##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002


Commission file number 0-22085

LORAL ORION, INC.

|                                                                                |  |                                                        
|------------------------------------------------------------------------------- |  | -------------------------------------------------------
|Delaware
    (State or other jurisdiction of
    incorporation or organization) |  | 52-1564318
    (I.R.S. Employer
    Identification No.)

500 Hills Drive, Bedminster, NJ
07921

Telephone: (908) 470-2300


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

None

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

11 1/4% Senior Notes Due 2007

12 1/2% Senior Discount Notes Due
2007


10% Senior Notes Due 2006


Indicate by check mark whether the registrant:
(1) 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 (or for such shorter period
that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the
past 90 days.
Yes þ          No o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12 b-20.
Yes o          No x

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, 2002 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.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND
IS THEREFORE FILING WITH THE REDUCED DISCLOSURE FORMAT PURSUANT
TO GENERAL INSTRUCTION I(2) OF FORM 10-K.

Documents Incorporated by Reference

None

________________________________________________________________________________



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TABLE OF CONTENTS



|                                                          |                                                                                                         |  |  |  |  |  |  | 
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                   
|                                                          | Item 1. Business                                                                                       
|CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS           
|                                                          | Item 2. Properties                                                                                     
|                                                          | Item 3. Legal Proceedings                                                                              
|                                                          | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                                  
|                                                          | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                                          | Item 6. Selected Financial Data                                                                        
|                                                          | Item 7. Managements Narrative Analysis of Results of Operations                                       
|                                                          | Item 7a. Quantitative and Qualitative Disclosures About Market Risk                                    
|                                                          | Item 8. Financial Statements and Supplementary Data                                                    
|INDEPENDENT AUDITORS REPORT                             
|CONSOLIDATED BALANCE SHEETS                              
|CONSOLIDATED STATEMENTS OF OPERATIONS                    
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY
|CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS               
|CONDENSED CONSOLIDATING BALANCE SHEET                    
|CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS          
|CONDENSED CONSOLIDATING BALANCE SHEET                    
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS          
|CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS          
|CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS          
|CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS          
|                                                          | Item 9. Changes In and Disagreements With Accountants and Accounting and Financial Disclosures         
|PART III                                                 
|                                                          | Item 10. Directors and Executive Officers of the Registrant                                            
|                                                          | Item 11. Executive Compensation                                                                        
|                                                          | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                          | Item 13. Certain Relationships and Related Transactions                                                
|                                                          | Item 14. Evaluation of Disclosure Controls and Procedures                                              
|PART IV                                                  
|                                                          | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|INDEX TO EXHIBITS                                        
|SIGNATURES                                               
|APSTAR V CONDOSAT AGREEMENT                              



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PART I




Item 1.     Business

General

Loral Orion, Inc. (we,
us, Loral Orion or the
Company), is a provider of satellite-based
communications services, providing fixed satellite services,
including video distribution and other satellite transmission
services.

Business Segment

The Company operates in one business segment,
Fixed Satellite Services. On December 21, 2001, the
Company, in connection with completing exchange offers for its
outstanding senior notes and senior discount notes, transferred
its data services business to a subsidiary of Loral Space &
Communications Ltd. (Loral) and has accounted for
the former data business as a discontinued operation.

Loral Orion, through its ownership of three high
power geostationary satellites, and with agreements with Loral
Skynet, a division of Loral SpaceCom Corporation, a wholly owned
subsidiary of Loral, provides transmission capacity to cable and
television programmers, news and information networks,
telecommunications companies, Internet service providers, ISPs
and other carriers for a variety of applications. The
Companys customers include HBO, Disney, Cable &
Wireless and United Pan Europe Communications. A majority of the
Companys transmission capacity services consist of video
services. The Company generally offers transmission capacity
services under long-term contracts and also offers occasional
use services for periods of up to a few hundred hours. Unless
otherwise indicated, all transponder references for the
Companys satellites are in 36 MHz equivalents.

About 200 commercial geosynchronous satellites
currently offer fixed satellite services. The Company competes
primarily with large fleet operators, including PanAmSat
Corporation, SES Global, Intelsat and Eutelsat. Large fleets
offer customers global or near-global coverage and in-orbit
backup in case of a satellite failure. The Company is a member
of the Loral Global Alliance, whose other members include Loral
Skynet, Skynet do Brasil, Satelites Mexicanos, S.A de C.V. and
Europe*Star Limited. The Loral Global Alliance, with ten
satellites currently and 15 expected, enhances the geographic
reach, market presence and offerings of Loral Orion.

In providing fixed satellite services, the
Company faces competition from fiber optic cable and other
terrestrial delivery systems. In some applications, such as
broadcast or point-to-multipoint transmission of video,
satellites are usually considerably more efficient. In other
applications, fiber may cost less, so that satellites compete on
the basis of superior reliability, or as a back-up service.

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

Telstar 12, a high power satellite with 57
Ku-band transponders, commenced operations in January 2000 and
expands Loral Orions European coverage and extends
coverage to portions of Russia, Latin America, the Middle East
and South Africa. Telstar 12 was launched in October 1999 into
15 degrees W.L.

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

On September 20, 2002, Loral Orion entered
into an agreement with APT Satellite Company Limited
(APT) pursuant to which Loral Orion will purchase a
50% interest in the Telstar 18/ Apstar V satellite, a satellite
under construction by Space Systems/ Loral (SS/ L)
for APT. Loral Orions aggregate purchase price for its 50%
interest in the satellite is $115.1 million, representing
50% of the current estimated project

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cost of constructing, launching and insuring the
Telstar 18/ Apstar V satellite, which purchase price will be
adjusted if the actual project cost should be greater or less
than $230.2 million. In addition, Loral Orion has agreed to
bear the cost of modifying the footprint of one of the Ku-band
beams on the satellite. Telstar 18/ Apstar V will have a total
of 54 transponders, comprised of 24 standard C-band
transponders, 14 extended C-band transponders and 16 Ku-band
transponders. Under this transaction, Loral Orion has agreed to
purchase 12 standard C-band, 7 extended C-band and 8 Ku-band
transponders on Telstar 18/Apstar V, which capacity
will be designated Telstar 18. Loral Orion will also have the
option to enter into similar arrangements with APT on
replacement satellites upon the end of life of Telstar 18/
Apstar V. To be located at 138 degrees East Longitude, Telstar
18/ Apstar V is currently scheduled to be launched in the third
quarter of 2003 and will be capable of providing Ku-band voice,
video and data services to China, India and East Asia, and
broadbeam C-band services throughout the Asia-Pacific region,
including Australia and Hawaii. To ensure a timely launch of
Telstar 18/ Apstar V, Loral Orion, APT and SS/ L have agreed
that a non-Chinese launch provider will be used.


Pursuant to Loral Orions agreement with
APT, Loral Orion will pay one-half the purchase price prior to
launch for 13.5 transponders on the satellite. The corresponding
cumulative costs relating to these transponders have been
reflected as satellites under construction on Loral Orions
condensed consolidated balance sheet as of December 31,
2002. Subject to certain acceleration rights on the part of
Loral Orion, the remainder of the purchase price for the second
13.5 transponders will be paid by Loral Orion as follows: on the
second anniversary of the satellites in-service date,
$10.66 million for 2.5 additional transponders; on the
third anniversary of the satellites in-service date,
$12.79 million for three additional transponders; and on
each of the fourth and fifth anniversaries of the
satellites in-service date, $17.05 million for four
additional transponders. Title to these transponders will pass
to Loral Orion upon its payments thereon. As a result of
finalizing the Telstar 18/ Apstar V launch arrangements in March
2003, Loral Orion agreed to take two fewer transponders without
any corresponding change to the transponder cost borne by each
of the parties. Loral SpaceCom has agreed to purchase from Loral
Orion 4.75 transponders on Telstar 18/Apstar V,
together with a lease of an additional transponder for an
approximate two year period from the
Telstar 18/Apstar V in-service date.

Agreements with Loral Skynet and
Loral

Loral Orion and Loral Skynet, entered into
agreements (the Loral Skynet Agreements) effective
January 1, 1999, whereby Loral Skynet provides to Loral
Orion (i) marketing and sales of satellite capacity
services on the Loral Orion satellite network and related
billing and administration of customer contracts for those
services (the Sales Services) and
(ii) telemetry, tracking and control services for the Loral
Orion satellite network (the Technical Services, and
together with the Sales Services, the Services). The
Company is charged Loral Skynets costs for providing these
services plus a 5 percent administrative fee. Loral Orion
believes it has achieved cost efficiencies in connection with
the Loral Skynet Agreements.

Beginning in 2002, Loral initiated the allocation
of corporate management expenses to its individual subsidiaries
and divisions, including $3.1 million to Loral Orion. The
allocation of these expenses is computed with respect to Loral
Orion in a manner consistent with Lorals other
subsidiaries and divisions, using a fixed formula based on three
factors: employee payroll, revenues and assets.

Exchange Offers and Transfer of Data
Business

In December 2001, the Company successfully
completed exchange offers for $841 million aggregate
principal amount of 11.25% senior notes due 2007 and 12.50%
senior discount notes due 2007 in exchange for $613 million
principal amount of the Companys 10% senior notes due
July 15, 2006, which 10% senior notes are guaranteed by
Loral, together with five-year warrants to purchase 6,042,986
shares of Lorals common stock at a purchase price of $2.37
per share and $59,753 in cash paid to certain holders of new
senior notes in lieu of receipt of a principal amount of new
senior notes in a denomination other than an integral multiple
of $1,000. The exchange offers were part of a plan to reduce and
refinance the Companys indebtedness and to create a
capital structure that is intended to permit the Company to
finance anticipated obligations with respect to its fixed
satellite services business. Approximately $37 million
principal amount of the original

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senior notes and $49 million principal amount of
the senior discount notes remain outstanding after consummation
of the exchange offers.


In connection with the consummation of the
exchange offers, Loral SpaceCom Corporation agreed to cancel its
$79.7 million intercompany note issued to it by the Company
which ranked pari passu to the senior debt in exchange for the
transfer of the Companys data services business to a newly
formed Loral subsidiary, and the issuance of a new note to Loral
SpaceCom Corporation in the principal amount of
$29.7 million due 2006, having an interest rate of 10% per
annum payable in kind, subordinated to the Companys new
senior notes and guaranteed by Loral.

Summary Satellite Data

The following table presents a brief description
of the Companys satellite network. The Company is subject
to regulation and licensing by the U.S. Federal Communications
Commission and other national telecommunications regulatory
bodies, and to the frequency coordination process of the
International Telecommunications Union, or ITU.

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

The Companys ability to provide satellite
service in the geographic regions noted below will be subject to
technical constraints, international coordination, local
regulatory approval and any limitations on the scope of the
approval so obtained.

|                                                  |  |                          |  |                   |  |            |  |                                                                                                                                   
|------------------------------------------------- |  | ------------------------ |  | ----------------- |  | ---------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|                                                 
|                                                 
|                                                  |  | Satellite                |  | Location          |  | Frequency  |  | Coverage                                                                                                                          
|                                                 
|                                                 
|Satellites in operation:                          |  | Telstar 10/ Apstar IIR   |  | 76.5(degrees)E.L. |  | C/ Ku-band |  | Asia and portions of Europe, portions of Africa
    and Australia                                                                 
|                                                 
|                                                  |  | Telstar 11               |  | 37.5(degrees)W.L. |  | Ku-band    |  | Europe, SE Canada, U.S. East of the Rockies and
    portions of Mexico                                                            
|                                                 
|                                                  |  | Telstar 12               |  | 15(degrees)W.L.   |  | Ku-band    |  | Eastern U.S., SE Canada, Europe, Russia, Middle
    East, North Africa, portions of South America, portions of
    Central America
|                                                 
|Satellite nearing completion of
    construction: |  | Telstar 18/ Apstar V (1) |  | 138(degrees)E.L.  |  | C/ Ku-band |  | India, South East Asia, China, Australia and
    Hawaii                                                                           
|                                                 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Telstar 18/ Apstar V is a satellite subject to a
    condosat arrangement between the Company and a third party. The
    Company will own 18 C-band and 7 Ku-band transponders on the
    Telstar 18/ Apstar V satellite with the remaining 29
    transponders on the satellite to be owned by an Asian satellite
    services company. Loral SpaceCom has agreed to purchase from
    Loral Orion 4.75 transponders on Telstar 18/Apstar V,
    together with a lease of an additional transponder for an
    approximate two year period from the
    Telstar 18/Apstar V in-service date.

Employees

As of December 31, 2002, Loral Orion and its
subsidiaries had no full time employees. See Loral Skynet
Agreements.

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CERTAIN FACTORS THAT MAY AFFECT FUTURE
RESULTS

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

Financial Structure

We have substantial debt.

As of December 31, 2002, we had
$960 million of senior debt. Our 10% senior notes mature in
2006 and are guaranteed by Loral. In addition, our 11.25% senior
notes and 12.50% senior discount notes mature in 2007. Our
ability to meet our debt service obligations will be dependent
upon our future performance, including our ability to sustain
our revenues, which will be subject to financial, business,
competitive and other factors, including factors beyond our
control. There can be no assurance that we will be able to
generate sufficient cash flow to meet our debt service
obligations with respect to all of our outstanding indebtedness,
if there was an uninsured loss of one of our satellites or as a
result of other factors beyond our control.

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

For the year ended December 31, 2002, we had
a deficiency of earnings to cover fixed charges of approximately
$5.4 million. In addition to our debt service requirements,
our business are capital intensive and need substantial
investment before returns can be realized. At December 31,
2002, the Company had incurred costs of
approximately $18 million (of which we had paid $3
million) related to the construction of Telstar 18/Apstar V
it intends to launch in 2003. The Company will need to incur
approximately $11 million of additional costs to complete
the construction, launch and insure Telstar 18/Apstar V and an
additional $58 million to acquire additional transponders on
Telstar 18/Apstar V to be paid in installments over the second
through fifth anniversaries of the launch. We are subject to
substantial financial risks from possible delays or reductions
in revenue, unforeseen capital needs or unforeseen expenses. If
this were to occur, our ability to meet our obligations and
execute our business plan could depend upon our ability, and
that of our operating subsidiaries and affiliates, to raise cash
in the capital markets. We are uncertain whether this source of
cash will be available in the future on favorable terms if at
all. Moreover, in connection with amendments to certain of its
bank facilities entered in March 2003, Lorals ability to
make investments in or otherwise make payment to any of its
subsidiaries, including us, has been limited to a maximum amount
of $5 million.

Our debt imposes restrictions and otherwise
affects our ability to undertake certain actions.

The indentures relating to our 10% senior notes
contain restrictions, which among other things, limit our
ability to incur other indebtedness, create liens, make
investments, sell assets, pay dividends and engage in mergers
and acquisitions. In addition, the level of our indebtedness
adversely affects:



| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to pay expenses and fund
    expenditures, which will be affected by our need to use a
    substantial amount of our cash flow to service existing
    indebtedness;
|
| |  | our ability to raise additional debt; and                                                                                                                                       
|
| |  | our flexibility in planning for, or reacting to,
    changes to our business and market conditions.                                                                             

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Operational Risks

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

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

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

Failure of satellite components in space may
result in damage to or loss of a satellite before the end of its
expected life. In-orbit failure may result from various causes,
some random, including component failure, loss of power or fuel,
inability to maintain positioning of the satellite, solar and
other astronomical events, and space debris. Satellites are
carefully built and tested and have some redundant components to
permit the continued operation of a satellite in case of a
component failure. Due to the failure of a primary component,
one of our satellites is currently operating using a back-up
component. If this back-up component fails and the primary
component cannot be restored, this satellite could lose a
significant amount of capacity or be a total loss, which, until
a replacement satellite is placed in-orbit, would result in lost
revenue and lost profits to the Company. Repair of satellites in
space is not feasible. Many factors affect the useful life of
our satellites including fuel consumption, the quality of
construction, degradation of solar panels and the durability of
components.

Telstar 10/ Apstar IIR has experienced
operational problems with its solar arrays.

Telstar 10/ Apstar IIR has experienced minor
losses of power from its solar arrays. Although, to date,
Telstar 10/ Apstar IIR has not experienced any degradation in
performance, there can be no assurance that Telstar 10/ Apstar
IIR will not experience additional power loss that could result
in performance degradation, including loss of transponder
capacity. In the event of additional power loss, the extent of
the performance degradation, if any, will depend on numerous
factors, including the amount of the additional power loss, when
in the life of Telstar 10/ Apstar IIR the loss occurred, and the
number and type of use being made of transponders then in
service. It is also possible that one or more transponders on a
satellite may need to be removed from service to accommodate the
power loss and to preserve full performance capabilities of the
remaining transponders. A complete or partial loss of Telstar
10/ Apstar IIR could result in a loss of revenues and profits.
Based upon information currently available, including design
redundancies to accommodate small power losses and that no
pattern has been identified as to the timing or specific
location within the solar arrays of the failures, we believe
that this matter will not have a material adverse effect on our
consolidated financial position or results of operations.

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

While we have in the past, consistent with
industry practice and the requirements of our indenture,
typically obtained in-orbit insurance for our satellites, we
cannot guarantee that, upon a policys expiration, we will
be able to renew the insurance on terms acceptable to us,
especially on satellites that have, or that are part of a family
of satellites that have, experienced problems in the past.
Telstar 10/ Apstar IIR was manufactured by SS/ L and has the
same solar array configuration as two other 1300-class
satellites manufactured by SS/ L that have experienced solar
array failures. SS/ L believes that these failures are isolated
events and does not reflect a systemic problem in either the
satellite design or manufacturing process. Accordingly, SS/ L
believes that these anomalies will not affect Telstar 10/ Apstar
IIR. The insurance coverage for Telstar 10/ Apstar IIR provides
for coverage of losses due to solar array failures only in the
event of a capacity loss of 75% or more. One other satellite
owned by Loral Orion has the same solar array configuration as
Telstar 10/ Apstar IIR. There can be no assurance that the
insurers will not require either exclusions of, or similar
limitations on,

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coverage due to solar array failures in
connection with the renewal of insurance for this satellite in
2004. An uninsured loss of a satellite would have a material
adverse effect on our consolidated financial position and
results of operations. Some of our bondholders have questioned
whether this limitation is in compliance with the insurance
covenant in our indenture. We believe that we are in compliance
with the covenant as properly interpreted. If, however, our
bondholders were to give notice of a default under the indenture
because of such limitations, and a court ruled against us on
this matter, the maturity of our 10% senior notes could be
accelerated.


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

We, like others in the satellite industry, are
faced with significantly higher premiums on launch and in-orbit
insurance, increasing thresholds in determining total losses for
satellites in orbit and significantly shorter coverage periods
than those that have been available in the past, which was due
in part to the events of September 11, 2001. This
development in the insurance industry has increased our cost of
doing business. We intend to pass on some of the increased cost
to our customers. There can be no assurance, however, that we
will be able to do so. Insurance market conditions have
historically been cyclical in nature. While we anticipate that
these conditions will improve in the future, there can be no
assurance that they will.

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

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

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

Our business is regulated, causing uncertainty
and additional costs.

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



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | the operation of our business in the U.S. and
    foreign markets;
|
| |  | the launch of satellites; and                                     
|
| |  | the international service offered by our business
    operations. 

Regulatory authorities in the various
jurisdictions in which we operate can modify, withdraw or impose
charges or conditions upon, or deny or delay action on
applications for, the licenses which we need, and so increase
our costs. The regulatory process also requires potentially
costly negotiations with third parties operating or intending to
operate satellites at or near orbital locations where we place
our satellites so that the frequencies of those other satellites
do not interfere with our own. For example, as part of our
coordination effort on Telstar 12, we agreed to provide four 54
MHz transponders on Telstar 12 to Eutelsat for the life of

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the satellite and have retained risk of loss with
respect to those transponders. We also granted Eutelsat the
right to acquire, at cost, four transponders on the next
replacement satellite for Telstar 12. Moreover, as part of this
international coordination process, we continue to conduct
discussions with various administrations regarding Telstar
12s operations at 15 degrees W.L. If these discussions are
not successful, Telstar 12s useable capacity may be
reduced. We cannot guarantee successful frequency coordination
for our satellites.


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

We face risks in conducting business
internationally.

For the year ended December 31, 2002,
approximately 43% 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.

Other Matters

The rights of holders of our 11.25% senior
notes and 12.50% senior discount notes under their indentures
have been substantially reduced.

In December 2001, as part of our exchange offers,
the indentures for our 11.25% senior notes and 12.50% senior
discount notes were amended so as to remove substantially all of
their operating restrictions and events of default.

The market for our 11.25% senior notes and
12.50% senior discount notes is limited.

Because the exchange offers that we conducted in
December 2001 resulted in the tender and exchange of
substantially all of our 11.25% senior notes and 12.50% senior
discount notes then outstanding, the market for the remaining
notes is quite limited. Moreover, we cannot guarantee that these
notes will continue to be rated in the future.






|        |           
|------- | ----------
|Item 2. | Properties

Loral Orion does not own or lease office space.
See Loral Skynet Agreements.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

The Company is party to legal and regulatory
proceedings incident to its business. The Company does not
believe that there are any material legal proceedings pending
or, to the knowledge of its management, threatened against, the
Company or its subsidiaries that would have a material effect on
its consolidated financial position or its results of operations.






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

Omitted pursuant to General Instruction I of
Form 10-K.

7



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##### Table of Contents






PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

All of the Companys outstanding common
stock is owned, directly or indirectly, by Loral Space &
Communications Corporation, a wholly owned subsidiary of Loral
Space & Communications Ltd. (Loral). Therefore,
there is no public trading market for the Companys common
stock. The Company has never paid dividends on its common stock.
The Companys indenture relating to its 10% senior notes
obligations includes certain restrictions on the Companys
ability to pay dividends or make loans to its parent.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Omitted pursuant to General Instruction I of
Form 10-K.






|        |                                                             
|------- | ------------------------------------------------------------
|Item 7. | Managements Narrative Analysis of
    Results of Operations

Except for the historical information
contained herein, the matters discussed in the following
Managements Narrative Analysis of Results of Operations of
Loral Orion, Inc. (Loral Orion or the
Company) are not historical facts, but are
forward-looking statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. In
addition, the Company or its representatives have made and may
continue to make forward-looking statements, orally or in
writing, in other contexts, such as in reports filed with the
SEC, press releases or statements made with the approval of an
authorized executive officer of the Company. These
forward-looking statements can be identified by the use of
forward-looking terminology such as believes,
expects, plans, may,
will, would, could,
should, anticipates,
estimates, project, intend,
or outlook or the negative of these words or other
variations of these words or other comparable words, or by
discussion of strategy that involves risks and uncertainties.
These forward-looking statements are only predictions, and
actual events or results may differ materially as a result of a
wide variety of factors and conditions, many of which are beyond
the Companys control. Some of the factors and conditions
that could affect the outcome of forward-looking statements
relate to (i) the Companys financial structure,
(ii) operational risks and (iii) other matters. For a
detailed discussion of these factors and conditions, please
refer to the section of this Annual Report on Form 10-K
titled Certain Factors that May Affect Future
Results beginning on page 4 and to the other periodic
reports filed with the SEC by Loral Orion. In addition, the
Company cautions you that the Company operates in an industry
sector where securities values may be volatile and may be
influenced by economic and other factors beyond the
Companys control. The Company undertakes no obligation to
update any forward-looking statements.

