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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, 2003, as reported on the New York Stock Exchange was approximately $133 million.

      At March 1, 2004, 44,125,202 common shares were outstanding.

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PART I

Overview

      Loral Space & Communications Ltd., together with our subsidiaries (“Loral”, the “Company”, “we”, “our” and “us”), is a leading satellite communications company. We own and operate a fleet of telecommunications satellites, manage a global network that integrates our satellites with terrestrial facilities and have the rights to numerous well-positioned orbital slots. Managed by our Loral Skynet division, the fleet provides satellite capacity and platforms for use by television and cable networks to broadcast video programming, and by communication service providers, resellers, corporate and government customers for broadband data transmission, Internet services and other value-added communications services. Our subsidiary, Space Systems/ Loral, Inc. (“SS/ L”), is one of the world’s largest designers and manufacturers of satellites and satellite systems for commercial and government applications including satellite services, television broadcasting, direct-to-home (DTH) television services, broadband communications, military communications, wireless telephony, digital satellite radio, weather monitoring and air traffic management. (See “Segment Overview” below for further details on each of our businesses.)

      On July 15, 2003, Loral and certain of our subsidiaries (the “Debtor Subsidiaries”, and collectively with Loral, 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”). The Debtors include, among others, Loral Space & Communications Corporation, Loral SpaceCom Corporation (“Loral SpaceCom”), Loral Satellite, Inc. (“Loral Satellite”), SS/ L and Loral Orion, Inc. (“Loral Orion”). We continue to manage our properties and operate our businesses as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code. (See “Bankruptcy Filings” below for further details.)

      Also on July 15, 2003, Loral Space & Communications Corporation, Loral SpaceCom and Loral Satellite (collectively, the “Sellers”) entered into a definitive agreement, as amended, (the “Asset Purchase Agreement”) to sell to Intelsat, Ltd. and certain of its affiliated companies (“Intelsat”), satellites serving the North American market. The transaction is expected to conclude by early April 2004. Loral expects to use the proceeds from the sale of the assets to repay its outstanding secured bank debt. On March 5, 2004, we and Intelsat entered into an amendment to the Asset Purchase Agreement, the effectiveness of which is subject to approval by the Bankruptcy Court and Intelsat’s bank lenders (See “Sale of Assets” below for further details).

      We plan to reorganize Loral around our remaining fleet of international satellites and our satellite manufacturing business.

      Loral was incorporated on January 12, 1996, as a Bermuda exempt company and has its registered and principal executive offices at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.

Bankruptcy Filings

      As previously stated, we filed for reorganization under Chapter 11 on July 15, 2003 and continue to operate as debtors in possession.

      Also on July 15, 2003, Loral and one of our Bermuda subsidiaries (the “Bermuda Group”) filed parallel insolvency proceedings in the Supreme Court of Bermuda (the “Bermuda Court”). On that date, the Bermuda Court entered an order appointing Philip Wallace, Chris Laverty and Michael Morrison, partners of KPMG, as Joint Provisional Liquidators (“JPLs”) in respect of the Bermuda Group. The Bermuda Court granted the JPLs the power to oversee the continuation and reorganization of these businesses under the control of their boards of directors and under the supervision of the U.S. Bankruptcy Court and the Bermuda Court. The JPLs have not audited the contents of this report.

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      A creditors’ committee has been appointed in the Chapter 11 Cases to represent all unsecured creditors, including all holders of Loral’s and Loral Orion’s 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, we had the exclusive right to submit our 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 and equity holders do not approve our plan of reorganization within the required period, any party in interest may subsequently file its own plan of reorganization for Loral 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.

      As a result of our Chapter 11 filing, on July 15, 2003, the New York Stock Exchange (“NYSE”) suspended trading of Loral’s common stock and on September 2, 2003 removed our securities from listing and registration. Our common stock is being quoted under the ticker symbol LRLSQ on the Pink Sheets and on the Over-The-Counter Bulletin Board Service.

Sale of Assets

      As stated above, the Sellers agreed on July 15, 2003, to sell certain assets to Intelsat for $1 billion, subject to certain purchase price adjustments. These assets consisted of four satellites then in-orbit: Telstar 5, Telstar 6, Telstar 7 and Telstar 4 (which failed in September 2003); two satellites then under construction: Telstar 13 (which was successfully launched and placed into service on September 12, 2003) and Telstar 8, scheduled for launch in 2004; and certain related assets and liabilities. At the same time, Intelsat agreed to order a new satellite from SS/ L when the sale closes and, subject to obtaining a security interest in certain of our assets, agreed to make a $100 million down payment on that order. Proceeds of the sale will be used to pay off our secured bank debt.

      On March 5, 2004, as part of an arrangement to reach agreement with Intelsat on the satisfaction of certain closing conditions, we entered into an amendment to the Asset Purchase Agreement. Among other things, the amendment reduces the purchase price by $20 million (subject to further adjustment based on future events) to cover certain contingent liabilities relating to the transferred assets, reduces from $100 million to $50 million the deposit Intelsat is to make for its new satellite construction contract with SS/L, and provides for a dollar-for-dollar reduction in the price of this satellite if and to the extent the Telstar 4 insurance proceeds are less than $141 million. As part of this amendment, Intelsat agreed to pay SS/L $12.5 million in full settlement and satisfaction of all remaining obligations to make certain orbital payments to SS/ L under the construction contracts relating to the purchased satellites. The effectiveness of this amendment is subject to approval by the Bankruptcy Court and Intelsat’s bank lenders.

