<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 SEPTEMBER 30, 1998
 
                         COMMISSION FILE NUMBER 1-14180
 
                       LORAL SPACE & COMMUNICATIONS LTD.
 
                         C/O LORAL SPACECOM CORPORATION
                                600 THIRD AVENUE
                            NEW YORK, NEW YORK 10016
                           TELEPHONE: (212) 697-1105
 
                     JURISDICTION OF INCORPORATION: BERMUDA
 
                     IRS IDENTIFICATION NUMBER: 13-3867424
 
     The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
 
     As of October 30, 1998, there were 243,569,874 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        NINE MONTHS ENDED
                                                  SEPTEMBER 30,             SEPTEMBER 30,
                                               --------------------    -----------------------
                                                 1998        1997        1998          1997
                                               --------    --------    ---------    ----------
<S>                                            <C>         <C>         <C>          <C>
Revenues.....................................  $289,588    $371,118    $ 833,061    $1,002,619
Costs and expenses...........................   309,107     368,797      877,864       993,466
                                               --------    --------    ---------    ----------
Operating income (loss)......................   (19,519)      2,321      (44,803)        9,153
Interest and investment income...............    50,418       8,082       75,608        39,247
Interest expense.............................    14,811         740       38,088        16,141
                                               --------    --------    ---------    ----------
Income (loss) before income taxes, equity in
  net loss of affiliates and minority
  interest...................................    16,088       9,663       (7,283)       32,259
Income tax expense (benefit).................    (3,880)      4,607      (10,531)       17,582
                                               --------    --------    ---------    ----------
Income before equity in net loss of
  affiliates and minority interest...........    19,968       5,056        3,248        14,677
Minority interest............................       769          35        4,400        (5,021)
Equity in net loss of affiliates.............   (31,436)     (9,053)     (92,763)      (24,320)
                                               --------    --------    ---------    ----------
Net loss.....................................   (10,699)     (3,962)     (85,115)      (14,664)
Preferred dividends and accretion............   (11,606)    (11,633)     (34,819)      (14,580)
                                               --------    --------    ---------    ----------
Net loss applicable to common stockholders...  $(22,305)   $(15,595)   $(119,934)   $  (29,244)
                                               ========    ========    =========    ==========
Loss per share, Basic and diluted............  $  (0.08)   $  (0.06)   $   (0.45)   $    (0.12)
                                               ========    ========    =========    ==========
Weighted average shares outstanding,
  Basic and diluted..........................   289,024     246,444      268,043       240,539
                                               ========    ========    =========    ==========
</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>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  1998             1997
                                                              -------------    ------------
                                                               (UNAUDITED)        (NOTE)
<S>                                                           <C>              <C>
                                          ASSETS
Current assets:
  Cash and cash equivalents.................................   $  649,348       $  226,547
  Contracts in process......................................      394,145          378,134
  Inventories...............................................      158,593           98,325
  Restricted current assets.................................       50,180
  Other current assets......................................       52,636           51,612
                                                               ----------       ----------
          Total current assets..............................    1,304,902          754,618
Property, plant and equipment, net..........................    1,634,285          926,679
Cost in excess of net assets acquired, net..................      951,811          361,411
Long-term receivables.......................................      199,219          168,639
Restricted assets...........................................       21,604
Investments in affiliates...................................      660,219          499,235
Deposits....................................................      114,470          154,970
Other assets................................................      160,622          139,384
                                                               ----------       ----------
                                                               $5,047,132       $3,004,936
                                                               ==========       ==========
                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of debt...................................   $    4,166       $    2,146
  Accounts payable..........................................      192,538          189,790
  Accrued employment costs..................................       43,672           38,797
  Customer advances.........................................       15,442           68,287
  Accrued interest and preferred dividends..................       24,961           11,192
  Other current liabilities.................................       16,420           25,931
  Income taxes payable......................................        4,527           25,934
  Deferred income taxes.....................................       13,558            4,187
                                                               ----------       ----------
          Total current liabilities.........................      315,284          366,264
Deferred income taxes.......................................       42,765           99,696
Pension and other postretirement liabilities................       52,434           48,398
Long-term liabilities.......................................      150,479           73,117
Long-term debt..............................................    1,515,228          433,252
Minority interest...........................................       18,344           10,964
Commitments and contingencies (Notes 4, 6 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)............................      735,022          733,762
  Common stock, par value $.01..............................        2,436            2,010
  Paid-in capital...........................................    2,324,800        1,216,377
  Treasury stock, at cost...................................       (3,360)          (1,680)
  Unearned compensation.....................................       (9,041)            (249)
  Cumulative translation adjustment.........................         (350)
  Retained earnings (deficit)...............................      (97,368)          22,566
                                                               ----------       ----------
          Total shareholders' equity........................    2,952,598        1,973,245
                                                               ----------       ----------
                                                               $5,047,132       $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>
                                                                 NINE MONTHS ENDED
                                                                   SEPTEMBER 30,
                                                              -----------------------
                                                                1998          1997
                                                              ---------    ----------
<S>                                                           <C>          <C>
Operating activities:
  Net loss..................................................  $ (85,115)   $  (14,664)
  Equity in net loss of affiliates..........................     92,763        24,320
  Minority interest.........................................     (4,400)        5,021
  Deferred taxes............................................      5,991        13,922
  Depreciation and amortization.............................     95,324        42,691
  Non cash interest expense.................................     15,276
  Gain on sale of investment in affiliate...................    (35,000)
Changes in operating assets and liabilities, net of
  acquisitions:
  Contracts in process and inventories......................    (63,240)     (140,325)
  Deposits..................................................     40,500       (89,430)
  Long-term receivables.....................................    (30,580)      (14,569)
  Accounts payable..........................................    (10,633)       90,547
  Accrued expenses and other current liabilities............    (12,220)      (48,493)
  Income taxes payable......................................    (21,425)        1,355
  Customer advances.........................................    (52,845)      (50,084)
  Long-term liabilities.....................................     55,700        10,535
  Other.....................................................    (19,034)      (50,758)
                                                              ---------    ----------
Cash used in operating activities...........................    (28,938)     (219,932)
                                                              ---------    ----------
Investing activities:
  Cash acquired in connection with Orion acquisition........     53,801
  Acquisition of businesses, net of cash acquired...........                 (561,639)
  Proceeds from sale of investment in affiliate.............    245,000
  Investments in affiliates.................................   (460,178)     (132,273)
  Other investments.........................................                  (35,589)
  Use and transfer of restricted assets.....................    276,127
  Capital expenditures, net.................................   (436,687)     (140,276)
                                                              ---------    ----------
Cash used in investing activities...........................   (321,937)     (869,777)
                                                              ---------    ----------
Financing activities:
  Proceeds from the issuance of common stock, net...........    602,600
  Borrowings under revolving credit facility, net...........    145,000        81,000
  Repayments of other long-term obligations.................     (7,940)       (1,073)
  Borrowings under Export-Import credit facility............     29,456        23,956
  Contributions from minority partners......................     10,298         9,100
  Proceeds from exercise of stock options and issuances to
    employee savings plan...................................     28,657         3,718
  Preferred dividends.......................................    (34,395)      (14,580)
                                                              ---------    ----------
Cash provided by financing activities.......................    773,676       102,121
                                                              ---------    ----------
Increase (decrease) in cash and cash equivalents............    422,801      (987,588)
Cash and cash equivalents -- beginning of period............    226,547     1,180,752
                                                              ---------    ----------
Cash and cash equivalents -- end of period..................  $ 649,348    $  193,164
                                                              =========    ==========
Non-cash activities:
  Common stock issued to acquire Orion......................  $ 469,000
                                                              =========
  Mandatory exchange of Convertible Preferred Equivalent
    Obligations.............................................               $  583,282
                                                                           ==========
  Issuance of Loral Common Stock to acquire equity interest
    in SS/L.................................................               $  130,900
                                                                           ==========
  Issuance of Loral Common Stock to acquire equity interest
    in Globalstar...........................................               $   17,487
                                                                           ==========
  Issuance of Loral Series C Preferred Stock to acquire
    equity interest in SS/L.................................               $  149,600
                                                                           ==========
</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, 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 between 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 to
begin commercial service in the third quarter of 1999. Loral is pursuing
additional satellite-based communications service opportunities including
CyberStar, a proposed worldwide high-speed broadband data services system which
will initiate service 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 and nine months ended September 30, 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
 
