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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

Commission file number 0-22085

LORAL ORION, INC.

500 Hills Drive, Bedminster, NJ 07921

State or Other Jurisdiction of Incorporation:

Delaware

IRS identification number:

52-1564318

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

None

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

11¼% Senior Notes Due 2007

      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 Rule 12 b-2). Yes o          No þ

      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. [Not Applicable]

      The number of shares of common stock, par value $.01 per share of the registrant outstanding as of December 31, 2003 was 100, all of which were owned, directly or indirectly, by Loral Space & Communications Ltd. The aggregate market value of the common shares held by affiliates was zero.

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PART I

Overview

      Loral Orion, Inc. together with its subsidiaries (“Loral Orion”, the “Company”, “we”, “our” and “us”) owns telecommunications satellites and has the rights to numerous well-positioned orbital slots. Our business is managed by Loral Skynet, a division of a subsidiary of our parent, Loral Space & Communications Ltd. (“Loral”). The satellites provide transponder capacity and platforms for use by television and cable networks to broadcast video programming, and by communication service providers, resellers and corporate customers for broadband data transmission, Internet services and other value-added communications services.

      Loral Orion was incorporated on January 22, 1998 in the state of Delaware and was acquired by Loral on March 20, 1998.

Bankruptcy Filings

      On July 15, 2003, Loral, Loral Orion and certain of its subsidiaries, including Loral Asia Pacific Satellite (HK) Limited (“Loral Asia Pacific”), (the “Debtor Subsidiaries” and collectively with Loral, Loral Orion and certain other Loral subsidiaries the “Debtors”), filed voluntary petitions for reorganization under Chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) (Lead Case No. 03-41710 (RDD)), Case Nos. 03-41709 (RDD) through 03-41728 (RDD), collectively, the (“Chapter 11 Cases”). We continue to manage our properties and operate our business as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code.

      We plan to reorganize Loral Orion around our satellites.

      A creditors’ committee has been appointed in the Chapter 11 Cases to represent all unsecured creditors of the Debtors including all holders of our senior unsecured notes, and, in accordance with the provisions of the Bankruptcy Code, has the right to be heard on all matters that come before the Bankruptcy Court.

      As provided by the Bankruptcy Code, the Debtors had the exclusive right to submit a plan (or plans) of reorganization for 120 days from the date of the Chapter 11 filing. On November 12, 2003, the Bankruptcy Court extended this exclusive period for another 120 days. On March 16, 2004, a hearing will be held to consider a further extension of the exclusivity period. We have no assurance that this extension request will be granted. If we fail to file our plan of reorganization during the exclusive period, or if we file a plan of reorganization and the required number of creditors do not approve our plan of reorganization within the required period, any party in interest may subsequently file its own plan of reorganization for the Debtors, including Loral Orion and its Debtor Subsidiaries.

      As a result of the commencement of the Chapter 11 Cases, the pursuit of all pending claims and litigation against the Debtors, arising prior to or relating to events which occurred prior to the Chapter 11 filing, is generally subject to an automatic stay under Section 362 of the Bankruptcy Code. Absent further order of the Bankruptcy Court, a party is generally prohibited from taking any action to recover any pre-petition claims, enforce any lien against or obtain possession of any property from the Debtors. In addition, pursuant to Section 365 of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory contracts and unexpired leases. Parties whose contracts or leases are rejected may file claims with the Bankruptcy Court.

Business Overview: Satellite Services

      We operate in one business segment, Satellite Services. Loral Skynet, which manages and operates our business, is a leading satellite operator. Our satellites operate in geosynchronous earth orbit approximately 23,000 miles above the equator. In this orbit, satellites remain in a fixed position relative to

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      Customers lease transponder capacity for distribution of network and cable television programming, for direct-to-home (“DTH”) video transmission and for live video feeds from breaking news and sporting events and broadband data distribution. Increasingly, satellites are being used for international communications using Internet Protocol (IP)-based technologies, for high-speed data services for businesses through very small aperture terminal (VSAT) networks, and for distance learning and educational television. We operate in a highly competitive market with other well-established satellite operators including PanAmSat, Intelsat, SES Global, Eutelsat and New Skies. While we also compete with fiber optic cable and other terrestrial delivery systems, satellites are considerably more efficient for certain applications, such as broadcast or point-to-multipoint transmission of video and data. For point-to-point applications, however, fiber may cost less, so satellites compete on the basis of superior reliability, or serve as a back-up service. Satellites also better serve areas with inadequate terrestrial infrastructures, low-density populations or difficult geographic terrain.

      The satellite services market has been characterized in recent years by over-capacity, pricing pressure and increased competition from fiber. The downturn in the telecommunications sector led many existing customers, hampered by a slow-down in demand and lack of access to the capital markets, to postpone expansion plans. Similarly, several start-up companies that leased our satellite capacity for the delivery of new applications failed to meet their business objectives. Our growth will rely on our ability to differentiate ourselves from the competition through customized product offerings, superior customer service and successful marketing of available capacity on our international satellites, which is well positioned to serve regions of the world where demand is growing.

