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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

Commission file number 1-14180

LORAL SPACE & COMMUNICATIONS LTD.

c/o Loral SpaceCom Corporation

Jurisdiction of incorporation: Bermuda

IRS identification number: 13-3867424

Securities registered pursuant to Section 12(b) of the Act:

      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.

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes x     No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      Yes x     No o

      The aggregate market value of the common shares held by non-affiliates of the registrant, based upon the closing sale price of the common shares on June 30, 2002, as reported on the New York Stock Exchange was approximately $360 million.

      At February 28, 2003, 433,333,702 common shares were outstanding.

Documents Incorporated by Reference

      Portions of the registrant’s 2003 definitive proxy statement (to be filed not later than 120 days after the end of the registrant’s fiscal year) are incorporated by reference into Part III.

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PART I

Overview

      Loral Space & Communications Ltd. together with its subsidiaries (“we”, “us”, “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. In the fourth quarter of 2002, Loral reorganized into two operating businesses in connection with Loral’s integration of the operation and management of its data business (conducted by Loral CyberStar, Inc. and CyberStar, L.P.) into its FSS business, managed and operated by Loral Skynet:

      Fixed Satellite Services (“FSS”): Loral 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 satellite telemetry, tracking and control services (“TT&C”). Loral also provides network services such as managed communications networks, Internet and intranet services, business television and business media services to its customers.

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

      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. These include joint ventures; strategic relationships involving its fixed satellite services operations and satellite manufacturing operations, which could involve business combinations; participation in the Loral Global Alliance; and dispositions of assets.

      Loral was incorporated on January 12, 1996 as a Bermuda exempt company and has its registered and principal executive offices at Cedar House, 41 Cedar Avenue, Hamilton, HM 12, Bermuda.

Fixed Satellite Services

      Following its acquisition of the Loral Skynet business from AT&T in March 1997, Loral has rapidly established itself through internal growth and a series of acquisitions and joint venture transactions as one of the world’s leading providers of fixed satellite services. These satellites, which are known as GEO satellites, fly in geosynchronous earth orbit approximately 22,000 miles above the equator. In this orbit, the satellites remain in a fixed position relative to points on the earth’s surface. GEO satellites provide reliable, high bandwidth services anywhere in their coverage areas and therefore serve as the backbone for many forms of telecommunications. Loral’s fixed satellite service business is managed and operated by Loral Skynet, a division of its Loral SpaceCom Corporation subsidiary.

      In the United States and other developed countries, customers lease transponder capacity primarily for distribution of network and cable television programming, for direct-to-home, or DTH, video transmission and for live video feeds from breaking news and sporting events. In the developing world, a substantial portion of such capacity is dedicated to long-distance telephone service as well as television services. GEO satellites are increasingly used throughout the world for international Internet communications, high-speed data services for businesses through very small aperture terminal, or VSAT, networks, and for distance learning and educational television. In providing fixed satellite services Loral faces competition from other fixed satellite services providers as well as fiber optic cable and other terrestrial delivery systems. In some applications, such as broadcast or point-to-multipoint transmission of video, satellites are usually considerably more efficient. In other applications, fiber may cost less, so that satellites compete on the basis of superior reliability, or as a back-up service.

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      About 200 commercial geosynchronous satellites currently offer fixed satellite services. Loral competes primarily with large fleet operators, including PanAmSat Corporation, SES Global, Intelsat and Eutelsat. Large fleets offer customers global or near-global coverage and in-orbit backup in case of a satellite failure. With seven satellites in orbit, Loral currently operates the fifth largest fleet in the world and currently plans to expand the fleet to 11 satellites. The addition of these new satellites will substantially increase Loral’s capacity within the United States and will further extend its coverage of Canada, portions of Latin America and Asia, subject to obtaining landing rights from regulatory authorities in those regions.

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          Broadcast Neighborhood

      Loral provides satellite capacity to support distribution of U.S. television network programming. The ABC, CBS and Fox television networks are its major customers. All ABC, CBS and Fox stations and network affiliates have their antennae pointed at Loral’s satellites, creating a configuration known as a “neighborhood” that is attractive to other users requiring similar distribution channels.

      Telstar 4 was placed in service in November 1995 and has 24 C-band and 24 Ku-band transponders. Telstar 4 provides coverage over the continental United States, Hawaii, Alaska, Puerto Rico, U.S. Virgin Islands and into Canada.

      Telstar 5, with 24 C-band and 24 Ku-band transponders, was built by SS/ L and was placed into service on July 1, 1997. Telstar 5 provides coverage over the continental United States, Hawaii, Puerto Rico, the Caribbean and into Canada and portions of Latin America.

      Telstar 6, built by SS/ L, was launched in February 1999 and commenced commercial operations in March 1999. Telstar 6 is a broadcast video and data communications satellite with 24 C-band and 24 Ku-band transponders. It provides coverage over the continental United States, Hawaii, Puerto Rico, the Caribbean and into Canada and Latin America.

          Cable Neighborhood

      Telstar 7, built by SS/ L, was launched in September 1999 and commenced commercial operations in November 1999. Telstar 7, located in the cable arc, is a broadcast video and data communications satellite with 24 C-band and 24 Ku-band transponders. It provides coverage over the continental United States, Hawaii, Puerto Rico, the Caribbean, and into Canada and Latin America. Loral’s cable customers include companies like HBO, Disney and Time Warner.

          International

      Loral satellites also provide satellite capacity for video distribution, satellite newsgathering and other satellite services to international broadcasters, news organizations, telecommunications service providers and Internet service providers. Cable & Wireless, Singapore Tel, Fuji TV, Univision, Telecom Italia and China Central TV are some of the international customers that use Loral’s satellites.

      Telstar 11, a high power satellite with 48 Ku-band transponders, commenced operations in January 1995, and provides coverage in North America as far west as Phoenix, Arizona and in Europe as far east as Istanbul, Turkey.

      Telstar 12, a high power satellite with 57 Ku-band transponders, commenced operations in January 2000, expanding Loral’s European coverage and extending coverage to portions of Russia, Latin America, the Middle East and South Africa.

      Telstar 10/ Apstar IIR, a high power satellite with 28 C-Band and 24 Ku-Band transponders, commenced operations in December 1997 and covers portions of Asia, Europe, Africa and Australia, accounting for more than 75% of the world’s population. Loral purchased all of Telstar 10/ Apstar IIR’s transponder capacity (other than a single, reserved C-Band transponder) from APT Satellite Company in September 1999.

          Other Services

      In order to meet customers’ evolving needs and to increase the usage of Loral’s satellites, Loral provides end-to-end network solutions and value-added services through its product offerings, Skynet Network Services and Skynet Professional Services.

      Skynet Network Services provides delivery movement and platforms for bandwidth-on-demand, broadband transport, broadcast transport and digital transport teleport services. In 2002, Loral integrated the operation and management of its data business (conducted by Loral CyberStar, Inc. and CyberStar, L.P.) into its FSS business. As a result of this integration, Skynet Network Services has expanded its service

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      Skynet Professional Services assists customers with the needs of satellite ownership, such as TT&C and with the design, construction and integration of satellite-based networks.

     Fixed Satellite Services Results

(1)

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.

      Total assets for the segment were $1.9 billion and $2.8 billion as of December 31, 2002 and 2001, respectively. As of December 31, 2002 and 2001, funded backlog for the segment was $1.4 billion and $1.5 billion, respectively, including intercompany backlog of $41 million in 2002 and $46 million in 2001. Approximately $267 million of the segment’s December 31, 2002 funded backlog is expected to be realized in 2003, including approximately $4 million of intercompany backlog. Results for Loral’s FSS affiliates are disclosed below.

     Loral Global Alliance

      Through the Loral Global Alliance, Loral seeks to offer its customers an integrated portfolio of satellite capacity that provides “one stop shopping” for local, regional and global GEO satellite services. This Loral Skynet-led alliance, with ten satellites currently in orbit and 15 planned, further enhances the geographic reach, market presence and offerings of its members. The Loral Global Alliance provides for cross-selling arrangements among the alliance members’ respective sales forces and for cooperative marketing and promotional activities. Loral believes that such arrangements enable the members of the alliance to compete more effectively in sales of communications satellite services worldwide. In addition, the alliance offers in-orbit backup capabilities for its members in regions where members’ fleets have overlapping coverage.

      In addition to Loral subsidiaries, the following affiliates of Loral also participate in the alliance:

	•	Satelites Mexicanos, S.A. de C.V. (“Satmex”), a 49% owned affiliate, is the leading satellite communications company providing fixed satellite services in Mexico. Satmex has two satellites in operations and a third satellite, Satmex 6, under construction at SS/ L. Satmex is currently pursuing loans supported by export credit agencies to raise additional financing for its Satmex 6 satellite project. On March 6, the Export Import Bank of the United States (“Eximbank”), pursuant to a meeting of its Board of Directors, referred the Satmex loan guaranty application to the United States Congress.

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		Pending a mandatory 35-day review period, Satmex expects the application to return to the Eximbank board for formal approval. There can be no assurance that Satmex will be able to obtain such approval. These export loans, and certain additional financings, will be needed by Satmex to fund the Satmex 6 project and repay existing secured debt. If Satmex is unable to successfully obtain the export loans and this additional financing, our investment in Satmex of $51 million and receivables of $4 million at December 31, 2002 may be adversely affected.
	•	Europe*Star Limited (“Europe*Star”), a joint venture between Loral and Alcatel, commenced commercial service in January 2001 with its Europe*Star 1 satellite. Loral currently owns 47% of Europe*Star, and pursuant to the terms of the shareholders agreement, has permitted its joint venture partner 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. In the fourth quarter of 2002, the Company’s investment in Europe*Star was reduced to zero, as the Company recorded valuation allowances of $38 million on the vendor financing and the receivables advanced and recorded an impairment charge relating to its investment in Europe*Star of $7 million. As a result, any future losses attributable to Europe*Star will not be recognized by Loral.

     Other Affiliate

      Loral also owns a 56% interest in XTAR, L.L.C. (“XTAR”), a 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. XTAR plans to construct and launch an X-band satellite to provide X-band services to government users in the United States and Spain, as well as other allied nations. Loral accounts for its investment in XTAR under the equity method since Loral does not control certain significant operating decisions at XTAR. As of December 31, 2002, the partners in proportion to their respective ownership interests have contributed $55 million to XTAR. XTAR is seeking to raise the remaining amount of the funds it needs to construct and launch its satellite through vendor and other third-party financings. If XTAR is unable to raise the remaining funds it needs to construct, launch and operate its satellite, it would adversely affect the Company’s investment in XTAR. Loral has no further obligations with respect to XTAR.

     FSS Affiliate Results

      Total affiliate revenues for Satmex, Europe*Star and XTAR were $101 million, $142 million and $136 million in 2002, 2001 and 2000, respectively. EBITDA on the same basis was $43 million, $70 million and $77 million, respectively.

Satellite Manufacturing and Technology — SS/L

      Loral, through SS/ L, is a worldwide leader in the design, manufacture and integration of satellites and space systems. SS/ L draws on its 40-year history, during which satellites manufactured by SS/ L have achieved 1000 years, an entire millennium, of cumulative on-orbit experience marking a new milestone in experience and reliability. SS/ L also provides Loral with visibility into emerging and new satellite-based technologies and applications. SS/ L manufactures satellites that provide telecommunications, weather forecasting and broadcast services. SS/ L is the second largest supplier of commercial satellites worldwide, and is the leading supplier of satellites to Intelsat, currently one of the world’s largest operators of commercial communications satellites. SS/ L is also the leading supplier of: high-powered direct-to-home (“DTH”) broadcast satellites to EchoStar and DirecTV, commercial weather satellites, digital audio radio satellites (“DARS”) to Sirius Satellite Radio, and innovative spot-beam satellites for data networking applications. Other significant customers include Loral Skynet, PanAmSat, Optus, Singapore Tel and APT Satellite.

      As one of the premier providers of satellites and other space systems, SS/ L competes principally on the basis of technical excellence, a long record of reliable performance, and competitive pricing with several of the world’s largest satellite manufacturers, such as The Boeing Company, Lockheed Martin, Alcatel Space and Astrium. SS/ L’s continued success depends on its ability to perform on a cost-effective and timely basis.

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      SS/L has a history of technical innovation that includes the first three-axis stabilized satellites, bipropellant propulsion systems for commercial satellites that permit significant increases in the satellites’ payload and extend the satellites’ on-orbit lifetime, rechargeable nickel-hydrogen batteries with a life span of 10 years or more, the use of advanced composites to significantly enhance satellite performance at lighter weights and the first communications satellite with more than ten kilowatts of power. SS/L was also the first satellite manufacturer to employ heat pipes to control heat transfer in commercial satellites, thereby providing a more benign temperature environment and increased reliability. SS/L also created the first multi-mission geostationary satellite and was one of the first U.S. companies to acquire space technology from Russia’s space industry, obtaining exclusive rights outside the former Eastern bloc to an electric propulsion subsystem that is five times more efficient than bipropellant propulsion systems.

      SS/L offers a line of three products that provide customers with a great span of power and capability: the space-proven 1300, the advanced 1300E, and the 20.20, one of the most powerful commercial spacecraft offered today. The power offered on SS/L-designed satellites reaches from five kilowatts to in excess of 20 kilowatts, and the number of transponders from as few as one to as many as 150.

     Satellite Manufacturing and Technology Results

      Segment EBITDA was a loss of $19 million in 2002 primarily due to valuation allowances recorded on SS/L-provided vendor financings of $69 million (in connection with advances related to Europe*Star and an agreement reached with a customer, Sirius Satellite Radio, to convert vendor financing receivables into Sirius’ equity). Segment EBITDA earnings were $24 million in 2001 after a charge of $12 million for obligations to the U.S. government to settle a case relating to export controls and $36 million in 2000 after charges of $77 million relating to increased costs for manufacturing delays and customer contract issues. Total assets for the segment were $690 million and $1.2 billion as of December 31, 2002 and 2001, respectively. As of December 31, 2002 and 2001, funded backlog for the segment was $763 million and $1.6 billion, respectively, including intercompany backlog of $275 million in 2002 and $265 million in 2001. Approximately $626 million of the 2002 funded backlog is expected to be realized in 2003, including approximately $142 million of intercompany backlog. Revenues recorded under contracts with Globalstar were $5 million, $18 million and $134 million in 2002, 2001 and 2000, respectively. In addition, sales to two customers represented 12% and 10% of the Company’s consolidated revenues in 2002, sales to one customer represented 14% of the Company’s consolidated revenues in 2001 and sales to two other customers represented 13% and 12% of the Company’s consolidated revenues in 2000. For 2002, 2001 and 2000, the segment expended $16 million, $31 million and $26 million for research and development projects, respectively.

Investment in Globalstar

      Globalstar, L.P. (“Globalstar”) owns and operates a satellite constellation that forms the backbone of a global telecommunications network designed to serve virtually every populated area of the world. 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 of December 31,

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      On February 25, 2003, Globalstar entered into, and on March 6, 2003, the Court approved, a debtor-in-possession credit agreement (the “DIP Agreement”) with Blue River Capital LLC, Columbia Ventures Corporation, ICO Investment Corp., Iridium Investors, LLC and Loeb Partners Corp. Pursuant to the DIP Agreement, these five lenders, of whom three are members of Globalstar’s official unsecured creditors’ committee, will make up to $10 million available to Globalstar on the terms and subject to the conditions set forth in the DIP Agreement. The Court also granted Globalstar’s motion to establish, and Globalstar has commenced, a process to find potential outside investors to help the company emerge from bankruptcy. There can be no assurance that Globalstar will be successful in finding such additional investors, that Globalstar and its creditors will be able to reach an agreement with any interested investors, that any proposed plan of reorganization for Globalstar will be approved by the Court or that Globalstar will be successfully reorganized.