     As of January 1, 1998, Loral adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130
established new rules for the reporting and display of comprehensive income and
its components. SFAS 130 requires unrealized gains or losses on the Company's
foreign currency translation adjustments to be included in other comprehensive
income. Total comprehensive loss applicable to common shareholders for the nine
months ended September 30, 1998 and 1997 was as follows:
 
<TABLE>
<CAPTION>
                                                                NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                              ---------------------
                                                                1998         1997
                                                              ---------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>          <C>
Net loss applicable to common shareholders..................  $(119,934)   $(29,244)
Cumulative translation adjustment...........................       (350)
                                                              ---------    --------
Comprehensive loss applicable to common shareholders........  $(120,284)   $(29,244)
                                                              =========    ========
</TABLE>
 
                                        4
<PAGE>   6
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  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 September 30, 1998, these
restricted assets aggregated $71.8 million, of which $50.2 million is current.
 
  Reclassifications
 
     Certain reclassifications have been made to conform prior period amounts to
the current period 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 condensed consolidated
financial statements for the three and nine months ended September 30, 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 for the three and nine months
ended September 30, 1998, reflects the results of Orion commencing April 1,
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 for the nine months ended September 30,
1998 and 1997 would have been: $851.9 million and $1.05 billion; $59.6 million
and $35.1 million; $133.1 million and $116.4 million; and $0.49 and $0.44,
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.
 
  Investments in Affiliates
 
     Globalstar
 
     On April 30, 1998, Loral's holdings of Globalstar Telecommunications
Limited ("GTL") Convertible Preferred Equivalent Obligations ("GTL CPEOs") were
converted into 6,832,030 shares of GTL common stock including the additional
shares issued in satisfaction of the required interest make-whole payment.
 
     On July 6, 1998, Loral, the managing general partner of Globalstar,
purchased 4.2 million Globalstar ordinary partnership interests (corresponding
to approximately 16.8 million shares of GTL common stock) from certain founding
service provider partners of Globalstar for $420 million in cash (the
"Globalstar Purchase"). The founding service provider partners participating in
the transaction deposited one half of their proceeds ($210 million) into escrow
accounts to be used for the purchase of Globalstar gateways and user
                                        5
<PAGE>   7
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
terminals. Loral used $175 million of the proceeds from its equity offering, see
Note 7, to finance the Globalstar Purchase and the remaining balance was
provided through the concurrent sale by Loral of 8.4 million shares of GTL
common stock owned by Loral to persons or entities advised by or associated with
Soros Fund Management L.L.C. ("Soros") for $245 million in cash.
 
     As a result of these transactions, Loral's fully diluted ownership in
Globalstar increased from approximately 38% to 42% and Soros owns GTL shares
equating to approximately 4% of Globalstar. The shares of GTL common stock
acquired by Soros are restricted for U.S. securities law purposes. With respect
to such shares, GTL has agreed to file a shelf registration statement and have
such registration statement declared effective within one year from the closing
date. As a result of these transactions, Loral recognized a gain of
approximately $35 million, which is included in interest and investment income
in the statement of operations.
 
     At September 30, 1998, Loral owned directly and indirectly 24.7 million
ordinary partnership interests (42.4%) of the total 58.2 million Globalstar
ordinary partnership interests outstanding, (42.0% on a fully diluted basis).
Loral's investment in Globalstar includes $39.7 million of capitalized interest
at September 30, 1998.
 
     SatMex
 
     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.A. 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, Servicios Corporativos Satelitales, S.A. de C.V.
("Servicios"), a wholly owned subsidiary of 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 in connection with the acquisition. The debt of SatMex and
Servicios 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 and Telefonica Autrey have committed to make
an equity investment in SatMex of up to $50 million prior to March 31, 1999.
 
     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. Such fees earned by Loral for the nine months ended September
30, 1998 were approximately $129,000. In addition, Loral Skynet will license
certain intellectual property and provide related services to SatMex for a fee
of 1.5% of SatMex's gross revenues beginning in 1999.
 
     Europe*Star
 
     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. During October 1998, Loral invested an
additional $29 million in the Europe*Star Project.
 
                                        6
<PAGE>   8
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     SkyBridge
 
     In June, 1997 Loral and Alcatel formed a strategic partnership to jointly
develop, deploy and operate high-speed global multimedia satellite networks that
will bring high-bandwidth services to businesses and to consumers. The agreement
includes cross investments in Loral's geostationary (GEO) satellite-based
CyberStar project and Alcatel's low-earth-orbit (LEO) satellite-based SkyBridge
project. Each company will participate in the development of the two projects.
Loral has initially committed to invest up to $45 million in the SkyBridge
project and Alcatel has committed to invest up to $30 million in the Cyberstar
project. Each project will be managed separately, but the two companies have
agreed to facilitate a coordinated approach to the two networks, including
integrated marketing.
 
