UPC POLSKA INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 000-22877

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UPC POLSKA, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 06-1487156
(State or Other Jurisdiction of (I.R.S. Employer of Identification
Incorporation or Organization) No.)

4643 ULSTER STREET
SUITE 1300
DENVER, COLORADO 80237
(Address of Principal Executive (Zip Code)
Offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 770-4001

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark (X) 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 /X/ No / /

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. / /

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing. (See definition of affiliate in
Rule 405.) ZERO

The number of shares outstanding of UPC Polska, Inc.'s common stock as of
December 31, 2001, was:

COMMON STOCK 1,000

DOCUMENTS INCORPORATED BY REFERENCE
None.

The Registrant meets the conditions set forth in General Instructions I
(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.

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UPC POLSKA, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

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PART I

UPC Polska, Inc. (previously @Entertainment, Inc.), a Delaware corporation
which is wholly-owned by United Pan-Europe Communications N.V. ("UPC"), was
established in May 1997. References to the "Company" mean UPC Polska, Inc. and
its consolidated subsidiaries, including:

- Poland Communications, Inc. ("PCI"),

- UPC Broadcast Centre Limited (previously At Entertainment Limited then
Wizja TV Limited) ("UPC Broadcast Centre Ltd"),

- Wizja TV B.V. (previously Sereke Holding B.V.) ("Wizja TV B.V."),

- Wizja TV Sp. z o.o. ("Wizja TV Sp. z o.o."),

- Atomic TV Sp. z o.o. (previously Ground Zero Media Sp. z o.o.) ("Atomic
TV"),

- At Media Sp. z o.o. ("At Media"), and

- @Entertainment Programming, Inc. ("@EP").

On December 7, 2001, UPC Broadcast Centre Ltd. and Wizja TV Sp. z o.o., were
contributed to and merged into Telewizja Korporacja Partycypacyjna S.A. ("TKP"),
an entity controlled by Group Canal+ S.A. ("Canal+") in connection with the
transaction with Canal+, which is described in more detail in the
"Business--Canal+ Merger" section of this Annual Report on Form 10-K.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, that are not historical facts but rather reflect
the Company's current expectations concerning future results and events. The
words "believes", "expects", "intends", "plans", "anticipates", "likely",
"will", "may", "shall" and similar expressions identify such forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company (or entities in which the Company has
interests), or industry results, to differ materially from future results,
performance or achievements expressed or implied by such forward-looking
statements.

Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's view only as of the date of this Annual
Report on Form 10-K. The Company undertakes no obligation to publicly release
the results of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events, conditions or circumstances.

The risks, uncertainties and other factors that might cause such differences
include, but are not limited to:

- economic conditions in Poland generally, as well as in the pay television
business in Poland, including decreasing levels of disposable income per
household and increasing rates of unemployment;

- changes in laws and regulations affecting the Company, especially those
related to copyright and taxation;

- changes in the television viewing preferences and habits of the Company's
subscribers;

- programming alternatives offered by the Company's competitors, especially
the availability of free programming;

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- the Company's inability to comply with government regulations;

- the continued strength of the Company's competitors;

- future financial performance of the Company and UPC, including
availability, terms and deployment of capital;

- the overall market acceptance of Company's products and services,
including acceptance of the pricing of those products and services; and

- failure of TKP to satisfy contractual obligations owed to or on behalf of
the Company arising out of the Company's transaction with Canal+, any loss
in value of the Company's equity interest in TKP due to Polska Telewizja
Cyfrowa TV Sp. z o.o. ("PTC"), a subsidiary of the Company, no longer
being a Polish person, and the Company's limited ability to liquidate its
investment in TKP.

EXCHANGE RATE INFORMATION

In this Annual Report on Form 10-K, references to "U.S. dollars" or "$" are
to U.S. currency, references to "Euros" or "EUR" are to EU currency, and
references to "zloty" or "PLN" are to Polish currency. The Company has presented
its primary consolidated financial statements in accordance with generally
accepted accounting principles in the U.S. in U.S. dollars. Amounts originally
measured in zloty for all periods presented have been translated into U.S.
dollars.

For your convenience, this Annual Report contains certain zloty and Euro and
Deutsche-Mark amounts not derived from the consolidated financial statements
which have been translated into U.S. dollars. Readers should not assume that the
zloty, Euro, and Deutsche-Mark amounts actually represent such U.S. dollar
amounts or could be, or could have been, converted into U.S. dollars at the
rates indicated or at any other rate. Unless otherwise stated, such U.S. dollar
amounts have been derived by converting from zloty to U.S. dollars at the rate
of PLN 3.9863 = $1.00, the exchange rate quoted by the National Bank of Poland
at noon on December 31, 2001 and by converting from Euro to U.S. dollars at the
rate of EUR 1.1189 = $1.00, the exchange rate quoted by Bloomberg.com on
January 2, 2002, and by converting from Deutsche-Marks to U.S. dollars at the
rate of DM 2.2139 = $1.00, the exchange rate quoted by the National Bank of
Poland at noon on December 31, 2001. These rates may differ from the actual
rates in effect during the periods covered by the financial information
discussed herein. The Federal Reserve Bank of New York does not certify for
customs purposes a noon buying rate for zloty.

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ITEM 1. BUSINESS

BUSINESS

GENERAL

Until December 2001, the Company's business consisted of three components:

- cable television services,

- digital satellite direct-to-home, or "D-DTH", services, and

- programming.

During 2001, the Company reviewed its long-term business strategy and
decided to focus on its core competency, the provision of cable television
services, and focus on providing internet services to its existing customers. As
a part of this re-focus, the Company decided to streamline its operations by
restructuring its D-DTH and programming businesses. To this end, in December
2001, the Company consummated a joint venture transaction with Canal+ to combine
the Company's existing D-DTH platform with TKP's D-DTH and premium pay
television business to distribute D-DTH services and programming to subscribers
in Poland through TKP. The Company has a 25% equity interest in TKP. TKP is
controlled and operated by Canal+. This transaction resulted in the
discontinuance of the Company's D-DTH and programming businesses.

THE CANAL+ MERGER

On August 10, 2001, the Company entered into a contribution and subscription
agreement (the "Agreement") with UPC, PTC, Canal+ and TKP (together, the
Company, UPC, PTC, Canal+ and TKP are the "Parties"). On December 7, 2001, the
Parties entered into a closing agreement

- to amend certain terms of the Agreement and a shareholders' agreement
dated as of August 10, 2001 among UPC, PTC, Canal+ and PolCom Invest S.A.
("PolCom"), and

- to carry out the transactions contemplated by the Agreement subject to the
registration by the Commercial Court of Warsaw of the share capital
increase and the amendments to TKP's charter documents required by the
Agreement. On February 1, 2002, the Commercial Court of Warsaw entered
into the commercial registry the share capital increase and other charter
document amendments and the appointment of three new supervisory board
members selected by PTC, and thereby completed the transactions
contemplated by the amended Agreement.

Under the Agreement, the Company caused PTC to contribute all of the equity
of two subsidiaries, Wizja TV Sp. z o.o. and UPC Broadcast Centre Ltd to TKP. In
consideration for this contribution:

- PTC received 317,189 shares of TKP, which shares represent 25% of the
outstanding equity of TKP taking into account the issuance of such shares;
and

- the Company assigned to Canal+ a note made by Wizja TV Sp. z o.o. (the
"Assigned Loan") in the amount of 150 million Euros plus accrued interest
in exchange for cash in the amount of 150 million Euros (approximately
$133.4 million as of December 7, 2001) (together, the "Canal+ Proceeds").

In addition, as of December 7, 2001, TKP assumed certain Company obligations
under guarantees relating to the Company's D-DTH business. As of February 1,
2002, Canal+ owned, either directly or indirectly, 75% of the outstanding equity
of TKP, and PTC owned 25%.

Under the Agreement, the Company funded, through PTC, TKP with 30 million
Euro. Wizja TV B.V. assigned to Wizja TV Sp. z o.o. and Cyfra+, a Canal+
affiliate, certain programming rights relating to the Company's D-DTH business,
and TKP agreed to continue to provide to UPC's Central European D-DTH business
certain uplink facilities and services. On January 2, 2002, the Company

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forgave, or caused its subsidiaries to forgive, certain debt owed by the
contributed companies in the amount of 152,752,900 Polish zloty (approximately
$38,319,469 as of December 31, 2001). Such loss has been included in the loss on
disposition recorded in 2001.

As a result of entering into the Agreement, the Company incurred the
following financial risk as of December 7, 2001, which could have a material
adverse effect on the business and financial condition of the Company:

- PTC loaned TKP 30 million Euros from the Canal+ Proceeds (the "JV Loan"),
and the JV Loan ranks equally with TKP's debt obligations to other
parties, including its other shareholders. Subject to certain conditions,
TKP may require PTC to convert the full amount then outstanding under the
JV Loan into additional equity shares of TKP in full satisfaction of the
JV Loan. TKP has no obligation to repay PTC in full under the JV Loan
before it repays its other debt obligations. Any failure by TKP to repay
PTC, or any required conversion of the JV Loan into equity of TKP, could
have a material adverse effect on the financial condition of the Company.

Pursuant to the terms of a shareholders' agreement, the Company has, through
its subsidiary PTC, incurred the following risks associated with the structure
of TKP:

- The affirmative vote of more than 60% of the votes cast at a shareholders'
meeting is required to take action by the shareholders of TKP, except with
regard to decisions concerning certain fundamental changes with respect to
TKP such as its merger with another person, dissolution, sale of
significant business activities, pursuit of activities other than D-DTH
service or premium pay-television activities, and, except with regard to
certain decisions fundamentally altering the nature of PTC's ownership in
TKP such as capital increases in which it cannot subscribe, redemption of
equity interests in TKP and certain other transactions. Decisions and
actions of the TKP Supervisory Board also require the affirmative vote of
more than 60% of the votes of the members of the Supervisory Board. Since
the Company owns indirectly only 25% of the equity interests of TKP and
Canal+ controls directly and indirectly the remaining 75%, the Company
will not be able to affect the action of TKP over the objection of Canal+
except in the limited circumstances described above and only in the event
that the Company retains at least a 10% equity interest in TKP.

- If PTC ceases at any time to be a Polish person under Polish law for any
reason under PTC's control, the other TKP shareholders may convert their
existing loans to TKP into equity of TKP in accordance with applicable
Polish law at a price-per-share equal to one-third of the fair market
value of TKP at such time divided by the number of TKP shares outstanding
immediately prior to the conversion. Accordingly, in this event, PTC's
equity interest will be significantly diluted, and the consequent loss in
value of PTC's investment in TKP could have a material adverse affect on
the financial condition of the Company. In addition, if PTC ceases at any
time to be a Polish person under Polish law as a result solely of a change
in applicable Polish law, then TKP may redeem, upon the affirmative vote
of 60% of the TKP shareholders, PTC's entire equity interest in TKP at a
price equal to the fair market value of such interest at the time. Fair
market value is determined based on the agreement of the parties, or,
failing an agreement, based on an expert appraisal process, which may or
may not result in a sale price that PTC believes is fair or favorable.
Accordingly, as a result of a change in law beyond PTC's control, PTC may
receive less than a sale price it believes is fair or favorable for its
equity interest in TKP at a time when PTC may not wish to sell, which
could have a material adverse effect on the Company's financial condition.

Finally, the shareholders' agreement affords PTC only limited opportunities
to exit from its ownership position in TKP:

- Until December 7, 2003, PTC may not transfer its shares in TKP except in a
limited circumstance outside PTC's control. PTC may exercise a "tag-along"
right to require Canal+ and PolCom to require a third party to purchase at
least a portion of PTC's interest in TKP in

6

the event that Canal+ or PolCom desire to sell either's equity interest in
TKP to a bona fide third party. The inability to liquidate PTC's
investment in TKP on demand could have a material adverse effect on the
Company's financial condition.

- The shareholder's agreement affords PTC a limited put right exercisable
only after December 7, 2006 to require Canal+ either to purchase PTC's
equity interest in TKP at fair market value or to use its best efforts to
obtain a bona fide third party offer to purchase all of TKP at fair market
value. Under this limited put right, Canal+ is not obligated to purchase
PTC's shares. Canal+ may, at its option, use its best efforts to obtain a
bona fide third party offer to purchase all of TKP. Moreover, even if
Canal+ obtains such a bona fide offer, the limited put right granted to
PTC does not require Canal+ to cause the third party to effect the
purchase of all of TKP. If PTC exercises its limited put right and no sale
of its TKP equity interests transpires, this could have a material adverse
effect on the Company's financial condition. The shareholders' agreement
also affords PTC a put right to cause Canal+ to purchase at a fair market
value price all of PTC's equity stake in TKP if a competitor of UPC
acquires, directly or indirectly, control of Canal+.

TKP will be governed by an 11 member supervisory board. Three of the members
of the supervisory board will be appointed by PTC. The remaining 8 members are
controlled by Canal+. The effect of this board composition is that PTC will not
be able to affect the action of TKP's supervisory board over the objection of
Canal+.

BUSINESS STRATEGY

The Company's principal objective under its business strategy is for its
cable business to become cash flow positive in the 2002. It will also focus on
enhancing its position as a leading provider of cable television in Poland by
capitalizing on favorable opportunities that it believes exist in Poland.

The Company's business strategy is designed to increase its average revenue
per subscriber, and also, although to a lesser extent, to increase its
subscriber base. The Company intends to achieve these goals by:

- increasing penetration of new service products within existing upgraded
homes;

- providing additional revenue-generating services to existing customers,
including Internet services;

- developing content tailored to the interests of existing subscribers; and

- improving the effectiveness of the Company's sales and marketing efforts.

