<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

 
                            ------------------------

 
                                   FORM 10-Q
 
            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

 
                            ------------------------

 
                         COMMISSION FILE NUMBER 1-14180

 
                            ------------------------

 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                                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 or
such shorter period and has been subject to such filing requirements for the
past 90 days.
 
     As of October 23, 1996, there were 191,092,308 shares of Loral Space &
Communications Ltd. common stock outstanding.


 
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<PAGE>   2
 
                         PART 1. FINANCIAL INFORMATION
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED         SIX MONTHS ENDED
                                                      SEPTEMBER 30,             SEPTEMBER 30,
                                                  ---------------------     ---------------------
                                                    1996         1995         1996         1995
                                                  --------     --------     --------     --------
<S>                                               <C>          <C>          <C>          <C>
Management fee from affiliate...................  $  1,837     $  1,589     $  3,375     $  2,446
Costs and expenses..............................    (7,389)        (822)     (11,075)      (1,510)
Interest income.................................     9,974           --       18,120           --
Allocated interest expense......................        --       (2,920)          --       (5,466)
                                                  --------     --------     --------     --------
Income (loss) before income taxes and equity in
  net loss of affiliates........................     4,422       (2,153)      10,420       (4,530)
Provision (benefit) for income taxes............       921         (745)       1,641       (1,613)
                                                  --------     --------     --------     --------
Income (loss) before equity in net loss of
  affiliates....................................     3,501       (1,408)       8,779       (2,917)
Equity in net loss of affiliates................      (548)      (3,370)      (4,525)      (5,877)
                                                  --------     --------     --------     --------
Net income (loss)...............................  $  2,953     $ (4,778)    $  4,254     $ (8,794)
                                                  ========     ========     ========     ========
Weighted average number of common and equivalent
  shares outstanding............................   233,728      171,526      225,600      171,007
                                                  ========     ========     ========     ========
Earnings (loss) per share.......................  $   0.01     $  (0.03)    $   0.02     $  (0.05)
                                                  ========     ========     ========     ========
</TABLE>
 
           See notes to condensed consolidated financial statements.
 
                                        1
<PAGE>   3
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)
                                  (Unaudited)
 
<TABLE>
<CAPTION>
                                                                      SEPTEMBER 30,
                                                                          1996
                                                                      -------------     MARCH 31,
                                                                                          1996
                                                                                        ---------
                                                                                         (NOTE)
<S>                                                                   <C>               <C>
                                             ASSETS
Current assets:
  Cash and cash equivalents.........................................    $ 592,734       $      12
  Other assets......................................................       23,008              --
                                                                       ----------        --------
Total current assets................................................      615,742              12
Property, plant and equipment, net..................................       18,498              --
Investment in affiliates............................................      441,984         339,272
Other assets........................................................       26,394           9,800
Deferred income taxes...............................................           --           5,312
                                                                       ----------        --------
                                                                        $1,102,618      $ 354,396
                                                                       ==========        ========
                      LIABILITIES AND SHAREHOLDERS' EQUITY/INVESTED EQUITY
Current liabilities:
  Accounts payable..................................................    $   5,606       $      --
  Accrued expenses..................................................        2,297              --
  Income taxes payable..............................................        2,796              --
                                                                       ----------        --------
Total current liabilities...........................................       10,699              --
Deferred income taxes...............................................        4,060              --
Long-term liabilities...............................................       10,550              --
Shareholders' equity/invested equity:
  Invested equity...................................................           --         354,384
  Series A convertible preferred stock, par value $.01; 150,000,000
     shares authorized, 45,896,977 shares issued and outstanding at
     September 30, 1996.............................................          459              --
  Series B preferred stock, par value $.01; 750,000 shares
     authorized and unissued........................................           --              --
  Common stock, par value $.01; 750,000,000 shares authorized,
     191,092,308 shares issued and outstanding at September 30,
     1996; 12,000 shares at March 31, 1996..........................        1,911              --
  Paid-in capital...................................................    1,070,685              12
  Retained earnings.................................................        4,254              --
                                                                       ----------        --------
Total shareholders' equity/invested equity..........................    1,077,309         354,396
                                                                       ----------        --------
                                                                        $1,102,618      $ 354,396
                                                                       ==========        ========
</TABLE>
 
---------------
 
Note: The March 31, 1996 balance sheet has been derived from the audited
      financial statements at that date.
 
           See notes to condensed consolidated financial statements.
 