     Investments in affiliates is as follows:
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,    DECEMBER 31,
                                                         1998             1997
                                                     -------------    ------------
                                                            (IN THOUSANDS)
<S>                                                  <C>              <C>
Globalstar.........................................    $565,748         $383,714
SatMex.............................................      75,589           88,925
Europe*Star........................................       4,932
Skybridge..........................................      10,577           17,268
Other affiliates...................................       3,373            9,328
                                                       --------         --------
                                                       $660,219         $499,235
                                                       ========         ========
</TABLE>
 
     Equity in net loss of affiliates consists of:
 
<TABLE>
<CAPTION>
                                                          NINE MONTHS ENDED
                                                            SEPTEMBER 30,
                                                         --------------------
                                                           1998        1997
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Globalstar.............................................  $(47,855)   $(24,320)
SatMex.................................................   (14,563)
Europe*Star............................................      (198)
Skybridge..............................................   (19,605)
Other affiliates.......................................   (10,542)
                                                         --------    --------
                                                         $(92,763)   $(24,320)
                                                         ========    ========
</TABLE>
 
     The following table represents the summary of results of operations of
certain of Loral's affiliates for the nine months ended September 30, 1998 and
1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                     1998                1997
                                             ---------------------    ----------
                                             GLOBALSTAR    SATMEX     GLOBALSTAR
                                             ----------    -------    ----------
<S>                                          <C>           <C>        <C>
Sales......................................  $      --     $79,392     $     --
Operating income (loss)....................    (99,457)     22,772      (65,613)
Net loss...................................    (85,175)    (19,514)     (51,814)
Net loss applicable to ordinary partnership
  interests................................   (107,372)                 (67,715)
</TABLE>
 
                                        7
<PAGE>   9
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
5) CONTRACTS IN PROCESS
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,    DECEMBER 31,
                                                         1998             1997
                                                     -------------    ------------
                                                            (IN THOUSANDS)
<S>                                                  <C>              <C>
U.S. Government contracts:
  Amounts billed...................................    $  5,502         $  5,243
  Unbilled contract receivables....................      24,979           10,274
                                                       --------         --------
                                                         30,481           15,517
                                                       --------         --------
Commercial contracts:
  Amounts billed...................................     247,139          194,997
  Unbilled contract receivables....................     116,525          167,620
                                                       --------         --------
                                                        363,664          362,617
                                                       --------         --------
                                                       $394,145         $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.
 
6) LONG TERM DEBT
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,    DECEMBER 31,
                                                         1998             1997
                                                     -------------    ------------
                                                            (IN THOUSANDS)
<S>                                                  <C>              <C>
Term loan, 6.725% and 7.2% at September 30 and
  December 31, respectively........................   $  275,000        $275,000
Revolving credit facility, 6.725% and 7.2% at
  September 30 and December 31, respectively.......      200,000          55,000
Note purchase facility.............................      117,690          88,234
Export-Import credit facility......................       16,091          17,164
Non-recourse debt of Orion:
  Senior notes due 2007 (principal amount $445
     million)......................................      503,422
  Senior discount notes due 2007 (principal amount
     $484 million).................................      397,878
  Other............................................        9,313
                                                      ----------        --------
Total debt.........................................    1,519,394         435,398
Less, current maturities...........................        4,166           2,146
                                                      ----------        --------
                                                      $1,515,228        $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 and senior discount
notes. Substantially all of Orion's senior
 
                                        8
<PAGE>   10
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
notes and senior discount notes remained outstanding following the expiration of
the offer. The offer by Orion to repurchase such notes was made pursuant to the
applicable indentures as a result of the change in control of Orion in
connection with its acquisition by Loral.
 
7) STOCKHOLDERS' EQUITY
 
     On June 29, 1998, Loral sold 23 million shares of its common stock for
$27.00 per share. The net proceeds were $602.6 million, of which Loral used $175
million, net, to fund the Globalstar Purchase (see Note 4). Loral intends to use
the remainder for general corporate purposes, including investment in its
existing core businesses, to pursue emerging satellite service opportunities
worldwide and for possible acquisitions.
 
8) 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.
 
     The following table sets forth the computation of basic and diluted
earnings (loss) per share:
 
<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED       NINE MONTHS ENDED
                                                    SEPTEMBER 30,            SEPTEMBER 30,
                                                 --------------------    ---------------------
                                                   1998        1997        1998         1997
                                                 --------    --------    ---------    --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                              <C>         <C>         <C>          <C>
Numerator:
  Net loss.....................................  $(10,699)   $ (3,962)   $ (85,115)   $(14,664)
  Preferred stock dividends and accretion......   (11,606)    (11,633)     (34,819)    (14,580)
                                                 --------    --------    ---------    --------
  Numerator for basic and diluted earnings per
     share -- net loss applicable to common
     stockholders..............................  $(22,305)   $(15,595)   $(119,934)   $(29,244)
                                                 ========    ========    =========    ========
Denominator:
  Weighted average shares:
     Common stock..............................   243,127     200,547      222,146     194,642
     Series A Preferred Stock..................    45,897      45,897       45,897      45,897
                                                 --------    --------    ---------    --------
  Denominator for basic earnings per share.....   289,024     246,444      268,043     240,539
  Effect of dilutive securities:
     Series C Preferred Stock..................         *           *            *           *
     Employee stock options....................         *           *            *           *
                                                 --------    --------    ---------    --------
  Denominator for diluted earnings per share...   289,024     246,444      268,043     240,539
                                                 ========    ========    =========    ========
Basic and diluted loss per share...............  $  (0.08)   $  (0.06)   $  ( 0.45)   $  (0.12)
                                                 ========    ========    =========    ========
</TABLE>
 
---------------
* Effect is antidilutive.
 
9) 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.
                                        9
<PAGE>   11
                       LORAL SPACE & COMMUNICATIONS LTD.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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 requested that SS/L structure an
arrangement whereby one of two satellites under construction would be sold to a
third party. This customer has now indicated that it expects to purchase both
satellites. Management believes that these matters will not have a material
adverse effect on the financial position or results of operations of the
Company.
 
     The Company is aware of a grand jury investigation being conducted by the
office of the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have occurred in connection
with the participation of SS/L employees on a committee formed in the wake of
the 1996 crash of a Long March rocket in China and whose purpose was to consider
whether studies of the crash made by the Chinese had correctly identified the
cause of the failure. While the grand jury investigation appears to be in its
preliminary stages, and SS/L is not in a position to predict its direction or
outcome, if SS/L were to be indicted and convicted of a criminal violation of
the Arms Export Control Act, it would be subject to a fine of $1 million per
violation and could be debarred from certain export privileges and, possibly,
from participation in government contracts. Since many of SS/L's satellites are
built for foreign customers and/or launched on foreign rockets, such a debarment
would have a material adverse effect on SS/L's business, which is important to
the Company. Indictment for such violations would subject SS/L to discretionary
debarment from further export licenses. Whether or not SS/L is indicted or
convicted, SS/L will remain subject to the State Department's general statutory
authority to prohibit exports of satellites and related services if it finds a
violation of the Arms Export Control Act that puts the party's reliability in
question, and it can suspend export privileges whenever it determines that
grounds for debarment exist and that such suspension "is reasonably necessary to
protect world peace or the security or foreign policy of the United States."
 
