<PAGE>   1
 
================================================================================
                       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 MARCH 31, 1998
 
                         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 and
has been subject to such filing requirements for the past 90 days.
 
     As of April 30, 1998, there were 219,592,292 shares of Loral Space &
Communications Ltd. common stock outstanding.
 
================================================================================
<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
                                                                    MARCH 31,
                                                              ----------------------
                                                                1998          1997
                                                              --------      --------
<S>                                                           <C>           <C>
Revenues....................................................  $295,213      $340,353
Costs and expenses..........................................   294,231       331,016
                                                              --------      --------
Operating income............................................       982         9,337
Interest and investment income..............................     8,666        20,095
Interest expense............................................     1,720         9,956
                                                              --------      --------
Income before income taxes, minority interest and equity in
  net loss of affiliates....................................     7,928        19,476
Income taxes................................................     3,063         9,339
                                                              --------      --------
Income before minority interest and equity in net loss of
  affiliates................................................     4,865        10,137
Minority interest...........................................        62        (3,366)
Equity in net loss of affiliates............................   (20,370)       (7,177)
                                                              --------      --------
Net loss....................................................   (15,443)         (406)
Preferred dividends and accretion...........................   (11,606)
                                                              --------      --------
Net loss applicable to common stockholders..................  $(27,049)     $   (406)
                                                              ========      ========
Earnings (loss) per share:
  Basic.....................................................  $  (0.11)     $   0.00
                                                              ========      ========
  Diluted...................................................  $  (0.11)     $   0.00
                                                              ========      ========
Weighted average shares outstanding:
  Basic.....................................................   249,336       236,989
                                                              ========      ========
  Diluted...................................................   249,336       236,989
                                                              ========      ========
</TABLE>
 
           See notes to condensed consolidated financial statements.
                                        1
<PAGE>   3
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)
 
<TABLE>
<CAPTION>
                                                               MARCH 31,     DECEMBER 31,
                                                                 1998            1997
                                                              -----------    ------------
                                                              (Unaudited)       (Note)
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
     Cash and cash equivalents..............................  $  225,437      $  226,547
     Contracts in process...................................     480,783         378,134
     Inventories............................................     119,212          98,325
     Restricted current assets..............................      50,068
     Other current assets...................................      45,101          51,612
                                                              ----------      ----------
Total current assets........................................     920,601         754,618
Property, plant and equipment, net..........................   1,319,975         926,679
Cost in excess of net assets acquired, less amortization....     967,254         361,411
Long-term receivables.......................................     165,230         168,639
Restricted assets...........................................     286,337
Investments in affiliates...................................     470,769         481,967
Deposits....................................................     209,063         154,970
Other assets................................................     197,073         156,652
                                                              ----------      ----------
                                                              $4,536,302      $3,004,936
                                                              ==========      ==========
                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Current portion of debt................................  $    8,227      $    2,146
     Accounts payable.......................................     320,557         231,519
     Accrued employment costs...............................      38,600          38,797
     Customer advances......................................      59,806          68,287
     Accrued interest and preferred dividends...............      22,396          11,192
     Other current liabilities..............................      26,936          25,931
     Income taxes payable...................................      26,356          25,934
     Deferred income taxes..................................       1,683           4,187
                                                              ----------      ----------
Total current liabilities...................................     504,561         407,993
Deferred income taxes.......................................      50,380          99,696
Pension and other postretirement liabilities................      49,735          48,398
Long-term liabilities.......................................      53,917          31,388
Long-term debt..............................................   1,436,343         433,252
Minority interest...........................................      22,015          10,964
Commitments and contingencies (Notes 6, 8 and 9)
Shareholders' equity:
     Series A convertible preferred stock, par value $.01...         459             459
     Series B preferred stock, par value $.01...............
     6% Series C convertible redeemable preferred stock
       ($745,472 redemption value)..........................     734,178         733,762
     Common stock, par value $.01...........................       2,193           2,010
     Paid-in capital........................................   1,700,810       1,216,377
     Treasury stock, at cost................................      (3,360)         (1,680)
     Unearned compensation..................................     (10,446)           (249)
     Retained earnings (deficit)............................      (4,483)         22,566
                                                              ----------      ----------
Total shareholders' equity..................................   2,419,351       1,973,245
                                                              ----------      ----------
                                                              $4,536,302      $3,004,936
                                                              ==========      ==========
</TABLE>
 
---------------
Note: The December 31, 1997 balance sheet has been derived from the audited
      consolidated 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>
                                                              THREE MONTHS ENDED MARCH 31,
                                                              ----------------------------
                                                                  1998            1997
                                                              ------------    ------------
<S>                                                           <C>             <C>
Operating activities:
  Net loss..................................................   $  (15,443)     $     (406)
  Equity in net loss of affiliates..........................       20,370           7,177
  Minority interest.........................................          (62)          3,366
  Accretion on GTL CPEOs....................................         (375)           (605)
  Deferred taxes............................................          719           6,999
  Depreciation and amortization.............................       17,428           9,577
  Contracts in process and inventories......................     (109,457)         (9,320)
  Deposits..................................................      (54,093)        (14,700)
  Accounts payable and accured expenses.....................       59,896           8,546
  Taxes payable.............................................       (6,440)          1,576
  Customer advances.........................................       (8,481)        (75,359)
  Other.....................................................       (2,109)         10,681
                                                               ----------      ----------
Cash used in operating activities...........................      (98,047)        (52,468)
                                                               ----------      ----------
Investing activities:
  Cash acquired in connection with Orion acquisition........       53,801
  Acquisition of businesses, net of cash acquired...........                     (552,419)
  Investment in affiliates..................................       (5,407)        (30,144)
  Capital expenditures, net.................................      (62,132)        (46,247)
                                                               ----------      ----------
Cash used in investing activities...........................      (13,738)       (628,810)
                                                               ----------      ----------
Financing activities:
  Borrowings under revolving credit facility, net...........      104,972         106,092
  Contribution from minority partner........................        9,996
  Proceeds from exercise of stock options and issuances to
     employee savings plan..................................        6,889
  Preferred dividends.......................................      (11,182)
                                                               ----------      ----------
Cash provided by financing activities.......................      110,675         106,092
                                                               ----------      ----------
Decrease in cash and cash equivalents.......................       (1,110)       (575,186)
Cash and cash equivalents -- beginning of period............      226,547       1,180,752
                                                               ----------      ----------
Cash and cash equivalents -- end of period..................   $  225,437      $  605,566
                                                               ==========      ==========
Non-cash activities:
  Common stock issued to acquire Orion......................   $  469,000
                                                               ==========
  Issuance of convertible preferred equivalent obligations
     to acquire equity interest in SS/L.....................                   $   93,500
                                                                               ==========
Supplemental information:
  Interest paid.............................................   $   10,459      $    9,505
                                                               ==========      ==========
  Taxes paid................................................   $       31      $      756
                                                               ==========      ==========
</TABLE>
 