The Company also intends to increase the effectiveness of its operations and
reduce its expenses by:

- enhancing internal controls;

- improving corporate decision-making processes;

- reorganizing the Company so as to simplify its legal structure; and

- using more local rather than expatriate employees in management, thereby
reducing general and administrative costs.

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CABLE TELEVISION

The Company operates one of the largest cable television systems in Poland
with approximately 1,851,900 homes passed and approximately 1,011,000 total
subscribers as of December 31, 2001. The Company's cable subscribers are located
in regional clusters encompassing eight of the ten largest cities in Poland,
including those cities which the Company believes provide the most favorable
demographics for cable television in the country. The Company's cable television
networks have been constructed with the flexibility and capacity to be
cost-effectively reconfigured to offer an array of interactive and integrated
entertainment, telecommunications and information service. Over the last two
years, the Company has been upgrading its network so that it can provide two-way
telecommunication services such as Internet access.

During the fiscal year ending December 31, 2001, the cable television
segment earned $77.1 million, or 55.6%, of the Company's total revenues. This
compares to $68.8 million, or 51.5%, of the Company's revenues in fiscal year
2000. Net loss of $52.0 million was attributable to the cable television segment
for fiscal year 2001 as opposed to $46.5 million in fiscal year 2000.

As a result of termination of the operation of Polish laws relating to
foreign ownership of Polish companies, effective January 1, 2001, the Company
has effected changes in the corporate structure of its cable operations designed
to simplify its corporate structure.

REGIONAL CLUSTERS

The Company has established five regional clusters for its cable television
business encompassing eight of the ten largest cities in Poland, which the
Company believes, are among those with the strongest economies and most
favorable demographics for cable television in the country. The following table
illustrates certain operating data of each of the Company's existing regional
clusters.

OVERVIEW OF THE COMPANY'S EXISTING CABLE SYSTEMS (1)

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(1) All data at or for the year ended December 31, 2001.

(2) Represents a weighted average for the Company based on the total number of
basic and intermediate subscribers at December 31, 2001 stated in U.S.
dollars.

NEW INVESTMENT OPPORTUNITIES

The Company regularly evaluates potential acquisitions of cable networks,
including network swaps with other cable operators. The Company currently has no
definitive agreement with respect to any material acquisition, although it has
discussions with other companies and assesses opportunities on an ongoing basis.
The Company may be required to apply for the approval of the Polish
Anti-Monopoly

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Office with respect to any acquisitions it wishes to consummate. The Company's
ability to enter into definitive agreements relating to material acquisitions
and their potential terms, as well as its ability to obtain the necessary
anti-monopoly approvals, cannot be assured.

SERVICES AND FEES

The Company's revenues from its cable television business have been and will
continue to be derived primarily from

- monthly subscription fees for cable television services,

- fees for Internet service, and

- one-time installation fees.

The Company charges cable television subscribers fixed monthly fees for
their choice of service packages and for other services such as premium channels
and rental of remote control devices. Throughout its cable television systems,
the Company currently offers three packages of cable television service:

- basic package,

- intermediate package (in selected areas of Poland), and

- broadcast package.

On December 31, 2001, approximately 642,900, or 63.6%, of the Company's
subscribers received the basic package, as compared to 752,900, or 70.7%, at
December 31, 2000, approximately 40,900, or 4%, received the intermediate
package, as compared to 45,400, or 4.3%, at December 31, 2000, and approximately
327,100, or 32.4%, received the broadcast package of service, as compared to
266,000, or 25.0%, at December 31, 2000.

BASIC PACKAGE. The Company's basic package includes approximately 34 to 60
channels. During 2001, this package generally included all Polish terrestrial
broadcast channels, most major European satellite programming legally available
in Poland, regional and local programming and the Company's Wizja TV programming
package, consisting of proprietary and third party channels. The Company's basic
package offerings vary by location.

In connection with the Canal+ merger, the Company has renegotiated or is in
the process of renegotiating contracts with certain third party channel
providers, in an effort to reduce costs and strengthen its cable programming
offerings by terminating certain agreements for poorly performing channels and
entering into other agreements for popular channels based on consumer demand and
preferences.

INTERMEDIATE PACKAGE. The Company's intermediate package includes
approximately 20 to 22 channels. This package is offered for monthly fees equal
to approximately one-half of the amount charged for the basic package. The
intermediate package is designed to compete with small cable operators on the
basis of price, using a limited programming offering. The Company's intermediate
package offerings vary by location.

BROADCAST PACKAGE. The Company's broadcast package includes 6 to 12
broadcast channels for monthly fees, which are substantially less than the
amounts charged for the intermediate package.

PREMIUM AND OTHER SERVICES. For an additional monthly charge, certain of
the Company's cable networks have offered two premium television services--the
HBO Poland service and Wizja Sport, one of the Company's proprietary channels
(although Wizja Sport was expanded into the basic package as of March 24, 2001).
As part of the restructuring of the Company's programming segment, the Company

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discontinued Wizja Sport in December 2001. In connection with the Canal+ merger,
in February 2002, the Company began distributing Canal+ Multiplex, a
Polish-language premium package of three movie, sport and general entertainment
channels, through its network. The Company and TKP are currently negotiating the
definitive long-form channel carriage agreement for carriage of Canal+
Multiplex. The Company offers HBO Poland and Canal+ Multiplex separately for
approximately $8.80 and $9.90 per month, respectively. The Company also offers
these channels as a package at approximately $14.80 per month.

Other optional services include additional outlets and stereo service, which
enable a subscriber to receive from 4 to 25 radio channels in stereo. Cable
television subscribers who require the use of a tuner to receive certain of the
Company's cable services are charged an additional fee of approximately $1.00
per month. Installation fees vary according to the type of connection required
by a cable television subscriber. The standard initial installation fee is
approximately $6.00, but such fee may be subject to reductions as a result of
promotional campaigns.

For more information about programming offered to the Company's cable
subscribers, see "Business--Programming--Programming for Cable Network".

PRICING STRATEGY. Historically, the Company has experienced high annual
churn rates and has passed on the effects of inflation through price increases.
For the years ended December 31, 2001 and 2000, the churn rate was 15.7% and
21.5%, respectively. This pricing strategy of passing on the effects of
inflation through price increases commenced in January 1997 and was designed to
increase revenue per subscriber and to achieve real profit margin increases in
U.S. dollar terms. The current pricing strategy is aimed at maintaining the
subscriber.

The Company intends to concentrate on maintaining its current subscribers
and decreasing its level of churn. This reflects a change in the Company's
strategy from aggressive selling accompanied by high churn to lower subscriber
growth with lower churn. By doing so, the Company believes it will have a more
positive effect on EBITDA. The Company intends to achieve it through:

- employing programs designed to reward loyal subscribers--so-called
"loyalty programs"--directed to existing subscribers,

- marketing offers to new subscribers with term commitments, and

- systematically combating piracy.

Cable subscribers are billed monthly in advance and, as is customary in
Poland, most of the Company's customers pay their bills through their local post
office, bank or customer offices. The Company has strict enforcement policies to
encourage timely payment. Such policies include notices of late payment, visits
from service personnel, and, ultimately, disconnection for nonpaying customers
90 days after a bill becomes past due. The Company also employs promotional
programs that encourage timely payment by subscribers. The Company's system
architecture in most networks enables it to promptly shut off service to
nonpaying customers and is designed to reduce non-authorized use of its cable
systems. The Company's bad debts expense has averaged 5.86% and 4.75% of total
revenue for fiscal years 2001 and 2000, respectively.

INTERNET SERVICES. During the fourth quarter of the year 2000, the Company
began providing Internet services to its cable television customers. Although
the Company does not currently have additional capital to invest in development
of this service, it intends to expand its Internet service offering at some
point in the future. Revenue of $1.6 million for fiscal year 2001 was
attributable to the Company's Internet services.

Individual and home office Internet subscribers are charged a monthly
subscription fee of $38.90 and $51.40, respectively. The standard installation
fee is approximately $61.50 for existing cable customers and approximately
$66.50 for new cable customers. On December 31, 2001, approximately

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8,600, or 0.9%, of the Company's cable subscribers received Internet services.
The maximum and minimum connection speeds offered by the Company are 512 Kbit
and 128 Kbit, respectively.

TECHNOLOGY AND INFRASTRUCTURE

The Company believes the fiber-optic cable television networks that it has
constructed, which serve approximately 880,300, or 87.1%, of its cable
subscribers, are among the most technologically advanced in Poland and are
comparable to cable television networks in the United States. All of the
Company's networks that have been constructed by the Company have bandwidths of
at least 550 MHz. New portions of the networks, which have recently been
constructed, are being designed to have minimum bandwidths of 860 MHz. The
Company continues to upgrade any portions of its cable television networks that
have bandwidths below 550 MHz (which generally are those acquired from other
entities) to at least 860 MHz in an effort to reduce the number of satellite
receivers and parts inventory required in the networks. The Company uses
fiber-optic and coaxial cables, electronic components and connectors supplied by
leading Western firms in its cable television networks.

The Company has been able to avoid constructing its own underground conduits
in certain areas by entering into a series of agreements with regional and local
branches of the Polish national telephone company (known in the Polish
telecommunications industry as "TPSA") which permit the Company to use TPSA's
conduit infrastructure for an indefinite period of time or for fixed periods of
up to 20 years. The Company also has agreements to undertake joint construction
with another company for new conduits in certain areas. These agreements
represent a major advantage to the Company since they permit the Company to
minimize the costly and time-consuming process of building new conduit
infrastructure where TPSA conduit infrastructure exists. As of December 31,
2001, approximately 74.3% of the Company's cable television plant had been
constructed utilizing pre-existing conduits of TPSA. A substantial portion of
the Company's contracts with TPSA allow for termination by TPSA without penalty
at any time either immediately upon the occurrence of certain conditions or upon
provision of three to six months' notice without cause.

Generally speaking, TPSA may terminate a conduit agreement immediately (and
without penalty) if:

- the Company does not have a valid permit from the Chairman of the Office
for Telecommunication Regulation ("URT") (which replaced the Polish State
Agency of Radio Communications as of January 1, 2001) authorizing the
construction and operation of a cable television network in a specified
geographic area covering the subscribers to which the conduit delivers the
signal;

- the Company's cable network serviced by the conduit does not meet the
technical specifications required by the New Telecommunication Law
(formerly the Polish Telecommunication Act of 1990);

- the Company does not have a contract with the cooperative authority
allowing for the installation of the cable network; or

- the Company does not pay the rent required under the conduit agreement.

The Company is in compliance with all of the material conditions of the TPSA
agreements. However, any termination by TPSA of such contracts could result in
the Company losing its permits, termination of agreements with cooperative
authorities and programmers, and an inability to service customers with respect
to areas where its networks utilize the conduits that were the subject of such
TPSA contracts.

In addition, some conduit agreements with TPSA provide that cables can be
installed in the conduit only for the use of cable television. If the Company
uses the cables for a purpose other than

11

cable television, such as data transmission, telephone, or Internet access, such
use could be considered a violation of the terms of certain conduit agreements,
unless this use is expressly authorized by TPSA. There is no guarantee that TPSA
would give its approval to permit other uses of the conduits. Since the fourth
quarter of the 2000, the Company has been providing Internet services to its
cable customers and renegotiating certain conduit agreements with TPSA. The
Company believes that it is not in material violation of any of its conduit
agreements with TPSA.

D-DTH

As part of the Canal+ merger, which was consummated on December 7, 2001, the
Company merged its existing D-DTH business with TKP's D-DTH and premium pay
television business to distribute D-DTH services and programming to subscribers
in Poland through TKP. Prior to the Canal+ merger the Company's multi-channel
Polish-language D-DTH service, was broadcast to Poland from its transmission
facilities in Maidstone, U.K. The programming provided was the Wizja TV
programming package, consisting of proprietary and third party channels. During
2001, as part of the Company's revised business strategy, the Company decided to
discontinue its D-DTH business and, in connection with the Canal+ merger, the
Company contributed its U.K. and Polish assets relating to the D-DTH business to
TKP.

From January 1, 2001 to December 7, 2001, the D-DTH segment earned
$55.7 million, or 40.2%, of the Company's total revenues for fiscal year 2001.
This compares to $51.2 million, or 38.4%, of the Company's revenues in fiscal
year 2000. Net loss of $168.0 million was attributable to the D-DTH segment for
fiscal year 2001 as opposed to $74.4 million in fiscal year 2000. Assets valued
at $320.2 million were attributable to the D-DTH segment at December 7, 2001.

SERVICES AND FEES

Prior to the Canal+ merger, the Company charged its D-DTH subscribers a
monthly fee of approximately $13 for all channels (other than any premium
channels). Subscribers to the Company's premium channels paid $5 per month for
the HBO Poland service or Wizja Sport (although Wizja Sport was expanded into
the basic package as of March 24, 2001).

TECHNOLOGY AND INFRASTRUCTURE

The Company's D-DTH service was encoded, processed, compressed, encrypted,
multiplexed (i.e., combined with other channels), modulated (i.e., applied to
the designated carrier frequency for transmission to satellite) and broadcast
from Maidstone, U.K. to Astra satellites in geosynchronous orbits ("uplinked").
The satellites received, converted and amplified the digital signals and
retransmitted them to earth in a manner that allowed individual subscribers to
receive and be billed for the particular program services to which they
subscribe.