Segment Overview: Satellite Services

      We formed our satellite services business by acquiring assets from AT&T in March 1997 and Orion Network Services in 1998, and rapidly established Loral Skynet, which manages and operates our Satellite Services business, as one of the world’s leading satellite operators. We further grew our business through placing additional satellites in service and expanding our product offerings. Our satellites operate in geosynchronous earth orbit approximately 23,000 miles above the equator. In this orbit, satellites remain in a

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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. Skynet operates 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 Skynet 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 Skynet’s satellite capacity for the delivery of new applications failed to meet their business objectives. Following the closing of the Intelsat transaction, Skynet’s growth will rely on its ability to differentiate itself from the competition through its customized product offerings, its superior customer service and its successful marketing of available capacity on its international fleet, which is well positioned to serve regions of the world where demand is growing.

      When we use the term “Loral Skynet” and “Skynet” in this report, we are, unless the context provides otherwise, referring to our Satellite Services business, the assets (including satellites) of which are held in various companies including Loral SpaceCom, Loral Orion, Loral Satellite, Loral Skynet do Brasil, Ltda. (“Skynet do Brasil”), Loral Skynet Network Services, Inc. (formerly known as Loral Cyberstar, Inc., “Skynet Network Services”) and Cyberstar, LP (“Cyberstar”).

Transponder Leasing

      Loral Skynet’s heritage transponder leasing business provides a platform for the global distribution of television programming, video applications and data for large programmers and data service providers, including HBO, AT&T, Cable & Wireless, Singapore Telecom (SingTel), Univision, Telecom Italia, Connexion by Boeing^SM and China Central TV.

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      The following chart provides details on the satellites that will comprise Loral’s fleet after the sale to Intelsat.

      The following chart provides details on the satellites to be sold to Intelsat.

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(1)	During the fourth quarter of 2003, we determined that Telstar 11 would go out of service in June 2004 which is earlier than its previously expected end of life of March 2005.
(2)	Brazil 1T is operating in inclined orbit and is not currently generating revenues. Its replacement, Estrela do Sul-1, was launched in January 2004, but failed to deploy its North solar array. The satellite is currently operating between 10 and 14 of its 41 transponders and has a life expectancy of three to six years. See Management’s Discussion and Analysis of Results of Operations and Financial Condition, Results by Operating Segment — Satellite Services.
(3)	Loral owns the Telstar 18/ Apstar V satellite and will initially lease 37 transponders on the satellite to an Asian satellite services company, in return for its funding a substantial portion of the project cost for Telstar 18.
(4)	In September 2003, Telstar 4 experienced a short-circuit of its primary power bus and ceased operations.
(5)	Our cash collateral order with our secured lenders imposes restrictions on our ability to incur capital expenditures.
(6)	Telstar 13, which is to be sold to Intelsat, is subject to a condosat arrangement: Loral owns the C-band payload on the satellite, consisting of 24 transponders, while EchoStar Communications Corporation owns the Ku- and Ka-band payload.
(7)	To be determined after launch and in-orbit testing.

Network Services

      We offer customers access services and transmission platforms that enable the rapid and reliable transport of content. Our hybrid satellite and ground-based network services solutions allow them to enter the market quickly and easily through a combination of applications that include broadband transport, bandwidth-on-demand, broadcast MCPC (multiple-carriers per channel) platforms, and teleport services. Skynet Network Services’ newest offering is SkyReach^SM, a group of IP-based services that provides customers with secure private networks and high-speed Internet access using Skynet’s established satellite/fiber infrastructure. SkyReach can deliver a wide range of one-way and two-way IP services around the world.

      These services are currently provided through an integrated satellite and fiber network that interconnects with customer networks through points of presence in San Jose, California; Ashburn, Virginia; New York, New York and London, England and interconnects with satellite and VSAT services via teleports in Mount Jackson, Virginia, Hawaii and London.

Professional Services

      Our team of world-class network architects, engineers, program managers and satellite operations professionals, provides customized services tailored to unique customer requirements for deploying satellites and network services, including satellite operational services (TT&C), satellite construction oversight services, network architecture design, regulatory issue management and customized distribution solutions.

Satellite Services Performance

      The following information for Satellite Services includes amounts related to the satellites serving the North American market which we have agreed to sell to Intelsat. See Management’s Discussion and Analysis of Results of Operations and Financial Condition.

(1)	See Consolidated Operating Results in Management’s Discussion and Analysis of Results of Operations and Financial Condition for the definition of Adjusted EBITDA.

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      Total Satellite Services assets were $2.0 billion, $1.9 billion and $2.8 billion as of December 31, 2003, 2002 and 2001, respectively. As of December 31, 2003 and 2002, backlog was $1.3 billion and $1.4 billion, respectively, including intercompany backlog of $37 million in 2003 and $41 million in 2002.

Segment Overview: Satellite Manufacturing

      Space Systems/ Loral designs, manufactures and integrates satellites and space systems. SS/ L-built satellites have achieved over 1000 years of cumulative on-orbit experience over its 40-year history. SS/ L is a leading supplier of commercial telecommunications satellites, high-powered direct-to-home broadcast satellites, commercial weather satellites, digital audio radio satellites and innovative spot-beam satellites for data networking applications. SS/ L customers include some of the largest satellite service providers, such as Intelsat, DirecTV, EchoStar, Loral Skynet, PanAmSat, Optus, APT Satellite, SingTel, Shin Satellite and Japan’s Ministry of Transport and Civil Aviation Bureau.