           See notes to condensed consolidated financial statements.
                                        3
<PAGE>   5
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1)  ORGANIZATION AND PRINCIPAL BUSINESS
 
          Loral Space & Communications Ltd. and subsidiaries (the "Company" or
     "Loral") is one of the world's leading satellite companies, with
     substantial activities in satellite manufacturing and satellite-based
     communications services. Space Systems/Loral, Inc. ("SS/L") is a leading
     designer and manufacturer of space systems. Loral Skynet ("Skynet"),
     acquired March 14, 1997, is a leading provider of satellite communications
     services in the United States. Skynet owns and operates the Telstar
     satellite network and is expanding its business internationally. Loral
     Orion Network Systems, Inc. ("Orion"), acquired on March 20, 1998 provides
     satellite-based communications services, focused primarily on private
     communications network services, Internet services and video distribution
     and other satellite transmission services. On November 17, 1997, a joint
     venture including Loral and another partner acquired 75% of Satelites
     Mexicanos, S.A. de C.V. ("SatMex"), a satellite services provider to Mexico
     and South America. Loral also manages and is the largest equity owner of
     Globalstar, L.P. ("Globalstar"), a global, mobile satellite telephony
     system scheduled for service initiation in early 1999. Loral is pursuing
     additional satellite-based communications service opportunities including
     CyberStar, a proposed worldwide high-speed broadband data services system
     initially using leased Ku-band transponder capacity on Skynet's Telstar 5
     satellite.
 
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 months ended March 31, 1998, 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.
 
3)  ACCOUNTING POLICIES
 
    COMPREHENSIVE INCOME
 
          Effective January 1, 1998, Loral adopted Financial Accounting
     Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS
     130"). During the periods presented, Loral had no changes in equity from
     transactions or other events and circumstances from non-owner sources.
     Accordingly, a statement of comprehensive loss has not been provided as
     comprehensive loss applicable to common stockholders equals net loss
     applicable to common stockholders for all periods presented.
 
    RESTRICTED ASSETS
 
          In connection with the Orion acquisition, Loral acquired cash and cash
     equivalents which are restricted in use to the construction of two
     satellites and payment of interest on Orion's senior notes. At March 31,
     1998, these restricted assets aggregated $336.4 million of which $50.1
     million is current.
 
                                        4
<PAGE>   6
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
    RECLASSIFICATIONS
 
          Certain reclassifications have been made to conform prior year amounts
     to current year presentation.
 
4)  ACQUISITIONS AND INVESTMENTS IN AFFILIATES
 
     ACQUISITIONS
 
          In February 1997, Loral agreed to acquire the remaining 49% of the
     common stock of SS/L held by four international aerospace and
     communications companies (the "Alliance Partners") for $374 million paid in
     cash and Loral securities. On March 14, 1997, Loral acquired Skynet for
     $462.1 million in cash.
 
          On March 20, 1998. Loral acquired all of the outstanding stock of
     Orion in exchange for Loral common stock. Loral issued 17.9 million shares
     of its common stock and assumed existing Orion options and warrants to
     purchase 1.9 million shares of Loral common stock representing an aggregate
     purchase price of $469 million. Orion currently has one satellite in orbit
     and two satellites under construction. The assets and liabilities recorded
     in connection with the purchase price allocation based on preliminary
     estimates were $1.43 billion and $957.2 million, respectively.
 
          The acquisition of Skynet and Orion and the remaining equity interest
     in SS/L have been accounted for as purchases. Loral's consolidated
     financial statements for the quarter ended March 31, 1997, reflect the
     results of operations of SS/L from January 1, 1997, the elimination of the
     minority interest of the SS/L equity not owned by Loral during the period
     and the results of operations of Skynet from March 14, 1997. Prior to
     January 1, 1997, SS/L was accounted for using the equity method of
     accounting. Loral's condensed consolidated statement of operations will
     reflect the results of Orion commencing on April 1, 1998. Orion's balance
     sheet is reflected in Loral's consolidated balance sheet at March 31, 1998.
 
          Had the acquisitions of SS/L, Skynet, the investment in SatMex (see
     below -- Investments in Affiliates) and Orion occurred on January 1, 1997,
     the unaudited pro forma sales, operating loss, net loss applicable to
     common stockholders and related loss per share data for the three months
     ended March 31, 1998 and 1997 would have been: $314 million and $353.7
     million; $13.5 million and $3 million; $42.3 million and $46.1 million; and
     $0.16 and $0.18, respectively. These results, which are based on various
     assumptions, are not necessarily indicative of what would have occurred had
     the acquisitions been consummated on January 1, 1997.
 
                                        5
<PAGE>   7
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     INVESTMENTS IN AFFILIATES
 
          At March 31, 1998, Loral owns directly and indirectly 20,962,211
     ordinary partnership interests (40.1%) of the total 52,325,825 Globalstar
     ordinary partnership interests outstanding (38% on a fully diluted basis).
     Loral's investment in Globalstar includes $27.4 million of capitalized
     interest at March 31, 1998.
 