                                        2
<PAGE>   4
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                  (Unaudited)
 
<TABLE>
<CAPTION>
                                                                           SIX MONTHS ENDED
                                                                             SEPTEMBER 30,
                                                                         ---------------------
                                                                           1996         1995
                                                                         --------     --------
<S>                                                                      <C>          <C>
Operating activities:
  Net income (loss)....................................................  $  4,254     $ (8,794)
  Equity in net loss of affiliates.....................................     4,525        5,877
  Tax benefit of Globalstar partnership losses.........................        --        4,445
  Deferred taxes.......................................................        --       (2,463)
  Depreciation.........................................................       613           --
  Changes in operating assets and liabilities..........................   (17,277)          --
                                                                         --------     --------
Cash used in operating activities......................................    (7,885)        (935)
                                                                         --------     --------
Investing activities:
  Payment for Globalstar service provider rights.......................        --       (9,800)
  Proceeds from sale of property, plant and equipment..................     5,003           --
  Investments in affiliates............................................    (6,425)      (4,059)
  Capital expenditures.................................................      (658)          --
                                                                         --------     --------
Cash used in investing activities......................................    (2,080)     (13,859)
                                                                         --------     --------
Financing activities:
  Proceeds from the Distribution.......................................   612,274           --
  Transaction expenses related to the Distribution.....................   (12,000)          --
  Advances from Loral Corporation prior to the Distribution............     2,425       14,794
                                                                         --------     --------
Cash provided by financing activities..................................   602,699       14,794
                                                                         --------     --------
Increase in cash and cash equivalents..................................   592,734           --
Cash and cash equivalents -- beginning of period.......................        --           --
                                                                         --------     --------
Cash and cash equivalents -- end of period.............................  $592,734     $     --
                                                                         ========     ========
Non-cash investing and financing activities:
  Assets transferred from Loral Corporation at the Distribution........  $ 36,622
                                                                         ========
  Liabilities assumed from Loral Corporation at the Distribution.......  $ 15,650
                                                                         ========
  Acquisition of the interest in SS/L held by certain partnerships
     affiliated with Lehman Brothers:
       Issuance of Loral common stock..................................  $100,313
                                                                         ========
       Transfer of GTL common stock, at cost...........................  $  5,150
                                                                         ========
</TABLE>
 
           See notes to condensed consolidated financial statements.
 
                                        3
<PAGE>   5
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1)  FORMATION OF LORAL SPACE & COMMUNICATIONS LTD.
 
          Loral Space & Communications Ltd. (the "Company" or "Loral") is one of
     the world's leading satellite communications companies, with substantial
     interests in both the manufacture and operation of geosynchronous and
     low-earth orbit satellite systems. Loral manages and is the largest equity
     owner of Space Systems/Loral, Inc. ("SS/L"), one of the world's leading
     manufacturers of space systems, and Globalstar, L.P. ("Globalstar"), a
     system of LEO satellites expected to be placed in service in 1998 that will
     support digital telephone service to handheld and fixed terminals
     worldwide. Loral together with its partners will act as Globalstar service
     providers in Canada, Brazil and Mexico, and with Qualcomm, Inc.
     ("Qualcomm"), holds the exclusive right to provide in-flight phone service
     using Globalstar in the United States. In addition, Loral recently agreed
     to purchase Skynet, the third largest domestic satellite service provider,
     from AT&T. Loral also holds FCC licenses for two orbital slots overlooking
     the Western Hemisphere, which it intends to use in conjunction with the
     Skynet business. Loral was formed to effectuate the distribution of Loral
     Corporation's ("Old Loral") space and telecommunications businesses (the
     "Distribution") to shareholders of Old Loral and holders of options to
     purchase Old Loral common stock pursuant to a merger agreement (the
     "Merger") dated January 7, 1996 between Old Loral and Lockheed Martin
     Corporation ("Lockheed Martin"). Certain other assets and liabilities of
     Old Loral were transferred to Loral at the Distribution.
 
          The Distribution of approximately 183.6 million shares of Loral common
     stock was made on April 23, 1996. In connection with the Distribution,
     Lockheed Martin contributed $612 million in cash to the Company. Of the
     amount contributed, $344 million represented the purchase of 45,896,977
     shares of Loral Series A Convertible Preferred Stock. Such stock is subject
     to certain voting limitations, restrictions on transfer and standstill
     provisions.
 
2)  BASIS OF PRESENTATION
 
          The accompanying unaudited condensed consolidated financial statements
     have been prepared by Loral 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.
     Certain information and footnote disclosures normally included in financial
     statements prepared in accordance with generally accepted accounting
     principles 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 six months ended September 30, 1996, 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
     financial statements and notes thereto included in the Company's latest
     Annual Report on Form 10-K. References to Loral or the Company prior to the
     Distribution refer to the space and communications operations of Old Loral.
 
          Loral records its investments in Globalstar and SS/L using the equity
     method of accounting. Accordingly, Loral's results of operations reflect
     its proportionate share of the results of operations of its affiliates on
     an equity accounting basis.
 
          The results of operations for the three and six months ended September
     30, 1995, include allocations and estimates of certain expenses of Loral
     based upon estimates of actual services performed by Old Loral on behalf of
     Loral. The amount of corporate office expenses for the three and six months
     ended September 30, 1995 has been estimated based primarily on the
     allocation methodology prescribed by government regulations pertaining to
     government contractors, which management of Loral believes is a reasonable
     allocation method.
 