      On March 14, 2003, Loral signed a term sheet with Globalstar and Globalstar’s official creditors committee to resolve certain issues related to Globalstar and Globalstar’s restructuring. Among other things, the settlement incorporated in the term sheet, which is subject to definitive documentation and approval by the Court (as to which there can be no assurance), Globalstar would grant to Loral, subject to certain conditions, a general release of all claims Globalstar might have against Loral; the parties would seek to provide Loral with one seat on the board of directors of reorganized Globalstar; approximately 50% of Loral’s unsecured claims against Globalstar would be allowed, or approximately $438 million; and the debt owed to Globalstar by three foreign service providers in which Loral has a substantial equity interest (Globalstar do Brasil, Globalstar de Mexico and GlobalTel), of an aggregate of $7.2 million would be eliminated. In consideration, Loral would transfer to Globalstar eight spare satellites ordered by Globalstar but not fully paid for; certain agreements that provided a joint venture in which Loral is a participant with exclusivity in marketing certain Globalstar services in the U.S. would be terminated, with a new joint venture being formed among Globalstar and Loral to exclusively market Globalstar services to certain governmental agencies in the U.S.; the FCC license authorizing the Globalstar service, which in any event was being held by a joint venture in which Loral is a participant for the exclusive benefit of Globalstar, would be transferred to Globalstar; Loral’s equity interest in the Globalstar Canadian service provider would be transferred to Globalstar; a $10 million obligation of the Canadian service provider owed to Loral at December 31, 2002 would be reduced by $7.2 million and the remaining debt obligation would be converted from a demand note into a five-year term note; Loral’s unsecured claims against Globalstar would be reduced by approximately 50% or approximately $438 million; the unused prepayment ($2,260,000) on a Globalstar contract under which there is a stop work order would be returned to Globalstar by Loral; a $250,000 termination fee that may come due under that contract would be waived; Loral would cooperate toward a reorganization of Globalstar; and the Loral employees on Globalstar’s management committee would resign. Loral does not expect any material impact on its results of operations or financial position as a result of this settlement.

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REGULATION

Telecommunications Regulation

      As an operator of a privately owned global satellite system, Loral is subject to: (i) the regulatory authority of the U.S. government; (ii) the regulatory authority of other countries in which Loral operates; and (iii) the frequency coordination process of the International Telecommunications Union (“ITU”). Loral’s ability to provide satellite service in a particular country or region is subject to the technical constraints of its satellites, international coordination, local regulatory approval and any limitation as to the scope of the approval so obtained.

      The ownership and operation of Loral’s satellite systems in the U.S. is regulated by the Federal Communications Commission (the “FCC”). Loral is subject to the FCC’s jurisdiction primarily for: (i) the licensing of satellites and earth stations; (ii) avoidance of interference with other radio stations; and (iii) compliance with FCC rules governing U.S.-licensed satellite systems. Violations of the FCC’s rules can result in various sanctions including fines, loss of authorizations, or the denial of new authorizations or renewal authorizations. Loral is not regulated as a common carrier and, therefore, is not subject to rate regulation or the obligation not to discriminate among customers. Loral must pay FCC filing fees in connection with its space station and earth station applications; must pay annual regulatory fees that are intended to defray the FCC’s regulatory expenses; must file annual status reports with the FCC; and, to the extent Loral is deemed to be providing interstate/ international telecommunications, must contribute to funds used to support universal service.

      The FCC grants satellite authorizations to satellite operators that meet its legal, technical and financial qualification requirements. The FCC often receives applications from multiple operators to operate a satellite at a given orbital slot. There can be no assurance that in the process of resolving such mutually exclusive applications, Loral’s application will be granted. Under the FCC’s financial qualification rules, an applicant must demonstrate that it has sufficient funds to construct, launch, and operate each requested satellite for one year. Most satellite authorizations also include specific construction and launch milestones which must be met. Failure to meet such FCC milestones may result in license revocations. Licenses are usually issued for an initial ten-year term and FCC policy provides licensees with an “expectancy” with respect to the replacement of their authorized satellites. At the end of a ten-year license term, a satellite that has not been replaced, or that has been relocated to another orbital location following its replacement, may be allowed to continue operations for a limited period of time pursuant to a grant of special temporary authority from the FCC. Such operations, however, are subject to certain restrictions.

      Loral has final FCC authorization for the following existing or planned satellites which operate or will operate in the C-band, the Ku-band, or both bands: Telstar 4 at 89(degrees) W.L., Telstar 5 at 97(degrees) W.L., Telstar 6 at 93(degrees) W.L., Telstar 7 at 129(degrees) W.L., Telstar 8 at 77(degrees) W.L., Telstar 9 at 69(degrees) W.L., Telstar 11 at 37.5(degrees) W.L., Telstar 12 at 15(degrees) W.L. and Orion A at 47(degrees) W.L. Certain of these authorizations are subject to pending petitions for reconsideration submitted to the FCC by third parties. The final FCC authorizations for certain of the satellites that are not yet in-orbit also do not cover certain design changes or milestone extension requests that are the subject of pending modification applications. Certain of these modification applications have been opposed by other satellite operators. There can be no assurance that such design changes or milestone extensions will be granted by the FCC. The failure to obtain a milestone extension could result in the loss of the related FCC authorization. If Loral is unable to obtain FCC approval to implement its requested technical modifications for any particular authorization, it will be obligated to operate the related satellite in accordance with the original authorization.

      Loral also has applications pending before the FCC at 58(degrees) W.L., 95(degrees) W.L., 115(degrees) W.L. and 135(degrees) W.L. for use of the V-band frequency and at 126(degrees) E.L. for use of the Ku/extended Ku/ C and extended C-band frequencies. Loral also has an application pending for authorization to use C-band at 121(degrees) W.L. in the U.S. (Telstar 13) using a non-U.S. ITU filing. There can be no assurance that the FCC will grant this or any of the other pending Loral applications.

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      In addition, Loral has final authorization to operate at the following orbital slots: Ka-band at 15(degrees) W.L., 67(degrees) W.L., 81(degrees) W.L., 89(degrees) W.L., 93(degrees) W.L., 115(degrees) W.L., 139(degrees) E.L., 126.5(degrees) E.L. and 78(degrees) E.L. and hybrid Ka/Ku-band at 47(degrees) W.L. Loral has requests for technical modifications and requests for milestone extensions pending before the FCC. There can be no assurance that the FCC will grant such modifications or milestone extensions.

      Under the FCC’s rules, an applicant may commence satellite construction prior to receiving an authorization to launch and operate, although it must notify the FCC that it intends to commence construction. Any construction engaged in is at the applicant’s own risk. While Loral therefore may proceed with the construction of planned satellites without prior FCC approval, it must accept the risk that the FCC may not grant the application, may not assign the satellite to its proposed orbital location, or otherwise may act in a manner that limits or eliminates some or all of the value of the construction previously done on the satellite.

      In 1996, the FCC largely eliminated the regulatory distinction between U.S. domestic satellites and U.S.-licensed international satellites. As a result, each of Loral’s FCC-licensed satellites may be used, to the extent technically feasible, to provide both U.S. domestic and international services.

      The FCC requires applicants to demonstrate that their proposed satellites would be compatible with the operations of adjacent satellites. The FCC requires adjacent satellite operators to coordinate with one another to minimize frequency conflicts. The FCC reserves the right to require that an FCC-licensed satellite be relocated to a different orbital location if it determines that such a change is in the public interest. The FCC might exercise this authority in instances where operators are unable to coordinate with each other.

      Foreign laws and regulatory practices governing the provision of satellite services to licensed entities and directly to end users vary substantially from country to country. Some countries may require Loral to confirm that it has successfully completed technical consultation with other satellite service providers before providing services on a given satellite. In addition, Loral may be subject to communications and/or broadcasting laws with respect to its provision of international satellite services, which vary from country to country.

      Foreign laws and regulatory practices may be applied or changed in ways that may adversely affect Loral’s ability to operate or provide service. There are no guarantees that other countries will grant Loral’s applications to construct, launch, operate or provide service via satellites, or extend construction or launch milestones, or that Loral will be permitted to retain or renew its authorizations. As in the U.S., violations of other countries’ laws and rules may result in sanctions, fines, loss of authorizations or denial of applications for new or renewal authorizations. Application and other administrative fees may be required in other countries. License terms for non-U.S. authorizations held by Loral vary but generally authorize operation for at least the life of the satellite and include rights to operate a replacement satellite. Loral’s failure to operate or maintain operation of a satellite pursuant to a non-U.S. authorization may result in revocation.

      Many countries have liberalized their regulations to permit entities to seek licenses to provide voice, data or video services. This trend should accelerate with the commitments by many World Trade Organization (“WTO”) members, in the context of the WTO Agreement on Basic Telecommunications Services, to open their satellite markets to competition. Other countries, however, have maintained strict monopoly regimes. In such markets, the provision of service from Loral and other U.S.-licensed satellites may be more complicated.

      In addition to the orbital slots licensed by the FCC, Loral has been assigned orbital slots by certain other countries. For example, Loral has been authorized to use numerous Ku- and Ka-band orbital slots by the Papua New Guinea government. In March 1999, the Brazilian telecommunications authority announced that Loral had won Brazil’s auction for its 63(degrees) W.L. Ku-band orbital slot. Loral operates capacity on the Telstar

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      All satellite systems are subject to ITU frequency coordination requirements and must obtain appropriate authority to provide service in a given territory. The result of the required international coordination process may limit the extent to which all or some portion of a particular authorized orbital slot may be used for commercial operations, with a corresponding impact on the useable capacity of a satellite at that location. In addition, the result of the process by which satellite systems must seek authorization to provide service in a given territory may limit the extent to which such service may be provided from a given orbital location.

      All of the registrations for Loral’s satellites are or will be subject to the ITU coordination process. Only national governments file required coordination documents at the ITU. These documents are used by Loral and other satellite operators as a basis for coordination of satellite systems. There may be more than one ITU filing submitted for any particular orbital slot, or an orbital slot adjacent thereto, thus requiring coordination between or among the affected operators. The results of this coordination process may impose technical constraints on Loral’s ability to operate its satellites at a given orbital location, if at all. Loral cannot guarantee successful frequency coordination for its satellites.

     Additional ITU Filings

      In addition to the ITU filings associated with Loral’s satellite authorizations and applications noted above, Loral has ITU filings on its behalf at 98(degrees) E.L., 122(degrees) E.L., 130(degrees) E.L., 167.45(degrees) E.L., 175(degrees) W.L., 121(degrees) W.L. and 115(degrees) W.L. for use of the C- and Ku-band frequencies. Loral also has ITU filings at 9.9(degrees) E.L., 16.1(degrees) E.L., 22.3(degrees) E.L., 115.5(degrees) E.L., 161(degrees) E.L., and 97(degrees) W.L. for the use of C-, Ku-, and Ka-band frequencies and at 37.5(degrees) W.L. for the use of C-and Ka-band frequencies. Loral has a filing at 96.5(degrees) W.L. for Broadcast Satellite Service. Loral also has ITU filings at 1(degrees) E.L., 3.5(degrees) E.L., 8(degrees) E.L., 10(degrees) E.L., 11(degrees) E.L., 30(degrees) E.L., 81(degrees) E.L., 105.5(degrees) E.L., 135(degrees) E.L., 135(degrees) W.L., 115(degrees) W.L., 95(degrees) W.L., 58(degrees) W.L. for use of the V-band frequency.

Export Regulation

      Commercial communication satellites, and certain related items, technical data and services, are subject to United States export control laws and regulations. These export control laws and regulations affect the export of products and services to foreign launch providers, insurers, customers, potential customers and business partners, as well as to foreign Loral employees, foreign regulatory bodies, foreign national telecommunications authorities and to foreign persons generally. Commercial communications satellites and certain related items, technical data and services are on the United States Munitions List and export jurisdiction over these products and services resides with the U.S. Department of State and are subject to the Arms Export Control Act and the International Traffic in Arms Regulations. Other items, technical data and services exported by Loral remain subject to the export jurisdiction of the U.S. Department of Commerce, pursuant to the Export Administration Act and the Export Administration Regulations.

      U.S. Government licenses or other approvals generally must be obtained before exports of satellites and related items, technical data and services are made and may be required before such satellites, items, data and services are re-exported or transferred from one foreign person to another foreign person. There can be no assurance that such licenses or approvals will be granted. Also, licenses or approvals may be granted with limitations, provisos or other requirements imposed by the U.S. Government as a condition of approval, which may affect the scope of permissible activity under the license or approval.

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PATENTS AND PROPRIETARY RIGHTS

      SS/L relies, in part, on patents, trade secrets and know-how to develop and maintain its competitive position. It holds 254 patents in the United States and 367 patents abroad and has applications for 78 patents pending in the United States and 210 patents pending abroad. SS/L patents include those relating to communications, station keeping, power control systems, antennae, filters and oscillators, phased arrays and thermal control as well as assembly and inspections technology. The SS/L patents that are currently in force expire between 2003 and 2021.

      Loral CyberStar, CyberStar LP and Loral SpaceCom Corporation have four, seven and one patents in the United States, respectively. Loral SpaceCom Corporation holds one patent abroad. In addition, Loral CyberStar, CyberStar LP and Loral SpaceCom Corporation have two, one and six patents pending in the United States, respectively, and one, zero and 10 patents pending abroad, respectively. The Loral CyberStar, CyberStar LP and Loral SpaceCom patents that are currently in force expire between 2016 and 2020.

      There can be no assurance that any of the pending patent applications by the Company will be issued. Moreover, because the U.S. patent application process is confidential, there can be no assurance that third parties, including competitors, do not have patents pending that could result in issued patents which the Company would infringe. In such an event, the Company could be required to pay royalties to obtain a license, which could increase costs.

FOREIGN OPERATIONS

      Sales to foreign customers, primarily in Asia, Europe and Mexico, represented 46%, 35%, 23% of the Company’s consolidated revenues for 2002, 2001 and 2000, respectively. As of December 31, 2002 and 2001, the Company had substantially all of its long-lived assets located in the United States with the exception of the in-orbit satellites. See “Certain Factors that May Affect Future Results — We face risks in conducting business internationally” for a discussion of the risks related to operating internationally.

EMPLOYEES

      As of December 31, 2002, the Company had approximately 2,800 full-time employees, approximately 3% of whom are subject to collective bargaining agreements. We consider our employee relations to be good.

AVAILABLE INFORMATION

      Loral makes available free of charge through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such reports are filed electronically with the SEC. Loral’s Internet address is www.loral.com. Loral.com is an inactive textual reference only, meaning that the information contained on the website is not part of this report and is not incorporated in this report by reference.

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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

      This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. They can be identified by the use of forward-looking words such as “believes”, “expects”, “plans”, “may”, “will”, “would”, “could”, “should”, “anticipates”, “estimates”, “project”, “intend”, or “outlook” or their negatives or other variations of these words or other comparable words, or by discussions of strategy that involve risks and uncertainties. Such forward-looking statements may be included in, but are not limited to, various filings made by us with the Securities and Exchange Commission, press releases or oral statements made by or with the approval of an authorized executive officer. We warn you that forward-looking statements are only predictions. Actual events or results may differ materially as a result of risks that we face, including those presented below. We undertake no obligation to update any forward-looking statements. The following are representative of factors that could affect the outcome of the forward-looking statements.