          In connection with the privatization by the Federal Government of
     Mexico (the "Mexican Government") of its fixed satellite services business,
     Loral and Telefonica Autrey, S.A. de C.V. ("Telefonica Autrey") formed a
     joint venture, Firmamento Mexicano, S. de R.L. de C.V. ("Holdings").
     Holdings acquired 75% of the outstanding capital stock of SatMex for $646.8
     million. The purchase price was financed by a Loral equity contribution of
     $94.6 million, a Telefonica Autrey equity contribution of $50.9 million and
     debt issued by Holdings. As part of the acquisition, Holdings issued a
     $125.1 million seven year obligation bearing interest at 6.03% to the
     Mexican Government (the "Government Obligation") in consideration for the
     assumption by SatMex of the debt incurred by Holdings in connection with
     the acquisition. The debt of SatMex and Holdings is non-recourse to Loral
     and Telefonica Autrey. However, Loral and Telefonica Autrey 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 Government Obligation until maturity. Loral
     has a 65% economic interest in Holdings and a 49% indirect economic
     interest in SatMex.
 
          Loral, together with Telefonica Autrey, are responsible for managing
     SatMex and will receive an aggregate management fee, based on a sliding
     scale, applied to SatMex's quarterly gross revenues up to a maximum of
     3.75% of cumulative gross revenues. In addition, Loral Skynet had licensed
     certain intellectual property to SatMex for a fee of 1.5% of SatMex's gross
     revenues. Such fees earned by Loral for the three months ended March 31,
     1998, were approximately $400,000.
 
          In February 1998, Loral and Alcatel Alsthom ("Alcatel") announced that
     they will jointly build and operate Europe*Star, a geostationary satellite
     system that will provide broadcast and telecommunications services to
     Europe, the Middle East, Southeast Asia, India and South Africa. Alcatel
     will serve as the primary contractor of the Europe*Star turnkey system.
     SS/L will provide the satellite bus and test and integrate the satellites.
     Loral's initial investment in this joint venture was $5 million.
 
          Investments in affiliates is summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                  MARCH 31,    DECEMBER 31,
                                                                    1998           1997
                                                                  ---------    ------------
    <S>                                                           <C>          <C>
    Globalstar..................................................  $375,027       $383,714
    SatMex......................................................    82,114         88,925
    Europe*Star.................................................     5,023
    Other affiliates............................................     8,605          9,328
                                                                  --------       --------
                                                                  $470,769       $481,967
                                                                  ========       ========
</TABLE>
 
                                        6
<PAGE>   8
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Equity in net loss of affiliates consists of (in thousands):
 
<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED
                                                                       MARCH 31,
                                                                  -------------------
                                                                    1998       1997
                                                                  --------    -------
    <S>                                                           <C>         <C>
    Globalstar..................................................  $(11,086)   $(7,177)
    SatMex......................................................    (6,910)
    Other affiliates............................................    (2,374)
                                                                  --------    -------
                                                                  $(20,370)   $(7,177)
                                                                  ========    =======
</TABLE>
 
          The following table represents the summary of results of operations of
     Loral's affiliates for the three months ended March 31, 1998 and 1997 (in
     thousands):
 
<TABLE>
<CAPTION>
                                                                         1998               1997
                                                                 ---------------------   ----------
                                                                 GLOBALSTAR    SATMEX    GLOBALSTAR
                                                                 ----------   --------   ----------
    <S>                                                          <C>          <C>        <C>
    Sales......................................................   $     --    $ 25,358    $     --
    Operating income (loss)....................................    (24,761)      6,521     (17,582)
    Net loss...................................................    (19,596)    (13,958)    (15,287)
    Net loss applicable to ordinary partnership interests......    (24,896)                (20,588)
</TABLE>
 
5)  CONTRACTS IN PROCESS (in thousands)
 
<TABLE>
<CAPTION>
                                                                    MARCH 31,    DECEMBER 31,
                                                                      1998           1997
                                                                    ---------    ------------
    <S>                                                             <C>          <C>
    U.S. Government contracts:
      Amounts billed............................................    $  8,090       $  5,243
      Unbilled contract receivables.............................      14,742         10,274
                                                                    --------       --------
                                                                      22,832         15,517
                                                                    --------       --------
    Commercial contracts:
      Amounts billed............................................     261,666        194,997
      Unbilled contract receivables.............................     196,285        167,620
                                                                    --------       --------
                                                                     457,951        362,617
                                                                    --------       --------
                                                                    $480,783       $378,134
                                                                    ========       ========
</TABLE>
 
          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 are reclassified to billed receivables.
 
                                        7
<PAGE>   9
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6)  LONG TERM DEBT (in thousands)
 
<TABLE>
<CAPTION>
                                                             MARCH 31,     DECEMBER 31,
                                                                1998           1997
                                                             ----------    ------------
<S>                                                          <C>           <C>
Term loan, 6.9% and 7.2% at March 31 and December 31,
  respectively.............................................  $  275,000      $275,000
Revolving credit facility, 7.1% and 7.2% at March 31 and
  December 31, respectively................................     153,000        55,000
Note purchase facility.....................................      95,206        88,234
Export-Import credit facility..............................      17,164        17,164
Other......................................................      13,846
Non-recourse debt of Orion:
     Senior notes due 2007 (principal amount $445
       million)............................................     509,155
     Senior discount notes due 2007 (principal amount $484
       million)............................................     381,199
                                                             ----------      --------
Total debt.................................................   1,444,570       435,398
Less, current maturities...................................       8,227         2,146
                                                             ----------      --------
                                                             $1,436,343      $433,252
                                                             ==========      ========
</TABLE>
 
          In connection with the Orion acquisition, Loral did not assume Orion's
     senior notes and senior discount notes. Such debt remains outstanding and
     is non-recourse to Loral. The carrying value of the Orion senior notes and
     senior discount notes has been increased to reflect a fair value
     adjustment, of $148.6 million based on quoted market prices at March 31,
     1998.
 
