<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-Q

            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

                         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 April 30, 2002, there were 352,952,916 shares of Loral Space &
Communications Ltd. common stock outstanding.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                    PART 1.

                             FINANCIAL INFORMATION

                       LORAL SPACE & COMMUNICATIONS LTD.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                               MARCH 31,    DECEMBER 31,
                                                                 2002           2001
                                                              -----------   ------------
                                                              (UNAUDITED)      (NOTE)
<S>                                                           <C>           <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................  $   108,137   $   159,949
  Accounts receivable, net..................................       42,375        39,299
  Contracts-in-process......................................      167,853       178,599
  Inventories...............................................      103,517        98,179
  Other current assets......................................       87,196        93,667
                                                              -----------   -----------
    Total current assets....................................      509,078       569,693
Property, plant and equipment, net..........................    1,982,420     1,977,356
Cost in excess of net assets acquired, net..................                    891,719
Long-term receivables.......................................      194,722       190,306
Investments in and advances to affiliates...................      191,091       188,343
Deposits....................................................      161,290       155,490
Deferred tax assets.........................................      305,483       297,528
Other assets................................................      112,268       119,494
                                                              -----------   -----------
                                                              $ 3,456,352   $ 4,389,929
                                                              ===========   ===========
                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.........................  $   166,145   $   136,616
  Accounts payable..........................................      157,199       144,841
  Accrued employment costs..................................       43,146        39,232
  Customer advances.........................................      177,105       148,990
  Accrued interest and preferred dividends..................       27,295        31,170
  Other current liabilities.................................       45,294        46,184
  Income taxes payable......................................       35,692        34,516
                                                              -----------   -----------
    Total current liabilities...............................      651,876       581,549
Pension and other postretirement liabilities................       57,803        55,590
Long-term liabilities.......................................      151,409       156,716
Long-term debt..............................................    2,126,276     2,226,525
Minority interest...........................................       17,188        18,681
Commitments and contingencies (Notes 6, 8 and 13)
Shareholders' equity:
  6% Series C convertible redeemable preferred stock
    ($491,994 redemption value), $.01 par value.............      485,371       485,371
  6% Series D convertible redeemable preferred stock
    ($305,539 redemption value), $.01 par value.............      296,529       296,529
  Common stock, $.01 par value..............................        3,376         3,368
  Paid-in capital...........................................    2,774,812     2,771,964
  Treasury stock............................................       (3,360)       (3,360)
  Unearned compensation.....................................           (4)          (81)
  Retained deficit..........................................   (3,132,033)   (2,223,710)
  Accumulated other comprehensive income....................       27,109        20,787
                                                              -----------   -----------
Total shareholders' equity..................................      451,800     1,350,868
                                                              -----------   -----------
                                                              $ 3,456,352   $ 4,389,929
                                                              ===========   ===========
</Table>

---------------
Note: The December 31, 2001 balance sheet has been derived from the audited
      consolidated financial statements at that date.

           See notes to condensed consolidated financial statements.

                                        2
<PAGE>

                       LORAL SPACE & COMMUNICATIONS LTD.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                                2002        2001
                                                              ---------   --------
<S>                                                           <C>         <C>
Revenues from satellite sales...............................  $ 198,471   $147,822
Revenues from satellite services............................    109,705    113,313
                                                              ---------   --------
  Total revenues............................................    308,176    261,135
Cost of satellite sales.....................................    186,428    127,055
Cost of satellite services..................................     66,296     75,505
Selling, general and administrative expenses................     40,747     54,651
                                                              ---------   --------
Operating income............................................     14,705      3,924
Interest and investment income..............................      5,409      7,669
Interest expense............................................    (18,570)   (49,693)
                                                              ---------   --------
Income (loss) before income taxes, equity in net loss of
  affiliates, minority interest and cumulative effect of
  change in accounting principle............................      1,544    (38,100)
Income tax (expense) benefit................................     (5,528)     1,925
                                                              ---------   --------
Loss before equity in net loss of affiliates, minority
  interest and cumulative effect of change in accounting
  principle.................................................     (3,984)   (36,175)
Equity in net loss of affiliates, net of taxes..............    (15,950)   (22,354)
Minority interest, net of taxes.............................         74      1,261
                                                              ---------   --------
Loss before cumulative effect of change in accounting
  principle.................................................    (19,860)   (57,268)
Cumulative effect of change in accounting principle, net of
  taxes (Notes 3 and 10)....................................   (876,500)    (1,741)
                                                              ---------   --------
Net loss....................................................   (896,360)   (59,009)
Preferred dividends.........................................    (11,963)   (16,123)
                                                              ---------   --------
Net loss applicable to common shareholders..................  $(908,323)  $(75,132)
                                                              =========   ========
Basic and diluted loss per share:
Before cumulative effect of change in accounting
  principle.................................................  $   (0.09)  $  (0.25)
Cumulative effect of change in accounting principle.........      (2.60)        --
                                                              ---------   --------
Loss per share..............................................  $   (2.69)  $  (0.25)
                                                              =========   ========
Weighted average shares outstanding:
  Basic and diluted.........................................    337,052    298,656
                                                              =========   ========
</Table>

           See notes to condensed consolidated financial statements.
                                        3
<PAGE>

                       LORAL SPACE & COMMUNICATIONS LTD.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                              ---------------------
                                                                2002        2001
                                                              ---------   ---------
<S>                                                           <C>         <C>
Operating activities:
  Net loss..................................................  $(896,360)  $ (59,009)
  Non-cash items:
     Equity in net loss of affiliates, net of taxes.........     15,950      22,354
     Minority interest, net of taxes........................        (74)     (1,261)
     Cumulative effect of change in accounting principle,
      net of taxes..........................................    876,500       1,741
     Deferred taxes.........................................      3,510      (2,239)
     Non-cash interest (income) expense.....................       (141)      9,903
     Depreciation and amortization..........................     47,066      54,287
  Change in operating assets and liabilities, net of
     acquisitions:
     Accounts receivable....................................     (3,076)      2,228
     Contracts-in-process...................................     11,649     (16,218)
     Inventories............................................     (5,338)    (15,213)
     Long-term receivables..................................     (4,416)     (7,192)
     Deposits...............................................     (5,800)     14,300
     Other current assets and other assets..................     11,526      (7,496)
     Accounts payable.......................................     12,358     (22,520)
     Accrued expenses and other current liabilities.........       (851)    (21,076)
     Customer advances......................................     28,115     (12,628)
     Income taxes payable...................................      1,176         192
     Pension and other postretirement liabilities...........      2,213       1,881
     Long-term liabilities..................................     (5,307)      3,252
     Other..................................................       (177)        677
                                                              ---------   ---------
Net cash provided by (used in) operating activities.........     88,523     (54,037)
                                                              ---------   ---------
Investing activities:
  Investments in and advances to affiliates.................     (9,614)    (16,216)
  Capital expenditures......................................    (51,035)    (67,144)
                                                              ---------   ---------
Net cash used in investing activities.......................    (60,649)    (83,360)
                                                              ---------   ---------
Financing activities:
  Borrowings under revolving credit facility................      2,000      50,000
  Repayments under term loans...............................    (16,250)    (28,000)
  Repayments under revolving credit facility................    (56,000)    (50,000)
  Repayments of other long-term obligations.................       (330)       (549)
  Proceeds from stock issuances.............................      2,857       4,870
  Preferred dividends.......................................    (11,963)    (16,123)
                                                              ---------   ---------
Net cash used in financing activities.......................    (79,686)    (39,802)
                                                              ---------   ---------
Decrease in cash and cash equivalents.......................    (51,812)   (177,199)
Cash and cash equivalents -- beginning of period............    159,949     394,045
                                                              ---------   ---------
Cash and cash equivalents -- end of period..................  $ 108,137   $ 216,846
                                                              =========   =========
Non-cash activities:
  Unrealized gain (loss) on available-for-sale securities...  $   6,494   $ (10,111)
                                                              =========   =========
  Unrealized net gain on derivatives, net of taxes..........  $      72   $   2,476
                                                              =========   =========
</Table>

           See notes to condensed consolidated financial statements.
                                        4
<PAGE>

                       LORAL SPACE & COMMUNICATIONS LTD.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION AND PRINCIPAL BUSINESS

     Loral Space & Communications Ltd. together with its subsidiaries ("Loral"
or the "Company") is one of the world's leading satellite communications
companies with substantial activities in satellite-based communications services
and satellite manufacturing. Loral is organized into three operating businesses
(see Note 9):

          Fixed Satellite Services ("FSS"):  The Company leases transponder
     capacity to customers for various applications, including broadcasting,
     news gathering, Internet access and transmission, private voice and data
     networks, business television, distance learning and direct-to-home
     television ("DTH") and provides telemetry, tracking and control services
     ("TT&C") and network services to customers. The Company operates its
     business through wholly-owned subsidiaries such as Loral Skynet, Loral
     Orion, Inc. ("Loral Orion") and Loral Skynet do Brasil Ltda. ("Skynet do
     Brasil") and affiliates such as Satelites Mexicanos, S.A. de C.V.
     ("Satmex"), Europe*Star Limited ("Europe*Star") and XTAR, L.L.C. ("XTAR").

          Satellite Manufacturing and Technology:  The Company designs and
     manufactures satellites and space systems and develops satellite technology
     for a broad variety of customers and applications through Space
     Systems/Loral, Inc. ("SS/L").

          Data Services:  The Company provides managed communications networks
     and Internet and intranet services through Loral CyberStar, Inc. ("Loral
     CyberStar") and delivers high-speed broadband data communications, business
     television and business media services through Loral Cyberstar and
     CyberStar, L.P. ("CyberStar LP").

2.  BASIS OF PRESENTATION

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

  Reclassifications

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

                                        5
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3.  COMPREHENSIVE LOSS

     The components of comprehensive loss for the three months ended March 31,
2002 and 2001 are as follows (in thousands):

<Table>
<Caption>
                                                                2002        2001
                                                              ---------   --------
<S>                                                           <C>         <C>
Net loss....................................................  $(896,360)  $(59,009)
Cumulative translation adjustment...........................       (244)      (476)
Unrealized gain (losses) on available-for-sale securities,
  net of taxes..............................................      6,494    (10,111)
Derivatives classified as cash flow hedges (net of taxes):
  Cumulative transition adjustment..........................         --      1,220
  Net increase in foreign currency exchange contracts.......        717      3,943
  Reclassifications into revenue and cost of sales from
     other comprehensive income.............................       (645)    (2,687)
                                                              ---------   --------
Comprehensive loss..........................................  $(890,038)  $(67,120)
                                                              =========   ========
</Table>

4.  CONTRACTS-IN-PROCESS

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2002          2001
                                                              ---------   ------------
                                                                   (IN THOUSANDS)
<S>                                                           <C>         <C>
U.S. government contracts:
  Amounts billed............................................  $  2,650      $  1,613
  Unbilled receivables......................................     3,545         3,650
                                                              --------      --------
                                                                 6,195         5,263
                                                              --------      --------
Commercial contracts:
  Amounts billed............................................    92,303       157,153
  Unbilled receivables......................................    69,355        16,183
                                                              --------      --------
                                                               161,658       173,336
                                                              --------      --------
                                                              $167,853      $178,599
                                                              ========      ========
</Table>

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

                                        6
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5.  INVESTMENTS IN AND ADVANCES TO AFFILIATES

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

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2002          2001
                                                              ---------   ------------
<S>                                                           <C>         <C>
Satmex equity investments...................................  $ 63,028      $ 71,318
Europe*Star equity investments and advances.................    76,316        82,346
XTAR equity investments.....................................    10,171         2,781
Globalstar:
  Acquired notes and loans ($636 million and $624 million
     principal and accrued interest as of March 31, 2002 and
     December 31, 2001, respectively).......................    42,726        32,674
  Vendor financing ($245 million and $242 million principal
     and accrued interest as of March 31, 2002 and December
     31, 2001, respectively)................................        --            --
Globalstar service provider partnerships equity investments
  and advances..............................................    (1,150)         (776)
                                                              --------      --------
                                                              $191,091      $188,343
                                                              ========      ========
</Table>

     The Company accounts for its investment in Globalstar's $500 million credit
facility at fair value, with changes in the value (net of tax) recorded as a
component of other comprehensive loss. The Company has contingent liabilities of
approximately $14 million in connection with certain Globalstar service provider
partnerships.

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

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Satmex......................................................  $ (7,596)  $ (3,216)
Europe*Star.................................................    (6,115)    (6,098)
XTAR, net of taxes..........................................      (353)        --
Globalstar and Globalstar service provider partnerships, net
  of taxes..................................................    (1,886)   (13,040)
                                                              --------   --------
                                                              $(15,950)  $(22,354)
                                                              ========   ========
</Table>

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

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Revenues....................................................  $22,642    $30,479
Investment income...........................................      294        294
Interest expense capitalized on development stage
  enterprises...............................................      127         --
Profits relating to affiliate transactions not eliminated...    2,742      1,163
Elimination of Loral's proportionate share of profits
  relating to affiliate transactions........................    1,126        470
Amortization of deferred credit, capitalized interest and
  profits relating to investments in affiliates.............     (135)        73
</Table>

                                        7
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table presents summary financial data of Loral's affiliates
Satmex and Europe*Star as of March 31, 2002 and December 31, 2001 and for the
three months ended March 31, 2002 and 2001, respectively (in thousands):

<Table>
<Caption>
                                                    THREE MONTHS ENDED MARCH 31,
                                            ---------------------------------------------
                                                    2002                    2001
                                            ---------------------   ---------------------
                                            SATMEX    EUROPE*STAR   SATMEX    EUROPE*STAR
                                            -------   -----------   -------   -----------
<S>                                         <C>       <C>           <C>       <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................  $22,609    $  4,497     $33,857    $  1,646
Operating income (loss)...................    1,175      (6,439)     10,533      (7,240)
Net loss..................................   (7,653)    (14,101)     (1,038)    (12,966)
Net loss applicable to common
  shareholders............................   (8,030)                 (1,415)
Net loss applicable to shareholders.......              (14,101)                (12,966)
</Table>

<Table>
<Caption>
                                            MARCH 31, 2002           DECEMBER 31, 2001
                                       ------------------------   ------------------------
                                         SATMEX     EUROPE*STAR     SATMEX     EUROPE*STAR
                                       ----------   -----------   ----------   -----------
<S>                                    <C>          <C>           <C>          <C>
BALANCE SHEET DATA:
Current assets.......................  $  163,209    $ 17,118     $  200,507    $  5,186
Total assets.........................   1,069,298     379,963      1,089,278     383,884
Current liabilities..................      45,917      88,298         44,791      82,942
Long-term debt.......................     542,124                    555,000
Long-term liabilities................     100,302       8,525        100,879      10,423
Loans from partners'.................                 244,420                    237,698
Shareholders' equity.................     380,955                    388,608
Net partners' capital................                  38,720                     52,821
</Table>

                                        8
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  LONG TERM DEBT

<Table>
<Caption>
                                                              MARCH 31,    DECEMBER 31,
                                                                 2002          2001
                                                              ----------   ------------
                                                                   (IN THOUSANDS)
<S>                                                           <C>          <C>
Loral Orion 10.00% Senior notes due 2006 (principal amount
  $613 million).............................................  $  903,738    $  903,738
Loral Satellite term loan, 5.63% and 5.64% at March 31, 2002
  and December 31, 2001, respectively.......................     282,750       294,000
Loral Satellite revolving credit facility, 5.44% and 5.14%
  at March 31, 2002 and December 31, 2001, respectively.....     132,000       136,000
LSC term loan facility, 4.29% and 4.17% at March 31, 2002
  and December 31, 2001 respectively........................     395,000       400,000
LSC revolving credit facility, 4.53% and 4.17% at March 31,
  2002 and December 31, 2001, respectively..................     115,000       165,000
9.50% Senior notes due 2006.................................     350,000       350,000
Export-Import credit facility...............................       8,580         8,580
Other.......................................................         552           557
Non-recourse debt of Loral Orion:
  11.25% Senior notes due 2007 (principal amount $37
     million)...............................................      40,233        40,385
  12.50% Senior discount notes due 2007 (principal amount at
     maturity $49 million and accreted principal amount $49
     million)...............................................      54,707        54,696
  Other.....................................................       9,861        10,185
                                                              ----------    ----------
Total debt..................................................   2,292,421     2,363,141
Less, current maturities....................................     166,145       136,616
                                                              ----------    ----------
                                                              $2,126,276    $2,226,525
                                                              ==========    ==========
</Table>

7.  LOSS PER SHARE

     Basic loss per share is computed based upon the weighted average number of
shares of common stock outstanding. For the three months ended March 31, 2002
and 2001, diluted loss per share excludes the assumed conversion of the
Company's Series C convertible redeemable preferred stock due 2006 (the "Series
C Preferred Stock") and the Series D convertible redeemable preferred stock due
2007 (the "Series D Preferred Stock") into shares of common stock, as their
effect would have been antidilutive. Weighted options equating to approximately
3.7 million and 1.6 million shares of common stock for the three months ended
March 31, 2002 and 2001, respectively, as calculated using the treasury stock
method, were excluded from the calculation of diluted loss per share, as the
effect would have been antidilutive.