     As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
especially in view of the early stage of the proceedings, there can be no
assurance as to those conclusions.
 
     Several Congressional committees have held hearings or announced plans to
hold hearings on U.S. satellite export policy toward China, alleged influence of
campaign contributions (including contributions made by Loral's Chairman and
CEO) on the Clinton Administration's export policy toward China and related
matters. The Company cannot predict what, if any, legislative initiatives will
result from these hearings, although they could result in legislation that could
adversely affect the Company's business.
 
10) SUBSEQUENT EVENT
 
     On November 5, 1998, Loral acquired 276,000 additional Globalstar
partnership interests from DACOM in exchange for 717,600 shares of GTL common
stock owned by Loral. The shares of GTL common stock acquired by DACOM are
restricted for U.S. securities law purposes. GTL has agreed to promptly file a
shelf registration statement covering the resale of these shares.
 
                                       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 registration
statement on Form S-4 (File No. 333-57749) entitled "Risk Factors". 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, 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 between 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 to
begin commercial service in the third quarter of 1999. Loral is pursuing
additional satellite-based communications service opportunities including
CyberStar, a proposed worldwide high-speed broadband data services system which
will initiate service 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 three and nine months ended September 30, 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.A. 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 a subsidiary of
Holdings. As part of the acquisition, Servicios Corporativos Sateliates, S.A. de
C.V. ("Servicios"), a wholly owned subsidiary of 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 has
accounted for SatMex using the equity method since 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 condensed consolidated statement of operations reflects the
results of Orion commencing April 1, 1998.
 
 Comparison of Results for the Three Months Ended September 30, 1998 and
  the Three Months Ended September 30, 1997.
 
     Revenues from operations for the quarter ended September 30, 1998 totaled
$349 million, before elimination of intercompany and affiliate sales of $59
million, compared to revenues of $423 million and elimination of intercompany
sales of $51.9 million for the quarter ended September 30, 1997. SS/L's 1998
revenues were $282.9 million before intercompany eliminations of $45.3 million
compared to revenues of $403.3 million and intercompany eliminations of $51.9
million in 1997. The decrease in SS/L sales is primarily due to timing issues
between the third and fourth quarters. In addition, SS/L's 1998 sales reflect
the negative impact of the $291 million debooking of three Asian satellites in
the fourth quarter of 1997. The increase in the intercompany and affiliate
eliminations reflects the elimination of 49% of SatMex's sales for the period
which amounted to $13 million (Loral's proportionate share), and reduced
intercompany sales by SS/ L to Skynet, partially offset by the construction of
the Orion 2 satellite by SS/L subsequent to the acquisition of Orion. Skynet's
revenues for the quarter ended September 30, 1998 increased 62% to $31.9 million
before intercompany eliminations of $1.1 million, compared to $19.7 million for
the quarter ended September 30, 1997, reflecting the effect of higher bill rates
in 1998 on Skynet's Telstar 5 satellite, which was placed in service in July
1997. Orion's revenues for the quarter ended September 30, 1998 were $21.2
million versus $0 in the prior year, due to Loral's acquisition of Orion in
1998.
 
                                       12
<PAGE>   14
 
     Earnings before interest, taxes, depreciation and amortization
("EBITDA")(1) for the three months ended September 30, 1998 and 1997 were as
follows (in millions):
 
<TABLE>
<CAPTION>
                                                            SEPTEMBER 30,    SEPTEMBER 30,
                                                                1998             1997
                                                            -------------    -------------
<S>                                                         <C>              <C>
SS/L......................................................     $ 17.8           $ 27.8
Skynet -- from March 14, 1997.............................       20.9             10.7
SatMex -- from November 17, 1997 -- 49%(2)................       11.1
Orion -- from April 1, 1998...............................        2.6
Corporate expenses and intercompany eliminations..........      (14.1)            (8.9)
                                                               ------           ------
EBITDA before development costs and affiliate
  eliminations............................................       38.3             29.6
Development costs:
Cyberstar.................................................       (7.3)            (8.7)
Globalstar(2).............................................      (19.5)           (10.2)
                                                               ------           ------
Total development cost....................................      (26.8)           (18.9)
Affiliate eliminations(2).................................        8.4             10.2
                                                               ------           ------
EBITDA....................................................     $ 19.9           $ 20.9
                                                               ======           ======
</TABLE>
 
---------------
(1) EBITDA is provided because it is a measure commonly used in the
    communications industry to analyze companies on the basis of operating
    performance, leverage and liquidity and is presented to enhance the
    understanding of Loral's operating results. However, 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. EBITDA as presented may be calculated differently and,
    therefore, may not be comparable to similarly titled measures reported by
    other companies.
 
(2) Represents Loral's proportionate share of SatMex's EBITDA and Globalstar's
    development costs. Such amounts are then reflected in the Affiliate
    eliminations to arrive at EBITDA.
 
     EBITDA before development costs and affiliate eliminations rose to $38.3
million from $29.6 million in the same period from a year ago, reflecting growth
in Loral's fixed satellite services business, including Loral's proportionate
share of SatMex's EBITDA in 1998, subsequent to its acquisition. EBITDA was
$19.9 million for 1998 compared to $20.9 million for 1997. This is primarily due
to lower EBITDA at SS/L due to the decline in sales, offset by increased EBITDA
at Skynet and by including Orion's EBITDA in 1998 subsequent to its acquisition
by Loral. Depreciation and amortization was $39.4 million and $18.6 million for
1998 and 1997, respectively. The increase in depreciation and amortization in
1998 primarily results from the inclusion of Orion's depreciation of fixed
assets and amortization of cost in excess of net assets acquired. As a result of
the above, the operating loss was $19.5 million for 1998 compared to operating
income of $2.3 million for 1997.
 
     Interest and investment income for the quarter ended September 30, 1998, of
$50.4 million primarily includes a $35 million gain realized on the purchase of
additional Globalstar partnership interests equating to approximately 16.8
million shares of Globalstar Telecommunications Limited ("GTL") and the
subsequent sale of 8.4 million shares of GTL common stock to persons and
entities advised by and associated with Soros Fund Management L.L.C. ("Soros"),
and $13.7 million of interest earned on available cash during the period.
Interest income for the quarter ended September 30, 1997, of $8.1 million
primarily represents $6.6 million of interest earned on the investment of
available cash during the period and interest on the GTL Convertible Equivalent
Operations ("GTLCPEOs") held by Loral.
 