          The Orion senior notes are due in 2007, bear interest of 11.25% and
     pay interest semi-annually on January 15 and July 15 of each year. The
     Orion senior discount notes are due in 2007, bear interest of 12.5% and pay
     interest semi-annually on January 15 and July 15 commencing on July 15,
     2002. On April 17, 1998, Orion made an offer to purchase its senior notes
     due 2007 and its senior discount notes due 2007. This offer was made
     pursuant to the terms of Orion's indentures, which require Orion to make an
     offer to noteholders to repurchase the senior notes and senior discount
     notes within 30 days of the occurrence of a change of control. A change of
     control occurred on March 20, 1998 when Orion was merged with a subsidiary
     of Loral. The offer to purchase is being made at 101% of the senior notes
     and 101% of the accreted value of the senior discount notes. On April 14,
     1998, the senior notes and the senior discount notes were trading at a
     premium of 14.75% over par and 22.1% over accreted value, respectively.
     Accordingly, Loral does not expect the holders of the notes to tender into
     the offer.
 
7)  EARNINGS PER SHARE
 
          Basic earnings per share is computed based on the weighted average
     number of shares of common stock and the Series A Preferred Stock
     outstanding. Diluted earnings per share excludes the assumed conversion of
     the Series C Preferred Stock and stock options as the effect would have
     been antidilutive.
 
                                        8
<PAGE>   10
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
          The following table sets forth the computation of basic and diluted
     earnings per share:
 
<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED
                                                                          MARCH 31,
                                                                  --------------------------
                                                                     1998           1997
                                                                  -----------    -----------
                                                                  (In thousands, except per
                                                                         share data)
    <S>                                                           <C>            <C>
    Numerator:
      Net loss..................................................   $(15,443)      $   (406)
      Preferred stock dividends and accretion...................    (11,606)
                                                                   --------       --------
      Numerator for basic and diluted earnings per share -- net
         loss applicable to common stockholders.................   $(27,049)      $   (406)
                                                                   ========       ========
    Denominator:
      Weighted average shares:
         Common stock...........................................    203,439        191,092
         Series A Preferred Stock...............................     45,897         45,897
                                                                   --------       --------
      Denominator for basic earnings per share..................    249,336        236,989
      Effect of dilutive securities:
         Series C Preferred Stock...............................          *
         Employee stock options.................................          *              *
                                                                   --------       --------
      Denominator for diluted earnings per share................    249,336        236,989
                                                                   ========       ========
    Basic earnings per share....................................   $  (0.11)      $    .00
                                                                   ========       ========
    Diluted earnings per share..................................   $  (0.11)      $    .00
                                                                   ========       ========
</TABLE>
 
* Effect is antidilutive.
 
8)  CONTINGENCIES
 
          In 1997, two in-orbit satellites built by SS/L experienced some solar
     array circuit failures. One of the customers has asserted that, in light of
     the failures and uncertainty as to future failure, it has not accepted the
     satellite. The Company believes that the customer was contractually
     required to accept the satellite at completion of in-orbit testing and that
     risk of loss has passed to the customer. In addition, due to a delay caused
     by the replacement on a satellite under construction of solar arrays
     similar to those that have experienced failures, another customer has
     requested that SS/L structure an arrangement whereby the satellite would be
     sold to another customer. Management believes that these matters will not
     have a material adverse effect on the financial position or results of
     operations of the Company.
 
9)  SUBSEQUENT EVENTS
 
    LORAL PURCHASE OF GLOBALSTAR PARTNERSHIP INTERESTS
 
          On April 24, 1998, Loral announced a series of transactions which, if
     completed, will have the effect of (1) increasing Loral's fully diluted
     ownership in Globalstar to 42%, (2) establishing a Globalstar service
     provider fund of $210 million for reinvestment in the Globalstar project
     through the purchase of
 
                                        9
<PAGE>   11
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Globalstar gateways and user terminals and (3) the acquisition by entities
     advised by or affiliated with Soros Fund Management L.L.C. ("Soros") of 4.2
     million shares of Globalstar Telecommunications Limited ("GTL") common
     stock currently held by Loral.
 
          Loral has agreed to purchase (the "Globalstar Purchase") 4.2 million
     partnership interests in Globalstar (corresponding to 8.4 million shares of
     GTL common stock) from its original service provider partners for $100 per
     partnership interest (corresponding to $50 per share of GTL stock).
     Partners participating in the transaction will reinvest one-half of their
     proceeds, or $210 million in the aggregate, into the Globalstar project by
     establishing an escrow account to be used solely for the purchase of
     Globalstar gateways and handsets.
 
          Concurrently, Loral will sell to Soros 4.2 million GTL shares for an
     aggregate purchase price of $245 million (the "Soros Transaction"). Soros
     will be acquiring GTL stock in lieu of Globalstar limited partnership
     interests at a premium of $8.333 a share over the price paid by Loral in
     the Globalstar Purchase. The shares to be purchased by Soros will be
     restricted and may not be sold without registration. GTL, however, has
     agreed to provide a shelf-registration for these shares to be effective one
     year after their purchase.
 
          Upon consummation of the Globalstar Purchase and the Soros
     Transaction, Loral's direct and indirect fully diluted ownership in
     Globalstar will increase from approximately 38% to approximately 42%.
     Soros' indirect ownership in Globalstar through this transaction would
     equal approximately 4%. The Globalstar Purchase is contingent upon
     completing the Loral equity offering, the closing of the transaction with
     the Soros funds and the satisfaction of all requirements under the
     partnership agreements, and applicable laws and regulations.
 
    EQUITY OFFERING
 
          On April 28, 1998, Loral filed a registration statement with the
     Securities and Exchange Commission for a public offering by the Company of
     16 million shares of its common stock.
 
          Loral plans to use the proceeds from the offering to fund the
     Globalstar Purchase and invest in its existing core businesses and to
     pursue emerging satellite service opportunities.
 
                                       10
<PAGE>   12
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
 
     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. See the section of Loral's registration statement on
Form S-3 (File No. 333-51133), entitled "Risk Factors." In addition, with
respect to Loral's interest in Globalstar and Globalstar Telecommunications
Limited ("GTL"), see the section of GTL's and Globalstar's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect Future Results".' With regard to
forward-looking statements concerning Orion see the section of Orion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, entitled
"Forward Looking Statements".
 
     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 the Company, Globalstar, SatMex and Orion,
are forward-looking statements that involve risks and uncertainties, many of
which may be beyond the companies' control. The actual results that the
companies achieve may differ materially from any forward-looking projections due
to such risks and uncertainties.
 