                                        9
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Numerator:
  Loss before cumulative effect of change in accounting
     principle..............................................  $ 19,860   $ 57,268
  Cumulative effect of change in accounting principle, net
     of taxes...............................................   876,500      1,741
                                                              --------   --------
  Net loss..................................................   896,360     59,009
  Preferred dividends.......................................    11,963     16,123
                                                              --------   --------
  Numerator for basic and diluted loss per share -- net loss
     applicable to common shareholders......................  $908,323   $ 75,132
                                                              ========   ========
Denominator:
  Weighted average shares:
     Common stock...........................................   337,052    298,656
                                                              --------   --------
  Denominator for basic and diluted loss per share..........   337,052    298,656
                                                              ========   ========
Basic and diluted loss per share:
  Before cumulative effect of change in accounting
     principle..............................................  $   0.09   $   0.25
  Cumulative effect of change in accounting principle.......      2.60         --
                                                              --------   --------
  Loss per share............................................  $   2.69   $   0.25
                                                              ========   ========
</Table>

8.  COMMITMENTS AND CONTINGENCIES

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

     Twelve of the satellites built by SS/L and launched since 1997, five of
which are owned and operated by Loral's subsidiaries or affiliates, have
experienced minor losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected satellites have
experienced any degradation in performance, there can be no assurance that one
or more of the affected satellites will not experience additional power loss
that could result in performance degradation, including loss of transponder
capacity. In the event of additional power loss, the extent of the performance
degradation, if any, will depend on numerous factors, including the amount of
the additional power loss, the level of redundancy built into the affected
satellite's design, when in the life of the affected satellite the loss occurred
and the number and type of use being made of transponders then in service. A
complete or partial loss of satellites could result in a loss of orbital
incentive payments and, in the case of satellites owned by Loral subsidiaries
and affiliates, a loss of revenues and profits. With respect to satellites under
construction and construction of new satellites, based on
                                        10
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

its investigation of the matter, SS/L has identified and is implementing
remedial measures that SS/L believes will prevent newly launched satellites from
experiencing similar anomalies. SS/L does not expect that implementation of
these measures will cause any significant delay in the launch of satellites
under construction or construction of new satellites. Based upon information
currently available, including design redundancies to accommodate small power
losses and that no pattern has been identified as to the timing or specific
location within the solar arrays of the failures, the Company believes that this
matter will not have a material adverse effect on the consolidated financial
position or results of operations of Loral.

     In September 2001, the PAS 7 satellite built by SS/L for PanAmSat
experienced an electrical power failure on its solar arrays that resulted in the
loss of use of certain transponders on the satellite. As a result, PanAmSat has
claimed that under its contract with SS/L it is entitled to be paid $16 million.
SS/L disputes this claim and is in discussions with PanAmSat to resolve this
matter. SS/L believes that this failure is an isolated event and does not
reflect a systemic problem in either the satellite design or manufacturing
process. Accordingly, SS/L does not believe that this anomaly will affect other
on-orbit satellites built by SS/L. However, in connection with the renewal of
the insurance for the Telstar 10/Apstar IIR satellite in October 2001, the
insurance underwriters have excluded losses due to solar array failures, since
Telstar 10/Apstar IIR was manufactured by SS/L and has the same solar array
configuration as PAS 7. Loral is currently in discussions with its insurers to
remove this exclusion from the Telstar 10/Apstar IIR policy, in return for a
deductible for losses arising from electrical problems on the satellite's solar
arrays. There can be no assurance that these discussions will be successful.
Three other satellites operated by Loral Skynet have the same solar array
configuration as Telstar 10/Apstar IIR. There can be no assurance that the
insurers will not require similar exclusions in connection with renewals of
insurance for these satellites in 2003 and 2004. In addition, the PAS 8
satellite has experienced minor losses of power from its solar arrays, the cause
of which is unrelated to the loss of power on the PAS 7 satellite. PanAmSat has
claimed that under its contract with SS/L it is entitled to be paid $7.5 million
as a result of these minor power losses. SS/L disputes this claim. SS/L and
PanAmSat are in discussions to resolve this matter.

     SS/L has contracted to build a spot beam, Ka band satellite for a customer
planning to offer broadband data services directly to the consumer. The customer
has failed to make certain payments due to SS/L under the contract and has
asserted that SS/L is not able to meet the contractual delivery date for the
satellite. As of March 31, 2002, SS/L had billed and unbilled accounts
receivable and vendor financing arrangements of $49 million with this customer.
SS/L and the customer have entered into an agreement that provides that, until
July 1, 2002, neither party will assert that the other party is in default under
the contract, and the parties are currently engaged in discussions to resolve
their outstanding issues. In addition, SS/L and the customer have agreed to
suspend work on the satellite during these discussions, pending the outcome of
the discussions. If the parties do not resolve their issues, it is likely that
each party would assert that the other is in default. The contract provides that
SS/L may terminate the contract for a customer default 90 days after serving a
notice of default if the default is not cured by the customer; upon such a
default, SS/L would be entitled to recover the contractually agreed price of
items delivered and accepted prior to termination and 115% of its actual costs
incurred for items not delivered prior to termination. The contract also
provides that the customer may terminate the contract for an SS/L default 133
days after serving a notice of default if the default is not cured by SS/L; upon
such a default, SS/L would be obligated to refund all amounts previously paid by
the customer, $78 million as of March 31, 2002, plus interest. Based on the
discussions currently in progress with the customer and other parties who may be
interested in the satellite, management's assessment of the market opportunities
for the satellite and consideration of the satellite's estimated value,
management does not believe that this matter will have a material adverse effect
on the consolidated financial position or results of operations of Loral.

     SS/L was a party to an Operational Agreement with Alcatel Space Industries,
pursuant to which the parties had agreed to cooperate on certain satellite
programs, and an Alliance Agreement with Alcatel Space (together with Alcatel
Space Industries, Alcatel), pursuant to which Alcatel had certain rights with
respect to
                                        11
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SS/L, including the right to appoint two representatives to SS/L's seven-member
board of directors, rights to approve certain extraordinary actions and certain
rights to purchase SS/L shares at fair market value in the event of a change of
control (as defined) of either Loral or SS/L. The agreements between Alcatel and
SS/L were terminable on one year's notice, and, on February 22, 2001, Loral gave
notice to Alcatel that they would expire on February 22, 2002. In April 2001,
Alcatel commenced an arbitration proceeding challenging the effectiveness of
Loral's notice of termination and asserting various alleged breaches of the
agreements by SS/ L relating to the exchange of information and other procedural
or administrative matters. In February 2002, the arbitral tribunal upheld the
validity of Loral's termination effective February 22, 2002 and Alcatel's claims
as to certain breaches. The arbitral tribunal has provided both parties with an
opportunity to file any additional claims or counterclaims they may have. In
March 2002, Alcatel submitted additional claims against Loral and SS/L and is
seeking at least $330 million in damages in respect of all of its claims. The
Company believes that Alcatel's claims for damages are without merit and have
been asserted for competitive reasons to disadvantage SS/L and that this matter
will not have a material adverse effect on its consolidated financial position
or results of operations. In April 2002, Loral and SS/L filed their statement of
counterclaims against Alcatel. The claims being asserted against Alcatel are for
breach of contract, tortious interference with contracts and business
relationships, defamation, misappropriation of SS/L's confidential property,
conversion, and intentional breaches of confidentiality agreements. Loral and
SS/L are seeking injunctive relief, compensatory damages in the amount of $405
million, and punitive damages. The arbitral tribunal will decide at a later date
whether any of Alcatel's claims or Loral's or SS/L's counterclaims give rise to
damages. On April 5, 2002, Alcatel filed in the District Court for the Southern
District of New York a petition to confirm and enforce the partial decision
issued in February 2002 in the arbitration between the parties. On April 29,
2000, Loral filed its response to the petition, in which Loral supports
confirmation of the decision, but disputes Alcatel's claim that the decision
requires the production of certain documents. The petition is pending before the
court.

     The launch of ChinaSat-8 has been delayed pending SS/L's obtaining the
approvals required for the launch. On December 23, 1998, the Office of Defense
Trade Controls, or ODTC, of the U.S. Department of State temporarily suspended a
previously approved technical assistance agreement under which SS/L had been
preparing for the launch of the ChinaSat-8 satellite. In addition, SS/L was
required to re-apply for new export licenses from the State Department to permit
the launch of ChinaSat-8 on a Long March launch vehicle when the old export
licenses issued by the Commerce Department, the agency that previously had
jurisdiction over satellite licensing, expired in March 2000. On January 4,
2001, the ODTC, while not rejecting these license applications, notified SS/L
that they were being returned without action. On January 9, 2002, Loral, SS/L
and the United States Department of State entered into a consent agreement (the
"Consent Agreement") settling and disposing of all civil charges, penalties and
sanctions associated with alleged violations by SS/L of the Arms Export Control
Act and its implementing regulations. The Company recorded a charge in the
fourth quarter of 2001 for the penalties associated with the Consent Agreement.
The Consent Agreement provides that the State Department agrees, assuming the
Company's and SS/L's faithful adherence to the terms of the Consent Agreement,
and the Arms Export Control Act and its implementing regulations, that decisions
concerning export licenses for the ChinaSat-8 spacecraft will be made on the
basis of the security and foreign policy interests of the United States,
including matters relating to U.S. relations with the People's Republic of
China, without reference to the State Department's previously expressed concerns
regarding SS/L's reliability, which concerns are considered to be appropriately
mitigated through the operation of various provisions of the Consent Agreement.
Discussions between SS/L and the State Department regarding SS/L's obtaining the
approvals required for the launch of ChinaSat-8 are continuing.

     In December 1999, SS/L reached an agreement with ChinaSat to extend the
date for delivery of the ChinaSat-8 satellite to July 31, 2000. In return for
this extension and other modifications to the contract, SS/ L provided to
ChinaSat three transponders on Telstar 10/Apstar IIR for ChinaSat's use for the
life of those transponders. As a result, the Company recorded a charge to
earnings of $35 million in 1999. If ChinaSat were to terminate its contract with
SS/L as a result of these delays, SS/L may have to refund $134 million in

                                        12
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

advances received from ChinaSat and may incur penalties of up to $11 million and
believes it would incur costs of approximately $38 million to refurbish and
retrofit the satellite so that it could be sold to another customer, which
resale cannot be guaranteed. To the extent that SS/L is able to recover some or
all of its $52 million deposit payment on the Chinese launch vehicle, this
recovery would offset a portion of such payments. There can be no assurance,
however, that SS/L will be able either to obtain a refund from the launch
provider or to find a replacement customer for the Chinese launch vehicle.

     SS/L is required to obtain licenses and enter into technical assistance
agreements, presently under the jurisdiction of the State Department, in
connection with the export of satellites and related equipment, as well as
disclosure of technical data to foreign persons. Delays in obtaining the
necessary licenses and technical assistance agreements may result in the
cancellation of, or delay SS/L's performance on, existing contracts, and, as a
result, SS/L may incur penalties or lose incentive payments under these
contracts.

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

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

  Globalstar Related Matters

     On September 26, 2001, the nineteen separate purported class action
lawsuits filed in the United States District Court for the Southern District of
New York by various holders of securities of Globalstar Telecommunications
Limited ("GTL") and Globalstar, L.P. ("Globalstar") against GTL, Loral, Bernard
L. Schwartz and other defendants were consolidated into one action titled In re:
Globalstar Securities Litigation. In November 2001, plaintiffs in the
consolidated action filed a consolidated amended class action complaint against
Globalstar, GTL, Globalstar Capital Corporation, Loral and Bernard L. Schwartz
alleging (a) that all defendants (except Loral) violated Section 10(b) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated
thereunder, by making material misstatements or failing to state material facts
about Globalstar's business and prospects, (b) that defendants Loral and
Schwartz are secondarily liable for these alleged misstatements and omissions
under Section 20(a) of the Exchange Act as alleged "controlling persons" of
Globalstar, (c) that defendants GTL and Schwartz are liable under Section 11 of
the Securities Act of 1933 (the "Securities Act") for untrue statements of
material facts in or omissions of material facts from a registration statement
relating to the sale of shares of GTL common stock in January 2000, (d) that
defendant GTL is liable under Section 12(2)(a) of the Securities Act for untrue
statements of material facts in or omissions of material facts from a prospectus
and prospectus supplement relating to the sale of shares of GTL common stock in
January 2000, and (e) that defendants Loral and Schwartz are secondarily liable
under Section 15 of the Securities Act for GTL's primary violations of Sections
11 and 12(2)(a) of the Securities Act as alleged "controlling persons" of GTL.
The class of plaintiffs on whose behalf the lawsuit has been asserted consists
of all buyers of securities of Globalstar, Globalstar Capital and GTL during the
period from December 6, 1999 through October 27, 2000, excluding the defendants
and

                                        13
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

certain persons related or affiliated therewith. Loral and Mr. Schwartz have
filed a motion to dismiss the amended complaint in its entirety as to Loral and
Mr. Schwartz, which motion is pending before the court.

     On March 2, 2001, the seven separate purported class action lawsuits filed
in the United States District Court for the Southern District of New York by
various holders of common stock of Loral Space & Communications Ltd. ("Loral")
against Loral, Bernard L. Schwartz and Richard Townsend were consolidated into
one action titled In re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the consolidated action filed a
consolidated amended class action complaint alleging (a) that all defendants
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder
by making material misstatements or failing to state material facts about
Loral's financial condition and its investment in Globalstar and (b) that Mr.
Schwartz is secondarily liable for these alleged misstatements and omissions
under Section 20(a) of the Exchange Act as an alleged "controlling person" of
Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted
consists of all buyers of Loral common stock during the period from November 4,
1999 through February 1, 2001, excluding the defendants and certain persons
related or affiliated therewith.

     Loral believes that it has meritorious defenses to the above Globalstar
related class action lawsuits and intends to pursue them vigorously.