TRANSMISSION AND UPLINK FACILITIES. The channels available on the Company's
D-DTH service included the Company's own proprietary channels and channels from
third parties originating from a number of sources in Poland, the U.K. and
elsewhere. Most of the tailoring of programs for the local market
("localization") undertaken by the Company, which principally consisted of
adding voice or dubbing into Polish for the Company's proprietary channels,
occured in Poland. For most of the channels, localization, editorial control and
program packaging were the responsibility and at the cost of the channel
supplier. The channels provided by third parties were delivered in tape format,
through a landline or were backhauled (i.e., transmitted via satellite or other
medium) to the Company's transmission facility in Maidstone for broadcasting to
Poland.

The Company had a contract with British Telecommunications plc ("BT") for
the provision and maintenance of uplink equipment at Maidstone. Other than the
BT uplink equipment, the Company

12

owned all the required broadcasting equipment at its facility in Maidstone. The
Company's programming was transmitted to the Company's transponders on Astra 1F
and 1G.

The Company's D-DTH signal was beamed by these satellites back to earth and
might be received in Poland by those who had the appropriate dedicated satellite
reception equipment and who had been connected by the Company to its D-DTH
service as subscribers. The signal was received by the Company's own cable
networks. Once the D-DTH signal has been received at the cable networks, the
signal is transmitted by cable to those who have been connected by the Company
to its cable service as subscribers.

Philips provided the following critical components and services used in the
Company's D-DTH satellite transmission system and was the primary point of
contact for subscribers to the Company's D-DTH service:

- the Philips' digital integrated receiver decoders ("IRDs");

- a smartcard-based proprietary conditional access system which uses Philips
CryptoWorks-Registered Trademark- technology;

- a satellite receiving dish and related equipment;

- installation; and

- support services.

The Company's agreement with Philips provided for the following:

- Philips was the exclusive supplier of the first 500,000 D-DTH reception
systems in connection with the launch of the Company's D-DTH business in
Poland.

- Philips had granted the Company an exclusive license of its
CryptoWorks-Registered Trademark- technology in Poland for the term of the
agreement, which may be terminated or renegotiated when the Company has
purchased 500,000 D-DTH reception systems from Philips.

The Company had purchased more than 500,000 D-DTH reception systems from
Philips by the end of 2000. As part of the Canal+ merger, TKP assumed the
obligations relating to the Company's agreement with Philips.

SATELLITES. The Company broadcast all of its proprietary programming and
most of its third party programming from its transmission facility in the U.K.
by cable to an earth station transmitting antenna, located at its Maidstone
site. The uplink facility transmitted the Company's programming signal via 4
Astra transponders to the cable system receiving antenna and also to D-DTH
subscribers' reception equipment throughout Poland.

D-DTH ASSETS IN CANAL+ MERGER

In connection with the Canal+ merger, the rights and obligations relating to
all four Astra transponders were assigned to TKP.

TKP also assumed the rights and obligations relating to the Company's
agreement with Philips. In addition, the Company's agreement with BT for the
provision and maintenance of uplink equipment was assigned to TKP in connection
with the Canal+ merger.

PROGRAMMING

The principal objective of the Company's programming business was to
develop, acquire and distribute high-quality Polish-language programming that
could be commercially exploited throughout Poland through D-DTH and cable
television exhibition and to develop and maximize advertising sales.

13

The Company, both directly and through joint ventures, produced television
programming for distribution. The Company developed a multi-channel Polish
platform under the brand name Wizja TV. Prior to the Canal+ merger, Wizja TV's
channel line-up included two channels, Wizja Pogoda and Wizja Sport, that were
owned and operated by the Company, and 35 channels that were produced by third
parties, 8 of which were broadcast under exclusive agreements for pay television
in Poland.

In 2001, as part of the Company's revised business strategy to reduce costs,
the Company decided to discontinue its programming business. In particular, the
Company discontinued the development of its proprietary programming, such as
Wizja Jeden, which was terminated in April 2001, Wizja Sport which was
terminated in December 2001, and Wizja Pogoda which was terminated in
February 2002. The Company's transmission and uplink facilities in Maidstone UK
were contributed to TKP in connection with the Canal+ merger, and programming
agreements relating to the Company's D-DTH business were also assigned to TKP in
connection with the Canal+ merger.

From January 1, 2001 to December 7, 2001, the programming segment had
revenues of $5.9 million, or 4.3%, of the Company's total revenues for fiscal
year 2001. This compares to $13.6 million, or 10.1%, of the Company's revenues
in fiscal year 2000. Net loss of $340.5 million was attributable to the
programming segment for fiscal year 2001 as opposed to $88.0 million in fiscal
year 2000.

WIZJA TV PROGRAMMING PACKAGE

Although the Wizja TV programming package was discontinued, the Wizja TV
programming package had consisted of proprietary and third party channels for
distribution on both the Company's D-DTH and cable networks in Poland. At the
time of the Canal+ merger, the Company had purchased exclusive rights from third
parties on 8 of the 35 channels on Wizja TV. On December 31, 2001, the Company
was committed to pay approximately $132.2 million in guaranteed minimum payments
in respect of broadcasting and programming, of which approximately
$22.2 million was committed through the end of 2002. As of December 31, 2001,
the Company continues to provide its cable customers with all the channels which
are part of these minimum guarantees.

In connection with the Canal+ merger, TKP agreed to assume the programming
rights and obligations that directly relate to the Company's D-DTH business and
to assume the Company's obligations under certain guarantees relating to the
Company's D-DTH business. Accordingly, in addition to its guaranteed minimum
payment obligations set forth above, the Company remains contingently liable for
performance under those assigned contracts. As of December 31, 2001, management
estimates its potential exposure under these assigned contracts to be
approximately $70.1 million.

To the extent that mimumum guarantees applied to both the D-DTH business and
cable business, TKP agreed to bear 30% of the costs resulting from those minimum
guarantees and the Company agreed to bear 70% of such costs based on the ratio
of cable to D-DTH subscribers.

THIRD PARTY CHANNELS

In connection with the Canal+ merger, TKP and the Company are in the process
of renegotiating the Company's third party channel agreements in order to
separate the rights and obligations relating to D-DTH from those relating to
cable television. In particular, TKP will assume the rights and obligations
relating to distribution agreements of third party channels over the D-DTH
system and the Company will maintain rights and obligations relating to the
distribution agreements of third party channels over its cable networks. To the
extent that the programming agreements are not transferable, do not directly
relate to the Company's D-DTH business, or are not renegotiated or terminated,
the Company has agreed to continue to provide TKP with certain benefits under
those agreements,

14

including obligations to provide uplink services and deliver broadcast signals
to the D-DTH network on behalf of certain third parties.

PROPRIETARY PROGRAMMING

Wizja TV contained three channels, Wizja Jeden, Wizja Pogoda and Wizja
Sport, that were owned and operated by the Company. In an attempt to reduce
costs, the Company discontinued Wizja Jeden, a general entertainment channel, in
April 2001 and Wizja Sport, a sports channel, in December 2001, and Wizja
Pogoda, a weather channel, in February 2002.

PROGRAMMING FOR CABLE NETWORK

As a result of the Canal+ merger, the Company has renegotiated or is in the
process of renegotiating contracts with certain third party channel providers,
in an effort to reduce costs, strengthen its cable programming offerings by
terminating certain agreements for poorly performing channels and entering into
other agreements for popular channels based on consumer demand and preferences.

The Company has distributed Canal+ on a non-exclusive basis on some of its
cable networks since October 1995. In connection with the Canal+ merger, as of
February 14, 2002, the Company began distributing three Canal+ premium channels
("Canal+ Multiplex"), a mixture of premium movies, premium sports and general
entertainment, more broadly to the Company's cable subscribers.

The Company continues to distribute across its cable networks the HBO Poland
service, a Polish-language premium movie channel owned in part by Home Box
Office. HBO currently has exclusive rights in Poland to movies from Warner
Bros., Columbia TriStar International Television and Buena Vista. The HBO Poland
and the Canal+ Multiplex services allow subscribers to select movies on a
pay-per-view basis from major U.S. and European film studios.

COMPETITION

The cable television industry in Poland has been, and is expected to remain,
highly competitive. The Company competes with other cable television operators,
as well as with companies employing numerous other methods of delivering
television signals to subscribers, such as by terrestrial broadcast television
signals, multi-channel multi-point distribution systems and D-DTH services. The
extent to which the Company's services are competitive with alternative delivery
systems depends, in part, upon the Company's ability to provide a greater
variety of Polish-language programming at a more reasonable price than the
programming and prices available through alternative delivery systems.

Pay television services also face competition from a variety of other
sources of news, information and entertainment such as newspapers, cinemas, live
sporting events, interactive computer programs and home video products such as
videocassette recorders. The extent of this type of competition depends upon,
among other things, the price, variety and quality of programming offered by pay
television services and the popularity of television itself.

In the cable television industry, the Company believes that competition for
subscribers is primarily based on price, program offerings, customer service,
ability to provide additional services such as Internet and quality and
reliability of cable networks.

15

Operators of small cable networks, which are active throughout Poland, pose
a competitive threat to the Company because they often incur lower capital
expenditures and operating costs and therefore have the ability to charge lower
fees to subscribers than does the Company. While these operators often do not
meet the technical standards for cable systems under Polish law, enforcement of
regulations governing technical standards has historically been poor. Regardless
of the enforcement of these laws and regulations, the Company expects that
operators of small cable networks will continue to remain a competitive force in
Poland.

During the forth quarter of the 2000, the Company began to provide Internet
services to its customers. The Company's main competitors in this area are
telephony operators like TPSA and other cable television operators. The
Company's competitors or their affiliates have significant resources, both
financial and technological.

PIRACY

The Company views piracy of satellite and cable services as one of its main
problems in Poland, not unlike other Central European cable and satellite
operators. While there has historically been little enforcement of penalties
against commercial exploitation of piracy, the issue is now receiving more
attention from the Polish government. In addition, the Company and Canal+, as
part of the Canal+ merger, agreed to intensify their efforts to reduce the
piracy of cable and satellite signals as well as to combine their lobbying
efforts in this regard.

TRADEMARKS

The Company, either itself, through its subsidiaries or UPC, has filed or is
in the process of filing for registration of its various trademarks. The PTK
logo was registered for use in connection with television and programming
services in July 1997. Variations of PTK, have been registered in Poland. Also,
numerous trademark applications have been filed in Poland for the various other
trademarks. As part of the Company's revised business strategy, all Wizja
related trademarks have been transferred or terminated. Trademarks for UPC have
been registered internationally.

EMPLOYEES

At December 31, 2001, the Company had approximately 1,262 full-time
employees and approximately 81 part-time employees. In addition, as of
December 31, 2001, the Company employed approximately 112 salespersons, some of
whom receive both commissions and a nominal salary. From time to time the
Company employs additional salespersons on an as needed, commission only basis.
In a division of one of the Company's subsidiaries, a trade union, which has
approximately 3 members, was formed in mid-1999. The Company believes that its
relations with its employees are good.

REGULATION

The Company is subject to regulation in Poland and the European Union

GENERAL

In connection with negotiating its membership in the EU, Poland has started
to adjust its legal system to EU requirements and is still in the process of
revising its telecommunications, broadcasting and copyright regulation. On
July 21, 2000, the Polish Parliament passed the New Telecommunications Law (the
"NTL") which changed the regulatory framework of telecommunications activities
in Poland. The NTL replaced the Communications Act of 1990 (the "Communications
Act") and became effective as of January 1, 2001.

16

Until the end of the year 2000, the operation of cable television systems
was regulated primarily by the Communications Act. As of January 1, 2001, the
operation of those television systems has been regulated by the NTL. Operators
are also subject to the provisions of the Polish Radio and Television Act of
1992 (the "Television Act").

Currently the Polish telecommunications and media sector is regulated by:

- The Polish Minister of Infrastructure (who as of July 24, 2001, assumed
certain responsibilities of the Minister of Communications);

- The Chairman of the Office for Telecommunications Regulation ("URT")
(which replaced the Polish State Agency of Radiocommunications ("PAR"),
established under the Communications Act); and

- The Polish National Radio and Television Council (the "Council").

Cable television operators in Poland are required to obtain permits from the
Chairman of the URT to operate public radio and television networks and must
register certain programming that they transmit over their networks with the
Council.

Neither the Minister of Infrastructure nor the Chairman of the URT currently
has the authority to regulate the rates charged by operators of cable television
services. However, excessive rates could be challenged by the Polish
Anti-Monopoly Office should they be deemed to constitute monopolistic or other
anti-competitive practices. The cable television operators in Poland are also
subject to the Law on Copyright and Neighboring Rights of 1994 (the "Copyright
Act") which provides intellectual property rights protection to authors and
producers of programming. Under the terms of the Television Act, broadcasters in
Poland are regulated by, and must obtain a broadcasting license from, the
Council.

COMMUNICATIONS ACT

PERMITS. Until the end of the year 2000, the cable television operators
were required to obtain permits from PAR to install and operate cable television
systems. The Communications Act and the required permits issued by PAR had set
forth the terms and conditions for providing cable television services.

If a cable operator breached the terms of its permits or the provisions of
the Communications Act, or if such operator has failed to acquire permits
covering areas serviced by its networks, PAR could impose penalties on such
operator, including:

- fines;

- the revocation of all permits covering the cable networks where such
breach occurred; and

- the forfeiture of the cable operator's cable networks.