General

The principal business of Loral Orion is leasing
transponder capacity on its satellites to its customers for
various applications, including broadcasting, news gathering,
Internet access and transmission, private voice and data
networks, business television, distance learning and
direct-to-home television (DTH). Loral Skynet, a
division of Loral SpaceCom Corporation, which is a subsidiary of
Loral Space & Communications Corporation, which is in turn a
subsidiary of Loral, manages the Companys continuing
operations.

The Company operates in one segment, Fixed
Satellite Services. On December 21, 2001, the Company, in
connection with the exchange offers for its outstanding senior
notes and senior discount notes, transferred its data services
business to a subsidiary of Loral and has accounted for the
former data business as a discontinued operation.

The Companys revenues from continuing
operations are principally generated from long-term contracts or
occasional use services for transmission capacity services.

No restrictions exist on the ability of any of
the subsidiaries of Loral Orion (Subsidiary
Guarantors) other than inconsequential subsidiaries, to
pay dividends or make other distributions to the Company, except
to the extent provided by law generally (e.g., adequate capital
to pay dividends under state corporate laws).

8



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##### Table of Contents



Critical accounting matters

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



| |             
| | ------------
| | Depreciation

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



| |                                 
| | --------------------------------
| | Receivables and Vendor Financing

The Company is required to estimate the
collectibility of its receivables. A considerable amount of
judgment is required in assessing the realization of these
receivables, including the current creditworthiness of each
customer and related aging of the past due balances. The Company
evaluates specific accounts when it becomes aware of a situation
where a customer may not be able to meet its financial
obligations due to a deterioration of its financial condition,
credit ratings or bankruptcy. The reserve requirements are based
on the best facts available to the Company and re-evaluated
periodically.



| |         
| | --------
| | Taxation

The Company is included in the U.S. federal
income tax return of its parent company, Loral Space &
Communications Corporation. Pursuant to annual tax sharing
agreements with its parent, the Company is entitled to
reimbursement for the parents use of the Companys
net operating losses. The Company has been credited with
cumulative reimbursements of $48.6 million through December
31, 2002

The Company uses the liability method in
accounting for taxes whereby income taxes are recognized during
the year in which transactions enter into the determination of
financial statement income or loss. Deferred taxes reflect the
future tax effect of temporary differences between the carrying
amount of assets and liabilities for financial and income tax
reporting and are measured by applying statutory tax rates in
effect for the year during which the differences are expected to
reverse.

Realization of the net deferred tax assets is
dependent on the Companys ability to generate future
taxable income and its utilization of tax planning strategies.
The Company assesses the recoverability of its loss
carryforwards and other deferred tax assets on a quarterly basis
and, based upon this analysis, records a valuation allowance to
the extent recoverability does not satisfy the more likely
than not recognition criteria in SFAS No. 109. The
Company will maintain the valuation allowance until sufficient
positive evidence exists to support reversal of the reserve.
When the Company determines that it will be able to realize all
or part of the benefit from its 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 Operational Matters.

Results of
Operations

In evaluating financial performance, management
uses revenues and operating income (loss) before depreciation
and amortization (EBITDA) as a measure of a
segments profit or loss. The following discusses the
results of Loral Orion for 2002, 2001 and 2000.

9



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##### Table of Contents



Operating Revenues from Continuing Operations
(in millions):

|                         |  |                          |       |      |  |      |       |   |  |   |       |  
|------------------------ |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                         |  |                         
|                         |  | Years ended December 31,
|                         |  |                         
|                         |  | 2002                     |       | 2001 |  | 2000
|                         |  |                          |       |      |  |     
|Fixed Satellite Services |  | $                        | 109.7 |      |  | $    | 128.1 |   |  | $ | 108.7 |  
|Eliminations(1)          |  |                          |      |      |  |      | (19.2 | ) |  |   | (25.3 | )
|                         |  |                          |       |      |  |      |       |   |  |   |       |  
|Operating revenues       |  | $                        | 109.7 |      |  | $    | 108.9 |   |  | $ | 83.4  |  
|                         |  |                          |       |      |  |      |       |   |  |   |       |  

EBITDA(2) (in millions):

|                         |  |                          |      |      |  |      |       |   |  |   |       |  
|------------------------ |  | ------------------------ | ---- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                         |  |                         
|                         |  | Years ended December 31,
|                         |  |                         
|                         |  | 2002                     |      | 2001 |  | 2000
|                         |  |                          |      |      |  |     
|Fixed Satellite Services |  | $                        | 82.6 |      |  | $    | 104.6 |   |  | $ | 81.2  |  
|Eliminations(1)          |  |                          |     |      |  |      | (19.2 | ) |  |   | (25.3 | )
|                         |  |                          |      |      |  |      |       |   |  |   |       |  
|EBITDA                   |  | $                        | 82.6 |      |  | $    | 85.4  |   |  | $ | 55.9  |  
|                         |  |                          |      |      |  |      |       |   |  |   |       |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents sales to the Companys
    discontinued operation (formerly the data business).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(2) | EBITDA (which is equivalent to operating income
    (loss) before depreciation and amortization) is provided
    because it is a measure commonly used in the communications
    industry to analyze companies on the basis of operating
    performance, leverage and liquidity and is presented to enhance
    the understanding of the Companys operating results.
    However, EBITDA should not be construed as an alternative to net
    income as an indicator of a companys operating
    performance, or cash flow from operations as a measure of a
    companys liquidity. EBITDA may be calculated differently
    and, therefore, may not be comparable to similarly titled
    measures reported by other companies.

Revenues from continuing operations for 2002,
2001 and 2000, were $109.7 million, $108.9 million and
$83.4 million, respectively. The increase resulted from the
inclusion of revenues from the Companys former data
services business in 2002, which were eliminated in 2001 and
2000 (see Exchange Offers), offset by reduced prices and volume
resulting from the global economic downturn in 2002, which has
caused a delay in the demand for new telecommunications
applications and services. The increase for the prior year
resulted from an increase in the number of transponders leased
and higher revenue per transponder in 2001 as compared to the
respective prior year, primarily resulting from the addition of
two satellites to our fleet in the latter part of 1999 (see
below).

Cost of satellite services for continuing
operations for 2002, 2001 and 2000, were $91.4 million,
$107.2 million and $104.6 million, respectively. The
decrease in 2002 as compared to 2001 and 2000 is primarily due
to reduced goodwill amortization resulting from the
Companys adoption of SFAS No. 142 (see Accounting
Pronouncements), slightly offset by increased insurance costs as
a result of the Company renewing the insurance on one of its
satellites after September 11, 2001.

Selling, general and administrative expenses for
continuing operations for 2002, 2001 and 2000, were
$11.1 million, $10.8 million and $12.8 million,
respectively. The increase in 2002 as compared to 2001 was
primarily due to corporate management expenses allocated by
Loral in 2002 (see Operational Matters), offset by a decrease in
marketing, general and administrative expenses. The decrease in
2001 as compared to 2000 was primarily due to a reduction in
marketing expenses.

Interest income for continuing operations for
2002, 2001 and 2000, was $0.6 million, $0.7 million
and $3.0 million, respectively. The decrease in 2001 as
compared to 2000 was primarily due to a reduction in the
balances held for investment.

Interest expense for 2002, 2001 and 2000 was
$13.0 million, $98.3 million and $97.2 million,
respectively. The decrease in 2002 as compared to 2001 and 2000
was primarily due to the Company not recognizing any interest
expense on its 10% senior notes since interest expense is
fully offset by amortization of the deferred gain on the
exchange offers and lower interest expense on the Companys
senior notes and senior discount notes that were exchanged for
10% senior notes in connection with the exchange offers
completed in December 2001 (see Exchange Offers).

10



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##### Table of Contents



During December 2001, the Company recognized a
gain of $34.5 million, related to the Companys debt
exchanges (See Exchange Offers).

The provision for income taxes from continuing
operations for 2002, 2001 and 2000 was $16.0 million,
$4.0 million and $0.9 million on a pre-tax loss of
$5.1 million, $72.2 million and $128.2 million,
respectively. The increase in 2002 as compared to 2001 and 2000
was primarily due to the additional tax expense, recorded during
the fourth quarter of 2002, to provide a full reserve against
the Companys deferred tax asset.

The financial data presented for the
Companys former data business has been presented as a
discontinued operation and reflects the historical sales and
expenses of the data services segment after elimination of
intercompany transactions with FSS. Discontinued operations
include revenue for the data services segment of
$80.2 million and $103.8 million for the period
January 1, 2001 to December 21, 2001 and the year
ended December 31, 2000, respectively. See Note 5 to the
consolidated financial statements.

Results by Operating Business



| |                         
| | ------------------------
| | Fixed Satellite Services

Segment revenues for 2002 were
$109.7 million as compared to $128.1 million in 2001 and
$108.7 in 2000. EBITDA on the same basis was $82.6 million
in 2002, $104.6 million in 2001 and $81.2 million in
2000. The decreases in revenue and EBITDA in 2002 as compared to
2001 were primarily due to reduced prices and volume resulting
from the global economic downturn in 2002, which has caused a
delay in the demand for new telecommunications applications and
services, offset by the inclusion of revenues from the
Companys former data services division in 2002, which were
eliminated in 2001 and 2000 (see Exchange Offers). The increases
in revenue and EBITDA in 2001 as compared to 2000 resulted from
an increase in the number of transponders leased and higher
revenue per transponder in 2001 as compared to 2000, primarily
resulting from the addition of two satellites to our fleet in
the latter part of 1999 (see below).

At December 31, 2002, the Company had an
external contracted backlog of approximately $453 million,
as compared to $576 million at December 31, 2001. At
December 31, 2002 contracted backlog was equivalent to
approximately 4.25 times its 2002 revenues. The reduction in
total contracted backlog resulted from contract terminations in
the third and fourth quarters of 2001, as well as de-bookings
arising largely from the restructuring of one customer contract
in the second quarter of 2001, which reduced the length of the
lease agreement from 13 years to eight. In this instance
the Company received appropriate compensation in exchange for
meeting its customers requirements and, accordingly, this
de-booking did not have an adverse impact on results of
operations in 2001, nor is it expected to have an adverse impact
on near-term results of operations.



| |                    
| | -------------------
| | Operational Matters

The Company had total long-term debt of
$960 million, including current portion of
$65 million, outstanding at December 31, 2002, most of
which matures in 2006. In addition to its debt service
requirements, the Companys business is capital intensive
and requires substantial investment. Much of this investment has
already been incurred primarily to launch the Companys
three satellites. At December 31, 2002, the Company had
incurred costs of approximately $18 million (of which it
has paid $3 million) related to the construction of
Telstar 18/Apstar V which it intends to launch in 2003. The
Company will need to incur approximately $11 million of
additional costs to complete the construction, launch and insure
Telstar 18/Apstar V and an additional $58 million to
acquire additional transponders in the future on
Telstar 18/Apstar V over the second through fifth
anniversaries of the launch.

At December 31, 2002 the Company had a
retained deficit of $1 billion and stockholders
deficit of $399 million. The Company has generated (used)
cash from operating activities of $90 million,
$24 million and $(48) million for the years ended
December 31, 2002, 2001 and 2000, respectively. The Company
believes its cash and net cash provided by operating activities
will be adequate to meet its expected cash requirements through
at least December 31, 2003. If the Company does not
generate sufficient cash to satisfy its debt service and
operating requirements, the Company may be required to seek
alternative financing or

11



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##### Table of Contents



postpone its planned satellite construction and
launch plans. Current market conditions present uncertainty as
to the ability of the Company to secure additional financing, if
needed, and there can be no assurances as to the availability of
additional financing or whether the terms of such financing, if
it is available, would be acceptable to the Company. In
addition, a delay in the Companys planned satellite
construction and launch plans could impact the Companys
ability to achieve profitability.


In November 1995, a component on Telstar 11
malfunctioned, resulting in a 2-hour service interruption. The
malfunctioning component supported nine transponders serving the
European portion of Telstar 11s footprint. Full service
was restored using a back-up component. If that back-up
component fails, Telstar 11 would lose a significant amount of
usable capacity. In such event, while the Company would be
entitled to insurance proceeds of approximately
$195 million as of December 31, 2002, and could lease
replacement capacity and function as a reseller with respect to
such capacity, the loss of capacity would have a material
adverse effect on the Company.

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

Telstar 10/ Apstar IIR has experienced minor
losses of power from its solar arrays. Although, to date,
Telstar 10/ Apstar IIR has not experienced any degradation in
performance, there can be no assurance that Telstar 10/ Apstar
IIR will not experience additional power loss that could result
in performance degradation, including loss of transponder
capacity. In the event of additional power loss, the extent of
the performance degradation, if any, will depend on numerous
factors, including the amount of the additional power loss, when
in the life of Telstar 10/ Apstar IIR the loss occurred, and the
number and type of uses being made of transponders then in
service. It is also possible that one or more transponders on a
satellite may need to be removed from service to accommodate the
power loss and to preserve full performance capabilities of the
remaining transponders. A complete or partial loss of Telstar
10/ Apstar IIR could result in a loss of revenues and profits.
Based upon information currently available, including design
redundancies to accommodate small power losses and the fact that
no pattern has been identified as to the timing or specific
location within the solar arrays of the failures, the Company
believes that this matter will not have a material adverse
effect on our consolidated financial position or our results of
operations.

While the Company has in the past, consistent
with industry practice, typically obtained in-orbit insurance
for our satellites, the Company cannot guarantee that, upon a
policys expiration, the Company will be able to renew the
insurance on terms acceptable to us, especially on satellites
that have, or that are part of a family of satellites that have,
experienced problems in the past. Telstar 10/ Apstar IIR,
manufactured by SS/ L has the same solar array configuration as
two other 1300-class satellites manufactured by SS/ L that have
experienced solar array failures. SS/ L believes that these
failures are isolated events and do not reflect a systemic
problem in either the satellite design or manufacturing process.
Accordingly, we do not believe that these anomalies will affect
Telstar 10/ Apstar IIR. The insurance coverage for Telstar 10/
Apstar IIR provides for coverage of losses due to solar array
failures only in the event of a capacity loss of 75% or more.
One other satellite owned by Loral Orion has the same solar
array configuration as Telstar 10/ Apstar IIR. There can be no
assurance that the insurers will not require either exclusions
of, or similar limitations on, coverage due to solar array
failures in connection with the renewal of insurance for this
satellite in 2004. An uninsured loss of a satellite would have a
material adverse effect on our consolidated financial position
and results of operations. Some of Loral Orions
bondholders have questioned whether this limitation is in
compliance with the insurance covenant in the Loral Orion
indenture. Loral Orion believes that it is in compliance with the

12



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##### Table of Contents



covenant as properly interpreted. If, however,
Loral Orions bondholders were to give notice of a default
under the indenture because of such limitations, and a court
ruled against Loral Orion on this matter, the maturity of Loral
Orions 10% senior notes could be accelerated.


On September 20, 2002, Loral Orion entered
into an agreement with APT Satellite Company Limited
(APT) pursuant to which Loral Orion will purchase a
50% interest in the Telstar 18/ Apstar V satellite, a satellite
under construction by SS/ L for APT. Loral Orions
aggregate purchase price for its 50% interest in the satellite
is $115.1 million, representing 50% of the current
estimated project cost of constructing, launching and insuring
the Telstar 18/ Apstar V satellite, which purchase price will be
adjusted if the actual project cost is greater or less than
$230.2 million. In addition, Loral Orion has agreed to bear
the cost of modifying the footprint of one of the Ku-band beams
on the satellite. Telstar 18/ Apstar V will have a total of
54 transponders, comprised of 24 standard C-band
transponders, 14 extended C-band transponders and
16 Ku-band transponders. Under this transaction, Loral
Orion has agreed to purchase 12 standard C-band, 7 extended
C-band and 8 Ku-band transponders on Telstar 18/ Apstar V, which
capacity will be designated Telstar 18. Loral Orion will also
have the option to enter into similar arrangements with APT on
replacement satellites upon the end of life of Telstar 18/
Apstar V. To be located at 138 degrees East Longitude, Telstar
18/ Apstar V is currently scheduled to be launched in the third
quarter of 2003 and will be capable of providing Ku-band voice,
video and data services to China, India and East Asia, and
broadbeam C-band services throughout the Asia-Pacific region,
including Australia and Hawaii. To ensure a timely launch of
Telstar 18/ Apstar V, Loral Orion, APT and SS/ L have agreed
that a non-Chinese launch provider will be used.

Pursuant to Loral Orions agreement with
APT, Loral Orion will pay one-half the purchase price prior to
launch for 13.5 transponders on the satellite. The corresponding
cumulative costs relating to these transponders have been
reflected as satellites under construction on Loral Orions
condensed consolidated balance sheet as of December 31,
2002. Subject to certain acceleration rights on the part of
Loral Orion, the remainder of the purchase price for the second
13.5 transponders will be paid by Loral Orion as follows: on the
second anniversary of the satellites in-service date,
$10.66 million for 2.5 additional transponders; on the
third anniversary of the satellites in-service date,
$12.79 million for three additional transponders; and on
each of the fourth and fifth anniversaries of the
satellites in-service date, $17.05 million for four
additional transponders. Title to these transponders will pass
to Loral Orion upon its payments thereon. As a result of
finalizing the Telstar 18/ Apstar V launch arrangements in March
2003, the Company agreed to take two fewer transponders without
any corresponding change to the transponder cost borne by each
of the parties. Loral SpaceCom has agreed to purchase from Loral
Orion 4.75 transponders on Telstar 18/Apstar V,
together with a lease of an additional transponder for an
approximate two year period from the
Telstar 18/Apstar V in-service date.

The Company, like others in the satellite
industry, are faced with significantly higher premiums on launch
and in-orbit insurance, increasing thresholds in determining
total losses for satellites in orbit and significantly shorter
coverage periods than those that have been available in the
past, which was due in part to the events of September 11,
2001. This development in the insurance industry has increased
our cost of doing business. The Company intends to pass on some
of the increased cost to our customers. There can be no
assurance, however, that the Company will be able to do so.
Insurance market conditions have historically been cyclical in
nature. While the Company anticipates that these conditions will
improve in the future, there can be no assurance that they will.

Beginning in 2002, Loral initiated the allocation
of corporate management expenses to its individual subsidiaries
and divisions, including $3.1 million to Loral Orion. The
allocation of these expenses is computed with respect to Loral
Orion in a manner consistent with Lorals other
subsidiaries and divisions, using a fixed formula based on three
factors: employee payroll, revenues and assets.



| |                
| | ---------------
| | Exchange Offers

On December 21, 2001, Loral Orion completed
exchange offers by issuing $613 million principal amount of
new senior notes due 2006 guaranteed by Loral, in exchange for
the extinguishment of $841 million principal amount of
Loral Orion senior notes due in 2007 and senior discount notes
due 2007 as discussed

13



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##### Table of Contents



below. As part of the exchange, Loral issued to
the new note holders 6.04 million five-year warrants to purchase
Loral common stock at a price of $2.37 per share. The warrants
were valued at $6.7 million using the Black Scholes option
pricing model with the following assumptions: stock volatility,
75%, risk free interest rate, 4.36%, and no dividends during the
expected term, and is reflected in capital in excess of par
value on the consolidated balance sheet. After the exchange
offers, principal amount of $37 million of the existing
senior notes and principal amount of $49 million of the
existing senior discount notes remain outstanding at their
original maturities and interest rates.


The interest rate on the senior notes is 10%, a
reduction from the 11.25% interest rate on the existing senior
notes and the 12.5% rate on the existing senior discount notes.
Interest is payable semi-annually on July 15 and January
15, beginning July 15, 2002. As a result of the lower
interest rate and the $229 million reduction in principal
amount of debt, Loral Orions annual cash interest payments
will be reduced by approximately $39 million. Under
accounting principles generally accepted in the United States
dealing with debt restructurings, the Company recorded a gain of
$34.5 million on the exchange, after expenses of
$5 million. The carrying value of the 10% senior notes on
the balance sheet is $858 million, although the actual
principal amount of the 10% senior notes is $613 million.
The difference between this carrying value and the actual
principal amount of the 10% senior notes is being amortized over
the life of the 10% senior notes, fully offsetting interest
expense through maturity of the 10% senior notes. The indenture
relating to the 10% senior notes contains limitations on Loral
Orion and its subsidiaries, including, without limitation,
restrictions on Loral Orions ability to pay dividends or
make loans to Loral.

In connection with the completion of the
Companys debt exchange offers in December 2001, LSC
canceled its $79.7 million intercompany note issued to it
by Loral Orion which ranked pari passu to the senior debt in
exchange for the transfer of Loral Orions data services
business (see Note 9 to the consolidated financial
statements) and the issuance of a new note to LSC in the
principal amount of $29.7 million due 2006, having an
interest rate of 10% per annum payable in kind, subordinated to
Loral Orions new 10% senior notes. Loral Orions data
services business was transferred to a newly-formed subsidiary
of Loral, which assumed the name Loral Cyberstar, Inc. As of
December 31, 2002, the balance of the note was
$31.5 million, including accrued interest.



| |                          
| | -------------------------
| | Accounting Pronouncements



| |         
| | --------
| | SFAS 142

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

In accordance with SFAS 142, the
Companys previously recognized cost in excess of net
assets acquired (goodwill) of $562 million (at
December 31, 2001) from the acquisition of the Company by
Loral in 1998 was reviewed under the new transitional guidance
as of January 1, 2002. The Company hired professionals in
the valuation consulting business to determine the fair value of
the Company. Since there were no quoted market prices in active
markets for the Company, the measurement of fair value was based
on the best information available in the circumstances,
including reasonable and supportable assumptions and projections,

14



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##### Table of Contents



to determine that the most appropriate method of
fair value was public company trading multiples. Based on the
fair values concluded on by those professionals, management
determined that the Companys goodwill under the new
guidance in SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$562 million.