      SS/ L has a history of technical innovation that includes the first three-axis spin 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; the use of advanced composites to significantly enhance satellite performance at lighter weights; and, as a result of these innovations, 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, increased reliability and high power. 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 broad product line covering the vast majority of customer requirements for satellites with six to 20 kilowatts of power. The capacity offered on these satellites ranges from one to as many as 150 transponders.

      SS/ L competes principally on the basis of technical excellence, reliability and pricing with Boeing, Lockheed Martin, Alcatel Space, Astrium and Orbital Sciences. Historically, SS/ L has provided customers with satellites that significantly exceed their designed life expectancies. SS/ L’s continued success depends on its ability to perform on a cost-effective and timely basis. The commercial satellite industry is highly competitive. In recent years, a combination of on-orbit over-capacity and economic pressures profoundly diminished demand for satellites. After a period of nearly two years without being awarded a satellite contract, SS/ L received orders or authorizations to proceed on the construction of four satellites (including the expected Intelsat order) in late 2003. Total SS/ L assets were $362 million, $690 million and $1.2 billion as of December 31, 2003, 2002 and 2001, respectively. Backlog at December 31, 2003 and 2002 was $536 million (excluding approximately $240 million associated with the fourth quarter awards and authorizations to proceed, see Management’s Discussion and Analysis of Results of Operations and Financial Condition) and $763 million, respectively, including intercompany backlog of $145 million and $275 million, respectively.

Satellite Manufacturing Performance

(1)	See Consolidated Operating Results in Management’s Discussion and Analysis of Results of Operations and Financial Condition for the definition of Adjusted EBITDA and for significant items that affect comparability between the periods presented.

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Investment in Affiliates and Globalstar Joint Ventures

      We own 56 percent of XTAR, L.L.C. (“XTAR”), a joint venture between Loral and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”). XTAR is accounted for under the equity method since we do not control certain significant operating decisions. XTAR is constructing and plans to launch an X-band satellite in 2004, to provide X-band services to government users in the United States and Spain, and to other friendly and allied nations. For more information on XTAR, see Management’s Discussion and Analysis of Results of Operations and Financial Condition and Note 7 to the consolidated financial statements.

      We own 49 percent of Satelites Mexicanos, S.A. de C.V. (“Satmex”), a satellite communications company providing satellite services in Mexico and Latin America. Satmex has two satellites in operation and a third satellite, Satmex 6, scheduled for launch this year. Satmex is in default on its existing financing and has ceased paying interest on its unsecured debt. It will require additional liquidity to complete its business plan. During 2003, Loral wrote-off its remaining investment in Satmex. For more information on Satmex, see Note 7 to the consolidated financial statements.

      Globalstar, L.P. (“Globalstar”) owns and operates a satellite constellation that forms the backbone of a global telecommunications system (the “Globalstar System”). On February 15, 2002, Globalstar and certain of its direct subsidiaries filed voluntary bankruptcy petitions under Chapter 11. For further details, see Note 7 to the consolidated financial statements.

      On December 8, 2003, the bankruptcy court approved Globalstar’s plan which includes an investment of $43 million by Thermo Capital Partners, LLC (“Thermo”) and the creation of a new Globalstar company (“New Globalstar”). The effectiveness of Globalstar’s plan is subject to a number of material conditions. If Globalstar’s plan is effected, Loral’s ownership in New Globalstar is expected to be approximately 2.5 percent, which based on the Thermo transaction, is expected to have minimal value.

      Loral holds various indirect ownership interests in three foreign companies that currently serve as exclusive service providers for Globalstar service in Brazil, Mexico and Russia and an indirect ownership interest in a U.S.-based distributor that has the exclusive right to sell Globalstar services to certain agencies within the U.S. Government. Globalstar is currently renegotiating its service provider agreements with the various Globalstar service providers, and there can be no assurance that such agreements will be successfully negotiated.

      In 2000, we wrote-off $1.7 billion of investments in Globalstar leaving us with an investment balance of $3 million as of December 31, 2003. We do not currently intend to invest further in Globalstar or the service providers in which we continue to have an equity interest.

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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.

      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.

      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 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 9 at 69° W.L., 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., 93° W.L., 115° 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.

      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

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          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. For example, we have 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° W.L. Ku-band orbital slot. Telstar 14/ Estrela do Sul 1 is licensed by Brazil and is authorized to operate in the U.S. by the FCC. 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.

Additional ITU Filings

      In addition to the ITU filings associated with our satellite authorizations and applications noted above, we have ITU filings at 98° E.L., 122° E.L., 130° E.L., 167.45° E.L., 175° W.L., and 115°W.L. for use of the C- and Ku-band frequencies. We also have ITU filings at 9.9° E.L., 16.1° E.L., 22.3° E.L., 115.5° E.L., 161° E.L., and 97° W.L. for the use of C-, Ku-, and Ka-band frequencies and at 37.5° W.L. for the use of C- and Ka-band frequencies. We have filings at 96.5° W.L. and 123.5° W.L. for Broadcast Satellite Service. Loral also has ITU filings at 1° E.L., 3.5° E.L., 8° E.L., 10° E.L., 11° E.L., 30° E.L., 81° E.L., 105.5° E.L., 135° E.L., 135° W.L., 115° W.L., 95° W.L., 58° 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 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.

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 218 patents in the United States and 115 patents abroad and has applications for 40 patents pending in the United States. 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 2004 and 2022.