Financial Structure

We have substantial debt and guaranty obligations.

      We and our subsidiaries and operating affiliates have a significant amount of outstanding debt and guaranty obligations. As of December 31, 2002, the total amount of our outstanding consolidated total debt was approximately $2.2 billion.

      The indentures and credit agreements relating to this indebtedness impose restrictions on our and our subsidiaries’ and affiliates’ ability to take various actions, which may limit our and their ability to plan for, or react to, changes in their business and market conditions. These limitations include restrictions on the ability to pay dividends, or to make loans, capital expenditures or investments. As part of the bank amendments that were entered into in March 2003, additional restrictions were imposed on us and our subsidiaries. For example, Loral Skynet requires the consent of its lenders in order to make further expenditures for the launch and insurance of Telstar 8. These amendments also provide that if Loral SpaceCom is not successful in effecting certain asset sales by June 30, 2003, Loral SpaceCom may not, subject to certain limited exceptions, incur further capital expenditures. Our ability to make investments in or otherwise make payment to any of our subsidiaries has been limited to a maximum amount of $5 million as a result of these amendments, which may hamper our ability to take various actions. Moreover, substantially all of the assets of Loral SpaceCom and Loral Satellite, our principal operating subsidiaries, have been pledged in favor of the bank lenders, which further reduces our flexibility to take certain actions.

      We intend to use our cash and available credit of $132 million at December 31, 2002 (including $66 million of available credit) to help fund the growth and operation of our businesses. During the first quarter of 2003, we drew down all of the $66 million of available credit at December 31, 2002. If any of our subsidiaries or affiliates finds itself faced with default, we may be faced with a choice between providing additional support to that company or accepting the loss of some or all of its investment. In certain cases we have also guaranteed the debt of our subsidiaries. For example, the $613 million principal amount of Loral Orion’s 10% Senior Notes due 2006 and issued in December 2001 in connection with its exchange offer, are guaranteed by us. None of Globalstar, L.P.’s debt is guaranteed by us and we do not intend to provide any further funding to Globalstar.

      Satmex, our 49%-owned Mexican affiliate, had total debt of $524 million as of December 31, 2002. In addition, Servicios Corporativos Satelitales, S.A. de C.V. (“Servicios”), the parent company of Satmex, in which we have a 65% economic interest, has an obligation to the government of Mexico with an initial face amount of $125 million which accretes at 6.03% over a seven-year period, expiring in December 2004. The debt of Satmex and Servicios is non-recourse to us and Principia, S.A. de C.V., our Mexican partner in Satmex; however, we and Principia have agreed to maintain assets in a collateral trust in an amount equal to 1.2 times the value of this government obligation until maturity. As of December 31, 2002, we and Principia have pledged our respective shares in the parent company of Servicios in this trust.

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      Satmex is currently pursuing loans supported by export credit agencies to raise additional financing for its Satmex 6 satellite project. On March 6, 2003, Eximbank, pursuant to a meeting of its Board of Directors, referred the Satmex loan guaranty application to the United States Congress. Pending a mandatory 35-day review period, Satmex expects the application to return to the Eximbank board for formal approval. There can be no assurance that Satmex will be able to obtain such approval. These export loans, and certain additional financings, will be needed by Satmex to fund the Satmex 6 project and repay existing secured debt. If Satmex is unable to successfully obtain the export loans and this additional financing, our investment in Satmex of $51 million and receivables of $4 million at December 31, 2002 may be adversely affected.

      We have the right to make the mandatory redemption payments due on our preferred stock in cash, common stock, or a combination of the two. However, to the extent that we have insufficient authorized common stock on the mandatory redemption dates in 2006 and 2007 to effect payment in full of the related preferred stock in common stock, we will have to cover any such shortfall with cash. The exact number of shares of our 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 our common stock and the number of shares of our preferred stock outstanding at that time. Based upon the price of our common stock at December 31, 2002, we did not have available a sufficient number of authorized shares of common stock to effect payment of the total mandatory redemptions in common stock in 2006 and 2007. We could, however, subject to shareholder approval, increase the authorized number of shares of our common stock, which would enable us to effect payment of the total mandatory redemptions in common stock.

If our business plan does not succeed, our operations might not generate enough cash to pay our obligations and fund our operations.

      Our business plan assumes the receipt of approximately $60 million from the successful monetization of certain customer long-term receivables in 2003. While we have reached an agreement in principle with a third party to effect such monetization, there is no assurance that this transaction will be consummated. If we are unable to consummate this transaction on a timely basis, or the proceeds from such transaction are less than those assumed in the business plan, our ability to fund our operations would be adversely affected. A substantial reduction in our fixed satellite services revenues or the inability of SS/L to replace existing backlog with new contracts would also adversely impact our ability to achieve our business plan. In addition, our ability to fund the 2004 interest payments on our 9.5% senior notes will depend on our ability to successfully execute our business plan, which includes further asset sales. There is no assurance that we will be able to do so. If we fail to pay interest on the 9.5% senior notes when due, this will, upon expiration of a 30-day cure period, constitute an event of default under our senior note indenture, which in turn would result in an event of default under our bank agreements. If the holders of the 9.5% senior notes, the lenders under the Loral SpaceCom credit facility or the lenders under the Loral Satellite credit facility were to accelerate their related debt following such event of default, an event of default would also occur with respect to Loral Orion’s 10% senior notes, which are guaranteed by us.

      In addition to our debt service requirements, our businesses are capital intensive and need substantial investment before returns can be realized. For example, as of December 31, 2002, we have already incurred $283 million and will need to incur approximately $108 million more in order to construct, launch and insure three new satellites, excluding Telstar 8, currently under construction for our fixed satellite services business. We are subject to substantial financial risks from possible delays or reductions in revenue, unforeseen capital needs or unforeseen expenses. If this were to occur, our ability to meet our obligations and execute our business plan could depend upon our ability, and that of our operating subsidiaries and affiliates, to raise cash in the capital markets or to effect a restructuring of the terms of our debt arrangements. We are uncertain whether these alternatives will be available in the future on favorable terms if at all.

We will likely require and intend to seek further amendments to our credit facilities in the future.

      On March 31, 2003, we entered into amendments to our bank facilities to, among other things, adjust our financial performance covenants. We are likely to require and intend to seek further amendments to the Loral SpaceCom and Loral Satellite facilities to ensure compliance with financial performance covenants for periods

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The ability of our subsidiaries to pay dividends to us or otherwise support our obligations is limited by the terms of their debt instruments.

      Loral SpaceCom’s credit facility allows dividend payments to us if cumulative dividend payments do not exceed 50% of its cumulative consolidated net income and the ratio of its funded debt to EBITDA is less than 3.0 to 1.0. For the year ended December 31, 2002, Loral SpaceCom had no capacity under this covenant to pay us any dividends.

      Loral Satellite, Inc., a subsidiary of Loral Space & Communications Corporation, is a party to a credit agreement that also imposes restrictions on its ability to pay dividends to its parent. Loral Satellite may make dividends or loans to its parent or us only if such dividends or loans are applied either to effect payments on our 9.5% senior notes or to effect a maximum of $5 million of payments on an intercompany note between us and Loral SpaceCom Corporation.

      Under the terms of the indenture for Loral Orion’s 10% Senior Notes due 2006, Loral Orion is prevented from paying dividends to us and is unlikely to pay any dividends in the foreseeable future.

We have suspended the payment of dividends on our preferred stock.

      In August 2002, our board of directors approved a plan to suspend indefinitely the future payment of dividends on our two series of preferred stock. Accordingly, we deferred the payment of quarterly dividends due on our Series C Preferred Stock on November 1, 2002, and the payment of quarterly dividends due on our 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 our 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 will be entitled to elect two additional members to our board of directors. As of December 31, 2002, accrued and unpaid dividends of $3 million represented one quarterly dividend payment outstanding.

Operational Risks

Launch failures have delayed some of our operations in the past and may do so again in the future.

      We depend on third parties, in the United States and abroad, to launch our satellites. Satellite launches are risky, and some launch attempts have ended in failure. We ordinarily insure against launch failures, but at considerable cost. The cost and the availability of insurance vary depending on market conditions and the launch vehicle used. Our insurance typically does not cover business interruption, and launch failures may therefore result in uninsured economic losses. Replacement of a lost satellite typically requires at least 24 months from the time a contract is executed until the launch date of the replacement satellite.

After launch, our satellites remain vulnerable to in-orbit failures, which may result in uninsured losses.

      Failure of satellite components in space may result in damage to or loss of a satellite before the end of its expected life. In-orbit failure may result from various causes, some random, including component failure, loss of power or fuel, inability to maintain positioning of the satellite, solar and other astronomical events, and space debris. Satellites are carefully built and tested and have some redundant components to permit the continued operation of a satellite in case of a component failure. Due to the failure of primary components,

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      Although some failures may be covered in part by insurance, they may result in uninsured losses as well. For example, when Loral Skynet experienced the total loss of two satellites in 1994 and 1997 while under AT&T’s ownership, it suffered a substantial drop in its profits due to the loss of revenues. Moreover, we are required under the terms of our bank facilities to use the insurance proceeds from any launch or in-orbit failure of a satellite owned by Loral SpaceCom or Loral Satellite to prepay the bank loans, and as a result, these insurance proceeds would not be available to us to build a replacement for the lost satellite, which would result in an adverse effect on our future revenue.

      A loss of transponders on a satellite may have an adverse effect on us. 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 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 (six transponders). Depending on the contract, Loral Skynet may be required under its prepaid leases and sales contracts to replace 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.

Some of the satellites built by SS/L, including six satellites operated by subsidiaries or affiliates of Loral, have experienced operational problems with their solar arrays.

      Thirteen of the satellites built by SS/L and launched since 1997, six of which are owned and operated by our subsidiaries or affiliates, have experienced minor losses of power from their solar arrays. Although to date, neither we 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. It is also possible that one or more transponders on a satellite may need to be removed from service to accommodate the power loss and to preserve full performance capabilities of the remaining transponders. A complete or partial loss of satellites could result in a loss of orbital incentive payments and, in the case of satellites owned by our 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, we believe that this matter will not have a material adverse effect on our consolidated financial position or results of operations.

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It may be difficult to obtain full insurance coverage for satellites that have experienced problems in the past.

      While we have in the past, consistent with industry practice and the requirements in our debt agreements, typically obtained in-orbit insurance for our satellites, we cannot guarantee that, upon a policy’s expiration, we will be able to renew the insurance on terms acceptable to us, especially on satellites that have, or that are part of a family of satellites that have, experienced problems in the past. 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, we do not believe that these anomalies will affect Telstar 10/Apstar IIR. The insurance coverage for Telstar 10/Apstar IIR provides for coverage of losses due to solar array failures only in the event of a capacity loss of 75% or more. 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 our consolidated financial position and our results of operations.

      Some of Loral Orion’s bondholders have questioned whether this limitation is in compliance with the insurance covenant in the Loral Orion indenture. We believe 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 our guarantee of Loral Orion’s senior notes.

We are faced with increased costs due to the recent trend in the insurance industry towards higher insurance premiums and shorter terms.

      We, like others in the satellite industry, are faced with significantly higher premiums on launch and in-orbit insurance, increasing thresholds in determining total losses for satellites in orbit 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 has increased our cost of doing business. We intend to pass on some of the increased cost to our customers. There can be no assurance, however, that we will be able to do so. Insurance market conditions have historically been cyclical in nature. While we anticipate that these conditions will improve in the future, there can be no assurance that they will.

Our satellite services businesses compete for market share and customers; technological developments from competitors or others may reduce demand for our services.

      We face heavy competition in fixed satellite services from companies such as PanAmSat Corporation, SES Global and newly privatized organizations such as Intelsat and Eutelsat. Competition in this market may lower prices or result in reduced satellite fleet utilization, which may have an adverse effect on our consolidated financial position and our results of operations. We also face competition from fiber optic cable and other terrestrial delivery systems, which have a cost advantage in point-to-point applications. In addition, there is currently heightened competition among fixed satellite services providers as a result of an excess supply of transponders in the market, declining utilization by existing customers and lack of new customers entering the market. Moreover, we have recently experienced a higher rate of customer defaults than in previous years which trend, if it continues, will further increase the overcapacity in the market.

      Network services faces competition not only from other satellite-based providers, but also from providers of land-based data communications services, such as cable operators, digital subscriber line, or DSL, providers, wireless local loop providers and traditional telephone service providers. Network services will face continued price pressures from fiber companies competing for its Internet services.

      As land-based telecommunications services expand, demand for some satellite-based services may be reduced. New technology could render satellite-based services less competitive by satisfying consumer

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A continued downturn in the satellite manufacturing market would materially and adversely affect us.

      The market for the satellite manufacturing business has been extremely weak. In 2002, only one new order was subject to a competitive bidding process of the seven satellite orders booked in the industry. This compares to approximately 25 to 30 awards across the industry in both 2001 and 2000. SS/L has not won an order for a new satellite since December 2001. As of December 31, 2002, SS/L’s funded backlog before intercompany eliminations was $763 million. If SS/L is not successful in obtaining a new satellite award in the near future, SS/L’s and our financial condition and results of operations would be materially and adversely affected.

SS/L’s contracts are subject to adjustments, cost overruns and termination.

      SS/L’s accounting for long-term contracts requires adjustments to profit and loss based on revised estimates during the performance of the contract. These adjustments may have a material effect on our consolidated financial position and our results of operations in the period in which they are made. The estimates giving rise to these risks, which are inherent in long-term, fixed-price contracts, include the forecasting of costs and schedules, contract revenues related to contract performance, including revenues from orbital incentives, and the potential for component obsolescence due to procurements long before assembly.

      SS/L’s major contracts are primarily firm fixed-price contracts. Under firm fixed-price contracts, work performed and products shipped are paid for at a fixed price without adjustment for actual costs incurred in connection with the contract. While cost savings under these fixed-price contracts would result in gains to SS/L, cost increases would result in losses borne solely by SS/L. Under such contracts, SS/L may receive progress payments, or it may receive partial payments upon the occurrence of certain program milestones.

      Many of SS/L’s contracts and subcontracts may be terminated at will by the customer or the prime contractor. In the event of a termination at will, SS/L is normally entitled to recover the purchase price for delivered items, reimbursement for allowable costs for work in process and an allowance for profit or an adjustment for loss, depending on whether completion of performance would have resulted in a profit or loss. Such terminations may occur in the future.

      Some of SS/L’s customers are start-up companies, and there can be no assurance that these companies will be able to fulfill their payment obligations under their contracts with SS/L.

SS/L may not be able to monetize the Sirius Satellite Radio common stock that it received in exchange for its vendor financing receivable.

