LORAL SPACE & COMMUNICATIONS LTD - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 October 31, 2002, there were 424,831,402 shares of Loral Space &
Communications Ltd. common stock outstanding.

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PART 1.

FINANCIAL INFORMATION

LORAL SPACE & COMMUNICATIONS LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUES)

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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.

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LORAL SPACE & COMMUNICATIONS LTD.

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

See notes to condensed consolidated financial statements.
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LORAL SPACE & COMMUNICATIONS LTD.

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

See notes to condensed consolidated financial statements.
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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 11):

Fixed Satellite Services ("FSS"). The Company leases transponder
capacity to customers for various applications, including television and
cable 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 and
nine months ended September 30, 2002 are not necessarily indicative of the
results to be expected for the full year. It is suggested that these condensed
consolidated 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.

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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. COMPREHENSIVE LOSS

The components of comprehensive loss are as follows (in thousands):

4. CONTRACTS-IN-PROCESS

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.

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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):

The Company accounts for its investment in Globalstar's $500 million credit
facility at fair value, with changes in the value (net of taxes) recorded as a
component of other comprehensive loss.

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

Subsequent to December 31, 2000, the Company has not recognized any income
or loss related to its share of Globalstar's operating losses.

During the second quarter of 2002, the Company recorded a $9 million charge
to equity in net losses of affiliates relating to liabilities it had guaranteed
in connection with a Globalstar service provider partnership. The related
liabilities were paid in the third quarter of 2002.

In connection with recording its share of Globalstar's operating losses in
2000, the Company recorded as a charge to equity in net losses of affiliates of
$22.3 million representing the estimated probable uncollectible costs relating
to subcontractor obligations to be incurred by the Company on Globalstar's
behalf. During the second quarter of 2002, the Company recovered a claim with a
vendor on the Globalstar program. Of this recovery, $14 million ($8 million
after taxes) has been reflected in the statement of operations as equity income
related to Globalstar, which, combined with recoveries recorded in 2001, fully
offset the probable uncollectible costs originally recorded. Globalstar or its
creditors may assert a claim to some portion or all of this recovery. If so, the
Company will vigorously dispute any such claim.

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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The following table presents summary statement of operations data of
Loral's affiliates Satmex and Europe*Star (in thousands):

6. 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
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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.

Goodwill

In accordance with SFAS 142, the Company's previously recognized cost in
excess of net assets acquired ("goodwill") of $892 million for business
acquisitions accounted for under the purchase method of accounting 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. Based on the fair values concluded on by those
professionals, management 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 and nine months ended September 30, 2001 (in thousands, except per share
amounts):

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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Other acquired intangible assets are included in other assets in the
Company's condensed consolidated balance sheets as follows (in millions):

The weighted average remaining amortization period for regulatory fees was
eight years and for other intangibles was three years, as of September 30, 2002.

Total pre-tax amortization expense for other acquired intangible assets for
both the three months ended September 30, 2002 and 2001 was $0.8 million, and
for the nine months ended September 30, 2002 and 2001 was $2.5 million and $2.8
million, respectively. Annual pre-tax amortization expense for other acquired
intangible assets for the five years ended December 31, 2006 is estimated to be
as follows (in millions):

2002........................................................ $3.4
2003........................................................ 3.4
2004........................................................ 3.3
2005........................................................ 2.5
2006........................................................ 1.4

7. LONG TERM DEBT

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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. SHAREHOLDERS' (DEFICIT) EQUITY

Under the New York Stock Exchange criteria for continued listing, the
Exchange will normally give consideration to de-listing a company's stock when
the average closing price of the stock is less than $1.00 over a consecutive
30-trading day period. The average closing price of Loral common stock has been
less than $1.00 for 30 consecutive trading days, and on August 22, 2002, the
Company received notice from the New York Stock Exchange that its stock price
was below the Exchange's price criteria. If Loral is unable to cure this
deficiency, the Company's common stock could be de-listed from the Exchange.
De-listing of the Company's common stock by the New York Stock Exchange could
result in a material adverse effect on the liquidity of the Company's common
shares, have an adverse effect on the trading value and impair the Company's
ability to raise funds in the capital markets. The Exchange has informed Loral
that the price is the only criteria for listing that the Company does not
currently meet. The Company has notified the Exchange of its intent to cure this
deficiency. In accordance with the Exchange rules, the Company has six months
from receipt of the notice letter from the New York Stock Exchange to cure this
deficiency. In the event the actions the Company takes to cure this deficiency
require shareholder approval, the six-month cure period will be extended until
after the Company's next annual shareholders' meeting. The Company believes
(although there can be no assurance) that it will be able to cure this
deficiency within this time frame.