      Skynet Network Services, CyberStar and Loral SpaceCom have four, six and two patents in the United States, respectively. Loral SpaceCom holds one patent abroad. Skynet Network Services and Loral SpaceCom have three and four patents pending in the United States, respectively. In addition, Loral SpaceCom has nine patents pending abroad. The Skynet Network Services, CyberStar and Loral SpaceCom patents that are currently in force expire between 2016 and 2020.

      There can be no assurance that any of our pending patent applications 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 we would infringe. In such an event, we could be required to pay royalties to obtain a license, which could increase costs.

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FOREIGN OPERATIONS

      Sales to foreign customers, primarily in Asia, Europe and Mexico, represented 29%, 46% and 35% of our consolidated revenues for 2003, 2002 and 2001, respectively. As of December 31, 2003 and 2002, we had substantially all of our long-lived assets located in the United States with the exception of the in-orbit satellites. See Commitments and Contingencies in Management’s Discussion and Analysis of Results of Operations and Financial Condition for a discussion of the risks related to operating internationally.

EMPLOYEES

      As of December 31, 2003, we had approximately 1,900 full-time employees, approximately 3% of whom are subject to collective bargaining agreements. We consider our employee relations to be good.

AVAILABLE INFORMATION

      We make available free of charge through our website our 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. Our 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 lease approximately 38,000 square feet of space for our corporate offices in New York and 8,000 square feet in Washington, D.C. We also maintain office space, manufacturing facilities, and telemetry, tracking and control facilities primarily in the United States.

          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 65,000 square feet of office space in Bedminster, New Jersey and 8,100 square feet in various locations around the world.

      Skynet Network Services 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 in various locations around the world.

          Satellite Manufacturing

      SS/ L’s research, production and testing are conducted in SS/ L-owned facilities covering approximately 563,000 square feet on 28 acres in Palo Alto, California. In addition, SS/ L leases approximately 518,000 square feet of space on 23 acres from various third parties primarily in Palo Alto, Menlo Park and Mountain View, California and Kent, Washington.

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

      Consent Agreement. On January 9, 2002, Loral, SS/ L and the United States Department of State (“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. Under the Consent Agreement, SS/ L remains obligated

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      Alcatel Settlement. SS/ L was a party to an Operational Agreement with Alcatel Space Industries, under which the parties had agreed to cooperate on certain satellite programs. It also was a party to an Alliance Agreement with Alcatel Space (together with Alcatel Space Industries, “Alcatel”), under which Alcatel had certain rights with respect to SS/ L. On June 30, 2003, Loral, SS/ L and Alcatel entered into a master agreement settling all claims among the parties, including arbitration claims brought by Alcatel against Loral alleging breaches of the Operational Agreement and Alliance Agreement. Pursuant to the master settlement agreement, Loral paid Alcatel $5 million and agreed to pay an additional $8 million within one year, resulting in a charge to operations of $13 million. In addition, Alcatel transferred to Loral its minority interest in CyberStar and Loral transferred to Alcatel its minority interests in Europe*Star Limited and SkyBridge Limited Partnership that Loral had previously written off. As a result of receiving Alcatel’s minority interest in CyberStar, Loral recognized an extraordinary gain of $14 million, which represents the extinguishment of the minority interest liability less the fair value of the acquired net assets. Under the terms of the master settlement agreement, because of the commencement of the Chapter 11 Cases, the arbitration and a related court proceeding to confirm a partial arbitration award were suspended, with termination to occur on the date of confirmation of a plan of reorganization or a liquidation, provided that if any action is commenced in the Chapter 11 Cases seeking the repayment, disgorgement or turnover of the transfers made in connection with the master settlement agreement, the arbitration and related court confirmation proceeding would not be terminated until such repayment, disgorgement or turnover action had been dismissed. The master settlement agreement also provides that Alcatel is entitled to reinstate the arbitration if it is required by judicial order to repay, disgorge or turn over the consideration paid to it under the agreement in the context of the Chapter 11 Cases.

      PanAmSat Arbitration. 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. 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. On June 30, 2003, PanAmSat commenced an arbitration claiming that under its contract with SS/ L it is entitled to $23.7 million as a result of these losses. This arbitration is subject to the automatic stay as a result of the commencement of SS/ L’s Chapter 11 case, and further proceedings in the matter have been suspended. In March 2004, the Company reached an agreement in principle to settle this matter with PanAmSat, which is subject to documentation and Bankruptcy Court approval and has recorded a charge to operations of $8 million in the fourth quarter of 2003.

      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 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 Mr. 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 Mr. 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 Mr. Schwartz are secondarily liable under Section 15 of the Securities Act for GTL’s primary violations of Sections 11 and 12(2)(a) of the Securities Act as alleged “controlling persons” of GTL. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of securities of Globalstar, Globalstar

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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 our common stock against Loral, Bernard L. Schwartz and Richard J. 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 to or affiliated with them. After oral argument on a motion to dismiss filed by Loral and Messrs. Schwartz and Townsend, in June 2003, the plaintiffs filed an amended complaint alleging essentially the same claims as in the original amended complaint. Loral believes that it has meritorious defenses to this class action lawsuit and intends to pursue them vigorously. As a result of the commencement of the Chapter 11 Cases, however, this lawsuit is subject to the automatic stay, and further proceedings in the matter have been suspended, insofar as Loral is concerned but are proceeding as to the other defendants. Loral is obligated to indemnify Messrs. Schwartz and Townsend for any losses or costs they may incur as a result of this lawsuit. On February 23, 2004, a motion to dismiss the amended complaint was granted by the court insofar as Messrs. Schwartz and Townsend are concerned.