      The following chart presents details on our international satellites:

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Agreements with Loral Skynet and Loral

      Loral Skynet and Loral provide services for us. See Note 11 to the consolidated financial statements.

Satellite Services Performance

     Satellite Services assets were $642.4 million, $658.4 million and $1.3 billion as of December 31, 2003, 2002 and 2001, respectively. As of December 31, 2003 and 2002, backlog was $432 million and $453 million, respectively.

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REGULATION

Telecommunications Regulation

      As an operator of a privately owned global satellite system, we are subject to: the regulatory authority of the U.S. government; the regulatory authority of other countries in which we operate; and the frequency coordination process of the International Telecommunications Union (“ITU”). Our ability to provide satellite services in a particular country or region is subject also to the technical constraints of our satellites, international coordination, local regulatory approval and any limitation to those approvals.

     U.S. Regulation

      The Federal Communications Commission (“FCC”) regulates our U.S.-licensed satellites as well as our non-U.S. licensed satellites authorized to operate in the U.S. We are subject to the FCC’s jurisdiction primarily for the licensing of satellites and earth stations, avoidance of interference with other radio stations and compliance with FCC rules. Violations of the FCC’s rules can result in various sanctions including fines, loss of authorizations, forfeiture of bonds, or the denial of new or renewal authorizations. We are not regulated as a common carrier and, therefore, are not subject to rate regulation or the obligation not to discriminate among customers. We must pay FCC filing fees in connection with our space station and earth station applications and annual fees to defray the FCC’s regulatory expenses We must file annual status reports with the FCC and, to the extent Loral is deemed to be providing interstate/international telecommunications, we must contribute funds supporting universal service. Loral has petitioned the FCC for exemptions from having to pay certain of such fees and contributions. These petitions are under review by the FCC.

          Authorization to Launch and Operate Satellites

      Pursuant to satellite licensing rules issued in 2003, the FCC grants satellite authorizations on a first-come, first-served basis to satellite operators that meet its legal and technical qualification requirements. The FCC often receives multiple applications to operate a satellite at a given orbital slot. There can be no assurance that our applications will be granted. Most satellite authorizations include specific construction and launch milestones; failure to meet them may result in license revocations. Under FCC licensing rules, we must post a bond for up to $5,000,000 when we are granted a satellite authorization. The bond may be forfeited if we fail to meet any of the milestones for satellite construction, launch and commencement of operation. In accordance with the current licensing rules, the FCC will issue new satellite licenses for an initial fifteen-year term and will provide a licensee with an “expectancy” that a subsequent license will be granted for the replacement of an authorized satellite. At the end of a fifteen-year 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 subject to certain restrictions.

      We have 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 11 at 37.5° W.L., Telstar 12 at 15° W.L. and Orion A at 47° W.L. In addition, we have final authorization to operate at the following orbital slots: Ka-band at 15° W.L., 67° W.L., 139° E.L., and 126.5° E.L. Certain of our authorizations are subject to pending petitions for reconsideration or review 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. 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 we are unable to obtain FCC approval to implement its requested technical modifications for any particular authorization, we will be obligated to operate the related satellite in accordance with the original authorization. We also have an application pending before the FCC at 126° E.L. for use of the Ku-band. There can be no assurance that the FCC will grant this application. Even if the FCC grants this application and authorizes construction and operation of the satellite, the FCC may require that we post a bond in the amount of $5,000,000, all or some portion of which may be forfeited to the United States Treasury should the FCC subsequently determine that we failed to meet any of the milestones contained in the authorization.

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      Under the FCC’s rules, an applicant may commence satellite construction prior to receiving an authorization to launch and operate, but must notify the FCC of its intention to do so. The applicant undertakes construction at its own risk. We may begin construction, but must recognize that the FCC may not grant the application, may not assign the satellite to its proposed orbital location, or otherwise may reduce or eliminate the value of the construction begun on the satellite.

          Scope of Services Authorized

      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 our FCC-licensed satellites may be used, to the extent technically feasible, to provide both U.S. domestic and international services.

          Coordination Requirements

      The FCC requires applicants to demonstrate that their proposed satellites would be compatible with the operations of adjacent satellites. Adjacent satellite operators must coordinate with one another to minimize frequency conflicts. The FCC reserves the right to require that an FCC-licensed satellite be relocated if it deems such a change to be in the public interest.

     Regulation by Non-U.S. National Telecommunications Authorities

      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 us to confirm that we have successfully completed technical consultation with other satellite service providers before offering services on a given satellite. In addition, we may be subject to varying communications and/or broadcasting laws with respect to our provision of international satellite services.