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

The following table presents the actual financial
results and as adjusted financial results without the
amortization of goodwill for the Company for the years ended
December 31, 2001 and 2000 (in thousands):

|                                                                  |  |        |         |             |  |        |         |             |  |   |          |   |  |   |          |  
|----------------------------------------------------------------- |  | ------ | ------- | ----------- |  | ------ | ------- | ----------- |  | - | -------- | - |  | - | -------- | -
|                                                                  |  |        |         |            
|                                                                  |  | 2001   |         | 2000       
|                                                                  |  |        |         |            
|                                                                  |  | Actual |         | As Adjusted |  | Actual |         | As Adjusted
|                                                                  |  |        |         |             |  |        |         |            
|Reported loss from continuing operations                          |  | $      | (76,170 | )           |  | $      | (76,170 | )           |  | $ | (129,117 | ) |  | $ | (129,117 | )
|Add back amortization of goodwill                                 |  |        |        |             |  |        | 15,508  |             |  |   |         |   |  |   | 15,509   |  
|                                                                  |  |        |         |             |  |        |         |             |  |   |          |   |  |   |          |  
|Loss from continuing operations                                   |  |        | (76,170 | )           |  |        | (60,662 | )           |  |   | (129,117 | ) |  |   | (113,608 | )
|Loss from operations of discontinued operations,
    net of taxes |  |        | (12,087 | )           |  |        | (12,087 | )           |  |   | (8,301   | ) |  |   | (8,301   | )
|                                                                  |  |        |         |             |  |        |         |             |  |   |          |   |  |   |          |  
|Net loss                                                          |  | $      | (88,257 | )           |  | $      | (72,749 | )           |  | $ | (137,418 | ) |  | $ | (121,909 | )
|                                                                  |  |        |         |             |  |        |         |             |  |   |          |   |  |   |          |  



| |         
| | --------
| | SFAS 143

In June 2001, the FASB issued
SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143 addresses
financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and
the normal operation of a long-lived asset, except for certain
obligations of lessees. The Company is required to adopt
SFAS 143 on January 1, 2003. The Company believes that
there will be no effect on its consolidated results of
operations or its financial position upon the adoption of
SFAS 143.



| |         
| | --------
| | SFAS 144

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



| |         
| | --------
| | SFAS 145

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statement No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections.
SFAS 145 generally requires that any gains or losses on
extinguishment of debt in current or prior periods be classified
as other income (expense), beginning in fiscal 2003, with early
adoption encouraged. In the fourth quarter of 2002, the Company
adopted the provisions of SFAS 145 and reclassified the
previously recorded extraordinary gain on its exchanges in 2001
to gain on debt exchanges in its consolidated statement of
operations (see Exchange Offers).



| |         
| | --------
| | SFAS 146

In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146).
SFAS 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan.
Examples

15



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##### Table of Contents



of costs covered by the standard include lease
termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity. Previous accounting
guidance was provided by EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 replaces EITF Issue No. 94-3.
SFAS 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002.




| |       
| | ------
| | FIN 45

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






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7a. | Quantitative and Qualitative Disclosures
    About Market Risk



| |         
| | --------
| | Interest

As of December 31, 2002, all of the
Companys outstanding debt had fixed interest rates.

As of December 31, 2002, the carrying value
of the Companys long-term debt was $960 million and
the fair value of such debt was $273 million. The fair
value of the Companys long-term debt is primarily based on
quoted market prices. Approximately $245 million of the
difference between the carrying amount and the fair value of the
Companys long-term debt as of December 31, 2002 is
attributable to the accounting for the Companys exchange
offers completed in 2001. The table below provides information
about the carrying amount of the Companys long-term debt
obligations by fiscal year of maturity (in thousands).

|                                     |  |                                  |        |      |  |      |        |      |  |      |        |            |  |   |         |   |  |   |        |   |  |   |   | 
|------------------------------------ |  | -------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | - | ------- | - |  | - | ------ | - |  | - | - | 
|                                     |  |                                  |        |     
|                                     |  | For the Years Ended December 31, |        |     
|                                     |  |                                  |        |     
|                                     |  | 2003                             |        | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Thereafter
|                                     |  |                                  |        |      |  |      |        |      |  |      |        |           
|Fixed rate debt                      |  | $                                | 64,727 |      |  | $    | 64,899 |      |  | $    | 65,296 |            |  | $ | 678,443 |   |  | $ | 86,191 |   |  | $ |  | 
|Weighted average fixed interest rate |  |                                  | 1.28   | %    |  |      | 1.32   | %    |  |      | 1.37   | %          |  |   | 1.42    | % |  |   | 11.97  | % |  |   |   | 






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

16



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##### Table of Contents






INDEPENDENT AUDITORS REPORT

To the Stockholder of Loral Orion,
Inc.:

We have audited the accompanying consolidated
balance sheets of Loral Orion, Inc. (formerly Loral CyberStar,
Inc.) and its subsidiaries a wholly owned subsidiary of Loral
Space & Communications Corporation, as of December 31,
2002 and 2001 and the related consolidated statements of
operations, stockholders (deficit) equity and cash
flows for each of the three years in the period ended
December 31, 2002. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these 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 referred to above present fairly, in all material
respects, the consolidated financial position of Loral Orion,
Inc. and its subsidiaries as of December 31, 2002, and
2001, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 3 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and other intangible assets 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, effective December 31, 2002,
the Company changed its method of accounting for gains on
extinguishment of debt to adopt the provisions of Statement of
Financial Accounting Standards No. 145, Rescission of FASB
Statement No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections.

DELOITTE & TOUCHE LLP

San Jose, California


March 31, 2003


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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space
& Communications Corporation)







CONSOLIDATED BALANCE SHEETS


(in thousands, except par amounts)


|                                                   |                                                                                                                     |              |                                                          |            |         |          |         |          |           |           | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ------------ | -------------------------------------------------------- | ---------- | ------- | -------- | ------- | -------- | --------- | --------- | 
|                                                   |                                                                                                                     |             
|                                                   |                                                                                                                     | December 31,
|                                                   |                                                                                                                     |             
|                                                   |                                                                                                                     | 2002         |                                                          | 2001      
|                                                   |                                                                                                                     |              |                                                          |           
|ASSETS                                            
|Current assets:                                    |                                                                                                                     |              |                                                          |            |         |          |         |         
|                                                   | Cash and cash equivalents                                                                                           |              | $                                                        | 42,964     |         |          | $       | 19,399   |          
|                                                   | Accounts receivable, net                                                                                            |              |                                                          | 7,615      |         |          |         | 13,568   |          
|                                                   | Prepaid expenses and other current assets                                                                           |              |                                                          | 13,213     |         |          |         | 11,204   |          
|                                                   | Due from Loral companies                                                                                            |              |                                                          | 57,477     |         |          |         | 39,469   |          
|                                                   |                                                                                                                     |              |                                                          |            |         |          |         |         
|                                                   |                                                                                                                     |              | Total current assets                                     |            |         | 121,269  |         |          |           | 83,640    | 
|Satellites and related equipment, net              |                                                                                                                     |              | 524,699                                                  |            |         |          | 579,910 |         
|Cost in excess of net assets acquired, net         |                                                                                                                     |              |                                                         |            |         |          | 562,201 |         
|Deferred tax assets                                |                                                                                                                     |              |                                                         |            |         |          | 32,130  |         
|Other assets, net                                  |                                                                                                                     |              | 17,318                                                   |            |         |          | 21,668  |         
|                                                   |                                                                                                                     |              |                                                          |            |         |          |         |         
|                                                   |                                                                                                                     | Total assets |                                                          | $          | 663,286 |          |         | $        | 1,279,549 |          
|                                                   |                                                                                                                     |              |                                                          |            |         |          |         |         
|LIABILITIES AND STOCKHOLDERS (DEFICIT)
    EQUITY
|Current liabilities:                               |                                                                                                                     |              |                                                          |            |         |          |         |         
|                                                   | Current portion of long-term debt                                                                                   |              | $                                                        | 64,727     |         |          | $       | 49,449   |          
|                                                   | Accounts payable                                                                                                    |              |                                                          | 2,387      |         |          |         | 3,390    |          
|                                                   | Customer advances                                                                                                   |              |                                                          | 3,731      |         |          |         | 7,034    |          
|                                                   | Due to Loral companies                                                                                              |              |                                                          | 51,623     |         |          |         | 34,664   |          
|                                                   | Interest payable                                                                                                    |              |                                                          | 4,700      |         |          |         | 1,889    |          
|                                                   |                                                                                                                     |              |                                                          |            |         |          |         |         
|                                                   |                                                                                                                     |              | Total current liabilities                                |            |         | 127,168  |         |          |           | 96,426    | 
|Customer advances                                  |                                                                                                                     |              | 8,765                                                    |            |         |          | 9,521   |         
|Long-term debt                                     |                                                                                                                     |              | 894,829                                                  |            |         |          | 959,555 |         
|Note payable to Loral SpaceCom                     |                                                                                                                     |              | 31,540                                                   |            |         |          | 29,700  |         
|Commitments and contingencies (Note 4)             |                                                                                                                     |              |                                                          |            |         |          |         |         
|Stockholders (deficit) equity:                    |                                                                                                                     |              |                                                          |            |         |          |         |         
|                                                   | Common stock, $.01 par value; 1,000 shares
    authorized; 100 shares outstanding at December 31, 2002 and
    2001 |              |                                                          |           |         |          |         |         |          
|                                                   | Paid-in capital                                                                                                     |              |                                                          | 604,166    |         |          |         | 604,166  |          
|                                                   | Retained deficit                                                                                                    |              |                                                          | (1,003,182 | )       |          |         | (419,819 | )        
|                                                   |                                                                                                                     |              |                                                          |            |         |          |         |         
|                                                   |                                                                                                                     |              | Total stockholders (deficit) equity                     |            |         | (399,016 | )       |          |           | 184,347   | 
|                                                   |                                                                                                                     |              |                                                          |            |         |          |         |         
|                                                   |                                                                                                                     |              | Total liabilities and stockholders
    (deficit) equity |            | $       | 663,286  |         |          | $         | 1,279,549 | 
|                                                   |                                                                                                                     |              |                                                          |            |         |          |         |         

See notes to consolidated financial statements

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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space
& Communications Corporation)







CONSOLIDATED STATEMENTS OF
OPERATIONS


(in thousands)


|                                                                                                              |                                              |                          |          |         |   |      |         |         |   |   |          |         |  
|------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------ | -------- | ------- | - | ---- | ------- | ------- | - | - | -------- | ------- | -
|                                                                                                              |                                              |                         
|                                                                                                              |                                              | Years ended December 31,
|                                                                                                              |                                              |                         
|                                                                                                              |                                              | 2002                     |          | 2001    |   | 2000
|                                                                                                              |                                              |                          |          |         |   |     
|Revenues from satellite services                                                                              |                                              | $                        | 109,739  |         |   | $    | 108,945 |         |   | $ | 83,384   |        
|Operating expenses:                                                                                           |                                              |                          |          |         |   |      |         |         |   |   |          |        
|                                                                                                              | Cost of satellite services                   |                          |          | 91,415  |   |      |         | 107,185 |   |   |          | 104,641 |  
|                                                                                                              | Selling, general and administrative expenses |                          |          | 11,053  |   |      |         | 10,796  |   |   |          | 12,827  |  
|                                                                                                              |                                              |                          |          |         |   |      |         |         |   |   |          |        
|Income (loss) from operations                                                                                 |                                              |                          | 7,271    |         |   |      | (9,036  | )       |   |   | (34,084  | )      
|                                                                                                              | Interest income                              |                          |          | 631     |   |      |         | 653     |   |   |          | 3,041   |  
|                                                                                                              | Interest expense                             |                          |          | (13,013 | ) |      |         | (98,339 | ) |   |          | (97,164 | )
|                                                                                                              | Gain on debt exchanges                       |                          |          |        |   |      |         | 34,541  |   |   |          |        |  
|                                                                                                              |                                              |                          |          |         |   |      |         |         |   |   |          |        
|Loss before income taxes, cumulative effect of
    change in accounting principle and discontinued operations |                                              |                          | (5,111   | )       |   |      | (72,181 | )       |   |   | (128,207 | )      
|Income tax expense                                                                                            |                                              |                          | (16,051  | )       |   |      | (3,989  | )       |   |   | (910     | )      
|                                                                                                              |                                              |                          |          |         |   |      |         |         |   |   |          |        
|Loss before cumulative effect of change in
    accounting principle and discontinued operations               |                                              |                          | (21,162  | )       |   |      | (76,170 | )       |   |   | (129,117 | )      
|Cumulative effect of change in accounting
    principle (Note 3)                                              |                                              |                          | (562,201 | )       |   |      |        |         |   |   |         |        
|                                                                                                              |                                              |                          |          |         |   |      |         |         |   |   |          |        
|Loss from continuing operations                                                                               |                                              |                          | (583,363 | )       |   |      | (76,170 | )       |   |   | (129,117 | )      
|Loss from operations of discontinued operations,
    net of tax provision (Note 2)                            |                                              |                          |         |         |   |      | (12,087 | )       |   |   | (8,301   | )      
|                                                                                                              |                                              |                          |          |         |   |      |         |         |   |   |          |        
|Net loss                                                                                                      |                                              | $                        | (583,363 | )       |   | $    | (88,257 | )       |   | $ | (137,418 | )      
|                                                                                                              |                                              |                          |          |         |   |      |         |         |   |   |          |        

See notes to consolidated financial statements

19



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space
& Communications Corporation)





CONSOLIDATED STATEMENTS OF STOCKHOLDERS
(DEFICIT) EQUITY

(in thousands)


|                             |                                                                              |        |   |         |  |          |         |              |   |                  |            |          |   |   |        |     |  |   |          |          |  
|---------------------------- | ---------------------------------------------------------------------------- | ------ | - | ------- |  | -------- | ------- | ------------ | - | ---------------- | ---------- | -------- | - | - | ------ | --- |  | - | -------- | -------- | -
|                             |                                                                              |        |   |         |  |          |         |              |   | Total           
|                             |                                                                              | Common |   | Paid-in |  | Retained |         | Unearned     |   | Stockholders   
|                             |                                                                              | Stock  |   | Capital |  | Deficit  |         | Compensation |   | (Deficit) Equity
|                             |                                                                              |        |   |         |  |          |         |              |   |                 
|Balance at January 1, 2000   |                                                                              | $      |  |         |  | $        | 544,176 |              |   | $                | (194,144   | )        |   | $ | (1,804 | )   |  | $ | 348,228  |         
|                             | Amortization of unearned compensation                                        |        |   |         |  |          |         |             |   |                  |            |         |   |   |        | 815 |  |   |          | 815      |  
|                             | Stock option forfeitures                                                     |        |   |         |  |          |         | (989         | ) |                  |            |         |   |   |        | 989 |  |   |          |         |  
|                             | Loral Space and Communications capital
    contribution                      |        |   |         |  |          |         | 45,010       |   |                  |            |         |   |   |        |    |  |   |          | 45,010   |  
|                             | Net loss                                                                     |        |   |         |  |          |         |             |   |                  |            | (137,418 | ) |   |        |    |  |   |          |         |  
|                             | Comprehensive loss                                                           |        |   |         |  |          |         |             |   |                  |            |         |   |   |        |    |  |   |          | (137,418 | )
|                             |                                                                              |        |   |         |  |          |         |              |   |                  |            |          |   |   |        |     |  |   |          |         
|Balance at December 31, 2000 |                                                                              |        |   |         |  |          | 588,197 |              |   |                  | (331,562   | )        |   |   |       |     |  |   | 256,635  |         
|                             | Loral Space and Communications capital
    contributions                     |        |   |         |  |          |         | 9,249        |   |                  |            |         |   |   |        |    |  |   |          | 9,249    |  
|                             | Loral warrants issued in connection with debt
    exchanges, net of expenses |        |   |         |  |          |         | 6,720        |   |                  |            |         |   |   |        |    |  |   |          | 6,720    |  
|                             | Net loss                                                                     |        |   |         |  |          |         |             |   |                  |            | (88,257  | ) |   |        |    |  |   |          |         |  
|                             | Comprehensive loss                                                           |        |   |         |  |          |         |             |   |                  |            |         |   |   |        |    |  |   |          | (88,257  | )
|                             |                                                                              |        |   |         |  |          |         |              |   |                  |            |          |   |   |        |     |  |   |          |         
|Balance at December 31, 2001 |                                                                              |        |   |         |  |          | 604,166 |              |   |                  | (419,819   | )        |   |   |       |     |  |   | 184,347  |         
|                             | Net loss                                                                     |        |   |         |  |          |         |             |   |                  |            | (583,363 | ) |   |        |    |  |   |          |         |  
|                             | Comprehensive loss                                                           |        |   |         |  |          |         |             |   |                  |            |         |   |   |        |    |  |   |          | (583,363 | )
|                             |                                                                              |        |   |         |  |          |         |              |   |                  |            |          |   |   |        |     |  |   |          |         
|Balance at December 31, 2002 |                                                                              | $      |  |         |  | $        | 604,166 |              |   | $                | (1,003,182 | )        |   | $ |       |     |  | $ | (399,016 | )       
|                             |                                                                              |        |   |         |  |          |         |              |   |                  |            |          |   |   |        |     |  |   |          |         

See notes to consolidated financial statements

20



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space
& Communications Corporation)





CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in thousands)


|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |          |  
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ------------------------ | -------- | ------- | - | ---- | ------- | ------- | - | - | -------- | -------- | -
|                                                           |                                                                                                                     |                         
|                                                           |                                                                                                                     | Years ended December 31,
|                                                           |                                                                                                                     |                         
|                                                           |                                                                                                                     | 2002                     |          | 2001    |   | 2000
|                                                           |                                                                                                                     |                          |          |         |   |     
|Operating Activities                                       |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Loss from continuing operations                            |                                                                                                                     | $                        | (583,363 | )       |   | $    | (76,170 | )       |   | $ | (129,117 | )       
|Non-cash items:                                            |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|                                                           | Gain on debt exchanges                                                                                              |                          |          |        |   |      |         | (34,541 | ) |   |          |         |  
|                                                           | Cumulative effect of change in accounting
    principle                                                             |                          |          | 562,201 |   |      |         |        |   |   |          |         |  
|                                                           | Deferred income tax provision                                                                                       |                          |          | 32,130  |   |      |         | 12,852  |   |   |          | 4,241    |  
|                                                           | Depreciation and amortization                                                                                       |                          |          | 75,292  |   |      |         | 94,005  |   |   |          | 89,976   |  
|                                                           | Non-cash interest expense, net                                                                                      |                          |          | 503     |   |      |         | 39,609  |   |   |          | 37,074   |  
|                                                           | Interest earned on restricted cash                                                                                  |                          |          |        |   |      |         |        |   |   |          | (3,518   | )
|Changes in operating assets and liabilities:               |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|                                                           | Accounts receivable, net                                                                                            |                          |          | 5,953   |   |      |         | (11     | ) |   |          | (4,362   | )
|                                                           | Prepaid expenses and other current assets                                                                           |                          |          | (4,057  | ) |      |         | (5,634  | ) |   |          | 2,835    |  
|                                                           | Other assets                                                                                                        |                          |          | 4,350   |   |      |         | (3,217  | ) |   |          | 1,062    |  
|                                                           | Accounts payable and interest payable                                                                               |                          |          | 1,808   |   |      |         | (8,011  | ) |   |          | 2,786    |  
|                                                           | Customer advances                                                                                                   |                          |          | (4,059  | ) |      |         | 7,039   |   |   |          | 2,485    |  
|                                                           | Due (to) from Loral companies                                                                                       |                          |          | (1,049  | ) |      |         | (1,667  | ) |   |          | (51,690  | )
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Net cash provided by (used in) operating
    activities    |                                                                                                                     |                          | 89,709   |         |   |      | 24,254  |         |   |   | (48,228  | )       
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Net cash provided by (used in) discontinued
    operations |                                                                                                                     |                          |         |         |   |      | 24,183  |         |   |   | (43,482  | )       
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Investing Activities                                       |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|                                                           | Capital expenditures                                                                                                |                          |          | (18,033 | ) |      |         | (579    | ) |   |          | (182,095 | )
|                                                           | Increase in restricted and segregated assets                                                                        |                          |          |        |   |      |         |        |   |   |          | (64      | )
|                                                           | Use and transfers from restricted and segregated
    cash                                                           |                          |          |        |   |      |         |        |   |   |          | 190,898  |  
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Net cash (used in) provided by investing
    activities    |                                                                                                                     |                          | (18,033  | )       |   |      | (579    | )       |   |   | 8,739    |         
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Financing Activities                                       |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|                                                           | Interest payments on 10% senior notes                                                                               |                          |          | (45,952 | ) |      |         |        |   |   |          |         |  
|                                                           | Payment of satellite incentive obligation                                                                           |                          |          | (2,159  | ) |      |         | (2,331  | ) |   |          | (280     | )
|                                                           | Increase (decrease) in note payable to Loral
    SpaceCom                                                           |                          |          |        |   |      |         | (28,166 | ) |   |          | 35,752   |  
|                                                           | Proceeds from sale of orbital slots to Loral, net                                                                   |                          |          |        |   |      |         |        |   |   |          | 34,260   |  
|                                                           | Equity contributed by Loral                                                                                         |                          |          |        |   |      |         | 2,700   |   |   |          | 10,750   |  
|                                                           | Repayment of notes payable                                                                                          |                          |          |        |   |      |         | (664    | ) |   |          | (1,398   | )
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Net cash (used in) provided by financing
    activities    |                                                                                                                     |                          | (48,111  | )       |   |      | (28,461 | )       |   |   | 79,084   |         
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Net increase (decrease) in cash and cash
    equivalents   |                                                                                                                     |                          | 23,565   |         |   |      | 19,397  |         |   |   | (3,887   | )       
|Cash and cash equivalents at beginning of period           |                                                                                                                     |                          | 19,399   |         |   |      | 2       |         |   |   | 3,889    |         
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Cash and cash equivalents at end of period                 |                                                                                                                     | $                        | 42,964   |         |   | $    | 19,399  |         |   | $ | 2        |         
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Non-cash activities:                                       |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|                                                           | Exchange of senior notes and senior discount
    notes for new 10% senior notes and 6.04 million Loral
    warrants |                          |          |         |   |      | $       | 910,600 |   |   |          |          |  
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|                                                           | Exchange of data services business for reduction
    in note payable to Loral SpaceCom                              |                          |          |         |   |      | $       | 50,000  |   |   |          |          |  
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|Supplemental information:                                  |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|                                                           | Interest paid, net of capitalized interest                                                                          |                          | $        | 51,256  |   |      | $       | 57,602  |   |   | $        | 51,879   |  
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         
|                                                           | Taxes paid                                                                                                          |                          | $        | 206     |   |      | $       | 43      |   |   | $        | 134      |  
|                                                           |                                                                                                                     |                          |          |         |   |      |         |         |   |   |          |         

See notes to consolidated financial statements

21



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space
& Communications Corporation)







NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|   |                          
|-- | -------------------------
|1. | Organization and Business

The principal business of Loral Orion, Inc. (the
Company or Loral Orion), is providing
fixed satellite services, including video distribution and other
satellite transmission services by leasing transponder capacity
on its satellites to its customers for various applications,
including broadcasting, news gathering, Internet access and
transmission, private voice and data networks, business
television, distance learning and direct-to-home television
(DTH). Loral Skynet, a division of Loral SpaceCom
Corporation, which is a subsidiary of Loral Space &
Communications Corporation, which is in turn a subsidiary of
Loral Space & Communications Ltd. (Loral),
manages the Companys business. The Company operates in one
business segment, Fixed Satellite Services (FSS). On
December 21, 2001, the Company, in connection with an
exchange offer for its outstanding senior notes and senior
discount notes (notes 5 and 9), transferred its data services
business to a subsidiary of Loral.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                     
| | --------------------
| | Consolidation Policy

The consolidated financial statements include the
accounts of Loral Orion and its wholly-owned subsidiaries. All
intercompany transactions have been eliminated.

Risks and
Uncertainties

The Company had total long-term debt of
$960 million, including current portion of
$65 million, outstanding at December 31, 2002, most of
which matures in 2006. In addition to its debt service
requirements, the Companys business is capital intensive
and requires substantial investment. Much of this investment has
already been incurred primarily to launch the Companys
three satellites. At December 31, 2002, the Company had
incurred costs of approximately $18 million (of which it
has paid $3 million) related to the construction of
Telstar 18/Apstar V which it intends to launch in 2003. The
Company will need to incur approximately $11 million of
additional costs to complete the construction, launch and insure
Telstar 18/Apstar V and an additional $58 million to
acquire additional transponders in the future on
Telstar 18/Apstar V over the second through fifth
anniversaries of the launch.