          For the three and six months ended September 30, 1995, interest was
     allocated to Loral based upon Old Loral's historical weighted average debt
     cost applied to the average investment in affiliates, which
 
                                        4
<PAGE>   6
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     management of Loral believes to be a reasonable allocation method. Interest
     related to Old Loral's investment in Globalstar was capitalized because
     Globalstar has not commenced commercial operations.
 
3)  INVESTMENT IN AFFILIATES
 
          Investment in affiliates is summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                      SEPTEMBER 30,     MARCH 31,
                                                                          1996            1996
                                                                      -------------     ---------
    <S>                                                               <C>               <C>
    SS/L............................................................    $ 260,880       $ 144,051
    Globalstar......................................................      181,104         195,221
    K & F...........................................................       22,602          22,937
    Deferred K & F Gain.............................................      (22,602)        (22,937)
                                                                         --------        --------
                                                                        $ 441,984       $ 339,272
                                                                         ========        ========
</TABLE>
 
          Equity in net income (loss) of affiliates consists of (in thousands):
 
<TABLE>
<CAPTION>
                                                                           SIX MONTHS ENDED
                                                                             SEPTEMBER 30,
                                                                      ---------------------------
                                                                          1996            1995
                                                                      -------------     ---------
    <S>                                                               <C>               <C>
    SS/L............................................................    $   6,859       $   1,976
    Globalstar......................................................      (11,384)        (12,298)
    Tax benefit of Globalstar partnership losses....................           --           4,445
                                                                         --------         -------
                                                                        $  (4,525)      $  (5,877)
                                                                         ========         =======
</TABLE>
 
          In April 1996, Loral purchased an additional $2.5 million principal
     amount of the Globalstar Telecommunications Limited ("GTL") Convertible
     Preferred Equivalent Obligations. Interest income includes $1.8 million and
     $3.5 million, respectively for the three and six month periods ended
     September 30, 1996, on the Company's investment in the GTL Convertible
     Preferred Equivalent Obligations.
 
          The following table represents the summary of results of operations of
     Loral's affiliates for the six months ended September 30, 1996 and 1995 (in
     thousands):
 
<TABLE>
<CAPTION>
                                                            1996                               1995
                                              --------------------------------   --------------------------------
                                              GLOBALSTAR     SS/L      K & F     GLOBALSTAR     SS/L      K & F
                                              ----------   --------   --------   ----------   --------   --------
    <S>                                       <C>          <C>        <C>        <C>          <C>        <C>
    Revenues................................   $     --    $613,832   $142,503    $     --    $489,159   $131,486
    Operating income (loss).................    (29,396)     31,897     29,244     (38,138)     11,803     22,249
    Income (loss) before extraordinary loss
      on K&F debt refinancing...............    (24,795)     18,490      9,720     (30,116)      6,042      1,344
    Net income (loss).......................    (24,795)     18,490        578     (30,116)      6,042      1,344
    Net loss applicable to ordinary
      partnership interests.................    (35,390)         --         --     (30,116)         --         --
</TABLE>
 
          Loral has made a strategic decision to increase its ownership in SS/L
     to 100%. The first step in implementing this strategy was the acquisition
     by Loral in August 1996 of the 18.3% interest in SS/L owned by certain
     partnerships affiliated with Lehman Brothers (the "Lehman Partnerships") in
     exchange for 7,500,000 newly issued shares of common stock of the Company,
     267,256 shares of common stock of GTL previously held by the Company and $4
     million in cash. As a result of this transaction, the Company increased its
     interest in SS/L from 32.7% to 51%. Loral also recently made offers to
     SS/L's Alliance Partners to acquire their respective ownership interests in
     SS/L in exchange for equity securities or securities convertible into
     equity securities of Loral or, under certain circumstances, for cash. Two
     of the Alliance Partners have indicated their interest to exchange their
     equity interest in SS/L for equity securities or convertible equity
     securities of the Company. The remaining two Alliance Partners initially
 
                                        5
<PAGE>   7
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     expressed an interest in exchanging their shares of SS/L common stock for
     cash, but are currently reconsidering whether to accept such securities.
     Following any exchange by an Alliance Partner of SS/L common stock for
     equity securities or convertible equity securities of the Company, such
     Alliance Partner would retain its representation on the SS/L Board of
     Directors and its strategic operating relationship with SS/L.
 
4)  RECENTLY ADOPTED FINANCIAL ACCOUNTING PRONOUNCEMENTS
 
          In March 1995, the Financial Accounting Standards Board issued
     Statement of Financial Accounting Standards No. 121, "Accounting for the
     Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
     Of" ("SFAS 121"), which is required to be adopted for fiscal years
     beginning after December 15, 1995. SFAS 121 establishes the accounting
     standards for the impairment of long-lived assets, certain intangible
     assets and cost in excess of net assets acquired to be held and used, and
     for long-lived assets and certain intangible assets to be disposed of. The
     Company has adopted SFAS 121 and such adoption did not have any effect on
     its results of operations or financial position.
 