     Loral Space & Communications Ltd. and subsidiaries (the "Company" or
"Loral") is one of the world's leading satellite companies, with substantial
activities in satellite manufacturing and satellite-based communications
services. Space Systems/Loral, Inc. ("SS/L") is a leading designer and
manufacturer of space systems. Loral Skynet ("Skynet"), acquired March 14, 1997,
is a leading provider of satellite communications services in the United States.
Skynet owns and operates the Telstar satellite network and is expanding its
business internationally. Loral Orion Network Systems, Inc. ("Orion"), acquired
on March 20, 1998 provides satellite-based communications services, focused
primarily on private communications network services, Internet services and
video distribution and other satellite transmission services. On November 17,
1997, a joint venture including Loral and another partner acquired 75% of
Satellites Mexicanos, S.A. de C.V. ("SatMex"), a satellite services provider to
Mexico and South America. Loral also manages and is the largest equity owner of
Globalstar, L.P. ("Globalstar"), a global, mobile satellite telephony system
scheduled for service initiation in early 1999. Loral is pursuing additional
satellite-based communications service opportunities including CyberStar, a
proposed worldwide high-speed broadband data services system initially using
leased Ku-band transponder capacity on Skynet's Telstar 5 satellite.
 
RESULTS OF OPERATIONS
 
     In 1997 and 1998, Loral accelerated its transformation from a company with
extensive equity investments to a major satellite manufacturer and provider of
satellite services by making a number of acquisitions that significantly
affected its results of operations.
 
     In February 1997, Loral agreed to acquire the remaining 49% of the common
stock of SS/L held by four international aerospace and communications companies
(the "Alliance Partners") for $374 million paid in cash and Loral securities. On
March 14, 1997, Loral acquired Skynet for $462.1 million in cash.
 
     The acquisition of Skynet and the remaining equity interest in SS/L have
been accounted for as purchases. Loral's consolidated financial statements for
the quarter ended March 31, 1997, reflect the results of operations of SS/L from
January 1, 1997, the elimination of the minority interest of the SS/L equity not
owned by Loral during the period and the results of operations of Skynet from
March 14, 1997. Prior to January 1, 1997, SS/L was accounted for using the
equity method of accounting.
 
                                       11
<PAGE>   13
 
     In connection with the privatization by the Mexican Government of its fixed
satellite services business, Loral and Telefonica Autrey, S.A. de C.V.
("Telefonica Autrey") formed a joint venture, Firmamento Mexicano, S. de R.L. de
C.V. ("Holdings"). On November 17, 1997, Holdings acquired 75% of the
outstanding capital stock of SatMex for $646.8 million. The purchase price was
financed by a Loral equity contribution of $94.6 million, a Telefonica Autrey
equity contribution of $50.9 million and debt issued by Holdings. As part of the
acquisition, Holdings issued a $125.1 million seven year government obligation
("Government Obligation") bearing interest at 6.03% to the Mexican Government in
consideration for the assumption by SatMex of the debt incurred by Holdings in
connection with the acquisition. The debt of SatMex and Holdings is non-recourse
to Loral and Telefonica Autrey. However, Loral and Telefonica Autrey have agreed
to maintain assets in a collateral trust in an amount equal to the value of the
Government Obligation through December 31, 2000 and, thereafter, in an amount
equal to 1.2 times the value of the Government Obligation until maturity. Loral
has a 65% economic interest in Holdings and a 49% indirect economic interest in
SatMex. Loral accounts for SatMex using the equity method from November 17,
1997.
 
     On March 20, 1998, Loral acquired all of the outstanding stock of Orion in
exchange for Loral common stock. Loral issued 17.9 million shares of its common
stock and assumed existing Orion options and warrants to purchase 1.9 million
shares of Loral common stock representing an aggregate purchase price of $469
million. Loral's consolidated statement of operations will reflect the results
of Orion commencing April 1, 1998. Orion's balance sheet is reflected in Loral's
consolidated balance sheet at March 31, 1998.
 
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND THE THREE
MONTHS ENDED MARCH 31, 1997.
 
     Revenues for the quarter ended March 31, 1998 totaled $336.9 million,
before elimination of intercompany sales of $41.7 million, compared to revenues
of $341.9 million and elimination of intercompany sales of $1.6 million for the
quarter ended March 31, 1997. SS/L's 1998 revenues were $308.3 million before
intercompany eliminations of $40.8 million compared to revenues of $338.4
million and intercompany eliminations of $1.6 million in 1997. The decrease in
SS/L sales is primarily due to the stoppage of work on three Asian satellites in
the fourth quarter of 1997. The increase in the intercompany eliminations
reflects the classification of the construction of Skynet's satellites by SS/L
as intercompany sales subsequent to the acquisition of Skynet. Skynet's revenues
for the quarter ended March 31, 1998 were $27.7 million compared to $3.6 million
for the period March 14, 1997 through March 31, 1997; reflecting the inclusion
of a full quarter of Skynet's revenues in 1998.
 
     Earnings before interest, taxes, depreciation and amortization
("EBITDA")(1) for the three months ended March 31, 1998 and 1997 were as follows
(in millions):
 
<TABLE>
<CAPTION>
                                                              1998         1997
                                                              -----        -----
<S>                                                           <C>          <C>
SS/L........................................................  $19.1        $22.5
Skynet -- from March 14, 1997...............................   15.5          1.9
Corporate expenses and intercompany eliminations............   (8.8)        (2.9)
                                                              -----        -----
EBITDA before CyberStar and Globalstar development costs....   25.8         21.5
SatMex(2)...................................................    9.4
                                                              -----        -----
Adjusted EBITDA before CyberStar and Globalstar development
  costs(3)..................................................  $35.2        $21.5
                                                              =====        =====
</TABLE>
 
---------------
(1) EBITDA should not be construed as 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.
(2) Represents Loral's proportionate share of SatMex's EBITDA.
(3) Development costs for the three months ended March 31, 1998 and 1997, for
    CyberStar were $7.3 million and $2.6 million, respectively and Loral's
    proportionate share of Globalstar's development costs were $9.8 million and
    $6.3 million, respectively.
 