At December 31, 2002 the Company had a
retained deficit of $1 billion and stockholders
deficit of $399 million. The Company has generated (used)
cash from operating activities of $90 million,
$24 million and $(48) million for the years ended
December 31, 2002, 2001 and 2000, respectively. The Company
believes its cash and net cash provided by operating activities
will be adequate to meet its expected cash requirements through
at least December 31, 2003. If the Company does not
generate sufficient cash to satisfy its debt service and
operating requirements, the Company may be required to seek
alternative financing or postpone its planned satellite
construction and launch plans. Current market conditions present
uncertainty as to the ability of the Company to secure
additional financing, if needed, and there can be no assurances
as to the availability of additional financing or whether the
terms of such financing, if it is available, would be acceptable
to the Company. In addition, a delay in the Companys
planned satellite construction and launch plans could impact the
Companys ability to achieve profitability.

Cash and Cash
Equivalents

Loral Orion considers all highly liquid
investments purchased with a maturity of three months or less to
be cash equivalents.

22



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

Concentration of
Credit Risk

Financial instruments which potentially subject
Loral Orion to concentrations of credit risk consist principally
of cash and cash equivalents and accounts receivable. The
Companys cash and cash equivalents are maintained with
high-credit-quality financial institutions. The company does not
require collateral against its receivables; however, management
believes that its credit evaluation, approval and monitoring
processes combined with negotiated billing arrangements mitigate
potential credit risks with regard to the Companys current
customer base.

As of December 31, 2002 and 2001, accounts
receivable was reduced by an allowance for doubtful accounts of
$1.0 million and $1.3 million, respectively.

Satellites and
Related Equipment

Satellites and related equipment consist of the
following (in thousands):

|                                                                                             |  |              |          |      |  |   |          |  
|-------------------------------------------------------------------------------------------- |  | ------------ | -------- | ---- |  | - | -------- | -
|                                                                                             |  |             
|                                                                                             |  | December 31,
|                                                                                             |  |             
|                                                                                             |  | 2002         |          | 2001
|                                                                                             |  |              |          |     
|Satellites and related equipment, including
    satellite transponder rights of $273 million |  | $            | 796,118  |      |  | $ | 796,118  |  
|Satellite under construction                                                                 |  |              | 18,057   |      |  |   |         |  
|                                                                                             |  |              |          |      |  |   |          |  
|Total satellite and related equipment                                                        |  |              | 814,175  |      |  |   | 796,118  |  
|                                                                                             |  |              |          |      |  |   |          |  
|Less accumulated depreciation and amortization                                               |  |              | (289,476 | )    |  |   | (216,208 | )
|                                                                                             |  |              |          |      |  |   |          |  
|Total satellite and related equipment, net                                                   |  | $            | 524,699  |      |  | $ | 579,910  |  
|                                                                                             |  |              |          |      |  |   |          |  

Satellites and related equipment is recorded at
cost. Depreciation and amortization expense for the years ended
December 31, 2002, 2001 and 2000 was $73.3 million,
$76.2 million, and $71.4 million, respectively.
Accumulated depreciation and amortization at December 31,
2002 and 2001 includes $68.5 million and $47.5 million,
respectively, related to the Companys rights to
transponders for the remaining life of Telstar 10/ Apstar IIR.
Depreciation expense is calculated using the straight-line
method over the estimated original useful lives of 10.5 to
16.5 years.

Costs incurred in connection with the
construction and successful deployment of satellites and related
equipment are capitalized. Such costs include direct contract
costs, allocated indirect costs, launch costs, launch insurance,
construction period interest and the present value of satellite
incentive payments. Loral Orion began depreciating the Telstar
11 and Telstar 12 satellites over their estimated useful life
commencing on the date of operational delivery in orbit, January
1995 and December 1999, respectively. Satellite lives are
re-evaluated periodically.

In September, 1999, Loral Orion purchased from
APT Satellite Company Limited (APT) for
approximately $273 million, the rights to all transponder
capacity and existing customer leases on the Apstar IIR
satellite (except for one C-band transponder retained by APT),
and renamed the satellite the Telstar 10/ Apstar IIR satellite.
Loral Orion has full use of the transponders for the remaining
life of Telstar 10/ Apstar IIR.

On September 20, 2002, Loral Orion entered
into an agreement with APT Satellite Company Limited
(APT) pursuant to which Loral Orion will purchase a
50% interest in the Telstar 18/ Apstar V satellite, a satellite
under construction by Space Systems/Loral (SS/L) for
APT. Loral Orions aggregate purchase price for its 50%
interest in the satellite is $115.1 million, representing
50% of the current estimated project

23



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

cost of constructing, launching and insuring the
Telstar 18/ Apstar V satellite, which purchase price will be
adjusted if the actual project cost should be greater or less
than $230.2 million. In addition, Loral Orion has agreed to
bear the cost of modifying the footprint of one of the Ku-band
beams on the satellite. Pursuant to Loral Orions agreement
with APT, Loral Orion will pay one-half the purchase price prior
to launch for 13.5 transponders on the satellite. The
corresponding cumulative costs relating to these transponders
have been reflected as satellites under construction on Loral
Orions condensed consolidated balance sheet as of
December 31, 2002. Subject to certain acceleration rights
on the part of Loral Orion, the remainder of the purchase price
for the second 13.5 transponders will be paid by Loral
Orion as follows: on the second anniversary of the
satellites in-service date, $10.66 million for 2.5
additional transponders; on the third anniversary of the
satellites in-service date, $12.79 million for three
additional transponders; and on each of the fourth and fifth
anniversaries of the satellites in-service date,
$17.05 million for four additional transponders. Title to
these transponders will pass to Loral Orion upon its payment
thereon. As a result of finalizing the Telstar 18/ Apstar V
launch arrangements in March 2003, Loral Orion agreed to take
two fewer transponders without any corresponding change to the
transponder cost borne by each of the parties. Loral SpaceCom
has agreed to purchase from Loral Orion 4.75 transponders on
Telstar 18/Apstar V, together with a lease of an
additional transponder for an approximate two year period from
the Telstar 18/Apstar V in-service date.

Satellites in-orbit are either leased by
customers or held for lease by the Company. Future minimum lease
receipts due from customers under long-term operating leases for
transponder capacity on satellites in-orbit as of December 31,
2002 are as follows (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 71,476  | 
|2004       |  |   | 57,747  | 
|2005       |  |   | 52,952  | 
|2006       |  |   | 47,650  | 
|2007       |  |   | 44,585  | 
|Thereafter |  |   | 178,405 | 
|           |  |   |         | 
|           |  | $ | 452,815 | 
|           |  |   |         | 

Revenue
Recognition

The Company provides satellite capacity under
lease agreements that generally provide for the use of satellite
transponders and, in certain cases, earth stations for periods
generally ranging from one year to the end of life of the
satellite. Some of these agreements have certain obligations,
including providing spare or substitute capacity, if available,
in the event of satellite failure. If no spare or substitute
capacity is available, the agreement may be terminated. Revenue
under transponder lease agreements is recognized as services are
performed, provided that a contract exists, the price is fixed
or determinable and collectibility is reasonably assured.
Revenues under contracts that include fixed lease payment
increases are recognized on a straight-line basis over the life
of the lease.

24



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

Income
Taxes

The benefit (provision) for income taxes on
the loss before income taxes and discontinued operations differs
from the amount computed by applying the statutory U.S. Federal
income tax rate because of the effect of the following items (in
thousands):

|                                                                         |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                         |  |                        
|                                                                         |  | Year ended December 31,
|                                                                         |  |                        
|                                                                         |  | 2002                    |         | 2001 |  | 2000
|                                                                         |  |                         |         |      |  |     
|Tax benefit at U.S. Statutory Rate of 35%                                |  | $                       | 1,789   |      |  | $    | 25,263  |   |  | $ | 44,872  |  
|Interest on senior notes                                                 |  |                         | (117    | )    |  |      | (1,061  | ) |  |   | (938    | )
|Non-U.S. income taxed at lower rates                                     |  |                         | (205    | )    |  |      |        |   |  |   |        |  
|Permanent adjustments which change statutory
    amounts:                |  |                         |         |      |  |      |         |   |  |   |         |  
|Non-deductible amortization of cost in excess of
    net assets acquired |  |                         |        |      |  |      | (5,428  | ) |  |   | (5,428  | )
|Change in valuation allowance                                            |  |                         | (17,518 | )    |  |      | (22,763 | ) |  |   | (39,416 | )
|                                                                         |  |                         |         |      |  |      |         |   |  |   |         |  
|Net income tax benefit (provision)                                       |  | $                       | (16,051 | )    |  | $    | (3,989  | ) |  | $ | (910    | )
|                                                                         |  |                         |         |      |  |      |         |   |  |   |         |  

At December 31, 2002, the Company had
approximately $419 million in net operating loss
carryforwards which expire at varying dates from 2011 through
2022. The Company is included in the U.S. federal income tax
return of its parent company, Loral Space & Communications
Corporation. Pursuant to annual tax sharing agreements with its
parent, the Company is entitled to reimbursement for the
parents use of the Companys net operating losses.
The Company has been credited with cumulative reimbursements of
$48.6 million through December 31, 2002.

The Company assesses the recoverability of its
loss carryforwards and other deferred tax assets and based upon
this analysis, records a valuation allowance to the extent
recoverability does not satisfy the more likely than
not recognition criteria in SFAS No. 109. During the
fourth quarter of 2002, management concluded that, due to
insufficient positive evidence substantiating recoverability,
the valuation allowance should be increased to a balance of
$177.4 million, thereby fully reserving the Companys
deferred tax asset. During the current year, the valuation
allowance was increased by $17.5 million, which was charged to
the 2002 results, and decreased by $10.2 million, which was
applied directly against the deferred tax asset. The valuation
allowance was $170 million at December 31, 2001 and
$175 million at December 31, 2000.

The Company will maintain the valuation allowance
until sufficient positive evidence exists to support the
reversal of the reserve. When the Company determines that it
will be able to realize its deferred tax asset, an adjustment to
the valuation allowance will increase income in the period such
determination is made.

For the year ended December 31, 2002, the
Company recorded a current income tax benefit of
$16.3 million related to the tax sharing agreement, a
current foreign tax provision of $0.2 million and a
deferred tax provision (including valuation allowance) of
$32.1 million, resulting in a net tax provision of
$16.1 million.

For the year ended December 31, 2001, the
Company recorded a current income tax benefit of
$8.9 million related to the tax sharing agreement and a
deferred tax provision of $12.9 million, resulting in a net
tax provision of $4.0 million. The tax provision for 2001
excluded a current tax benefit of $0.1 million under the tax
sharing agreement and a current foreign tax provision of
$1.1 million related to discontinued operations.

25



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

For the year ended December 31, 2000, the
Company recorded a current income tax benefit of
$3.3 million related to the tax sharing agreement and a
deferred tax provision of $4.2 million, resulting in a net
tax provision of $0.9 million. The net tax provision for
2000 excluded a current foreign tax provision of
$0.2 million related to discontinued operations.

The Company recognizes deferred taxes for the
expected future tax effect of temporary differences between the
carrying amount of assets and liabilities for financial and
income tax reporting using statutory tax rates in effect for the
year during which the differences are expected to reverse.

Following is a summary of the components of the
net deferred income tax asset at December 31, 2002 and 2001
(in thousands):

|                                 |  |              |          |      |  |   |          |  
|-------------------------------- |  | ------------ | -------- | ---- |  | - | -------- | -
|                                 |  |             
|                                 |  | December 31,
|                                 |  |             
|                                 |  | 2002         |          | 2001
|                                 |  |              |          |     
|Net operating loss carryforwards |  | $            | 100,784  |      |  | $ | 79,096   |  
|Premium on Senior Notes          |  |              | 157,042  |      |  |   | 191,121  |  
|Amortization of intangibles      |  |              | (9,746   | )    |  |   | (1,716   | )
|Depreciation                     |  |              | (74,258  | )    |  |   | (69,302  | )
|Other                            |  |              | 3,550    |      |  |   | 3,007    |  
|                                 |  |              |          |      |  |   |          |  
|Subtotal                         |  |              | 177,372  |      |  |   | 202,206  |  
|Less valuation allowance         |  |              | (177,372 | )    |  |   | (170,076 | )
|                                 |  |              |          |      |  |   |          |  
|Net deferred income tax asset    |  | $            |         |      |  | $ | 32,130   |  
|                                 |  |              |          |      |  |   |          |  

Use of
Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and amounts of revenues
and expenses reported for the period. Significant estimates
include the estimated useful lives of the Companys
satellites and, prior to 2002, the amortization period of costs
in excess of net assets acquired. Actual results could differ
from those estimates.



| |                   
| | ------------------
| | Comprehensive Loss

During the periods presented, comprehensive loss
from continuing operations was the same as net loss. Cumulative
translation losses attributable to discontinued operations were
$0.4 million and $0.6 million in 2001 and 2000
respectively.



| |                              
| | -----------------------------
| | New Accounting Pronouncements



| |         
| | --------
| | SFAS 143

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and the normal
operation of a long-lived asset, except for certain obligations
of lessees. The Company is

26



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

required to adopt SFAS 143 on
January 1, 2003. The Company believes that there will be no
effect on its consolidated results of operations or its
financial position upon the adoption of SFAS 143.



| |         
| | --------
| | SFAS 144

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



| |         
| | --------
| | SFAS 145

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statement No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections.
SFAS 145 generally requires that any gains or losses on
extinguishment of debt in current or prior periods be classified
as other income (expense), beginning in fiscal 2003, with early
adoption encouraged. In the fourth quarter of 2002, the Company
adopted the provisions of SFAS 145 and reclassified the
previously recorded extraordinary gain on its exchanges in 2001
to gain on debt exchanges in its consolidated statement of
operations (see Exchange Offers).

SFAS
146

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



| |       
| | ------
| | FIN 45

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

27



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)



| |                  
| | -----------------
| | Reclassifications

Certain prior year amounts have been reclassified
to conform to the current year presentation. In addition, the
Companys historical consolidated balance sheets,
statements of operations and cash flows have been restated to
account for the data services segment as a discontinued
operation (see Note 9).



|   |                                                                 
|-- | ----------------------------------------------------------------
|3. | Accounting for Goodwill and Other Acquired
    Intangible Assets

In June 2001, the FASB issued SFAS No. 141,
Business Combinations (SFAS 141) and SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS
142). SFAS 141 requires that all business combinations
initiated after June 30, 2001, be accounted for under the
purchase method and addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in
a business combination. SFAS 142 addresses the initial
recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for
goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with
finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives not be amortized, but
will rather be tested at least annually for impairment. The
Company will adopt SFAS 142 on January 1, 2002. Upon
adoption of SFAS 142, the Company will stop the amortization of
goodwill with a net carrying value of approximately $562 million
at the date of adoption and annual amortization of approximately
$16 million that resulted from business combinations completed
prior to the adoption of SFAS 141. Based on managements
preliminary evaluation under the new transitional impairment
test in SFAS 142, the Company expects to record a non-cash
charge in the first quarter of 2002 to write-off a portion or
all of its goodwill. Any transitional impairment loss will be
recognized as a change in accounting principle.

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

Goodwill

In accordance with SFAS 142, the Companys
previously recognized cost in excess of net assets acquired
(goodwill) of $562 million (at
December 31, 2001) from the acquisition of the Company by
Loral in 1998 was reviewed under the new transitional guidance
as of January 1, 2002. The Company hired professionals in
the valuation consulting business to determine the fair value of
the Company.

Since there were no quoted market prices in
active markets for the Company, the measurement of fair value
was based on the best information available in the
circumstances, including reasonable and supportable assumptions
and projections, to determine that the most appropriate method
of fair value was public company

28



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                               
|-- | ------------------------------------------------------------------------------
|3. | Accounting for Goodwill and Other Acquired
    Intangible Assets  (Continued)

trading multiples. Based on the fair values
concluded on by those professionals, management determined that
the Companys goodwill under the new guidance in
SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$562 million.

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

The following table presents the actual financial
results and as adjusted financial results without the
amortization of goodwill for the Company for the years ended
December 31, 2001 and 2000 (in thousands):

|                                                                  |  |        |         |             |  |        |         |             |  |   |          |   |  |   |          |  
|----------------------------------------------------------------- |  | ------ | ------- | ----------- |  | ------ | ------- | ----------- |  | - | -------- | - |  | - | -------- | -
|                                                                  |  |        |         |            
|                                                                  |  | 2001   |         | 2000       
|                                                                  |  |        |         |            
|                                                                  |  | Actual |         | As Adjusted |  | Actual |         | As Adjusted
|                                                                  |  |        |         |             |  |        |         |            
|Reported loss from continuing operations                          |  | $      | (76,170 | )           |  | $      | (76,170 | )           |  | $ | (129,117 | ) |  | $ | (129,117 | )
|Add back amortization of goodwill                                 |  |        |        |             |  |        | 15,508  |             |  |   |         |   |  |   | 15,509   |  
|                                                                  |  |        |         |             |  |        |         |             |  |   |          |   |  |   |          |  
|Loss from continuing operations                                   |  |        | (76,170 | )           |  |        | (60,662 | )           |  |   | (129,117 | ) |  |   | (113,608 | )
|Loss from operations of discontinued operations,
    net of taxes |  |        | (12,087 | )           |  |        | (12,087 | )           |  |   | (8,301   | ) |  |   | (8,301   | )
|                                                                  |  |        |         |             |  |        |         |             |  |   |          |   |  |   |          |  
|Net loss                                                          |  | $      | (88,257 | )           |  | $      | (72,749 | )           |  | $ | (137,418 | ) |  | $ | (121,909 | )
|                                                                  |  |        |         |             |  |        |         |             |  |   |          |   |  |   |          |  



| |                                 
| | --------------------------------
| | Other Acquired Intangible Assets

The Company evaluated the useful lives of its
other acquired intangible assets in connection with the adoption
of SFAS 142 and determined that no changes to the useful
lives were necessary. Other acquired intangible assets are
included in other assets in the Companys condensed
consolidated balance sheets and were as follows at
December 31, 2002 and December 31, 2001 (in millions):

|                   |       |                   |     |                   |  |        |      |              |   |   |     |      |  |   |      |      |  
|------------------ | ----- | ----------------- | --- | ----------------- |  | ------ | ---- | ------------ | - | - | --- | ---- |  | - | ---- | ---- | -
|                   |       |                   |     |                  
|                   |       | December 31, 2002 |     | December 31, 2001
|                   |       |                   |     |                  
|                   |       | Gross             |     | Accumulated       |  | Gross  |      | Accumulated 
|                   |       | Amount            |     | Amortization      |  | Amount |      | Amortization
|                   |       |                   |     |                   |  |        |      |             
|Customer relations |       | $                 | 7.0 |                   |  | $      | (4.5 | )            |   | $ | 7.0 |      |  | $ | (3.6 | )   
|Trademarks         |       |                   | 6.0 |                   |  |        | (3.9 | )            |   |   | 6.0 |      |  |   | (3.0 | )   
|Regulatory         |       |                   | 2.5 |                   |  |        | (1.4 | )            |   |   | 2.5 |      |  |   | (1.2 | )   
|                   |       |                   |     |                   |  |        |      |              |   |   |     |      |  |   |      |     
|                   | Total |                   | $   | 15.5              |  |        | $    | (9.8         | ) |   | $   | 15.5 |  |   | $    | (7.8 | )
|                   |       |                   |     |                   |  |        |      |              |   |   |     |      |  |   |      |     

As of December 31, 2002, the weighted
average remaining amortization period for customer relations and
trademarks was two and a half years and for regulatory fees was
seven and a half years.

Total amortization expense for other acquired
intangible assets for the years ended December 31, 2002,
2001 and 2000 was $2.0 million, $2.2 million and
$3.0 million, respectively. Annual amortization expense for
other acquired intangible assets for the five years ending
December 31, 2007 is estimated to be as follows (in
millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2003 |  | $ | 2.0 | 
|2004 |  |   | 2.0 | 
|2005 |  |   | 1.2 | 
|2006 |  |   | 0.5 | 
|2007 |  |   |    | 

29



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                              
|-- | -----------------------------
|4. | Commitments and Contingencies

In November 1995, a component on Telstar 11
malfunctioned, resulting in a 2-hour service interruption. The
malfunctioning component supported nine transponders serving the
European portion of Telstar 11s footprint. Full
service was restored using a back-up component. If that back-up
component fails, Telstar 11 would lose a significant amount
of usable capacity. In such event, while the Company would be
entitled to insurance proceeds of approximately
$195 million as of December 31, 2002, and could lease
replacement capacity and function as a reseller with respect to
such capacity, the loss of capacity would have a material
adverse effect on the Company.

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

Telstar 10/Apstar IIR has experienced minor
losses of power from its solar arrays. Although, to date,
Telstar 10/Apstar IIR has not experienced any degradation
in performance, there can be no assurance that Telstar 10/Apstar
IIR will not experience additional power loss that could result
in performance degradation, including loss of transponder
capacity. In the event of additional power loss, the extent of
the performance degradation, if any, will depend on numerous
factors, including the amount of the additional power loss, when
in the life of Telstar 10/Apstar IIR the loss occurred, and
the number and type of use being made of transponders then in
service. It is also possible that one or more transponders on a
satellite may need to be removed from service to accommodate the
power loss and to preserve full performance capabilities of the
remaining transponders. A complete or partial loss of Telstar
10/Apstar IIR could result in a loss of revenues and
profits. Based upon information currently available, including
design redundancies to accommodate small power losses and that
no pattern has been identified as to the timing or specific
location within the solar arrays of the failures, the Company
believes that this matter will not have a material adverse
effect on our consolidated financial position or results of
operations.

While the Company has in the past, consistent
with industry practice and the requirements of our indenture,
typically obtained in-orbit insurance for our satellites, the
Company cannot guarantee that, upon a policys expiration,
the Company will be able to renew the insurance on terms
acceptable to us, especially on satellites that have, or that
are part of a family of satellites that have, experienced
problems in the past. Telstar 10/Apstar IIR, manufactured
by SS/L and owned by Loral Orion, has the same solar array
configuration as two other 1300-class satellites manufactured by
SS/L that have experienced solar array failures. SS/L believes
that these failures are isolated events and do not reflect a
systemic problem in either the satellite design or manufacturing
process. Accordingly, we do not believe that these anomalies
will affect Telstar 10/Apstar IIR. The insurance coverage
for Telstar 10/Apstar IIR provides for coverage of losses
due to solar array failures only in the event of a capacity loss
of 75% or more. One other satellite owned by Loral Orion has the
same solar array configuration as Telstar 10/Apstar IIR.
There can be no assurance that the insurers will not require
either exclusions of, or similar limitations on, coverage due to
solar array failures in connection with the renewal of insurance
for this satellite in 2004. An uninsured loss of a satellite
would have a material adverse effect on our consolidated
financial position and results of operations. Some of Loral
Orions bondholders have questioned whether this limitation
is in compliance with the insurance covenant in the Loral

30



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                
|-- | -----------------------------------------------
|4. | Commitments and
    Contingencies  (Continued)

Orion indenture. Loral Orion believes that it is
in compliance with the covenant as properly interpreted. If,
however, Loral Orions bondholders were to give notice of a
default under the indenture because of such limitations, and a
court ruled against Loral Orion on this matter, the maturity of
Loral Orions 10% senior notes could be accelerated.