     Loral holds debt obligations from Globalstar (see Note 5). On February 15,
2002, Globalstar and certain of its direct subsidiaries filed voluntary
petitions under Chapter 11 of Title 11, United States Code in the United States
Bankruptcy Court for the District of Delaware. Globalstar's proposed
restructuring plan, which will be submitted to and subject to bankruptcy court
approval, contemplates the creation of a new company, which will initially be
owned by Globalstar's existing noteholders and other unsecured creditors,
including Loral. In other situations in the past, challenges have been initiated
seeking subordination or recharacterization of debt held by an affiliate of an
issuer. While Loral knows of no reason why such a claim would prevail with
respect to the debt Loral holds in Globalstar, there can be no assurance that
such claims will not be made in Globalstar's bankruptcy proceeding. If such
claims were to prove successful, it will jeopardize the amount of equity
interest Loral will ultimately receive in the new Globalstar company. Moreover,
actions may be initiated in Globalstar's bankruptcy proceeding seeking to
characterize payments previously made by Globalstar to Loral prior to the filing
date as preferential payments subject to repayment. Loral may also find itself
subject to other claims brought by Globalstar creditors and securities holders,
who may seek to impose liabilities on Loral as a result of its relationship with
Globalstar. For instance, Globalstar's creditors may seek to pierce the
corporate veil in an attempt to recover Globalstar obligations owed to them that
are recourse to Loral's subsidiaries, which are general partners in Globalstar
and have filed for bankruptcy protection. Globalstar's cumulative partners
deficit at December 31, 2001, was $3.0 billion. Globalstar's proposed
restructuring plan contemplates that mutual releases of claims related to
Globalstar would be granted to and by various persons, including, among others,
Loral and its affiliates, Globalstar, Globalstar's officers and directors,
Globalstar partners, service providers acquired by Globalstar and the members of
any official and informal committee of creditors. There can be no assurance that
these releases will be approved by the bankruptcy court or, if approved, as to
the scope of any releases finally obtained.

     In May 2000, Globalstar finalized $500 million of vendor financing
arrangements with Qualcomm. The original terms of this vendor financing provided
for interest at 6%, a maturity date of August 15, 2003 and required repayment
pro rata with the term loans due to Loral under Globalstar's $500 million credit
facility. As of March 31, 2002, $632 million was outstanding under this facility
(including $132 million of capitalized interest).

     Loral has agreed that if the principal amount outstanding under the
Qualcomm vendor financing facility exceeds the principal amount due Loral under
Globalstar's $500 million credit facility, as determined on certain measurement
dates, then Loral will guarantee 50% of such excess amount. As of March 31,
2002, Loral had no guarantee obligation.
                                        14
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9.  SEGMENTS

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

     In evaluating financial performance, management uses revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as the measure
of a segment's profit or loss. Segment results include the results of its
subsidiaries and its affiliates, Satmex, Europe*Star and XTAR, which are
accounted for using the equity method in these condensed consolidated financial
statements. Intersegment revenues primarily consist of satellites under
construction by satellite manufacturing and technology for fixed satellite
services and the leasing of transponder capacity by satellite manufacturing and
technology and data services from fixed satellite services.

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

                       THREE MONTHS ENDED MARCH 31, 2002

<Table>
<Caption>
                                                         SATELLITE
                                            FIXED      MANUFACTURING
                                          SATELLITE         AND           DATA
                                         SERVICES(1)   TECHNOLOGY(2)   SERVICES(3)   CORPORATE(4)     TOTAL
                                         -----------   -------------   -----------   ------------   ---------
<S>                                      <C>           <C>             <C>           <C>            <C>
REVENUES AND EBITDA:
Revenues from external customers.......   $  112.9        $180.8         $ 20.4                     $   314.1
Intersegment revenues..................        7.9          61.8                                         69.7
                                          --------        ------         ------                     ---------
Operating segment revenues.............   $  120.8        $242.6         $ 20.4                         383.8
                                          ========        ======         ======
Revenues of unconsolidated
  affiliates(5)........................                                                                 (27.1)
Intercompany revenues(6)...............                                                                 (48.5)
                                                                                                    ---------
Operating revenues as reported.........                                                             $   308.2
                                                                                                    =========
Segment EBITDA before eliminations.....   $   77.4        $ 10.8         $   --         $ (8.7)     $    79.5
                                          ========        ======         ======         ======
EBITDA of unconsolidated
  affiliates(5)........................                                                                 (11.6)
Intercompany EBITDA(6).................                                                                  (6.1)
                                                                                                    ---------
EBITDA(7)..............................                                                                  61.8
Depreciation and amortization(8).......                                                                 (47.1)
                                                                                                    ---------
Operating income.......................                                                             $    14.7
                                                                                                    =========
OTHER DATA:
Depreciation and amortization before
  affiliate eliminations(8)............   $   53.1        $  7.0         $  4.4         $  0.2      $    64.7
                                          ========        ======         ======         ======
Depreciation and amortization of
  unconsolidated affiliates(5)(8)......                                                                 (17.6)
                                                                                                    ---------
Depreciation and amortization(8).......                                                             $    47.1
                                                                                                    =========
Total assets before affiliate
  eliminations.........................   $3,603.4        $836.2         $149.6         $349.8      $ 4,939.0
                                          ========        ======         ======         ======
Total assets of unconsolidated
  affiliates(5)........................                                                              (1,482.6)
                                                                                                    ---------
Total assets...........................                                                             $ 3,456.4
                                                                                                    =========
</Table>

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

(1) Includes 100% of Europe*Star's and Satmex's revenues and EBITDA and 100% of
    XTAR's EBITDA since July 2001. Also includes Loral's subsidiary, Loral
    Skynet do Brasil. Loral Skynet's revenue was $94 million in 2002 and 2001
    and EBITDA was $66 million and $65 million in 2002 and 2001, respectively.

                                        15
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) Satellite manufacturing and technology consists of 100% of SS/L's results.

(3) Data services consists of 100% of CyberStar LP (in which Loral owns an 82%
    equity interest) and 100% of Loral Orion's data services business, which
    business was transferred in December 2001 to a Loral subsidiary which
    assumed the name Loral CyberStar. Equipment sales for data services were
    $2.8 million and $2.1 million for the three months ended March 31, 2002 and
    2001, respectively.

(4) Represents corporate expenses incurred in support of the Company's
    operations.

(5) Represents amounts related to unconsolidated affiliates (Satmex, Europe*Star
    and XTAR), which are eliminated in order to arrive at Loral's condensed
    consolidated results. Loral's proportionate share of these affiliates is
    included in equity in net loss of affiliates in Loral's condensed
    consolidated statements of operations.

(6) Represents the elimination of intercompany sales and EBITDA, primarily for
    satellites under construction by SS/L for wholly-owned subsidiaries; as well
    as eliminating revenues for the lease of transponder capacity by satellite
    manufacturing and technology and data services from fixed satellite
    services.

(7) EBITDA (which is equivalent to operating income/loss before depreciation and
    amortization, including amortization of unearned stock compensation) is
    provided because it is a measure commonly used in the communications
    industry to analyze companies on the basis of operating performance,
    leverage and liquidity and is presented to enhance the understanding of
    Loral's operating results. EBITDA is not an alternative to net income as an
    indicator of a company's operating performance, or cash flow from operations
    as a measure of a company's liquidity. EBITDA may be calculated differently
    and, therefore, may not be comparable to similarly titled measures reported
    by other companies.

(8) Includes amortization of unearned stock compensation charges.

                                        16
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                       THREE MONTHS ENDED MARCH 31, 2001

<Table>
<Caption>
                                                         SATELLITE
                                            FIXED      MANUFACTURING
                                          SATELLITE         AND           DATA
                                         SERVICES(1)   TECHNOLOGY(2)   SERVICES(3)   CORPORATE(4)     TOTAL
                                         -----------   -------------   -----------   ------------   ---------
<S>                                      <C>           <C>             <C>           <C>            <C>
REVENUES AND EBITDA:
Revenues from external customers.......   $  116.0       $  125.8        $ 28.7                     $   270.5
Intersegment revenues..................       13.2           75.3                                        88.5
                                          --------       --------        ------                     ---------
Operating segment revenues.............   $  129.2       $  201.1        $ 28.7                         359.0
                                          ========       ========        ======
Revenues of unconsolidated
  affiliates(5)........................                                                                 (35.5)
Intercompany revenues(6)...............                                                                 (62.4)
                                                                                                    ---------
Operating revenues as reported.........                                                             $   261.1
                                                                                                    =========
Segment EBITDA before eliminations.....   $   83.9       $   19.2        $(10.0)        $ (9.4)     $    83.7
                                          ========       ========        ======         ======
EBITDA of unconsolidated
  affiliates(5)........................                                                                 (19.0)
Intercompany EBITDA(6).................                                                                  (6.5)
                                                                                                    ---------
EBITDA(7)..............................                                                                  58.2
Depreciation and amortization(8).......                                                                 (54.3)
                                                                                                    ---------
Operating income.......................                                                             $     3.9
                                                                                                    =========
OTHER DATA:
Depreciation and amortization before
  affiliate eliminations(8)............   $   56.6       $    7.5        $  5.5         $  0.5      $    70.1
                                          ========       ========        ======         ======
Depreciation and amortization of
  unconsolidated affiliates(5)(8)......                                                                 (15.8)
                                                                                                    ---------
Depreciation and amortization(8).......                                                             $    54.3
                                                                                                    =========
Total assets before affiliate
  eliminations.........................   $4,190.1       $1,233.9        $209.5         $403.0      $ 6,036.5
                                          ========       ========        ======         ======
Total assets of unconsolidated
  affiliates(5)........................                                                              (1,507.4)
                                                                                                    ---------
Total assets...........................                                                             $ 4,529.1
                                                                                                    =========
</Table>

10.  ACCOUNTING FOR GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

     On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), which addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite lives not
be amortized, but rather be tested at least annually for impairment. SFAS 142
also changed the evaluation criteria for testing goodwill for impairment from an
undiscounted cash flow approach, which was previously utilized under the
guidance in Accounting Principles Board Opinion No. 17, Intangible Assets, to a
test based on fair value. Fair value is determined by the amount at which an
asset or liability could be bought or sold in a current transaction between
willing parties, that is, other than in a forced or liquidation sale. Quoted
market prices in active markets are the best evidence of fair value and must be
used as the basis for the measurement, if available. If quoted market prices are
not available, the estimate of fair value must be based on the best information
available, including prices for

                                        17
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

similar assets and liabilities and the results of using other valuation
techniques, such as public company trading multiples, future discounted cash
flows and merger and acquisition transaction multiples. The Company adopted SFAS
142 on January 1, 2002.

  Goodwill

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

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

     The following table presents the actual financial results and as adjusted
financial results without the amortization of goodwill for the Company for the
three months ended March 31, 2001 (in thousands, except per share amounts):

<Table>
<Caption>
                                                               ACTUAL    AS ADJUSTED
                                                              --------   -----------
<S>                                                           <C>        <C>
Reported loss before cumulative effect of change in
  accounting principle......................................  $(57,268)   $(57,268)
Add back amortization of goodwill, net of taxes.............                 6,652
                                                              --------    --------
Loss before cumulative effect of change in accounting
  principle.................................................   (57,268)    (50,616)
Cumulative effect of change in accounting principle, net of
  taxes.....................................................    (1,741)     (1,741)
                                                              --------    --------
Net loss....................................................   (59,009)    (52,357)
Preferred dividends.........................................   (16,123)    (16,123)
                                                              --------    --------
Net loss applicable to common shareholders..................  $(75,132)   $(68,480)
                                                              ========    ========
Reported basic and diluted loss per share before cumulative
  effect of change in accounting principle..................              $  (0.25)
Add back goodwill amortization per share....................                  0.02
                                                                          --------
As adjusted loss per share before cumulative effect of
  change in accounting principle............................                 (0.23)
Cumulative effect of change in accounting principle.........                    --
                                                                          --------
Adjusted loss per share.....................................              $  (0.23)
                                                                          ========
</Table>

  Other Acquired Intangible Assets

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

                                        18
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Other acquired intangible assets are included in other assets in the
Company's condensed consolidated balance sheets and were as follows at March 31,
2002 and December 31, 2001 (in millions):

<Table>
<Caption>
                                                 MARCH 31, 2002           DECEMBER 31, 2001
                                             -----------------------   -----------------------
                                              GROSS                     GROSS
                                             CARRYING   ACCUMULATED    CARRYING   ACCUMULATED
                                              AMOUNT    AMORTIZATION    AMOUNT    AMORTIZATION
                                             --------   ------------   --------   ------------
<S>                                          <C>        <C>            <C>        <C>
Regulatory fees............................   $22.7        $ (3.4)      $22.7        $(3.0)
Other intangibles..........................    13.0          (7.1)       13.0         (6.6)
                                              -----        ------       -----        -----
     Total.................................   $35.7        $(10.5)      $35.7        $(9.6)
                                              =====        ======       =====        =====
</Table>

     The weighted average remaining amortization period for regulatory fees was
nine years and for other intangibles was three years, as of March 31, 2002.

     Total pre-tax amortization expense for other acquired intangible assets for
the three months ending March 31, 2002 and 2001 was $0.8 million. Annual pre-tax
amortization expense for other acquired intangible assets over the next five
years is estimated to be as follows (in millions):

<Table>
<S>                                                           <C>
2002........................................................  $3.4
2003........................................................   3.4
2004........................................................   3.3
2005........................................................   2.5
2006........................................................   1.4
</Table>

11.  NEW ACCOUNTING PRONOUNCEMENTS

  SFAS 143

     In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations ("SFAS 143"). SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and the normal operation of a long-lived
asset, except for certain obligations of lessees. The Company is required to
adopt SFAS 143 on January 1, 2003. The Company has not yet determined the impact
that the adoption of SFAS 143 will have on its results of operations or its
financial position.

  SFAS 144

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets. It
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, and the accounting and reporting
provisions of APB 30, Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business. The Company adopted SFAS 144 on January 1, 2002. The Company has
determined that there was no effect on the Company's consolidated financial
position or results of operations relating to the adoption of SFAS 144.

  SFAS 145

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 generally requires that any

                                        19
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

gains or losses on extinguishment of debt in current or prior periods be
classified as other income (expense), beginning in fiscal 2003, with early
adoption encouraged. The Company is currently evaluating the impact of adopting
the provisions of SFAS No. 145 in its consolidated financial statements.

12.  FINANCIAL INFORMATION FOR PARENT, SUBSIDIARY ISSUER AND GUARANTOR AND
NON-GUARANTOR SUBSIDIARIES

     Loral is a holding company (the "Parent Company"), which is the ultimate
parent of all Loral subsidiaries. In December 2001, the Company's wholly owned
subsidiary, Loral Orion (the "Subsidiary Issuer"), issued New Senior Notes in an
exchange offer which are fully and unconditionally guaranteed, on a joint and
several basis, by the Parent Company and one of its wholly-owned subsidiaries
(the "Guarantor Subsidiary").

     Presented below is condensed consolidating financial information for the
Parent Company, the Subsidiary Issuer, the Guarantor Subsidiary and the other
wholly-owned subsidiaries (the "Non-Guarantor Subsidiaries") as of March 31,
2002 and December 31, 2001 and for the three months ended March 31, 2002, and
2001. The condensed consolidating financial information has been presented to
show the nature of assets held, results of operations and cash flows of the
Parent Company, Subsidiary Issuer, Guarantor Subsidiary and Non-Guarantor
Subsidiaries assuming the guarantee structure of the New Senior Notes was in
effect at the beginning of the periods presented.

     The supplemental condensed consolidating financial information reflects the
investments of the Parent Company in the Subsidiary Issuer, the Guarantor
Subsidiary and the Non-Guarantor Subsidiaries using the equity method of
accounting. The Parent Company's significant transactions with its subsidiaries
other than the investment account and related equity in net loss of
unconsolidated subsidiaries are the management fee charged by Loral SpaceCom
Corporation to the Parent Company in 2001 and intercompany payables and
receivables between its subsidiaries resulting primarily from the funding of the
construction of satellites for the fixed satellite services segment.