      The primary insurer under Loral’s directors and officers liability insurance policy has 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. In May 2003, Loral and the other defendants served their answer and filed counterclaims seeking a declaration that the insurer is obligated to provide coverage and damages for breach of contract and the implied covenant of good faith. In May 2003, Loral and the other defendants also filed a third party complaint against the excess insurers seeking a declaration that they are obligated to provide coverage. Loral believes that the insurers have wrongfully denied coverage and intends to defend against the denial vigorously. As a result of the commencement of the Chapter 11 Cases, however, this lawsuit is subject to the automatic stay, and further proceedings in the matter have been suspended insofar as Loral is concerned but are proceeding as to the other defendants.

      Lawsuits against our Directors and Officers. In August 2003, plaintiffs Robert Beleson and Harvey Matcovsky filed a purported class action complaint against Bernard Schwartz in the United States District Court for the Southern District of New York. The complaint alleges (a) that Mr. Schwartz 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 relating to the sale of assets to Intelsat and Loral’s Chapter 11 filing 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 June 30, 2003 through July 15, 2003, excluding the defendant and certain persons related to or affiliated with them. In November 2003, three other complaints against Mr. Schwartz with substantially similar allegations were consolidated into the Beleson case. In February 2004, a motion to dismiss the complaint in its entirety was denied by the court. Defendant filed an answer on March 2, 2004, and discovery has commenced.

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      In November 2003, plaintiffs Tony Christ, individually and as custodian for Brian and Katelyn Christ, Casey Crawford, Thomas Orndorff and Marvin Rich filed a purported class action complaint against Bernard Schwartz and Richard J. Townsend in the United States District Court for the Southern District of New York. The complaint alleges (a) that 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 relating to the restatement in 2003 of the financial statements for the second and third quarters of 2002 to correct accounting for certain general and administrative expenses and the alleged improper accounting for a satellite transaction with APT Satellite Company Ltd. and (b) that defendants are 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 July 31, 2002 through June 29, 2003, excluding the defendants and certain persons related to or affiliated with them. This case is in its preliminary stages, and, on March 11, 2004, a conference was held with the court concerning selection of a lead plaintiff.

      In December 2003, plaintiff Wendy Koch, a former employee, filed a purported class action complaint against the Loral Space & Communications Ltd. Savings Plan Administrative Committee, all Loral directors, Richard J. Townsend and certain other Loral officers and employees in the United States District Court for the Southern District of New York. The complaint alleges (a) that defendants violated Section 404 of the Employee Retirement Income Security Act (“ERISA”), by breaching their fiduciary duties to prudently and loyally manage the assets of the Loral Savings Plan (the “Plan”) by including Loral common stock as an investment alternative and by providing matching contributions under the Plan in Loral stock, (b) that the director defendants violated Section 404 of ERISA by breaching their fiduciary duties to monitor the committee defendants and (c) that defendants violated Sections 404 and 405 of ERISA by failing to provide complete and accurate information to Plan participants and beneficiaries. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all participants in or beneficiaries of the Plan at any time between November 4, 1999 and the present and whose accounts included investments in Loral stock. One other similar complaint against the defendants with substantially similar allegations has been filed, and a motion to consolidate the cases is pending.

      Loral is obligated to indemnify its directors and officers for any losses or costs they may incur as a result of these lawsuits.

      Natelco. On October 21, 2002, National Telecom of India Ltd. (“Natelco”) filed suit against Loral and a subsidiary 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 Loral Orion subsidiary, 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. As a result of the commencement of the Chapter 11 Cases, this lawsuit is subject to the automatic stay and further proceedings in the matter have been suspended.

      Environmental Regulation. Our operations are subject to regulation by various federal, state and local agencies concerned with environmental control. We believe that our 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 these obligations; their size and current financial condition make it probable that they will be able to complete their remediation obligations without cost to us.

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

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      None.

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PART II

(a) Market Price and Dividend Information

      As a result of the commencement of our Chapter 11 Cases, on July 15, 2003, the NYSE suspended trading of Loral’s common stock and removed our securities from listing and registration on September 2, 2003. Loral’s common stock is being quoted under the ticker symbol LRLSQ on the Pink Sheets and on the Over-The-Counter Bulletin Board Service (OTC). In addition, on June 4, 2003, our Board of Directors approved a reverse stock split of Loral’s common stock at a ratio of one-for-ten, resulting in a new par value of $0.10 per common share. The reverse stock split became effective after the close of business on June 13, 2003. All references to common stock and per share amounts for all prior periods presented have been retroactively restated to reflect this reverse stock split. The following table presents the reported high and low closing prices of our common stock as reported on the Pink Sheets and the NYSE for 2003 and the intra-day high and low sales prices for 2002:

      At March 1, 2004, there were 6,476 holders of record of Loral’s common stock.

      We have not paid any dividends on our common stock. In August 2002, Loral’s Board of Directors approved a plan to suspend indefinitely the future payment of dividends on our two series of preferred stock. Accordingly, we have deferred the payments of quarterly dividends due on our Series C and Series D preferred stock. 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 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., A DEBTOR IN POSSESSION

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(1)	Includes the increase in the deferred tax valuation allowance of $390.4 million to a balance of $576.5 million, based upon management’s assessment during the fourth quarter of 2002 that insufficient positive evidence existed substantiating recoverability of our loss carryforwards and other deferred tax assets (see Note 12 to the consolidated financial statements).
(2)	Our principal affiliates are XTAR and Satmex. Loral also has investments in Globalstar and other ventures, which are accounted for under the equity method. During 2003, Loral wrote-off its remaining investment of $29 million in Satmex.
(3)	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.
(4)	On January 1, 2002, we recorded a charge of $890 million to write-off all of our goodwill as the cumulative effect of change in accounting principle (see Note 8 to the consolidated financial statements).
(5)	As a result of our Chapter 11 filing, our debt obligations, preferred stock 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 9 to the consolidated financial statements).
(6)	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 16.