      Foreign laws and regulatory practices may be applied or changed in ways that may adversely affect our ability to operate or provide service. There are no guarantees that other countries will grant our applications to construct, launch, operate or provide service via satellites, or extend construction or launch milestones, or that we will be permitted to retain or renew our 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 for the provision of 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. Pursuant to a lease, Loral operates all of the capacity (with the exception of one transponder) on the Telstar 10/ Apstar IIR C/ Ku-band satellite licensed by China and located at 76.5° E.L. We plan to operate the extended C- and Ku-band payload on Telstar 18/ Apstar V at 138° E.L. using licenses provided by China and Tonga, respectively.

          The ITU Frequency Coordination Process

      All satellite systems are subject to ITU frequency coordination requirements and must obtain appropriate authority to provide service in a given territory. 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.

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      All of our satellite registrations are or will be subject to the ITU coordination process. There may be more than one ITU filing submitted for a particular orbital slot, or one adjacent to it, thus requiring coordination between or among the affected operators. Loral cannot guarantee successful frequency coordination for its satellites.

Export Regulation

      Commercial communication satellites and certain related items, technical data and services, are subject to United States export controls. These laws and regulations affect the export of products and services to foreign launch providers, subcontractors, 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 are subject to the Arms Export Control Act and the International Traffic in Arms Regulations. Export jurisdiction over these products and services resides with the U.S. Department of State. Other Loral exports remain subject to the 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 satellites and related items, technical data and services are exported and may be required before they 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.

FOREIGN OPERATIONS

      Sales to foreign customers, primarily in Europe and Asia, represented 38%, 43% and 44% of our consolidated revenues for 2003, 2002 and 2001, respectively. With the exception of our satellites in orbit, our long-lived assets are primarily located in the United States. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition — Commitments and Contingencies — We face risks in conducting business internationally” for a discussion of the risks related to operating internationally.

EMPLOYEES

      As of December 31, 2003, we had no full time employees. See Loral Skynet Agreements in Note 11 to the consolidated financial statements.

AVAILABLE INFORMATION

      Loral Orion makes available free of charge through Loral’s 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.

      We do not own or lease office space. See Loral Skynet Agreements in Note 11 to the consolidated financial statements.

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      We are subject to 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, we do not believe that any of these existing legal matters will have a material adverse effect on our consolidated financial position or results of operations.

      None.

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PART II

      All of our outstanding common stock is owned, directly or indirectly, by Loral Space & Communications Corporation, a wholly owned subsidiary of Loral. Therefore, there is no public trading market for our common stock. We have never paid dividends on our common stock. Our indenture relating to our 10% senior notes obligations includes certain restrictions on our ability to pay dividends or make loans to our parent.

      The Debtors will not pay any dividends or make any distributions during the pendency of the Chapter 11 Cases. The ability of the Debtors to pay dividends or distributions following any emergence from Chapter 11 will depend on various factors that cannot be determined at this time.

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

LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR IN POSSESSION

(1)	On January 1, 2002, we recorded a charge of $562 million to write-off all of our goodwill as the cumulative effect of change in accounting principle (see Note 4 to the consolidated financial statements).
(2)	As a result of our Chapter 11 filing, our debt obligations and certain other liabilities existing at July 15, 2003, have been classified as liabilities subject to compromise on our balance sheet as of December 31, 2003 (see Note 5 to the consolidated financial statements).
(3)	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 0.6 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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      The following discussion and analysis should be read in conjunction with our consolidated financial statements included in Item 8.

      We use the terms “Loral Orion,” “the Company,” “we,” “our,” and “us” in this report to refer to Loral Orion and its subsidiaries.

Disclosure Regarding Forward-Looking Statements

      Except for the historical information contained in the following discussion and analysis, the matters discussed 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, we or our representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts. These forward-looking statements can be identified by the use of words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should,” “anticipates,” “estimates,” “project,” “intend,” or “outlook” or other variations of these words. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or quantify. Actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond our control. These include the development of a plan of reorganization, confirmation of the plan by the Bankruptcy Court and the ability to maintain good relations with our customers and suppliers. For a detailed discussion of these and other factors and conditions, please refer to the Commitments and Contingencies section below and to other periodic reports filed with the SEC by Loral Orion. In addition, we caution you that we operate in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond our control. We undertake no obligation to update any forward-looking statements.

Overview

      Our business is managed by Loral Skynet, a division of a subsidiary of our parent Loral Space & Communications Ltd. (“Loral”), who leases satellite capacity on our satellites and platforms to our customers for video and direct-to-home (DTH) broadcasting, high-speed data distribution, Internet access, communications and networking services. The satellite services business is capital intensive and highly competitive. We compete with other satellite operators and with ground-based service providers. The build-out of a satellite fleet requires substantial investment. Once these investments are made, however, the costs to maintain and operate the satellites are relatively low. The upfront investments are earned back through the leasing of transponders to customers over the life of the satellite. Beyond construction, one of the major cost factors is in-orbit insurance, an essential component given the harsh and unpredictable environment in which the satellites operate. Annual receipts from this business are fairly predictable because they are based on an established base of long-term customer contracts. In 2003, satellite services sales were $93.6 million. Worldwide Satellite Services industry sales in 2002 were approximately $7 billion, according to available industry estimates. Backlog at December 31, 2003 was $432 million.