                                        20
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONDENSED CONSOLIDATING BALANCE SHEET
                                 MARCH 31, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                PARENT      SUBSIDIARY   GUARANTOR    NON-GUARANTOR
                                                COMPANY       ISSUER     SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                              -----------   ----------   ----------   -------------   ------------   ------------
<S>                                           <C>           <C>          <C>          <C>             <C>            <C>
Current assets:
  Cash and cash equivalents.................  $    18,050   $  36,277    $      --     $    53,810     $       --    $   108,137
  Accounts receivable, net..................           --      10,124        2,127          30,124             --         42,375
  Contracts-in-process......................           --          --           --         167,853             --        167,853
  Inventories...............................           --          --           --         103,517             --        103,517
  Other current assets......................          100       4,332        4,747          79,316         (1,299)        87,196
                                              -----------   ---------    ---------     -----------     ----------    -----------
    Total current assets....................       18,150      50,733        6,874         434,620         (1,299)       509,078
Property, plant and equipment, net..........           --     341,135      220,460       1,438,940        (18,115)     1,982,420
Costs in excess of net assets acquired,
  net.......................................           --          --           --              --             --             --
Long-term receivables.......................           --          --           --         194,722             --        194,722
Notes receivable from unconsolidated
  subsidiaries..............................      200,000     (29,700)          --        (170,300)            --             --
Due to (from) unconsolidated subsidiaries...       17,215     (68,273)      82,817         (49,545)        17,786             --
Investments in unconsolidated
  subsidiaries..............................      564,689     300,881     (271,698)     (1,713,658)     1,119,786             --
Investments in and advances to affiliates...       62,283          --           --         128,808             --        191,091
Deposits....................................           --          --           --         161,290             --        161,290
Deferred tax assets.........................           --      32,130           --          82,176        191,177        305,483
Other assets................................        5,385      21,924          832          84,127             --        112,268
                                              -----------   ---------    ---------     -----------     ----------    -----------
                                              $   867,722   $ 648,830    $  39,285     $   591,180     $1,309,335    $ 3,456,352
                                              ===========   =========    =========     ===========     ==========    ===========
Current liabilities:
  Current portion of long-term debt.........  $        --   $  80,315    $      --     $    85,830     $       --    $   166,145
  Accounts payable..........................        1,080         507          713         154,899             --        157,199
  Accrued employment costs..................           --          --           --          43,146             --         43,146
  Customer advances.........................           --         573          128         176,404             --        177,105
  Accrued interest and preferred
    dividends...............................       14,231       2,136           --          10,928             --         27,295
  Other current liabilities.................           --       2,453        1,365          41,476             --         45,294
  Income taxes payable......................        7,952          --           --         (40,837)        68,577         35,692
  Deferred tax liabilities..................       22,274          --           --              --        (22,274)            --
                                              -----------   ---------    ---------     -----------     ----------    -----------
    Total current liabilities...............       45,537      85,984        2,206         471,846         46,303        651,876
Deferred tax liabilities....................       20,385          --        6,362              --        (26,747)            --
Pension and other postretirement
  liabilities...............................           --          --           --          57,803             --         57,803
Long-term liabilities.......................           --       9,460        1,533         140,416             --        151,409
Long-term debt..............................      350,000     928,224           --         848,052             --      2,126,276
Minority interest...........................           --          --           --          17,188             --         17,188
Shareholders' equity:
  6% Series C convertible redeemable
    preferred stock.........................      485,371          --           --              --             --        485,371
  6% Series D convertible redeemable
    preferred stock.........................      296,529          --           --              --             --        296,529
  Common stock..............................        3,376          --           --              --             --          3,376
  Paid-in capital...........................    2,774,812     604,166           --              --       (604,166)     2,774,812
  Treasury stock, at cost...................       (3,360)         --           --              --             --         (3,360)
  Unearned compensation.....................           (4)         --           --              --             --             (4)
  Retained deficit..........................   (3,132,033)   (979,004)      29,184        (944,125)     1,893,945     (3,132,033)
  Accumulated other comprehensive income....       27,109          --           --              --             --         27,109
                                              -----------   ---------    ---------     -----------     ----------    -----------
    Total shareholders' equity..............      451,800    (374,838)      29,184        (944,125)     1,289,779        451,800
                                              -----------   ---------    ---------     -----------     ----------    -----------
                                              $   867,722   $ 648,830    $  39,285     $   591,180     $1,309,335    $ 3,456,352
                                              ===========   =========    =========     ===========     ==========    ===========
</Table>

                                        21
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                         PARENT     SUBSIDIARY   GUARANTOR    NON-GUARANTOR
                                         COMPANY      ISSUER     SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                        ---------   ----------   ----------   -------------   ------------   ------------
<S>                                     <C>         <C>          <C>          <C>             <C>            <C>
Revenues from satellite sales.........  $      --   $      --     $    --       $ 198,471       $     --      $ 198,471
Revenues from satellite services......         --      26,836      12,892          84,738        (14,761)       109,705
Management fee from parent............         --          --          --             291           (291)            --
                                        ---------   ---------     -------       ---------       --------      ---------
    Total revenues....................         --      26,836      12,892         283,500        (15,052)       308,176
Costs of satellite sales..............         --          --          --         186,428             --        186,428
Costs of satellite services...........         --      25,775       7,098          47,126        (13,703)        66,296
Selling, general and administrative
  expenses............................         19       2,704         404          37,915           (295)        40,747
Management fee expense................        291          --          --              --           (291)            --
                                        ---------   ---------     -------       ---------       --------      ---------
Operating income (loss)...............       (310)     (1,643)      5,390          12,031           (763)        14,705
Interest and investment income........      5,230         220          --           7,405         (7,446)         5,409
Interest expense......................     (9,847)     (3,258)         --         (13,598)         8,133        (18,570)
                                        ---------   ---------     -------       ---------       --------      ---------
(Loss) income before income taxes,
  equity in net loss of unconsolidated
  subsidiaries and affiliates,
  minority interest and cumulative
  effect of change in accounting
  principle...........................     (4,927)     (4,681)      5,390           5,838            (76)         1,544
Income tax benefit (provision)........     (1,549)      4,164      (1,857)         (3,718)        (2,568)        (5,528)
                                        ---------   ---------     -------       ---------       --------      ---------
(Loss) income before equity in net
  loss of unconsolidated subsidiaries
  and affiliates, minority interest
  and cumulative effect of change in
  accounting principle................     (6,476)       (517)      3,533           2,120         (2,644)        (3,984)
Equity in net loss of unconsolidated
  subsidiaries, net of tax benefit....   (874,287)      3,533          --              --        870,754             --
Equity in net loss of affiliates, net
  of taxes............................    (15,597)         --          --            (353)            --        (15,950)
Minority interest, net of taxes.......         --          --          --              74             --             74
                                        ---------   ---------     -------       ---------       --------      ---------
(Loss) income before cumulative effect
  of change in accounting principle...   (896,360)      3,016       3,533           1,841        868,110        (19,860)
Cumulative effect of change in
  accounting principle, net of
  taxes...............................         --    (562,201)         --        (314,299)            --       (876,500)
                                        ---------   ---------     -------       ---------       --------      ---------
Net (loss) income.....................  $(896,360)  $(559,185)    $ 3,533       $(312,458)      $868,110      $(896,360)
                                        =========   =========     =======       =========       ========      =========
</Table>

                                        22
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                 PARENT     SUBSIDIARY   GUARANTOR    NON-GUARANTOR
                                                 COMPANY      ISSUER     SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                ---------   ----------   ----------   -------------   ------------   ------------
<S>                                             <C>         <C>          <C>          <C>             <C>            <C>
Operating activities:
  Net (loss) income...........................  $(896,360)  $(559,185)    $ 3,533       $(312,458)     $ 868,110      $(896,360)
  Non-cash items:
    Equity in net loss of affiliates, net of
      taxes...................................     15,597          --          --             353             --         15,950
    Equity in net income (loss) of
      unconsolidated subsidiaries, net of
      taxes...................................    874,287      (3,533)         --        (870,754)            --             --
    Minority interest, net of taxes...........         --          --          --             (74)            --            (74)
    Cumulative effect of change in accounting
      principle, net of taxes.................         --     562,201          --         314,299             --        876,500
    Deferred taxes............................      1,536          --         752           2,842         (1,620)         3,510
    Depreciation and amortization.............         --      13,570       5,253          28,243             --         47,066
    Non-cash interest expense.................         --        (141)         --                             --           (141)
Changes in operating assets and liabilities:
  Accounts receivable, net....................         --       2,947      (1,630)         (4,393)            --         (3,076)
  Contracts-in-process........................         --          --          --          11,649             --         11,649
  Inventories.................................         --          --          --          (5,338)            --         (5,338)
  Other current assets........................        165         817         800           3,164             --          4,946
  Long-term receivables.......................         --          --          --          (4,416)            --         (4,416)
  Deposits....................................         --          --          --          (5,800)            --         (5,800)
  Due to (from) unconsolidated subsidiaries...     (4,300)      5,711      (9,838)            335          8,092             --
  Other assets................................        290      (1,089)         --           7,379             --          6,580
  Accounts payable............................       (277)     (2,170)         --          14,805             --         12,358
  Accrued expenses and other current
    liabilities...............................     (8,312)        247                       7,214             --           (851)
  Customer advances...........................         --        (487)         --          28,602             --         28,115
  Income taxes payable........................         13          --          --           1,163             --          1,176
  Pension and other postretirement
    liabilities...............................         --          --          --           2,213             --          2,213
  Long-term liabilities.......................                 (1,686)      1,130          (4,751)            --         (5,307)
  Other.......................................       (166)         --          --             (11)            --           (177)
                                                ---------   ---------     -------       ---------      ---------      ---------
Net cash provided by (used in) operating
  activities..................................    (17,527)     17,202          --        (785,734)       874,582         88,523
                                                ---------   ---------     -------       ---------      ---------      ---------
Investing activities:
  Capital expenditures........................         --          --          --         (50,740)          (295)       (51,035)
  Investments in and advances to affiliates...     (1,557)         --          --         866,230       (874,287)        (9,614)
  Investments in and advances to
    unconsolidated subsidiaries...............        172          --          --            (172)            --             --
                                                ---------   ---------     -------       ---------      ---------      ---------
Net cash (used in) provided by investing
  activities..................................     (1,385)         --          --         815,318       (874,582)       (60,649)
                                                ---------   ---------     -------       ---------      ---------      ---------
Financing activities:
  Borrowings under revolving credit
    facility..................................         --          --          --           2,000             --          2,000
  Repayments under term loans.................         --          --          --         (16,250)            --        (16,250)
  Repayments under revolving credit
    facility..................................         --          --          --         (56,000)            --        (56,000)
  Repayments of other long-term obligations...         --        (324)         --              (6)            --           (330)
  Preferred dividends.........................    (11,963)         --          --              --             --        (11,963)
  Proceeds from stock issuances...............      2,857          --          --              --             --          2,857
                                                ---------   ---------     -------       ---------      ---------      ---------
Net cash (used in) financing activities.......     (9,106)       (324)         --         (70,256)            --        (79,686)
                                                ---------   ---------     -------       ---------      ---------      ---------
Increase (decrease) in cash and cash
  equivalents.................................    (28,018)     16,878          --         (40,672)            --        (51,812)
Cash and cash equivalents -- beginning of
  period......................................     46,068      19,399          --          94,482             --        159,949
                                                ---------   ---------     -------       ---------      ---------      ---------
Cash and cash equivalents -- end of period....  $  18,050   $  36,277     $    --       $  53,810      $      --      $ 108,137
                                                =========   =========     =======       =========      =========      =========
</Table>

                                        23
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONDENSED CONSOLIDATING BALANCE SHEET
                               DECEMBER 31, 2001
                                 (IN THOUSANDS)

<Table>
<Caption>
                                           PARENT      SUBSIDIARY   GUARANTOR    NON-GUARANTOR
                                           COMPANY       ISSUER     SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                         -----------   ----------   ----------   -------------   ------------   ------------
<S>                                      <C>           <C>          <C>          <C>             <C>            <C>
Current assets:
  Cash and cash equivalents............  $    46,068   $   19,399   $      --     $    94,482     $       --    $   159,949
  Accounts receivable, net.............           --       13,071         497          25,731             --         39,299
  Contracts-in-process.................           --           --          --         178,599             --        178,599
  Inventories..........................           --           --          --          98,179             --         98,179
  Other current assets.................          265        6,053       5,151          83,101           (903)        93,667
                                         -----------   ----------   ---------     -----------     ----------    -----------
    Total current assets...............       46,333       38,523       5,648         480,092           (903)       569,693
Property, plant and equipment, net.....           --      354,196     225,714       1,415,856        (18,410)     1,977,356
Costs in excess of net assets acquired,
  net..................................           --      562,201          --         329,518             --        891,719
Long-term receivables..................           --           --          --         190,306             --        190,306
Notes receivable from unconsolidated
  subsidiaries.........................      200,000      (29,700)         --        (170,300)            --             --
Due to (from) unconsolidated
  subsidiaries.........................       12,915      (62,961)     72,978         (48,810)        25,878             --
Investments in unconsolidated
  subsidiaries.........................    1,432,614      297,349    (271,698)     (1,703,764)       245,499             --
Investments in and advances to
  affiliates...........................       77,061           --          --         111,282             --        188,343
Deposits...............................           --           --          --         155,490             --        155,490
Deferred tax assets....................           --       32,130          --          74,290        191,108        297,528
Other assets...........................        6,632       20,836         832          91,194             --        119,494
                                         -----------   ----------   ---------     -----------     ----------    -----------
                                         $ 1,775,555   $1,212,574   $  33,474     $   925,154     $  443,172    $ 4,389,929
                                         ===========   ==========   =========     ===========     ==========    ===========
Current liabilities:
  Current portion of long-term debt....  $        --   $   49,449   $      --     $    87,167     $       --    $   136,616
  Accounts payable.....................        1,357        2,677         713         140,094             --        144,841
  Accrued employment costs.............           --           --          --          39,232             --         39,232
  Customer advances....................           --          952         128         147,910             --        148,990
  Accrued interest and preferred
    dividends..........................       22,543        1,889          --           6,738             --         31,170
  Other current liabilities............           --        5,719         235          40,230             --         46,184
  Income taxes payable.................        7,939           --          --         (42,000)        68,577         34,516
  Deferred tax liabilities.............       21,222           --          --            (485)       (20,737)            --
                                         -----------   ----------   ---------     -----------     ----------    -----------
    Total current liabilities..........       53,061       60,686       1,076         418,886         47,840        581,549
Deferred tax liabilities...............       21,626           --       5,214            (503)       (26,337)            --
Pension and other postretirement
  liabilities..........................           --           --          --          55,590             --         55,590
Long-term liabilities..................           --        7,986       1,533         147,197             --        156,716
Long-term debt.........................      350,000      959,555          --         916,970             --      2,226,525
Minority interest......................           --           --          --          18,681             --         18,681
Shareholders' equity:
  6% Series C convertible redeemable
    preferred stock....................      485,371           --          --              --             --        485,371
  6% Series D convertible redeemable
    preferred stock....................      296,529           --          --              --             --        296,529
  Common stock.........................        3,368           --          --              --             --          3,368
  Paid-in capital......................    2,771,964      604,166          --              --       (604,166)     2,771,964
  Treasury stock, at cost..............       (3,360)          --          --              --             --         (3,360)
  Unearned compensation................          (81)          --          --              --             --            (81)
  Retained deficit.....................   (2,223,710)    (419,819)     25,651        (631,667)     1,025,835     (2,223,710)
  Accumulated other comprehensive
    income.............................       20,787           --          --              --             --         20,787
                                         -----------   ----------   ---------     -----------     ----------    -----------
    Total shareholders' equity.........    1,350,868      184,347      25,651        (631,667)       421,669      1,350,868
                                         -----------   ----------   ---------     -----------     ----------    -----------
                                         $ 1,775,555   $1,212,574   $  33,474     $   925,154     $  443,172    $ 4,389,929
                                         ===========   ==========   =========     ===========     ==========    ===========
</Table>

                                        24
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                 (IN THOUSANDS)