In addition, the Communications Act provided that PAR may not grant a new
permit to, or renew an expiring permit held by, any applicant that has had, or
that was controlled by an entity that has had, a permit revoked within the
previous five years.

On July 26, 2000, the Polish Ministry of Telecommunication issued a 15-year
data transmission license to a subsidiary of the Company, authorizing that
company to provide data transmission service to its customers throughout the
territory of Poland, using its own networks and those leased from other licensed
operators. This license allowed that subsidiary to provide Internet services to
its customers. This license expired automatically with the entry of the NTL into
force, i.e. as of January 1, 2001. The subsidiary may continue the provision of
the services covered by the license. It was required, however, to notify the
Chairman of the URT about the provision of the data transmission services by the
end of March 2001, as described below. In certain cases listed below, the
Chairman of the URT may object to

17

the provision of the services by the subsidiary. In March 2001, the Company's
subsidiary notified the Chairman of the URT of its activities concerning the
provision of data transmission services and access to Internet. The Chairman had
21 days to respond to the Company's notification. Since no response was received
from the Chairman of URT, it is assumed that the Company is legally entitled to
provide the data transmission services and access to the Internet as described
in the notification.

As of December 31, 2001, approximately 74.3% of the Company's cable plant
runs through conduits leased from TPSA. If the Company uses the cables for a
purpose other than cable television, such as data transmission, telephone, or
Internet access, such use could be considered a violation of the terms of
certain conduit agreements, unless this use is expressly authorized by TPSA.
There is no guarantee that TPSA would give its approval to permit other uses of
the conduits. Since the fourth quarter of fiscal year 2000, the Company has been
introducing Internet services to its cable customers and renegotiating certain
conduit agreements with TPSA.

Specifically, subsidiaries of the Company have received approximately 92
permits from PAR, covering all of the Company's basic subscribers at
December 31, 2001, including subscribers for whom the Company's permits are
deemed extended under Polish law pending the authority's response to the
Company's permit renewal applications.

FOREIGN OWNERSHIP RESTRICTIONS. Until January 1, 2001, the Communications
Act was in effect. It provided that permits could only be issued to and held by
Polish citizens, or companies in which foreign persons held no more than 49% of
the share capital, ownership interests and voting rights. In addition, under the
Communications Act, a majority of the management and supervisory board of any
cable television operator holding permits was required to be comprised of Polish
citizens resident in Poland. These restrictions did not apply to any permits
issued prior to July 7, 1995.

NEW TELECOMMUNICATION LAW

Since January 1, 2001, the operation of cable and other television systems
in Poland has been regulated under the NTL, which replaced the Communications
Act.

The NTL changes the licensing regime and the competency of telecommunication
authorities. The NTL introduces a new authority--the Chairman of the URT. The
Chairman of the URT has assumed most of the administration tasks previously
performed by the Polish Minister of Communications and PAR. The Chairman of the
URT is responsible for regulating telecommunication activities, including
exercising control over operators and managing frequencies. The duties of the
Minister of Infrastructure are limited primarily to issuing secondary
regulations. PAR along with the Polish State Telecommunications and Postal
Inspection (PITiP) were liquidated as of January 1, 2001.

Under the NTL, cable television operators are required to obtain a permit
from the Chairman of the URT to operate public radio and television networks.
The Chairman of the URT shall grant the permit to any interested entity
authorized to do business in Poland and which complies with the conditions set
forth in the NTL. Applications for renewals of permits may be refused only if
during the validity of the permit there have been circumstances justifying the
refusal, revocation or limitation of the scope of the permit.

Under the NTL, an NTL permit must be revoked if:

- a final court order prohibits the operator from conducting the business
covered by the permit;

- the operator fails to meet the legal requirements for the grant of the
permit;

- the operator has failed to remedy a violation of the law within the
designated time limit; or

- the launching of business activity covered by the application causes a
threat to national defense, national security or public safety and order.

18

Also, if the Chairman of the URT has not raised objections against the
notification of telecommunication activity, he can make objections during the
course of the performance of the telecommunications activity (for which the
notification was required), if:

- the operator violates the provisions of the NTL and has not remedied the
irregularities within the period of time specified in a decision issued by
the Chairman of the URT, or

- the performance of business activity causes a threat to national defense,
national security or public safety and order.

The NTL permit may be revoked, if the operator breaches the provisions of
the NTL, the permit or other decisions issued under the NTL in any way, does not
pay the required fees, or a decision on the liquidation or declaration of
bankruptcy of the operator has been made.

Except for the operation of radio and television networks and public
telephone networks, the performance of all other telecommunications activities
requires only notification to the Chairman of the URT. The Chairman of the URT
may disallow the performance of such activities within 21 days of the receipt of
the notification if:

- the notification violates the NTL;

- the notification is incomplete; or

- the information provided in the notification is false.

Permits issued under the Communications Act are automatically transformed
into NTL permits, if such permits are still required under the NTL. Thus, the
permits for the installation and operation of cable television systems, granted
to the Company's subsidiaries became NTL permits. This rule does not apply to
the provisions of the permits issued under the Communications Act, the exercise
of which would constitute a violation of the NTL. All other licences,
authorizations and assignments expired by force of the law as of January 1,
2001.

Operators who had obtained rights expiring automatically under the NTL may
continue their telecommunications activities within their current scope,
provided that they apply for NTL permits by the end of 2001, if these activities
require an NTL permit. For telecommunications activities that only require
notification, such as data transmission, operators may continue to provide these
services, provided that they notify the Chairman of the URT by the end of
March 2001, and the Chairman does not object.

The Company is in the process of obtaining permits from the Chairman of the
Office for Telecommunication Regulation ("URT") for several of its cable
television systems. If these permits are not obtained, URT could impose
penalties such as fines or in severe cases, revocation of all permits held by an
operator or the forfeiture of the operator's cable networks. Management of the
Company does not believe that these pending approvals result in a significant
risk to the Company.

The NTL has eliminated most of the foreign ownership restrictions relating
to telecommunications. However, the NTL does prohibit the provision of
international telecommunications services using networks operated by foreign
entities or companies with participation of foreign entities until December 31,
2002. Until this date, UPC Telewizja Kablowa Sp. z o.o. ("UPC TK") will be
subject to this restriction. UPC TK may, however, provide international
telecommunication services using the networks of other authorized Polish
operators. It may also provide these services, with the exception of
international telephony services, by using its own radio communication networks.
Such services may, until December 31, 2002, only be provided by TPSA.

Under the NTL, all operators are required to make their networks available
to users who intend to commercially gather, process, storage, use or grant
access to information for others.

19

Operators that perform their activities on the basis of an NTL permit are
required to allow other operators operating public networks to use their
buildings, lines, conduits, poles, towers and masts, in particular, allowing
them to use telecommunications equipment, where these activities would be
impossible without such infrastructure sharing or would involve a significant
cost. Operators are required to specify the conditions of the joint use in an
agreement. If the parties cannot agree to specific conditions, either party may
request the Chairman of the URT to issue a decision on joint use.

TELEVISION ACT

THE POLISH NATIONAL RADIO AND TELEVISION COUNCIL. The Council, an
independent agency of the Polish government, was created under the Television
Act to regulate broadcasting in Poland. The Council has regulatory authority
over both the programming that cable television operators transmit over their
networks and the broadcasting operations of broadcasters.

REGISTRATION OF PROGRAMMING. Under the Television Act, cable television
operators must register each channel and the programming, which will be aired on
that channel with the Chairman of the Council prior to transmission. The
Company's subsidiaries have registered most of the programming that they
transmit on their cable networks, except programming transmitted on networks for
which they do not have permits. The Chairman of the Council may revoke the
registration of any of the Company's programming, or may not register all
additional programming that the Company desires to transmit over the Company's
networks. In addition, the Council may take action regarding unregistered
programming that the Company transmits over cable networks for which the Company
does not yet have NTL permits. This pertains to areas for which permit
applications cannot be made until all permit requirements are satisfied
(including obtaining agreements with the cooperative authorities, upgrading of
the acquired networks to meet technical standards where necessary and satisfying
foreign ownership limitations). Such actions could include the levying of
monetary fines against the Company, and the seizure of equipment involved in
transmitting such unregistered programming as well as criminal sanctions against
the Company's subsidiaries' management. These actions could have a material
adverse effect on the Company's business, financial condition and results of
operations.

COPYRIGHT PROTECTION

Television operators, including cable operators, in Poland are subject to
the provisions of the Polish Copyright Act, which governs the enforcement of
intellectual property rights. In general, the holder of a Polish copyright for a
program transmitted over the cable networks of a cable television operator has a
right to receive compensation from such operator or to prevent transmission of
the program.

The rights of Polish copyright holders are generally enforced by
organizations for collective copyright administration and protection such as
Zwiazek Autorow i Kompozytorow Scenicznych ("ZAIKS") and Zwiazek Artystow Scen
Polskich ("ZASP"), and can also be enforced by the holders themselves. Most of
the Company's cable subsidiaries operate under a contract with ZASP and all of
its cable subsidiaries operate under a contract with ZAIKS. A violation of the
Copyright Act by a cable television operator also constitutes a violation of the
NTL and of the operator's permits. See "--Television Act" for a discussion of
the penalties and consequences associated with violations of the Television Act
and "--New Telecommunications Law" for a discussion of the penalties and
consequences associated with violations of the Communications Act or the New
Telecommunications Law and of a television operator's permits.

ANTI-MONOPOLY ACT

EXCLUSIVE PROGRAMMING AGREEMENTS. Some of the programming agreements that
the Company has entered into for its cable networks and its D-DTH service
contain exclusivity clauses which restrict or prohibit the provider of such
programming from providing such programming to other cable or D-DTH

20

operators. Although such exclusivity clauses are not specifically prohibited
under the Anti-Monopoly Act, such agreements may be found unlawful, and
therefore unenforceable, if they restrict or hinder competition or otherwise
involve the abuse of a dominant position. A decision by the Anti-Monopoly Office
to deem one or more of these programming agreements as void due to the fact that
it contains an illegal exclusivity clause could have a material adverse effect
on the Company's business and financial results in that such a decision would
potentially reduce the commercial value of these contracts and could reduce the
consumer of appeal of the programming offered on the Company's cable networks.

MARKET DOMINANCE. Companies that obtain control of 40% or more of the
relevant market and do not encounter significant competition may be deemed to
have market dominance, and therefore face greater scrutiny from the
Anti-Monopoly Office.

From time to time, the Company receives inquiries from and are subject to
review by various divisions of the Anti-Monopoly Office.

ANTI-MONOPOLY PROCEEDINGS PENDING IN THE SUPREME COURT WITH RESPECT TO THE
COMPANY AND ITS SUBSIDIARIES.

The Anti-Monopoly Office issued a decision that the Company's subsidiary had
achieved a dominant position and abused that dominant position by: (1) failing
to create a uniform system for customer complaints, (2) increasing rates without
providing subscribers a detailed basis for the price increases, and (3) changing
the programming line-up without sufficient notice to subscribers. The Anti-
Monopoly Office did not impose a fine in connection with its decision. The
subsidiary appealed both the finding of dominance and the finding that it acted
improperly in its relations with subscribers. On appeal, the Anti-Monopoly Court
agreed with the Company's position and overturned the Anti-Monopoly Office's
decision. The Anti-Monopoly Office is appealing the Anti-Monopoly Court's
decision to the Supreme Court, which has accepted the appeal.

In another market, the Anti-Monopoly Office issued a decision that another
subsidiary of the Company had achieved a dominant position and abused that
dominant position by: (1) increasing rates without providing subscribers a
detailed basis for the price increases; and (2) changing the programming
line-up. The Anti-Monopoly Office imposed a fine of 50,000 zloty (the equivalent
of approximately $12,500). The subsidiary appealed both the finding of dominance
and the finding that it acted improperly in its relations with subscribers. The
Anti-Monopoly Court agreed with the decision of the Anti-Monopoly Office. The
subsidiary is appealing the Anti-Monopoly Court's decision to the Supreme Court.
The appeal has not yet been accepted by the Supreme Court.

In another market, the Anti-Monopoly Office issued a decision that another
subsidiary of the Company had achieved a dominant position and abused that
dominant position by: (1) changing the programming offer to force subscribers
into more expensive packages; and (2) infringing the consumer rights of
subscribers by failing to process customer complaints. The Anti-Monopoly Office
imposed a fine of 20,000 zloty (the equivalent of approximately $5,000). The
subsidiary appealed both the finding of dominance and the finding that it acted
improperly in its relation with subscribers. The Anti-Monopoly Court agreed with
the decision of the Anti-Monopoly Office. The subsidiary is appealing the
Anti-Monopoly Court's decision to the Supreme Court. The appeal has not yet been
accepted by the Supreme Court.

UNITED KINGDOM

BROADCASTING REGULATION

Most of the channels provided as part of the Company's D-DTH service were
regulated by U.K. authorities (primarily the Independent Television Commission)
as satellite television services ("STS").

21

Under the U.K. Broadcasting Act 1990 (the "Broadcasting Act") (as amended),
satellite broadcasters established in the U.K. are required to obtain an STS
license. UPC Broadcast Centre received an STS license for Wizja Jeden
(discontinued as of April 2001), Wizja Sport (discontinued as of December 31,
2001), and Wizja Pogoda (discontinued as of February 28, 2002). For most of the
other channels on Wizja TV, the relevant channel supplier was required to obtain
an STS license from the Independent Television Commission or another competent
authority.