      The satellite services market has been characterized in recent years by over-capacity, pricing pressure and increased competition from fiber. The downturn in the telecommunications sector led many existing customers, hampered by a lack of access to the capital markets and a slow-down in demand, to postpone expansion plans. Similarly, several start-up companies that leased our satellite capacity for the delivery of new applications failed to meet their business objectives. Our growth will rely on our ability to differentiate ourselves from the competition through customized product offerings, superior customer service and successful marketing of available capacity on our satellites, which is well positioned to serve regions of the world where demand is growing.

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      We operate in extremely competitive markets characterized in recent years by over-capacity and pricing pressures brought on by the global economic downturn. Our existing and potential customers, having limited access to the capital markets, postponed or reduced the scope of their planned satellite-based applications and services. This resulted in an excess of transponder capacity. In the face of these pressures, we further increased our emphasis on cash conservation over the last 18 months, reducing operating expenses and closely monitoring capital expenditures. The sustained and unprecedented decline in demand for our satellite services, however, exacerbated our already strained financial condition. On July 15, 2003, Loral, Loral Orion and certain of their subsidiaries, including Loral Asia Pacific Satellite (HK) Limited, filed voluntary petitions for reorganization under Chapter 11. As a result of our Chapter 11 filing, all of our prepetition debt obligations aggregating $920 million at December 31, 2003 ($699 million principal amount), including our 10% senior notes obligations, have been accelerated. On July 15, 2003, we suspended interest payments on all of our senior unsecured notes, with a principal amount of $699 million.

      For the duration of the bankruptcy proceedings, our business is subject to risks and uncertainties of bankruptcy (see “Commitments and Contingencies” section below for examples of such risks and uncertainties).

     Future Outlook

      We intend to reorganize around our satellites, which cover regions with high growth potential, such as South East Asia and South America, where the ground infrastructure is inadequate to support increased demand. We consider these operations to be a viable foundation for the further expansion of our company. We anticipate using excess cash flows from operations to populate our available slots with satellites to meet market demand. We are in the process now of completing our long-term business plan. We believe the plan is sound and that we will not require any additional financing to fund operations. At this time, however, it is impossible to predict accurately the effect of the Chapter 11 reorganization on us, when we may emerge from Chapter 11 and what our capital structure will be. The rights and claims of various creditors and security holders will be determined by our plan of reorganization. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in any of such securities and claims.

      Critical success factors for us include Loral Skynet maintaining its reputation of reliability, quality and superior customer service. During reorganization, in particular, these factors are vital to securing new customers and retaining current ones. In addition, we must continue to contain costs and maximize the efficiency of our operations. Loral Skynet is focused on increasing the capacity utilization of our satellites.

      See Part 1, Item 1, for a complete description of our business and our Chapter 11 Cases.

Consolidated Operating Results

      Please refer to Critical Accounting Matters further on in this section.

      The accompanying consolidated financial statements have been prepared assuming the Company, in its current structure, will continue as a going concern. However, the factors mentioned above, among other things, raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The ability of the Company to continue as a going concern is dependent on a number of factors including, but not limited to, developing a plan of reorganization, confirmation of the plan by the Bankruptcy Court and maintaining good relations with our customers. If a plan of reorganization is not confirmed and implemented, we may be forced to liquidate under applicable provisions of the Bankruptcy Code. There can be no assurance of the level of recovery that our creditors would receive in the event of a liquidation. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities if we were forced to liquidate.

      The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization.” In evaluating financial performance, we use revenues and operating income (loss) from continuing

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      We believe the use of Adjusted EBITDA along with GAAP financial measures enhances the understanding of our operating results and is useful to investors in comparing performance with competitors, estimating enterprise value and making investment decisions. Adjusted EBITDA allows investors to compare operating results of competitors exclusive of depreciation and amortization, a useful tool given the significant variation that can result from the timing of capital expenditures, the amount of intangible assets recorded and the differences in assets’ lives. Adjusted EBITDA as used here may not be comparable to similarly titled measures reported by other companies. We also use Adjusted EBITDA to evaluate operating performance, to allocate resources and capital, and to evaluate future growth opportunities. See the table below for reconciliations of Adjusted EBITDA to net loss.

      The following discussion of revenues and Adjusted EBITDA reflects the results of our operating businesses for 2003, 2002 and 2001. The balance of the discussion relates to our consolidated results, unless otherwise noted. Our business has been adversely affected by the global economic downturn, which has caused a delay in demand for new telecommunications applications and services.

Revenues from Continuing Operations (in millions):

Adjusted EBITDA (in millions):

(1)	Represents sales to our discontinued operation (formerly the data business).