          In October 1995, the Financial Accounting Standards Board issued
     Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
     which is required to be adopted by fiscal 1996. SFAS 123 establishes
     accounting and disclosure requirements using a fair value based method of
     accounting for stock-based employee compensation plans (including stock
     arrangements by investors for the benefit of their investees). Under SFAS
     123 the Company may either adopt the new fair value based accounting method
     or continue the intrinsic value based method and provide pro forma
     disclosures of net income and earnings per share as if the accounting
     provisions of SFAS 123 had been adopted. The Company has adopted SFAS 123
     and elected to continue the intrinsic value based method of accounting for
     stock-based employee compensation plans and provide the required pro forma
     disclosures; therefore, the adoption of SFAS 123 did not have any effect on
     Loral's reported results of operations.
 
5)  SUBSEQUENT EVENTS
 
          On September 25, 1996, Loral entered into a definitive agreement to
     acquire Skynet Satellite Services ("Skynet") from AT&T for $712.5 million
     in cash, subject to a dollar-for-dollar adjustment to the extent that
     Skynet's net assets delivered on the closing date, measured in accordance
     with the Asset Purchase Agreement, are more or less than $487 million. The
     Company intends to finance a significant portion of the purchase price with
     debt. Skynet is a leading U.S. satellite communications service provider
     that owns and operates the Telstar satellite network. The transaction is
     subject to regulatory approvals and is expected to conclude during the
     first quarter of 1997.
 
                                        6
<PAGE>   8
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
the Company with the Securities and Exchange Commission, press releases or oral
statements made by or with the approval of an authorized executive officer of
the Company. Actual results could differ materially from any forward-looking
statements as a result of a wide variety of factors and conditions which are
described below.
 
LORAL SPACE & COMMUNICATIONS LTD.
 
     Loral is one of the world's leading satellite communications companies,
with substantial interests in both the manufacture and operation of
geosynchronous and low-earth orbit satellite systems. Loral manages and is the
largest equity owner of SS/L, one of the world's leading manufacturers of space
systems, and Globalstar, a system of LEO satellites expected to be placed in
service in 1998 that will support digital telephone service to handheld and
fixed terminals worldwide. Loral together with partners will act as Globalstar
service providers in Canada, Brazil and Mexico and with Qualcomm holds the
exclusive right to provide in-flight phone service using Globalstar in the
United States. In addition, Loral recently agreed to purchase Skynet, the third
largest domestic satellite service provider, from AT&T. Loral also holds FCC
licenses for two orbital slots overlooking the Western Hemisphere, which it
intends to use in conjunction with the Skynet business.
 
     Loral intends to pursue additional satellite-based communications services
opportunities, including the international expansion of Skynet's satellite
service business, and CyberStar, a proposed worldwide high-speed communications
system comprised of three GEO satellites designed to provide interactive,
broadband multimedia data transmission. Loral holds FCC Orbital position
assignments, subject to final licensing for two of the necessary CyberStar
orbital slots, and has applied for the third. Loral is also developing LINCSS, a
location information service that is designed to improve the accuracy of GPS
receivers from 100 meters to 5 centimeters or less, and is pursuing
opportunities in partnership with others to offer domestic and international
direct-to-home ("DTH") services. The Company, through SS/L, recently established
a joint venture with Mabuhay to provide DTH services to the Philippines.
 
     Loral records its investments in Globalstar and SS/L using the equity
method of accounting. Accordingly, Loral's results of operations reflect its
proportionate share of the results of operations of its affiliates on an equity
accounting basis.
 
     Loral was formed on April 23, 1996. References to Loral or the Company
prior to that date refer to the space and communications operations of Loral
Corporation ("Old Loral").
 
     On September 25, 1996, Loral entered into a definitive agreement to acquire
Skynet from AT&T for $712.5 million in cash, subject to a dollar-for-dollar
adjustment to the extent that Skynet's net assets delivered on the closing date,
measured in accordance with the Asset Purchase Agreement, are more or less than
$487 million. The Company intends to finance a significant portion of the
purchase price with debt. Skynet is a leading U.S. satellite communications
service provider that owns and operates the Telstar satellite network. The
transaction is subject to regulatory approvals and is expected to conclude
during the first quarter of 1997.
 
     Future operating results of Loral will be dependent on a number of factors
including the results of operations of Globalstar and SS/L and upon closing of
the Skynet acquisition, the results of operations of Skynet, the level of
corporate operating expenses, the utilization of the available cash balances and
the extent of interest income or other investment income. Loral currently
anticipates having net income for the period ending December 31, 1996.
 