EUROPEAN UNION

BROADCASTING REGULATION

1989 EUROPEAN CONVENTION ON TRANSFRONTIER TELEVISION. The 1989 European
Convention on Transfrontier Television is a primary source of European
regulation affecting television broadcasting in Europe. The 1989 European
Convention on Transfrontier Television is effective in those countries which
have ratified it. Poland has ratified the 1989 European Convention on
Transfrontier Television. The 1989 European Convention on Transfrontier
Television currently provides that the country in which a broadcaster transmits
its programming to the satellite (or, if this is not the case, the country which
grants the broadcast frequency or satellite capacity to the broadcaster) has
jurisdiction over that broadcaster. The 1989 European Convention on
Transfrontier Television does not contain any requirements or restrictions
regarding foreign ownership of broadcasters.

A change to the 1989 European Convention on Transfrontier Television was
agreed on September 9, 1998. This amendment would have been effective if and
when all member states have signed the amendment or automatically on October 1,
2000, unless a member state objects to such amendment coming into force.
Following the France objection this amendment has not yet entered into force.
This amendment, if it becomes effective, would have three significant effects:

- First, it would provide that a broadcaster should be regulated primarily
by the country in which the broadcaster is established.

- Second, this amendment would provide that when a broadcaster engages in
conduct that constitutes an "abuse of rights", the broadcaster would
become subject to the laws of the country of reception. Under this
amendment, an "abuse of rights" would occur when a broadcaster's channel
is wholly or principally directed at a country, other than that where it
is established, for the purpose of evading the laws of that country in the
areas covered by the 1989 European Convention on Transfrontier Television.

- Third, this amendment would allow parties to the 1989 European Convention
on Transfrontier Television to designate that certain important events
(e.g., major sporting events) cannot be broadcast exclusively by a single
television station so as to deprive a large proportion of the public of
that 1989 European Convention on Transfrontier Television country from
seeing the event live or on a deferred coverage basis on free (broadcast)
television, and also to ensure that broadcasters under the jurisdiction of
one 1989 European Convention on Transfrontier Television country cannot
purchase exclusive rights to major events specified by another 1989
European Convention on Transfrontier Television country which would
deprive a large proportion of the public in such member countries of the
1989 European Convention on Transfrontier Television from seeing the
specified event on a live or deferred coverage basis on free (broadcast)
television. (If this amendment becomes effective and if it were applied to
the Polish pay television rights to certain sporting events purchased on
an exclusive basis by us, the Company may lose the right to broadcast such
events in Poland on an exclusive basis and may not be able to acquire the
exclusive Polish pay television rights to such events and to similar
events in the future.)

22

The 1989 European Convention on Transfrontier Television provides that where
a broadcaster under the jurisdiction of one member country of the 1989 European
Convention on Transfrontier Television transmits advertisements which are
directed specifically at audiences in another member country of the 1989
European Convention on Transfrontier Television, such advertisements must comply
with the advertising rules of the receiving member state. This rule requires
that advertisements inserted in the channels the Company distributes comply with
both Polish advertising rules as well as the rules applicable in the
jurisdiction in which the broadcaster is licensed.

REGULATION OF COMPETITION

EC competition law governs agreements which prevent, restrict or distort
competition and prohibits the abuse of dominant market positions through
Articles 81 and 82 of the EC Treaty.

Article 81 (1) renders unlawful agreements and concerted practices which may
affect trade between member states and which have as their object or effect the
prevention, restriction or distortion of competition within the member states of
the European Community/European Economic Area. Article 81 (2) voids the
offending provision or the entire agreement, if the offending parts are not
severable. Article 81 (3) allows for exemption from the provisions of Articles
81 (1) and 81 (2) for agreements whose beneficial effects in improving
production or distribution or promoting technical or economic progress outweigh
their restrictive effects, provided that consumers receive a fair share of the
benefit, that competition will not be eliminated and that no unnecessary
restrictions are accepted. Such an exemption may only be granted by the European
Commission. Article 82 prohibits undertakings from abuse of a dominant market
position in the EC or a substantial part of it, in so far as the abuse may
affect trade between member states. A company may be dominant in several member
states or part of a single member state. A company enjoys a dominant position
whenever it possesses such market strength that it can act to an appreciable
extent independently of its competitors and customers. Generally speaking, a
market share of as little as 40% can raise concern that a firm may be dominant.
However, dominance is not unlawful per se; only the abuse of a dominant position
is prohibited by Article 82. Any action that is designed to, or could, seriously
injure competitors, suppliers, distributors, or consumers is likely to raise
issues under Article 82.

The European Commission has the power to fine heavily (up to 10% of a
group's annual worldwide turnover) in relation to a breach of Article 81 or in
relation to abusive conduct under Article 82. Agreements or practice that breach
these provisions will be void and unenforceable in national courts and third
parties that suffer loss as a result of a breach of Article 81 or Article 82 can
sue for damages and/or seek injunctive relief. The Company does not believe that
any of its current agreements infringe Article 81(1) or Article 82 and therefore
does not intend to bring them to the attention of the European Commission. If
the European Commission were to find the agreements infringed Article 81(1) or
Article 82, the agreements would be void and unenforceable. The parties could
also be fined and liable to damages to third parties.

POLAND'S EU MEMBERSHIP APPLICATION

In 1994 Poland made an official application for membership of the EU.
Negotiations on the terms of Poland's proposed admission to the EU commenced in
March 1998. Poland has announced 2004 as a target date for accession. If Poland
joins the EU, it would be required to implement and obey all of the laws and
regulations emanating from the European Commission, including the Television
Without Frontiers Directive and EC competition law in their then current
versions.

ITEM 2. PROPERTIES

On December 31, 2001, the Company owned equipment used for its cable
television business, including 92 headends for cable networks, and approximately
4,924 kilometers of cable plant. The

23

Company has approximately 144 lease agreements for offices, storage spaces and
land adjacent to the buildings. The total area leased amounts to approximately
28,300 square meters. The areas leased by the Company range from 3 square meters
up to 4,100 square meters. The agreements are for specified and unspecified
periods of time and those for an unspecified period may be terminated with
relatively short notice periods by either party, usually three months.

The Company has entered into conduit leases with TPSA (the Polish national
telephone company) and, in certain cases, with other entities. The majority of
the TPSA leases require the Company to bear the costs of the maintenance of the
cable. The Company may not sublease the conduit or cables or allow a third party
to use the conduits or cables free of charge without TPSA's consent. The rental
charge for the conduit is usually determined on each 100 meters of conduit
occupied. The agreements also contain indexation clauses for rent adjustment
purposes (based on the change of U.S. dollar exchange rates or on the increase
of real maintenance costs). A substantial portion of the Company's contracts
with TPSA for the use of such conduits permit termination by TPSA without
penalty at any time either immediately upon the occurrence of certain conditions
or upon provision of three to six months' notice without cause. Any termination
by TPSA of such contracts could result in the Company losing its permits, the
termination of agreements with cooperative authorities and programmers, and an
inability to service customers with respect to the areas where its networks
utilize the conduits that were the subject of such TPSA contracts. The Company
and its subsidiaries are in compliance with all material provisions of TPSA
contracts. For a list of the reasons for which TPSA can terminate a conduit
agreement, the proportion of the Company's cable subscribers serviced by
conduits leases subject to immediate termination and the consequences to the
Company of the loss of those conduit leases, see "Business--Cable
Television--Technology and Infrastructure."

The Company is renegotiating the five year lease that was entered into in
2000 for its head office in Warsaw. The Company's cable operations and main
headend have been located in this space since February 2001.

The Company believes that its existing owned properties, lease agreements
and conduit agreements are adequate for purposes of the Company's existing cable
television operations.

Leases to which the Company was a party that related to its programming and
D-DTH businesses have been assigned to TKP. These leases were for real property
located in the U.K. and in Poland including leases for office space and premises
providing satellite receiving, production, post-production and program packaging
facilities.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which the Company
is currently involved, individually and in the aggregate, is not material to the
Company's business, financial condition or results of operations.

Minority shareholders of PCBV (representing approximately 6% of the shares
of PCBV, hereinafter the "Reece Group") asserted claims against the past and
present directors or officers of, or members of the Board of Managers of, PCI,
PCBV and the Company or one or more controlling shareholders of the Company.

The claims by the Reece Group consist of allegations previously made by
Reece Communications, Inc. ("RCI"). RCI's allegations were premised on, among
other things, alleged acts, errors, omissions, misstatements, misleading
statements or breaches of duty by the aforementioned officers, directors, or
controlling shareholders. The Company negotiated a settlement of those claims
and a simultaneous purchase of the Reece Group's PCBV shares, as well as the
purchase of all other shares of PCBV held by other minority shareholders and a
settlement of their claims. On August 28, 2001, in exchange for the release of
claims and the transfer of all outstanding shares in PCBV held by

24

minority shareholders, the Company and/or its affiliates paid in the aggregate
approximately $3.6 million in cash at closing and issued promissory notes for
$17 million, which promissory notes accrue interest at 7% per annum and are
payable in increments over a period of 36 months in cash or UPC common stock, at
the payor's election. Although as of December 31, 2001, approximately
$17.0 million in principal amount was outstanding under these notes, as of the
date of this Annual Report filed on Form 10-K, only $10.0 million in principal
amount remains outstanding. The Company intends to repay these notes in 2002.

On November 23, 2001, an affiliate of East Services S.A. initiated an ex
parte legal action in Polish court against the Company, claiming moneys owed
pursuant to an investment services agreement dated December 2, 1997, as amended
on September 16, 1998. In connection with such claim, the Polish court entered
an injunction against closing of the Canal+ merger on December 3, 2001, which
was served on a Polish affiliate of the Company on December 4, 2001. On
December 7, 2001, the parties settled their dispute, with UPC's affiliate paying
$4.2 million as directed by the claimants and the claimants releasing the
Company from any liability whatsoever relating thereto and delivering
applications to the Polish court to have the injunction lifted. As the dispute
related to the Canal+ merger, the Company has included the $4.2 million as a
component of the loss on disposition.

Two of the Company's cable television subsidiaries, Telewizja Kablowa
Gosat-Service Sp. z o.o. and PTK S.A., and four unrelated Polish cable operators
and HBO Polska Sp. z o.o. ("HBO Polska") were made defendants in a lawsuit
instituted by Polska Korporacja Telewizyjna Sp. z o.o., an indirect
partially-owned subsidiary of Canal+. The lawsuit was filed in the Provincial
Court in Warsaw, XX Economic Division (Sad Wojewodzki w Warszawie, Wydzial XX
Gospodarczy) (the "Court"). The main defendant in the proceedings is HBO Polska
which is accused of broadcasting HBO television programming in Poland without a
license from the Polish National Radio and Television Council as required by the
Polish Television Act and thereby undertaking an activity constituting an act of
unfair competition. The plaintiff has asked the Court to order HBO Polska to
cease broadcasting of its programming in Poland until it has received a
broadcasting license from the Polish National Radio and Television Council, and
that the defendant cable operators be ordered (i) to cease carrying the HBO
Polska programming on their cable networks in Poland until HBO Polska has
received a broadcasting license from the Polish National Radio and Television
Council, (ii) not to use their current filters for the purpose of unscrambling
the HBO Polska programming, and (iii) in the future, to use effective encoding
systems and systems of controlled access to the HBO Polska programming. The
Company does not believe that the lawsuit will have a material adverse effect on
its business operations.

25

PART II

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

UPC Polska, Inc.'s common stock is owned by UPC and is not traded on any
public trading market.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

During 2001, the Company undertook a review of its long-term business
strategy. This review resulted in the elimination of its programming segment,
merger of its D-DTH business with TKP's D-DTH and premium pay television
business, with the Company retaining a 25% equity interest in TKP, and a
determination by the Company to focus on its cable operations.

The Company's revenues increased $5.1 million or 3.8% from $133.6 million
for the year ending December 31, 2000, to $138.7 million for the year ending
December 31, 2001. This increase was primarily due to appreciation of the Polish
zloty against the US dollar, as well as an increase in monthly subscription
rates and sales of programming and uplink services. The Company, however,
generated an operating loss of $185.2 million for the year ended December 31,
2001, as compared to $179.0 for the year ended December 31, 2000, primarily due
to the significant costs associated with the operation of the Company's D-DTH
and programming businesses, promotion of those businesses, the development,
production and acquisition of programming for Wizja TV and the amortization of
additional goodwill pushed down to the Company as a result of the merger of the
Company into a wholly-owned subsidiary of UPC on August 6, 1999.

On December 7, 2001, the Company merged its existing D-DTH platform with the
D-DTH and premium television business of TKP, an entity controlled and operated
by Canal+. The Company has a 25% equity interest in TKP. This transaction
resulted in the discontinuance of the Company's D-DTH and programming
businesses. For a discussion of the Company's transaction with Canal+, read
"Business--The Canal+ Merger." The Company valued its 25% interest in TKP at
$26.8 million. The total loss recognized on disposition of the Company's D-DTH
assets is $428.1 million and is comprised of:

- the value of 25% interest in TKP at $26.8 million,

- funding of loan to TKP of $26.8 million,

- proceeds from transaction of $133.4 million,

- the book value of disposed D-DTH assets of $320.2 million,

- professional fees and other expenses associated with the transaction of
$10.9 million,

- $12.8 million in costs associated with termination of the programming
agreements, and

- write-off of programming goodwill of $217.6 million.

On February 1, 2002, the Company contributed an additional 30 million Euros
(approximately $26.8 million as of December 7, 2001) to TKP in the form of a
loan, which has been included in the fair value assessment of its investment.