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2003 Compared with 2002 and 2001

     Revenues from Satellite Services

      Revenues from Satellite Services decreased $16.1 million in 2003 as compared to 2002 primarily due to decreases in prices of $31.0 million and customer termination fees of $0.3 million, offset by increased transponder utilization of $15.2 million. Revenues from Satellite Services decreased $18.4 million in 2002 as compared to 2001 primarily due to lower revenue from the Company’s former data service business of $10.2 million and reduced transponder utilization of $13.2 million, offset by an increase in transponder pricing of $2.5 million and higher customer lease termination fees of $2.5 million. Eliminations of $19.2 million in 2001 consist of revenues from leasing transponder capacity to the Company’s former data service business. As a result of the above, revenues from Satellite Services as reported decreased $16.1 million in 2003 and increased $0.8 million in 2002, as compared to the respective prior year.

     Cost of Satellite Services

      The increase of $19.3 million in 2003 as compared to 2002 was primarily due to (i) higher depreciation of $14.3 million for our Telstar 11 satellite which we determined in the fourth quarter of 2003, would go out of service in June 2004 (earlier than its previously expected end of life of March 2005), (ii) losses on equipment disposals of $2.2 million in 2003, (iii) increased costs of $2.3 million allocated from Loral Skynet due to an amendment to the agreement to reflect a price increase and (iv) a net increase in insurance costs of $0.8 million, resulting from a higher premium on renewal and changes to coverage requirements for Telstar 10/ Apstar IIR, offset by the non-renewal of insurance for Telstar 11 in 2003. The decrease of $15.8 million in 2002 as compared to 2001 was primarily due to lower depreciation and amortization of $18.7 million, ($15.5 million of amortization expense for goodwill resulting from the adoption of SFAS No. 142 on January 1, 2002 (as we wrote-off our remaining balance of goodwill, see Note 4 to the consolidated financial statements) and the timing of assets placed into service of $3.2 million). This was offset by increased insurance costs of $2.7 million, resulting from renewing the insurance for Telstar 10/ Apstar IIR after September 11, 2001. The increases in cost of satellite services as a percentage of revenues in 2003 as compared to 2002, was affected by reduced revenues. The decrease in cost of satellite services as a percentage of revenues in 2002 and 2001 was primarily due to reduced amortization expense for goodwill.

     Selling, General and Administrative Expenses

      The increase of $2.7 million in 2003 as compared to 2002 was primarily due to higher bad debt expense of $1.2 million and higher expenses of $1.2 million allocated from Loral Skynet. The increase of $0.3 million in

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     Reorganization Expenses Due to Bankruptcy

      Reorganization expenses due to bankruptcy in 2003 were $5.6 million for the period from July 15, 2003 (date of filing) to December 31, 2003, which includes the allocation from Loral of professional fees of $5.5 million associated with bankruptcy services and employee retention costs of $0.3 million, offset by interest and investment income earned of $0.2 million (which represents the interest earned subsequent to filing bankruptcy).

     Interest and Investment Income

      The decrease in interest and investment income in 2003 as compared to 2002 was principally due to lower average cash balances prior to filing for bankruptcy and interest income earned on available cash balances subsequent to filing for bankruptcy being reclassified into reorganization expenses.

     Interest Expense

      Interest cost before capitalized interest decreased $5.9 million in 2003 as compared to 2002, which was primarily attributable to the fact that subsequent to Loral Orion’s voluntary petitions for reorganization on July 15, 2003, we stopped recognizing and paying interest on all of our debt obligations. Interest cost before capitalized interest decreased $85.0 million in 2002 as compared to 2001, primarily because we did not recognize any interest expense on our 10% senior notes issued in connection with the exchange offers completed in December 2001 for our senior notes and our senior discount notes. Interest expense on our 10% senior notes was fully offset by amortization of the deferred gain on the exchange offers (see Note 6 to the consolidated financial statements). Capitalized interest increased $0.6 million in 2003 and $0.3 million in 2002 as compared to the respective prior year, primarily due to higher satellite under construction balances for Telstar 18/ Apstar V. As a result of the above, interest expense decreased $6.5 million and $85.3 million, respectively, as compared to the respective prior year.

     Gain on Debt Exchange

      During December 2001, we recorded a gain of $34.5 million related to our debt exchanges (see Note 6 to the consolidated financial statements).

     Income Tax Provision

      During 2003, we continued to maintain a 100% valuation allowance against our net deferred tax assets and recorded no benefit for our loss. For 2003, we recorded an income tax provision of $2.9 million on a pre-tax loss of $42.9 million primarily related to the tax sharing agreement with Loral Space & Communications Corporation. This compares to income tax provisions for 2002 and 2001 of $16.1 million and $4.0 million on pre-tax losses of $5.1 million and $72.2 million, respectively.