                                        7
<PAGE>   9
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At September 30, 1996, Loral had $593 million of cash and cash equivalents.
Loral intends to utilize its existing capital base and access to the capital
markets to pay for the Skynet acquisition, make additional investments in
Globalstar, increase its ownership in SS/L, and invest in or acquire additional
satellite telecommunications businesses and opportunities such as CyberStar.
Globalstar and SS/L are currently financed without recourse to Loral other than
the indemnification provided to Lockheed Martin in connection with Lockheed
Martin's guarantee under the Globalstar credit agreement.
 
     Globalstar and SS/L have no history of paying dividends and are not
expected to pay dividends in the near future. The Globalstar and the SS/L credit
facilities impose restrictions on Globalstar's and SS/L's ability to pay
distributions or dividends to its partners and stockholders. In addition,
Globalstar does not expect to make distributions until after it has commenced
full commercial operations. It is anticipated that Loral will fund its operating
requirements from interest income generated from the temporary investment of
cash balances and the receipt of SS/L management fees and from the operations of
Skynet after the closing of the Skynet acquisition.
 
     Skynet. The Company intends to finance a significant portion of the Skynet
$712.5 million purchase price with debt. Currently, Skynet has a contract with
SS/L for the construction of one satellite and has an option for two additional
satellites and one ground spare. Loral believes that capital expenditures
through 1999 to fund the satellite under construction, two of the satellites
under option and ground equipment will total approximately $450 million. Based
on current projections, Loral believes that Skynet's internal cash flows will be
adequate to fund capital expenditures and service the interest and retire the
principal of the debt to be incurred to finance the acquisition.
 
     Globalstar. Globalstar currently estimates the cost for the design,
construction and deployment of the Globalstar System, including working capital,
cash interest on anticipated borrowings and operating expenses to be
approximately $2.5 billion, as compared with approximately $2.2 billion
estimated at December 31,1995. Actual amounts may vary from this estimate and
additional funds would be required in the event of unforeseen delays, cost
overruns, launch failures, technological risks, adverse regulatory developments,
or to meet unanticipated expenses and for system enhancements and measures to
assure system performance and readiness for the space and ground segments. As of
September 30, 1996, Globalstar has raised or received commitments for
approximately $1.4 billion. Globalstar believes that its current capital, vendor
financing commitments and the availability of the Globalstar credit agreement
are sufficient to fund its requirements into the first quarter of 1997.
Globalstar intends to raise the remaining funds required for the Globalstar
System from a combination of sources, including debt issuance (which may include
an equity component), exercise of warrants, financial support from the
Globalstar partners, projected service provider payments, projected net service
revenues from initial operations, anticipated payments received from the sale of
gateways and Globalstar phones and placement of partnership interests with new
and existing strategic investors. Although Globalstar believes it will be able
to obtain these additional funds, there can be no assurance that such funds,
will be available on favorable terms or on a timely basis, if at all.
 
     In connection with the merger between Old Loral and Lockheed Martin,
Lockheed Martin assumed $206 million of the guarantee on the Globalstar credit
agreement. The balance of $44 million of the guarantee was assumed by various
Globalstar partners. Loral has agreed to indemnify Lockheed Martin for its
liability in excess of $150 million under its guarantee of the Globalstar credit
agreement.
 
     SS/L. Loral has made a strategic decision to increase its ownership in SS/L
to 100%. The first step in implementing this strategy was the acquisition by
Loral in August 1996 of the 18.3% interest in SS/L owned by the Lehman
Partnerships in exchange for 7,500,000 newly issued shares of Common Stock of
the
 
                                        8
<PAGE>   10
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
 
Company, 267,256 shares of common stock of GTL previously held by the Company
and $4 million in cash. As a result of this transaction, the Company increased
its interest in SS/L from 32.7% to 51%. Loral also recently made offers to
SS/L's Alliance Partners to acquire their respective ownership interests in SS/L
in exchange for equity securities or securities convertible into equity
securities of Loral or, under certain circumstances, for cash. Two of the
Alliance Partners have indicated their interest to exchange their equity
interests in SS/L for equity securities or convertible equity securities of the
Company. The remaining two Alliance Partners initially expressed an interest in
exchanging their shares of SS/L common stock for cash, but are currently
reconsidering whether to accept such securities. Following any exchange by an
Alliance Partner of SS/L common stock for equity securities or convertible
equity securities of the Company, such Alliance Partner would retain its
representation on the SS/L Board of Directors and its strategic operating
relationship with SS/L. If Loral increases its ownership in SS/L to 100%, Loral
will discontinue the use of the equity method of accounting for SS/L and will
consolidate SS/L's financial position and results of operations in its financial
statements.
 
     SS/L is the prime contractor for the design and construction of
Globalstar's 56 satellites. In connection therewith, SS/L and its subcontractors
have committed $310 million of vendor financing to Globalstar, of which $121
million of such vendor financing is effectively borne by the subcontractors. The
Company believes that SS/L's existing credit facilities are adequate to meet
SS/L's present financing requirements.
 