<Table>
<Caption>
                                PARENT    SUBSIDIARY   GUARANTOR    NON-GUARANTOR
                               COMPANY      ISSUER     SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                               --------   ----------   ----------   -------------   ------------   ------------
<S>                            <C>        <C>          <C>          <C>             <C>            <C>
Revenues from satellite
  sales......................  $     --    $     --     $    --       $147,822        $     --       $147,822
Revenues from satellite
  services...................        --      22,259      12,660         88,330          (9,936)       113,313
Management fee from parent...        --          --          --         10,435         (10,435)            --
                               --------    --------     -------       --------        --------       --------
     Total revenues..........        --      22,259      12,660        246,587         (20,371)       261,135
Costs of satellite sales.....        --          --          --        127,055              --        127,055
Costs of satellite
  services...................        --      27,820       6,345         56,783         (15,443)        75,505
Selling, general and
  administrative expenses....       313       3,326          --         51,275            (263)        54,651
Management fee expense.......    10,435          --          --             --         (10,435)            --
                               --------    --------     -------       --------        --------       --------
Operating (loss) income......   (10,748)     (8,887)      6,315         11,474           5,770          3,924
Interest and investment
  income.....................     6,270         114           4          9,390          (8,109)         7,669
Interest expense.............    (8,593)    (25,234)         (4)       (24,692)          8,830        (49,693)
                               --------    --------     -------       --------        --------       --------
(Loss) income before income
  taxes, equity in net loss
  of unconsolidated
  subsidiaries and
  affiliates, cumulative
  effect of change in
  accounting principle and
  discontinued operations....   (13,071)    (34,007)      6,315         (3,828)          6,491        (38,100)
Income tax benefit
  (provision)................    (1,596)      2,516      (2,210)        (1,885)          5,100          1,925
                               --------    --------     -------       --------        --------       --------
(Loss) income before equity
  in net loss of
  unconsolidated subsidiaries
  and affiliates, cumulative
  effect of change in
  accounting principle and
  discontinued operations....   (14,667)    (31,491)      4,105         (5,713)         11,591        (36,175)
Equity in net (loss) income
  of unconsolidated
  subsidiaries, net of tax
  benefit....................   (20,668)      2,362          --             --          18,306             --
Equity in net loss of
  affiliates, net of taxes...   (23,674)         --          --          1,320              --        (22,354)
Minority interest, net of
  taxes......................        --          --          --          1,261              --          1,261
                               --------    --------     -------       --------        --------       --------
(Loss) income before
  cumulative effect of change
  in accounting principle and
  discontinued operations....   (59,009)    (29,129)      4,105         (3,132)         29,897        (57,268)
Cumulative effect of change
  in accounting principle....        --          --          --         (1,741)             --         (1,741)
                               --------    --------     -------       --------        --------       --------
(Loss) income from continuing
  operations.................   (59,009)    (29,129)      4,105         (4,873)         29,897        (59,009)
Loss from operations of
  discontinued operations,
  net of taxes...............        --      (3,132)         --             --           3,132             --
                               --------    --------     -------       --------        --------       --------
Net (loss) income............  $(59,009)   $(32,261)    $ 4,105       $ (4,873)       $ 33,029       $(59,009)
                               ========    ========     =======       ========        ========       ========
</Table>

                                        25
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                 (IN THOUSANDS)

<Table>
<Caption>
                                             PARENT    SUBSIDIARY   GUARANTOR    NON-GUARANTOR
                                            COMPANY      ISSUER     SUBSIDIARY   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                            --------   ----------   ----------   -------------   ------------   ------------
<S>                                         <C>        <C>          <C>          <C>             <C>            <C>
Operating activities:
  Net (loss)..............................  $(59,009)   $(29,129)    $ 4,105       $  (4,873)      $ 29,897      $ (59,009)
  Non-cash items:
    Equity in net loss of affiliates, net
      of taxes............................   23,674           --          --          (1,320)            --         22,354
    Equity in net loss of unconsolidated
      subsidiaries, net of taxes..........   20,668       (2,362)         --         (18,306)            --             --
    Minority interest, net of taxes.......       --           --          --          (1,261)            --         (1,261)
    Cumulative effect of change in
      accounting principle, net of
      taxes...............................       --           --          --           1,741             --          1,741
    Deferred taxes........................    1,418        1,227         950           2,891         (8,725)        (2,239)
    Depreciation and amortization.........       --       17,254       5,253          31,780             --         54,287
    Non-cash interest expense.............       --        9,903          --                             --          9,903
Changes in operating assets and
  liabilities:
  Accounts receivable, net................       --         (219)        246           2,201             --          2,228
  Contracts-in-process....................       --           --          --         (16,218)            --        (16,218)
  Inventories.............................       --           --          --         (15,213)            --        (15,213)
  Other current assets....................       --          969         392          (4,510)            --         (3,149)
  Long-term receivables...................       --           --          --          (7,192)            --         (7,192)
  Deposits................................       --           --          --          14,300             --         14,300
  Due to (from) unconsolidated
    subsidiaries..........................    6,150        7,522      (9,303)         15,247        (19,616)            --
  Other assets............................    2,594         (371)         --          (6,570)            --         (4,347)
  Accounts payable........................   (8,149)         394          --         (14,765)            --        (22,520)
  Accrued expenses and other current
    liabilities...........................               (10,795)     (1,664)         (8,617)            --        (21,076)
  Customer advances.......................       --         (595)         18         (12,051)            --        (12,628)
  Income taxes payable....................      178           --          --             132           (118)           192
  Long-term liabilities...................       --         (626)         --           3,878             --          3,252
  Pension and other postretirement
    liabilities...........................       --           --          --           1,881             --          1,881
  Other...................................       47           (3)          3             630             --            677
                                            --------    --------     -------       ---------       --------      ---------
Net cash provided by (used in) operating
  activities..............................  (12,429)      (6,831)         --         (36,215)         1,438        (54,037)
                                            --------    --------     -------       ---------       --------      ---------
Net cash provided by net assets from
  discontinued operations.................       --        6,519          --           1,589         (8,108)            --
                                            --------    --------     -------       ---------       --------      ---------
Investing activities:
  Capital expenditures....................       --           --          --         (66,970)          (174)       (67,144)
  Investments in and advances to
    affiliates............................  (14,933)          --          --          (8,127)         6,844        (16,216)
  Investments in and advances to
    unconsolidated subsidiaries...........  (14,956)          --          --          14,956             --             --
                                            --------    --------     -------       ---------       --------      ---------
Net cash (used in) provided by investing
  activities..............................  (29,889)          --          --         (60,141)         6,670        (83,360)
                                            --------    --------     -------       ---------       --------      ---------
Financing activities:
  Borrowings under revolving credit
    facilities............................       --           --          --          50,000             --         50,000
  Repayments under term loans.............       --           --          --         (28,000)            --        (28,000)
  Repayments under revolving credit
    facilities............................       --           --          --         (50,000)            --        (50,000)
  Repayments of other long-term
    obligations...........................       --         (489)         --             (60)            --           (549)
  Preferred dividends.....................  (16,123)          --          --              --             --        (16,123)
  Proceeds from stock issuances...........    4,870           --          --              --             --          4,870
  Repayment of note due to Loral
    SpaceCom..............................       --        1,164          --          (1,164)            --             --
                                            --------    --------     -------       ---------       --------      ---------
Net cash (used in) provided by financing
  activities..............................  (11,253)         675          --         (29,224)            --        (39,802)
                                            --------    --------     -------       ---------       --------      ---------
Increase (decrease) in cash and cash
  equivalents.............................  (53,571)         363          --        (123,991)            --       (177,199)
Cash and cash equivalents -- beginning of
  period..................................  151,405            2          --         242,638             --        394,045
                                            --------    --------     -------       ---------       --------      ---------
Cash and cash equivalents -- end of
  period..................................  $97,834     $    365     $    --       $ 118,647       $     --      $ 216,846
                                            ========    ========     =======       =========       ========      =========
</Table>

                                        26
<PAGE>
                       LORAL SPACE & COMMUNICATIONS LTD.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13.  SHAREHOLDERS' EQUITY

     The Company has the ability to make the mandatory redemption payments due
on its Series C and Series D Preferred Stock in cash, common stock, or a
combination of the two. The number of shares of the Company's common stock to be
issued on redemption is based on the aggregate redemption value divided by the
average of the volume weighted average daily price of the Company's common stock
for the 10 trading-day period ending on the second business day prior to the
redemption date (approximately $2.28 per share at March 31, 2002). The mandatory
redemption payments are due in 2006 for the Series C Preferred Stock and in 2007
for the Series D Preferred Stock. The exact number of shares of the Company's
common stock that may be issued on a mandatory redemption date cannot be
determined at this time, but may involve the issuance of a significant number of
shares of our common stock. That number will depend on a number of factors not
known today, such as the price of the Company's common stock and the number of
shares of the Company's preferred stock outstanding at that time. The Company
has in the past from time to time effected voluntary exchanges of its preferred
stock for common stock. To the extent that the Company makes such additional
exchanges in the future, the Company will reduce the number of shares of its
preferred stock subject to redemption in 2006 and 2007. However, there is no
guarantee that these exchanges will or can be made in the future.

     On April 3, 2002, in a privately negotiated transaction, Loral exchanged
1,016,050 shares of its Series C Preferred Stock and 1,167,500 shares of its
Series D Preferred Stock for 15,066,495 shares of its common stock. As a result
of this transaction, Loral retired preferred stock with an aggregate liquidation
preference of $109,177,500 (representing almost 14% of the preferred stock then
outstanding) and will save $6.6 million in annual dividends that it would
otherwise have been obligated to pay over the life of the preferred stock
retired.

                                        27
<PAGE>

                       LORAL SPACE & COMMUNICATIONS LTD.

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

     Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Results of
Operations and Financial Condition of Loral Space & Communications Ltd. and its
subsidiaries ("Loral" or the "Company") are not historical facts, but are
"forward-looking statements," as that term is defined in the Private Securities
Litigation Reform Act of 1995. In addition, the Company or its representatives
have made and may continue to make forward-looking statements, orally or in
writing, in other contexts, such as in reports filed with the SEC, press
releases or statements made with the approval of an authorized executive officer
of the Company. These forward-looking statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "plans," "may,"
"will," "would," "could," "should," "anticipates," "estimates," "project,"
"intend," or "outlook" or the negative of these words or other variations of
these words or other comparable words, or by discussion of strategy that
involves risks and uncertainties. These forward-looking statements are only
predictions, and actual events or results may differ materially as a result of a
wide variety of factors and conditions, many of which are beyond the Company's
control. Some of the factors and conditions that could affect the outcome of
forward-looking statements relate to (i) the Company's financial structure, (ii)
Globalstar matters, (iii) litigation and disputes, (iv) operational matters and
(v) other matters. For a detailed discussion of these factors and conditions,
please refer to the section of Loral's latest Annual Report on Form 10-K titled
"Certain Factors that May Affect Future Results" beginning on page 14 and to the
other periodic reports filed with the SEC by Loral, its wholly owned subsidiary
Loral Orion, Inc. ("Loral Orion"), and the Company's affiliate Satelites de
Mexico, S.A. de C.V. ("Satmex"). In addition, we caution you that the Company
operates in an industry sector where securities values may be volatile and may
be influenced by economic and other factors beyond the Company's control. The
Company undertakes no obligation to update any forward-looking statements.

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

          Fixed Satellite Services ("FSS").  Through its wholly-owned
     subsidiaries, Loral Skynet, Loral Orion, Loral Skynet do Brasil Ltda.
     ("Skynet do Brasil"), its 49%-owned affiliate Satmex, its 47%-owned
     affiliate Europe*Star Limited ("Europe*Star") and its 56%-owned affiliate
     XTAR L.L.C. ("XTAR"), Loral has become one of the world's leading providers
     of satellite services using geostationary communications satellites. The
     Company leases transponder capacity on its satellites to its customers for
     various applications, including broadcasting, news gathering, Internet
     access and transmission, private voice and data networks, business
     television, distance learning and direct-to-home television ("DTH") and
     provides telemetry, tracking and control services ("TT&C") and network
     services to customers. The Loral Global Alliance currently has ten
     operating high-powered geosynchronous satellites in orbit: the seven
     satellite Telstar fleet, two Satmex satellites and one Europe*Star
     satellite, with footprints covering almost all of the world's population.

          Satellite Manufacturing and Technology.  The Company designs and
     manufactures satellites and space systems and develops satellite technology
     for a broad variety of customers and applications through Space
     Systems/Loral, Inc. ("SS/L").

          Data Services:  The Company provides managed communications networks
     and Internet and intranet services through Loral CyberStar, Inc. ("Loral
     CyberStar") and delivers high-speed broadband data communications, business
     television and business media services through CyberStar, L.P. ("CyberStar
     LP").

                                        28
<PAGE>

CONSOLIDATED OPERATING RESULTS

     In evaluating financial performance, management uses revenues and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a measure of
a segment's profit or loss. The following discussion of revenues and EBITDA
reflects the results of Loral's operating businesses for the three months ended
March 31, 2002 and 2001, respectively. See Note 9 to Loral's condensed
consolidated financial statements for additional information on segment results.
The remainder of the discussion relates to the consolidated results of Loral,
unless otherwise noted.

REVENUES:

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Fixed satellite services:
  Skynet....................................................  $ 93.7   $ 93.7
  Affiliates(1).............................................    27.1     35.5
                                                              ------   ------
  Total fixed satellite services............................   120.8    129.2
Satellite manufacturing and technology(2)...................   242.6    201.1
Data services(3)............................................    20.4     28.7
                                                              ------   ------
Segment revenues............................................   383.8    359.0
Affiliate eliminations(4)...................................   (27.1)   (35.5)
Intercompany eliminations(5)................................   (48.5)   (62.4)
                                                              ------   ------
Revenues as reported........................................  $308.2   $261.1
                                                              ======   ======
</Table>

EBITDA(6):

<Table>
<Caption>
                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Fixed satellite services:
  Skynet....................................................  $65.8    $64.9
  Affiliates(1).............................................   11.6     19.0
                                                              -----    -----
  Total fixed satellite services............................   77.4     83.9
Satellite manufacturing and technology(2)...................   10.8     19.2
Data services(3)............................................     --    (10.0)
Corporate expenses(7).......................................   (8.7)    (9.4)
                                                              -----    -----
Segment EBITDA before eliminations..........................   79.5     83.7
Affiliate eliminations(4)...................................  (11.6)   (19.0)
Intercompany eliminations(5)................................   (6.1)    (6.5)
                                                              -----    -----
EBITDA as reported..........................................  $61.8    $58.2
                                                              =====    =====
</Table>

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

(1) Includes 100% of Europe*Star's and Satmex's revenues and EBITDA and 100% of
    Loral's 56%-owned affiliate XTAR, EBITDA since July 2001. Also includes
    Loral's subsidiary, Loral Skynet do Brasil.

(2) Satellite manufacturing and technology consists of 100% of SS/L's results.

(3) Data services consists of 100% of CyberStar LP (in which Loral owns an 82%
    equity interest) and 100% of Loral Orion's data services business, which
    business was transferred in December 2001 to a Loral subsidiary which
    assumed the name Loral CyberStar. Equipment sales for data services were
    $2.8 million and $2.1 million for the three months ended March 31, 2002 and
    2001, respectively.

                                        29
<PAGE>

(4) Represents amounts related to unconsolidated affiliates (Satmex, Europe*Star
    and XTAR), which are eliminated in order to arrive at Loral's condensed
    consolidated results. Loral's proportionate share of these affiliates is
    included in equity in net loss of affiliates in Loral's condensed
    consolidated statements of operations.

(5) Represents the elimination of intercompany sales and EBITDA, primarily for
    satellites under construction by SS/L for wholly owned subsidiaries; as well
    as the elimination of revenues for the lease of transponder capacity by
    satellite manufacturing and technology and data services from fixed
    satellite services.

(6) EBITDA (which is equivalent to operating income/loss before depreciation and
    amortization, including amortization of unearned stock compensation) is
    provided because it is a measure commonly used in the communications
    industry to analyze companies on the basis of operating performance,
    leverage and liquidity and is presented to enhance the understanding of
    Loral's operating results. EBITDA is not an alternative to net income as an
    indicator of a company's operating performance, or cash flow from operations
    as a measure of a company's liquidity. EBITDA may be calculated differently
    and, therefore, may not be comparable to similarly titled measures reported
    by other companies.

(7) Represents corporate expenses incurred in support of the Company's
    operations.