The Company's 6% Series C convertible redeemable preferred stock ("the
Series C Preferred Stock") and 6% Series D convertible redeemable preferred
stock ("the Series D Preferred Stock") have mandatory redemption dates in 2006
and 2007, respectively. The Company has the ability to make mandatory redemption
payments to the holders in either cash or common stock, or a combination of the
two. Based upon the price of the Company's common stock at September 30, 2002,
the Company did not have available a sufficient number of authorized shares of
its common stock to effect payment of the total mandatory redemptions in common
stock in 2006 and 2007. Accordingly, as of September 30, 2002, the Company
classified an aggregate of $467 million of its Series C Preferred Stock and
Series D Preferred Stock outside the shareholders' equity section of the balance
sheet, based on the average of the volume weighted average daily price of the
Company's common stock as defined (approximately $0.34 per share at September
30, 2002). Had the volume weighted average daily price of the Company's common
stock as calculated been above $1.84 at September 30, 2002, none of the
Company's preferred stock would have been classified outside the shareholders'
equity section of the balance sheet (see discussion regarding the Company's
October 8, 2002 exchange offers set forth below). 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. 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 could, subject to shareholder approval, increase the authorized number
of shares of its common stock, which would enable the Company to effect payment
of the total mandatory redemptions in common stock. The amount, if any, of the
Series C

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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Preferred Stock and Series D Preferred Stock classified outside the
shareholders' equity section will vary in future periods depending on these
factors.

On October 8, 2002, Loral completed exchange offers for its Series C and
Series D preferred stock and converted 4.3 million shares of its Series C
Preferred Stock and 2.7 million shares of its Series D Preferred Stock
(representing approximately 61% of its preferred stock outstanding) for 45.8
million shares of its common stock and $13.4 million in cash. In connection with
the exchange offers, Loral will incur $21.6 million of dividend charges,
comprised of the $13.4 million in cash and non-cash dividend charges of $8.2
million. The non-cash dividend charges relate to the difference between the
value of the common stock issued in the exchanges and the value of the shares
that were issuable under the stated conversion terms of the preferred stock and
will have no impact on Loral's total shareholders' equity as the offset was an
increase in common stock and paid-in capital. As a result of the exchange
offers, Loral retired preferred stock with mandatory redemptions of $350 million
in 2006 and 2007 and will save $21 million in future annual dividend obligations
over the life of the preferred stock retired. After giving effect to the October
8, 2002 exchange offers on a pro forma basis as of September 30, 2002, the
Company's shareholder's equity would have been $219 million after classifying an
aggregate of $133 million of its Series C Preferred Stock and Series D Preferred
Stock outside the shareholders' equity section of the balance sheet, based on
the average of the volume weighted average daily price of the Company's common
stock as defined (approximately $0.34 per share at September 30, 2002). Had the
volume weighted average daily price of the Company's common stock as calculated
been above $0.84 as of September 30, 2002, none of the Company's preferred stock
would have been classified outside the shareholders' equity section of the
balance sheet on a pro forma basis.

In August 2002, Loral's board of directors approved a plan to suspend
indefinitely the future payment of dividends on its two series of preferred
stock. Accordingly, Loral has deferred the payment of quarterly dividends due on
its Series C Preferred Stock on November 1, 2002, and will defer the payment of
quarterly dividends due on its Series D Preferred Stock on November 15, 2002.
Dividends on the two series will continue to accrue. In the event accrued and
unpaid dividends accumulate to an amount equal to six quarterly dividends on the
Series C Preferred Stock, holders of the majority of the outstanding Series C
Preferred Stock will be entitled to elect two additional members to Loral's
board of directors. In the event accrued and unpaid dividends accumulate to an
amount equal to six consecutive quarterly dividends on the Series D Preferred
Stock, holders of the majority of the outstanding Series D Preferred Stock will
be entitled to elect two additional members to Loral's board of directors.