     Interest expense of $14.8 million, net of capitalized interest of $22.1
million, for the quarter ended September 30, 1998 reflects interest on
borrowings under Loral's credit agreement and interest on Orion's debt. Interest
expense of $0.7 million, net of capitalized interest of $4.7 million, for the
quarter ended September 30, 1997, reflects the assumption of SS/L's debt and
interest on Loral's outstanding Convertible
 
                                       13
<PAGE>   15
 
Preferred Equivalent Obligations ("CPEOs"). On June 5, 1997, the CPEOs were
exchanged for Loral 6% Series C Convertible Redeemable Preferred Stock ("Series
C Preferred Stock").
 
     For the three months ended September 30, 1998, the Company recorded an
income tax benefit of $3.9 million on a loss of $18.9 million before income
taxes and before the $35 million gain on the sale of Globalstar stock, yielding
an effective rate of 20.5% as compared to 47.7% in the prior year. The gain on
the sale of Globalstar stock is tax free to the Company. The rate change is
caused primarily by the impact of additional non-deductible amortization of cost
in excess of net assets acquired.
 
     The minority interest benefit in 1998 reflects the reduction of CyberStar's
loss attributed to CyberStar's other investor. 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 $31.4 million in 1998 compared to
$9.1 million for 1997. Loral's share of Globalstar's losses was $19.8 million in
1998 compared to $9.1 million in 1997. This increase was primarily due to a loss
of $7.3 million recorded by Loral, representing Loral's proportionate share of a
charge taken by Globalstar in the third quarter of 1998 as a result of a Zenit
launch failure, Globalstar's increased development costs, as well as an
increased ownership percentage by Loral in 1998. Also included in the equity in
net loss of affiliates for 1998 is Loral's share of SatMex's loss of $2.7
million, Loral's share of Skybridge's loss of $3.7 million, Loral's share of the
Europe*Star loss of $0.2 million, and Loral's portion of losses from other
affiliates of $5 million.
 
     Preferred dividends of $11.6 million in the three months ended September
30, 1998 and 1997 relate to the Series C Preferred Stock.
 
     As a result of the above, net loss applicable to common stockholders for
1998 was $22.3 million or $0.08 per diluted share, compared to $15.6 million or
$0.06 per diluted share, for 1997. Diluted weighted average shares were 289.0
million for 1998 and 246.4 million for 1997.
 
 Comparison of Results for the Nine Months Ended September 30, 1998 and
 the Nine Months Ended September 30, 1997.
 
     Revenues from operations for the nine months ended September 30, 1998
totaled $1.09 billion, before elimination of intercompany and affiliate sales of
$257.7 million, compared to revenues of $1.14 billion and elimination of
intercompany sales of $142.6 million for the nine months ended September 30,
1997. SS/L's 1998 revenues were $921.4 million before intercompany eliminations
of $216.6 million compared to revenues of $1.1 billion and intercompany
eliminations of $142.6 million in 1997. The decrease in SS/L sales is primarily
due to the negative impact of the $291 million debooking of three Asian
satellites in the fourth quarter of 1997. The increase in the intercompany and
affiliate eliminations reflects the elimination of 49% of SatMex's sales for the
period which amounted to $38.1 million (Loral's proportionate share), the
construction of the Orion 2 satellite by SS/L subsequent to the acquisition of
Orion, offset by a reduction in intercompany sales by SS/L to Skynet. Skynet's
revenues for the nine months ended September 30, 1998 were $89.9 million before
intercompany eliminations of $3.1 million, compared to $45.1 million for the
period March 14, 1997 through September 30, 1997, reflecting the inclusion of a
full nine months of Skynet's revenues in 1998 and the effect of increased fill
rates on the Telstar 5 satellite in 1998, which was placed in service in July
1997. Orion's revenues from the date of acquisition through September 30, 1998
were $41.4 million.
 
                                       14
<PAGE>   16
 
     Earnings before interest, taxes, depreciation and amortization
("EBITDA")(1) for the nine months ended September 30, 1998 and 1997 were as
follows (in millions):
 
<TABLE>
<CAPTION>
                                                            SEPTEMBER 30,    SEPTEMBER 30,
                                                                1998             1997
                                                            -------------    -------------
                                                                    (IN THOUSANDS)
<S>                                                         <C>              <C>
SS/L......................................................     $ 55.0           $ 67.6
Skynet -- from March 14, 1997.............................       54.0             28.3
SatMex -- from November 17, 1997 -- 49%(2)................       30.6
Orion -- from April 1, 1998...............................        3.4
Corporate expenses and intercompany elimination...........      (39.2)           (23.8)
                                                               ------           ------
EBITDA before development costs and affiliate
  eliminations............................................      103.8             72.1
Development costs:
Cyberstar.................................................      (22.7)           (20.2)
Globalstar(2).............................................      (40.7)           (24.7)
                                                               ------           ------
Total development costs...................................      (63.4)           (44.9)
Affiliate eliminations(2).................................       10.1             24.7
                                                               ------           ------
EBITDA....................................................     $ 50.5           $ 51.9
                                                               ======           ======
</TABLE>
 
---------------
(1) EBITDA is provided because it is a measure commonly used in the
    communications industry to analyze companies on the basis of operating
    performance, leverage and liquidity and is presented to enhance the
    understanding of Loral's operating results. However, 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. EBITDA as presented may be calculated differently and,
    therefore, may not be comparable to similarly titled measures reported by
    other companies.
 
(2) Represents Loral's proportionate share of SatMex's EBITDA and Globalstar's
    development costs. Such amounts are reflected in the Affiliate eliminations
    to arrive at EBITDA.
 
     EBITDA before development costs and affiliate eliminations rose to $103.8
million from $72.1 million in the same period from a year ago, reflecting growth
in Loral's fixed satellite services business including Loral's proportionate
share of SatMex's EBITDA in 1998. EBITDA was $50.5 million for 1998 compared to
$51.9 million for 1997. This is primarily due to lower EBITDA at SS/L due to the
decline in sales; increased intercompany eliminations due to the construction of
the Orion 2 satellite by SS/L subsequent to the acquisition of Orion, increased
spending levels at Cyberstar for product development and marketing expenditures;
offset by increased EBITDA at Skynet and by including Orion's EBITDA in 1998
subsequent to its acquisition by Loral. Depreciation and amortization was $95.3
million and $42.7 million for 1998 and 1997, respectively. The increase in
depreciation and amortization in 1998 primarily results from the inclusion of
Orion's depreciation of fixed assets and amortization of cost in excess of net
assets acquired and from the inclusion of depreciation and amortization related
to Skynet for a full nine months in 1998, which includes the depreciation of
Skynet's Telstar 5 satellite placed in service on July 1, 1997. As a result of
the above, operating loss was $44.8 million for 1998 compared to operating
income of $9.2 million for 1997.
 