The Company divides operating expenses into:

- direct operating expenses,

- selling, general and administrative expenses, and

- depreciation and amortization expenses.

26

During the fiscal year ending December 31, 2001, direct operating expenses
consisted of programming expenses, maintenance and related expenses necessary to
service, maintain and operate the Company's cable systems, D-DTH operations and
programming platform, billing and collection expenses and customer service
expenses. Selling, general and administrative expenses consisted principally of
administrative costs, including office related expenses, professional fees and
salaries, wages and benefits of non-technical employees, advertising and
marketing expenses, bank fees and bad debt expense. Depreciation and
amortization expenses consisted of depreciation of property, plant and equipment
and amortization of intangible assets.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of the Company's financial condition and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions or
conditions.

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, which would potentially result in
materially different results under different assumptions and conditions. The
Company believes that its critical accounting policies are limited to those
described below. For a detailed discussion on the application of these and other
accounting policies, see Note 5 "Summary of Significant Accounting Policies" in
the notes to the consolidated financial statements.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company assesses the recoverability of a long-lived asset (mainly
property, plant and equipment, intangibles, and certain other assets) by
determining whether the carrying value of the asset can be recovered over the
remaining life of the asset through projected undiscounted future operating cash
flows, expected to be generated by such asset. If an impairment in value is
estimated to have occurred, the asset's carrying value is reduced to its
estimated fair value. The assessment of the recoverability of long-lived assets
will be impacted if estimated future operating cash flows are not achieved.
Additionally if the Company's plans or assumptions change, if its assumptions
prove inaccurate, if it consummates unanticipated investments in or acquisitions
of other companies, if it experiences unexpected costs or competitive pressures,
or if existing cash, and projected cash flow from operations prove to be
insufficient, the Company may need to impair certain of its long-lived assets.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The allowance for doubtful accounts is based upon the Company's assessment
of probable loss related to overdue accounts receivable. Upon disconnection of
the subscriber, the account is fully reserved. The allowance is maintained on
the books either until receipt of payment, or until the account is deemed
uncollectable for a maximum of three years.

REVENUE RECOGNITION

Revenue related to the provision of D-DTH, cable television and Internet
services to customers are recognized in the period in which the related services
are provided. Initial installation fees related to cable television services are
recognized as revenue in the period in which the installation occurs, to the
extent installation fees are equal to or less than direct selling costs, which
are expensed. To the extent installation fees exceed direct selling costs, the
excess fees are deferred and amortized over the average contract period. All
installation fees and related costs with respect to reconnections and
disconnections are recognized in the period in which the reconnection or
disconnection occurs because reconnection fees are charged at a level equal to
or less than related reconnection costs.

27

FOREIGN CURRENCIES

Foreign currency transactions are recorded at the exchange rate prevailing
at the date of the transactions. Assets and liabilities denominated in foreign
currencies are translated at rates of exchange at balance sheet date. Gains and
losses on foreign currency transactions are included in the consolidated
statement of operations.

The financial statements of foreign subsidiaries are translated to U.S.
dollars using (i) exchange rates in effect at period end for assets and
liabilities, and (ii) average exchange rates during the period for results of
operations. Adjustments resulting from translation of financial statements are
reflected in accumulated other comprehensive loss as a separate component of
stockholder's equity. The Company considers all of its intercompany loans to its
Polish subsidiaries to be of a long-term investment nature. As a result, any
foreign exchange gains or losses resulting from the intercompany loans are
reported in accumulated other comprehensive loss.

INVESTMENTS IN AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE EQUITY METHOD

The Company records an investment impairment charge when we believe an
investment has experienced a decline in value that is other than temporary.
Future adverse changes in market conditions or poor operating results of
underlying investments could result in an inability to recover the carrying
value of the investments that may not be reflected in an investment's current
carrying value, thereby possibly requiring an impairment charge in the future.

SEGMENT RESULTS OF OPERATIONS

During the year ended December 31, 2000, and for the eleven-month and
seven-day period ending December 7, 2001, the Company's operating activities
were divided into four business segments:

- cable television,

- D-DTH television,

- programming, and

- corporate.

As of January 1, 2002 as a result of the elimination of its programming
segment and the merger of its D-DTH business, the Company will, for management
and external reporting purposes, have one segment, cable television.

During 1999, and in prior years, the Company presented its operations in
three business segments:

- cable television,

- D-DTH and programming, and

- corporate.

However, for greater transparency, in January 2000 management decided to
separate its D-DTH and programming operations into two distinct segments.

In addition to other operating statistics, the Company measures its
financial performance by EBITDA, an acronym for earnings before interest, taxes,
depreciation and amortization. The Company defines EBITDA to be net loss
adjusted for interest and investment income, depreciation and amortization,
interest expense, foreign currency gains and losses, equity in losses of
affiliated companies, income taxes, gains and losses of fixed assets disposals,
gain and loss on disposal, impairment results, and minority interest. The items
excluded from EBITDA are significant components in understanding and assessing
the Company's financial performance. The Company believes that EBITDA and
related measures of cash flow from operating activities serve as important
financial indicators in measuring and comparing the operating performance of
media companies. EBITDA is not a U.S. GAAP measure of profit and loss or cash
flow from operations and should not be considered as an alternative to cash
flows from operations as a measure of liquidity.

28

The following table presents an aggregation of the Company's segment results
of operations for the year ended December 31, 2001, with comparative information
for the year ended December 31, 2000, the seven and five months of 1999 (as
defined below) and aggregate year ended December 31, 1999. However, the results
of D-DTH and programming segments in the 2001 cover the period from January 1,
2001 to December 7, 2001.

SEGMENT RESULTS OF OPERATIONS

The period from January 1, 1999 through August 5, 1999 and the period from
August 6, 1999 through December 31, 1999 are referred to herein as the "seven
months of 1999" and "five months of 1999", respectively. This presentation
reflects the August 6, 1999, merger of the Company into a wholly-owned
subsidiary of UPC. All other references to the period ended July 31, 1999 or
balances as of July 31, 1999 should be construed as relating to the period from
January 1, 1999 through August 5, 1999 or August 5, 1999, respectively. All
other references to the period ended December 31, 1999 should be construed as
relating to the period from August 6, 1999 through December 31, 1999.

All references to the year ended December 31, 1999 herein represent an
aggregation of the seven months of 1999 and the five months of 1999. No
adjustments have been made to the seven months of 1999 for the effect of the
August 6, 1999 merger of the Company into a wholly-owned subsidiary of UPC.

2001 COMPARED WITH 2000

CABLE SEGMENT

REVENUE. Revenue from the Company's cable operations increased
$8.3 million or 12.1% from $68.8 million for the year ended December 31, 2000,
to $77.1 million for the year ended December 31,

29

2001. This increase was primarily attributable to appreciation of the Polish
zloty against the U.S. dollar, as well as an increase in monthly subscription
rates for cable television service. Additionally, approximately $1.6 million, or
2.1%, of cable revenues for fiscal year 2001 were attributable to the Company's
Internet service offering, which was first offered in December 2000.

Revenue from monthly subscription fees as a percentage of total cable
revenue decreased 1.8% from 97.3% for the year ended December 31, 2000 to 95.5%
for the year ended December 31, 2001. During the year ended December 31, 2001,
the Company generated approximately $4.6 million in revenue from premium
services due primarily to provision of HBO Poland and Wizja Sport channels to
cable subscribers, as compared to $4.5 million for the year ended December 31,
2000 (although the Company expanded Wizja Sport into its basic package as of
March 24, 2001 and closed it as of December 31, 2001).

DIRECT OPERATING EXPENSES. Direct operating expenses increased
$5.5 million, or 12.2%, from $45.1 million for the year ended December 31, 2000,
to $50.6 million for the year ended December 31, 2001, principally as a result
of an increase in programming related expenses. Direct operating expenses
remained constant at 65.6% of revenues for the years ended December 31, 2000 and
2001. Excluding the intersegment charge for Wizja TV programming package, direct
operating expenses as a percentage of revenue would have been 30.0% and 33.3%
for the years ended December 31, 2000 and 2001, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.3 million, or 10.2%, from $22.5 million for
the year ended December 31, 2000 to $24.8 million for the year ended
December 31, 2001, principally as a result of increases in administrative
expenses such as costs associated with billing customers and information system
costs related to the Company's information technology department. Selling,
general and administrative expenses decreased from 32.7% of revenues for the
year ended December 31, 2000 to 32.2% for the year ended December 31, 2001.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$9.0 million, or 19.7%, from $45.8 million for the year ended December 31, 2000,
to $54.8 million for the year ended December 31, 2001, principally as a result
of the continued build-out of the Company's cable networks. Depreciation and
amortization expense as a percentage of revenues increased from 66.6% for the
year ended December 31, 2000 to 71.1% for the year ended December 31, 2001.

OPERATING LOSS. Each of these factors contributed to an operating loss for
the cable segment of $53.1 million for the year ended December 31, 2001,
compared to an operating loss of $44.6 million for the year ended December 31,
2000.

D-DTH SEGMENT

Given the disposition of the D-DTH assets on December 7, 2001, the results
presented below refer to the period from January 1, 2001 to December 7, 2001.

REVENUE. D-DTH revenue increased $4.5 million or 8.8% from $51.2 million
for the year ended December 31, 2000 to $55.7 million for the period through
December 7, 2001. This increase is primarily due to the appreciation of the
Polish zloty against the U.S. dollar.

DIRECT OPERATING EXPENSES. Direct operating expenses increased
$10.5 million or 28.1% from $37.4 million for the year ended December 31, 2000,
to $47.9 million for the year ended December 31, 2001. These increases were
principally the result of an increase in programming and customer services
related expenses. Direct operating expenses increased from 73.0% of revenue for
the year ended December 31, 2000 to 86.0% for the period through December 7,
2001.

30

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $2.8 million or 13.5% from $20.8 million for
the year ended December 31, 2000 to $18.0 million for the year ended
December 31, 2001. This decrease is a result of a decrease in selling and
marketing expenses. As a percentage of revenue, selling, general and
administrative expenses decreased from 40.6% of revenue for the year ended
December 31, 2000 to 32.3% of revenue for the period through December 7, 2001.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization charges
increased $8.0 million or 19.8% from $40.4 million for the year ended
December 31, 2000, to $48.4 million for the year ended December 31, 2001,
principally as a result of depreciation costs related to our investment in
fiscal year 2000 in a large number of D-DTH decoders. Depreciation and
amortization expense as a percentage of revenues increased from 78.9% for the
year ended December 31, 2000, to 86.9% for the period through December 7, 2001.

OPERATING LOSS. Each of these factors contributed to an operating loss of
$55.0 million attributable to the D-DTH segment for the year ended December 31,
2000, compared to an operating loss of $80.9 million for the period through
December 7, 2001.

PROGRAMMING SEGMENT

REVENUE. Programming revenue decreased $2.6 million or 3.8% from
$68.7 million for the year ended December 31, 2000 to $66.1 million for the year
ended December 31, 2001, principally due to a decrease in revenue generated from
third parties of $7.7 million for the year ended December 31, 2001 as a result
of decreased rates charged these third parties. Revenue from the provision of
the Wizja TV programming package to the Company's cable and DTH systems, which
was eliminated as a result of the consolidation of the Company's financial
results, represented $55.1 million and $60.2 million, or 80.2% and 91.1% of
programming revenue, for the years ended December 31, 2000 and 2001,
respectively.

DIRECT OPERATING EXPENSES. Direct operating expenses decreased
$31.9 million or 30.4% from $104.9 million for the year ended December 31, 2000
to $73.0 million for the year ended December 31, 2001. These decreases were
principally the result of discontinuing Wizja Jeden. Direct operating expenses
decreased from 152.7% of revenue for the year ended December 31, 2000 to 110.4%
for the year ended December 31, 2001.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $2.9 million or 23.6% from $12.3 million for
the year ended December 31, 2000 to $9.4 million for the year ended
December 31, 2001. This decrease was attributable to a decrease in
administrative expenses as a result of discontinuation of the Company's
proprietary channels. As a percentage of revenue, selling, general and
administrative expenses decreased from 17.9% for the year ended December 31,
2000, to 14.2% for the year ended December 31, 2001.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization charges
decreased $0.5 million or 2.1% from $23.4 million for the year ended
December 31, 2000 to $22.9 million for the year ended December 31, 2001,
principally as a result of appreciation of the U.S dollar against the British
pound. Depreciation and amortization expense as a percentage of revenues
increased from 34.1% for the year ended December 31, 2000, to 34.6% for the year
ended December 31, 2001.

OPERATING LOSS. Each of these factors contributed to an operating loss of
$71.9 million for the year ended December 31, 2000 compared to an operating loss
of $39.2 million for the year ended December 31, 2001.

31

CORPORATE SEGMENT

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Corporate segment consists of
corporate overhead costs. The Company continues to evaluate opportunities for
improving its operations and reducing its cost structure. Corporate net expenses
increased by $4.6 million or 61.3% from $7.5 million for the year ended
December 31, 2000, to $12.1 million for the year ended December 31, 2001. The
increase was primarily attributable to management fees charged to the Company by
UPC.

NON OPERATING RESULTS:

LOSS ON DISPOSAL OF D-DTH ASSETS. As a result of the Canal+ merger, the
Company recognized a loss of $428.1 million.

INTEREST AND INVESTMENT INCOME. Interest and investment income increased
$0.3 million, or 23.1%, from $1.3 million for the year ended December 31, 2000
to $1.6 million for the year ended December 31, 2001, primarily due to an
increase in our average cash balances held in interest-bearing accounts during
fiscal year 2001.