The Company is party to various litigation
arising in the normal course of its operations. In the opinion
of management, the ultimate liability for these matters, if any,
will not have a material adverse effect on the Companys
financial position or results of operations.



|   |               
|-- | --------------
|5. | Long-Term Debt

Long-term debt consists of the following (in
thousands):

|                                                                                                                            |                                                    |              |        |              |  |  |        |           | 
|--------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------ | ------ | ------------ |  |  | ------ | --------- | 
|                                                                                                                            |                                                    | December 31, |        | December 31,
|                                                                                                                            |                                                    | 2002         |        | 2001        
|                                                                                                                            |                                                    |              |        |             
|10.00% senior notes due 2006:                                                                                               |                                                    |              |        |              |  |  |        |          
|                                                                                                                            | Principal amount                                   |              | $      | 612,704      |  |  | $      | 612,704   | 
|                                                                                                                            | Accrued interest (deferred gain on debt exchanges) |              |        | 245,080      |  |  |        | 291,034   | 
|11.25% senior notes due 2007 (principal amount
    $37 million)                                                             |                                                    |              | 39,762 |              |  |  | 40,385 |          
|12.50% senior discount notes due 2007 (principal
    amount at maturity and accreted principal amounted to
    $49 million) |                                                    |              | 53,982 |              |  |  | 54,696 |          
|Satellite incentive obligations                                                                                             |                                                    |              | 8,028  |              |  |  | 10,185 |          
|                                                                                                                            |                                                    |              |        |              |  |  |        |          
|                                                                                                                            | Total debt                                         |              |        | 959,556      |  |  |        | 1,009,004 | 
|Less, current portion                                                                                                       |                                                    |              | 64,727 |              |  |  | 49,449 |          
|                                                                                                                            |                                                    |              |        |              |  |  |        |          
|                                                                                                                            | Long-term debt                                     |              | $      | 894,829      |  |  | $      | 959,555   | 
|                                                                                                                            |                                                    |              |        |              |  |  |        |          

Aggregate annual maturities of the carrying value
of long-term debt, including unamortized deferred amounts on
senior notes, consist of the following (in thousands):

|     |  |   |         | 
|---- |  | - | ------- | 
|2003 |  | $ | 64,727  | 
|2004 |  |   | 64,899  | 
|2005 |  |   | 65,296  | 
|2006 |  |   | 678,443 | 
|2007 |  |   | 86,191  | 
|     |  |   |         | 
|     |  | $ | 959,556 | 
|     |  |   |         | 

On December 21, 2001, Loral Orion completed
exchange offers by issuing $613 million principal amount of
10% senior notes due 2006 guaranteed by Loral, in exchange for
the extinguishment of $841 million principal amount of
Loral Orion senior notes due in 2007 and senior discount notes
due 2007 as discussed below. As part of the exchange, Loral
issued to the 10% senior note holders 6.04 million
five-year warrants to purchase Loral common stock at a price of
$2.37 per share. The warrants were valued at $6.7 million
using the Black Scholes option pricing model with the following
assumptions: stock volatility, 75%, risk free interest rate,
4.36%, and no dividends during the expected term, and is
reflected in capital in excess of par value on the consolidated
balance sheet. After the exchange offers, principal amount of
$37 million of the existing senior notes and principal
amount of $49 million of the existing senior discount notes
remain outstanding at their original maturities and interest
rates.

31



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                 
|-- | --------------------------------
|5. | Long-Term
    Debt  (Continued)

The interest rate on the 10% senior notes is a
reduction from the 11.25% interest rate on the existing senior
notes and the 12.5% rate on the existing senior discount notes.
Interest is payable semi-annually on July 15 and
January 15, beginning July 15, 2002. As a result of
the lower interest rate and the $229 million reduction in
principal amount of debt, Loral Orions annual cash
interest payments will be reduced by approximately
$39 million. Under accounting principles generally accepted
in the United States dealing with debt restructurings, the
Company recorded a gain of $34.5 million on the exchange,
after expenses of $5 million. The carrying value of the 10%
senior notes on the balance sheet is $858 million, although
the actual principal amount of the 10% senior notes is
$613 million. The difference between this carrying value
and the actual principal amount of the 10% senior notes is being
amortized over the life of the 10% senior notes, fully
offsetting interest expense through maturity of the 10% senior
notes. The indenture relating to the 10% senior notes contains
limitations on Loral Orion and its subsidiaries, including,
without limitation, restrictions on Loral Orions ability
to pay dividends or make loans to Loral.

In connection with the completion of the
Companys debt exchange offers in December 2001, LSC
canceled its $79.7 million intercompany note issued to it
by Loral Orion which ranked pari passu to the senior debt in
exchange for the transfer of Loral Orions data services
business (see Note 9) and the issuance of a new note to LSC
in the principal amount of $29.7 million due 2006, having
an interest rate of 10% per annum payable in kind, subordinated
to Loral Orions new 10% senior notes. Loral Orions
data services business was transferred to a newly-formed
subsidiary of Loral, which assumed the name Loral Cyberstar,
Inc. As of December 31, 2002 and 2001, the balance of the
note was $31.5 million, including accrued interest and
$29.7 million, respectively.

The Loral Orion senior notes are due in 2007 and
pay interest semi-annually on January 15 and July 15
of each year. The senior discount notes are due in 2007 and pay
interest semi-annually commencing on July 15, 2002. Along
with the original issuance of each senior note and senior
discount note, one warrant was originally issued to purchase
shares of common stock. In connection with the Merger, each
warrant was converted so that it could purchase shares of Loral
common stock. As of December 31, 2002, exercisable warrants
for 68,045 shares of Loral common stock at an exercise
price of $0.02 per share under the Loral Orion senior notes and
126,359 shares of Loral common stock at an exercise price
of $0.03 per share under the Loral Orion senior discount notes
are yet to be exercised.

In connection with the acquisition of the Company
by Loral, the carrying value of the senior notes and senior
discount notes were increased to reflect a fair value adjustment
based on quoted market prices at the date of acquisition. Such
adjustment resulted in effective interest rates of 8.69% and
9.69% on the senior notes and senior discount notes,
respectively, through maturity.

Loral and Loral Asia Pacific Satellite (HK)
Limited (Loral HK Sub) have unconditionally
guaranteed, and the Companys future restricted
subsidiaries will unconditionally guarantee, the 10% senior
notes, on a joint and several basis. Loral HK Sub continues to
provide a guarantee to the senior notes and senior discount
notes that remain outstanding. No restrictions exist on the
ability of Loral HK Sub and the Companys future restricted
subsidiaries, to pay dividends or make other distributions to
Loral Orion, except to the extent provided by law generally
(e.g., adequate capital to pay dividends under state corporate
laws).

Satellite Incentive Obligations  The
obligations relating to satellite performance have been recorded
at the present value (discounted at 12 percent, the
Companys estimated incremental borrowing rate for
unsecured financing at the date of the obligations)of the
required payments through 2007.

32



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                     
|-- | ------------------------------------
|6. | Fair Values of Financial Instruments

Other than amounts due under the New Senior
Notes, senior notes and senior discount notes, the Company
believes that the carrying amounts reported in the balance
sheets of its other financial assets and liabilities
approximates their fair value at December 31, 2002 and
2001. The fair value of the Companys 10% senior notes,
senior notes and senior discount notes was estimated based on
quoted market prices, and at December 31, 2002 was
approximately $273 million and at December 31, 2001
was approximately $452 million.



|   |        
|-- | -------
|7. | Segment

The Company operates in one business segment,
Fixed Satellite Services (see Note 1). The Company has
presented the results of its previously reported data services
business as a discontinued operation (see Notes 5 and 9).
In evaluating financial performance, management uses revenue and
operating income (loss) before depreciation and amortization
(EBITDA) as the measure of profit or loss. Revenues
before elimination of intercompany revenues from its
discontinued operations and other eliminations totaled
$109.7 million, $128.7 million and $109.4 million
for the years ended December 31, 2002, 2001, and 2000,
respectively. EBITDA on the same basis totaled
$82.6 million; $105.2 million and $81.9 million
for the years ended December 31, 2002, 2001 and 2000,
respectively. EBITDA (which is equivalent to operating income
(loss) before depreciation and amortization) is provided because
it is a measure commonly used in the communications industry to
analyze companies on the basis of operating performance,
leverage and liquidity and is presented to enhance the
understanding of the Companys operating results. However,
EBITDA should not be construed as an alternative to net income
as an indicator of a companys operating performance, or
cash flow from operations as a measure of a companys
liquidity. EBITDA may be calculated differently and, therefore,
may not be comparable to similarly titled measures reported by
other companies.

With the exception of the Companys
satellites in orbit, the Companys long-lived assets are
primarily located in the United States.

The following summarizes the Companys
domestic and foreign revenues (in thousands):

|              |                 |                         |         |        |  |      |         |        |  |   |        |        | 
|------------- | --------------- | ----------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------ | ------ | 
|              |                 |                        
|              |                 | Year ended December 31,
|              |                 |                        
|              |                 | 2002                    |         | 2001   |  | 2000
|              |                 |                         |         |        |  |     
|              | United States   |                         | $       | 62,291 |  |      | $       | 61,216 |  |   | $      | 46,157 | 
|              | Taiwan          |                         |         | 10,927 |  |      |         | 9,537  |  |   |        |       | 
|              | The Netherlands |                         |         | 9,160  |  |      |         | 9,239  |  |   |        | 6,284  | 
|              | China           |                         |         | 6,251  |  |      |         | 7,511  |  |   |        | 12,886 | 
|              | Singapore       |                         |         | 4,496  |  |      |         | 6,139  |  |   |        | 5,861  | 
|              | Germany         |                         |         | 6,762  |  |      |         | 5,781  |  |   |        | 3,660  | 
|              | United Kingdom  |                         |         | 5,024  |  |      |         | 4,133  |  |   |        | 3,898  | 
|              | Other foreign   |                         |         | 4,828  |  |      |         | 5,389  |  |   |        | 4,638  | 
|              |                 |                         |         |        |  |      |         |        |  |   |        |       
|Total revenue |                 | $                       | 109,739 |        |  | $    | 108,945 |        |  | $ | 83,384 |       
|              |                 |                         |         |        |  |      |         |        |  |   |        |       

U.S. revenues for 2002, include
$8.9 million to affiliated companies.

33



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                           
|-- | --------------------------
|8. | Related Party Transactions

Due (to) from Loral companies consist of the
following (in thousands):

|                                           |  |              |         |              |  |   |         |  
|------------------------------------------ |  | ------------ | ------- | ------------ |  | - | ------- | -
|                                           |  | December 31, |         | December 31,
|                                           |  | 2002         |         | 2001        
|                                           |  |              |         |             
|Loral Space and Communications Corporation |  | $            | 48,672  |              |  | $ | 39,016  |  
|Loral Cyberstar, Inc.                      |  |              | 8,805   |              |  |   | 374     |  
|Loral SpaceCom Corporation                 |  |              | (28,877 | )            |  |   | (33,319 | )
|Loral Skynet                               |  |              | (7,854  | )            |  |   | (1,336  | )
|SS/L                                       |  |              | (14,892 | )            |  |   | (9      | )
|CyberStar L.P.                             |  |              |        |              |  |   | 79      |  
|                                           |  |              |         |              |  |   |         |  
|                                           |  | $            | 5,854   |              |  | $ | 4,805   |  
|                                           |  |              |         |              |  |   |         |  

Pursuant to the tax sharing agreements entered
into each year between Loral Orion and Loral Space &
Communications Corporation, Loral Space & Communications
Corporation has agreed to reimburse Loral Orion for the use of
its tax losses to the extent such losses provide a tax benefit
to Loral Space & Communications Corporation; otherwise,
Loral Orion has agreed to pay its separate company tax liability
to Loral Space & Communications Corporation. As of December
31, 2002 and 2001, Loral Orion has a receivable from Loral Space
& Communications Corporation of $48.6 million and $32.3
million, respectively, relating to the tax sharing agreements.

Loral Orion and Loral Skynet have entered into
agreements (the Loral Skynet Agreements) effective
January 1, 1999, whereby Loral Skynet provides to Loral
Orion (i) marketing and sales of satellite capacity
services on the Loral Orion satellite network and related
billing and administration of customer contracts for those
services (the Sales Services) and
(ii) telemetry, tracking and control services for the Loral
Orion satellite network (the Technical Services, and
together with the Sales Services, the Services).
Loral Orion is charged Loral Skynets costs for providing
these services plus a 5 percent administrative fee, which
amounted to $9.5 million in 2002, $9.1 million for 2001 and
$21.4 million for 2000.

Space Systems/Loral (SS/L), a
subsidiary of Loral SpaceCom, built the Companys
Telstar 12 satellite that was launched in October 1999. The
Company made payments to SS/L during 2001 and 2000 totaling
approximately $8.1 million and $9.8 million,
respectively, for construction, launch and insurance costs. In
addition, the Company made payments to SS/L for the construction
of the APSTAR-V satellite in the amount of $2.9 million in
2002 (see Note 2).

In December 1999, in connection with a
contractual arrangement between SS/L and one of SS/Ls
customers, Loral Orion agreed to lease to SS/L the capacity of
three transponders on Telstar 10/ Apstar IIR through the
end of its life. Under this arrangement, Loral Orion recorded
revenue of $4.2 million in both 2002 and 2001 and
$4.4 million in 2000, respectively. Under another
arrangement with SS/L, Loral Orion recorded revenue of
$2.5 million in 2001 related to transponder capacity for
another customer.

On March 24, 2000, Loral Orion entered into
an agreement with a subsidiary of Loral to assign to the Loral
subsidiary, pending regulatory approval, its Ka-band orbital
slots located at 89 degrees N.L., 81 degrees W.L., 78 degrees
E.L. and 47 degrees W.L. In connection this transaction, Loral
Orion also agreed to transfer to the Loral subsidiary all
agreements, including satellite construction contracts, related
to such slots. The total purchase price for the slots and these
agreements was $36.5 million, which was applied by Loral
Orion toward the last installment payment on Telstar
10/Apstar IIR In connection with the sale, the Company
recorded a gain of $34.5 million. Since the sale was to a
subsidiary of Loral, the gain was credited directly to equity.
This assignment was approved by the Federal Communications
Commission on December 11, 2000.

34



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                        
|-- | -----------------------
|9. | Discontinued Operations

The historical consolidated balance sheet,
statements of operations and cash flows reflects the data
services business as a discontinued operation. The financial
data presented for the Companys data services business
reflects the historical sales and expenses of the data services
segment after elimination of intercompany transactions with FSS.
Discontinued operations include revenue for the data services
segment of $80.2 million and $103.8 million for the
period January 1, 2001 to December 21, 2001 and the
year ended December 31, 2000, respectively. The data
services business began leasing transponder capacity from Loral
Skynet in 2000. Amounts incurred for transponder capacity leased
from Loral Skynet totaled $3.0 million and
$4.5 million in 2001 and 2000 respectively, and are
included in the results of discontinued operations (see
Note 2).

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries

In December 2001, Loral Orion (the Parent
Company) issued New Senior Notes in an exchange offer (see
Note 5) which are fully and unconditionally guaranteed, on a
joint and several basis, by the Parent Company and one of its
wholly-owned subsidiaries (the Guarantor Subsidiary)
and Loral (Issuers Parent). The Companys
remaining original senior notes and senior discount notes are
fully and unconditionally guaranteed on a joint and several
basis by the Parent Company, the Guarantor subsidiary and
substantially all of the other wholly-owned subsidiaries in
existence through December 21, 2001 (the Other
Subsidiaries).

Presented below is condensed consolidating
financial information for the Parent Company, Issuers
Parent, the Guarantor Subsidiary and the Other Subsidiaries for
the years ended December 31, 2002, 2001 and 2000. The Other
Subsidiaries were part of the Companys data services
segment which was transferred on December 21, 2001 to a
subsidiary of Loral (see Note 5) and have been accounted
for as a discontinued operation. The condensed consolidating
financial information has been presented to show the nature of
assets held, results of operations and cash flows of the Parent
Company, Issuers Parent, Guarantor Subsidiary and Other
Subsidiaries.

The supplemental condensed consolidating
financial information reflects the investments of the Parent
Company in the Guarantor Subsidiary and the Other Subsidiaries
using the equity method of accounting. The Companys
significant transactions with its subsidiaries other than the
investment account and related equity in net loss of
unconsolidated subsidiaries are the intercompany payables and
receivables between its subsidiaries. The note payable due to
Loral SpaceCom, bears interest at 10% per annum. All principal
and interest is due at maturity on July 30, 2006.

35



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries  (Continued)

LORAL ORION, INC.






CONDENSED CONSOLIDATING BALANCE
SHEET


December 31, 2002


(in thousands)


|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |            |          |  
|------------------------------------------------------------ | ------------------------------------------------------ | -------------------------------------------------------- | ------- | ---------- | -------- | ---------- | ------- | ------------ | -------- | ------------ | -------- | ------------ | ------ |  | - | - | - |  | -------- | ---------- | -------- | - | ------- | ---------- | -------- | -
|                                                             |                                                        | Parent                                                   |         | Issuers   |          | Guarantor  |         | Other        |          |              |          |             
|                                                             |                                                        | Company                                                  |         | Parent     |          | Subsidiary |         | Subsidiaries |          | Eliminations |          | Consolidated
|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |             
|Current assets:                                              |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                             | Cash and cash equivalents                              |                                                          | $       | 42,964     |          |            | $       | 1,514        |          |              | $        |             |        |  | $ |  |   |  | $        | (1,514     | )        |   | $       | 42,964     |         
|                                                             | Accounts receivable, net                               |                                                          |         | 7,477      |          |            |         |             |          |              |          | 138          |        |  |   |  |   |  |          |           |          |   |         | 7,615      |         
|                                                             | Prepaid expenses and other current assets              |                                                          |         | 5,540      |          |            |         | 823          |          |              |          | 8,584        |        |  |   |  |   |  |          | (1,734     | )        |   |         | 13,213     |         
|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                             |                                                        | Total current assets                                     |         |            | 55,981   |            |         |              | 2,337    |              |          |              | 8,722  |  |   |   |  |  |          |            | (3,248   | ) |         |            | 63,792   |  
|Property, plant and equipment, net                           |                                                        |                                                          | 319,998 |            |          |            |        |              |          |              | 204,701  |              |        |  |  |   |   |  |         |            |          |   | 524,699 |           
|Note (payable) receivable from
    unconsolidated subsidiary |                                                        |                                                          | (31,540 | )          |          |            | 157,500 |              |          |              |         |              |        |  |  |   |   |  | (157,500 | )          |          |   | (31,540 | )         
|Due to (from) unconsolidated subsidiaries                    |                                                        |                                                          | (97,652 | )          |          |            | 36,448  |              |          |              | 107,917  |              |        |  |  |   |   |  | (40,859  | )          |          |   | 5,854   |           
|Investments in unconsolidated subsidiaries                   |                                                        |                                                          | 304,590 |            |          |            | (20,185 | )            |          |              | (271,698 | )            |        |  |  |   |   |  | (12,707  | )          |          |   |        |           
|Investments in and advances to affiliates                    |                                                        |                                                          |        |            |          |            | 21,507  |              |          |              |         |              |        |  |  |   |   |  | (21,507  | )          |          |   |        |           
|Deferred tax assets                                          |                                                        |                                                          |        |            |          |            |        |              |          |              |         |              |        |  |  |   |   |  |         |            |          |   |        |           
|Other assets, net                                            |                                                        |                                                          | 16,622  |            |          |            | 3,191   |              |          |              | 696      |              |        |  |  |   |   |  | (3,191   | )          |          |   | 17,318  |           
|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                             |                                                        | Total assets                                             |         | $          | 567,999  |            |         | $            | 200,798  |              |          | $            | 50,338 |  |   | $ |  |  |          | $          | (239,012 | ) |         | $          | 580,123  |  
|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|Current liabilities:                                         |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                             | Current portion of long-term debt                      |                                                          | $       | 64,727     |          |            | $       |             |          |              | $        |             |        |  | $ |  |   |  | $        |           |          |   | $       | 64,727     |         
|                                                             | Accounts payable                                       |                                                          |         | 1,194      |          |            |         | 2,404        |          |              |          | 1,193        |        |  |   |  |   |  |          | (2,404     | )        |   |         | 2,387      |         
|                                                             | Customer advances                                      |                                                          |         | 1,208      |          |            |         |             |          |              |          | 521          |        |  |   |  |   |  |          | 2,002      |          |   |         | 3,731      |         
|                                                             | Accrued interest and preferred dividends               |                                                          |         | 4,700      |          |            |         | 20,840       |          |              |          |             |        |  |   |  |   |  |          | (20,840    | )        |   |         | 4,700      |         
|                                                             | Other current liabilities                              |                                                          |         | 1,968      |          |            |         |              |          |              |          | 35           |        |  |   |   |   |  |          | (2,003     | )        |   |         |           |         
|                                                             | Deferred revenue                                       |                                                          |         |           |          |            |         |             |          |              |          |             |        |  |   |  |   |  |          |           |          |   |         |           |         
|                                                             | Income taxes payable                                   |                                                          |         |           |          |            |         | 8,123        |          |              |          |             |        |  |   |  |   |  |          | (8,123     | )        |   |         |           |         
|                                                             | Deferred tax liabilities                               |                                                          |         |           |          |            |         |             |          |              |          |             |        |  |   |  |   |  |          |           |          |   |         |           |         
|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                             |                                                        | Total current liabilities                                |         |            | 73,797   |            |         |              | 31,367   |              |          |              | 1,749  |  |   |   |  |  |          |            | (31,368  | ) |         |            | 75,545   |  
|Deferred tax liabilities                                     |                                                        |                                                          |        |            |          |            | 48,577  |              |          |              | 10,365   |              |        |  |  |   |   |  | (58,942  | )          |          |   |        |           
|Long-term liabilities                                        |                                                        |                                                          | 7,743   |            |          |            |        |              |          |              | 1,022    |              |        |  |  |   |   |  |         |            |          |   | 8,765   |           
|Long-term debt                                               |                                                        |                                                          | 894,829 |            |          |            | 350,000 |              |          |              |         |              |        |  |  |   |   |  | (350,000 | )          |          |   | 894,829 |           
|6% Series C convertible redeemable preferred
    stock       |                                                        |                                                          |        |            |          |            | 104,582 |              |          |              |         |              |        |  |  |   |   |  | (104,582 | )          |          |   |        |           
|6% Series D convertible redeemable preferred
    stock       |                                                        |                                                          |        |            |          |            | 20,499  |              |          |              |         |              |        |  |  |   |   |  | (20,499  | )          |          |   |        |           
|Stockholders (deficit) equity:                              |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                             | 6% Series C convertible redeemable preferred
    stock |                                                          |         |           |          |            |         | 80,171       |          |              |          |             |        |  |   |  |   |  |          | (80,171    | )        |   |         |           |         
|                                                             | 6% Series D convertible redeemable preferred
    stock |                                                          |         |           |          |            |         | 15,125       |          |              |          |             |        |  |   |  |   |  |          | (15,125    | )        |   |         |           |         
|                                                             | Common stock, par value $.01                           |                                                          |         |           |          |            |         | 4,293        |          |              |          |             |        |  |   |  |   |  |          | (4,293     | )        |   |         |           |         
|                                                             | Paid-in capital                                        |                                                          |         | 604,166    |          |            |         | 3,389,035    |          |              |          |             |        |  |   |  |   |  |          | (3,389,035 | )        |   |         | 604,166    |         
|                                                             | Treasury stock, at cost                                |                                                          |         |           |          |            |         | (3,360       | )        |              |          |             |        |  |   |  |   |  |          | 3,360      |          |   |         |           |         
|                                                             | Unearned compensation                                  |                                                          |         |           |          |            |         | (151         | )        |              |          |             |        |  |   |  |   |  |          | 151        |          |   |         |           |         
|                                                             | Retained deficit                                       |                                                          |         | (1,012,536 | )        |            |         | (3,782,107   | )        |              |          | 37,202       |        |  |   |  |   |  |          | 3,754,259  |          |   |         | (1,003,182 | )       
|                                                             | Accumulated other comprehensive income                 |                                                          |         |           |          |            |         | (57,233      | )        |              |          |             |        |  |   |  |   |  |          | 57,233     |          |   |         |           |         
|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                             |                                                        | Total stockholders (deficit) equity                     |         |            | (408,370 | )          |         |              | (354,227 | )            |          |              | 37,202 |  |   |   |  |  |          |            | 326,379  |   |         |            | (399,016 | )
|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                             |                                                        | Total liabilities and stockholders
    (deficit) equity |         | $          | 567,999  |            |         | $            | 200,798  |              |          | $            | 50,338 |  |   | $ |  |  |          | $          | (239,012 | ) |         | $          | 580,123  |  
|                                                             |                                                        |                                                          |         |            |          |            |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           