     Other Business Opportunities. Loral intends to pursue additional
satellite-based communications service opportunities. These opportunities are in
formative stages and there can be no assurances that they will be further
developed or licensed, or that the necessary capital to complete such
opportunities will be available.
 
     Cash Used and Provided. Cash used in operating activities for the six
months ended September 30, 1996 and 1995 was $7.9 million and $0.9 million,
respectively, primarily due to the items discussed in Results of Operations and
increases in other assets.
 
     Cash used in investing activities for the six months ended September 30,
1996 and 1995 was $2.1 million and $13.9 million, respectively, primarily due to
the purchase of $2.5 million principal amount of GTL Convertible Preferred
Equivalent Obligations in April 1996 and $4 million used in connection with the
purchase of the Lehman Partnerships' interest in SS/L in August 1996, offset by
the sale of property, plant and equipment, compared with the initial payment of
$9.8 million for the Globalstar Canadian service provider rights and additional
capitalized interest in 1995.
 
     Net cash provided by financing activities for the six months ended
September 30, 1996 and 1995 was $602.7 million and $14.8 million, respectively,
representing the proceeds from the Distribution and advances from Old Loral
offset by cash paid for transaction expenses related to the Distribution in 1996
compared with advances from Old Loral to fund the above-mentioned activities in
1995.
 
RESULTS OF OPERATIONS
 
     The results of operations for the three and six months ended September 30,
1995 include allocations and estimates of certain expenses of Loral based upon
estimates of actual services performed by Old Loral on behalf of Loral. The
amount of corporate office expenses for the three and six months ended September
30, 1995 has been estimated based primarily on the allocation methodology
prescribed by government regulations pertaining to government contractors, which
management of Loral believes is a reasonable allocation method.
 
     For the three and six months ended September 30, 1995, interest was
allocated to Loral based upon Old Loral's historical weighted average debt cost
applied to the average investment in affiliates, which management of Loral
believes to be a reasonable allocation method. Interest related to Old Loral's
investment in Globalstar has been capitalized because Globalstar has not
commenced its principal operations.
 
                                        9
<PAGE>   11
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
 
     The results of operations reflect net income of $3.0 million and $4.3
million for the three and six months ended September 30, 1996 versus a net loss
of $4.8 million and $8.8 million for the same periods in 1995. The increase in
net income was primarily the result of an increase in interest income due to
investment of cash proceeds from the Distribution and no allocated interest
expense. The increase in interest income was partially offset by an increase in
operating expenses. The increase in operating expenses was a result of the
Company operating on a stand alone basis without the benefit of economies of
scale as part of Old Loral.
 
     The equity in net loss of affiliates decreased to $0.5 million and $4.5
million for the three and six months ended September 30, 1996 from $3.4 million
and $5.9 million for the same periods in 1995, primarily due to Loral's
proportionate share of Globalstar's development costs offset by the
proportionate share of SS/L's income (see Note 3 to the Condensed Consolidated
Financial Statements).
 
     Loral will be subject to U.S. federal, state and local income tax at
regular corporate rates on any income that is effectively connected with the
conduct of a U.S. trade or business. When such income is deemed removed from the
U.S. business, it will be subject to an additional 30 percent "branch profits"
tax. Also, the world-wide income of any U.S. subsidiaries is subject to U.S.
income taxation at regular corporate rates. For the three and six months ended
September 30, 1996, the Company recorded income tax expense of $0.9 million and
$1.6 million. For the year ended March 31, 1996, the Company's operations were
included in the consolidated tax returns of Old Loral. For the three and six
months ended September 30, 1995, the income tax benefit of $0.7 million and $1.6
million was computed as if Old Loral's space and communications operations was a
separate taxpayer.
 
SUMMARY RESULTS OF OPERATIONS OF AFFILIATES
 
GLOBALSTAR, L.P. RESULTS OF OPERATIONS
 
     Globalstar is a development stage partnership and has not commenced
commercial service operations. The net loss applicable to ordinary partnership
interests for the six months ended September 30, 1996 increased to $35.4 million
from $30.1 million for the comparable period in the prior year. The increase in
the net loss is a result of lower interest income and the preferred distribution
on the redeemable preferred partnership interests of $10.6 million allocated to
the ordinary partnership interests. Marketing, general and administrative
expenses remained at a constant level in each period. Globalstar is expending
significant funds for the design, construction, testing and deployment of the
Globalstar System and expects such losses to continue through commencement of
revenue generating service operations.
 
     Interest income for the six months ended September 30, 1996 and 1995 was
$4.6 million and $8.0 million, respectively. Interest income decreased as a
result of lower average cash balances outstanding.
 