  Critical accounting matters

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

THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH MARCH 31, 2001

     Revenues as reported for Loral's operating businesses were $308 million in
2002 as compared to $261 million in 2001, after intercompany and affiliate
eliminations of $76 million in 2002 and $98 million in 2001. The increase in
revenues was primarily due to higher revenues in satellite manufacturing and
technology resulting from the timing of work performed on satellite programs,
offset by lower volume in data services revenues in 2002 as compared to 2001.
Intercompany eliminations primarily consists of revenues from satellites under
construction by satellite manufacturing and technology for FSS.

     EBITDA as reported increased to $62 million in 2002 as compared to $58
million in 2001. This increase arose primarily from the achievement of
break-even EBITDA for data services in 2002, as compared to an EBITDA loss of
$10 million in 2001, which resulted from cost savings realized from streamlining
operations, offset by lower satellite manufacturing and technology EBITDA, which
was due to lower margins primarily due to start-up costs associated with the
introduction of several new technologies and subcontractor delays.

     Depreciation and amortization was $47 million and $54 million for the three
months ended March 31, 2002 and 2001, respectively. In 2002, amortization
expense decreased by $7 million, primarily as a result of the Company adopting
SFAS No. 142 (see Accounting Pronouncements).

     Interest and investment income was $5 million in 2002 as compared to $8
million in 2001. This decrease was principally due to lower average cash
balances for investment and lower interest rates in 2002 as compared to 2001.

     Interest expense was $19 million in 2002, net of capitalized interest of $7
million, as compared to $50 million in 2001, net of capitalized interest of $5
million. The decrease was primarily due to reduced interest expense resulting
from the accounting for the Loral Orion exchange offer completed in December
2001, as the Company does not recognize any interest expense on Loral Orion's
new senior notes (see Liquidity and Capital Resources) and lower debt balances
and interest rates in 2002 as compared to 2001.

     Loral, as a Bermuda company, is subject to U.S. federal, state and local
income taxation at regular corporate rates plus an additional 30% "branch
profits" tax on any income that is effectively connected with the conduct of a
U.S. trade or business. Loral's U.S. subsidiaries are subject to regular
corporate tax on their worldwide income. For 2002, the Company recorded income
tax expense of $6 million on pre-tax income of $2 million, as compared to an
income tax benefit of $2 million on a pre-tax loss of $38 million for 2001. The

                                        30
<PAGE>

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

     The equity in net loss of affiliates was $16 million in 2002 compared to
$22 million in 2001. Loral's share of equity in net losses attributable to
Globalstar related activities, net of taxes, was $2 million in 2002 and $13
million in 2001. This reduction primarily resulted from the Company's decreased
investment in Globalstar service provider partnerships. Loral's share of equity
in net losses of Satmex was $8 million in 2001, as compared to $3 million in
2001. Loral's share of equity in net losses of Europe*Star, managed by Alcatel,
was $6 million in 2002 and 2001 (see Note 5 to the condensed consolidated
financial statements).

     The minority interest benefit primarily reflects the reduction of CyberStar
LP's loss attributed to CyberStar LP's other investor, who owned 17.6% as of
March 31, 2002.

     On January 1, 2002 the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which resulted in the Company recording a charge for the
cumulative effect of change in accounting principle, net of taxes, of $877
million (see Accounting Pronouncements). The cumulative effect of change in
accounting principle, net of taxes, in 2001 related to the Company's adoption of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.

     Preferred dividends were $12 million in 2002 as compared to $16 million in
2001. This decrease was primarily due to lower dividends as a result of the
conversion of 3.7 million shares of Loral's 6% Series C convertible redeemable
preferred stock (the "Series C Preferred Stock") and 1.9 million shares of
Loral's 6% Series D convertible redeemable preferred stock (the "Series D
Preferred Stock") into the Company's common stock in April 2001, in connection
with the Company's exchange offers (see Liquidity and Capital Resources).

     As a result of the above, net loss applicable to common shareholders before
the cumulative effect of the change in accounting principle relating to cost in
excess of net assets acquired ("goodwill") was $32 million or $0.09 per basic
and diluted share in 2002, as compared to $75 million or $0.25 per basic and
diluted share in 2001 ($69 million or $0.23 per basic and diluted share on a as
adjusted basis to exclude the amortization of goodwill). Net loss applicable to
common shareholders was $908 million or $2.69 per basic and diluted share in
2002. Basic and diluted weighted average shares were 337 million in 2002 and 299
million in 2001. The increase in shares was primarily due to the 30.9 million
shares of common stock issued in connection with the Company's exchange offers
in April 2001 (see Liquidity and Capital Resources).

RESULTS BY OPERATING SEGMENT FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

  Fixed Satellite Services

     FSS revenues (including 100% of Satmex and Europe*Star) decreased to $121
million in 2002, from $129 million in 2001, which was primarily due to decreased
affiliate sales for Satmex, primarily resulting from contract cancellations and
the anticipated non-renewal of a large customer in 2002. EBITDA (including 100%
of Satmex, Europe*Star and XTAR) decreased to $77 million in 2002, from $84
million in 2001, which was primarily due to lower Satmex sales. As of March 31,
2002, FSS had 10 operational satellites (three of which are owned by Loral
affiliates). Funded backlog for the segment totaled $1.8 billion at March 31,
2002, and December 31, 2001, including intercompany backlog of $56 million and
$61 million at March 31, 2002 and December 31, 2001, respectively, and affiliate
backlog of $404 million for Satmex and Europe*Star at March 31, 2002 and
December 31, 2001. Gross bookings for FSS in 2002 declined by $31 million from
2001 to $168 million, as some customers remained cautious about initiating new
projects, particularly in the broadband data market. De-bookings for FSS of $25
million in 2002 are down significantly from each quarter in 2001, indicating
that the FSS de-bookings trend may be subsiding.

  Satellite Manufacturing and Technology

     Financial performance of the satellite manufacturing industry suffered in
2001 and early 2002 for numerous reasons. There is more capacity in the industry
than needed at a time when, because of economic conditions, customers' capital
investment programs have been stretched over longer time-frames and demand

                                        31
<PAGE>

for new and replacement satellites and satellite systems has slowed. In
addition, the introduction of new technologies required by customer applications
has increased development costs. To counter these factors, SS/L has increased
productivity by reducing its workforce over the last four quarters. The Company
also is streamlining certain internal processes and has instituted tighter
controls to ensure that subcontracted components are received on time and meet
all customer requirements, in turn bringing more stability and predictability to
Loral's manufacturing performance. The benefits of these and other changes are
expected to positively effect SS/L's financial performance over the course of
2002.

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

     Revenues at SS/L, before intercompany eliminations, increased to $243
million in 2002, from $201 million in 2001, primarily resulting from the timing
of work performed on backlog programs. EBITDA before intercompany eliminations
was $11 million in 2002 as compared to $19 million in 2001, which was due to
lower margins primarily due to start-up costs associated with the introduction
of several new technologies and subcontractor delays. Funded backlog for SS/L as
of March 31, 2002 and December 31, 2001 was $1.2 billion and $1.6 billion,
respectively, including intercompany backlog of $221 million as of March 31,
2002 and $265 million as of December 31, 2001. SS/L gross bookings in the first
quarter of 2002 declined from 2001 by $137 million, $103 million of which
resulted from Satmex's direct procurement of launch services which led to the
cancellation of a previously booked launch at SS/L.

  Data Services

     Revenues are derived primarily from Loral CyberStar's corporate data
networking and Internet and intranet services businesses, which have been
impacted by the slowdown of worldwide prices and demand for telecommunications
and Internet services. Revenues for data services were $20 million in 2002, as
compared to $29 million in 2001 due primarily to lower volume from the VSAT
business, Internet services and occasional use revenue from business television
services. Data services achieved break-even EBITDA in 2002 as compared to an
EBITDA loss of $10 million in 2001. The substantial improvement in EBITDA in
2002 resulted primarily from cost savings realized from streamlining operations
and reduced satellite capacity costs. As of March 31, 2002 and December 31,
2001, funded backlog for the segment was $88 million and $98 million,
respectively, which was all from external sources.

TRANSACTIONS WITH AFFILIATES

     Funded backlog at March 31, 2002 and December 31, 2001 includes $214
million and $341 million, respectively, as a result of transactions entered into
with affiliates and related parties (primarily with Satmex, XTAR and Hisdesat)
for the construction of satellites.

                                        32
<PAGE>

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

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Revenues....................................................  $22,642    $30,479
Investment income...........................................      294        294
Interest expense capitalized on development stage
  enterprises...............................................      127
Profits relating to affiliate transactions not eliminated...    2,742      1,163
Amortization of deferred credit, capitalized interest and
  profits related to investment in affiliate................     (135)        73
</Table>

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. Loral regularly engages in
discussions with telecommunications service providers, equipment manufacturers
and others regarding possible strategic transactions and alliances such as joint
ventures; strategic relationships involving our fixed satellite services
operations and satellite manufacturing operations, which could involve business
combinations; participation in the Loral Global Alliance; and dispositions of
non-core assets. In order to pursue such opportunities, Loral may seek funds
from strategic partners and other investors, and through incurrence of debt or
the issuance of additional equity.

     Management believes that cash, available credit and cash flow from
operations will be adequate to meet its expected cash requirements. At March 31,
2002, the Company has met all of the covenants and conditions under its various
lending and funding arrangements and believes that it will continue to meet
these covenants and conditions. The Satellite Credit Agreement, LSC Amended
Credit Agreement, the indenture relating to Loral Orion's new senior notes and
the indenture relating to Loral's 9.5% senior notes provide for cross default or
cross acceleration provisions (see below).

  Debt

  Satellite Credit Agreement

     On December 21, 2001, Loral Satellite, Inc. ("Loral Satellite"), a
subsidiary of Loral Space & Communications Corporation, which in turn is a
subsidiary of Loral, entered into the first amendment to the $500 million
secured credit agreement dated as of November 17, 2000 by and among Loral
Satellite, Bank of America as Administrative Agent, and the other lending
parties thereto (the "Satellite Credit Agreement"). The first amendment provided
for a $200 million revolving credit facility expiring January 7, 2005 and a term
loan of which $283 million was outstanding as of March 31, 2002 and which is
subject to the following amortization: $11.25 million per quarter on June 30,
2002 through September 30, 2004 and $170 million on January 7, 2005.

     The Satellite Credit Agreement is secured by certain assets of Loral
Satellite, including the Telstar 6 and Telstar 7 satellites and the loans due to
Loral under Globalstar's $500 million credit facility (see below). Based on
third party valuations, management believes that the fair value of Telstar 6 and
Telstar 7 is in excess of $500 million. As of March 31, 2002, the net book value
of Telstar 6 and Telstar 7 was approximately $325 million. In addition, as part
of the first amendment, lenders under the Satellite Credit Agreement received a
junior lien on the assets of Loral SpaceCom Corporation ("LSC") and its
subsidiaries pledged in favor of the banks under the LSC Amended Credit
Agreement. Loral has also agreed to guarantee Loral Satellite's obligations
under the Satellite Credit Agreement.

                                        33
<PAGE>

  LSC Amended Credit Agreement

     On December 21, 2001, LSC entered into an Amended and Restated Credit
Agreement with Bank of America, N.A., as Administrative Agent, and the other
lenders parties thereto (the "LSC Amended Credit Agreement"). The LSC Amended
Credit Agreement provides for a $200 million revolving credit facility expiring
January 7, 2005 and a $400 million term loan subject to the following remaining
amortization payment schedule: $5 million on each of June 30, and September 30,
2002; $25 million on December 31, 2002; $5 million on each of March 31, June 30,
September 30 and December 31, 2003; $20 million on each of March 31, June 30 and
September 30, 2004; and $280 million on January 7, 2005. Borrowings under the
LSC Amended Credit Agreement bear interest, at LSC's option, at various rates
based on margins over the lead bank's base rate or the London Interbank Offered
Rate for periods of one, two, three or six months. The margin levels have
increased under the new amended agreement and are fixed through September 30,
2002. As a result of this increase in margin levels, interest costs will
increase by approximately $11 million annually. LSC pays a commitment fee on the
unused portion of the revolver.

     The LSC Amended Credit Agreement is secured by substantially all of the
assets of and the stock of LSC and its subsidiaries, including SS/L. LSC's
obligations under the LSC Amended Credit Agreement have been guaranteed by
certain of LSC's subsidiaries, including SS/L. As of March 31, 2002, the net
book value of the assets that secure the LSC Amended Credit Agreement was
approximately $860 million.

  Loral Orion Debt Agreements

     On December 21, 2001, Loral Orion completed exchange offers and consent
solicitations by issuing $613 million principal amount of new senior notes due
2006 guaranteed by Loral, in exchange for the extinguishment of $841 million
principal amount of Loral Orion senior notes due in 2007 and senior discount
notes due 2007 as discussed below. As part of the exchange, Loral issued to the
new note holders 6.04 million five-year warrants to purchase Loral common stock
(approximately 1.8% of the Company's outstanding common stock) at a price of
$2.37 per share. The warrants were valued at $7 million using the Black Scholes
option pricing model with the following assumptions: stock volatility, 75%, risk
free interest rate, 4.36%, and no dividends during the expected term. Principal
amount of $37 million of the existing senior notes and principal amount of $49
million of the existing senior discount notes remain outstanding at their
original maturities and interest rates.

     The interest rate on the new senior notes is 10%, a reduction from the
11.25% interest rate on the existing senior notes and the 12.5% rate on the
existing senior discount notes. Interest is payable semi-annually on July 15 and
January 15, beginning July 15, 2002. As a result of the lower interest rate and
the $229 million reduction in principal amount of debt, Loral Orion's annual
cash interest payments will be reduced by approximately $39 million. Under U.S.
generally accepted accounting principles dealing with debt restructurings, in
December 2001 the Company recorded an after-tax extraordinary gain of $22
million on the exchange, after expenses of $8 million. The carrying value of the
new senior notes on the balance sheet is $904 million, although the actual
principal amount of the new senior notes is $613 million. The difference between
this carrying value and the actual principal amount of the new senior notes is
being amortized over the life of the new senior notes, fully offsetting interest
expense through maturity of the new senior notes. The indenture relating to the
new senior notes contains limitations on Loral Orion and its subsidiaries,
including, without limitation, restrictions on Loral Orion's ability to pay
dividends or make loans to Loral.

  Loral 9.5% Senior Notes

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

  Equity

     On April 3, 2002, in a privately negotiated transaction, Loral exchanged
1,016,050 shares of its Series C Preferred Stock and 1,167,500 shares of its
Series D Preferred Stock for 15,066,495 shares of its common
                                        34
<PAGE>

stock. As a result of this transaction, Loral retired preferred stock with an
aggregate liquidation preference of $109,177,500 (representing almost 14% of the
preferred stock then outstanding) and will save $6.6 million in annual dividends
that it would otherwise have been obligated to pay over the life of the
preferred stock retired.

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

     The Company has the ability to make the mandatory redemption payments due
on its Series C and Series D Preferred Stock in cash, common stock, or a
combination of the two. The number of shares of the Company's common stock to be
issued on redemption is based on the aggregate redemption value divided by the
average of the volume weighted average daily price of the Company's common stock
for the 10 trading-day period ending on the second business day prior to the
redemption date (approximately $2.28 per share at March 31, 2002). The mandatory
redemption payments are due in 2006 for the Series C Preferred Stock and in 2007
for the Series D Preferred Stock. The exact number of shares of the Company's
common stock that may be issued on a mandatory redemption date cannot be
determined at this time, but may involve the issuance of a significant number of
shares of the Company's common stock. That number will depend on a number of
factors not known today, such as the price of the Company's common stock and the
number of shares of the Company's preferred stock outstanding at that time. The
Company has in the past from time to time effected voluntary exchanges of its
preferred stock for common stock. To the extent that the Company makes such
additional exchanges in the future, the Company will reduce the number of shares
of its preferred stock subject to redemption in 2006 and 2007. However, there is
no guarantee that theses exchanges will or can be made in the future.

  Cash and Available Credit

     As of March 31, 2002, Loral had $237 million of cash and available credit
(including $129 million of available credit from the credit facilities described
above under the captions "Satellite Credit Agreement" and "LSC Amended Credit
Agreement").