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      At December 31, 2002, we recorded a 100% valuation allowance against our net deferred tax assets under the criteria of SFAS No. 109, Accounting for Income Taxes. The increase in tax expense in 2002 when compared to 2003 and 2001 was primarily attributable to an increase in the deferred tax valuation allowance. See Critical Accounting Matters.

     Loss from Discontinued Operation

      Represents our former data business that was sold in December 2001. See Note 12 to the consolidated financial statements.

     Cumulative Effect of Change in Accounting Principle

      On January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which resulted in our recording a charge to write-off all of our goodwill of $562 million as the cumulative effect of change in accounting principle. See Note 4 to the consolidated financial statements.

Satellite Services Performance

      See Revenues from Satellite Services, Cost of Satellite Services and Selling, General and Administrative Expenses, for an explanation of the changes in these items for the periods presented. The net increase in depreciation and amortization expense of $14.2 million in 2003 as compared to 2002, was primarily due to higher depreciation on our Telstar 11 satellite which we determined in the fourth quarter of 2003, would go out of service in June 2004 (earlier than its previously expected end of life of March 2005). The decrease in depreciation and amortization expense of $18.7 million in 2002 as compared to 2001 was primarily due to a $15.5 million decrease in amortization expense for goodwill resulting from the adoption of SFAS No. 142. As a result of the above, Adjusted EBITDA decreased $23.9 million in 2003 and decreased $2.4 million in 2002 as compared to the respective prior year.

      As of December 31, 2003, we had three satellites in-orbit and one under construction (see Note 9 to the consolidated financial statements). At December 31, 2003 and 2002, our backlog totaled $432 million and $453 million, respectively. Approximately $70 million of the 2003 backlog is expected to be realized in 2004. Capital expenditures were approximately $20 million in 2003 and are expected to decrease in 2004, due to the planned launch of our Telstar 18/ Apstar V satellite in 2004.

Critical Accounting Matters

      The preparation of financial statements in conformity with U.S. GAAP requires us 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.

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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 satellite’s in-service date and re-evaluated periodically. A decrease in the useful life of a satellite would result in increased depreciation expense. See Note 9 to the Consolidated Financial Statements regarding the change in the life of Telstar 11.

      We are required to estimate the collectibility of our receivables. A considerable amount of judgment is required in assessing the collectibility of these receivables, including the current creditworthiness of each customer and related aging of the past due balances. Charges for bad debts recorded to the income statement on receivables during 2003 and 2002 were $1.9 million and $0.7 million, respectively. At December 31, 2003 and 2002, receivables were net of allowances for doubtful accounts of $2.5 million and $1.1 million, respectively. We evaluate specific accounts when we become 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 us and are re-evaluated periodically.

          Taxation

      We file our U.S. federal income tax return on a consolidated basis with our parent company, Loral Space & Communications Corporation. Pursuant to annual tax sharing agreements with our parent, we are entitled to reimbursement for the parent’s use of our net operating losses. We have been credited with cumulative reimbursements of $45.8 million through December 31, 2003 (see Note 11 to the consolidated financial statements).

      We use 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.

      Realization of the net deferred tax assets is dependent on our ability to generate future taxable income and our utilization of tax planning strategies. We assess the recoverability of our loss carryforwards and other deferred tax assets on a quarterly basis and, based upon this analysis, record a valuation allowance to the extent recoverability does not satisfy the “more likely than not” recognition criteria in SFAS No. 109. Based upon this analysis, we concluded during the fourth quarter of 2002 that, due to insufficient positive evidence substantiating recoverability, a 100% valuation allowance should be established for the entire balance of our net deferred tax assets. During 2003, we recorded no benefit for our loss and continued to maintain the valuation allowance, increasing the reserve by $9.0 million to a balance of $186.4 million.

      We will maintain the valuation allowance until sufficient positive evidence exists to support its reversal. When we determine that we will be able to realize all or part of the benefit from our deferred tax assets, reversal of the valuation allowance will increase income in the period such determination is made.

          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.

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Liquidity and Capital Resources

Cash and Available Credit

      As of December 31, 2003, we had $47 million of cash. Cash flow from Satellite Services is fairly predictable because it is based on an existing base of long-term customer contracts.

Contractual Obligations⁽¹⁾:

(1)	Pursuant to Section 365 of the Bankruptcy Code, Loral Orion and its Debtor Subsidiaries may reject or assume prepetition executory contracts and unexpired leases, and parties affected by rejections of these contracts or leases may file claims with the Bankruptcy Court which will be addressed in the context of the Chapter 11 Cases. The above table includes amounts that are subject to compromise under a plan of reorganization including all of our debt. See Note 5 to the consolidated financial statements for further detail on liabilities subject to compromise.
(2)	Includes cash obligations for principal payments and the $214 million difference in the carrying value and principal amount for our 10% senior notes that was amortized over the life of the notes. As a result of our Chapter 11 filing on July 15, 2003, all of our debt obligations, with an aggregate principal amount of $699 million, have been accelerated. We have also stopped accruing and paying interest on all of our debt obligations. This has significantly reduced our cash interest payments in 2003. See Note 6 to the consolidated financial statements for further detail on our debt obligations.
(3)	Represents amounts due to APT for our share of the project cost of Telstar 18/ Apstar V (included in long-term liabilities) and satellite incentive payments (included in liabilities subject to compromise).