      As of December 31, 2002, SS/L had outstanding vendor financing receivables totaling $74 million, including accrued interest, due from Sirius Satellite Radio, which is currently in the process of rolling out its business. On March 7, 2003, Sirius completed its recapitalization plan. Under this plan, Sirius received $200 million in cash from third party investors and exchanged approximately $636 million of its debt and all of its $525 million of preferred stock into common stock. As part of this recapitalization, SS/L converted all of its vendor financing receivables into 58,964,981 shares of common stock of Sirius. Assuming favorable market conditions, SS/L intends to dispose of all or substantially all of its Sirius common stock over time. The value of the shares SS/L received based on the closing price of Sirius’ common stock on March 7, 2003 was $28 million. As of March 28, 2003, SS/L had realized net proceeds of $9 million from the sale of a portion of its Sirius common stock and the market value of its remaining Sirius common stock was approximately $28 million. There can be no assurance, however, that SS/L will be able to dispose of the remaining shares or what amount of proceeds SS/L will realize from any sales.

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SS/L may forfeit payments from customers due to satellite failures or losses after launch or be liable for penalty payments under certain circumstances, and these losses may be uninsured.

      Some of SS/L’s satellite manufacturing contracts provide that some of the total price is payable as “incentive” payments earned over the life of the satellite. SS/L has in the past generally not insured for these payments and in fact may be prohibited from insuring these incentive payments under certain circumstances.

      SS/L records the present value of incentive payments as revenue during the construction period of the related satellite. SS/L generally receives the present value of these incentive payments if there is a launch failure or a failure is caused by customer error. SS/L forfeits some or all of these payments, however, if the loss is caused by satellite failure or as a result of its own error.

      Some of SS/L’s contracts call for in-orbit delivery, transferring the launch risk to SS/L. SS/L generally insures against that exposure. In addition, some of SS/L’s contracts provide that SS/L may be liable to a customer for penalty payments under certain circumstances, including upon late delivery. These payments are not insured by SS/L.

SS/L competes with large satellite manufacturers that have significant resources.

      In the manufacture of our satellites, we compete with very large well-capitalized companies, including several of the world’s largest satellite manufacturers, such as The Boeing Company, Lockheed Martin, Alcatel Space and Astrium. These companies have considerable financial resources which they may use to gain advantages in marketing and in technological innovation. Our and our subsidiaries’ overall financial condition and the amount of our and our subsidiaries’ outstanding debt, including SS/L, are factors that SS/L’s potential customers will consider prior to making a satellite procurement decision. SS/L’s success depends on its ability to respond to these financial concerns and perform on a cost-effective and timely basis.

SS/L is still awaiting approval from the State Department for the launch of Chinasat-8.

      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, we, 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. We recorded a $12 million charge in 2001 for the penalties associated with the Consent Agreement. The Consent Agreement provides that the State Department agrees, assuming our 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.

      The launch of ChinaSat-8 has been delayed pending SS/L’s obtaining the approvals required for the launch. 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. We do 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

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We are subject to export controls, which may result in delays and additional costs.

      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.

      Some of our customers and potential customers, as well as insurance underwriters and brokers have raised concerns that U.S. export control laws and regulations excessively restrict their access to information about the satellite during satellite construction and on-orbit satellite operation. To the extent that our non-U.S. competitors are not subject to these export control laws and regulations, they may enjoy a competitive advantage with foreign customers, and, to the extent that our foreign competitors continue to gain market share, it could become increasingly difficult for the U.S. satellite manufacturing industry, including SS/L, to recapture this lost market share.

Our business is regulated, causing uncertainty and additional costs.

      Our business is regulated by authorities in multiple jurisdictions, including the Federal Communications Commission, the International Telecommunication Union, or ITU, and the European Union. The following are some strategically important activities which are regulated and could be adversely affected by regulatory policies:

	•	the expansion of Loral Skynet’s operations in the U.S. and foreign markets;
	•	the manufacture, export and launch of satellites;
	•	the expansion of Satmex’s Latin American business;
	•	the operation of Europe*Star Limited;
	•	the international network services offered by our fixed satellite services operations; and
	•	the implementation of the business plan of XTAR, our joint venture with Hisdesat, which proposes to offer X-band services to government users.

      Regulatory authorities in the various jurisdictions in which we operate can modify, withdraw or impose charges or conditions upon, or deny or delay action on applications for, the licenses which we need, and so increase our costs. For example, 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 second quarter of 2003. New Skies Satellites has asserted that its non-U.S. ITU filing at 120.8 degrees W.L. has date priority over Loral Skynet’s ITU filing and 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. There can be no assurance, however, that coordination discussions will be successful or that the FCC will grant Loral Skynet’s application or grant the application without adding conditions that may constrain Loral Skynet’s operations at the 121 degrees W.L. slot. The regulatory process also requires potentially costly negotiations with third parties operating or intending to

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      Failure to successfully coordinate our satellites’ frequencies or to resolve other required regulatory approvals could have an adverse effect on our consolidated financial position and our results of operations.

We face risks in conducting business internationally.

      For the year ended December 31, 2002, approximately 46% of our revenue was generated from customers located outside of the United States. We could be harmed financially and operationally by changes in foreign regulations and telecommunications standards, tariffs or taxes and other trade barriers. Almost all of our contracts with foreign customers require payment in U.S. dollars, and customers in developing countries could have difficulty obtaining U.S. dollars to pay us due to currency exchange controls and other factors. Exchange rate fluctuations may adversely affect the ability of our customers to pay us in U.S. dollars. If we need to pursue legal remedies against our foreign business partners or customers, we may have to sue them abroad where it could be difficult for us to enforce our rights.

We share control of our affiliates with third parties.

      Third parties have significant ownership, voting and other rights in our affiliates. As a result, we do not have full control over management of these entities. The rights of these third parties and fiduciary duties under applicable law could result in others acting or omitting to act in ways that are not in our best interest. To the extent that these entities are or become customers of SS/L, these conflicts could become acute. For example:

	•	Primary control of Satmex is vested in Mexican nationals, as required by Mexican law, subject to certain approval rights which we retain.
	•	The Europe*Star Limited joint venture is under the control of Alcatel, subject to our right to approve certain matters, and any future joint ventures between Alcatel and us within the Loral Global Alliance will be controlled by the initiating party, subject to certain rights in favor of the non-initiating party.
	•	Alcatel is an investor in CyberStar, L.P. and has certain minority protection rights in it.
	•	Hisdesat enjoys certain approval rights in XTAR, our X-band venture.
	•	Globalstar has filed for Chapter 11 bankruptcy protection, and is subject to the supervision of the bankruptcy court.

We rely on key personnel.

      We need highly qualified personnel. Except for Bernard L. Schwartz, our Chairman and Chief Executive Officer, none of our officers has an employment contract nor do we maintain “key man” life insurance. The departure of any of our key executives could have an adverse effect on our business.

Globalstar Matters

We have been sued in a number of purported class actions brought by our shareholders and security holders of Globalstar Telecommunications Limited and Globalstar.

      We have been named as a defendant in various lawsuits brought by securityholders of Globalstar Telecommunications Limited and Globalstar alleging controlling person liability in respect of certain statements made by GTL, Globalstar and their representatives. Our shareholders have also initiated various

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Globalstar and certain of its general partner entities, including two of our subsidiaries, have filed for bankruptcy protection.

      We hold debt obligations in Globalstar. 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 we know of no reason why such a claim would prevail with respect to the debt we hold 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 we 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 us prior to the filing date as preferential payments subject to repayment. We may also find ourselves subject to other claims brought by Globalstar creditors and securities holders, who may seek to impose liabilities on us as a result of our relationship with Globalstar. For instance, Globalstar’s creditors may seek to pierce the corporate veil in an attempt to recover Globalstar’s obligations owed to them that are recourse to our subsidiaries, which are general partners in Globalstar and have filed for bankruptcy protection. Globalstar’s cumulative partners’ deficit at December 31, 2002, was $3.2 billion. During the second quarter of 2002, we recovered a claim from a vendor on the Globalstar program. Globalstar or its creditors may assert a claim to some portion or all of this recovery. If so, we will vigorously dispute any such claim.

Globalstar may not be able to effect a successful reorganization.

      On February 25, 2003, Globalstar entered into, and on March 6, 2003, the Court approved, a debtor-in-possession credit agreement with Blue River Capital LLC, Columbia Ventures Corporation, ICO Investment Corp., Iridium Investors, LLC and Loeb Partners Corp. Pursuant to this debtor-in-possession credit agreement, these five lenders, of whom three are members of Globalstar’s official unsecured creditors’ committee, will make up to $10 million available to Globalstar on the terms and subject to the conditions set forth in the debtor-in-possession credit agreement. The Court also granted Globalstar’s motion to establish, and Globalstar has commenced, a process to find potential outside investors to help the company emerge from bankruptcy. There can be no assurance that Globalstar will be successful in finding such additional investors, that Globalstar and its creditors will be able to reach an agreement with any interested investors, that any proposed plan of reorganization for Globalstar will be approved by the bankruptcy court or that Globalstar will be successfully reorganized.

Litigation and Disputes

We and SS/L are currently involved in an arbitration proceeding with Alcatel, which may result in the payment of damages to Alcatel.

      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. The agreements between Alcatel and SS/L were terminable on one year’s notice, and, on February 22, 2001, we gave notice to Alcatel that they would expire on February 22, 2002. In April 2001,

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SS/L is currently involved in disputes with certain customers regarding satellites built or under construction by SS/L and with a launch provider, which may result in the payment of damages or refunds.

      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, however, 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. 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. SS/L had suspended work on this program since December 2001 while the customer and SS/L were in discussions to resolve a dispute under the contract. In March 2003, SS/L and the customer reached an agreement in principle to restart the satellite construction program. As of December 31, 2002, SS/L had billed and unbilled accounts receivable and vendor financing arrangements of $49 million with this customer. Under the agreement, which is subject to documentation in definitive amendments to their contract, the customer will pay, subject to its receipt of a proposed third party equity investment, the remainder of the purchase price under the contract of $68.1 million (including $49 million owed to SS/L at December 31, 2002) in installments over time, a portion of which will be due subsequent to completion of the satellite.

      SS/L has entered into several long-term launch services agreements with various launch providers to secure future launches for its customers, including us and our affiliates. Through the assignment of satellites to launch vehicles and refunds, SS/L has reduced its launch deposits by $87 million for the year ended December 31, 2002. Nonetheless, SS/L may, as a result of current market conditions, cancel some of the launchers to which it has committed. SS/L had launch services agreements with International Launch Services (“ILS”) which covered three launches. In November 2002, SS/L terminated one of those future launches, which had a termination liability equal to SS/L’s deposit of $5 million. Subsequently, 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. Despite ILS’s termination of all three launches, to protect its interest SS/L also terminated a second launch, which had a termination liability equal to its deposit of $5 million, and SS/L has recognized a non-cash charge to earnings of $10 million with respect to the two terminated launches. SS/L believes that

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We are currently involved in a dispute with National Telecom of India Ltd. which may result in the payment of damages.

      On October 21, 2002, National Telecom of India Ltd. (“Natelco”) filed suit against us 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 Natelco’s amended complaint filed in March 2003, Natelco has alleged wrongful termination of the joint venture agreement, has asserted claims for breach of contract and fraud in the inducement and is seeking damages and expenses in the amount of $97 million. We believe that the claims are without merit and intend to vigorously defend against them.

Other Matters

Our common stock could be de-listed by the New York Stock Exchange.

      Under the New York Stock Exchange (“NYSE”) criteria for continued listing, the NYSE 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 our common stock was less than $1.00 for 30 consecutive trading days, and, on August 22, 2002, we received notice from the NYSE that our stock price was below the NYSE’s price criteria. If we are unable to cure this deficiency, our common stock could be de-listed from the NYSE. De-listing of our common stock by the NYSE could result in a material adverse effect on the liquidity of our shares, have an adverse effect on the trading value and impair our ability to raise funds in the capital markets.

      The NYSE has informed us that price is the only criteria for listing that we do not currently meet. We have notified the NYSE of our intent to cure this deficiency. The NYSE’s rules provide for a six-month period from receipt of notice from the NYSE to cure this deficiency. In the event the actions we take to cure the deficiency require shareholder approval, the six-month cure period will be extended until after our next annual shareholders’ meeting currently scheduled to take place on May 29, 2003. We plan on seeking shareholder approval to implement a reverse stock split at our annual meeting, in order to, among other things, restore our compliance with NYSE share price requirements. We believe (although there can be no assurance) that we will be able to cure this deficiency within this time frame.

The market for our shares could be adversely affected by future issuances of significant amounts of our common stock.

      Issuances of significant amounts of our common stock, or the perception that those issuances could happen, could adversely affect the market for, and the trading price of, our common stock.

      As of December 31, 2002, 429,086,002 shares of our common stock were outstanding. As of December 31, 2002, there were options for 42,848,837 shares of common stock outstanding on such date, of which options for 25,556,056 shares were immediately exercisable and of which outstanding options for 33,000 shares of common stock had an exercise price that is below the current price of our common stock. The foregoing excludes the effect of our exchange offer for certain of our outstanding stock options completed on March 7, 2003. In connection with this exchange offer, we accepted and cancelled existing stock options to purchase an aggregate of 14,884,403 shares of common stock that were tendered in the exchange offer and agreed to grant in exchange new stock options to purchase an aggregate of 6,021,488 shares of common stock. The new options will be granted, subject to the terms and conditions of the exchange offer, on September 8, 2003, and will have an exercise price per share equal to the fair market value of the common stock on the date of grant.

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      In addition, as of December 31, 2002, there were warrants outstanding that were exercisable for 6,172,255 shares of common stock, 3,745,485 shares of Series C Preferred Stock that were convertible by their terms into 9,363,713 shares of common stock and 734,135 shares of Series D Preferred Stock that were convertible by their terms into 1,851,044 shares of common stock. Additionally, we have the option to make mandatory redemption payments due on our shares of preferred stock in cash, shares of common stock, or a combination of the two. These 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 our 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 our common stock and the number of shares of our preferred stock outstanding at that time.

The price of our common stock is depressed and may not recover.

      The price of our common stock has declined significantly in recent years and is currently trading at or near its all-time low price. There can be no assurance that this price will recover, nor can there be any assurance that any measures employed by us to satisfy the NYSE’s continued listing criteria will successfully increase the stock price in constant dollar terms. Many things that we cannot predict or control may cause sudden changes in the price of our common stock. Risks associated with the deployment and operation of satellite systems, in particular, may cause sudden changes in the price of our common stock.

The rights of shareholders under Bermuda law are different from the rights of shareholders under U.S. law.

      Since we are a Bermuda company, the principles of law that govern shareholder rights, the validity of corporate procedures and other matters are different from those that would apply if we were a U.S. company. For example, it is not certain whether a Bermuda court would enforce liabilities against us or our officers and directors based upon United States securities laws either in an original action in Bermuda or under a United States judgment. Bermuda law giving shareholders the right to sue directors is less developed than in the United States and may provide fewer rights.

Item 2.     Properties

      The Company leases approximately 51,000 square feet for its corporate offices in New York and 8,000 square feet in Washington, D.C. The Company also maintains office space, manufacturing and telemetry, tracking and control facilities primarily in the United States.

     Fixed Satellite Services

      Loral Skynet owns three telemetry, tracking and control stations covering approximately 66,000 square feet on 212 acres in Hawley, Pennsylvania and Three Peaks, California and on three leased acres in Richmond, California. It also leases two telemetry, tracking and control stations covering approximately 11,000 square feet in Rio de Janeiro, Brazil and Utive, Panama. Loral Skynet also leases approximately 68,000 square feet of office space in Bedminster, New Jersey and Tinton Falls, New Jersey and 5,000 square feet worldwide.

      Loral CyberStar owns seven acres of land including 8,000 square feet of office space in Mt. Jackson, Virginia and leases approximately 77,000 square feet of office space and three acres of land worldwide.