     Interest and investment income for the nine months ended September 30,
1998, of $75.6 million primarily includes a $35 million gain realized on the
purchase of additional Globalstar partnership interests equating to
approximately 16.8 million shares of GTL and the subsequent sale of 8.4 million
shares of GTL common stock to Soros, and $35.1 million of interest earned on
available cash during the period and interest on the GTL CPEOs held by Loral.
Interest income for the nine months ended September 30, 1997, of $39.2 million
primarily represents $34.8 million of interest earned on the investment of
available cash during the period and interest on the GTLCPEOs held by Loral.
 
     Interest expense of $38.1 million, net of capitalized interest of $42.3
million, for the nine months ended September 30, 1998 reflects interest on
borrowings under Loral's credit agreement and interest on Orion's debt. Interest
expense of $16.1 million, net of capitalized interest of $13.8 million, for the
nine months ended
 
                                       15
<PAGE>   17
 
September 30, 1997, reflects the assumption of SS/L's debt and interest on
Loral's outstanding CPEOs. On June 5, 1997, the CPEOs were exchanged for Series
C Preferred Stock.
 
     For nine months ended September 30, 1998, the Company recorded an income
tax benefit of $10.5 million on a loss of $42.3 million before income taxes and
before the $35 million gain on the sale of Globalstar stock, yielding an
effective rate of 24.9% as compared to 54.5% in the prior year. The gain on the
sale of Globalstar stock is tax free to the Company. The rate change is caused
primarily by the impact of additional non-deductible amortization of cost in
excess of net assets acquired.
 
     The minority interest benefit in 1998 reflects the reduction of CyberStar's
loss attributed to CyberStar's other investor. 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 $92.8 million in 1998 compared to
$24.3 million for 1997. Loral's share of Globalstar's losses was $47.9 million
in 1998 compared to $24.3 million in 1997. This increase was primarily due to a
loss of $7.3 million recorded by Loral, representing Loral's proportionate share
of a charge taken by Globalstar in the third quarter of 1998 as a result of a
Zenit launch failure, Globalstar's increased development costs as well as an
increased ownership percentage by Loral in 1998. Also included in the equity in
net loss of affiliates for 1998 is Loral's share of SatMex's loss of $14.6
million, Loral's share of Skybridge's loss of $19.6, Loral's share of
Europe*Star's loss of $0.2 million and Loral's portion of losses from other
affiliates of $10.5 million.
 
     Preferred distributions of $34.8 million in the nine months ended September
30, 1998, relate to the Series C Preferred Stock. Preferred distributions of
$14.6 million for the nine months ended September 30, 1997, relate to the Series
C Preferred Stock which was issued in June 1997.
 
     As a result of the above, net loss applicable to common stockholders for
1998 was $119.9 million or $0.45 per diluted share, compared to $29.2 million or
$0.12 per diluted share, for 1997. Diluted weighted average shares were 268.0
million for 1998 and 240.5 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 nine months ended September 30, 1998 was $107.4 million as
compared to $67.7 million for the nine months ended September 30, 1997. The net
loss applicable to ordinary partnership interests increased primarily as a
result of a malfunction of a Zenit 2 rocket in September 1998, which resulted in
the loss of 12 Globalstar satellites, for which Globalstar recorded a loss of
$17.3 million, increased activity in the development of Globalstar user
terminals, increased in-house engineering and marketing efforts and the net
effect of the Redeemable Preferred Partnership Interests conversion during the
quarter ended June 30, 1998. 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 nine months ended September 30, 1998, SatMex had revenues,
operating income and a net loss of $79.4 million, $22.8 million and $19.5
million, respectively. The net loss is primarily attributed to interest expense
of $46.6 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 until 2000 when funds from operations are
available to reduce outstanding debt.
 
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,
 
                                       16
<PAGE>   18
 
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.
 
     On June 29, 1998, Loral sold 23 million shares of its common stock for
$27.00 per share. The net proceeds were $602.6 million, of which Loral used $175
million, net, to fund the Globalstar Purchase (see below) and the remainder of
which Loral intends to use for general corporate purposes, including investing
in existing core businesses, to pursue emerging satellite service opportunities
worldwide and for possible acquisitions.
 
     On July 6, 1998, Loral, the managing general partner of Globalstar,
purchased 4.2 million Globalstar ordinary partnership interests (corresponding
to approximately 16.8 million shares of GTL common stock) from certain founding
service provider partners of Globalstar for $420 million in cash (the
"Globalstar Purchase"). The founding service provider partners participating in
the transaction have deposited one half of their proceeds ($210 million) into
escrow accounts to be used for the purchase of Globalstar gateways and user
terminals. Loral used $175 million of the net proceeds from its equity offering
to finance a portion of the Globalstar Purchase and the remaining balance was
provided through the concurrent sale by Loral of 8.4 million shares of GTL
common stock owned by Loral to Soros for $245 million in cash.
 
     As a result of these transactions, Loral's fully diluted ownership in
Globalstar increased from approximately 38% to 42% and Soros owns GTL shares
equating to approximately 4% of Globalstar. The shares of GTL common stock
acquired by Soros are restricted for U.S. securities law purposes. With respect
to such shares, GTL has agreed to file a shelf registration statement and have
such registration statement declared effective within one year from the closing
date. As a result of these transactions, Loral recognized a gain of
approximately $35 million, which is included in interest and investment income
in the statement of operations.
 
     On November 5, 1998, Loral acquired 276,000 additional Globalstar
partnership interests from DACOM in exchange for 717,600 shares of GTL common
stock owned by Loral. The shares of GTL common stock acquired by DACOM are
restricted for U.S. securities law purposes. GTL has agreed to promptly file a
shelf registration statement covering the resale of these shares.
 
     At September 30, 1998, Loral had $649.3 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 current and additional satellite communications
service opportunities. During October 1998, Loral invested an additional $29
million in Europe*Star.
 
     At September 30, 1998, Orion had $128.8 million of cash and restricted cash
(which will be used for the satellites under construction and interest
payments). Orion's outstanding debt of $910.6 million, is non-recourse to Loral.
 
     On November 14, 1997, the Company's 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 September 30, 1998, there was $608.8 million of
borrowings outstanding under this agreement and other credit facilities.
 
     On April 17, 1998, Orion made an offer to purchase its senior notes and
senior discount notes. Substantially all of Orion's senior notes and senior
discount notes remained outstanding following the expiration of the offer. The
offer by Orion to repurchase such notes was made pursuant to the applicable
indentures as a result of the change in control of Orion in connection with its
acquisition by Loral.
 
                                       17
<PAGE>   19
 
     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.
 