INTEREST EXPENSE. Interest expense increased $21.5 million, or 29.1%, from
$74.0 million for the year ended December 31, 2000 to $95.5 million for the year
ended December 31, 2001, primarily due to increased interest expense associated
with notes payable to UPC and its affiliates which results from an increase in
the principal amount of approximately $79.0 million during 2001.

EQUITY IN LOSSES BY AFFILIATED COMPANIES. The Company recorded
$14.5 million of equity in losses by affiliated companies for the year ended
December 31, 2001, compared to only $0.9 million of equity in losses by
affiliated companies for the year ended December 31, 2000. This equity in losses
resulted from the Company's (i) 50% investment in Twoj Styl, a publishing
company, (ii) its 20% investment in Fox Kids Poland, a channel content provider,
(iii) its 30% investment in Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna, a
Polish basketball team, and (iv) its 25% investment in TKP. The 2001 increase in
losses primarily results from the TKP losses, and also from the losses on
disposal of Twoj Styl and Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna of
$1.5 million and $5.0 million, respectively.

FOREIGN EXCHANGE GAINS AND LOSSES, NET. For the year ended December 31,
2001, the Company's foreign exchange loss amounted to $27.5 million, as compared
to a foreign exchange gain of $3.4 million for fiscal year 2000. The change from
foreign exchange gain in the year ended December 31 2000, to the foreign
exchange loss for the year ended December 31, 2001, is primary due to the
realized foreign exchange loss of $25.7 million on disposition of the Company's
D-DTH assets, Twoj Styl and Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna.

NET LOSS. For the years ended December 31, 2000 and 2001, the Company had
net losses of $248.8 million and $749.5 million, respectively. These losses were
the result of the factors discussed above.

NET LOSS APPLICABLE TO COMMON STOCKHOLDER. Net loss applicable to common
stockholder increased from a loss of $248.8 million for the year ended
December 31, 2000 to a loss of $749.5 million for the year ended December 31,
2001 due to the factors discussed above.

2000 COMPARED WITH 1999

CABLE SEGMENT

REVENUE. Revenue increased $6.3 million or 10.1% from $62.5 million in the
year ended December 31, 1999 to $68.8 million in the year ended December 31,
2000. This increase was primarily attributable to a 1.9% increase in the number
of basic and intermediate subscribers from approximately

32

783,000 at December 31, 1999 to approximately 798,000 at December 31, 2000, as
well as an increase in monthly subscription rates.

Revenue from monthly subscription fees represented 94.0% of cable television
revenue for the year ended December 31, 1999 and 97.3% for the year ended
December 31, 2000. During the year ended December 31, 2000, the Company
generated approximately $4.5 million of additional premium subscription revenue
as a result of providing the HBO Poland and Wizja Sport channels to cable
subscribers as compared to $2.1 million for the year ended December 31, 1999
(although the Company expanded Wizja Sport into its basic package as of
March 24, 2001).

DIRECT OPERATING EXPENSES. Direct operating expenses decreased
$0.7 million or 1.5%, from $45.8 million for the year ended December 31, 1999 to
$45.1 million for the year ended December 31, 2000, principally as a result of
restructuring programming agreements with Wizja TV B.V., a subsidiary of the
company in the programming segment. Direct operating expenses decreased from
73.3% of revenues for the year ended December 31, 1999 to 65.6% of revenues for
the year ended December 31, 2000. However, without considering the intersegment
charge for Wizja TV programming package, direct operating expenses as a
percentage of revenue would have been 30% and 39.7% in the year ended
December 31, 2000 and 1999, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $1.0 million or 4.3% from $23.5 million for
the year ended December 31, 1999 to $22.5 million for the year ended
December 31, 2000, principally as a result of decreases in administrative
expenses. Selling, general and administrative expenses decreased from 37.6% of
revenues for the year ended December 31, 1999 to 32.7% for the year ended
December 31, 2000.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose
$13.8 million, or 43.1%, from $32.0 million for the year ended December 31, 1999
to $45.8 million for the year ended December 31, 2000 principally as a result of
depreciation and amortization of additional goodwill pushed down as a result of
the merger with UPC and the continued build-out of the Company's cable networks.
Depreciation and amortization expense as a percentage of revenues increased from
51.2% for the year ended December 31, 1999 to 66.6% for the year ended
December 31, 2000.

OPERATING LOSS. Each of these factors contributed to an operating loss of
$44.6 million for the year ended December 31, 2000 and $38.9 million for the
year ended December 31, 1999.

D-DTH SEGMENT

REVENUE. D-DTH revenue increased $32.3 million or 170.9% from
$18.9 million for the year ended December 31, 1999 to $51.2 million for the year
ended December 31, 2000. This increase is primarily due to the increase in
subscribers from 254,092 as at the end of 1999 to 414,692 as at the end of 2000.

DIRECT OPERATING EXPENSES. Direct operating expenses decreased
$12.9 million or 26.3% from $49.0 million for the year ended December 31, 1999
to $36.1 million for the year ended December 31, 2000. These decreases
principally were the net result of: the $31.7 million cost related to D-DTH
reception systems sold below cost and the write down of D-DTH reception systems
included in inventory from April 1, 1999 to November 8, 1999 to net realizable
value, and increase in programming cost of $20.4 million from $10.7 million in
1999 to $31.1 million in 2000.

Direct operating expenses decreased from 259.3% of revenue for the year
ended December 31, 1999 to 70.5% for the year ended December 31, 2000. Excluding
the write down of D-DTH reception systems to net realizable value and cost
related to DDTH reception systems sold below cost, direct operating expenses as
a percentage of revenue would have been 91.5% in 1999.

33

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $13.8 million or 38.4% from $35.9 million for
the year ended December 31, 1999 to $22.1 million for the year ended
December 31, 2000. As a percentage of revenue, selling, general and
administrative expenses amounted to approximately 189.9% and 43.2% for the years
ended December 31, 1999 and 2000, respectively. The decrease in selling, general
and administrative expenses was attributable mainly to decrease in sales and
marketing expenses associated with promotion of the Company's D-DTH service and
Wizja TV programming platform.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization charges
increased $20.7 million or 105.1% from $19.7 million for the year ended
December 31, 1999 to $40.4 million for the year ended December 31, 2000,
principally as a result of additional goodwill pushed down as a result of the
Merger with UPC and an increased number of D-DTH decoders. Depreciation and
amortization expense as a percentage of revenues decreased from 104.2% for the
year ended December 31, 1999 to 78.9% for the year ended December 31, 2000.

OPERATING LOSS. Each of these factors contributed to an operating loss of
$86.8 million for the year ended December 31, 1999 compared to an operating loss
of $55.0 million for the year ended December 31, 2000.

PROGRAMMING SEGMENT

REVENUE. Programming revenue increased $37.9 million or 123.1% from
$30.8 million for the year ended December 31, 1999 to $68.7 million for the year
ended December 31, 2000. Revenue from the provision of the Wizja TV programming
package to the Company's cable and DTH systems, which was eliminated as a result
of the consolidation of the Company's financial results, represented
$27.2 million and $55.1 million or 88.3% and 80.2% of programming revenue for
the year ended December 31, 1999 and 2000, respectively.

DIRECT OPERATING EXPENSES. Direct operating expenses increased
$32.3 million or 44.5% from $72.6 million for the year ended December 31, 1999
to $104.9 million for the year ended December 31, 2000. These increases
principally were the result of a $16.6 million increase in programming costs in
the year ended December 31, 2000, and costs associated with the lease of four
transponders on the Astra satellites which provide the capability to deliver the
Company's Polish-language programming platform to cable and D-DTH customers in
Poland. Direct operating expenses decreased from 235.7% of revenue for the year
ended December 31, 1999 to 152.7% for the year ended December 31, 2000.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $7.6 million or 38.2% from $19.9 million for
the year ended December 31, 1999 to $12.3 million for the year ended
December 31, 2000. As a percentage of revenue, selling, general and
administrative expenses amounted to approximately 64.6% and 17.9% for the years
ended December 31, 1999 and 2000, respectively. The decrease in selling, general
and administrative expenses was attributable to a decrease in professional fees
associated with obtaining long-term programming contracts and
broadcast/exhibition rights.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization charges
increased $11.0 million or 88.7% from $12.4 million for the year ended
December 31, 1999 to $23.4 million for the year ended December 31, 2000,
principally as a result of additional goodwill pushed down as a result of the
Merger with UPC. Depreciation and amortization expense as a percentage of
revenues decreased from 40.3% for the year ended December 31, 1999 to 34.1% for
the year ended December 31, 2000.

OPERATING LOSS. Each of these factors contributed to an operating loss of
$74.0 million for the year ended December 31, 1999 compared to an operating loss
of $71.8 million for the year ended December 31, 2000.

34

CORPORATE SEGMENT

Corporate segment consists of corporate overhead costs. The Company
continues to evaluate opportunities for improving its operations and reducing
its cost structure. Corporate net expenses amounted to $7.5 million for the year
ended December 31, 2000 as compared to $18.7 million for the corresponding
period in 1999. This decrease is the result of the $9.1 million administration
cost incurred in 1999 with relation to the Merger.

NON OPERATING RESULTS

INTEREST EXPENSE. Interest expense increased $20.7 million, or 38.8%, from
$53.3 million for the year ended December 31, 1999 to $74.0 million for the year
ended December 31, 2000 mainly as a result of the accretion of interest of the
$252 million aggregate principal amount at maturity of the Company's 14 1/2%
Senior Discount Notes due 2009, which were issued on January 22, 1999 and
Series C Senior Discount Notes due 2008, which were issued on January 20, 1999.

INTEREST AND INVESTMENT INCOME. Interest and investment income decreased
$2.3 million, or 63.9%, from $3.6 million for the year ended December 31, 1999
to $1.3 million for the year ended December 31, 2000, primarily due to reduction
of cash balances held in investment funds and decrease in interest rates.

EQUITY IN LOSSES OF AFFILIATED COMPANIES. The Company recorded
$1.3 million of equity in losses of affiliated companies for the year ended
December 31, 1999 and $0.9 million for the year ended December 31, 2000. This
equity in losses resulted from the Company's 50% investment in Twoj Styl, a
publishing company and 20% investment in Fox Kids Poland, a channel content
provider and 30% investment in Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna,
a Polish basketball team.

FOREIGN EXCHANGE GAINS AND LOSSES, NET. For the year ended December 31,
2000 foreign exchange gain amounted to $3.4 million. For the year ended
December 31, 1999 foreign exchange loss amounted to $4.8 million.

NET LOSS. For the years ended December 31, 1999 and 2000, the Company had
net losses of $272.2 million and $248.8 million, respectively. These losses were
the result of the factors discussed above.

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to common
stockholders decreased from a loss of $274.6 million for the year ended
December 31, 1999 to a loss of $248.8 million for the year ended December 31,
2000 due to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The Company has met its cash requirements in recent years primarily with
(i) capital contributions and loans from certain of the Company's principal
stockholders, (ii) borrowings under available credit facilities, (iii) cash
flows from operations, (iv) the sale of approximately $200 million of common
stock through the Company's initial public equity offering in August 1997,
(v) the sale of $252 million aggregate principal amount at the maturity of the
14 1/2% Senior Discount Notes ("UPC Polska Notes") in July 1998 with gross
proceeds of approximately $125 million, (vi) the sale of $36,001,321 principal
amount at maturity of its Series C Discount Notes ("Series C Notes") in
January 1999 with gross proceeds of $9.8 million, (vii) the sale of its 14 1/2%
Senior Discount Notes ("Discount Notes") in January 1999 with gross proceeds of
$96.1 million, and (viii) the sale of the Series A 12% Cumulative Preference
Shares, the Series B 12% Cumulative Preference Shares and Warrants in
January 1999 with gross proceeds of $48.2 million.

Since the acquisition of all of the outstanding stock of the Company by UPC
on August 6, 1999, the Company has met its capital requirements primarily
through capital contributions and loans from UPC and its affiliates.

35

Pursuant to the indentures governing the 9 7/8% Senior Notes sold by PCI in
October 1996 ("PCI Notes"), the UPC Polska Notes, the Series C Notes, and the
Discount Notes, the Company is subject to certain restrictions and covenants,
including, without limitation, covenants with respect to the following matters:

- limitations on indebtedness;

- limitations on restricted payments;

- limitations on issuances and sales of capital stock of restricted
subsidiaries;

- limitations on transactions with affiliates;

- limitations on liens;

- limitations on guarantees of indebtedness by subsidiaries;

- purchase of the notes upon a change of control;

- limitations on sale of assets;

- limitations on dividends and other payment restrictions affecting
restricted subsidiaries;

- limitations on investments in unrestricted subsidiaries;

- consolidations, mergers, and sale of assets;

- limitations on lines of business; and

- provision of financial statements and reports.

The Company is in compliance with these covenants. However, as discussed
further in Note 4 to the Company's consolidated financial statements, there is a
risk that the Company could trigger an Event of Default under its indentures by
violating one or more of the covenants set forth above during 2002. The Company
has assessed this risk and determined that an Event of Default is not "virtually
certain" to occur. Accordingly, the Company continues to reflect these notes as
long-term.

