidated financial
statements for the year ending December 31, 2000. The
Company has determined that there was no effect on the
Companys consolidated financial position or results of
operations relating to the adoption of the other provisions of
SFAS No. 140.

In June 2001, the FASB issued SFAS
No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires
that all business combinations initiated after June 30,
2001, be accounted for under the purchase method and addresses
the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS
No. 142 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 No. 142 provides that
intangible assets with finite useful lives be amortized and that
goodwill and intangible assets with indefinite lives not be
amortized, but will rather be tested at least annually for
impairment. The Company will adopt SFAS No. 142 on
January 1, 2002. Upon adoption of SFAS 142, the
Company will stop the amortization of goodwill with an expected
net carrying value of approximately $892 million at the date of
adoption and annual amortization of approximately $27 million
that resulted from business combinations completed prior to the
adoption of SFAS 141. The Company will evaluate goodwill
under the new transitional impairment test in SFAS 142 and
accordingly, has not yet determined whether or not there will be
an impairment loss. Any transitional impairment loss will be
recognized as a change in accounting principle.

In June 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement Obligations.
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 not yet determined the impact that the adoption
of SFAS 143 will have on its results of operations or its
financial position.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived
assets. It supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and the accounting and reporting provisions of
APB 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business. The
Company is required to adopt SFAS 144 on January 1,
2002. The Company has not yet determined the impact that the
adoption of SFAS 144 will have on its results of operations
or its financial position.

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Part II. OTHER INFORMATION

Item 2.  Legal
Proceedings

CCD Lawsuits.On
September 12, 1991, Loral Fairchild Corp. (Loral
Fairchild), a subsidiary of Loral Corporation (Old
Loral), filed suit against a number of companies including
Sony Corporation (Sony), Matsushita Electronics
Corporation (Matsushita) and NEC Corp. claiming that
such companies had infringed Loral Fairchilds patents for
a charged coupled device (CCD), commonly
used as an optical sensor in video cameras and fax machines.
Although the CCD patents have expired, Loral Fairchild is
seeking reasonable royalties through the expiration date from a
number of defendants. On February 22, 1996, a jury in the
United States District Court for the Eastern District of New
York found unanimously that Sony had infringed the CCD patents.
The trial judge, however, in an order dated July 12, 1996,
reversed the jury verdict. Loral Fairchild appealed and sought
certiorari unsuccessfully. Although Loral Fairchild had settled
its claim against one of the other defendants for approximately
$450,000, its claims against some of the other defendants were
precluded by the Sony ruling. In September, 2001, the Federal
Circuit reversed the trial courts dismissal of Loral
Fairchilds claims against the remaining defendants and a
jury trial on those claims is scheduled for December 2001.
Matsushita has been granted a declaratory judgment that it has a
valid and enforceable license under the CCD patents. In
addition, a trial on Matsushitas claim against Loral
Fairchild for tortious interference was conducted during
July 1996, and a verdict was rendered in favor of Loral
Fairchild in September 1997.

Also, see legal proceedings disclosure in
Commitments and Contingencies.

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

(b)  Reports on Form 8-K

None

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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              
| | Senior Vice President and        
| | Chief Financial Officer          
| | (Principal Financial Officer) and
| | Registrants Authorized Officer  

Date: November 12, 2001

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EXHIBIT INDEX

|             |  |                                                              
|------------ |  | -------------------------------------------------------------
|Exhibit No.  |  | Description                                                  
|             |  |                                                              
|Exhibit 12  |  | Computation of Deficiency of Earnings to Cover
	Fixed Charges