     Orion:  Orion currently has one satellite in orbit and two satellites under
construction (Orion 2 and Orion 3). The cost of Orion 3 is fully funded. Loral
intends to fund approximately $60 million of the construction cost of Orion 2.
All other costs related to Orion 2 are fully funded.
 
     SatMex:  SatMex currently has two fully functioning satellites in orbit
(Solidaridad I and Solidaridad II) and one satellite in an inclined orbit
(Morelos II). Morelos II will be replaced by SatMex 5, which is currently under
construction and is scheduled to be launched in the fourth quarter of 1998.
Loral and Telefonica Autrey have committed to make an equity investment in
SatMex of up to $50 million prior to March 31, 1999.
 
     Globalstar:  On February 14, 1998, Globalstar launched its first four
satellites and launched four additional satellites on April 24, 1998. On
September 9, 1998, however, a malfunction of a Zenit 2 rocket, launched from the
Baikonur cosmodrome in Kazakhstan, resulted in the loss of 12 Globalstar
satellites. In the third quarter of 1998, Globalstar recorded a loss on the
launch failure of approximately $17.3 million, representing the value of the
satellites and related capitalized costs, net of insurance proceeds receivable
of $190.5 million. Globalstar activated its contingency launch plan and expects
to initiate commercial service with at least 32 satellites in orbit in the third
quarter of 1999. The revised plan is under contract and provides additional
assurance of successful satellite development through greater flexibility and
redundant capacity, reducing Globalstar's dependance on any one launcher and
further reducing risk.
 
     Through September 30, 1998, Globalstar incurred costs of approximately $2.4
billion for the design and construction of the space and ground segments. Costs
incurred to date during fiscal year 1998 were approximately $580 million.
 
     As of October 30, 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 is approximately $3.3 billion, which includes the delay of three months
in the initiation of commercial service at a cost of approximately $100 million
representing the additional interest and operating expenses directly attributed
to the delay, the estimated costs for revisions to Globalstar's launch plan of
approximately $140 million, and the cost of the eight additional spare
satellites already under construction by SS/L of $180 million (previously
classified as additional satellite spares in Globalstar's condensed consolidated
financial statements). 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.
 
     In addition, 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. The contract for the 38 gateways is
approximately $337 million. In December 1997, Globalstar ordered 40,000 fixed
access terminals from Ericsson for $84 million. Further, Globalstar has also
agreed to finance approximately $67 million of the cost of handsets. Globalstar
expects to recoup the amounts so financed following the acceptance by the
service providers of the gateways, fixed access terminals and handsets.
 
     Globalstar and Globalstar service providers entered into contracts with
Qualcomm, Ericsson OMC Limited and Telital S.A. for the initial manufacture and
delivery of approximately 300,000 production handheld and fixed access
terminals.
 
     As of October 30, 1998, Globalstar had raised or received commitments for
approximately $2.9 billion. Globalstar believes that its current capital, vendor
financing commitments and the availability of the Globalstar credit agreement
($250 million available at September 30, 1998) are sufficient to fund its
requirements for the baseline system into the first quarter of 1999. Globalstar
intends to raise the remaining funds required prior to initiation of commercial
service in September 1999 of approximately $600 million from a combination of
sources including: high yield debt issuance (which may include an equity
component), equity issuance, financial support from the Globalstar partners,
projected service provider payments, and
 
                                       18
<PAGE>   20
 
anticipated payments from the sale of gateways and Globalstar subscriber
terminals. 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.
 
     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 $224 million of vendor financing to Globalstar, of which $129
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 one of two satellites under construction would be sold to
a third party. This customer has now indicated that it expects to purchase both
satellites. Management believes that these matters will not have a material
adverse effect on the financial condition or results of operations of Loral.
 
     The Company is aware of a grand jury investigation being conducted by the
office of the U.S. Attorney for the District of Columbia with respect to
possible violations of export control laws that may have occurred in connection
with the participation of SS/L employees on a committee formed in the wake of
the 1996 crash of a Long March rocket in China and whose purpose was to consider
whether studies of the crash made by the Chinese had correctly identified the
cause of the failure. While the grand jury investigation appears to be in its
preliminary stages, and SS/L is not in a position to predict its direction or
outcome, if SS/L were to be indicted and convicted of a criminal violation of
the Arms Export Control Act, it would be subject to a fine of $1 million per
violation and could be debarred from certain export privileges and, possibly,
from participation in government contracts. Since many of SS/L's satellites are
built for foreign customers and/or launched on foreign rockets, such a debarment
would have a material adverse effect on SS/L's business, which is important to
the Company. Indictment for such violations would subject SS/L to discretionary
debarment from further export licenses. Whether or not SS/L is indicted or
convicted, SS/L will remain subject to the State Department's general statutory
authority to prohibit exports of satellites and related services if it finds a
violation of the Arms Export Control Act that puts the party's reliability in
question, and it can suspend export privileges whenever it determines that
grounds for debarment exist and that such suspension "is reasonably necessary to
protect world peace or the security or foreign policy of the United States."
 
     As far as SS/L can determine, no sensitive information or technology was
conveyed to the Chinese, and no secret or classified information was discussed
with or reported to them. SS/L believes that its employees acted openly and in
good faith and that none engaged in intentional misconduct. Accordingly, the
Company does not believe that SS/L has committed a criminal violation of the
export control laws. The Company does not expect the grand jury investigation or
its outcome to result in a material adverse effect upon its business. However,
especially in view of the early stage of the proceedings, there can be no
assurance as to those conclusions.
 
     Several Congressional committees have held hearings or announced plans to
hold hearings on U.S. satellite export policy toward China, alleged influence of
campaign contributions (including contributions made by Loral's Chairman and
CEO) on the Clinton Administration's export policy toward China and related
matters. The Company cannot predict what, if any, legislative initiatives will
result from these hearings, although they could result in legislation that could
adversely affect the Company's business.
 
                                       19
<PAGE>   21
 
     Cash Used and Provided.  Cash used in operating activities for the nine
months ended September 30, 1998 was $28.9 million, primarily due to changes in
satellite related assets and liabilities of $75.5 million due to the progress on
commercial satellite contracts and increases in component inventory, including
an increase in contracts in process and inventories of $63.2 million, a decrease
in customer advances of $52.8 million offset by a decrease in launch vehicle
deposits of $40.5 million. This was offset by funds generated by earnings before
depreciation and amortization, taxes, minority interest and equity in net loss
of affiliates of $50.5 million. Cash used in operating activities for 1997, was
$220 million, primarily due to an increase in satellite contracts in process and
component inventories of $140.3 million and a decrease in customer advances of
$50.1 million, an increase in launch vehicle deposits of $89.4, offset by funds
generated from earnings before depreciation and amortization, taxes and equity
in net loss of affiliates of $51.8 million.
 