     Satellite Manufacturing and Technology

      SS/L’s research, production and testing are carried on in SS/L-owned facilities covering approximately 562,000 square feet on 28 acres in Palo Alto, California. In addition, SS/L leases approximately 823,000 square feet of space on 38 acres from various third parties primarily in Palo Alto, Menlo Park, and Mountain View, California.

      Management believes that the facilities are sufficient for its current operations.

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      Consent Agreement. On January 9, 2002, The Company, 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 $12 million charge in 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.

      Alcatel Arbitration. 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. 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 provided both parties with an opportunity to file any additional claims or counterclaims they had. 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. On January 27, 2003, Loral and SS/L received from the arbitral tribunal a partial decision on the additional claims and counterclaims. The arbitral tribunal ruled in favor of Alcatel on most of its claims alleging breaches of the Operational Agreement or Alliance Agreement and ruled against Loral and SS/L on the counterclaims. The arbitral tribunal set a schedule for further submissions by the parties and for hearings to be held in May and August 2003 to determine whether any of the breaches caused Alcatel to suffer injury and to determine the amount of damages, if any. If the arbitral tribunal finds that Alcatel has sustained significant damages, there could be a material adverse effect on Loral’s consolidated financial position and 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 Space & Communications Ltd. (“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

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      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, which motion is pending before the court. Loral believes that it has meritorious defenses to this class action lawsuit and intends to pursue them vigorously. In addition, the insurers under Loral’s directors and officers liability insurance policy have denied coverage for the case filed by Loral shareholders under the policy and, on March 24, 2003, filed a lawsuit in the Supreme Court of New York County seeking a declaratory judgment upholding their coverage position. Loral believes that the insurers have wrongfully denied coverage and intends to defend against the denial vigorously.

      Natelco. 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 Natelco’s amended complaint filed in March 2003, Natelco has alleged wrongful termination of the joint venture agreement, has asserted claims for breach of contract and fraud in the inducement, and is seeking damages and expenses in the amount of $97 million. Loral believes that the claims are without merit and intends to vigorously defend against them.

      Environmental Regulation. The Company’s operations are subject to regulation by various federal, state and local agencies concerned with environmental control. The Company believes that its facilities are in substantial compliance with all existing federal, state and local environmental regulations. With regard to certain sites, environmental remediation is being performed by prior owners who retained liability for such remediation arising from occurrences during their period of ownership. To date, these prior owners have been fulfilling such obligations and the size and current financial condition of the prior owners make it probable that they will be able to complete their remediation obligations without cost to the Company.

      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.

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PART II

Item 4.     Submission of Matters to a Vote of Security Holders

      None.

Item 5.     Market for the Registrant’s Common Equity and Related Stockholder Matters

(a) Market Price and Dividend Information

      The Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol LOR. The following table presents the reported high and low sales prices of the Company’s common stock as reported on the NYSE:

      The Company does not currently anticipate paying any dividends or distributions on its common stock, on its 6% Series C Convertible Redeemable Preferred Stock (the “Series C Preferred Stock”) or on its 6% Series D Convertible Redeemable Preferred Stock (the “Series D Preferred Stock”). Loral’s indenture relating to its 9.5% senior notes imposes limitations on Loral’s ability to pay dividends to its shareholders. Moreover, the guarantee provided by Loral in favor of the Loral Satellite lenders prohibits Loral from making any dividends on its capital stock, other than in shares of its common stock. The credit facilities maintained by the Company’s two principal operating subsidiaries, Loral SpaceCom Corporation and Loral Satellite, Inc., restrict the ability of these companies to transfer cash or pay dividends to its parent (see Note 8 to Loral’s consolidated financial statements). Loral Orion’s indenture relating to its new senior notes also contains restrictions on Loral Orion’s ability to make dividend payments to its parent.

(b) Approximate Number of Holders of Common Stock

      At February 28, 2003, there were 6,505 holders of record of the Company’s common stock.

Item 6.     Selected Financial Data

      The following consolidated selected financial data has been derived from, and should be read in conjunction with, the related consolidated financial statements.

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LORAL SPACE & COMMUNICATIONS LTD.

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(1)	On March 20, 1998, Loral acquired all of the outstanding stock of Loral Orion, formerly Loral CyberStar, in exchange for common stock of Loral. The 1998 financial information includes Loral Orion commencing from April 1, 1998.
(2)	Includes the increase in the deferred tax valuation allowance based upon management’s assessment during the fourth quarter of 2002, which concluded that due to insufficient positive evidence substantiating recoverability of the Company’s loss carryforwards and other deferred tax assets, the valuation allowance should be increased by $390.4 million to a balance of $576.5 million (see Note 9 to the consolidated financial statements).
(3)	The Company’s principal affiliates are Satmex, Europe*Star since December 1998 and XTAR since July 2001. Loral also has investments in Globalstar and other ventures, which are accounted for under the equity method.
(4)	The results of operations for 2000 includes Loral’s share of Globalstar’s related equity losses and after-tax impairment charges of approximately $1.29 billion (approximately $1.6 billion on a pre-tax basis), which is included in equity in net loss of affiliates and after-tax impairment charges of $112 million ($125 million pre-tax) relating to Loral’s investments in and advances to Globalstar service provider partnerships.
(5)	On December 21, 2001, Loral Orion completed exchange offers and consent solicitations by issuing $613 million principal amount of new senior notes guaranteed by Loral and 6.04 million five year warrants to purchase Loral common stock in exchange for a total of $841 million principal amount of Loral Orion senior notes due 2007 and senior discount notes due 2007.

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Item 7.     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 risks and (v) other matters. For a detailed discussion of these factors and conditions, please refer to the section of this Annual Report on Form 10-K titled “Certain Factors that May Affect Future Results” beginning on page 13 and to the other periodic reports filed with the SEC by Loral, our wholly owned subsidiary Loral Orion, Inc. (“Loral Orion”), formerly known as Loral CyberStar, Inc., 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. In the fourth quarter of 2002, Loral reorganized into two operating businesses in connection with Loral’s integration of the operation and management of its data business (conducted by Loral CyberStar, Inc. and CyberStar, L.P.) into its FSS business, managed and operated by Loral Skynet:

	Fixed Satellite Services (“FSS”): Loral 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 satellite telemetry, tracking and control services (“TT&C”). Loral also provides network services such as managed communications networks, Internet and intranet services, business television and business media services to its customers.
	Satellite Manufacturing and Technology: Loral designs and manufactures satellites and space systems and develops satellite technology for a broad variety of customers and applications through Space Systems/ Loral (“SS/ L”).

Consolidated Operating Results

      In evaluating financial performance, management uses revenue and operating income/loss before depreciation and amortization, including amortization of unearned stock compensation (“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 2002, 2001 and 2000. See Note 16 to Loral’s consolidated financial statements for additional information on segment results. The remainder of the discussion relates to the consolidated results of Loral, unless otherwise noted.

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Revenues:

EBITDA⁽³⁾:

	(1)	Represents the elimination of intercompany sales and EBITDA, primarily for satellites under construction by SS/L for wholly owned subsidiaries; and the adjustment required to EBITDA to conform the basis of accounting used by the satellite manufacturing and technology segment from that applicable to government contracts to U.S. generally accepted accounting principles for commercial contracts(see Note 16 to the consolidated financial statements).
	(2)	Includes revenues from affiliates of $85.9 million, $100.9 million and $161.7 million in 2002, 2001 and 2000, respectively.
	(3)	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.
	(4)	The year ended December 31, 2000 includes $22 million of investment in broadband activities.
	(5)	Satellite manufacturing and technology EBITDA includes charges of $69 million in 2002 for valuation allowances recorded on SS/L-provided vendor financings (in connection with advances related to Europe*Star and an agreement reached with a customer to convert vendor financing receivables into the customer’s equity), $12 million in 2001 for obligations to the U.S. government to settle a case relating to export controls and $77 million in 2000 relating to increased costs for manufacturing delays and customer contract issues.
	(6)	Represents corporate expenses incurred in support of the Company’s operations.

     Critical accounting matters

      The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses reported for the period. Actual results could differ from estimates.

      The majority of Loral’s satellite manufacturing and technology revenue is associated with long-term fixed-price contracts and revenue and profit from satellite sales under these long-term contracts are recognized using the cost-to-cost percentage of completion method, which requires significant estimates. Loral uses this method because reasonably dependable estimates can be made based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. These estimates include

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      Depreciation is provided for on the straight-line method for satellites over the estimated useful life of the satellite, which is determined by engineering analyses performed at the in-service date and re-evaluated periodically. A decrease in the useful life of a satellite would result in increased depreciation expense.

      Loral is required to estimate the collectibility of its billed receivables and vendor financing. A considerable amount of judgment is required in assessing the realization of these receivables, including the current creditworthiness of each customer and related aging of the past due balances. Provisions for bad debts and vendor financings during 2002, 2001, and 2000 were $73.5 million, $3.8 million, and $11.5 million, respectively. At December 31, 2002 and 2001, billed receivables of $92.6 million and $198.1 million, respectively, were net of allowances for doubtful accounts of $7.0 million and $4.3 million, respectively. Vendor financing receivables were $60.4 million at December 31, 2002, after valuation allowances of $69 million in 2002 on vendor financings in connection with advances related to Europe*Star and an agreement reached with Sirius Satellite Radio, Inc. (“Sirius”) to convert vendor financing receivables into Sirius common stock. Vendor financing receivables were $89.6 million at December 31, 2001. Additionally, the Company has vendor financing receivables from Globalstar of $250 million, which have been fully reserved for. Loral evaluates specific accounts when it becomes aware of a situation where a customer may not be able to meet its financial obligations due to a deterioration of its financial condition, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to Loral and re-evaluated periodically. A significant increase in the allowance has been recorded in 2002, and may occur in the future due to the market environment.

      Inventory is reviewed for estimated obsolescence or unusable items and if appropriate, is written down to the net realizable value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Such adjustments are considered permanent adjustments to the cost basis of the inventory. Provisions for inventory obsolescence during 2002, 2001, and 2000 were $14.0 million, $5.9 million, and $4.9 million, respectively. At December 31, 2002 and 2001, inventory of $95.7 million and $98.2 million, respectively, was net of provisions for obsolescence of $31.8 million and $29.9 million, respectively.

      Loral, as a Bermuda company, is subject to U.S. federal, state and local income taxation at regular corporate rates on any income that is effectively connected with the conduct of a U.S. trade or business. When such income is deemed removed from the U.S. business, it is subject to an additional 30% “branch profits” tax. While any portion of Loral’s income from sources outside the United States may also be subject to taxation by foreign countries, the extent to which these countries may require Loral to pay tax or to make payments in lieu of tax cannot be determined in advance. From its inception, Loral has not received any cumulative benefit as a result of being established in Bermuda because of substantial losses incurred outside

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      The Company uses the liability method in accounting for taxes whereby income taxes are recognized during the year in which transactions enter into the determination of financial statement income or loss. Deferred taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying statutory tax rates in effect for the year during which the differences are expected to reverse. The Company assesses the recoverability of its deferred tax assets and, based upon this analysis, records a valuation allowance against the deferred tax assets to the extent recoverability does not satisfy the “more likely than not” recognition criteria in SFAS No. 109.

      Based upon this analysis, management concluded during the fourth quarter of 2002 that, due to insufficient positive evidence substantiating recoverability, the valuation allowance should be increased by $390.4 million to a balance of $576.5 million. Of this net increase, $31.9 million represented deferred tax assets applied directly to shareholders’ equity for other comprehensive income items, net, $18.7 million primarily related to the cumulative effect of a change in accounting principles on the adoption of SFAS 142 and $55.9 million represented a reduction to the allowance which was applied directly against the deferred tax asset. The balance of $395.7 million was charged to the 2002 results, resulting in a net income tax provision of $355.0 million. As of December 31, 2002, a valuation allowance has been established for the entire balance of the Company’s net deferred tax assets.

      The Company will maintain the valuation allowance until sufficient positive evidence exists to support reversal of the reserve. Until such time, we expect to report no tax provision net of valuation allowance adjustments, except for potential alternative minimum taxes and minor state, local and foreign tax provisions. When the Company determines that it will be able to realize all or a part of the benefit from its deferred tax assets, reversal of the valuation allowance will increase income in the period such determination is made.

      The Company maintains a pension plan and a supplemental retirement plan. These plans are defined benefit pension plans. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees and dependents. These pension and other employee benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate and expected long-term rate of return on plan assets. Material changes in these pension and other employee benefit costs may occur in the future due to changes in these assumptions, as well as our actual experience.

      The discount rate is subject to change each year, consistent with changes in applicable high-quality long-term corporate bond indices, such as the Moody’s AA Corporate Bond Index. The discount rate determined on this basis was 6.75% as of December 31, 2002, a decline of 75 basis points from December 31, 2001. This had the effect of increasing the Company’s accumulated benefit obligations (“ABO”) for pensions by $21.4 million and for other employee benefits by $6.5 million as of December 31, 2002.

      The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plans, the asset mix of the plans and the fact that the plan assets are actively managed to mitigate risk. The assumed allocation of the Company’s pension plan assets is 60% in equity investments and 40% in fixed income investments. Based on this target allocation, the fifteen year historical return of the Company’s investment managers has been 11.2%. The Company is currently reviewing its asset allocation, but believes that its long-term asset allocation will approximate 60% in equity investments and 40% in fixed income investments. The expected long-term rate of return on plan assets determined on this basis was 9.0% as of December 31, 2002, a decline of 50 basis points from December 31, 2001.

      These pension and other employee costs are expected to increase to approximately $30 million in 2003 from $14 million in 2002 primarily due to the rate assumption changes and actual asset performance. Although actual asset performance was below expectations over the past several years, actual performance of

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      The ABO for the pension plan exceeded the fair value of plan assets at December 31, 2002 (the “unfunded ABO”). This was primarily due to the negative returns on the pension funds as a result of the overall decline in the equity markets, and a decline in the discount rate used to estimate the pension liability as a result of declining interest rates. Therefore, the Company was required to establish a minimum liability and record a $65 million charge to equity for the unfunded ABO, to the extent not already reflected as a liability. The ABO was measured using a discount rate of 6.75% as of December 31, 2002. Lowering the discount rate by 0.50% would have increased the ABO and the resulting minimum liability and charge to equity by approximately $14 million. Market conditions and interest rates significantly impact future assets and liabilities of the Company’s pension plans, and this charge to equity will be revalued in the future based upon plan assets and the measurement of plan obligations which is completed at the end of each fiscal year.

     Contingencies

      Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. The most important contingencies affecting our financial statements are detailed below under Commitments and Contingencies.

2002 Compared with 2001

      Revenues as reported for Loral’s operating businesses remained steady at $1.1 billion in 2002 and 2001, after eliminations of $150 million in 2002 and $209 million in 2001. In 2002, SS/ L revenues were higher primarily resulting from the timing of work performed and costs incurred on satellite backlog programs under the percentage of completion method. This was offset by lower FSS revenues which was primarily due to a decrease in volume and prices resulting from the global economic downturn, which has caused a delay in demand for new telecommunications applications and services. SS/ L’s revenues from Loral Skynet decreased in 2002 as the satellites under construction neared completion.