During the second quarter of 2002, in privately negotiated exchange
transactions, Loral converted 1.8 million shares of its Series C Preferred Stock
and 2.7 million shares of its Series D Preferred Stock (representing
approximately 28% of its preferred stock outstanding) into 30.9 million shares
of its common stock. In connection with these transactions, Loral incurred
non-cash dividend charges of $38 million, which primarily relate to the
difference between the value of the common stock issued in the exchanges 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. As a result of these transactions, Loral retired preferred stock with
mandatory redemptions of $224 million in 2006 and 2007 and will save $13 million
in future annual dividend obligations over the life of the preferred stock
retired.

9. COMMITMENTS AND CONTINGENCIES

Loral Skynet has in the past entered into prepaid leases, sales contracts
and other arrangements 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 and other arrangements (19
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

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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transponders which do not meet operating specifications. Substantially 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. In the case of
other arrangements, in the event of transponder failure where replacement
capacity is not available on the satellite, one customer is not entitled to
reimbursement, and the other customer's reimbursement value is based on
contractually prescribed amounts that decline over time.

Thirteen of the satellites built by SS/L and launched since 1997, six of
which are owned and operated by Loral's subsidiaries or affiliates, have
experienced minor losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected satellites have
experienced any degradation in performance, there can be no assurance that one
or more of the affected satellites will not experience additional power loss
that could result in performance degradation, including loss of transponder
capacity. In the event of additional power loss, the extent of the performance
degradation, if any, will depend on numerous factors, including the amount of
the additional power loss, the level of redundancy built into the affected
satellite's design, when in the life of the affected satellite the loss occurred
and the number and type of use being made of transponders then in service. A
complete or partial loss of satellites could result in a loss of orbital
incentive payments and, in the case of satellites owned by Loral subsidiaries
and affiliates, a loss of revenues and profits. With respect to satellites under
construction and construction of new satellites, based on its investigation of
the matter, SS/L has identified and is implementing remedial measures that SS/L
believes will prevent newly launched satellites from experiencing similar
anomalies. SS/L does not expect that implementation of these measures will cause
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. In addition, a Loral Skynet satellite has recently experienced a minor
loss of power from its solar arrays, the cause of which may be similar to the
cause of the PAS 7 anomaly. SS/L believes, however, that these failures are
isolated events and do not reflect a systemic problem in either the satellite
design or manufacturing process. Accordingly, SS/L does not believe that these
anomalies will affect other on-orbit satellites built by SS/L. Also, 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 September 30, 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
December 20, 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
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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 September
30, 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. No assurance can be provided, however, that this
matter will be resolved by the parties, will not result in SS/L's being involved
in protracted litigation, or will not result in substantial liability on the
part of SS/L to the customer.

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 issued a partial decision, which upheld the validity of Loral's
termination effective February 22, 2002 and Alcatel's claims as to certain
breaches. The partial decision was confirmed by the District Court for the
Southern District of New York on June 25, 2002. 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 $350 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, 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 $380 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.

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. Due to the relationship between
launch technology and missile technology, the U.S. government has limited, and
is likely in the future to limit, launches from China and other foreign
countries. Delays in obtaining the necessary licenses and technical assistance
agreements have in the past resulted in, and may in the future result in, the
delay of SS/L's performance on its contracts, which could result in the
cancellation of contracts by its customers, the incurrence of penalties or the
loss of incentive payments under these contracts.