      We use the terms “Loral,” the “Company,” “we,” “our,” and “us” in this report to refer to Loral Space & Communications Ltd. and its subsidiaries. When we use the term “Loral Skynet” or “Skynet”, we are, unless the context provides otherwise, referring to our entire Satellite Services business, the assets of which are held in various companies.

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, Loral 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 our ability to maintain good relations with our customers, suppliers and employees. For a detailed discussion of these and other factors and conditions, please refer to the Commitments and Contingencies section below and to the other periodic reports filed with the SEC by Loral, our wholly owned subsidiary Loral Orion, Inc. (“Loral Orion”) and our affiliate Satelites de Mexico, S.A. de C.V. (“Satmex”). Loral operates in an industry sector in which 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

Businesses

      Loral is a leading satellite communications company organized into two operating segments: Satellite Services and Satellite Manufacturing. Revenues in 2003 were $533 million.

          Satellite Services

      Through our Loral Skynet division we lease satellite capacity 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 fleet 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 $296 million before eliminations of $8 million. Worldwide satellite services industry sales in 2002 were approximately $7 billion, according to available industry estimates. Satellite Services’ backlog at December 31, 2003 was $1.3 billion.

      The satellite services market has been characterized in recent years by over-capacity, pricing pressure and competition from fiber. The downturn in the telecommunications sector led many existing Skynet 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 Skynet’s satellite capacity for the delivery of new applications failed to meet their business objectives. Following the closing of the Intelsat transaction, Skynet’s growth will

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          Satellite Manufacturing

      Our Space Systems/ Loral (“SS/L”) subsidiary designs and manufactures satellites, space systems and space systems components for customers in the commercial and government sectors for applications including satellite services, DTH broadcasting, broadband data distribution, wireless telephony, digital radio, military communications, weather monitoring and air traffic management.

      While its requirement for ongoing capital investment is low, the satellite manufacturing industry is a knowledge-intensive business, the success of which relies heavily on its technological heritage and the skills of its workforce. The breadth and depth of talent and experience resident in SS/ L’s workforce of approximately 1,500 employees is one of our key competitive advantages.

      Satellite manufacturers have high fixed costs relating primarily to labor and overhead. Based on its current cost structure, we estimate that SS/ L covers its fixed costs with an average of four satellite awards a year. Cash flow in the satellite manufacturing business tends to be uneven. It takes two to three years to complete a satellite project and numerous assumptions are built into the estimated costs. Cash receipts are tied to the achievement of contract milestones, which depend in part on the ability of our subcontractors to deliver on time. In addition, the timing of satellite awards is difficult to predict, contributing to the unevenness of revenue and making it more challenging to match the workforce to the workflow.

      Satellites are extraordinarily complex devices designed to operate in the very hostile environment of space. This complexity may lead to unanticipated costs during the design, manufacture and testing of a satellite. SS/ L establishes provisions for costs based on historical experience and program complexity to cover anticipated costs. Since most of SS/ L’s contracts are fixed price, cost increases in excess of the provisions reduces profitability and may result in losses borne solely by SS/ L, which may be material. The satellite manufacturing industry is highly competitive and, in recent years, order levels reached an unprecedented low level, resulting in manufacturing over-capacity. Buyers, as a result, are in the advantageous position of being able to negotiate contracts with favorable prices, terms and conditions. In the latter part of 2003, the order rate for new commercial satellites picked up and is expected to continue into 2004. This pick up has been driven by the need for replacement satellites and the resumption of some customers’ expansion plans. Backlog as of December 31, 2003, was $536 million. Backlog excludes approximately $240 million associated with orders or authorizations to proceed on the construction of four satellites (including the expected Intelsat order) received in the fourth quarter of 2003. SS/ L had sales in 2003 of $474 million including $229 million for internal satellites. Commercial satellite manufacturing industry sales in 2002 totaled $3.5 billion worldwide, according to available industry estimates.

      We operate in extremely competitive markets characterized in recent years by over-capacity and pricing pressures brought on by the downturn in the telecommunications sector. 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 and a standstill in satellite orders. In the face of these pressures, we further increased our emphasis on cash conservation over the last 18 months, reducing operating expenses, suspending dividend payments on our preferred stock, and closely monitoring capital expenditures. The sustained and unprecedented decline in demand for our satellites and satellite services, however, exacerbated our already strained financial condition brought on primarily by the investments we had previously made in Globalstar and subsequently wrote off. On July 2003, Loral and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11. As a result of our Chapter 11 filing, all of our prepetition debt obligations aggregating $2.2 billion at December 31, 2003 have been accelerated. Our $2.2 billion of debt includes $967 million of bank debt that is secured by liens on the assets of Loral SpaceCom and Loral Satellite, consisting primarily of our Satellite Manufacturing assets and satellites serving

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

      In a further effort to strengthen our balance sheet, on July 15, 2003, we agreed to sell our satellites serving the North American market and related assets to Intelsat. Proceeds from the sale will be used to repay our outstanding secured bank debt, which was $967 million at December 31, 2003. This will reduce our outstanding principal debt obligations by almost 50 percent. On March 5, 2004, we and Intelsat entered into an amendment to the Asset Purchase Agreement, the effectiveness of which is subject to approval by the Bankruptcy Court and Intelsat’s bank lenders.