      Net cash provided by operating activities for the year ended December 31, 2003 was $55 million. This was primarily due to net income as adjusted for non-cash items of $54 million.

      Net cash provided by operating activities for the year ended December 31, 2002 was $88 million. This was primarily due to net income as adjusted for non-cash items of $88 million.

      Net cash used in investing activities was $20 million and $18 million for the years ended December 31, 2003 and 2002, respectively, primarily for capital expenditures for the construction of our Telstar 18/ Apstar V satellite and related equipment.

      Net cash used in financing activities was $31 million and $46 million for the years ended December 31, 2003 and 2002, respectively, resulting from interest payments on our 10% senior notes.

Related Party Transactions

      See Note 11 to the consolidated financial statements for details of our related party transactions.

Commitments and Contingencies

      Our business and operations are subject to a significant number of risks, the most significant of which are summarized below.

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I. Financial Risk Factors

We filed for bankruptcy protection on July 15, 2003 and are subject to its associated risks and uncertainties.

      The Chapter 11 Cases could adversely affect relationships with our customers. This in turn could adversely affect the going concern value of our business and of its assets, particularly if the Chapter 11 Cases are protracted. Also, transactions outside the ordinary course of business will be subject to the prior approval of the Bankruptcy Court which may limit our ability to respond to certain market events or take advantage of certain market opportunities, and, as a result, our operations could be materially adversely affected.

      As a result of the Chapter 11 Cases, all $699 million principal amount of our debt has been accelerated. During the pendency of the Chapter 11 Cases, we have not paid, and will not pay, interest on our debt. Although we and our Debtor Subsidiaries expect to file a plan or plans of reorganization that provide for emergence from Chapter 11 reorganization sometime in 2004, we cannot now describe the components or features of the plan, including whether the plan will provide for creditors to be paid in whole or in part or whether consideration they will receive will consist of cash, debt, or some combination thereof. In addition, there can be no assurance that we will be able to propose a plan, obtain court approval of any plan we propose, obtain acceptances from the number of creditors necessary to confirm a plan, or actually confirm and consummate a plan.

Our emergence from Chapter 11 reorganization depends on the success of our business plan and our ability to generate enough cash to pay our obligations and fund our operations.

      We intend to reorganize around our satellites. As discussed in our Overview, we operate in highly competitive markets. Our overall financial condition and outstanding debt are factors that potential customers will consider prior to contracting for satellite services. Our success depends on our ability to respond to these financial concerns and perform on a cost-effective and timely basis.

There may be certain tax implications upon our emergence from Chapter 11 reorganization.

      As of December 31, 2003, we had net operating loss carryforwards, or NOLs, of approximately $438 million that can be used to offset future taxable income. However, our ability to use these NOLs may be impaired in the future depending upon various factors relating to our plan of reorganization, such as how creditor claims are satisfied, how the equity interests in Loral as a reorganized company are distributed, the extent of any capital infusion by new investors, and Loral’s value and our level of debt at the time we emerge from bankruptcy, which are all unknown at this time. Moreover, if it is determined that Loral experienced an “ownership change” during the three-year period preceding our emergence from bankruptcy, future use of these NOLs would be severely limited. An ownership change would be triggered if shareholders owning 5% or more of Loral’s total equity value change their holdings during this three-year period by more than 50% in the aggregate. On August 22, 2003, the Bankruptcy Court entered an order to assist us in protecting our NOLs by establishing procedures that would require certain proposed acquirers of Debtor’s securities, including our senior unsecured notes, to notify us about a prospective acquisition, thus giving us an opportunity to file an objection with the Bankruptcy Court if we deem necessary. There is no guarantee that the Bankruptcy Court will rule in our favor in the event of a dispute between a proposed acquirer and us. A ruling against us could jeopardize a substantial portion of our NOLs.

II. Operational Risk Factors

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 complete or partial 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; launch failures may therefore result in uninsured economic losses. Replacing a lost satellite typically requires at least 24 months from contract execution to launch.

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After launch, our satellites remain vulnerable to in-orbit failures which may result in reduced revenues and profits.

      In-orbit damage to or loss of a satellite before the end of its expected life results from various causes, some random, including component failure, degradation of solar panels, loss of power or fuel, inability to maintain the satellite’s position, solar and other astronomical events, and space debris. Satellites are built with redundant components to permit their continued operation in case of a component failure. One of our satellites is currently operating using a back-up component because of the failure of a primary component. If this back-up component fails and the primary component cannot be restored, this satellite could lose capacity or be a total loss resulting in a loss of revenues and profits. Repair of satellites in space is not feasible.