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
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

If ChinaSat were to terminate its contract with SS/L for ChinaSat-8 as a
result of these delays, ChinaSat may seek a refund of $134 million for payments
made to SS/L as well as penalties of up to $11 million. The Company does not
believe that ChinaSat is entitled to such a refund or penalties and would
vigorously contest any such claims by ChinaSat. A portion of the potential claim
relates to amounts that were paid to a launch vehicle provider. To the extent
that SS/L or ChinaSat is able to recover some or all of the $52 million deposit
payment on the Chinese launch vehicle, this recovery would reduce the amount of
any claim. SS/L believes that ChinaSat bears the risk of loss in the event that
the deposit payments are not refunded by the launch vehicle provider. SS/L has
commenced discussions with the launch vehicle provider to recover this deposit.
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. If ChinaSat were to terminate the contract, SS/L
estimates that 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.

On September 20, 2002, Loral, through its Loral Orion subsidiary, entered
into an agreement with APT Satellite Company Limited ("APT") pursuant to which
Loral will purchase a 50% interest in the APSTAR-V satellite, a satellite under
construction by SS/L for APT. Loral's aggregate purchase price for its 50%
interest in the satellite is $115.1 million, representing 50% of the current
estimated project cost of constructing, launching and insuring the APSTAR-V
satellite, which purchase price will be adjusted if the actual project cost is
greater or lesser than $230.2 million. In addition, Loral has agreed to bear the
cost of modifying the footprint of one of the Ku-band beams on the satellite.
Pursuant to Loral's agreement with APT, Loral will pay one-half of the purchase
price prior to launch for 13.5 transponders on the satellite, a portion of which
is expected to be funded by existing launch vehicle deposits. The corresponding
cumulative costs relating to these transponders have been reflected as
satellites under construction on Loral's condensed consolidated balance sheet as
of September 30, 2002. Subject to certain acceleration rights on the part of
Loral, the remainder of the purchase price for the second 13.5 transponders will
be paid by Loral as follows: on the second anniversary of the satellite's
in-service date, $10.66 million for 2.5 additional transponders; on the third
anniversary of the satellite's in-service date, $12.79 million for three
additional transponders; and on each of the fourth and fifth anniversaries of
the satellite's in-service date, $17.05 million for four additional
transponders. Title to the transponders will pass to Loral upon its payments
thereon. This agreement results in a proportionate amount of the APSTAR-V
satellite becoming a self-constructed asset in Loral's condensed consolidated
financial statements. Accordingly, as of September 30, 2002, $29 million of
revenues and $4 million of profits were included in intercompany eliminations to
reflect this amended arrangement with APT. Amounts attributable to the
transponders to be acquired from APT in the future are being treated for
accounting purposes as a repurchase obligation based on the present value of
such

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

obligations and are included in satellites under construction and long-term
liabilities on Loral's condensed consolidated balance sheet as of September 30,
2002.

As of September 30, 2002, SS/L had outstanding vendor financing receivables
totaling $72 million, including accrued interest, due from Sirius Satellite
Radio Inc. ("Sirius"), which is currently in the process of rolling out its
business. On October 17, 2002, Sirius announced that it had reached an agreement
with its major creditors and investors to exchange debt and preferred stock for
common equity. As part of the recapitalization, Sirius will receive $200 million
in cash from third party investors, other than Loral. Under the
recapitalization, almost all $700 million of Sirius's debt and all of its $525
million of preferred stock would be exchanged into its common stock. In
connection with this agreement, SS/L has agreed to exchange its outstanding
vendor financing receivables for common equity of Sirius. Assuming all of SS/L's
vendor financing receivables are exchanged, SS/L will receive 59.4 million
common shares or approximately 6% of Sirius's common stock outstanding after the
exchange. The exchange is subject to various conditions, including, regulatory
and shareholder approval and Sirius expects it to close by the end of the first
quarter of fiscal 2003. In the third quarter of 2002, SS/L recorded a valuation
allowance on the vendor financing receivables due from Sirius of $11 million,
representing the difference between the carrying value of SS/L's interest and
the value of the common shares expected to be received by SS/L based on the
trading price of Sirius's common stock as of September 30, 2002.