     Development costs for the six months ended September 30, 1996 and 1995 were
$21.0 million and $29.7 million, respectively, and reflect the development of
certain technologies under Globalstar's contract with Qualcomm and Globalstar's
in-house engineering.
 
SPACE SYSTEMS/LORAL RESULTS OF OPERATIONS
 
     Revenues for the six months ended September 30, 1996 increased to $613.8
million from $489.2 million for the same period in the prior year. Net income
for the six months ended September 30, 1996 increased to $18.5 million compared
with $6.0 million in the prior year primarily as the result of higher revenue.
 
     The increase in revenues was attributable primarily to higher volume on
commercial satellite contracts, including the Globalstar, Pioneer and Telstar
programs, offset by lower volume on the NStar and Tempo programs.
 
                                       10
<PAGE>   12
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
 
RECENTLY ADOPTED FINANCIAL ACCOUNTING PRONOUNCEMENTS
 
     In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
which is required to be adopted for fiscal years beginning after December 15,
1995. SFAS 121 establishes the accounting standards for the impairment of
long-lived assets, certain intangible assets and cost in excess of net assets
acquired to be held and used, and for long-lived assets and certain intangible
assets to be disposed of. The Company has adopted SFAS 121 and such adoption did
not have any effect on its results of operations or financial position.
 
     In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is
required to be adopted by fiscal 1996. SFAS 123 establishes accounting and
disclosure requirements using a fair value based method of accounting for stock
based employee compensation plans (including stock arrangements by investors for
the benefit of their investees). Under SFAS 123 the Company may either adopt the
new fair value based accounting method or continue the intrinsic value based
method and provide pro forma disclosures of net income and earnings per share as
if the accounting provisions of SFAS 123 had been adopted. The Company has
adopted SFAS 123 and elected to continue the intrinsic value based method of
accounting for stock-based employee compensation plans and provide the required
pro forma disclosures; therefore, the adoption of SFAS 123 did not have any
effect on Loral's reported results of operations.
 
CERTAIN FACTORS THAT MAY EFFECT FUTURE RESULTS
 
     This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
the Company with the Securities and Exchange Commission, press releases or oral
statements made by or with the approval of an authorized executive officer of
the Company. Actual results could differ materially from those projected or
suggested in any forward-looking statements as a result of a wide variety of
factors and conditions, including, but not limited to, the factors summarized
below. These factors and other factors and conditions have been described in the
section of the Company's Information Statement, dated April 12, 1996, entitled
"Risk Factors" and other documents that the Company and its affiliates file from
time to time with the Securities and Exchange Commission including the Company's
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K, and the shareholder is specifically referred to these documents
with regard to the factors and conditions that may affect future results.
 
     The Company's ability to successfully develop and provide a variety of
satellite-based services will depend upon various factors, many of which may be
beyond the control of the Company. The Company's prospects and financial
condition will depend on its ability, among other things, to operate in a
regulated environment, compete with others for customers, frequency assignments
and orbital slots, fund the capital needs of the programs that it is pursuing,
design, launch and operate satellite systems effectively, market its services
and keep pace with technological advances and innovations.
 
     The FCC regulates the use of radio spectrum in the United States, including
the licensing of satellites designed to provide domestic or international
service. The Company has a number of applications pending before the FCC for
licenses to construct, launch and operate various satellite systems. While the
Company has received FCC authorization with respect to several of its proposed
programs, such authorizations remain subject to petitions for reconsideration.
 
                                       11
<PAGE>   13
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
 
     The Company's pending FCC application for CyberStar and for two extended
Ku-band systems have been challenged by third parties before the FCC. In
determining whether to grant the Company authorization, the FCC must evaluate
whether the Company meets the FCC's financial qualification requirements.
Regulatory delays could adversely affect the Company or result in significant
cost increases. In addition, even if the FCC were to grant the Company its
requested authorizations, such authorizations are subject to petitions for
reconsideration and judicial review. The failure by the Company to meet
construction and other milestones established with the FCC may also result in
the revocation of its authorizations.
 
     The Company's operations are subject to international coordination. The
failure to successfully coordinate its satellites on an international basis may
adversely affect the Company's ability to provide services outside the United
States. The Company's two Ka-band orbital slots for Cyberstar are located in
positions that are subject to prior claims of parties from other countries.
 
     The space and communications industry is highly competitive and is
dominated by companies with significantly greater financial, technical and
regulatory resources than those of the Company. The Company will compete with
such parties for customers and for local regulatory approval in jurisdictions in
which the Company or such third parties may wish to operate. In addition, the
Company will have to compete for allocation of scarce frequency assignments and
geosynchronous orbital slots in order to pursue its business plan.
 