      We intend to reorganize around our satellite manufacturing operations and our remaining fleet of international satellites, which will cover regions with high growth potential, such as Southeast 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 new 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 Loral, when it may emerge from Chapter 11 and what its 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. We anticipate that, in any plan of reorganization ultimately confirmed by the Bankruptcy Court, our common and preferred stock will, at best, be severely diluted and may be eliminated entirely, with the result that common and preferred stockholders would receive no distribution. 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 maintaining our reputation for 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 align our workforce levels with the needs of the business, continue to contain costs, and maximize the efficiency of both of our operations. Loral Skynet is focused on increasing the capacity utilization of its satellite fleet and successfully introducing new value-added services to its markets. Space Systems/ Loral, which received orders or authorizations to proceed for four new satellites (including the expected Intelsat order) in the fourth quarter of 2003, is focused on increased bookings and backlog in 2004.

      See Part 1, Item 1, for a complete description of Loral’s businesses, our Chapter 11 Cases and the sale of our satellite assets serving the North American market.

Consolidated Operating Results

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

      The accompanying consolidated financial statements have been prepared assuming Loral 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 Loral 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

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      The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization.” In evaluating financial performance, we use revenue and operating income (loss) before depreciation and amortization including amortization of unearned stock compensation, and reorganization expenses due to bankruptcy (“Adjusted EBITDA”) as a measure of a segment’s profit or loss. Adjusted EBITDA is equivalent to the common definition of EBITDA before amortization of stock compensation; reorganization expenses due to bankruptcy; gain (loss) on investments and debt exchanges; equity in net losses of affiliates, net of tax; minority interest, net of tax; cumulative effect of change in accounting principle, net of tax, and extraordinary gain on acquisition of minority interest, net of tax. Adjusted EBITDA should be used in conjunction with GAAP financial measures and is not presented as an alternative to cash flow from operations as a measure of our liquidity or as an alternative to net income as an indicator of our operating performance.

      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, net losses of affiliates and minority interest, a useful tool given the significant variation that can result from the timing of capital expenditures, the amount of intangible assets recorded, the differences in assets’ lives, the timing and amount of investments, and effects of investments not managed by Loral. 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, to measure performance for incentive compensation programs, 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. Both of our business segments have been adversely affected by the downturn in the telecommunications sector, which has caused a delay in demand for new telecommunications applications and services.

Revenues:

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Adjusted EBITDA:

(1)	Represents: (a) the elimination of intercompany sales and intercompany Adjusted EBITDA, primarily for satellites under construction by SS/ L for wholly owned subsidiaries and (b) the reversal of satellite manufacturing sales of $83 million and $73 million of cost of satellite manufacturing on a satellite program with a customer where the contract was changed to a lease arrangement in 2003 (see Note 17 to the consolidated financial statements).
(2)	Includes revenues from affiliates of $28.7 million, $85.9 million and $100.9 million in 2003, 2002 and 2001, respectively.
(3)	See 2003 Compared with 2002 and 2001 — Cost of Satellite Manufacturing, for significant items that effect comparability between the periods presented.
(4)	Represents corporate expenses incurred in support of our operations.

Financial Information for Assets Serving the North American Market to be Sold to Intelsat

      The net book value of the satellites to be sold to Intelsat was $935 million (including insurance proceeds receivable of $123 million on our balance sheet) and the related assets and liabilities was $30 million and $31 million, respectively, as of December 31, 2003. The net assets to be sold, as well as the results of operations relating to such net assets, have not been segregated in the accompanying financial statements since Bankruptcy Court approval is still required with respect to certain provisions of the asset purchase agreement.

      Upon receipt of Bankruptcy Court approval relating to certain closing conditions, the satellites serving the North American market will be accounted for as a discontinued operation, resulting in our historical consolidated financial statements being reclassified to reflect such discontinued operations separately from continuing operations.

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      The following table represents the results of operations that are expected to be reclassified for the satellite assets to be sold to Intelsat, for the three years in the period ended December 31, 2003. For the purpose of this presentation, all indirect costs normally associated with these operations have been omitted, including telemetry, tracking and control, access control, maintenance and engineering, selling and marketing and general and administrative.

Revenues:

Adjusted EBITDA:

2003 Compared with 2002 and 2001

  Revenues from Satellite Services

      Revenues from Satellite Services decreased $99 million in 2003 as compared to 2002 primarily due to decreases in prices of $43 million, reduced transponder and network utilization of $48 million and lower customer lease termination fees of $8 million in both transponder leasing and network services. Revenues from Satellite Services decreased $69 million in 2002 as compared to 2001 primarily due to decreases in prices of $15 million, reduced transponder and network utilization of $46 million and lower customer lease termination fees of $5 million in both transponder leasing and network services. Eliminations primarily consist of revenues from leasing transponder capacity to Satellite Manufacturing and an adjustment to present revenues without the implicit interest discount provided to customers who have made prepayments under long-term contracts. As a result of the above, revenues from Satellite Services as reported decreased $102 million and $66 million in 2003 and 2002, respectively, as compared to the respective prior year.