SS/L has entered into several long-term launch services agreements with
various launch providers to secure future launches for its customers, including
the Company and its affiliates. Through the assignment of satellites to launch
vehicles, SS/L has utilized $59 million of its launch deposits since December
31, 2001. Nonetheless, SS/L may, as a result of current market conditions,
cancel some of the launchers to which it has committed. SS/L has launch services
agreements with International Launch Services ("ILS") which cover three
launches. On November 13, 2002, SS/L terminated one of those future launches,
which has a termination liability equal to its deposit of $5 million.
Subsequently, on November 13, 2002, SS/L received a letter from ILS alleging
SS/L's breach of the agreements, purporting to terminate all three launches and
asserting a right to retain $42.5 million in deposits, without prejudice to any
other legal claims or remedies. SS/L believes that ILS's claims are without
merit and intends to defend against them vigorously and to seek recovery of its
deposits. To the extent that the Company is unsuccessful in recovering its
deposits, it will recognize a non-cash charge to earnings. Management does not
believe that this matter will have a material adverse effect on the Company's
consolidated financial position and its results of operations, although no
assurances can be provided.

At September 30, 2002, the Company was in compliance with all of the
covenants and conditions under its various lending and funding arrangements
(except for failure to be in compliance with a covenant relating to insurance
under Loral Orion's 10% senior note indenture which has been cured and is
discussed later in this paragraph) and believes that it will continue to meet
these covenants and conditions. Upon acquisition of the Telstar 10/Apstar IIR
satellite by Loral Orion, Loral Orion retained the satellite's existing
insurance policy which provided that a loss of 65% or more of capacity
constituted a total loss. Loral Orion's 10% senior note indenture requires that
its in-orbit insurance provide that a loss of 50% or more of a satellite's
capacity constitute a total loss of that satellite. Loral Orion, upon becoming
aware that the existing insurance policy did not meet the indenture's
requirements, took steps to cure the matter and has obtained insurance meeting
the indenture's requirement that a loss of 50% or more capacity constitutes a
total loss.

In addition, Telstar 10/Apstar IIR, manufactured by SS/L and owned by Loral
Orion, has the same solar array configuration as two other 1300-class satellites
manufactured by SS/L that have experienced solar array failures. SS/L believes
that these failures are isolated events and do not reflect a systemic problem in
either the satellite design or manufacturing process. Accordingly, the Company
does not believe that these anomalies will affect Telstar 10/Apstar IIR. The
insurance coverage for Telstar 10/Apstar IIR, however, provides for coverage of
losses due to solar array failures only in the event of a capacity loss of 75%
or more.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Some of Loral Orion's bondholders have questioned whether this limitation is in
compliance with the Loral Orion indenture insurance covenant. Management
believes that Loral Orion is in compliance with the covenant as properly
interpreted. If, however, Loral Orion's bondholders were to give notice of a
default under the indenture because of such limitations, and a court ruled
against Loral Orion on this matter, the maturity of Loral Orion's 10% senior
notes could be accelerated, and the bondholders could be able to call on the
Company's guarantee of Loral Orion's senior notes.

While the Company has in the past, consistent with industry practice,
typically obtained in-orbit insurance for its satellites, the Company cannot
guarantee that, upon a policy's expiration, the Company will be able to renew
the insurance on acceptable terms, especially on satellites that have, or that
are part of a family of satellites that have, experienced problems in the past.
Four other satellites owned by Loral Skynet and Loral Orion have the same solar
array configuration as Telstar 10/Apstar IIR. There can be no assurance that the
insurers will not require either exclusions of, or similar limitations on,
coverage due to solar array failures in connection with renewals of insurance
for these satellites in 2003 and 2004. An uninsured loss of a satellite would
have a material adverse effect on the Company's consolidated financial position
and its results of operations.

Loral Skynet has an application pending with the FCC for authorization to
use the C-Band frequency at 121 degrees W.L. in the U.S. using a non-U.S. ITU
filing. Telstar 13, which is currently under construction, is scheduled for
launch into this orbital slot in the first quarter of 2003. New Skies
Satellites, which asserts that its non-U.S. ITU filing at 120.8 degrees W.L. has
date priority over Loral Skynet's ITU filing, has filed comments with the FCC
seeking to impose conditions on Loral Skynet's use of the 121 degrees W.L. slot.
Loral Skynet has opposed New Skies' comments. Loral Skynet is continuing its
international coordination of the 121 degrees W.L. slot and is in discussions
with New Skies to resolve the matter. There can be no assurance, however, that
coordination discussions with New Skies and other operators will be successful,
that the FCC will grant Loral Skynet's application, or, if granted, whether
conditions the FCC may impose will constrain Loral Skynet's operations at the
121 degrees W.L. slot.