  Net Cash Provided by (Used in) Operating Activities

     Net cash provided by operating activities for 2002 was $89 million, as
compared to net cash used in operating activities of $(54) million in 2001.

     Net cash provided by operating activities for 2002 was $89 million,
primarily due to the net loss as adjusted for non-cash items of $46 million and
a increase in customer advances of $28 million, primarily resulting from the
timing of satellite program milestone payments.

     Net cash used in operating activities for 2001 was $54 million, primarily
due to increases in inventories of $15 million due to the timing of satellite
contract awards, contracts-in-process of $16 million due to the progress on
satellite programs and decreases in accounts payable of $23 million due to the
timing of satellite subcontractor payments and accrued expenses and other
current liabilities of $21 million due to the timing of interest and dividend
payments, offset by the net loss as adjusted for non-cash operating items of $26
million.

                                        35
<PAGE>

  Net Cash Used in Investing Activities

     Net cash used in investing activities in 2002 and 2001 was $61 million and
$83 million, respectively, primarily as a result of capital expenditures mainly
for the construction of satellites and reduced investments in Globalstar service
provider partnerships.

  Net Cash Used in Financing Activities

     Net cash used in financing activities for 2002 and 2001 was $80 million and
$40 million, respectively, primarily due to net payments for debt obligations
and preferred dividends.

OTHER LIQUIDITY MATTERS

  Fixed Satellite Services

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

  Loral Orion

     Loral Orion anticipates it will have additional requirements over the next
three years to fund the replacement of Telstar 11 which is expected to reach the
end of its useful life in 2005. To the extent that excess cash flow from Loral
Orion's satellites is not sufficient to meet these requirements, Loral Orion
will need to secure funding from Loral, or raise additional financing to fund
this requirement and there can be no assurance that Loral Orion will be
successful in doing so. Sources of additional capital may include public or
private debt, vendor financing, equity financings or strategic investments. To
the extent that Loral Orion seeks to raise additional debt financing, its
indenture relating to its 10% senior notes limits the amount of such additional
debt to $100 million for such replacement satellite and prohibits Loral Orion
from using Telstar 11, Telstar 10/Apstar IIR and Telstar 12 as collateral for
indebtedness. See Commitments and Contingencies.

     Telstar 12, originally intended to operate at 12 degrees W.L., was launched
aboard an Ariane launch vehicle in October 1999 into the orbital slot located at
15 degrees W.L., and commenced operations in January 2000. Under an agreement
reached with Eutelsat, Loral Orion agreed to operate Telstar 12 at 15 degrees
W.L. while Eutelsat continues to develop its services at 12.5 degrees W.L.
Eutelsat has in turn agreed not to use its 14.8 degrees W.L. orbital slot and to
assert its priority rights at such location on Loral Orion's behalf. As part of
this coordination effort, Loral Orion agreed to provide to Eutelsat four 54 MHz
transponders on Telstar 12 for the life of the satellite and has retained risk
of loss with respect to those transponders. Eutelsat also has the right to
acquire, at cost, four transponders on the next replacement satellite for
Telstar 12. As part of the international coordination process, Loral continues
to conduct discussions with various administrations regarding Telstar 12's
operations at 15 degrees W.L. If these discussions are not successful, Telstar
12's useable capacity may be reduced.

     On September 28, 1999, Loral Orion purchased from APT Satellite Company
Limited ("APT") for approximately $273 million, the rights to all transponder
capacity and existing customer leases on the Apstar IIR satellite (except for
one C-band transponder retained by APT), and renamed the satellite the Telstar
10/ Apstar IIR satellite. Loral Orion has full use of the transponders for the
remaining life of Telstar 10/Apstar IIR. Loral Orion also has the right to
provide replacement satellites upon the end of life of Telstar 10/Apstar IIR,
for which it will be required to pay a fee to APT for the right to use the
orbital slot.

  Satmex

     Satmex currently has two satellites in orbit (Solidaridad 2 and Satmex 5)
and one satellite in inclined orbit (Morelos 2). In August 2000, Satmex
announced that its Solidaridad 1 satellite ceased operation and was
irretrievably lost. The loss was caused by the failure of the back-up control
processor on board the satellite. Solidaridad 1, which was built by Hughes Space
and Communications ("Hughes") and launched in
                                        36
<PAGE>

1994, experienced a failure of its primary control processor in April 1999, and
had been operating on its back-up processor since that time. The majority of
Solidaridad 1 customers were provided replacement capacity on other Satmex
satellites or on satellites operated by Loral Skynet. The loss of Solidaridad 1
was fully covered by insurance proceeds. Satmex has contracted with SS/L to
build a replacement satellite. This satellite, known as Satmex 6, is scheduled
to be launched in the first quarter of 2003, and is designed to provide broader
coverage and higher power levels than any other satellite currently in the
Satmex fleet.

     At March 31, 2002, Solidaridad 2 had a remaining estimated useful life of
seven years. Solidaridad 2 was also manufactured by Hughes and is similar in
design to Solidaridad 1 and to other Hughes satellites which have experienced
in-orbit component failures. While Satmex has obtained in-orbit insurance for
Solidaridad 2, a satellite failure may result in a drop in Satmex's profits,
which loss of profits would not be insured. The in-orbit insurance for
Solidaridad 2 expires in November 2002. Satmex cannot guarantee that it will be
able to renew the insurance at the end of this period, or that if renewal is
available, that it would be on acceptable terms. For example, a renewal policy
for Solidaridad 2 may not insure against an in-orbit failure due to the loss of
the satellite's control processor, the same component that caused the loss of
Solidaridad 1 and other Hughes satellites. An uninsured loss would have a
material adverse effect on Satmex's results of operations and financial
condition.

     In August 2001, the Mexican government granted market access rights for
satellites owned by non-Mexican satellite operators, including SES Global and
PanAmSat, resulting in increased competition for Satmex.

     In connection with the privatization of Satmex by the Mexican Government of
its fixed satellite services business, Loral and Principia formed a joint
venture, Firmamento Mexicano, S.A. de R.L. de C.V. ("Holdings"). In 1997,
Holdings acquired 75% of the outstanding capital stock of Satmex. As part of the
acquisition, Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), a
wholly owned subsidiary of Holdings, issued a seven-year Government Obligation
("Government Obligation") to the Mexican Government in consideration for the
assumption by Satmex of the debt incurred by Servicios in connection with the
acquisition. The Government Obligation had an initial face amount of $125
million, which accretes at 6.03% and expires in December 2004. The debt of
Satmex and Holdings is non-recourse to Loral and Principia. However, Loral and
Principia have agreed to maintain assets in a collateral trust in an amount
equal to the value of the Government Obligation through December 30, 2000 and,
thereafter, in an amount equal to 1.2 times the value of the Government
Obligation until maturity. As of March 31, 2002, Loral and Principia have
pledged their respective shares in Holdings in such trust. Loral has a 65%
economic interest in Holdings and a 49% indirect economic interest in Satmex.
Loral accounts for Satmex using the equity method. The covenants of Satmex's
debt instruments restrict the ability of Satmex to pay dividends to Loral.

  Europe*Star

     In December 1998, Loral finalized its strategic partnership with a
subsidiary of Alcatel to jointly build and operate Europe*Star, a geostationary
satellite system that commenced service in 2001. Europe*Star is a member of the
Loral Global Alliance, which is led by Loral Skynet. Through March 31, 2002,
Loral has invested $76 million in Europe*Star. As of March 31, 2002, Loral owned
47% of Europe*Star. Pursuant to the terms of the shareholders agreement, Loral
has permitted Alcatel to fund additional expenditures to develop Europe*Star's
business and infrastructure through $181 million in loans to the venture, which
Alcatel claims are payable on demand.

  XTAR, L.L.C.

     XTAR, L.L.C. ("XTAR"), a newly formed joint venture between Loral and
Hisdesat Servicios Estrategicos, S.A. ("Hisdesat"), a consortium comprised of
leading Spanish telecommunications companies, including Hispasat, S.A., and
agencies of the Spanish government, plans to construct and launch an X-band
satellite by the end of 2003 to provide X-band services to government users in
the United States and Spain, as well as other friendly and allied nations. XTAR
is owned 56% by Loral (accounted for under the equity method since the Company
does not control certain significant operating decisions) and 44% by Hisdesat.
In

                                        37
<PAGE>

addition, XTAR has agreed to lease certain transponders on the Spainsat
satellite, which is being constructed for Hisdesat. As of March 31, 2002, the
partners in proportion to their respective ownership interests, have contributed
$20 million to XTAR and expect to fund an additional $35 million in 2002. XTAR
expects to raise the remaining amount of the funds it needs to construct and
launch its satellite through vendor and other third-party financings.

  Globalstar and GTL

     The Company accounts for its investment in Globalstar's $500 million credit
facility at fair value, with changes in the value (net of tax) recorded as a
component of other comprehensive loss (see Notes 3 and 5 to the condensed
consolidated financial statements). The Company recognized unrealized net gains
(losses) after taxes as a component of other comprehensive income (loss) of $7
million and $(10) million in 2002 and 2001, respectively, in connection with
this security.

     In January 2001, Globalstar suspended indefinitely principal and interest
payments on its debt and dividend payments on its redeemable preferred
partnership interests in order to conserve cash for operations.

     On February 15, 2002, Globalstar and certain of its direct subsidiaries
filed voluntary petitions under Chapter 11 of Title 11, United States Code in
the United States Bankruptcy Court for the District of Delaware (the "Court").
In connection therewith, Loral/Qualcomm Satellite Services, L.P., the managing
general partner of Globalstar, its general partner, Loral/Qualcomm Partnership,
L.P. ("LQP"), and certain of Loral's subsidiaries that serve as general partners
of LQP also filed voluntary petitions with the Court. As a result of
Globalstar's bankruptcy petition, several of Globalstar's debt facilities and
other debt obligations have been accelerated and are immediately due and
payable. Subcontractors have assumed $87 million of financing related to
deferred billings SS/L has provided to Globalstar at March 31, 2002, which
includes $46 million which is non-recourse to SS/L in the event of non-payment
by Globalstar due to bankruptcy and is included in long-term liabilities in the
consolidated balance sheets.

     Globalstar has reached an agreement with Loral and an informal committee of
noteholders, representing approximately 17% principal amount of Globalstar's
outstanding notes, regarding the substantive terms of a financial and legal
restructuring of Globalstar's business. The proposed restructuring plan, which
will have to be submitted for and will be subject to Court approval, calls for
the establishment of a new Globalstar company which will, in addition to taking
ownership of all of Globalstar's existing assets, acquire certain service
provider operations, including Loral's investment in the Canadian service
provider company. Under the proposed restructuring plan, if approved, the new
company will initially be owned by Globalstar's existing noteholders and other
unsecured creditors, including Loral, which would result in Loral initially
holding about a 24% equity interest in the new company, prior to any dilution
that may result from any new investments. The proposed plan also calls for the
cancellation of all existing partnership interests in Globalstar, but
contemplates, subject to the satisfaction of certain conditions, a rights
offering to common and preferred shareholders in Globalstar Telecommunications
Limited and Globalstar's creditors which could give them the option to purchase
up to 15% of the common equity in the new company. The proposed plan, if
approved, will also provide for mutual releases of claims related to Globalstar
to be granted to and by various persons, including, among others, Globalstar,
Globalstar's officers and directors, Loral and its affiliates, Globalstar
partners, service providers acquired by Globalstar and the members of any
official and informal committees of creditors. On March 5, 2002, the Court
appointed an official committee of creditors. Although the majority of the
members of the official committee are the members of the informal committee,
there can be no assurance that the proposed restructuring plan, including
Loral's proposed equity ownership in the new company, will be approved by
Globalstar's remaining creditors or the Court.

     As of March 31, 2002, the Company's investment in Globalstar related
activities was approximately $42 million, consisting primarily of the fair value
of its investment in Globalstar's $500 million credit facility, which was based
on the trading values of Globalstar's public debt at March 31, 2002. If
Globalstar were unable to effectuate a successful restructuring, the Company's
remaining investment in Globalstar's $500 million credit facility would be
impaired, which, as discussed above, would have no effect on the Company's
results of operations. Loral's investment in the 2002 operations of those
Globalstar service provider ventures in

                                        38
<PAGE>

which it participates as an equity owner is expected to be less than $5 million
in 2002. These Globalstar service providers own and operate gateways, are
licensed to provide services and, through their sales and marketing
organizations, are actively selling Globalstar service, in their respective
territories.

  Contractual Obligations

     Contractual obligations as previously disclosed in the Company's Latest
Annual Report on Form 10-K have not materially changed, except for the reduction
in the aggregate liquidation preference of $109 million resulting from the
exchange of the Company's preferred stock for common stock in April 2002 (See
Liquidity and Capital Resources).

COMMITMENTS AND CONTINGENCIES

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

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

     In September 2001, the PAS 7 satellite built by SS/L for PanAmSat
experienced an electrical power failure on its solar arrays that resulted in the
loss of use of certain transponders on the satellite. As a result, PanAmSat has
claimed that under its contract with SS/L it is entitled to be paid $16 million.
SS/L disputes this claim and is in discussions with PanAmSat to resolve this
matter. SS/L believes that this failure is an isolated event and does not
reflect a systemic problem in either the satellite design or manufacturing
process. Accordingly, SS/L does not believe that this anomaly will affect other
on-orbit satellites built by SS/L. However, in connection with the renewal of
the insurance for the Telstar 10/Apstar IIR satellite in October 2001, the
insurance underwriters have excluded losses due to solar array failures, since
Telstar 10/Apstar IIR was manufactured by SS/L and has the same solar array
configuration as PAS 7. Loral is currently in discussions with its insurers to
remove this exclusion from the Telstar 10/Apstar IIR policy, in return for a
deductible for losses arising from electrical problems on the satellite's solar
arrays. There can be no assurance
                                        39
<PAGE>

that these discussions will be successful. Three other satellites operated by
Loral Skynet have the same solar array configuration as Telstar 10/Apstar IIR.
There can be no assurance that the insurers will not require similar exclusions
in connection with renewals of insurance for these satellites in 2003 and 2004.
In addition, the PAS 8 satellite has experienced minor losses of power from its
solar arrays, the cause of which is unrelated to the loss of power on the PAS 7
satellite. PanAmSat has claimed that under its contract with SS/L it is entitled
to be paid $7.5 million as a result of these minor power losses. SS/L disputes
this claim. SS/L and PanAmSat are in discussions to resolve this matter.

     SS/L has contracted to build a spot beam, Ka-band satellite for a customer
planning to offer broadband data services directly to the consumer. The customer
has failed to make certain payments due to SS/L under the contract and has
asserted that SS/L is not able to meet the contractual delivery date for the
satellite. As of March 31, 2002, SS/L had billed and unbilled accounts
receivable and vendor financing arrangements of $49 million with this customer.
SS/L and the customer have entered into an agreement that provides that, until
July 1, 2002, neither party will assert that the other party is in default under
the contract, and the parties are currently engaged in discussions to resolve
their outstanding issues. In addition, SS/L and the customer have agreed to
suspend work on the satellite during these discussions, pending the outcome of
the discussions. If the parties do not resolve their issues, it is likely that
each party would assert that the other is in default. The contract provides that
SS/L may terminate the contract for a customer default 90 days after serving a
notice of default if the default is not cured by the customer; upon such a
default, SS/L would be entitled to recover the contractually agreed price of
items delivered and accepted prior to termination and 115% of its actual costs
incurred for items not delivered prior to termination. The contract also
provides that the customer may terminate the contract for an SS/L default 133
days after serving a notice of default if the default is not cured by SS/L; upon
such a default, SS/L would be obligated to refund all amounts previously paid by
the customer, $78 million as of December 31, 2001, plus interest. Based on the
discussions currently in progress with the customer and other parties who may be
interested in the satellite, management's assessment of the market opportunities
for the satellite and consideration of the satellite's estimated value,
management does not believe that this matter will have a material adverse effect
on the consolidated financial position or results of operations of Loral.