      EBITDA as reported for Loral’s operating businesses was $105 million in 2002 as compared to $223 million in 2001, after eliminations of $60 million in 2002 and $28 million in 2001. The decrease in 2002 as compared to 2001 was primarily due to lower FSS revenues offset by reduced costs from streamlining operations and lower SS/L EBITDA. SS/L’s decline was primarily due to valuation allowances of $69 million recorded on SS/L-provided vendor financings (in connection with advances related to Europe*Star and an agreement reached with Sirius to convert vendor financing receivables into Sirius’ equity), which was mitigated by overall improved satellite program performance, reduced costs and the effects of the recovery of a claim from a vendor. Intercompany eliminations primarily relating to SS/ L’s construction of satellites for Loral Skynet, increased significantly in 2002 primarily due to higher amounts of general and administrative costs incurred on intercompany programs (see Note 16 to the consolidated financial statements).

      Depreciation and amortization was $187 million in 2002 and $228 million in 2001. In 2002, amortization expense decreased by $27 million as a result of the Company adopting SFAS No. 142 (see Accounting Pronouncements). Depreciation and amortization associated with the FSS business represents approximately 82% and 81% of the totals in 2002 and 2001, respectively.

      As a result of the above, the Company’s operating loss increased to $82 million in 2002, as compared to $5 million in 2001.

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      Interest and investment income was $13 million in 2002 as compared to $29 million in 2001. This decrease was principally due to lower average cash balances available for investment and lower interest rates and lower interest earned relating to satellite programs in 2002 as compared to 2001.

      Interest expense was $77 million in 2002, net of capitalized interest of $30 million, as compared to $184 million in 2001, net of capitalized interest of $23 million. The decrease in 2002 was primarily due to the Company not recognizing any interest expense on Loral Orion’s 10% senior notes issued in connection with the Loral Orion exchange offers completed in December 2001, since interest expense on the 10% senior notes is fully offset by amortization of the deferred gain on the debt exchanges (see Liquidity and Capital Resources) and lower debt balances and interest rates in 2002 as compared to 2001.

      In 2002, the Company determined that its investment in Fantastic common stock had an other than temporary decline in its value and recognized a loss of $1 million. The Company recorded a $34 million gain in 2001 related to Loral Orion’s debt exchanges (see Liquidity and Capital Resources). In the fourth quarter of 2002, the Company adopted the provisions of SFAS No. 145 and reclassified the extraordinary gain on Loral Orion’s debt exchanges in 2001 to gain on debt exchanges and investments, net in its consolidated statements of operations (see Other Matters — Accounting Pronouncements).

      In 2002, Loral recorded an income tax provision of $355 million on a pre-tax loss of $147 million, as compared to an income tax provision of $2 million on a pre-tax loss of $126 million in 2001. The increase in tax expense in 2002 was primarily attributable to an increase in the deferred tax valuation allowance. As of December 31, 2002, a valuation allowance has been established for the entire balance of the Company’s net deferred tax asset (see Critical Accounting Matters).

      Equity in net losses of affiliates was $76 million in 2002 as compared to $67 million in 2001. Loral’s share of equity loss attributable to Globalstar related activities was $3 million in 2002 as compared to $25 million of equity losses after taxes in 2001. The reduction in 2002 primarily resulted from the recovery of a claim from a vendor on the Globalstar program of which $14 million ($8 million after taxes) was recorded as a benefit to equity in net losses of affiliates and reduced equity in net losses of Globalstar service provider partnerships recorded, offset by a $9 million charge relating to liabilities the Company had guaranteed in connection with a Globalstar service provider partnership. Loral’s share of equity in net losses of Satmex increased to $25 million in 2002, as compared to $12 million in 2001, which was primarily due to the global economic downturn. Loral’s share of equity in net losses of Europe*Star, managed by Alcatel, increased to $42 million in 2002, as compared to $28 million in 2001, which was primarily due to Europe*Star’s loss on the sale of an equity investment in 2002 and an impairment charge of $7 million recorded by the Company relating to its investment in Europe*Star in 2002. As a result of the impairment charge, the net carrying value of Loral’s investment in Europe*Star was reduced to zero. As a result, Loral will not recognize any future losses attributable to Europe*Star (see Note 6 to the consolidated financial statements).

      On January 1, 2002 the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which resulted in the Company recording a charge to write-off all of its goodwill for the cumulative effect of change in accounting principle of $890 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 $89 million in 2002 as compared to $81 million in 2001. The increase was primarily due to dividend charges of $59.5 million (or $0.16 per share) in 2002, comprised of $13.4 million in cash and $46.1 million of non-cash dividend charges, incurred on the conversion of 6.1 million shares of Loral’s 6% Series C convertible redeemable preferred stock (“the Series C Preferred Stock”) and 5.4 million shares of Loral’s 6% Series D convertible redeemable preferred stock (“the Series D Preferred Stock”) into 76.6 million shares of the Company’s common stock in connection with Loral’s exchange offers and privately negotiated exchange transactions. This compares to the non-cash dividend charges of $29 million (or $0.09 per share) incurred on the conversion in 2001 of 3.7 million shares of Loral’s Series C Preferred Stock and 1.9 million shares of Loral’s Series D Preferred Stock into 30.9 million shares of the Company’s common stock, in connection with the Company’s exchange offers, offset by lower dividends as a result of the exchanges (see Liquidity and Capital Resources).

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      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 $668 million or $1.79 per basic and diluted share in 2002, as compared to $277 million or $0.86 per basic and diluted share in 2001 ($250 million or $0.77 per basic and diluted share on an as adjusted basis to exclude the amortization of goodwill). Basic and diluted weighted average shares were 373 million in 2002 and 324 million in 2001. The increase in weighted average shares was primarily due to the conversions of the Company’s preferred stock into common stock in 2002 and 2001 mentioned above.

2001 Compared with 2000

      Revenues as reported for Loral’s operating businesses were $1.1 billion in 2001 as compared to $1.2 billion in 2000, after eliminations of $209 million in 2001 and $199 million in 2000. The decrease in revenues was due primarily to lower SS/L revenues primarily resulting from the slow down in demand in the satellite manufacturing industry, delays in production of certain programs, and the substantial completion of the Globalstar satellite program at the end of 2000, offset by strong growth in FSS revenues due to the increased number of transponders leased and higher revenue per transponder in 2001 as compared to 2000.

      EBITDA as reported increased to $223 million in 2001 as compared to $130 million in 2000, after eliminations of $28 million in 2001 and $14 million in 2000. This increase arose primarily from strong revenue growth from FSS without a proportionate growth in costs, cost savings realized from streamlining operations and savings related to the exit from the direct-to-consumer broadband business in 2000, offset by lower SS/L EBITDA, which was due to lower revenues and margins and start-up costs associated with the introduction of several new technologies and a $12 million charge for future payments to the U.S. government to settle a case relating to export controls.

      Depreciation and amortization was $228 million in 2001 and $216 million in 2000. The increase primarily resulted from the timing of assets placed into service. Depreciation and amortization associated with the FSS business represents approximately 81% of the totals in 2001 and 2000, respectively.

      As a result of the above, the Company’s operating loss decreased to $5 million in 2001, as compared to $86 million in 2000.

      Interest and investment income was $29 million in 2001 as compared to $129 million in 2000. This decrease was principally due to non-cash interest income in 2000 related to warrants received in connection with the guarantees provided by Loral subsidiaries of Globalstar’s $500 million credit facility, dividend income in 2000 related to the Company’s investment in Globalstar Telecommunications Limited preferred stock, as well as lower average cash balances for investment and lower investment rates in 2001.

      Interest expense was $184 million in 2001, net of capitalized interest of $23 million, as compared to $171 million in 2000, net of capitalized interest of $17 million. The increase is due primarily to interest expense incurred in connection with the Company’s $500 million credit facility from November 2000, offset by increased capitalized interest and lower interest rates in 2001 (see Liquidity and Capital Resources).

      The Company recorded a $34 million gain in 2001 related to Loral Orion’s debt exchanges (see Liquidity and Capital Resources and Other Matters — Accounting Pronouncements). The Company realized $71 million of gains in 2000, primarily from the sale of substantially all of its investments in available-for-sale securities.

      In 2001, Loral recorded an income tax provision of $2 million on a pre-tax loss of $126 million, as compared to an income tax provision of $9 million on a pre-tax loss of $57 million for 2000. The decrease in tax expense for 2001 is primarily attributable to a lower amount of income subject to U.S. tax during the current period (see Critical Accounting Matters).

      The equity in net losses of affiliates was $67 million in 2001 as compared to $1.29 billion in 2000. Loral’s share of equity in net losses of affiliates attributable to Globalstar related activities (net of taxes of $4 million in 2001 and a tax benefit of $299 million in 2000), was $25 million in 2001 as compared to $1.29 billion in 2000 (including equity in net losses of Globalstar service provider partnerships of $30 million and $38 million,

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      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 December 31, 2001.

      In the fourth quarter of 2000, the Company recorded after-tax impairment charges of $112 million related to its investments in and advances to Globalstar service provider partnerships (see Acquisitions and Investments).

      On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which resulted in the Company recording a charge for the cumulative effect of a change in accounting principle, net of taxes, of $1.7 million (see Accounting Pronouncements).

      Preferred dividends were $81 million in 2001 as compared to $68 million for 2000. The increase was primarily due to non-cash dividend charges of $29 million incurred in 2001, on the conversion of 3.7 million shares of Loral’s Series C Preferred Stock and 1.9 million shares of Loral’s Series D Preferred Stock into the Company’s common stock, in connection with the Company’s exchange offers, offset by lower dividends as a result of the exchange offers (see Liquidity and Capital Resources).

      As a result of the above, the net loss applicable to common stockholders for 2001 was $277 million or $0.86 per basic and diluted share, compared to the net loss of $1.54 billion or $5.20 per basic and diluted share for 2000. Basic and diluted weighted average shares were 324 million in 2001 and 296 million in 2000. The increase in shares primarily relates to the 30.9 million shares of common stock issued in connection with the Company’s preferred stock exchange offers.

Results by Operating Business

      The satellite industry suffered a significant decline in 2001 which continued through 2002 with only one competitively bid satellite order, affecting all aspects of the Company’s business. Some of the most significant causes behind this decline are the downturn in the global economy with its resulting reduction and delay in demand for new satellite-based applications and services, the postponement of customers’ expansion plans, the difficulty in obtaining funding in the capital markets by a significant segment of the industry’s customer base, and the competition from fiber and other terrestrial alternatives.

     Fixed Satellite Services

      FSS revenues were $395 million in 2002, as compared to $464 million and $421 million in 2001 and 2000, respectively. The decrease in 2002 as compared to 2001 was primarily due to a decrease in transponders leased and lower prices due to the global economic downturn and the delay in demand for new applications and services in 2002. The increase in revenue in 2001 as compared to 2000 was primarily due to the increased number of transponders leased and higher revenue per transponder in 2001. EBITDA was $220 million in 2002, as compared to $263 million and $153 million in 2001 and 2000, respectively. The decrease in EBITDA in 2002 as compared to 2001 was primarily due to lower sales, offset by reduced costs from streamlining operations. The increase in EBITDA in 2001 as compared to 2000 was primarily due to strong revenue growth without a proportionate growth in costs, cost savings realized from streamlining operations and savings related to the exit from the direct-to-customer broadband business at the end of 2000, which was offset by charges for integration and rationalization of network services in 2000. As of December 31, 2002, FSS had seven

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     Satellite Manufacturing and Technology

      Revenues at SS/L, before eliminations, were $853 million in 2002, $815 million in 2001 and $1.0 billion in 2000. The increase in 2002 as compared to 2001 primarily resulted from the timing of work performed on backlog programs. The decrease in 2001 as compared to 2000 was primarily due to lower volume and delays in production of certain programs. EBITDA before eliminations was a loss of $19 million in 2002 and gains of $24 million in 2001 and $36 million in 2000. The decrease in EBITDA in 2002 as compared to 2001 was primarily due to valuation allowances of $69 million recorded on SS/L provided vendor financings (in connection with advances related to Europe*Star and an agreement reached with Sirius to convert vendor financing receivables into Sirius’ equity), which was mitigated by overall improved satellite program performance, reduced costs and the effects of the recovery of a claim from a vendor. SS/L has lowered its costs by reducing its workforce since the beginning of 2001, by streamlining certain internal processes and by instituting tighter controls which are designed to ensure that subcontracted components are received on time and meet all customer requirements. The EBITDA decline in 2001 as compared to 2000 was primarily due to lower revenues and start-up costs associated with the introduction of several new technologies and a $12 million charge for future payments to the U.S. government to settle a case relating to export controls in 2001. Funded backlog for SS/L as of December 31, 2002 and 2001 was $763 million and $1.6 billion, respectively, including intercompany backlog of $275 million as of December 31, 2002 and $265 million as of December 31, 2001. The decline in backlog is due to revenues earned on existing backlog with no new satellite awards in 2002, due to the sluggish economic conditions in the industry. Approximately $626 million of the 2002 funded backlog is expected to be realized in 2003, including approximately $142 million of intercompany backlog. Total assets for the segment were $690 million and $1.2 billion as of December 31, 2002 and 2001, respectively. The decrease primarily related to the write-off of goodwill in connection with the adoption of SFAS 142 in 2002. Capital expenditures in 2002 were approximately $13 million and are expected to decrease slightly in 2003.

Transactions With Affiliates and Related Parties

      Consolidated funded backlog was $1.8 billion and $2.7 billion at December 31, 2002 and 2001 which includes $142 million and $351 million, respectively, as a result of transactions entered into with affiliates and related parties (primarily with Globalstar, Satmex, Europe*Star, XTAR and Spainsat) for the construction of satellites.

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

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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. These included joint ventures; strategic relationships involving its fixed satellite services operations and satellite manufacturing operations, which could involve business combinations; participation in the Loral Global Alliance; and dispositions of assets. In order to pursue such opportunities Loral may utilize funds generated by growth in operations and may seek funds from strategic partners and other investors and through incurrence of debt or the issuance of additional equity. The Company believes that cash, available credit at December 31, 2002 (see cash and available credit) and net cash provided by operating activities and certain planned investing activities will be adequate to meet its expected cash requirements through at least December 31, 2003.

      On March 31, 2003, Loral entered into amendments of its Loral SpaceCom and Loral Satellite credit facilities which among other changes, amended its financial performance covenants. At December 31, 2002, the Company was, after giving effect to the March 2003 amendments to the Loral SpaceCom and Loral Satellite credit facilities, in compliance with 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 through at least March 31, 2004.

      Loral’s business plan assumes the receipt of approximately $60 million from the successful monetization of certain long-term customer receivables in 2003. While Loral has reached an agreement in principle with a third party to effect such monetization, there is no assurance that this transaction will be consummated. If Loral is unable to consummate this transaction on a timely basis, or the proceeds from such transaction are less than those assumed in the business plan, Loral’s ability to fund its operations would be adversely affected. A substantial reduction in FSS revenues or the inability of SS/L to replace existing backlog with new contracts would also adversely impact Loral’s ability to achieve its business plan. In addition, Loral’s ability to fund the 2004 interest payments on its 9.5% senior notes will depend on its ability to successfully execute its business plan, which includes further asset sales. There is no assurance that Loral will be able to do so. If Loral fails to pay interest on the 9.5% senior notes when due, this will, upon expiration of a 30-day cure period, constitute an event of default under Loral’s senior note indenture, which in turn would result in an event of default under the LSC Amended Credit Agreement and the Loral Satellite Credit Agreement. If the holders of the 9.5% senior notes, the lenders under the LSC credit facility or the lenders under the Loral Satellite credit facility were to accelerate their related debt following such event of default, an event of default would also occur with respect to Loral Orion’s 10% senior notes, which are guaranteed by Loral.