On October 21, 2002, National Telecom of India Ltd. ("Natelco") filed suit
against Loral and Loral CyberStar in the United States District Court for the
Southern District of New York. The suit relates to a joint venture agreement
entered into in 1998 between Natelco and ONS Mauritius, Ltd., a subsidiary of
Loral CyberStar, the effectiveness of which was subject to express conditions
precedent. In 1999, ONS Mauritius had notified Natelco that Natelco had failed
to satisfy those conditions precedent. In the suit, Natelco has alleged wrongful
termination of the joint venture agreement, has asserted claims for breach of
contract, tortious interference with contract, fraud in the inducement and lost
profits, and is seeking damages and expenses in the amount of $97 million. The
proceeding is in its very early stages and Loral is not yet obligated to respond
formally to the complaint. Loral believes that the claims are without merit and
intends to vigorously defend against them.

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
17

LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 2002, 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 and Messrs. Schwartz and Townsend have
filed a motion to dismiss the complaint in its entirety.

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
bankruptcy petitions under Chapter 11 of Title 11, United States Code in the
United States Bankruptcy Court for the District of Delaware. 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 September
30, 2002, was $3.1 billion.

18

LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 September 30, 2002, $623 million was outstanding under this
facility (including $123 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 September 30, 2002, Loral had no guarantee
obligation.

10. 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 and nine months ended
September 30, 2002 and 2001, diluted loss per share excludes the assumed
conversion of the Company's outstanding Series C Preferred Stock and the Series
D Preferred Stock into shares of common stock, as their effect would have been
antidilutive. Weighted options equating to approximately 2.0 million shares and
0.5 million shares of common stock for the nine months ended September 30, 2002
and September 30, 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.

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

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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. 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.

20

LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

THREE MONTHS ENDED SEPTEMBER 30, 2002

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

(1) Includes 100% of Europe*Star's and Satmex's revenues and EBITDA and 100% of
XTAR's EBITDA since July 2001. Loral Skynet's revenue was $80 million and
$100 million for the three months ended September 30, 2002 and 2001,
respectively, and $263 million and $291 million for the nine months ended
September 30, 2002 and 2001, respectively, and its EBITDA was $52 million
and $71 million for the three months ended September 30, 2002 and 2001,
respectively, and $178 million and $206 million for the nine months ended
September 30, 2002 and 2001, respectively.

(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 CyberStar. Equipment sales for data
services were $1 million and $2 million for the three months ended September
30, 2002 and 2001, respectively, and $5 million and $6 million for the nine
months ended September 30, 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 consolidated
results. Loral's proportionate share of these affiliates is included in
equity in net losses of affiliates in Loral's condensed consolidated
statements of operations.

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LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(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.

NINE MONTHS ENDED SEPTEMBER 30, 2002

22

LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

THREE MONTHS ENDED SEPTEMBER 30, 2001

23

LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 2001

12. 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

24

LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a business. The Company has determined that there was no effect on the Company's
consolidated financial position or results of operations upon the adoption of
SFAS 144 on January 1, 2002.

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"). 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.

SFAS 146

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS 146"). SFAS 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
replaces EITF Issue No. 94-3. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002.

13. 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 Loral Orion's 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") of Loral Orion as
of September 30, 2002 and December 31, 2001 and for the three and nine months
ended September 30, 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, intercompany notes receivable and
payable with its subsidiaries and intercompany payables and receivables between
its subsidiaries resulting primarily from the funding of the construction of
satellites for the fixed satellite services segment. During the third quarter of
2002, Loral Satellite provided $29.5 million to Loral in the form of a note
receivable which bears no interest and is payable upon maturity of the Loral
Satellite Credit Agreement.

25

LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
(IN THOUSANDS)

26

LORAL SPACE & COMMUNICATIONS LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)