     Cash used in investing activities for 1998 was $321.9 million primarily as
a result of $436.7 million of capital expenditures, the $175 million net cost of
acquiring additional Globalstar partnership interests, $40.2 million of
investments in affiliates, offset by a reduction in restricted cash of $276.1
million primarily used for the construction of satellites and $53.8 million of
cash acquired in connection with the Orion acquisition. Cash used in investing
activities for 1997 was $869.8 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 $140.3 million primarily for the construction of
Skynet's satellites by SS/L and for facility expansion and renovation at SS/L.
 
     Net cash provided by financing activities for 1998 was $773.7 million,
primarily from the net proceeds of the equity offering of $602.6 million and
borrowings under existing credit facilities. Cash provided by financing
activities for 1997 was $102.1 million, primarily as a result of borrowings
under credit facilities.
 
OTHER MATTERS
 
  Impact of Year 2000
 
     The Company's Year 2000 Program is proceeding on schedule. 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 as "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.
 
     The Company and its operating affiliates, Globalstar and SatMex, have
implemented a Year 2000 program (the "Year 2000 Program") for their internal
products, system and equipment, as well as for key vendor and customer supplied
products, system and equipment. As part of the Year 2000 Program, the Company
and its operating affiliates are assessing the Year 2000 capabilities of, among
other things, their satellites, ground equipment, research and development
activities, manufacturing processes and facility management systems. The Year
2000 Program consists of the following phases: Inventory of Year 2000 items,
Assessment (including prioritization), Remediation (including modification,
upgrading and replacement), Testing and Auditing. This five-step program is
divided into six major sections covering both information and non-information
technology systems: 1) business systems, 2) technical systems, 3) products and
services, 4) imbedded hardware/firmware, 5) vendor supplied products and 6)
customer provided products. To date, the Company and its operating affiliates
have completed approximately 90% of the inventory phase and approximately 20% of
their assessment phase. The Company expects to complete the first four phases,
through the testing phase, of the Year 2000 Program during the second quarter of
1999, which is prior to any anticipated material impact on the operations of the
Company and its operating affiliates. The fifth phase, the audit phase, is
expected to commence in January of 1999 and continue through the third quarter
of 1999 to accommodate re-audits if deemed necessary.
 
     Both internal and external resources are being utilized to execute the
Company's plan. The program to address Year 2000 has been underway since July
1997. The incremental costs incurred to date for this effort by the Company and
its operating affiliates were approximately $600,000. Based on the efforts of
the Company and its operating affiliates to date, the Company anticipates
additional incremental expenses of approximately $6.5 million will be incurred
to substantially complete the effort.
 
                                       20
<PAGE>   22
 
     Based upon the accomplishments to date, no contingency plans are expected
to be needed. As risks are identified, contingency plans will be developed and
implemented as necessary. However, because of the progress achieved to date and
the Company's expectations that its Year 2000 program will be substantially
complete in the second quarter of calendar 1999, the Company believes adequate
time will be available to insure alternatives can be developed, assessed and
implemented prior to a Year 2000 issue having a material negative impact on the
operations of the Company. However, there can be no assurance that such
modifications and conversions, if required, will be completed on a timely basis.
 
     The cost of the program and the dates on which the Company believes it will
substantially complete Year 2000 modifications are based on management's best
estimates. Such estimates were derived using software surveys and programs to
evaluate calendar date exposures and numerous assumptions of future events,
including the continued availability of certain resources, third-party year 2000
readiness and other factors. Because none of these estimates can be guaranteed,
actual results could differ materially and adversely from those anticipated.
Specific factors that might cause an adjustment of costs are: number of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, the ability to validate supplier certification and similar
uncertainties.
 
     The Company's failure to remediate a material Year 2000 problem could
result in an interruption or failure of certain basic business operations. These
failures could materially and adversely effect the Company's results of
operations, liquidity and financial condition. The Company and its operating
affiliates are also assessing the Year 2000 readiness of their key third-party
suppliers. Information requests have been distributed to such suppliers and
replies are being evaluated. If the risk is deemed material, on-site visits to
suppliers will be conducted to verify the adequacy of the information received.
However, due to the general uncertainty of the Year 2000 problem, including
uncertainty with regard to third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have an adverse material impact on the Company's results of operations,
liquidity or financial condition. The Company's Year 2000 Program is expected to
have considerably reduced the Company's level of exposure in regard to
third-party supplier Year 2000 problems.
 
  Accounting Pronouncements
 
     Effective January 1, 1998, Loral adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
established new rules for the reporting and display of comprehensive income and
its components. SFAS 130 requires unrealized gains or losses on the Company's
foreign currency translation adjustments to be included in other comprehensive
income. During the nine months ended September 30, 1998 and 1997, comprehensive
loss was substantially consistent with net loss applicable to common share
holders.
 
     In September 1997, the Financial Accounting Standards Board ("FASB") 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.
 
     In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. For fair-value hedge transactions in which the Company is hedging
changes in an asset's, liability's, or firm commitment's fair value, changes in
the fair value of the derivative instrument will generally be offset in the
income statement by changes in the hedged item's fair value. For cash-flow hedge
transactions, in which the Company is hedging the variability of cash flows
related to a
 
                                       21
<PAGE>   23
 
variable-rate asset, liability, or a forecasted transaction, changes in the fair
value of the derivative instrument will be reported in other comprehensive
income. The gains and losses on the derivative instrument that are reported in
other comprehensive income will be reclassified to earnings in the periods in
which earnings are impacted by the variability of the cash flows of the hedged
item. The ineffective portion of all hedges will be recognized in current-period
earnings. The Company has not yet determined the impact that the adoption of FAS
133 will have on its earnings or statement of financial position. The Company is
required to adopt SFAS 133 on January 1, 2000.
 
                                       22
<PAGE>   24
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) Exhibits
 
     The following exhibits are filed as part of this report:
 
        Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges
 
        Exhibit 27 -- Financial Data Schedule.
 
     (b) Reports on Form 8-K
 
<TABLE>
<CAPTION>
              DATE OF REPORT                              DESCRIPTION
              --------------                              -----------
              <S>                 <C>
              September 9, 1998   Item 5 -- Other Events, Globalstar Launch Failure
</TABLE>
 
                                       23
<PAGE>   25
 
                                   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
 
                                                    RICHARD J. TOWNSEND
 
                                          --------------------------------------
                                                   Richard J. Townsend
                                                Senior Vice President and
                                                 Chief Financial Officer
                                              (Principal Financial Officer)
                                                           and
                                             Registrant's Authorized Officer
 
Date: November   , 1998
 
                                       24
<PAGE>   26
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT NO.                            DESCRIPTION
-----------                            -----------
<S>            <C>
Exhibit        Computation of Ratio of Earnings to Fixed Charges
  12 --
Exhibit        Financial Data Schedule
  27 --
</TABLE>