      Loral is likely to require and intends to seek further amendments to the LSC and Loral Satellite facilities to ensure compliance with financial performance covenants for periods after March 31, 2004. There can be no assurance that the lenders will consent to any such amendment. Because of the cross-default provisions set forth in the LSC and Loral Satellite credit facilities, a failure by Loral to meet any financial performance covenant set forth in either credit facility will result in an event of default under both the LSC and the Loral

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      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. However, the insurance coverage for Telstar 10/Apstar IIR provides for coverage of losses due to solar array failures only in the event of a capacity loss of 75% or more. Some of Loral Orion’s bondholders have questioned whether this limitation is in compliance with the insurance covenant in the Loral Orion indenture. 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.

     Debt

      Bank Facilities

      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 provides for a $200 million revolving credit facility expiring January 7, 2005 and a term loan of which $249 million was outstanding as of December 31, 2002, subject to the following remaining amortization payment schedule: $11.25 million per quarter on March 31, 2003 through September 30, 2004 and $170 million on January 7, 2005. During the first quarter of 2003, Loral had drawn down the full amount of the revolving credit facility. The first amendment also effected certain changes to provisions relating to the collateral pool provided to lenders under the Loral Satellite credit facility and imposed additional limitations on the application of proceeds from any sale of assets from this collateral pool. Proceeds from the Satellite Credit Agreement were used by Loral Satellite to purchase all of the creditors’ interests in the loans outstanding under Globalstar’s $500 million credit agreement (see Investments). The guarantee of Globalstar’s $500 million credit agreement that had been provided by Loral Satellite and Loral SatCom Ltd., a subsidiary of Loral, was terminated and released in connection with this transaction.

      Borrowings under the Satellite Credit Agreement bear interest, at Loral Satellite’s option, at various rates based on fixed margins over the lead bank’s base rate or the London Interbank Offer Rate for specified periods. Loral Satellite pays a commitment fee on the unused portion of the revolver. The Satellite Credit Agreement contains financial covenants, including maintenance of a minimum collateral coverage ratio, minimum net worth and minimum EBITDA. The Satellite Credit Agreement also contains customary limitations, including those on indebtedness, fundamental changes, asset sales, dividends, investments, capital expenditures, creating liens (other than those created pursuant to the Satellite Credit Agreement), prepayments or amendments of indebtedness, and transactions with affiliates. During 2002, Loral Satellite paid dividends of $35 million to its parent.

      The Satellite Credit Agreement is secured by certain assets of Loral Satellite, including the Telstar 6 and Telstar 7 satellites and the payments due to Loral Satellite 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 December 31, 2002, the net book value of Telstar 6 and Telstar 7 was approximately $293 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

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      On March 31, 2003, Loral Satellite amended the Satellite Credit Agreement to provide for certain modifications, including to its financial covenants (the “Loral Satellite Amendment”). This amendment increased interest on outstanding loans by 50 basis points, reduced the maximum LIBOR period to three months and imposed additional requirements on Loral Satellite and its subsidiaries, including adding minimum cumulative EBITDA and minimum cash balance requirements and increasing the circumstances under which mandatory prepayment of the loans are required, including from insurance proceeds received in connection with any launch or in-orbit failure of Loral Satellite’s satellites. Loral Satellite’s ability to dividend funds to its parent has been substantially reduced in connection with this amendment. Under the Loral Satellite Amendment, Loral Satellite may now make dividends or loans to its parent or Loral only if such dividends or loans are applied either to effect payments on Loral’s 9.5% senior notes or to effect a maximum of $5 million of payments on an intercompany note between Loral and Loral SpaceCom Corporation.

      The Loral guarantee was also amended in March 2003 to provide for an adjustment to Loral’s financial covenants and to impose additional restrictions on Loral’s ability to pay dividends and to effect voluntary repayment or purchase of indebtedness. Moreover, under the amended guarantee, Loral’s ability to make investments or otherwise make payment to any of its subsidiaries is limited to a maximum amount of $5 million.

      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 term loan of which $360 million was outstanding at December 31, 2002, subject to the following remaining amortization payment schedule: $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. During the first quarter of 2003, Loral had fully utilized the revolving credit facility through draw downs and letters of credit. 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 specified periods. In December 2001, the margin levels were increased under the new amended agreement and were fixed through September 30, 2002. As a result of this increase in margin levels, interest costs have increased by approximately $11 million annually. Subsequent to September 30, 2002, the margin levels increased by one percent and are expected to remain that way for the foreseeable future. LSC pays a commitment fee on the unused portion of the revolver.

      The LSC Amended Credit Agreement contains financial covenants of LSC and its subsidiaries, such as maintenance of interest coverage, leverage ratios and minimum net worth. The LSC Amended Credit Agreement also contains limitations on LSC and its subsidiaries, including those on indebtedness, liens, fundamental changes, asset sales, dividends, investments, capital expenditures, transactions with affiliates and certain other intercompany transactions. The LSC Amended Credit Agreement allows dividend payments to Loral if cumulative dividend payments do not exceed 50% of its cumulative consolidated net income and the ratio of its funded debt to EBITDA is less than 3.0 to 1.0. As of December 31, 2002, Loral SpaceCom had no capacity under this covenant to pay Loral any dividends.

      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 December 31, 2002, the net book value of the assets that secure the LSC Amended Credit Agreement was approximately $645 million.

      On March 31, 2003, LSC further amended the LSC Amended Credit Agreement to provide for additional modifications, including to LSC’s financial covenants (the “LSC Amendment”). This amendment increased interest on outstanding loans by 50 basis points, reduced the maximum LIBOR period to three months and imposed additional requirements on LSC and its subsidiaries, including adding minimum cumulative EBITDA and cash balance requirements and increasing the circumstances under which mandatory prepayment of the loans are required, including from insurance proceeds received in connection

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      In connection with the amendment of the LSC and the Loral Satellite credit facilities, Loral agreed to the continued retention of a financial advisor to assist it in various matters, including advising the Company on strategic alternatives, which may include asset sales and other actions to reduce indebtedness. Loral has also agreed to hire a financial officer, whose appointment and, scope of work and authority will be subject to the reasonable approval of certain of the lenders under the two credit facilities. This financial officer will work closely with Loral’s management and financial advisor regarding various matters, including communicating with the lenders under the two bank facilities.

      Loral Orion Indentures

      On December 21, 2001, Loral Orion issued $613 million principal amount of 10% senior notes due 2006 and guaranteed by Loral, in exchange for the extinguishment of $841 million principal amount of Loral Orion 11.25% senior notes due in 2007 and 12.5% 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 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. As of December 31, 2002, principal amount of $37 million of the existing 11.25% senior notes and principal amount of $49 million of the existing 12.5% senior discount notes remain outstanding at their original maturities and interest rates.

      The interest rate on the 10% senior notes is 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 a gain of $34 million on the exchange, after expenses of $8 million. The carrying value of the 10% senior notes on the balance sheet at December 31, 2002 was $858 million, although the actual principal amount of the 10% senior notes is $613 million. The difference between this carrying value and the actual principal amount of the 10% senior notes is being amortized over the remaining life of the 10% senior notes, fully offsetting interest expense through maturity of the 10% senior notes. The indenture relating to the 10% senior notes contains covenants, including, without limitation, restrictions on Loral Orion’s ability to pay dividends or make loans to Loral.

      In connection with the consummation of the exchange offer, LSC canceled its $79.7 million intercompany note issued to it by Loral Orion, which ranked pari passu to senior debt, in exchange for the transfer of Loral Orion’s data services business and the issuance of a new note to LSC in the principal amount of $29.7 million due 2006, having an interest rate of 10% per annum payable in kind, subordinated to Loral Orion’s 10% senior notes. Loral Orion’s data services business was transferred to a newly-formed subsidiary of Loral, which assumed the name “Loral CyberStar, Inc”.

      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. Interest is payable semi-annually on January 15, and July 15.

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      The Satellite Credit Agreement, the 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 in certain circumstances for cross default or cross acceleration.

     Equity

      Common Stock

      Under the New York Stock Exchange (“NYSE”) criteria for continued listing, the NYSE 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 was less than $1.00 for 30 consecutive trading days, and, on August 22, 2002, the Company received notice from the NYSE that its stock price was below the NYSE’s price criteria. If Loral is unable to cure this deficiency, the Company’s common stock could be de-listed from the NYSE. De-listing of the Company’s common stock by the NYSE 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 NYSE has informed Loral that the price is the only criteria for listing that the Company does not currently meet. The Company has notified the NYSE of its intent to cure this deficiency. The NYSE rules provide for a six-month period from receipt of the notice letter from the NYSE 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 scheduled on May 29, 2003. The Company plans on seeking shareholder approval to implement a reverse stock split at its annual meeting, in order to, among other things, restore the Company’s compliance with NYSE share price requirements. The Company believes (although there can be no assurance) that it will be able to cure this deficiency within this time frame.

      On March 31, 2000, Lockheed Martin Corporation converted 45,896,978 shares of Loral’s Series A preferred stock into 45,896,978 shares of Loral common stock.

      Preferred Stock

      The Company’s Series C Preferred Stock and Series D Preferred Stock have mandatory redemption dates in 2006 and 2007, respectively. The Company has the right 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 December 31, 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 December 31, 2002, the Company classified an aggregate of $125 million of its Series C Preferred Stock and Series D Preferred Stock outside the shareholders’ (deficit) 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 $0.38 per share at December 31, 2002). Had the volume weighted average daily price of the Company’s common stock as calculated been above $0.86 at December 31, 2002, none of the Company’s preferred stock would have been classified outside the shareholders’ equity section of the balance sheet. 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 intends to submit for shareholder approval at its next annual shareholders’ meeting scheduled on May 29, 2003, an increase to the authorized number of shares of its common stock from 750,000,000 to 1,250,000,000 which, based on the volume weighted average daily price of the Company’s common stock as defined at December 31, 2002 and March 28, 2003, would enable the Company to effect payment of the total mandatory redemptions in common stock. The amount, if any, of the Series C Preferred Stock and Series D Preferred Stock classified outside the shareholders’ equity section will vary in future periods depending on these factors.

      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 deferred the payment of quarterly dividends due on its Series C Preferred Stock on November 1, 2002, and the payment of quarterly dividends due on its

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      In connection with the conversions of the Company’s preferred stock for common stock in 2002, 2001 and 2000 detailed below, the Company retired preferred stock with mandatory redemptions aggregating $921 million in 2006 and 2007 (representing 80% of the aggregate redemption values prior to these exchanges) and will save $55 million in future annual dividend obligations.

      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 for 45.8 million shares of its common stock and $13.4 million in cash. In connection with the exchange offers, Loral incurred $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.

      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 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

      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 into 30.9 million shares of the Company’s common stock. Loral incurred non-cash dividend charges in the second quarter of 2001 of $29 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.

      In February 2000, 1.4 million shares of Series C Preferred Stock were converted into 3.5 million shares of Loral common stock. In connection with this conversion, Loral issued to converting holders 332,777 additional shares of its common stock, which approximated the dividend prepayments to which they would have been entitled if a provisional redemption of those securities had been made (which resulted in a non-cash dividend charge of $6 million). The non-cash dividend charge had no impact on Loral’s total shareholders’ equity, as the offset was an increase in common stock and paid-in capital.

      In February 2000, Loral sold $400 million of Series D Preferred Stock due 2007 in an offering exempt from registration.

     Other

      For 2002, the Company’s qualified pension plan, under the Internal Revenue Code and regulations thereunder, was considered fully funded (i.e. assets are greater than liabilities) and there was no contribution required. However, the significant declines experienced in the financial markets have unfavorably impacted pension plan asset performance. This, coupled with historically low interest rates (a key factor when

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     Cash and Available Credit

      As of December 31, 2002, Loral had $132 million of cash and available credit (including $66 million of available credit from the credit facilities described above under the captions “Satellite Credit Agreement” and “LSC Amended Credit Agreement”). During the first quarter of 2003, Loral drew down all of the $66 million of available credit at December 31, 2002.

     Net Cash Provided by Operating Activities

      Net cash provided by operating activities for 2002 was $195 million. This was primarily due to net income as adjusted for non-cash items of $152 million and a decrease in contracts-in-process of $97 million resulting from net collections on customer contracts and a decrease in deposits of $59 million primarily resulting from the assignment of launch vehicles to satellite programs, offset by a decrease in accounts payable of $89 million primarily due to the timing of satellite related payments and a decrease in customer advances of $35 million primarily due to progress on satellite programs.

      Net cash provided by operating activities for 2001 was $170 million. This was primarily due to net income as adjusted for non-cash items of $113 million, an increase in customer advances of $78 million, primarily resulting from the timing of satellite program milestone payments, offset by an increase in long-term receivables of $51 million due to increases in orbital incentives.

     Net Cash Used in Investing Activities

      Net cash used in investing activities for 2002 and 2001 was $139 million and $249 million, respectively, primarily as a result of capital expenditures mainly for the construction of satellites and investments in and advances to affiliates.

     Net Cash Used in Financing Activities

      Net cash used in financing activities for 2002 and 2001 was $150 million and $156 million, respectively, primarily due to debt amortization payments of $135 million and $86 million in 2002 and 2001, respectively (including $46 million of interest payments on the 10% senior notes in 2002, see Loral Orion Indentures) and net cash used in equity transactions of $32 million and $36 million in 2002 and 2001, respectively.

          Fixed Satellite Services Liquidity

      Satellites are carefully built and tested and have some redundant components to permit the continued operation of a satellite in case of a component failure. Due to the failure of primary components, certain of the Company and its affiliates 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.

      On September 20, 2002, Loral entered into an agreement with APT pursuant to which Loral will purchase a 50% interest in the Telstar 18/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 Telstar 18/Apstar V satellite, which purchase price will be adjusted if the actual project cost is greater or less 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. Telstar 18/Apstar V will have a total of 54 transponders, comprised of 24 standard C-band transponders, 14 extended C-band transponders and 16 Ku-band transponders. Under this transaction, Loral has agreed to

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      Pursuant to Loral’s agreement with APT, Loral will pay one-half of its purchase price prior to launch for 13.5 transponders on the satellite, a portion of which will 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 consolidated balance sheet as of December 31, 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 Orion 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 these transponders will pass to Loral upon its payments thereon. This agreement results in a proportionate amount of the Telstar 18/ Apstar V satellite becoming a self-constructed asset in Loral’s consolidated financial statements. For the year ended December 31, 2002, $71 million of revenues and $14 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 of $23 million are being treated for accounting purposes as a repurchase obligation based on the present value of such obligations and are included in satellites under construction and long-term liabilities on Loral’s consolidated balance sheet as of December 31, 2002. As a result of finalizing the Telstar 18/ Apstar V launch arrangements in March 2003, Loral agreed to take two fewer transponders without any corresponding change to the transponder cost borne by each of the parties.

Contractual Obligations and Other Commercial Commitments

      The following tables aggregate the contractual obligations and other commercial commitments of Loral as of December 31, 2002 (in thousands).