     SS/L was a party to an Operational Agreement with Alcatel Space Industries,
pursuant to which the parties had agreed to cooperate on certain satellite
programs, and an Alliance Agreement with Alcatel Space (together with Alcatel
Space Industries, Alcatel), pursuant to which Alcatel had certain rights with
respect to SS/L, including the right to appoint two representatives to SS/L's
seven-member board of directors, rights to approve certain extraordinary actions
and certain rights to purchase SS/L shares at fair market value in the event of
a change of control (as defined) of either Loral or SS/L. The agreements between
Alcatel and SS/L were terminable on one year's notice, and, on February 22,
2001, Loral gave notice to Alcatel that they would expire on February 22, 2002.
In April 2001, Alcatel commenced an arbitration proceeding challenging the
effectiveness of Loral's notice of termination and asserting various alleged
breaches of the agreements by SS/L relating to the exchange of information and
other procedural or administrative matters. In February 2002, the arbitral
tribunal upheld the validity of Loral's termination effective February 22, 2002
and Alcatel's claims as to certain breaches. The arbitral tribunal has provided
both parties with an opportunity to file any additional claims or counterclaims
they may have. In March 2002, Alcatel submitted additional claims against Loral
and SS/L and is seeking at least $330 million in damages in respect of all of
its claims. The Company believes that Alcatel's claims for damages are without
merit and have been asserted for competitive reasons to disadvantage SS/L and
that this matter will not have a material adverse effect on its consolidated
financial position or results of operations. In April 2002, Loral and SS/L filed
their statement of counterclaims against Alcatel. The claims being asserted
against Alcatel are for breach of contract, tortious interference with contracts
and business relationships, defamation, misappropriation of SS/L's confidential
property, conversion, and intentional breaches of confidentiality agreements.
Loral and SS/L are seeking injunctive relief, compensatory damages in the amount
of $405 million, and punitive damages. The arbitral tribunal will decide at a
later date whether any of Alcatel's claims or Loral's or SS/L's counterclaims
give rise to damages. On April 5, 2002, Alcatel filed in the District Court for
the Southern District of New York a petition to confirm and enforce the partial
decision issued in February 2002 in the arbitration between the parties. On
April 29, 2000, Loral filed its response to the petition, in which Loral
supports confirmation of the decision, but disputes
                                        40
<PAGE>

Alcatel's claim that the decision requires the production of certain documents.
The petition is pending before the court.

     The launch of ChinaSat-8 has been delayed pending SS/L's obtaining the
approvals required for the launch. On December 23, 1998, the Office of Defense
Trade Controls, or ODTC, of the U.S. Department of State temporarily suspended a
previously approved technical assistance agreement under which SS/L had been
preparing for the launch of the ChinaSat-8 satellite. In addition, SS/L was
required to re-apply for new export licenses from the State Department to permit
the launch of ChinaSat-8 on a Long March launch vehicle when the old export
licenses issued by the Commerce Department, the agency that previously had
jurisdiction over satellite licensing, expired in March 2000. On January 4,
2001, the ODTC, while not rejecting these license applications, notified SS/L
that they were being returned without action. On January 9, 2002, Loral, SS/L
and the United States Department of State entered into a consent agreement (the
"Consent Agreement") settling and disposing of all civil charges, penalties and
sanctions associated with alleged violations by SS/L of the Arms Export Control
Act and its implementing regulations. The Company recorded a charge in the
fourth quarter of 2001 for the penalties associated with the Consent Agreement.
The Consent Agreement provides that the State Department agrees, assuming the
Company's and SS/L's faithful adherence to the terms of the Consent Agreement,
and the Arms Export Control Act and its implementing regulations, that decisions
concerning export licenses for the ChinaSat-8 spacecraft will be made on the
basis of the security and foreign policy interests of the United States,
including matters relating to U.S. relations with the People's Republic of
China, without reference to the State Department's previously expressed concerns
regarding SS/L's reliability, which concerns are considered to be appropriately
mitigated through the operation of various provisions of the Consent Agreement.
Discussions between SS/L and the State Department regarding SS/L's obtaining the
approvals required for the launch of ChinaSat-8 are continuing.

     In December 1999, SS/L reached an agreement with ChinaSat to extend the
date for delivery of the ChinaSat-8 satellite to July 31, 2000. In return for
this extension and other modifications to the contract, SS/L provided to
ChinaSat three transponders on Telstar 10/Apstar IIR for ChinaSat's use for the
life of those transponders. As a result, the Company recorded a charge to
earnings of $35 million in 1999. If ChinaSat were to terminate its contract with
SS/L as a result of these delays, SS/L may have to refund $134 million in
advances received from ChinaSat and may incur penalties of up to $11 million and
believes it would incur costs of approximately $38 million to refurbish and
retrofit the satellite so that it could be sold to another customer, which
resale cannot be guaranteed. To the extent that SS/L is able to recover some or
all of its $52 million deposit payment on the Chinese launch vehicle, this
recovery would offset a portion of such payments. There can be no assurance,
however, that SS/L will be able either to obtain a refund from the launch
provider or to find a replacement customer for the Chinese launch vehicle.

     SS/L is required to obtain licenses and enter into technical assistance
agreements, presently under the jurisdiction of the State Department, in
connection with the export of satellites and related equipment, as well as
disclosure of technical data to foreign persons. Delays in obtaining the
necessary licenses and technical assistance agreements may result in the
cancellation of, or delay SS/L's performance on, existing contracts, and, as a
result, SS/L may incur penalties or lose incentive payments under these
contracts.

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

  Globalstar Related Matters

     On September 26, 2001, the nineteen separate purported class action
lawsuits filed in the United States District Court for the Southern District of
New York by various holders of securities of Globalstar Telecommunications
Limited ("GTL") and Globalstar, L.P. ("Globalstar") against GTL, Loral, Bernard
L. Schwartz and other defendants were consolidated into one action titled In re:
Globalstar Securities Litigation. In November 2001, plaintiffs in the
consolidated action filed a consolidated amended class action complaint against
Globalstar, GTL, Globalstar Capital Corporation, Loral and Bernard L. Schwartz
alleging (a) that all

                                        41
<PAGE>

defendants (except Loral) violated Section 10(b) of the Securities Exchange Act
of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder, by making
material misstatements or failing to state material facts about Globalstar's
business and prospects, (b) that defendants Loral and Schwartz are secondarily
liable for these alleged misstatements and omissions under Section 20(a) of the
Exchange Act as alleged "controlling persons" of Globalstar, (c) that defendants
GTL and Schwartz are liable under Section 11 of the Securities Act of 1933 (the
"Securities Act") for untrue statements of material facts in or omissions of
material facts from a registration statement relating to the sale of shares of
GTL common stock in January 2000, (d) that defendant GTL is liable under Section
12(2)(a) of the Securities Act for untrue statements of material facts in or
omissions of material facts from a prospectus and prospectus supplement relating
to the sale of shares of GTL common stock in January 2000, and (e) that
defendants Loral and Schwartz are secondarily liable under Section 15 of the
Securities Act for GTL's primary violations of Sections 11 and 12(2)(a) of the
Securities Act as alleged "controlling persons" of GTL. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all buyers of
securities of Globalstar, Globalstar Capital and GTL during the period from
December 6, 1999 through October 27, 2000, excluding the defendants and certain
persons related or affiliated therewith. Loral and Mr. Schwartz have filed a
motion to dismiss the amended complaint in its entirety as to Loral and Mr.
Schwartz, which motion is pending before the court.

     On March 2, 2001, the seven separate purported class action lawsuits filed
in the United States District Court for the Southern District of New York by
various holders of common stock of Loral Space & Communications Ltd. ("Loral")
against Loral, Bernard L. Schwartz and Richard Townsend were consolidated into
one action titled In re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the consolidated action filed a
consolidated amended class action complaint alleging (a) that all defendants
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder
by making material misstatements or failing to state material facts about
Loral's financial condition and its investment in Globalstar and (b) that Mr.
Schwartz is secondarily liable for these alleged misstatements and omissions
under Section 20(a) of the Exchange Act as an alleged "controlling person" of
Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted
consists of all buyers of Loral common stock during the period from November 4,
1999 through February 1, 2001, excluding the defendants and certain persons
related or affiliated therewith.

     Loral believes that it has meritorious defenses to the above Globalstar
related class action lawsuits and intends to pursue them vigorously.

     Loral holds debt obligations from Globalstar (see Note 5 to the condensed
consolidated financial statements). Globalstar's proposed restructuring plan,
which will be submitted to and subject to bankruptcy court approval,
contemplates the creation of a new company, which will initially be owned by
Globalstar's existing noteholders and other unsecured creditors, including
Loral. In other situations in the past, challenges have been initiated seeking
subordination or recharacterization of debt held by an affiliate of an issuer.
While Loral knows of no reason why such a claim would prevail with respect to
the debt Loral holds in Globalstar, there can be no assurance that such claims
will not be made in Globalstar's bankruptcy proceeding. If such claims were to
prove successful, it will jeopardize the amount of equity interest Loral will
ultimately receive in the new Globalstar company. Moreover, actions may be
initiated in Globalstar's bankruptcy proceeding seeking to characterize payments
previously made by Globalstar to Loral prior to the filing date as preferential
payments subject to repayment. Loral may also find itself subject to other
claims brought by Globalstar creditors and securities holders, who may seek to
impose liabilities on Loral as a result of its relationship with Globalstar. For
instance, Globalstar's creditors may seek to pierce the corporate veil in an
attempt to recover Globalstar obligations owed to them that are recourse to
Loral's subsidiaries, which are general partners in Globalstar and have filed
for bankruptcy protection. Globalstar's cumulative partners deficit at December
31, 2001, was $3.0 billion. Globalstar's proposed restructuring plan
contemplates that mutual releases of claims related to Globalstar would be
granted to and by various persons, including, among others, Loral and its
affiliates, Globalstar, Globalstar's officers and directors, Globalstar
partners, service providers acquired by Globalstar and the members of any
official and informal committee of creditors. There can be no assurance that
these releases will be approved by the bankruptcy court or, if approved, as to
the scope of any releases finally obtained.

                                        42
<PAGE>

     In May 2000, Globalstar finalized $500 million of vendor financing
arrangements with Qualcomm. The original terms of this vendor financing provided
for interest at 6%, a maturity date of August 15, 2003 and required repayment
pro rata with the term loans due to Loral under Globalstar's $500 million credit
facility. As of December 31, 2001, $632 million was outstanding under this
facility (including $132 million of capitalized interest).

     Loral has agreed that if the principal amount outstanding under the
Qualcomm vendor financing facility exceeds the principal amount due Loral under
Globalstar's $500 million credit facility, as determined on certain measurement
dates, then Loral will guarantee 50% of such excess amount. As of March 31,
2002, Loral had no guarantee obligation.

OTHER MATTERS

  Insurance Costs

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

  Accounting Pronouncements

  SFAS 142

     On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142") which addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite lives not
be amortized, but rather be tested at least annually for impairment. SFAS 142
also changed the evaluation criteria for testing goodwill for impairment from an
undiscounted cash flow approach, which was previously utilized under the
guidance in Accounting Principles Board Opinion No. 17, Intangible Assets, to a
test based on fair value. Fair value is determined by the amount at which an
asset or liability could be bought or sold in a current transaction between
willing parties, that is, other than in a forced or liquidation sale. Quoted
market prices in active markets are the best evidence of fair value and must be
used as the basis for the measurement, if available. If quoted market prices are
not available, the estimate of fair value must be based on the best information
available, including prices for similar assets and liabilities and the results
of using other valuation techniques, such as public company trading multiples,
future discounted cash flows and merger and acquisition transaction multiples.
The Company adopted SFAS 142 on January 1, 2002.

     In accordance with SFAS 142, the Company's previously recognized cost in
excess of net assets acquired ("goodwill") of $892 million for purchase
businesses combinations completed prior to July 1, 2001, was reviewed under the
new transitional guidance as of January 1, 2002. Goodwill had been previously
assigned to the Company's business segments as follows (based on the net book
value at December 31, 2001): FSS $597 million, satellite manufacturing and
technology $286 million and data services $9 million. The Company hired
professionals in the valuation consulting business to determine the fair value
of each of the Company's reporting units. Since there were no quoted market
prices in active markets for the Company's reporting units, the measurement of
fair value for each reporting unit was based on the best information available
for that reporting unit, including reasonable and supportable assumptions and
projections, as follows: (1) FSS -- public company trading multiples, (2)
satellite manufacturing and technology -- future discounted cash flows, and (3)
data services -- merger and acquisition transaction multiples. Those
professionals determined that the goodwill for each of the Company's reporting
units under the new guidance in SFAS 142 was fully impaired.
                                        43
<PAGE>

Accordingly, as of January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of $892 million
before taxes ($877 million after taxes).

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

     The following table presents the actual financial results and as adjusted
financial results without the amortization of goodwill for the Company for the
three months ended March 31, 2001 (in thousands, except per share amounts):

<Table>
<Caption>
                                                               ACTUAL    AS ADJUSTED
                                                              --------   -----------
<S>                                                           <C>        <C>
Reported loss before cumulative effect of change in
  accounting principle......................................  $(57,268)   $(57,268)
Add back amortization of goodwill, net of taxes.............        --       6,652
                                                              --------    --------
Loss before cumulative effect of change in accounting
  principle.................................................   (57,268)    (50,616)
Cumulative effect of change in accounting principle, net of
  taxes.....................................................    (1,741)     (1,741)
                                                              --------    --------
Net loss....................................................   (59,009)    (52,357)
Preferred dividends.........................................   (16,123)    (16,123)
                                                              --------    --------
Net loss applicable to common shareholders..................  $(75,132)   $(68,480)
                                                              ========    ========
Reported basic and diluted loss per share before cumulative
  effect of change in accounting principle..................              $  (0.25)
Add back goodwill amortization per share....................                  0.02
                                                                          --------
As adjusted loss per share before cumulative effect of
  change in accounting principle............................                 (0.23)
Cumulative effect of change in accounting principle.........                    --
                                                                          --------
Adjusted net loss per share.................................              $  (0.23)
                                                                          ========
</Table>

  SFAS 143

     In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations ("SFAS 143"). SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and the normal operation of a long-lived
asset, except for certain obligations of lessees. The Company is required to
adopt SFAS 143 on January 1, 2003. The Company has not yet determined the impact
that the adoption of SFAS 143 will have on its results of operations or its
financial position.

  SFAS 144

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets. It
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, and the accounting and reporting
provisions of APB 30, Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business. The Company adopted SFAS 144 on January 1, 2002. The Company has
determined that there was no effect on the Company's consolidated financial
position or results of operations relating to the adoption of SFAS 144.

                                        44
<PAGE>

  SFAS 145

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 generally requires that any gains or losses on
extinguishment of debt in current or prior periods be classified as other income
(expense), beginning in fiscal 2003, with early adoption encouraged. The Company
is currently evaluating the impact of adopting the provisions of SFAS No. 145 in
its consolidated financial statements.

                                        45
<PAGE>

                                    PART II.

                               OTHER INFORMATION

ITEM 2.  LEGAL PROCEEDINGS

     See legal proceedings set forth in Note 8 to the condensed consolidated
financial statements.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

     The following exhibits are filed as part of this report:

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

     (b) Reports on Form 8-K

<Table>
<Caption>
DATE OF REPORT                                          DESCRIPTION
--------------                                          -----------
<S>                <C>                    <C>
January 9, 2002    Item 5 -- Other        SS/L Settlement with Justice Department
                   Events
February 15, 2002  Item 5 -- Other        Globalstar Petition for Bankruptcy
                   Events
</Table>

                                        46
<PAGE>

                                   SIGNATURES

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

                                          LORAL SPACE & COMMUNICATIONS LTD.
                                                        Registrant

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

Date: May 14, 2002

                                        47
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT NO.                               DESCRIPTION
-----------                               -----------
<S>          <C>  <C>
Exhibit 12   --   Computation of Deficiency of Earnings to Cover Fixed Charges
</Table>