36



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries  (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year Ended December 31, 2002


(in thousands)


|                                                                                                                                                                                         |  |         |          |          |  |            |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | -------- | -------- |  | ---------- | ---------- | ------------ |  | ------------ | ------ | ------------ |  | - | - |  |  | - | --------- | - |  | - | -------- | -
|                                                                                                                                                                                         |  | Parent  |          | Issuers |  | Guarantor  |            | Other        |  |              |        |             
|                                                                                                                                                                                         |  | Company |          | Parent   |  | Subsidiary |            | Subsidiaries |  | Eliminations |        | Consolidated
|                                                                                                                                                                                         |  |         |          |          |  |            |            |              |  |              |        |             
|Revenues from satellite services                                                                                                                                                         |  | $       | 99,717   |          |  | $          |           |              |  | $            | 48,198 |              |  | $ |  |  |  | $ | (38,176   | ) |  | $ | 109,739  |  
|Costs of satellite services                                                                                                                                                              |  |         | 100,360  |          |  |            |           |              |  |              | 29,231 |              |  |   |  |  |  |   | (38,176   | ) |  |   | 91,415   |  
|Selling, general and administrative expenses                                                                                                                                             |  |         | 10,089   |          |  |            | 7,198      |              |  |              | 964    |              |  |   |  |  |  |   | (7,198    | ) |  |   | 11,053   |  
|Management fee expense                                                                                                                                                                   |  |         |         |          |  |            | 18         |              |  |              |       |              |  |   |  |  |  |   | (18       | ) |  |   |         |  
|                                                                                                                                                                                         |  |         |          |          |  |            |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|Operating income (loss)                                                                                                                                                                  |  |         | (10,732  | )        |  |            | (7,216     | )            |  |              | 18,003 |              |  |   |  |  |  |   | 7,216     |   |  |   | 7,271    |  
|Interest and investment income                                                                                                                                                           |  |         | 631      |          |  |            | 21,514     |              |  |              |       |              |  |   |  |  |  |   | (21,514   | ) |  |   | 631      |  
|Interest expense                                                                                                                                                                         |  |         | (13,016  | )        |  |            | (39,327    | )            |  |              | 3      |              |  |   |  |  |  |   | 39,327    |   |  |   | (13,013  | )
|Loss on investment                                                                                                                                                                       |  |         |         |          |  |            | (1,189     | )            |  |              |       |              |  |   |  |  |  |   | 1,189     |   |  |   |         |  
|                                                                                                                                                                                         |  |         |          |          |  |            |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates, minority
    interest and cumulative effect of change in accounting principle |  |         | (23,117  | )        |  |            | (26,218    | )            |  |              | 18,006 |              |  |   |  |  |  |   | 26,218    |   |  |   | (5,111   | )
|Income tax benefit (provision)                                                                                                                                                           |  |         | (14,739  | )        |  |            | (6,398     | )            |  |              | (6,455 | )            |  |   |  |  |  |   | 11,541    |   |  |   | (16,051  | )
|                                                                                                                                                                                         |  |         |          |          |  |            |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|(Loss) income before equity in net losses of
    unconsolidated subsidiaries and affiliates, minority interest
    and cumulative effect of change in accounting principle               |  |         | (37,856  | )        |  |            | (32,616    | )            |  |              | 11,551 |              |  |   |  |  |  |   | 37,759    |   |  |   | (21,162  | )
|Equity in net income (losses) of
    unconsolidated subsidiaries, net of taxes                                                                                                           |  |         | 11,551   |          |  |            | (1,360,150 | )            |  |              |       |              |  |   |  |  |  |   | 1,348,599 |   |  |   |         |  
|Equity in net income (losses) of affiliates,
    net of taxes                                                                                                                            |  |         |         |          |  |            | (76,445    | )            |  |              |       |              |  |   |  |  |  |   | 76,445    |   |  |   |         |  
|                                                                                                                                                                                         |  |         |          |          |  |            |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                                             |  |         | (26,305  | )        |  |            | (1,469,211 | )            |  |              | 11,551 |              |  |   |  |  |  |   | 1,462,803 |   |  |   | (21,162  | )
|Cumulative effect of change in accounting
    principle, net of taxes                                                                                                                    |  |         | (562,201 | )        |  |            |           |              |  |              |       |              |  |   |  |  |  |   |          |   |  |   | (562,201 | )
|                                                                                                                                                                                         |  |         |          |          |  |            |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|Net (loss) income                                                                                                                                                                        |  | $       | (588,506 | )        |  | $          | (1,469,211 | )            |  | $            | 11,551 |              |  | $ |  |  |  | $ | 1,462,803 |   |  | $ | (583,363 | )
|                                                                                                                                                                                         |  |         |          |          |  |            |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  

37



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries  (Continued)

LORAL ORION, INC.






CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS


For the Year Ended December 31,
2002


(in thousands)


|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |          |         |  
|---------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------------------------------------- | ------- | -------- | ------- | ---------- | ------- | ------------ | --------- | ------------ | - | ------------ | ------- | - | - | - | - | - | ------- | --------- | ---------- | - | ------- | -------- | ------- | -
|                                                           |                                                                 | Parent                                                                |         | Issuers |         | Guarantor  |         | Other        |           |              |   |             
|                                                           |                                                                 | Company                                                               |         | Parent   |         | Subsidiary |         | Subsidiaries |           | Eliminations |   | Consolidated
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |             
|Operating activities:                                      |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|                                                           | (Loss) income from continuing operations                        |                                                                       | $       | (588,506 | )       |            | $       | (1,469,211   | )         |              | $ | 11,551       |         |   | $ |  |   |   | $       | 1,462,803 |            |   | $       | (583,363 | )      
|                                                           | Non-cash items:                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |          |        
|                                                           |                                                                 | Equity in net losses of affiliates, net of taxes                      |         |          |        |            |         |              | 76,445    |              |   |              |        |   |   |   |  |   |         |           | (76,445    | ) |         |          |        |  
|                                                           |                                                                 | Cumulative effect of change in accounting
    principle, net of taxes |         |          | 562,201 |            |         |              |          |              |   |              |        |   |   |   |  |   |         |           |           |   |         |          | 562,201 |  
|                                                           |                                                                 | Equity in net losses of unconsolidated
    subsidiaries, net of taxes |         |          | (11,551 | )          |         |              | 1,360,150 |              |   |              |        |   |   |   |  |   |         |           | (1,348,599 | ) |         |          |        |  
|                                                           |                                                                 | Deferred taxes                                                        |         |          | 32,130  |            |         |              | 6,214     |              |   |              | 5,143   |   |   |   |  |   |         |           | (11,357    | ) |         |          | 32,130  |  
|                                                           |                                                                 | Depreciation and amortization                                         |         |          | 54,279  |            |         |              | (47       | )            |   |              | 21,013  |   |   |   |  |   |         |           | 47         |   |         |          | 75,292  |  
|                                                           |                                                                 | Loss on investments                                                   |         |          |        |            |         |              | 1,189     |              |   |              |        |   |   |   |  |   |         |           | (1,189     | ) |         |          |        |  
|                                                           |                                                                 | Interest expense                                                      |         |          | 503     |            |         |              |          |              |   |              |        |   |   |   |  |   |         |           |           |   |         |          | 503     |  
|                                                           | Changes in operating assets and liabilities:                    |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |          |        
|                                                           |                                                                 | Accounts receivable, net                                              |         |          | 5,594   |            |         |              |          |              |   |              | 359     |   |   |   |  |   |         |           |           |   |         |          | 5,953   |  
|                                                           |                                                                 | Due to (from) unconsolidated subsidiaries                             |         |          | 33,882  |            |         |              | (17,135   | )            |   |              | (34,931 | ) |   |   |  |   |         |           | 17,135     |   |         |          | (1,049  | )
|                                                           |                                                                 | Other current assets and other assets                                 |         |          | 3,589   |            |         |              | 2,260     |              |   |              | (3,296  | ) |   |   |  |   |         |           | (2,260     | ) |         |          | 293     |  
|                                                           |                                                                 | Accounts payable                                                      |         |          | (1,484  | )          |         |              | (1,357    | )            |   |              | 481     |   |   |   |  |   |         |           | 1,357      |   |         |          | (1,003  | )
|                                                           |                                                                 | Accrued expenses and other current liabilities                        |         |          | 2,811   |            |         |              | 715       |              |   |              |        |   |   |   |  |   |         |           | (715       | ) |         |          | 2,811   |  
|                                                           |                                                                 | Customer advances                                                     |         |          | (3,739  | )          |         |              |          |              |   |              | (320    | ) |   |   |  |   |         |           |           |   |         |          | (4,059  | )
|                                                           |                                                                 | Income taxes payable                                                  |         |          |        |            |         |              | 184       |              |   |              |        |   |   |   |  |   |         |           | (184       | ) |         |          |        |  
|                                                           |                                                                 | Other                                                                 |         |          |        |            |         |              | (2        | )            |   |              |        |   |   |   |  |   |         |           | 2          |   |         |          |        |  
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Net cash provided by (used in) operating
    activities    |                                                                 |                                                                       | 89,709  |          |         |            | (40,595 | )            |           |              |  |              |         |   |  |   |   |   | 40,595  |           |            |   | 89,709  |         
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Investing activities:                                      |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|                                                           | Capital expenditures                                            |                                                                       |         | (18,033  | )       |            |         |             |           |              |   |             |         |   |   |  |   |   |         |          |            |   |         | (18,033  | )      
|                                                           | Investments in and advances to unconsolidated
    subsidiaries  |                                                                       |         |         |         |            |         | (2,243       | )         |              |   |             |         |   |   |  |   |   |         | 2,243     |            |   |         |         |        
|                                                           | Investments in and advances to affiliates                       |                                                                       |         |         |         |            |         | (11,479      | )         |              |   |             |         |   |   |  |   |   |         | 11,479    |            |   |         |         |        
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Net cash (used in) provided by in investing
    activities |                                                                 |                                                                       | (18,033 | )        |         |            | (13,722 | )            |           |              |  |              |         |   |  |   |   |   | 13,722  |           |            |   | (18,033 | )       
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Financing activities:                                      |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|                                                           | Interest payments on 10% senior notes                           |                                                                       |         | (45,952  | )       |            |         |             |           |              |   |             |         |   |   |  |   |   |         |          |            |   |         | (45,952  | )      
|                                                           | Repayments of other long-term obligations                       |                                                                       |         | (2,159   | )       |            |         |             |           |              |   |             |         |   |   |  |   |   |         |          |            |   |         | (2,159   | )      
|                                                           | Note payable to Loral subsidiary                                |                                                                       |         |         |         |            |         | 42,500       |           |              |   |             |         |   |   |  |   |   |         | (42,500   | )          |   |         |         |        
|                                                           | Preferred dividends                                             |                                                                       |         |         |         |            |         | (29,678      | )         |              |   |             |         |   |   |  |   |   |         | 29,678    |            |   |         |         |        
|                                                           | Preferred dividends on exchange offers and
    related expenses |                                                                       |         |         |         |            |         | (15,583      | )         |              |   |             |         |   |   |  |   |   |         | 15,583    |            |   |         |         |        
|                                                           | Proceeds from stock issuances                                   |                                                                       |         |         |         |            |         | 12,524       |           |              |   |             |         |   |   |  |   |   |         | (12,524   | )          |   |         |         |        
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Net cash used in financing activities                      |                                                                 |                                                                       | (48,111 | )        |         |            | 9,763   |              |           |              |  |              |         |   |  |   |   |   | (9,763  | )         |            |   | (48,111 | )       
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Increase (decrease) in cash and cash
    equivalents       |                                                                 |                                                                       | 23,565  |          |         |            | (44,554 | )            |           |              |  |              |         |   |  |   |   |   | 44,554  |           |            |   | 23,565  |         
|Cash and cash equivalents  beginning
    of period        |                                                                 |                                                                       | 19,399  |          |         |            | 46,068  |              |           |              |  |              |         |   |  |   |   |   | (46,068 | )         |            |   | 19,399  |         
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Cash and cash equivalents  end of
    period              |                                                                 | $                                                                     | 42,964  |          |         | $          | 1,514   |              |           | $            |  |              |         | $ |  |   |   | $ | (1,514  | )         |            | $ | 42,964  |         
|                                                           |                                                                 |                                                                       |         |          |         |            |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         

38



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries  (Continued)

LORAL ORION, INC.






CONDENSED CONSOLIDATING BALANCE
SHEET


December 31, 2001


(in thousands)


|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |          |           | 
|--------------------------------------------------------------- | ------------------------------------------------------ | ------------------------------------------ | ------- | -------- | --------- | ---------- | --------- | ------------ | --------- | ------------ | -------- | ------------ | ------ |  | - | - | - |  | ---------- | ---------- | ---------- | - | ------- | -------- | --------- | 
|                                                                |                                                        | Parent                                     |         | Issuers |           | Guarantor  |           | Other        |           |              |          |             
|                                                                |                                                        | Company                                    |         | Parent   |           | Subsidiary |           | Subsidiaries |           | Eliminations |          | Consolidated
|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |             
|Current assets:                                                 |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|                                                                | Cash and cash equivalents                              |                                            | $       | 19,399   |           |            | $         | 46,068       |           |              | $        |             |        |  | $ |  |   |  | $          | (46,068    | )          |   | $       | 19,399   |          
|                                                                | Accounts receivable, net                               |                                            |         | 13,071   |           |            |           |             |           |              |          | 497          |        |  |   |  |   |  |            |           |            |   |         | 13,568   |          
|                                                                | Prepaid expenses and other current assets              |                                            |         | 6,053    |           |            |           | 265          |           |              |          | 5,151        |        |  |   |  |   |  |            | (265       | )          |   |         | 11,204   |          
|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|                                                                |                                                        | Total current assets                       |         |          | 38,523    |            |           |              | 46,333    |              |          |              | 5,648  |  |   |   |  |  |            |            | (46,333    | ) |         |          | 44,171    | 
|Property, plant and equipment, net                              |                                                        |                                            | 354,196 |          |           |            |          |              |           |              | 225,714  |              |        |  |  |   |   |  |           |            |            |   | 579,910 |         
|Costs in excess of net assets acquired, net                     |                                                        |                                            | 562,201 |          |           |            |          |              |           |              |         |              |        |  |  |   |   |  |           |            |            |   | 562,201 |         
|Notes (payable) receivable from
    unconsolidated subsidiaries |                                                        |                                            | (29,700 | )        |           |            | 200,000   |              |           |              |         |              |        |  |  |   |   |  | (200,000   | )          |            |   | (29,700 | )       
|Due to (from) unconsolidated subsidiaries                       |                                                        |                                            | (62,961 | )        |           |            | 12,430    |              |           |              | 72,978   |              |        |  |  |   |   |  | (17,642    | )          |            |   | 4,805   |         
|Investments in unconsolidated subsidiaries                      |                                                        |                                            | 293,039 |          |           |            | 1,432,614 |              |           |              | (271,698 | )            |        |  |  |   |   |  | (1,453,955 | )          |            |   |        |         
|Investments in and advances to affiliates                       |                                                        |                                            |        |          |           |            | 77,061    |              |           |              |         |              |        |  |  |   |   |  | (77,061    | )          |            |   |        |         
|Deferred tax assets                                             |                                                        |                                            | 32,130  |          |           |            |          |              |           |              |         |              |        |  |  |   |   |  |           |            |            |   | 32,130  |         
|Other assets, net                                               |                                                        |                                            | 20,836  |          |           |            | 6,632     |              |           |              | 832      |              |        |  |  |   |   |  | (6,632     | )          |            |   | 21,668  |         
|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|                                                                |                                                        | Total assets                               |         | $        | 1,208,264 |            |           | $            | 1,775,070 |              |          | $            | 33,474 |  |   | $ |  |  |            | $          | (1,801,623 | ) |         | $        | 1,215,185 | 
|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|Current liabilities:                                            |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|                                                                | Current portion of long-term debt                      |                                            | $       | 49,449   |           |            | $         |             |           |              | $        |             |        |  | $ |  |   |  | $          |           |            |   | $       | 49,449   |          
|                                                                | Accounts payable                                       |                                            |         | 2,677    |           |            |           | 1,357        |           |              |          | 713          |        |  |   |  |   |  |            | (1,357     | )          |   |         | 3,390    |          
|                                                                | Customer advances                                      |                                            |         | 952      |           |            |           |             |           |              |          | 128          |        |  |   |  |   |  |            |           |            |   |         | 1,080    |          
|                                                                | Accrued interest and preferred dividends               |                                            |         | 1,889    |           |            |           | 22,543       |           |              |          |             |        |  |   |  |   |  |            | (22,543    | )          |   |         | 1,889    |          
|                                                                | Deferred revenue                                       |                                            |         | 5,719    |           |            |           |             |           |              |          | 235          |        |  |   |  |   |  |            |           |            |   |         | 5,954    |          
|                                                                | Income taxes payable                                   |                                            |         |         |           |            |           | 7,939        |           |              |          |             |        |  |   |  |   |  |            | (7,939     | )          |   |         |         |          
|                                                                | Deferred tax liabilities                               |                                            |         |         |           |            |           | 20,737       |           |              |          |             |        |  |   |  |   |  |            | (20,737    | )          |   |         |         |          
|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|                                                                |                                                        | Total current liabilities                  |         |          | 60,686    |            |           |              | 52,576    |              |          |              | 1,076  |  |   |   |  |  |            |            | (52,576    | ) |         |          | 61,762    | 
|Deferred tax liabilities                                        |                                                        |                                            |        |          |           |            | 21,626    |              |           |              | 5,214    |              |        |  |  |   |   |  | (26,840    | )          |            |   |        |         
|Long-term liabilities                                           |                                                        |                                            | 7,986   |          |           |            |          |              |           |              | 1,533    |              |        |  |  |   |   |  | 2          |            |            |   | 9,521   |         
|Long-term debt                                                  |                                                        |                                            | 959,555 |          |           |            | 350,000   |              |           |              |         |              |        |  |  |   |   |  | (350,000   | )          |            |   | 959,555 |         
|Stockholders equity:                                           |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|                                                                | 6% Series C convertible redeemable preferred
    stock |                                            |         |         |           |            |           | 485,371      |           |              |          |             |        |  |   |  |   |  |            | (485,371   | )          |   |         |         |          
|                                                                | 6% Series D convertible redeemable preferred
    stock |                                            |         |         |           |            |           | 296,529      |           |              |          |             |        |  |   |  |   |  |            | (296,529   | )          |   |         |         |          
|                                                                | Common stock, par value $.01.                          |                                            |         |         |           |            |           | 3,368        |           |              |          |             |        |  |   |  |   |  |            | (3,368     | )          |   |         |         |          
|                                                                | Paid-in capital                                        |                                            |         | 604,166  |           |            |           | 2,771,964    |           |              |          |             |        |  |   |  |   |  |            | (2,771,964 | )          |   |         | 604,166  |          
|                                                                | Treasury stock, at cost                                |                                            |         |         |           |            |           | (3,360       | )         |              |          |             |        |  |   |  |   |  |            | 3,360      |            |   |         |         |          
|                                                                | Unearned compensation                                  |                                            |         |         |           |            |           | (81          | )         |              |          |             |        |  |   |  |   |  |            | 81         |            |   |         |         |          
|                                                                | Retained deficit                                       |                                            |         | (424,129 | )         |            |           | (2,223,710   | )         |              |          | 25,651       |        |  |   |  |   |  |            | 2,202,369  |            |   |         | (419,819 | )        
|                                                                | Accumulated other comprehensive income                 |                                            |         |         |           |            |           | 20,787       |           |              |          |             |        |  |   |  |   |  |            | (20,787    | )          |   |         |         |          
|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|                                                                |                                                        | Total stockholders equity                 |         |          | 180,037   |            |           |              | 1,350,868 |              |          |              | 25,651 |  |   |   |  |  |            |            | (1,372,209 | ) |         |          | 184,347   | 
|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         
|                                                                |                                                        | Total liabilities and stockholders equity |         | $        | 1,208,264 |            |           | $            | 1,775,070 |              |          | $            | 33,474 |  |   | $ |  |  |            | $          | (1,801,623 | ) |         | $        | 1,215,185 | 
|                                                                |                                                        |                                            |         |          |           |            |           |              |           |              |          |              |        |  |   |   |   |  |            |            |            |   |         |         

39



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries  (Continued)

LORAL ORION, INC.




CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year ended December 31, 2001


(in thousands)


|                                                                                                                                        |  |         |         |          |  |            |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | -------- |  | ---------- | -------- | ------------ |  | ------------ | ------ | ------------ |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                        |  | Parent  |         | Issuers |  | Guarantor  |          | Other        |  |              |        |             
|                                                                                                                                        |  | Company |         | Parent   |  | Subsidiary |          | Subsidiaries |  | Eliminations |        | Consolidated
|                                                                                                                                        |  |         |         |          |  |            |          |              |  |              |        |             
|Revenues from satellite services                                                                                                        |  | $       | 96,623  |          |  | $          |         |              |  | $            | 51,461 |              |  | $ |       |   |  | $ | (39,139 | ) |  | $ | 108,945 |  
|Costs of satellite services                                                                                                             |  |         | 119,917 |          |  |            |         |              |  |              | 26,407 |              |  |   |       |   |  |   | (39,139 | ) |  |   | 107,185 |  
|Selling, general and administrative expenses                                                                                            |  |         | 10,796  |          |  |            | 1,243    |              |  |              |       |              |  |   |       |   |  |   | (1,243  | ) |  |   | 10,796  |  
|Management fee expense                                                                                                                  |  |         |        |          |  |            | 36,730   |              |  |              |       |              |  |   |       |   |  |   | (36,730 | ) |  |   |        |  
|                                                                                                                                        |  |         |         |          |  |            |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|Operating income (loss)                                                                                                                 |  |         | (34,090 | )        |  |            | (37,973  | )            |  |              | 25,054 |              |  |   |       |   |  |   | 37,973  |   |  |   | (9,036  | )
|Interest and investment income                                                                                                          |  |         | 644     |          |  |            | 23,238   |              |  |              | 9      |              |  |   |       |   |  |   | (23,238 | ) |  |   | 653     |  
|Interest expense                                                                                                                        |  |         | (98,310 | )        |  |            | (37,629  | )            |  |              | (29    | )            |  |   |       |   |  |   | 37,629  |   |  |   | (98,339 | )
|Gain on debt exchanges                                                                                                                  |  |         | 34,541  |          |  |            |         |              |  |              |       |              |  |   |       |   |  |   |        |   |  |   | 34,541  |  
|                                                                                                                                        |  |         |         |          |  |            |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|(Loss) income before income taxes, equity in net
    loss of unconsolidated subsidiaries and affiliates and
    discontinued operations |  |         | (97,215 | )        |  |            | (52,364  | )            |  |              | 25,034 |              |  |   |       |   |  |   | 52,364  |   |  |   | (72,181 | )
|Income tax benefit (provision)                                                                                                          |  |         | (1,744  | )        |  |            | (6,315   | )            |  |              | (8,762 | )            |  |   |       |   |  |   | 12,832  |   |  |   | (3,989  | )
|                                                                                                                                        |  |         |         |          |  |            |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|(Loss) income before equity in net loss of
    unconsolidated subsidiaries and affiliates and discontinued
    operations               |  |         | (98,959 | )        |  |            | (58,679  | )            |  |              | 16,272 |              |  |   |       |   |  |   | 65,196  |   |  |   | (76,170 | )
|Equity in net loss of unconsolidated
    subsidiaries, net of tax benefit                                                               |  |         | 11,950  |          |  |            | (66,128  | )            |  |              |       |              |  |   |       |   |  |   | 54,178  |   |  |   |        |  
|Equity in net loss of affiliates, net of taxes                                                                                          |  |         |        |          |  |            | (71,653  | )            |  |              |       |              |  |   |       |   |  |   | 71,653  |   |  |   |        |  
|                                                                                                                                        |  |         |         |          |  |            |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|(Loss) income from continuing operations                                                                                                |  |         | (87,009 | )        |  |            | (196,460 | )            |  |              | 16,272 |              |  |   |       |   |  |   | 191,027 |   |  |   | (76,170 | )
|Loss from operations of discontinued operations,
    net of taxes                                                                       |  |         | (7,765  | )        |  |            |         |              |  |              |       |              |  |   | (4,322 | ) |  |   |        |   |  |   | (12,087 | )
|                                                                                                                                        |  |         |         |          |  |            |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|Net (loss) income                                                                                                                       |  | $       | (94,774 | )        |  | $          | (196,460 | )            |  | $            | 16,272 |              |  | $ | (4,322 | ) |  | $ | 191,027 |   |  | $ | (88,257 | )
|                                                                                                                                        |  |         |         |          |  |            |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  

40



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries  (Continued)

LORAL ORION, INC.




CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

for the year ended December 31, 2001


(in thousands)


|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |         |         |  
|--------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------------------- | ------- | -------- | ------- | ---------- | -------- | ------------ | ------ | ------------ | - | ------------ | ------ | - | - | - | - | - | -------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                      |                                                                | Parent                                                              |         | Issuers |         | Guarantor  |          | Other        |        |              |   |             
|                                                                      |                                                                | Company                                                             |         | Parent   |         | Subsidiary |          | Subsidiaries |        | Eliminations |   | Consolidated
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |             
|Operating activities:                                                 |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|                                                                      | Loss income from continuing operations                         |                                                                     | $       | (87,009  | )       |            | $        | (196,460     | )      |              | $ | 16,272       |        |   | $ |  |   |   | $        | 191,027 |         |   | $       | (76,170 | )      
|                                                                      | Non-cash items:                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |         |        
|                                                                      |                                                                | Gain on debt exchanges                                              |         |          | (34,541 | )          |          |              |       |              |   |              |       |   |   |   |  |   |          |         |        |   |         |         | (34,541 | )
|                                                                      |                                                                | Equity in net loss of affiliates, net of taxes                      |         |          |        |            |          |              | 71,653 |              |   |              |       |   |   |   |  |   |          |         | (71,653 | ) |         |         |        |  
|                                                                      |                                                                | Equity in net loss of unconsolidated
    subsidiaries, net of taxes |         |          | (11,950 | )          |          |              | 66,128 |              |   |              |       |   |   |   |  |   |          |         | (54,178 | ) |         |         |        |  
|                                                                      |                                                                | Deferred taxes                                                      |         |          | 12,852  |            |          |              | 5,905  |              |   |              | 6,517  |   |   |   |  |   |          |         | (12,422 | ) |         |         | 12,852  |  
|                                                                      |                                                                | Depreciation and amortization                                       |         |          | 72,992  |            |          |              |       |              |   |              | 21,013 |   |   |   |  |   |          |         |         |   |         |         | 94,005  |  
|                                                                      |                                                                | Interest expense                                                    |         |          | 39,609  |            |          |              |       |              |   |              |       |   |   |   |  |   |          |         |        |   |         |         | 39,609  |  
|                                                                      |                                                                | Provision for bad debt                                              |         |          | 3,460   |            |          |              |       |              |   |              |       |   |   |   |  |   |          |         |        |   |         |         | 3,460   |  
|Changes in operating assets and liabilities, net
    of acquisitions: |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|                                                                      | Accounts receivable, net                                       |                                                                     |         | (4,676   | )       |            |          |             |        |              |   | 1,205        |        |   |   |  |   |   |          |        |         |   |         | (3,471  | )      
|                                                                      | Other current assets                                           |                                                                     |         | (2,083   | )       |            |          |             |        |              |   | (2,756       | )      |   |   |  |   |   |          | (795    | )       |   |         | (5,634  | )      
|                                                                      | Deposits                                                       |                                                                     |         | 863      |         |            |          |             |        |              |   | (863         | )      |   |   |  |   |   |          |        |         |   |         |        |        
|                                                                      | Due to (from) unconsolidated subsidiaries                      |                                                                     |         | 58,281   |         |            |          | 6,075        |        |              |   | (38,795      | )      |   |   |  |   |   |          | (27,228 | )       |   |         | (1,667  | )      
|                                                                      | Other assets                                                   |                                                                     |         | (2,889   | )       |            |          |             |        |              |   | (329         | )      |   |   |  |   |   |          | 1       |         |   |         | (3,217  | )      
|                                                                      | Accounts payable                                               |                                                                     |         | (8,011   | )       |            |          | 96           |        |              |   |             |        |   |   |  |   |   |          | (96     | )       |   |         | (8,011  | )      
|                                                                      | Accrued expenses and other current liabilities                 |                                                                     |         | 2,166    |         |            |          | (2,538       | )      |              |   | (2,166       | )      |   |   |  |   |   |          | 2,538   |         |   |         |        |        
|                                                                      | Customer advances                                              |                                                                     |         | (724     | )       |            |          |             |        |              |   | (98          | )      |   |   |  |   |   |          |        |         |   |         | (822    | )      
|                                                                      | Income taxes payable                                           |                                                                     |         |         |         |            |          | 402          |        |              |   |             |        |   |   |  |   |   |          | (402    | )       |   |         |        |        
|                                                                      | Long-term liabilities                                          |                                                                     |         | 7,861    |         |            |          |             |        |              |   |             |        |   |   |  |   |   |          |        |         |   |         | 7,861   |        
|                                                                      | Other                                                          |                                                                     |         |         |         |            |          | 918          |        |              |   |             |        |   |   |  |   |   |          | (918    | )       |   |         |        |        
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|Net cash provided by (used in) operating
    activities               |                                                                |                                                                     | 46,201  |          |         |            | (47,821  | )            |        |              |  |              |        |   |  |   |   |   | 25,874   |         |         |   | 24,254  |        
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|Net cash provided by (used in) discontinued
    operations            |                                                                |                                                                     | 2,236   |          |         |            |         |              |        |              |  |              |        |   |  |   |   |   | 21,947   |         |         |   | 24,183  |        
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|Investing activities:                                                 |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|                                                                      | Capital expenditures                                           |                                                                     |         | (579     | )       |            |          |             |        |              |   |             |        |   |   |  |   |   |          |        |         |   |         | (579    | )      
|                                                                      | Investments in and advances to affiliates                      |                                                                     |         |         |         |            |          | (19,668      | )      |              |   |             |        |   |   |  |   |   |          | 19,668  |         |   |         |        |        
|                                                                      | Investments in and advances to unconsolidated
    subsidiaries |                                                                     |         |         |         |            |          | (2,102       | )      |              |   |             |        |   |   |  |   |   |          | 2,102   |         |   |         |        |        
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|Net cash (used in) provided by investing
    activities               |                                                                |                                                                     | (579    | )        |         |            | (21,770  | )            |        |              |  |              |        |   |  |   |   |   | 21,770   |         |         |   | (579    | )      
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|Financing activities:                                                 |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|                                                                      | Repayments of other long-term obligations                      |                                                                     |         | (2,995   | )       |            |          |             |        |              |   |             |        |   |   |  |   |   |          |        |         |   |         | (2,995  | )      
|                                                                      | Preferred dividends                                            |                                                                     |         |         |         |            |          | (52,218      | )      |              |   |             |        |   |   |  |   |   |          | 52,218  |         |   |         |        |        
|                                                                      | Proceeds from other stock issuances                            |                                                                     |         |         |         |            |          | 16,472       |        |              |   |             |        |   |   |  |   |   |          | (16,472 | )       |   |         |        |        
|                                                                      | Repayment of note due to Loral SpaceCom                        |                                                                     |         | (28,166  | )       |            |          |             |        |              |   |             |        |   |   |  |   |   |          |        |         |   |         | (28,166 | )      
|                                                                      | Equity contributed by Loral                                    |                                                                     |         | 2,700    |         |            |          |             |        |              |   |             |        |   |   |  |   |   |          |        |         |   |         | 2,700   |        
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|Net cash (used in) provided by financing
    activities               |                                                                |                                                                     | (28,461 | )        |         |            | (35,746  | )            |        |              |  |              |        |   |  |   |   |   | 35,746   |         |         |   | (28,461 | )      
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|Increase (decrease) in cash and cash
    equivalents                  |                                                                |                                                                     | 19,397  |          |         |            | (105,337 | )            |        |              |  |              |        |   |  |   |   |   | 105,337  |         |         |   | 19,397  |        
|Cash and cash equivalents  beginning
    of Period                   |                                                                |                                                                     | 2       |          |         |            | 151,405  |              |        |              |  |              |        |   |  |   |   |   | (151,405 | )       |         |   | 2       |        
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        
|Cash and cash equivalents  end of
    period                         |                                                                | $                                                                   | 19,399  |          |         | $          | 46,068   |              |        | $            |  |              |        | $ |   |   |   | $ | (46,068  | )       |         | $ | 19,399  |        
|                                                                      |                                                                |                                                                     |         |          |         |            |          |              |        |              |   |              |        |   |   |   |   |   |          |         |         |   |         |        

41



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries  (Continued)

LORAL ORION, INC.






CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS


Year ended December 31, 2000


(in thousands)


|                                                                                                                                                                               |  |         |          |          |  |            |            |              |  |              |        |              |  |   |        |   |  |   |           |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------- | -------- | -------- |  | ---------- | ---------- | ------------ |  | ------------ | ------ | ------------ |  | - | ------ | - |  | - | --------- | - |  | - | -------- | -
|                                                                                                                                                                               |  | Parent  |          | Issuers |  | Guarantor  |            | Other        |  |              |        |             
|                                                                                                                                                                               |  | Company |          | Parent   |  | Subsidiary |            | Subsidiaries |  | Eliminations |        | Consolidated
|                                                                                                                                                                               |  |         |          |          |  |            |            |              |  |              |        |             
|Revenues from satellite services                                                                                                                                               |  | $       | 66,609   |          |  | $          |           |              |  | $            | 42,084 |              |  | $ |       |   |  | $ | (25,309   | ) |  | $ | 83,384   |  
|Costs of satellite services                                                                                                                                                    |  |         | 103,961  |          |  |            |           |              |  |              | 25,989 |              |  |   |       |   |  |   | (25,309   | ) |  |   | 104,641  |  
|Selling, general and administrative expenses                                                                                                                                   |  |         | 12,437   |          |  |            | 1,197      |              |  |              | 390    |              |  |   |       |   |  |   | (1,197    | ) |  |   | 12,827   |  
|Management fee expense                                                                                                                                                         |  |         |         |          |  |            | 64,601     |              |  |              |       |              |  |   |       |   |  |   | (64,601   | ) |  |   |         |  
|                                                                                                                                                                               |  |         |          |          |  |            |            |              |  |              |        |              |  |   |        |   |  |   |           |   |  |   |          |  
|Operating income (loss)                                                                                                                                                        |  |         | (49,789  | )        |  |            | (65,798    | )            |  |              | 15,705 |              |  |   |       |   |  |   | 65,798    |   |  |   | (34,804  | )
|Interest and investment income                                                                                                                                                 |  |         | 2,961    |          |  |            | 74,977     |              |  |              | 80     |              |  |   |       |   |  |   | (74,977   | ) |  |   | 3,041    |  
|Interest expense                                                                                                                                                               |  |         | (97,155  | )        |  |            | (29,435    | )            |  |              | (9     | )            |  |   |       |   |  |   | 29,435    |   |  |   | (97,164  | )
|Gain on investments, net                                                                                                                                                       |  |         |         |          |  |            | 69,706     |              |  |              |       |              |  |   |       |   |  |   | (69,706   | ) |  |   |         |  
|                                                                                                                                                                               |  |         |          |          |  |            |            |              |  |              |        |              |  |   |        |   |  |   |           |   |  |   |          |  
|(Loss) income before income taxes, equity in net
    loss of unconsolidated subsidiaries and affiliates, Globalstar
    related impairment charges and discontinued operations |  |         | (143,983 | )        |  |            | 49,450     |              |  |              | 15,776 |              |  |   |       |   |  |   | (49,450   | ) |  |   | (128,207 | )
|Income tax benefit (provision)                                                                                                                                                 |  |         | 4,250    |          |  |            | (15,949    | )            |  |              | (5,524 | )            |  |   |       |   |  |   | 16,313    |   |  |   | (910     | )
|                                                                                                                                                                               |  |         |          |          |  |            |            |              |  |              |        |              |  |   |        |   |  |   |           |   |  |   |          |  
|(Loss) income before equity in net loss of
    unconsolidated subsidiaries and affiliates, Globalstar related
    impairment charges and discontinued operations               |  |         | (139,733 | )        |  |            | 33,501     |              |  |              | 10,252 |              |  |   |       |   |  |   | (33,137   | ) |  |   | (129,117 | )
|Equity in net income (loss) of unconsolidated
    subsidiaries, net of tax benefit                                                                                             |  |         | 3,970    |          |  |            | (700,187   | )            |  |              |       |              |  |   |       |   |  |   | 696,217   |   |  |   |         |  
|Equity in net loss of affiliates, net of taxes                                                                                                                                 |  |         |         |          |  |            | (723,763   | )            |  |              |       |              |  |   |       |   |  |   | 723,763   |   |  |   |         |  
|Globalstar related impairment charges, net of tax
    benefit                                                                                                                  |  |         |         |          |  |            | (79,229    | )            |  |              |       |              |  |   |       |   |  |   | 79,229    |   |  |   |         |  
|                                                                                                                                                                               |  |         |          |          |  |            |            |              |  |              |        |              |  |   |        |   |  |   |           |   |  |   |          |  
|(Loss) income from continuing operations                                                                                                                                       |  |         | (135,763 | )        |  |            | (1,469,678 | )            |  |              | 10,252 |              |  |   |       |   |  |   | 1,466,072 |   |  |   | (129,117 | )
|Loss from operations of discontinued operations,
    net of taxes                                                                                                              |  |         | (2,019   | )        |  |            |           |              |  |              |       |              |  |   | (6,282 | ) |  |   |          |   |  |   | (8,301   | )
|                                                                                                                                                                               |  |         |          |          |  |            |            |              |  |              |        |              |  |   |        |   |  |   |           |   |  |   |          |  
|Net (loss) income                                                                                                                                                              |  | $       | (137,782 | )        |  | $          | (1,469,678 | )            |  | $            | 10,252 |              |  | $ | (6,282 | ) |  | $ | 1,466,072 |   |  | $ | (137,418 | )
|                                                                                                                                                                               |  |         |          |          |  |            |            |              |  |              |        |              |  |   |        |   |  |   |           |   |  |   |          |  

42



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Financial
Information for the Issuers Parent, Guarantors and Other
Subsidiaries  (Continued)

LORAL ORION, INC.






CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS


For the year ended December 31,
2000


(in thousands)


|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |          |        |  
|------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------------------------- | -------- | -------- | ------- | ---------- | -------- | ------------ | ------- | ------------ | -------- | ------------ | -------- | - | ------ | ----- | - | - | -------- | --------- | -------- | - | ------- | -------- | ------ | -
|                                                        |                                                                      | Parent                                                              |          | Issuers |         | Guarantor  |          | Other        |         |              |          |             
|                                                        |                                                                      | Company                                                             |          | Parent   |         | Subsidiary |          | Subsidiaries |         | Eliminations |          | Consolidated
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |             
|Operating activities:                                   |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|                                                        | (Loss) income from continuing operations                             |                                                                     | $        | (135,763 | )       |            | $        | (1,469,678   | )       |              | $        | 10,252       |          |   | $      |      |   |   | $        | 1,466,072 |          |   | $       | (129,117 | )     
|                                                        | Non-cash items:                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |          |       
|                                                        |                                                                      | Equity in net loss of affiliates, net of Taxes                      |          |          |        |            |          |              | 723,763 |              |          |              |         |   |        |       |  |   |          |           | (723,763 | ) |         |          |       |  
|                                                        |                                                                      | Equity in net loss of unconsolidated
    subsidiaries, net of taxes |          |          | (3,970  | )          |          |              | 700,187 |              |          |              |         |   |        |       |  |   |          |           | (696,217 | ) |         |          |       |  
|                                                        |                                                                      | Deferred taxes                                                      |          |          | 4,241   |            |          |              | 13,604  |              |          |              | 364      |   |        |       |  |   |          |           | (13,968  | ) |         |          | 4,241  |  
|                                                        |                                                                      | Depreciation and amortization                                       |          |          | 68,963  |            |          |              |        |              |          |              | 21,013   |   |        |       |  |   |          |           |         |   |         |          | 89,976 |  
|                                                        |                                                                      | Interest expense                                                    |          |          | 37,074  |            |          |              |        |              |          |              |         |   |        |       |  |   |          |           |         |   |         |          | 37,074 |  
|                                                        |                                                                      | Interest and investment income                                      |          |          | (3,518  | )          |          |              | (25,821 | )            |          |              |         |   |        |       |  |   |          |           | 25,821   |   |         |          | (3,518 | )
|                                                        |                                                                      | Gain on investments, net                                            |          |          |        |            |          |              | (70,842 | )            |          |              |         |   |        |       |  |   |          |           | 70,842   |   |         |          |       |  
|                                                        |                                                                      | Globalstar related impairment charges, net of
    taxes             |          |          |        |            |          |              | 79,229  |              |          |              |         |   |        |       |  |   |          |           | (79,229  | ) |         |          |       |  
|                                                        |                                                                      | Satellite purchase price payable                                    |          |          | 180,755 |            |          |              |        |              |          |              | (180,755 | ) |        |       |  |   |          |           |         |   |         |          |       |  
|                                                        |                                                                      | Provision for bad debt                                              |          |          | 1,070   |            |          |              |        |              |          |              |         |   |        |       |  |   |          |           |         |   |         |          | 1,070  |  
|                                                        | Accounts receivable, net                                             |                                                                     |          | (5,403   | )       |            |          |             |         |              |          | (29          | )        |   |        |      |   |   |          |          |          |   |         | (5,432   | )     
|                                                        | Prepaid Expenses and other current Assets                            |                                                                     |          | 2,344    |         |            |          |             |         |              |          | 491          |          |   |        |      |   |   |          |          |          |   |         | 2,835    |       
|                                                        | Deposits                                                             |                                                                     |          | (110     | )       |            |          |             |         |              |          | 110          |          |   |        |      |   |   |          |          |          |   |         |         |       
|                                                        | Due to (from) unconsolidated subsidiaries                            |                                                                     |          | 9,571    |         |            |          | 11,850       |         |              |          | (36,629      | )        |   |        | 2,792 |   |   |          | (39,274   | )        |   |         | (51,690  | )     
|                                                        | Other assets                                                         |                                                                     |          | 1,467    |         |            |          |             |         |              |          | (405         | )        |   |        |      |   |   |          |          |          |   |         | 1,062    |       
|                                                        | Accounts payable                                                     |                                                                     |          | 2,786    |         |            |          | (699         | )       |              |          |             |          |   |        |      |   |   |          | 699       |          |   |         | 2,786    |       
|                                                        | Accounts payable, accrued expenses and other
    current liabilities |                                                                     |          | (1,885   | )       |            |          | 2,294        |         |              |          | 1,885        |          |   |        |      |   |   |          | (2,294    | )        |   |         |         |       
|                                                        | Customer advances                                                    |                                                                     |          | 2,127    |         |            |          |             |         |              |          | (907         | )        |   |        |      |   |   |          |          |          |   |         | 1,220    |       
|                                                        | Income taxes payable                                                 |                                                                     |          |         |         |            |          | 2,518        |         |              |          |             |          |   |        |      |   |   |          | (2,518    | )        |   |         |          |       
|                                                        | Deferred revenue                                                     |                                                                     |          | 1,265    |         |            |          |             |         |              |          |             |          |   |        |      |   |   |          |          |          |   |         | 1,265    |       
|                                                        | Other                                                                |                                                                     |          |         |         |            |          | 4,794        |         |              |          |             |          |   |        |      |   |   |          | (4,794    | )        |   |         |          |       
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|Net cash provided by (used in) operating
    activities |                                                                      |                                                                     | 161,014  |          |         |            | (28,801  | )            |         |              | (184,610 | )            |          |   | 2,792  |       |   |   | 1,377    |           |          |   | (48,228 | )       
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|Net cash used in discontinued operations                |                                                                      |                                                                     | (68,114  | )        |         |            |         |              |         |              |         |              |          |   | (2,792 | )     |   |   | 27,424   |           |          |   | (43,482 | )       
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|Investing activities:                                   |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|                                                        | Capital expenditures                                                 |                                                                     |          | (182,095 | )       |            |          |             |         |              |          |             |          |   |        |      |   |   |          |          |          |   |         | (182,095 | )     
|                                                        | Investments in and advances to affiliates                            |                                                                     |          |         |         |            |          | (181,430     | )       |              |          |             |          |   |        |      |   |   |          | 181,430   |          |   |         |         |       
|                                                        | Investments in and advances to unconsolidated
    affiliates         |                                                                     |          |         |         |            |          | (187,252     | )       |              |          |             |          |   |        |      |   |   |          | 187,252   |          |   |         |         |       
|                                                        | Proceeds from the sales of investments                               |                                                                     |          |         |         |            |          | 97,137       |         |              |          |             |          |   |        |      |   |   |          | (97,137   | )        |   |         |         |       
|                                                        | (Increase) decrease in restricted and segregated
    cash            |                                                                     |          | (64      | )       |            |          |             |         |              |          |             |          |   |        |      |   |   |          |          |          |   |         | (64      | )     
|                                                        | Use and transfer of restricted and segregated cash                   |                                                                     |          | 190,898  |         |            |          |             |         |              |          |             |          |   |        |      |   |   |          |          |          |   |         | 190,898  |       
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|Net cash (used in) provided by investing
    activities |                                                                      |                                                                     | 8,739    |          |         |            | (271,545 | )            |         |              |         |              |          |   |       |       |   |   | 271,545  |           |          |   | 8,739   |         
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|Financing activities:                                   |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|                                                        | Repayments of other long-term obligations                            |                                                                     |          | (1,678   | )       |            |          |             |         |              |          |             |          |   |        |      |   |   |          |          |          |   |         | (1,678   | )     
|                                                        | Preferred dividends                                                  |                                                                     |          |         |         |            |          | (61,646      | )       |              |          |             |          |   |        |      |   |   |          | 61,646    |          |   |         |         |       
|                                                        | Proceeds from other stock issuances                                  |                                                                     |          |         |         |            |          | 25,982       |         |              |          |             |          |   |        |      |   |   |          | (25,982   | )        |   |         |         |       
|                                                        | Proceeds from the issuance of 6% Series D
    preferred stock, net   |                                                                     |          |         |         |            |          | 388,204      |         |              |          |             |          |   |        |      |   |   |          | (388,204  | )        |   |         |         |       
|                                                        | Proceeds from sale of orbital slots to Loral, net                    |                                                                     |          | 34,260   |         |            |          |             |         |              |          |             |          |   |        |      |   |   |          |          |          |   |         | 34,260   |       
|                                                        | Equity Contribution from Loral                                       |                                                                     |          | 10,750   |         |            |          |             |         |              |          |             |          |   |        |      |   |   |          |          |          |   |         | 10,750   |       
|                                                        | Increase in note payable to SpaceCom                                 |                                                                     |          | 35,752   |         |            |          |             |         |              |          |             |          |   |        |      |   |   |          |          |          |   |         | 35,752   |       
|                                                        | Capital contributions from Loral CyberStar                           |                                                                     |          | (180,755 | )       |            |          |             |         |              |          | 180,755      |          |   |        |      |   |   |          |          |          |   |         |         |       
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|Net cash (used in) provided by financing
    activities |                                                                      |                                                                     | (101,671 | )        |         |            | 352,540  |              |         |              | 180,755  |              |          |   |       |       |   |   | (352,540 | )         |          |   | 79,084  |         
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|Increase (decrease) in cash and cash
    equivalents    |                                                                      |                                                                     | (32      | )        |         |            | 52,194   |              |         |              | (3,855   | )            |          |   |       |       |   |   | (52,194  | )         |          |   | (3,887  | )       
|Cash and cash equivalents  beginning
    of Period     |                                                                      |                                                                     | 34       |          |         |            | 99,211   |              |         |              | 3,855    |              |          |   |       |       |   |   | (99,211  | )         |          |   | 3,889   |         
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         
|Cash and cash equivalents  end of
    Period           |                                                                      | $                                                                   | 2        |          |         | $          | 151,405  |              |         | $            |         |              |          | $ |       |       |   | $ | (151,405 | )         |          | $ | 2       |         
|                                                        |                                                                      |                                                                     |          |          |         |            |          |              |         |              |          |              |          |   |        |       |   |   |          |           |          |   |         |         