Contractual Obligations:

Other Commercial Commitments:

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(3)	SS/L has entered into various purchase commitments with suppliers due to the long lead times required to produce purchased parts and launch vehicles. The commitments included for unassigned launch vehicles represent minimum amounts due if the contract is terminated, net of deposits which the Company believes can be offset against these minimum amounts. Additional amounts will be incurred upon utilization of launch vehicles. Also includes amounts due to APT for Loral’s purchase of transponders on Telstar 18/Apstar V.
(4)	Primarily represents vendor financing related amounts owed to subcontractors, of which $47 million is non-recourse to SS/ L in the event of non- payment by Globalstar due to bankruptcy, and orbital incentive payments owed to a subcontractor for which SS/ L has a corresponding long-term receivable from the customer.
(5)	Preferred stock can be redeemed in cash, Loral common stock or a combination of both.
(6)	Letters of credit have a maturity of one year and are renewed annually.

     The Company has deferred revenue and established warranty obligations relating to satellites sold to customers which could be impacted by future performance. A reconciliation of such deferred amounts for the year ended December 31, 2002 is as follows (in millions):

Affiliate Matters

      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 December 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.

      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 (now Boeing Satellite Systems “Boeing”) and launched in 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. In connection with this loss, Satmex recognized after-tax gains of $5 million in 2002 and 2001 and $67 million in 2000, which resulted from the insurance proceeds in excess of the carrying amount of the satellite and the estimated incremental costs associated with providing replacement capacity, as required by its contracts with its customers. Satmex has contracted with SS/L to build a replacement satellite. This satellite, known as Satmex 6, is scheduled to be launched in the third quarter of 2003, and is designed to provide broader coverage and higher power levels than any other satellite currently in the Satmex fleet.

      Satmex is currently pursuing loans supported by export credit agencies to raise additional financing for its Satmex 6 satellite project. On March 6, 2003 the Export Import Bank of the United States (“Eximbank”),

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      At December 31, 2002, Solidaridad 2 had a remaining estimated useful life of six years. Solidaridad 2 was also manufactured by Boeing and is similar in design to Solidaridad 1 and to other Boeing satellites which have experienced in-orbit component failures. While Satmex was able to obtain a renewal of the in-orbit insurance for Solidaridad 2 in November 2002, this policy does 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 Boeing satellites. An uninsured loss of the satellite could have a material adverse effect on Satmex’s results of operations and financial condition.

      In May 2000, Satelites Enigma S.A. de C.V., a subsidiary of Principia, S.A. de C.V. (“Principia”), exercised its option to purchase 104,105 shares of Satmex preferred stock from Loral for $6.6 million in cash. Loral realized a gain of $1 million in connection with this transaction.

      Europe*Star

      Europe*Star, a joint venture between Loral and Alcatel that owns and operates the Europe*Star 1 satellite, commenced service in 2001 and is a member of the Loral Global Alliance, which is led by Loral Skynet. Through December 31, 2002, Loral has invested $76 million in Europe*Star (including $4 million and $6 million in 2001 and 2000, respectively) and had provided advances (vendor financing and receivables) of $38 million related to Europe*Star. In the fourth quarter of 2002, the Company’s investment in Europe*Star was reduced to zero, as the Company recorded valuation allowances of $38 million on the vendor financing and the receivables advanced due to collection concerns and recorded an impairment charge relating to its investment in Europe*Star of $7 million. As a result, any future losses attributable to Europe*Star will not be recognized by Loral. As of December 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 by Europe*Star on demand. Such loans are non-recourse to Loral.

      XTAR, L.L.C.

      XTAR, a 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 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 addition, XTAR has agreed to lease certain transponders on the Spainsat satellite, which is being constructed by SS/L for Hisdesat. As of December 31, 2002, the partners in proportion to their respective ownership interests have contributed $55 million to XTAR. XTAR is seeking to raise the remaining amount of the funds it needs to construct and launch its satellite through vendor and other third-party financings. If XTAR is unable to raise the remaining funds it needs to construct, launch and operate its satellite, it would adversely effect the Company’s investment in XTAR of $25 million at December 31, 2002. Loral has no further obligations with respect to XTAR.

      FSS Affiliate Results

      Total affiliate revenues for Satmex, Europe*Star and XTAR were $101 million, $142 million and $136 million in 2002, 2001 and 2000, respectively. EBITDA on the same basis was $43 million, $70 million and $77 million, respectively.

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      Globalstar and GTL

      The Company accounts for its investment in Globalstar on the equity method due to its inability to control significant operating decisions at Globalstar. In 2000, Loral’s allocated share of Globalstar’s losses and Globalstar’s impairment charges reduced Loral’s investment in and advances to Globalstar to zero (see below). Accordingly, there is no longer any requirement for Loral to provide for its allocated share of Globalstar’s net losses subsequent to December 31, 2000. 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 12 to Loral’s consolidated financial statements). The Company recorded unrealized net (losses) gains after taxes as a component of other comprehensive (loss) income of $(13) million, $(12) million and $33 million in 2002, 2001 and 2000, respectively, in connection with this security.

      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 (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 bankruptcy 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 $74 million of vendor financing that SS/L has provided to Globalstar at December 31, 2002, which includes $47 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.

      On February 25, 2003, Globalstar entered into, and on March 6, 2003, the Court approved, a debtor-in-possession (“the DIP Agreement”) credit agreement with Blue River Capital LLC, Columbia Ventures Corporation, ICO Investment Corp., Iridium Investors, LLC and Loeb Partners Corp. Pursuant to this DIP Agreement, these five lenders, of whom three are members of Globalstar’s official unsecured creditors’ committee, will make up to $10 million available to Globalstar on the terms and subject to the conditions set forth in the DIP Agreement. The Court also granted Globalstar’s motion to establish, and Globalstar has commenced, a process to find potential outside investors to help the company emerge from bankruptcy. There can be no assurance that Globalstar will be successful in finding such additional investors, that Globalstar and its creditors will be able to reach an agreement with any interested investors, that any proposed plan of reorganization for Globalstar will be approved by the Court or that Globalstar will be successfully reorganized.

      On March 14, 2003, Loral signed a term sheet with Globalstar and Globalstar’s official creditors committee to resolve certain issues related to Globalstar and Globalstar’s restructuring. Among other things, the settlement incorporated in the term sheet, which is subject to definitive documentation and approval by the Court (as to which there can be no assurance), Globalstar would grant to Loral, subject to certain conditions, a general release of all claims Globalstar might have against Loral; the parties would seek to provide Loral with one seat on the board of directors of reorganized Globalstar; approximately 50% of Loral’s unsecured claims against Globalstar would be allowed, or approximately $438 million; and the debt owed to Globalstar by three foreign service providers in which Loral has a substantial equity interest (Globalstar do Brasil, Globalstar de Mexico and GlobalTel), of an aggregate of $7.2 million would be eliminated. In consideration, Loral would transfer to Globalstar eight spare satellites ordered by Globalstar but not fully paid for; certain agreements that provided a joint venture in which Loral is a participant with exclusivity in marketing certain Globalstar services in the U.S. would be terminated, with a new joint venture being formed among Globalstar and Loral to exclusively market Globalstar services to certain governmental agencies in the U.S.; the FCC license authorizing the Globalstar service, which in any event was being held by a joint venture in which Loral is a participant for the exclusive benefit of Globalstar, would be transferred to Globalstar; Loral’s equity interest in the Globalstar Canadian service provider would be transferred to Globalstar; a $10 million obligation of the Canadian service provider owed to Loral at December 31, 2002 would be reduced by $7.2 million and the remaining debt obligation would be converted from a demand note into a five-year term note; Loral’s unsecured claims against Globalstar would be reduced by approximately 50% or approximately $438 million; the unused prepayment ($2,260,000) on a Globalstar contract under which there

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      As of December 31, 2002, the Company’s investment in Globalstar related activities was $20 million, representing 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 December 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 operations of those Globalstar service provider ventures in which it participates as an equity owner was $1 million in 2002 and is expected to be zero in 2003. In 2002, the Company paid $10 million it had guaranteed in connection with a Globalstar service provider partnership. 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.

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 (six transponders). Depending on the contract, Loral Skynet may be required to replace 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. It is also possible that one or more transponders on a satellite may need to be removed from service to accommodate the power loss and to preserve full performance capabilities of the remaining transponders. 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.

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      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 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. SS/L had suspended work on this program since December 2001 while the customer and SS/L were in discussions to resolve a dispute under the contract. In March 2003, SS/L and the customer reached an agreement in principle to restart the satellite construction program. As of December 31, 2002, SS/L had billed and unbilled accounts receivable and vendor financing arrangements of $49 million with this customer. Under the agreement, which is subject to documentation in definitive amendments to their contract, the customer will pay, subject to its receipt of a proposed third party equity investment, the remainder of the purchase price under the contract of $68.1 million (including $49 million owed to SS/L at December 31, 2002) in installments over time, a portion of which will be due subsequent to completion of the satellite.

      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. 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 provided both parties with an opportunity to file any additional claims or counterclaims they had. 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. On January 27, 2003, Loral and SS/L received from the arbitral tribunal a partial decision on the additional claims and counterclaims. The arbitral tribunal ruled in favor of Alcatel on most of its claims alleging breaches of the Operational Agreement or Alliance Agreement and ruled against Loral and SS/L on the counterclaims. The arbitral tribunal set a schedule for further submissions by the parties and for hearings to be held in May and August 2003 to determine whether any of the breaches caused Alcatel to suffer injury and to determine the amount of damages, if any. If the arbitral tribunal finds that Alcatel has sustained significant damages, there could be a material adverse effect on Loral’s consolidated financial position and results of operations.

      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.

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      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 $12 million 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.

      As of December 31, 2002, SS/L had outstanding vendor financing receivables totaling $74 million, including accrued interest, due from Sirius, which is currently in the process of rolling out its business. On March 7, 2003, Sirius completed its recapitalization plan. Under this plan, Sirius received $200 million in cash from third party investors and exchanged approximately $636 million of its debt and all of its $525 million of preferred stock into common stock. As part of this recapitalization, SS/L converted all of its vendor financing receivables into 58,964,981 shares of common stock of Sirius. In 2002, SS/L recorded a valuation allowance on the vendor financing receivables due from Sirius of $33 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’ common stock as of December 31, 2002. Loral has classified the Sirius vendor financing receivable in current assets at December 31, 2002, due to its intent to sell the Sirius common stock within the next year. The value of the shares SS/L received based on the closing price of Sirius’ common stock on March 7, 2003 was $28 million. Accordingly, SS/L will record a non-cash charge to earnings of $10 million in the first quarter of 2003. All future changes in the value of Sirius’ common stock will be recorded as an adjustment to other comprehensive income (loss) until realized. As of March 28, 2003, SS/L had realized net proceeds of $9.0 million from the sale of a portion of its Sirius common stock and gains on such sales of $0.9 million and the market value of its remaining Sirius common shares was approximately $28 million.

      SS/L has entered into several long-term launch services agreements with various launch providers to secure future launches for its customers, including us and our affiliates. Through the assignment of satellites to

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      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 second quarter of 2003. New Skies Satellites has asserted that its non-U.S. ITU filing at 120.8 degrees W.L. has date priority over Loral Skynet’s ITU filing and 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. There can be no assurance, however, that coordination discussions will be successful or that the FCC will grant Loral Skynet’s application or grant the application without adding conditions that may 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 Natelco’s amended complaint filed in March 2003, Natelco has alleged wrongful termination of the joint venture agreement, has asserted claims for breach of contract and fraud in the inducement, and is seeking damages and expenses in the amount of $97 million. 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 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

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      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, which motion is pending before the court. Loral believes that it has meritorious defenses to this class action lawsuit and intends to pursue them vigorously. In addition, the insurers under Loral’s directors and officers liability insurance policy have denied coverage for the case filed by Loral shareholders under the policy and, on March 24, 2003, filed a lawsuit in the Supreme Court of New York county seeking a declaratory judgment upholding their coverage position. Loral believes that the insurers have wrongfully denied coverage and intends to defend against the denial vigorously.

      Loral holds debt obligations from Globalstar (see Note 6 to the consolidated financial statements). 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, 2002, was $3.2 billion. During the second quarter of 2002, the Company recovered a claim with a vendor on the Globalstar program. 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.

      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, 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 December 31, 2002, Loral had no obligation under the guarantee.

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Other Matters

     Insurance Matters

      The Company, like others in the satellite industry, is faced with significantly higher premiums on launch and in-orbit insurance, increasing thresholds in determining total losses for satellites in orbit 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 has increased the cost of doing business. The Company intends to pass on some of the 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.

      While the Company has in the past, consistent with industry practice and the requirements in the Company’s debt agreements, 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. 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, we do not believe that these anomalies will affect Telstar 10/Apstar IIR. The insurance coverage for Telstar 10/Apstar IIR provides for coverage of losses due to solar array failures only in the event of a capacity loss of 75% or more. 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. Moreover, the Company is required under the terms of the Loral SpaceCom and Loral Satellite credit facilities to use the insurance proceeds from any launch or in-orbit failure of a satellite owned by Loral SpaceCom or Loral Satellite to prepay the bank loans, and as a result, these insurance proceeds would not be available to the Company to build a replacement for the lost satellite, which would result in an adverse effect on our future revenue.

     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.

      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

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      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 years ended December 31, 2001 and 2000 (in thousands, except per share amounts):

     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 believes that there will be no effect on the Company’s consolidated financial position or results of operations upon the adoption of SFAS 143 on January 1, 2003.

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      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 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. In the fourth quarter of 2002, the Company adopted the provisions of SFAS 145 and reclassified the previously recorded extraordinary gain of $34 million on Loral Orion’s debt exchanges in 2001 to gain on debt exchanges and investments, net in its consolidated statements of operations (see Liquidity and Capital Resources).

      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.

      SFAS 148

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS 148”), an amendment of FASB Statement No. 123 (“SFAS 123”). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has adopted the amended disclosure requirements in its December 31, 2002 consolidated financial statements and will include such amended disclosures in its future quarterly and annual filings.

      FIN 45

      In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002; while the provisions of the disclosure requirements are effective for financial statements of interim or annual reports ending after December 15, 2002. The Company adopted the disclosure provisions of FIN 45 during the fourth quarter of 2002. The Company is currently evaluating the recognition provisions of FIN 45.

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  Foreign Currency

      The Company, in the normal course of business, is subject to the risks associated with fluctuations in foreign currency exchange rates. Loral entered into forward exchange contracts to establish with certainty the U.S. dollar amount of future anticipated cash receipts and payments and firm commitments for cash payments denominated in a foreign currency. The primary business objective of this hedging program is to minimize the gains and losses resulting from exchange rate changes. The Company’s availability to the foreign exchange market to enter into forward contracts has recently become restricted and could effect its ability to minimize such gains and losses. As of December 31, 2002, the Company had foreign currency exchange contracts (forwards) with several banks to purchase and sell foreign currencies, primarily Japanese yen, with aggregate notionals of $101.8 million. Such contracts were designated as hedges of certain foreign contracts and subcontracts to be performed by SS/L through May 2006. The fair value of these forward contracts based on quoted market prices as of December 31, 2002 and 2001 was $11.7 million and $20.0 million, respectively, and were included in cash and other current assets on the consolidated balance sheets.

      The Company is exposed to credit-related losses in the event of non-performance by counter parties to these financial instruments, but does not expect any counter party to fail to meet its obligation. The maturity of foreign currency exchange contracts held as of December 31, 2002 is consistent with the contractual or expected timing of the transactions being hedged, principally receipt of customer payments under long-term contracts and payments to vendors under subcontracts. These foreign exchange contracts mature as follows (in thousands):