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     Revenues from Satellite Manufacturing

      Revenues from Satellite Manufacturing decreased $379 million in 2003 as compared to 2002, primarily resulting from satellite programs nearing completion under the percentage of completion method with no new satellite orders from December 2001 to October 2003. Revenues from Satellite Manufacturing increased $38 million in 2002 as compared to 2001, primarily resulting from the timing of work performed and costs incurred on satellite backlog programs under the percentage of completion method. Eliminations primarily consist of revenues from satellites under construction by SS/ L for Satellite Services. In 2003, eliminations also include the reversal of $83 million of sales on a customer satellite contract that was changed to a lease arrangement in the third quarter (which became an internal program that will be leased to the customer in the future). See Note 17 to the consolidated financial statements. As a result of the above, revenues from Satellite Manufacturing as reported decreased $463 million in 2003 and increased $94 million in 2002 as compared to the respective prior year.

  Cost of Satellite Services

      The decrease of $17 million in 2003 as compared to 2002 was primarily due to (i) a $9 million insurance claim recovery on a satellite, (ii) reduced external satellite capacity costs totaling $14 million ($9 million due to lower network services revenues and $5 million due to expirations of capacity leases) and (iii) lower network service costs of $3 million. This was offset by (i) a net increase in depreciation expense of $7 million primarily due to the shortening in the estimated life of a satellite, offset by lower depreciation expense due to the loss of Telstar 4 in 2003, the timing of assets placed in service and assets that became fully depreciated and (ii) increased insurance costs of $5 million resulting from higher premiums on renewals and changes in insurance coverage requirements and the launch of Telstar 13. The decrease of $32 million in 2002 as compared to 2001 was primarily due to decreases of (i) $18 million in 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 8 to the consolidated financial statements) and (ii) $14 million in depreciation due to the timing of assets placed in service and assets that became fully depreciated. The increases in cost of satellite services as a percentage of revenues in 2003 and 2002, as compared to the prior year, were primarily due to reduced revenues.

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  Cost of Satellite Manufacturing

      The decrease of $338 million in 2003 as compared to 2002 was primarily due to (i) lower overall sales as satellite programs neared completion under the percentage of completion method with no new satellite awards from December 2001 until October 2003, (ii) the reversal of $73 million of costs of satellite manufacturing on a satellite program where the contract was changed to a lease arrangement in the third quarter of 2003 and (iii) lower depreciation expense of $6 million primarily due to reduced capital spending from 2001 to 2003. These factors were offset by the following cost increases for the year ended December 31, 2003 (i) a charge of $24 million due to cancellation of a deposit on a launch vehicle contract; (ii) provisions for inventory obsolescence of $50 million primarily due to the absence of new satellite awards from December 2001 until October 2003; (iii) a charge of $13 million on the settlement of all outstanding issues with Alcatel including a contract dispute that was in arbitration; (iv) a loss of $11 million on the acceleration of receipt of long-term receivables; (v) a charge of $8 million related to an agreement in principle to settle a satellite contract dispute and (vi) a charge of $10 million recorded on SS/ L-provided vendor financing, representing the difference between the carrying value of SS/ L’s receivables of $38 million and the value of the common shares received by SS/ L based on the trading price of Sirius Satellite Radio, Inc. (“Sirius”) common stock on March 7, 2003 of $28 million (see Gain on Investments and Debt Exchanges for gains realized subsequent to receipt of the shares). The increase in cost of satellite manufacturing as a percentage of revenues in 2003 as compared to 2002, was affected by reduced revenues for overhead cost absorption.

      The increase of $179 million in 2002 as compared to 2001 primarily resulted from (i) increased sales; (ii) valuation allowances of $69 million recorded on SS/ L-provided vendor financings (in connection with advances related to Europe*Star Limited (“Europe*Star”) and an agreement reached with Sirius to convert vendor financing receivables into Sirius’ equity) and (iii) provisions for inventory obsolescence of $14 million due to the absence of new satellite awards. These factors were offset by (i) $13 million of income recorded from a recovery of a claim from a vendor; (ii) a decrease of $9 million in amortization expense for goodwill resulting from the adoption of SFAS No. 142 on January 1, 2002 (as the Company wrote-off its remaining balance of goodwill, see Note 8 to the consolidated financial statements) and (iii) by lowering costs through workforce reductions since the beginning of 2001, by streamlining certain internal processes and by instituting tighter controls which are designed to provide that subcontracted components are received on time and meet all customer requirements. Costs in 2001, include $12 million for obligations to the U.S. government to settle a case relating to export controls.

          Selling, General and Administrative Expenses

      The decrease of $8 million in 2003 as compared to 2002 was primarily due to lower research and development costs of $7 million and sales and marketing costs of $2 million at SS/ L. Satellite Services had expense increases of $3 million, primarily due to an increase in bad debt expense of $4 million, offset by cost reductions for headcount and employee related expenses and marketing expenses of $2 million. The decrease

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     Reorganization Expenses Due to Bankruptcy

      Reorganization expenses due to bankruptcy in 2003 were $25 million for the period from July 15, 2003 (date of filing) to December 31, 2003, which includes a charge for lease rejection claims of $6 million, professional fees of $15 million associated with bankruptcy services, and employee retention costs of $5 million, offset by interest and investment income earned of $1 million (which represents the interest earned subsequent to filing for bankruptcy, excluding interest earned on satellite programs).

     Interest and Investment Income

      The increase of $2 million in 2003 as compared to 2002 was principally due to higher interest income earned on satellite programs, offset by lower interest income earned on 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. The decrease of $16 million in 2002 as compared to 2001 was principally due to lower interest rates and lower average cash balances and lower interest earned on satellite programs.

     Interest Expense