     The Company is currently considering a number of opportunities that will
involve significant capital expenditures by the Company, many of which will not
be expected to generate revenues until years after such capital outlay. In
addition, the capital requirements of SS/L and Globalstar are also significant.
In order to fully fund all such opportunities or to make additional investments
in SS/L and Globalstar, the Company may need to issue debt or equity securities
or engage in other financing activities, which may include offerings of debt or
equity securities of SS/L and Globalstar. In addition, any issuance of equity
securities by SS/L and Globalstar may result in a dilution of the Company's
equity interest to the extent the Company does not participate therein. A
shortfall in meeting such capital needs could prevent completion of some or all
of the projects currently being pursued by the Company or SS/L and Globalstar.
 
     The Company is expected to incur significant indebtedness to finance its
acquisition of Skynet. The debt financing expected to be incurred by the Company
in connection with the Skynet acquisition, together with any additional
indebtedness that may be incurred by the Company in the future, may restrict or
limit the Company's ability to make dividend payments on its capital stock, to
incur additional indebtedness and to enter into certain other transactions.
 
     The closing of the Skynet acquisition is subject to a number of conditions
including, among others, the receipt of FCC approval for license transfers and
the expiration or early termination of the waiting period under the HSR Act.
While the Company expects to close the acquisition during the first quarter of
1997, there can be no assurance that the Skynet acquisition will be consummated.
 
     While the Company manages SS/L and Globalstar, the Globalstar partnership
agreement and the SS/L stockholders agreement limit the ability of the Company
to take certain actions without the approval of, in the case of Globalstar, at
least one Independent Representative to the General Partners' Committee or, in
the case of SS/L, at least two and in some cases all of the directors appointed
by the Alliance Partners. As a result, the Company may be unable to cause SS/L
and Globalstar to take actions which the Company might deem to be in its best
interests.
 
     The Company expects that a substantial portion of its business will be
conducted outside of the United States. Such operations are subject to certain
risks such as changes in domestic and foreign government regulations and
telecommunications standards, tariffs or taxes and other trade barriers.
Accordingly, govern-
 
                                       12
<PAGE>   14
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
 
ment actions in foreign countries could have a significant effect on the
Company's operations. Political, economic or social instability or other
developments in such countries, including currency fluctuations, could also
adversely affect the Company's operations. In addition, the Company's agreements
relating to local operations may be governed by foreign law or enforceable only
in foreign jurisdictions. As a result, in the event of a dispute, it may be
difficult for the Company to enforce its rights under such agreements.
 
     The space and communications industries are characterized by rapid
technological advances and innovations. There is no assurance that one or more
of the technologies utilized or under development by the Company may not become
obsolete, or that its services will be in demand by the time they are offered.
The Company will be dependent upon technologies developed by third parties to
implement key aspects of its strategy to integrate its satellite systems with
terrestrial networks, and there can be no assurance that such technologies will
be available to the Company on a timely basis or on reasonable terms.
 
     Shareholders and partners of the SS/L and Globalstar, and shareholders of
the Company, are principal suppliers to, subcontractors for, and customers of or
service providers for SS/L and Globalstar. In addition, SS/L is the prime
contractor for Globalstar's satellite constellation and for Skynet's Telstar
satellites. SS/L and its subcontractors have provided vendor financing to
Globalstar in connection therewith. As a result, conflicts of interest may arise
with respect to such contracts and arrangements. The Globalstar partnership
agreement and the SS/L stockholders agreement provide for certain procedures
relating to the approval of agreements entered into by Globalstar and its
partners, and by SS/L and its stockholders, respectively.
 
                                       13
<PAGE>   15
 
                          PART II -- OTHER INFORMATION
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) Exhibits
 
     The following exhibits are filed as part of this report:
 
          Exhibit 11.1 -- Computation of Earnings (Loss) per Share for the three
                          months ended September 30, 1996 and 1995.
 
          Exhibit 11.2 -- Computation of Earnings (Loss) per Share for the six
                          months ended September 30, 1996 and 1995.
 
          Exhibit 27  -- Financial Data Schedule
 
     (b) Reports on Form 8-K
 
<TABLE>
<CAPTION>

      DATE OF REPORT                                   DESCRIPTION
    -------------------    -------------------------------------------------------------------
    <S>                    <C>
    August 9, 1996         Item 5. -- The Company acquired all the SS/L Series S Preferred
                           Stock held by certain partnerships affiliated with Lehman Brothers.
    September 27, 1996     Item 5. -- The Company agreed to purchase the operations and assets
                           of the Skynet Satellite Services from AT&T.
</TABLE>
 
                                   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

Date: October 23, 1996

                                                    MICHAEL P. DEBLASIO
                                             --------------------------------- 
                                              Senior Vice President -- Chief
                                                    Financial Officer
                                                           and
                                             Registrant's Authorized Officer
 
                                       14
<PAGE>   16
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
   EXHIBIT NO.                                      DESCRIPTION
------------------    -----------------------------------------------------------------------
<S>                   <C>
11.1 and 11.2         COMPUTATION OF EARNINGS (LOSS) PER SHARE
27                    FINANCIAL DATA SCHEDULE
</TABLE>