     EBITDA before development costs was $25.8 million for 1998 compared to
$21.5 million for 1997. CyberStar development costs were $7.3 million in 1998
compared to $2.6 million in 1997 reflecting increased spending levels in 1998
for product development, marketing expenditures and increased headcount.
Depreciation and amortization was $17.4 million and $9.6 million for 1998 and
1997, respectively. The increase in depreciation and amortization in 1998
primarily results from the inclusion of Skynet's depreciation and amortization
for a full quarter including the depreciation of Skynet's Telstar 5 satellite
which was placed
 
                                       12
<PAGE>   14
 
in service on July 1, 1997. As a result of the above, operating income was $1.0
million for 1998 compared to $9.3 million for 1997.
 
     Interest income for the quarter ended March 31, 1998, of $8.7 million
represents $6.7 million of interest earned on available cash during the period
and interest on GTL's Convertible Preferred Equivalent Obligations ("GTL
Convertible Preferreds") held by Loral, and $2.0 million of interest earned on
orbital incentive payments. Interest income for the quarter ended March 31,
1997, of $20.1 million represents $18.5 million of interest earned on the
investment of available cash during the period and interest on the GTL
Convertible Preferreds held by Loral and $1.6 million of interest earned on
orbital incentive payments.
 
     Interest expense of $1.7 million, net of capitalized interest of $9.5
million, for the quarter ended March 31, 1998 reflects interest on borrowings
under Loral's credit agreement. Interest expense of $10.0 million, net of
capitalized interest of $2.5 million, for the quarter ended March 31, 1997,
reflects the assumption of SS/L's debt and interest on Loral's outstanding
Convertible Preferred Equivalent Obligations ("CPEO's"). On June 5, 1997, the
CPEO's were exchanged for Loral 6% Series C Convertible Redeemable Preferred
Stock ("Series C Preferred Stock").
 
     The Company's effective income tax rate was 38.6% for 1998 and 48% for
1997. The effective income tax rates are higher than the statutory U.S. Federal
income tax rate primarily because of the impact of state and local income taxes
and the non deductible amortization of cost in excess of net assets acquired
offset by the portion of the Company's foreign source income which is not
subject to Federal taxation.
 
     The minority interest expense in 1997 reflects the reduction of SS/L's
income attributed to the Alliance Partners.
 
     The equity in net loss of affiliates was $20.4 million in 1998 compared to
$7.2 million for 1997. Loral's share of Globalstar's losses was $11.1 million in
1998 compared to $7.2 million in 1997 reflecting Globalstar's increased
development costs as well as an increased ownership percentage by Loral. Also
included in the equity in net loss of affiliates for 1998 is Loral's share of
SatMex's loss of $6.9 million and Loral's portion of losses from other
affiliates of $2.4 million.
 
     Preferred dividends of $11.6 million in the three months ended March 31,
1998 relate to the Series C Preferred Stock, which was not outstanding at March
31, 1997.
 
     As a result of the above, net loss applicable to common stockholders for
1998 was $27.0 million or $.11 per diluted share, compared to $406,000 or $0.00
per diluted share, for 1997. Diluted weighted average shares were 249.3 million
for 1998 and 237.0 million for 1997.
 
SUMMARY RESULTS OF OPERATIONS OF AFFILIATES
 
GLOBALSTAR
 
     Globalstar is a development stage partnership and has not commenced
commercial service operations. The net loss applicable to ordinary partnership
interests for the quarter ended March 31, 1998 was $24.9 million as compared to
$20.6 million for the quarter ended March 31, 1997. The increase in the net loss
is a result of increased marketing, general and administrative expenses of $1.9
million and an increase in development costs of $5.3 million as a result of
increased activity in the development of Globalstar's user terminals, offset by
an increase in interest income of $2.9 million as a result of higher average
cash balances available for investment. Globalstar is expending significant
funds for the construction, testing and deployment of the Globalstar System and
expects such losses to continue through commencement of revenue generating
service operations.
 
SATMEX
 
     For the quarter ended March 31, 1998, SatMex had revenues, EBITDA,
operating income and a net loss of $25.4 million, $19.5 million, $6.5 million
and $14 million, respectively. The net loss is primarily attributed to interest
expense of $21.9 million on debt issued to finance the acquisition, which
includes a charge for $10.5 million of fees associated with debt refinancing.
SatMex expects such losses to continue through 1999 until funds from operations
are available to reduce outstanding debt.
 
                                       13
<PAGE>   15
 
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. In order to pursue such opportunities, Loral may seek
funds from strategic partners and other investors, through incurrence of debt or
the issuance of additional equity.
 
     At March 31, 1998, Loral had $225.4 million of cash and cash equivalents.
Loral intends to utilize its existing capital base and access to the capital
markets to construct and operate additional satellites, make additional
investments in Globalstar and Globalstar service provider opportunities and
invest in additional satellite communications service opportunities.
 
     At March 31, 1998, Orion had $336.4 million of restricted cash and cash
equivalents, to be used for the satellites under construction and interest
payments, and debt of $890.4 million. Orion's outstanding debt is non-recourse
to Loral.
 
     On November 14, 1997, the Company, through its wholly owned subsidiary
Loral SpaceCom Corporation, entered into a $850 million credit facility with a
group of banks. The facility consists of a $500 million revolving credit
facility, a $275 million term loan and a $75 million letter of credit facility.
The facility replaced SS/L's existing credit facility. The facility is secured
by the stock of Loral SpaceCom Corporation and SS/L and contains various
covenants including an interest coverage ratio, debt to capitalization ratios
and restrictions on cash transfers to its parent. At March 31, 1998, there was
$554.2 million outstanding under this agreement and other credit facilities.
 
     On April 17, 1998, Orion made an offer to purchase its senior notes due
2007 and its senior discount notes due 2007. This offer was made pursuant to the
terms of Orion's indentures, which require Orion to make an offer to noteholders
to repurchase the notes within 30 days of the occurrence of a change of control.
A change of control occurred on March 20, 1998 when Orion was merged with a
subsidiary of Loral. The offer to purchase is being made at 101% of the senior
notes and at 101% of the accreted value of the senior discount notes. On April
14, 1998, the senior notes and the senior discount notes were trading at a
premium of 14.75% over par and 22.1% over accreted value, respectively.
Accordingly, Loral does not expect the holders of the notes to tender into the
offer.
 