It may be difficult to obtain full insurance coverage for satellites that have, or are part of a family of satellites that has, experienced problems in the past.

      We cannot assure that, upon the expiration of an insurance policy, we will be able to renew the policy on terms acceptable to us. Insurers may require either exclusions of certain components or may place similar limitations on coverage in connection with insurance renewals for such satellites in the future. An uninsured loss of a satellite would have a material adverse effect on our financial performance. For further details see Note 9 to the consolidated financial statements.

Like other satellite operators, we are faced with increased launch and in-orbit insurance premiums and shorter coverage periods.

      Insurers also have made more stringent the coverage terms of our launch and in-orbit insurance. At the same time, the cost of obtaining this insurance has increased significantly. While these developments in the insurance industry have increased our cost of doing business there can be no assurance that we will be able to pass the cost on to our customers. For further details see Note 9 to the consolidated financial statements.

Our business competes with other providers for market share and customers.

      We face heavy competition in the transponder leasing business from companies such as PanAmSat Corporation, SES Global, New Skies, Intelsat and Eutelsat. Competition puts downward pressure on prices and may result in the reduced utilization of our satellites’ capacity, both of which may have an adverse effect on our financial performance.

      Our transponder leasing business also competes with fiber optic cable and other terrestrial delivery systems, which have a cost advantage in point-to-point applications. Competition in this sector has increased because there is an over-supply of transponders in the global market, existing customers are using less capacity and fewer new customers are entering the market than in past years. Moreover, we have had a higher rate of customer defaults than in previous years, a trend, if it continues, that may further increase overcapacity.

      As land-based telecommunications services expand and become more sophisticated, demand for some satellite-based services may be reduced. New technology could render satellite-based services less competitive by satisfying consumer demand in other ways or through the use of incompatible standards. We also compete for local regulatory approval in places where more than one provider may want to operate, and for scarce frequency assignments and fixed orbital positions.

Our business is regulated, causing uncertainty and additional costs.

      Multiple authorities regulate our business, including the Federal Communications Commission, the International Telecommunication Union (ITU) and the European Union. Regulatory authorities can modify, withdraw or impose charges or conditions upon, or deny or delay action on applications for, the licenses we need, and so increase our costs.

      To prevent frequency interference, the regulatory process requires potentially lengthy and costly negotiations with third parties who operate or intend to operate satellites at or near the locations of our satellites. For example, as part of our coordination effort on Telstar 12, we agreed to provide four 54 MHz transponders on Telstar 12 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. For further details, see Note 9 to the consolidated financial statements.

We face risks in conducting business internationally.

      For the year ended December 31, 2003, approximately 38% 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.

III. Other Risks

      Litigations and Disputes. See Item 3. Legal Proceedings and Note 9 to the consolidated financial statements.

Other Matters

     Accounting Pronouncements

      During 2003, we adopted certain new accounting pronouncements. There are also other pronouncements that have been issued, but are not yet required to be adopted (see Note 3 to the consolidated financial statements).

      On January 1, 2002, we 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. Our net loss for the year ended December 31, 2001 without the amortization of goodwill would have been $72.7 million, as adjusted, as compared to $88.3 million as reported.

Interest

      As a result of our Chapter 11 filing, all of our debt (aggregating $920 million) has been accelerated and is included in liabilities subject to compromise.

      As of December 31, 2003, the carrying value of our debt obligations was $920 million and the fair value of such debt was $529 million. As of December 31, 2002, the carrying value of our debt obligations was $952 million and the fair value of such debt was $279 million. The fair value of our debt obligations is based on quoted market prices (the fair value for our 11.75% and 12.5% senior notes was based on the quoted market price of our 10% senior notes, as there was no active market for those senior notes). Approximately $214 million and $245 million of the difference between the carrying amount and the fair value of our debt obligations as of December 31, 2003 and 2002, respectively, was attributable to the accounting for our exchange offers (see Note 6 to the consolidated financial statements).

Item 8.     Financial Statements and Supplementary Data

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INDEPENDENT AUDITORS’ REPORT

To the Stockholder of Loral Orion, Inc. (a Debtor In Possession):

      We have audited the accompanying consolidated balance sheets of Loral Orion, Inc. (formerly Loral CyberStar, Inc.) and its subsidiaries (collectively, the “Company”) (a Debtor In Possession) a wholly owned subsidiary of Loral Space & Communications Corporation, as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangibles to adopt the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002.

      As discussed in Note 2 to the consolidated financial statements, the Company has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such consolidated financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to pre-petition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business.

      The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. This factor, among others, raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 2. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.

DELOITTE & TOUCHE LLP

San Jose, California

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LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR IN POSSESSION

See notes to consolidated financial statements

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LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR IN POSSESSION

See notes to consolidated financial statements

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LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR IN POSSESSION