43



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

11.     Selected
Quarterly Financial Data (Unaudited)

The following is a summary of the quarterly
results of operations for the years ended December 31, 2002
and 2001 (in thousands):

|                                                                                                         |  |           |          |          |  |               |        |              |  |   |        |  |  |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | --------- | -------- | -------- |  | ------------- | ------ | ------------ |  | - | ------ |  |  | - | ------- | -
|                                                                                                         |  | March 31, |          | June 30, |  | September 30, |        | December 31,
|                                                                                                         |  |           |          |          |  |               |        |             
|2002                                                                                                     |  |           |          |          |  |               |        |              |  |   |        |  |  |   |         |  
|Revenues                                                                                                 |  | $         | 29,621   |          |  | $             | 27,579 |              |  | $ | 25,776 |  |  | $ | 26,763  |  
|Income from operations                                                                                   |  |           | 3,747    |          |  |               | 1,815  |              |  |   | 333    |  |  |   | 1,376   |  
|Income (loss) before cumulative effect of change
    in accounting principle and discontinued operations |  |           | 3,016    |          |  |               | 2,534  |              |  |   | 753    |  |  |   | (27,465 | )
|(Loss) income from continuing operations                                                                 |  |           | (559,185 | )        |  |               | (2,534 | )            |  |   | 753    |  |  |   | (22,397 | )
|Net (loss) income                                                                                        |  |           | (559,185 | )        |  |               | (2,534 | )            |  |   | 753    |  |  |   | (22,397 | )

|                                           |  |           |         |          |  |               |         |              |  |   |         |   |  |   |        |  
|------------------------------------------ |  | --------- | ------- | -------- |  | ------------- | ------- | ------------ |  | - | ------- | - |  | - | ------ | -
|                                           |  | March 31, |         | June 30, |  | September 30, |         | December 31,
|                                           |  |           |         |          |  |               |         |             
|2001                                       |  |           |         |          |  |               |         |              |  |   |         |   |  |   |        |  
|Revenues                                   |  | $         | 26,324  |          |  | $             | 27,598  |              |  | $ | 27,762  |   |  | $ | 27,261 |  
|Loss from operations                       |  |           | (2,572  | )        |  |               | (151    | )            |  |   | (578    | ) |  |   | (5,735 | )
|(Loss) income from continuing operations   |  |           | (27,386 | )        |  |               | (24,333 | )            |  |   | (26,865 | ) |  |   | 2,414  |  
|(Loss) income from discontinued operations |  |           | (4,875  | )        |  |               | (4,970  | )            |  |   | (3,920  | ) |  |   | 1,678  |  
|Net (loss) income                          |  |           | (32,261 | )        |  |               | (29,303 | )            |  |   | (30,785 | ) |  |   | 4,092  |  

44



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##### Table of Contents








|        |                                                                                               
|------- | ----------------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With
    Accountants and Accounting and Financial
    Disclosures

None




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Omitted pursuant to General Instruction I of
Form 10-K.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Omitted pursuant to General Instruction I of
Form 10-K.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

Omitted pursuant to General Instruction I of
Form 10-K.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Omitted pursuant to General Instruction I of
Form 10-K.






|         |                                                     
|-------- | ----------------------------------------------------
|Item 14. | Evaluation of Disclosure Controls and
    Procedures

(a) Evaluation of disclosure controls and
procedures.Loral Orions chief executive officer
and its chief financial officer, after evaluating the
effectiveness of the Companys disclosure controls
and procedures (as defined in the Securities and Exchange
Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date
(the Evaluation Date) within 90 days before the
filing date of this annual report, have concluded that as of the
Evaluation Date, the Companys disclosure controls and
procedures were adequate and designed to ensure that material
information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those
entities.

(b) Changes in internal controls.There were no significant changes in the Companys
internal controls or in other factors that could significantly
affect the Companys disclosure controls and procedures
subsequent to the Evaluation Date.

45



---



##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) (1) and (2) List of Financial
Statements and Financial Statement Schedules



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The following consolidated financial statements
    of Loral Orion are included in Item 8:



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets 
    December 31, 2002 and 2001                                                    
|
| | Consolidated Statements of Operations 
    Years ended December 31, 2002, 2001 and 2000.                       
|
| | Consolidated Statements of Stockholders
    (Deficit) Equity  Years ended December 31, 2002,
    2001 and 2000
|
| | Consolidated Statements of Cash Flows 
    Year ended December 31, 2002, 2001 and 2000                         
|
| | Notes to Consolidated Financial Statements                                                                      



| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All schedules for which provision is made in the
    applicable accounting regulations of the Securities and Exchange
    Commission are not required under the related instructions or
    are inapplicable and therefore have been omitted.

(b) Reports on Form 8-K filed in the
fourth quarter of 2002



| |     
| | ----
| | None

(c) Exhibits

46



---



##### Table of Contents



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,


AS ADOPTED PURSUANT TO


SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


In connection with the Annual Report of Loral
Orion, Inc. (the registrant) on Form 10-K for
the period ending December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the
Annual Report), I, Bernard L. Schwartz, Chief
Executive Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to
§ 302 of the Sarbanes-Oxley Act of 2002, that:



| |                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) I have reviewed this Annual Report on
    Form 10-K of Loral Orion, Inc.;                                                                                                                                                                                                                                                                 
|
| | (2) Based on my knowledge, this Annual
    Report does not contain any untrue statement of material fact or
    omit to state a material fact necessary to make the statements
    made, in light of the circumstances under which such statements
    were made, not misleading with respect to the period covered by
    this Annual Report;
|
| | (3) Based on my knowledge, the financial
    statements, and other financial information included in this
    Annual Report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for the periods presented in this Annual
    Report;                  
|
| | (4) The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                     



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Annual Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this Annual Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of the registrants board of directors (or
    persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weakness in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                  



| |                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) The registrants other certifying
    officers and I have indicated in this Annual Report whether or
    not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |                        
| | -----------------------
| | /s/ BERNARD L. SCHWARTZ
| |                        
| | Bernard L. Schwartz    
| | Chief Executive Officer

March 31, 2003



---



##### Table of Contents



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,


AS ADOPTED PURSUANT TO


SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


In connection with the Annual Report of Loral
Orion, Inc. (the registrant) on Form 10-K for
the period ending December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the
Annual Report ), I, Richard J. Townsend, Chief
Financial Officer of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to
§ 302 of the Sarbanes-Oxley Act of 2002, that:



| |                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) I have reviewed this Annual Report on
    Form 10-K of Loral Orion, Inc.;                                                                                                                                                                                                                                                                 
|
| | (2) Based on my knowledge, this Annual
    Report does not contain any untrue statement of material fact or
    omit to state a material fact necessary to make the statements
    made, in light of the circumstances under which such statements
    were made, not misleading with respect to the period covered by
    this Annual Report;
|
| | (3) Based on my knowledge, the financial
    statements, and other financial information included in this
    Quarterly Report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for the periods presented in this Annual
    Report;               
|
| | (4) The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                     



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this Annual Report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this Annual
    Report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this Annual Report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of the registrants board of directors (or
    persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weakness in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                  



| |                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) The registrants other certifying
    officers and I have indicated in this Annual Report whether or
    not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |                        
| | -----------------------
| | /s/ RICHARD J. TOWNSEND
| |                        
| | Richard J. Townsend    
| | Chief Financial Officer

March 31, 2003



---



##### Table of Contents



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,


AS ADOPTED PURSUANT TO


SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002


In connection with the Annual Report of Loral
Orion, Inc. (the Company) on Form 10-K for the
period ending December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, Bernard L. Schwartz, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C.
§ 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) The Report fully complies with the
    requirements of section 13(a) or 15(d) of the Securities
    Exchange Act of 1934; and                               
|
| | (2) The information contained in the Report
    fairly presents, in all material respects, the financial
    condition and results of operations of the Company.



| |                        
| | -----------------------
| | /s/ BERNARD L. SCHWARTZ
| |                        
| | Bernard L. Schwartz    
| | Chief Executive Officer

March 31, 2003



---



##### Table of Contents



CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,


AS ADOPTED PURSUANT TO


SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002


In connection with the Annual Report of Loral
Orion, Inc. (the Company) on Form 10-K for the
period ending December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, Richard J. Townsend, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C.
§ 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) The Report fully complies with the
    requirements of section 13(a) or 15(d) of the Securities
    Exchange Act of 1934; and                               
|
| | (2) The information contained in the Report
    fairly presents, in all material respects, the financial
    condition and results of operations of the Company.



| |                        
| | -----------------------
| | /s/ RICHARD J. TOWNSEND
| |                        
| | Richard J. Townsend    
| | Chief Financial Officer

March 31, 2003



---



##### Table of Contents






INDEX TO EXHIBITS

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                 
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 2.1   |             |  | Agreement and Plan of Merger, dated as of
    October 7, 1997, by and among Orion, Loral and Loral
    Satellite Corporation. (Incorporated by reference to exhibit
    number 2.1 in Current Report on Form 8-K dated
    October 9, 1997.)                                                                                    
|        | 2.2   |             |  | Principal Stockholder Agreement among Orion,
    Loral, Loral Satellite Corporation and the stockholders that are
    signatories thereto, dated as of October 7, 1997.
    (Incorporated by reference to exhibit number 2.2 in Current
    Report on Form 8-K dated October 9, 1997.)                                          
|        | 2.3   |             |  | Amendment No. 1 Agreement and Plan of
    Merger, dated as of February 11, 1998, by and among Orion,
    Loral and Loral Satellite Corporation. (Incorporated by
    reference to exhibit number 2.2 in Registration Statement
    No. 333-46407 on Form S-4.)                                                                  
|        | 2.4   |             |  | Amendment No. 1 to Principal Stockholder
    Agreement among Orion, Loral, Loral Satellite Corporation and
    the stockholders that are signatories thereto, dated as of
    December 1, 1997. (Incorporated by reference to exhibit
    number 2.4 in Annual Report on Form 10-K for fiscal
    year ended December 31, 1997.)
|        | 3.1   |             |  | Certificate of Merger of Loral Satellite
    Corporation into Orion, dated March 20, 1998, and
    Exhibit A thereto, Restated Certificate of Incorporation of
    the Company. (Incorporated by reference to exhibit
    number 3.1 in Annual Report on Form 10-K for the
    fiscal year ended December 31, 1998.)            
|        | 3.2   |             |  | Certificate of Merger of Loral CyberStar, Inc.
    into Loral Orion Services, Inc. (Incorporated by reference to
    exhibit number 3.2 in Annual Report on Form 10-K for
    the fiscal year ended December 31, 2000.)                                                                                                         
|        | 3.3   |             |  | Merger Agreement between Loral CyberStar, Inc.
    and Loral Orion Services, Inc. (Incorporated by reference to
    exhibit number 3.3 in Annual Report on Form 10-K for
    the fiscal year ended December 31, 2000.)                                                                                                          
|        | 3.4   |             |  | Amended and Restated Certificate of Incorporation
    of the Company. (Incorporated by reference to exhibit
    number 3.4 in Annual Report on Form 10-K for the
    fiscal year ended December 31, 2001.)                                                                                                                      
|        | 3.5   |             |  | Amended and Restated Certificate of Incorporation
    of the Company. (Incorporated by reference to exhibit
    number 3.5 in Annual Report on Form 10-K for the
    fiscal year ended December 31, 2001.)                                                                                                                      
|        | 4.1   |             |  | Form of Senior Note Indenture and Form of Note
    included therein. (Incorporated by reference to exhibit
    number 4.1 to Registration Statement No. 333-19167 on
    Form S-1.)                                                                                                                                             
|        | 4.1.1 |             |  | Supplemental Indenture, dated as of
    December 21, 2001, to the Senior Note Indenture, dated
    January 31, 1997. (Incorporated by reference to exhibit
    number 99.7 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                                         
|        | 4.2   |             |  | Form of Senior Discount Note Indenture and Form
    of Note included therein. (Incorporated by reference to exhibit
    number 4.2 to Registration Statement No. 333-19167 on
    Form S-1.)                                                                                                                                    
|        | 4.2.1 |             |  | Supplemental Indenture, dated as of
    December 21, 2001, to the Senior Note Indenture, dated
    January 31, 1997. (Incorporated by reference to exhibit
    number 99.8 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                                         
|        | 4.3   |             |  | Form of Collateral Pledge and Security Agreement.
    (Incorporated by reference to exhibit number 4.3 to
    Registration Statement No. 333-19167 on Form S-1.)                                                                                                                                                                
|        | 4.4   |             |  | Indenture, dated as of December 21, 2001, by
    and among the Company, certain of its subsidiaries and Bankers
    Trust Company, as Trustee. (Incorporated by reference to exhibit
    number 99.5 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                               



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##### Table of Contents



|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ---- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 10.1 |             |  | Second Amended and Restated Purchase Agreement,
    dated September 26, 1991 (Satellite Contract)
    by and between Loral Orion Services, Inc. (formerly known as
    Orion Satellite Corporation) and British Aerospace PLC and the
    First Amendment, dated as of September 15, 1992, Second
    Amendment, dated as of November 9, 1992, Third Amendment,
    dated as of March 12, 1993, Fourth Amendment, dated as of
    April 15, 1993, Fifth Amendment, dated as of
    September 22, 1993, Sixth Amendment, dated as of
    April 6, 1994, Seventh Amendment, dated as of
    August 9, 1994, Eighth Amendment, dated as of
    December 8, 1994, and Amendment No. 9 dated
    October 24, 1995, thereto. [CONFIDENTIAL TREATMENT HAS BEEN
    GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by
    reference to exhibits number 10.13 and 10.14 in
    Registration Statement No. 33-80518 on Form S-1).
|        | 10.2 |             |  | Restated Amendment No. 10, dated
    December 10, 1996, between Loral Orion Services, Inc. and
    Matra Marconi Space to the Second Amended and Restated Purchase
    Agreement, dated September 16, 1991 by and between
    OrionServ and British Aerospace PLC (which contract and prior
    exhibits thereto were incorporated by reference as exhibit
    number 10.1). (Incorporated by reference to exhibit
    number 10.2 in Registration Statement No. 333-19795 on
    Form S-4.)                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.3 |             |  | Contract for a Satellite Control System, dated
    December 7, 1992, by and between Loral Orion Services,
    Inc., Telespazio S.p.A. and Martin Marietta Corporation.
    [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS
    DOCUMENT.] (Incorporated by reference to exhibit
    number 10.31 in Registration Statement No. 33-80518 on
    Form S-1.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.4 |             |  | Restated Definitive Agreement, dated
    October 29, 1998, by and between Orion and Republic of the
    Marshall Islands. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
    PORTIONS OF THIS DOCUMENT.](Incorporated by reference to exhibit
    number 10.12 in Annual Report on Form 10-K for the fiscal year
    ended December 31, 1998.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.5 |             |  | Orion 3 Spacecraft Purchase Contract, dated
    January 15, 1997, by and among Hughes Space and
    Communications International, Inc., Loral Orion Services, Inc.
    (by assignment from Loral Orion-Asia Pacific, Inc., formerly
    known as Orion Asia Pacific Corporation) and Orion.
    [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS
    DOCUMENT.]. (Incorporated by reference to exhibit number 10.52
    to Registration Statement No. 333-19167 on Form S-1.)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.6 |             |  | Orion-Z Spacecraft Purchase Contract, dated
    May 15, 1998, by and between Loral Orion Services, Inc. and
    Space Systems/Loral, Inc. and Amendment No. 1 dated
    December 29, 1998. [CONFIDENTIAL TREATMENT HAS BEEN
    REQUESTED FOR PORTIONS OF THIS DOCUMENT.](Incorporated by
    reference to exhibit number 10.17 in Annual Report on Form 10-K
    for the fiscal year ended December 31, 1998.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.7 |             |  | Agreement, dated January 1, 1999, by and
    between Loral Orion Services, Inc. and Loral Skynet.
    (Incorporated by reference to exhibit number 10.18 in Annual
    Report on Form 10-K for the fiscal year ended December 31,
    1998.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.8 |             |  | Agreement, dated January 1, 1999, by and
    between Loral Orion Services, Inc. and Loral Skynet.
    (Incorporated by reference to exhibit number 10.19 in Annual
    Report on Form 10-K for the fiscal year ended December 31,
    1998.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.9 |             |  | Lease Agreement, dated as of August 18,
    1999, by and between Loral Asia Pacific Satellite (HK) Limited
    and APT Satellite Company Limited. (Incorporated by reference to
    exhibit number 99.1 to Current Report on Form 8-K filed on
    August 23, 1999.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.10 |             |  | Lock-up Agreement, dated as of October 15,
    2001, by and among the Company, Loral Space & Communications
    Ltd., Loral SpaceCom Corporation and certain holders of the
    Companys 11 1/4% Senior Notes due 2007 and its
    12 1/2% Senior Discount Notes due 2007. (Incorporated by
    reference to exhibit number 10.1 to Current Report on Form 8-K
    filed on November 16, 2001.)
|        | 10.11 |             |  | Asset Purchase Agreement, dated as of
    December  21, 2001, between the Company and Loral CyberStar
    Data Services Corporation. (Incorporated by reference to exhibit
    number 99.1 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                                                                                         
|        | 10.12 |             |  | $29.7 million aggregate principal amount, 10%
    Subordinated Note due 2006, made by the Company and issued to
    Loral SpaceCom Corporation. (Incorporated by reference to
    exhibit number 99.3 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                                                                              
|        | 10.13 |             |  | Subordinated Guaranty Agreement, dated as of
    December 21, 2001, between Loral Space & Communications
    Ltd. and Loral SpaceCom Corporation with respect to the 10%
    Subordinated Note due 2006. (Incorporated by reference to
    exhibit number 99.4 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                     
|        | 10.14 |             |  | Warrant Agreement, dated as of December 21,
    2001, between Loral Space & Communications Ltd. and The Bank
    of New York, as Warrant Agent. (Incorporated by reference to
    exhibit number 99.6 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                                                                              
|        | 10.15 |             |  | Guaranty Agreement, dated as of December 21,
    2001, between Loral Space & Communications Ltd. and Bankers
    Trust Company, as Trustee. (Incorporated by reference to exhibit
    number 99.9 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                                                                                  
|        | 10.16 |             |  | Apstar V Condosat Agreement dated as of
    December 10, 2002 between APT Satellite Company Limited and
    Loral Orion, Inc.                                                                                                                                                                                                                                                                  



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                  
| | -----------------
| | LORAL ORION, INC.



| |     |                 
| | --- | ----------------
| | By: | /s/TERRY J. HART

| |                      
| | ---------------------
| |                      
| | Terry J. Hart        
| | Title: President     
| | Dated: March 31, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                                                                   |  |                                                                                         |  |               
|------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------- |  | --------------
|Signature                                                          |  | Title                                                                                   |  | Date          
|                                                                   |  |                                                                                         |  |               
|                                                                  
|/s/      BERNARD L.
    SCHWARTZ           Bernard
    L. Schwartz |  | Chairman of the Board and Chief Executive Officer                                       |  | March 31, 2003
|                                                                  
|/s/      ERIC J.
    ZAHLER           Eric
    J. Zahler           |  | Director and Executive Vice President                                                   |  | March 31, 2003
|                                                                  
|/s/      AVI KATZ           Avi
    Katz                           |  | Director, Vice President and Secretary                                                  |  | March 31, 2003
|                                                                  
|/s/      GEORGE BAKER           George
    Baker                   |  | Director                                                                                |  | March 31, 2003
|                                                                  
|/s/      DANIEL
    HIRSCH           Daniel
    Hirsch             |  | Director                                                                                |  | March 31, 2003
|                                                                  
|/s/      RICHARD J.
    TOWNSEND           Richard
    J. Townsend |  | Senior Vice President and Chief Financial
    Officer
    (Principal Financial Officer) |  | March 31, 2003
|                                                                  
|/s/      HARVEY B.
    REIN           Harvey
    B. Rein           |  | Vice President and Controller
    (Principal Accounting Officer)                        |  | March 31, 2003