     On April 24, 1998, Loral announced a series of transactions which, if
completed, will have the effect of (1) increasing Loral's fully diluted
ownership in Globalstar to 42%, (2) establishing a Globalstar service provider
fund of $210 million for reinvestment in the Globalstar project through the
purchase of Globalstar gateways and user terminals and (3) the acquisition by
entities advised by or affiliated with Soros Fund Management L.L.C. ("Soros") of
4.2 million shares of Globalstar Telecommunications Limited ("GTL") common stock
currently held by Loral.
 
     Loral has agreed to purchase (the "Globalstar Purchase") 4.2 million
partnership interests in Globalstar (corresponding to 8.4 million shares of GTL
common stock) from its original service provider partners for $100 per
partnership interest (corresponding to $50 per share of GTL stock). Partners
participating in the transaction will reinvest one-half of their proceeds, or
$210 million in the aggregate, into the Globalstar project by establishing an
escrow account to be used solely for the purchase of Globalstar gateways and
handsets.
 
     Concurrently, Loral will sell to Soros 4.2 million GTL shares for an
aggregate purchase price of $245 million (the "Soros Transaction"). Soros will
be acquiring GTL stock in lieu of Globalstar limited partnership interests at a
premium of $8.333 a share over the price paid by Loral in the Globalstar
Purchase. The shares to be purchased by Soros will be restricted and may not be
sold without registration. GTL, however, has agreed to provide a
shelf-registration for these shares to be effective one year after their
purchase.
 
     Upon consummation of the Globalstar Purchase and the Soros Transaction,
Loral's direct and indirect fully diluted ownership in Globalstar will increase
from approximately 38% to approximately 42%. Soros' indirect ownership in
Globalstar through this transaction would equal approximately 4%. The Globalstar
Purchase is contingent upon completing the Loral equity offering, the closing of
the transaction with the Soros funds and the satisfaction of all requirements
under the partnership agreements and applicable laws and regulations.
 
                                       14
<PAGE>   16
 
     On April 28, 1998, Loral filed a registration statement with the Securities
and Exchange Commission for a public offering for 16 million shares of its
common stock. Loral intends to use the proceeds of the offering to fund the
Globalstar Purchase and to invest in its existing core businesses and to pursue
emerging satellite service opportunities.
 
     In February 1998, Loral and Alcatel Alsthom ("Alcatel") announced that they
will jointly build and operate Europe*Star, a multiple geostationary satellite
system that will provide broadcast and telecommunications services to Europe,
the Middle East, Southeast Asia, India and South Africa. Alcatel will serve as
the primary contractor of the Europe*Star turnkey system. SS/L will provide the
satellite bus and test and integrate the satellites. Loral's initial investment
in this joint venture was $5 million.
 
     Skynet:  Skynet currently has two high-powered satellites operating in
orbit. Loral intends to expand Skynet's business to become a worldwide satellite
service provider through the construction of additional satellites and has four
satellites under construction by SS/L. Loral anticipates that a portion of the
funds required for construction of these additional satellites will be provided
through additional borrowings or the issuance of additional equity.
 
     Orion:  Orion currently has one satellite in orbit and two satellites under
construction. The cost of the two additional satellites under construction is
fully funded.
 
     Globalstar:  On February 14, 1998, Globalstar launched its first four
satellites and on April 24, 1998 four additional satellites were launched.
Globalstar expects to begin commercial service in early 1999 following the
launch of 36 additional satellites during 1998. The remaining 12 satellites,
including eight in-orbit spares, will be launched in the first half of 1999.
 
     In April 1998, Globalstar's budgeted expenditures for the design,
construction and deployment of the Globalstar System to commence commercial
service, including working capital, cash interest on borrowings and operating
expenses increased to approximately $2.8 billion, reflecting revised cost
estimates from Qualcomm and other increased Globalstar expenditures. In addition
to expenditures for operating costs, working capital and debt service,
Globalstar anticipates additional expenditures on system software for the
improvement of system functionality and the addition of new features beyond
those planned for the commencement of commercial service. As of April 27, 1998,
Globalstar had raised or receive commitments for approximately $2.6 billion.
 
     In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites at a cost estimated at $175 million. Further, in order to
accelerate the deployment of gateways around the world Globalstar has agreed to
finance approximately $80 million of the cost of up to 32 of the initial 38
gateways. In December 1997, Globalstar ordered 40,000 fixed access terminals for
$84 million. Globalstar has also agreed to finance approximately $67 million of
the cost of portable handsets. Globalstar expects to recoup the amounts financed
following the acceptance by the service providers of the gateways, fixed access
terminals and portable handsets.
 
     SS/L is the prime contractor for the design and construction of
Globalstar's satellites. In connection therewith, SS/L and its subcontractors
have committed $353 million of vendor financing to Globalstar, of which $121
million of such vendor financing is effectively borne by the subcontractors.
 
     Commitments and Contingencies:  In connection with the Merger between Loral
Corporation and Lockheed Martin Corporation ("Lockheed Martin"), Lockheed Martin
assumed approximately $206 million of the guarantee under the Globalstar credit
agreement. The balance of $44 million of the guarantee was assumed by various
Globalstar partners, including $11.7 million by SS/L. Loral has agreed to
indemnify Lockheed Martin for its liability, if any, in excess of $150 million
under its guarantee of the Globalstar credit agreement. Globalstar is currently
financed without recourse to Loral other than the indemnification described
above.
 
     In 1997, two in-orbit satellites built by SS/L experienced solar array
circuit failures. One of the customers has asserted that, in light of the
failures and uncertainty as to further failures, it has not accepted the
satellite. Loral believes that the customer was contractually required to accept
the satellite at completion of in-orbit testing and that risk of loss has passed
to the customer. In addition, another customer has requested that SS/L structure
an arrangement whereby a satellite under construction would be sold to another
customer.
 
                                       15
<PAGE>   17
 
Management believes that these matters will not have a material adverse effect
on the financial condition or results of operations of Loral.
 
     Cash Used and Provided.  Cash used in operating activities for the three
months ended March 31, 1998 was $98 million, primarily due to changes in
satellite related assets and liabilities of $112.1 million due to the progress
on commercial satellite contracts and increases in component inventory,
including; an increase in contracts in process and inventories of $109.4 million
offset by a related increase in accounts payable and accrued expenses of $59.9
million, and a decrease in customer advances of $8.5 million and additional
launch vehicle deposits of $54.1 million. This was offset by funds generated by
earnings before depreciation and amortization, taxes, minority interest and
equity in net loss of affiliates of $25.4 million. Cash used in operating
activities for 1997, was $52.5 million, primarily due to a decrease in customer
advances of $75.4 million, offset by funds generated from earnings before
depreciation and amortization, taxes and equity in net loss of affiliates of
$29.1 million.
 
     Cash used in investing activities for 1998 was $13.7 million primarily as a
result of $62.1 million of capital expenditures and $5.4 million of investments
in affiliates offset by $53.8 million of cash acquired in connection with the
Orion acquisition. Cash used in investing activities for 1997 was $628.8 million
primarily due to the purchase of Skynet and the SS/L equity interests, the
purchase of equity interests in Globalstar and capital expenditures of $46.2
million primarily for facility expansion and renovation at SS/L.
 
     Net cash provided by financing activities for 1998 and 1997 was $110.7
million and $106.1 million respectively, primarily as a result of borrowings
under credit facilities.
 
YEAR 2000 ISSUE
 
     The Company is evaluating the potential effect on its information
processing systems to determine what actions will be necessary or appropriate in
connection with the "Year 2000 Issue." The Year 2000 Issue is the result of
computer programs which were written using two digits rather than four to
signify a year (i.e., the year 1997 is denoted "97" and not "1997"). Computer
programs written using only two digits may recognize the year 2000 as the year
1900. This could result in a system failure or miscalculations causing
disruption of operations. It is not known at this time what modifications, if
any, will be required. All costs associated with any modification will be
expensed as incurred. In addition, the Company has requested, and will continue
to seek information from third-party entities on which it relies, certifying
that their computer systems will not negatively affect Loral's operations. No
assurance can be given that there will not be some unforeseen issue, in
particular, in connection with third parties' systems, that may materially
affect Loral's operations.
 
ACCOUNTING PRONOUNCEMENTS
 
     Effective January 1, 1998, Loral adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). During
the periods presented, Loral had no changes in equity from transactions or other
events and circumstances from non-owner sources. Accordingly, a statement of
comprehensive income has not been provided as comprehensive loss applicable to
common shareholders equals net loss applicable to common shareholders for all
periods presented.
 
     In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"), and in February 1998, issued Statement No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS
131 establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. SFAS 132 expands and standardizes the
disclosure requirements for pensions and other postretirement benefits. The
Company is required to adopt SFAS 131 and SFAS 132 in 1998, and the Company's
consolidated financial statements will reflect the appropriate disclosures.
 
                                       16
<PAGE>   18
 
                          PART II -- OTHER INFORMATION
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     On April 28, 1998, at the Company's Annual Meeting of Stockholders, the
following proposals were acted on:
 
     (1) In an uncontested election, three nominees for the Board of Directors
         were elected to three year terms expiring in 2001. The votes were as
         follows:
 
<TABLE>
<CAPTION>
                                                           FOR        WITHHELD
                                                       -----------    --------
<S>                                                    <C>            <C>
Robert B. Hodes......................................  170,369,653    871,675
Charles Lazarus......................................  170,380,645    860,683
Daniel Yankelovich...................................  170,410,443    830,885
</TABLE>
 
     (2) The amendment to the Company's 1996 Stock Option Plan to increase the
         number of shares of Common Stock available for issuance from 12,000,000
         to 18,000,000 was approved. The votes were as follows:
 
<TABLE>
<S>                                                           <C>
For.........................................................  162,465,544
Against.....................................................   53,884,649
Abstentions.................................................      788,112
</TABLE>
 
     (3) The selection of Deloitte & Touche LLP to serve as independent auditors
         for the fiscal year ending December 31, 1998, was ratified. The votes
         were as follows:
 
<TABLE>
<S>                                                           <C>
For.........................................................  215,183,254
Against.....................................................    1,471,097
Abstentions.................................................      483,954
</TABLE>
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (a)  Exhibits
 
     The following exhibits are filed as part of this report:
 
<TABLE>
<S>         <C>   <C>
Exhibit 12   --   Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27   --   Financial Data Schedule.
</TABLE>
 
     (b)  Reports on Form 8-K
 
<TABLE>
<CAPTION>
 DATE OF REPORT                            DESCRIPTION
 --------------                            -----------
<S>                <C>
December 29, 1997  Item 2 -- Acquisition of equity interest in SatMex
                   Item 7 -- Financial Statements, Pro Forma Financial
                   Information and Exhibits
March 4, 1998      Amendment No. 1 to Form 8-K dated December 29, 1997 to amend
                   Item 7, Pro Forma Financial Information
March 20, 1998     Item 2. -- Loral acquired Orion Network Systems, Inc. on
                   March 20, 1998. Item 7. -- Pro Forma Financial Information
April 27, 1998     Amendment No. 1 to Form 8-K dated March 20, 1998 to amend
                   Item 7, Pro Forma Financial Information
</TABLE>
 
                                       17
<PAGE>   19
 
                                   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:  May 14, 1998
                                                    MICHAEL P. DEBLASIO
                                          --------------------------------------
                                                   Michael P. DeBlasio
                                             Senior Vice President -- Finance
                                              (Principal Financial Officer)
                                                           and
                                             Registrant's Authorized Officer
 
                                       18
<PAGE>   20
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  EXHIBIT NO.                                  DESCRIPTION
  -----------                                  -----------
  <S>           <C>    <C>
  Exhibit 12    --     Computation of Ratio of Earnings to Fixed Charges
 
  Exhibit 27    --     Financial Data Schedule
</TABLE>