The indentures governing each of the UPC Polska Notes, Series C Notes,
Discount Notes and the PCI Notes provide that, following a Change of Control (as
defined therein), each noteholder had the right, at such holder's option, to
require the respective issuer to offer to repurchase all or a portion of such
holder's notes at the repurchase prices, described below. The Company believes
that the August 6, 1999 acquisition by UPC of the Company constituted a Change
of Control. Accordingly, UPC Polska and PCI made offers to repurchase (the
"Offers") from the holders the UPC Polska Notes, Series C Notes, Discount Notes
and the PCI Notes. The Offers expired at 12:01 PM, New York City time, on
November 2, 1999.

In accordance with the terms of the indentures governing the UPC Polska
Notes, Series C Notes, Discount Notes and the PCI Notes, the Company was
required to offer to repurchase the UPC Polska Notes, Series C Notes, Discount
Notes at 101% of their accreted value at maturity on the expiration date plus
accrued and unpaid interest and PCI was required to offer to repurchase the PCI
Notes at the purchase price of 101% of principal. As of August 5, 1999, UPC
Polska had $376,943,000 aggregate principal amount at maturity of UPC Polska
Notes, Series C Notes, Discount Notes outstanding and PCI had $129,668,000
aggregate principal amount at maturity of PCI Notes outstanding. Pursuant to the
Offer, UPC Polska has purchased $49,139,000 aggregate principal amount of UPC
Polska Notes, Series C Notes and Discount Notes for an aggregate price of
$26,455,014 and PCI has purchased $113,237,000 aggregate principal amount of PCI
Notes for an aggregate price of $114,369,370.

UPC financed the Company's repurchase of the UPC Polska Notes, Series C
Notes, Discount Notes and PCI Notes and the Company's operating activities by
making loans of $217.3 million to the Company in the fourth quarter of 1999.

36

The Company purchased 14,000 shares of Mandatorily Redeemable Debenture
Stock issued by PCI for $140 million to fund PCI's purchase of the PCI Notes, as
well as operations. The Company used a portion of the proceeds of the loans from
UPC to purchase the Mandatorily Redeemable Debenture Stock. The Mandatorily
Redeemable Debenture Stock is redeemable on December 31, 2003 at the issue price
plus interest of 10% per annum compounded annually. To secure its obligations
under the Mandatorily Redeemable Debenture Stock, PCI has pledged to the Company
notes issued to it by its subsidiary PCBV with an aggregate principal amount of
$176,815,000 as of December 31, 2001. The PCI Noteholders are equally and
ratably secured by the pledge in accordance with the terms of the PCI Indenture.

In 2001, UPC directly or through its affiliates made capital contributions
of $48.5 million and additional loans of $40.5 million to the Company. This
compares to additional loans and capital contributions of $115.1 million and
$50.6 million, respectively, made by UPC in 2000. On December 31, 2001, the
Company had, on a consolidated basis, approximately $865.6 million aggregate
principal amount of indebtedness outstanding, of which $444.5 million was owed
to UPC and its affiliates. All of the loans from UPC and its affiliates to UPC
Polska bear interest at 11.0% per annum, and mature in 2007 and 2009. Loans from
UPC with an aggregate principal amount of $150.0 million have been subordinated
to the UPC Polska Notes, the Series C Notes and the Discount Notes. The loans
from UPC have been used primarily for the repurchase of the UPC Polska Notes,
Series C Notes, Discount Notes and the PCI Notes, to fund capital expenditures,
operating losses and working capital primarily related to the development and
operation of the Company's D-DTH business, and for general corporate purposes
and certain other investments, including the acquisition of cable television
networks and certain minority interests in our subsidiaries which were held by
unaffiliated third parties.

The Company had negative cash flows from operating activities of
$19.1 million for the year ended December 31, 2001, $62.3 million for the year
ended December 31, 2000 and $143.2 million for the year ended December 31, 1999,
primarily due to the significant operating costs associated with the D-DTH
service and the Wizja TV programming platform.

Cash used for the purchase and build-out of the Company's cable television
networks, purchase of D-DTH equipment including set top decoders, and the
purchase of other property, plant, and equipment was $60.6 million in 2001,
$124.2 million in 2000 and $51.0 million in 1999.

The restricted cash caption presented on the Company's balance sheet at
December 31, 2001 represents the Company's additional funding commitment to TKP
of 30 million Euros (approximately $26.8 million) fulfilled as of February 1,
2002. The Company has approximately $114.9 million of unrestricted cash as of
December 31, 2001. The Company received net cash proceeds, as defined, of
approximately $82.9 million, as defined, from the Canal+ merger. In 2001, the
Company also received $7.0 million in net cash proceeds, as defined, from the
sale of its 50% investment in Twoj Styl, a publishing company. Cash paid by the
Company in connection with the disposition of its 30% interest in Mazowiecki
Klub Sportowy Sportowa Spolka Akcyjna, a basketball team, amounted to
$4.2 million.

Pursuant to the indentures governing each of the UPC Polska Notes, Series C
Notes and Discount Notes, discussed in more detail in Note 13 to the Company's
consolidated financial statements, the Company is required to use the net cash
proceeds from the sale of assets within 12 months from the transaction date for
certain limited purposes. These include:

- to permanently repay or prepay senior bank indebtedness or any
unsubordinated indebtedness of the Company;

- to invest in any one or more businesses engaged, used or useful in the
Company's cable, D-DTH or programming businesses; or

- to invest in properties or assets that replace the properties and assets
sold.

37

Accordingly, as of December 31, 2001, $89.9 million, net of costs associated
with the Canal+ merger of $23.7 million and $0.3 million related to the Twoj
Styl sale, of the Company's cash and cash equivalents were subject to these
limitations imposed by the Company's indentures. The Company is currently
evaluating and discussing with UPC and its affiliates the potential uses for
these net cash proceeds from the Canal+ merger and the Twoj Styl disposition.

On December 31, 2001, the Company was committed to pay at least
$133.7 million in guaranteed payments (including but not limited to payments of
guaranteed minimum amounts due under programming agreements over the next eight
years), of which at least approximately $23.7 million was committed through the
end of 2002. In connection with the disposition of the DTH business, TKP assumed
the Company's previous obligations under certain contracts. Pursuant to the
definitive agreements governing the Canal+ merger and the contracts which TKP
assumed, the Company remains contingently liable for performance under those
contracts. As of December 31, 2001, management estimates the potential exposure
for contingent liability on these assumed contracts to be $70.1 million.

The following table presents the Company's minimum future commitments under
its programming and lease contracts.

As of December 31, 2001, the Company had negative working capital. In
addition to its contractual commitments described in the table above, the
Company has interest payment and principal repayment obligations related to the
PCI Notes and the UPC Polska Notes, Series C Notes and Discount Notes.
Specifically, in 2003, the Company will be required to fulfill its principal
repayment obligation of approximately $14.5 million in principal amount plus
interest under the PCI Notes, and the Company will be required to commence cash
interest payments under the UPC Polska Notes, Discount Notes and Series C Notes
aggregating approximately $50.8 million per annum in 2004 and approximately
$69.2 million per annum in 2005, and thereafter. The Company also had
approximately $17.0 million in principal amount in outstanding notes payable to
former minority stockholders of PCBV, as of December 31, 2001, although as of
the date of this Annual Report filed on Form 10-K, only $10.0 million in
principal amount remains outstanding. The Company intends to repay this amount
in 2002. Although the Company had anticipated being able to rely on UPC to meet
these and other payment obligations, given UPC's liquidity concerns, the Company
is not certain that it will receive any financing from UPC. The Company also has
an aggregate of approximately $44.3 million in interest payments due to UPC in
2002 on its currently outstanding indebtedness. In prior years, UPC has
permitted the Company to defer payment of interest owing it. The Company,
however, has no assurances that UPC will permit such deferral in 2002.

The Company, since its August 6, 1999 merger, has relied completely on
funding from its shareholder UPC and UPC's affiliates. As a result of UPC's
decision to not make interest payments on its senior notes and senior discount
notes on February 1, 2002, and its failure to make the interest payments prior
to the expiration of the applicable 30-day grace period, these actions
constituted Events of Default pursuant to UPC's senior notes and senior discount
notes. The occurrence of these Events

38

of Default gave the related trustees under the indebtedness, or requisite number
of holders of such notes, the right to accelerate the maturity of all of UPC's
senior notes and senior discount notes and then to foreclose on the collateral
securing these notes. As of the date of the filing of this Annual Report on
Form 10-K, neither any of the trustees for the respective notes nor the
requisite number of holders of those notes have accelerated the payment of
principal and interest under these notes. UPC has entered into a Memorandum of
Understanding which is a non-binding agreement to enter into negotiations with
UnitedGlobalCom, Inc., UPC's parent to attempt to reach agreement on a means to
restructure UPC's indebtedness.

The Company's loan agreements with UPC contain various covenants, including
a provision which provides UPC with the ability to declare the loans immediately
due and payable if in its opinion, a material adverse change has occurred in the
business, operations, prospects or condition (financial or otherwise) of the
Company or any of its subsidiaries or, if in the opinion of UPC, any event or
circumstance has occurred that could have a material adverse effect on the
Company's ability to fulfill its obligations under the loan agreement in
question. Additionally, one of the loan agreements with a UPC affiliate (which
had a balance of $17.6 million outstanding as of December 31, 2001, and
$13.3 million outstanding as of February 28, 2002) contains a provision, which
would require the Company to accelerate payment of the outstanding amount if
there is an Event of Default under either of the UPC senior notes which is not
cured or waived within the applicable grace period and which causes those notes
to be accelerated. As of the date of filing this Annual Report on Form 10-K, the
Company has not received any notification that the UPC senior notes have been
accelerated. However, as a result of the UPC Events of Default, the UPC senior
notes are classified as current rather than long-term obligations. In the event
UPC or its affiliate accelerates payment owed to them by the Company under their
loans, the Company would likely not have sufficient funds or available
borrowings to repay those notes. If the Company were to default on its loan
payments to UPC or its affiliates, or if payment of any debt of the Company in
excess of $15.0 million is accelerated, the acceleration clauses in the
indentures governing the UPC Polska Notes, the Series C Notes or Discount Notes
may be triggered, requiring those notes to be paid off as well, and the Company
would likely not have sufficient funds or available borrowings to repay those
notes.

If the Company is unable to rely on UPC for financial support, it will have
to meet its payment obligations with cash on hand and with funds obtained from
public or private debt or bank financing or any combination thereof, subject to
the restrictions contained in the indentures governing the outstanding senior
indebtedness of the Company, UPC, and UnitedGlobalCom, Inc., UPC's parent. The
Company's cash on hand will be insufficient to satisfy all of its obligations,
and the Company cannot be certain that it will be able to obtain the necessary
financing at all, or on terms that will be favorable to the Company. Moreover,
if the Company's plans or assumptions change, if its assumptions prove
inaccurate, if it consummates unanticipated investments in or acquisitions of
other companies, if it experiences unexpected costs or competitive pressures, or
if existing cash, and projected cash flow from operations prove to be
insufficient, the Company may need to obtain greater amounts of additional
financing. While it is the Company's intention to enter only into new financing
or refinancings that it considers advantageous, there can be no assurance that
such sources of financing would be available to the Company in the future, or,
if available, that they could be obtained on terms acceptable to the Company.

CURRENT OR ACCUMULATED EARNINGS AND PROFITS

For the fiscal year ended December 31, 2001, the Company had no current or
accumulated earnings and profits. Therefore, none of the interest which accreted
during the fiscal year ended December 31, 2001 with respect to the Company's
14 1/2% Senior Discount Notes due 2008, 14 1/2% Series B Discount Notes due
2008, 14 1/2% Senior Discount Notes due 2009, 14 1/2% Series B Discount Notes
due 2009 and its Series C Senior Discount Notes will be deemed to be a "Dividend
Equivalent Portion" as such term is defined in Section 163(e)(5)(B) of the
Internal Revenue Code, as amended.

39

NEW ACCOUNTING PRINCIPLES

ADOPTED

Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards(SFAS) No.133, "Accounting for Derivative and Hedging
Activities", which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. The adoption of SFAS 133 did not have a material impact on the
Company's financial position, as it does not have any derivative instruments.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
("SFAS 141"), which is required to be adopted July 1, 2001. SFAS 141 requires
the purchase method of accounting for all business combinations initiated after
June 30, 2001. The Company has applied SFAS 141 to its only applicable
transactions, the purchases of the minority interests in TKP and PCBV in
December 7, 2002 and August 28, 2001, respectively.

TO BE ADOPTED

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), which requires goodwill and
intangible assets with indefinite useful lives to no longer be amortized, but to
be tested for impairment at least annually. Intangible assets that have finite
lives will continue to be amortized over their estimated useful lives. The
amortization and non-amortization provisions of SFAS 142 will be applied to all
goodwill and intangible assets acquired after June 30, 2001. Effective
January 1, 2002, we are required to apply all other provisions of SFAS 142. We
are currently evaluating the potential impact, if any, the adoption of SFAS 142
will have on our financial position and results of operations.

In August 2001, the Financial Accounting Standards Board issued SFAS
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This
statement addresses the financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset and reported as a liability. This statement is effective for
fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 is not
anticipated to have a material impact on our financial position or results of
operations.

In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"), which is effective for fiscal periods beginning after
December 15, 2001 and interim periods within those fiscal years. SFAS 144
establishes an accounting model for impairment or disposal of long-lived assets
to be disposed. We are currently evaluating the potential impact, if any, the
adoption of SFAS 144 will have on our financial position and results of
operation. We expect that we will have our SFAS 144 evaluation completed during
the fourth quarter of 2002. At this point, management is aware that the adoption
of SFAS 144 could result in material adjustments to its long-lived assets and
its statement of operations during 2002. See Notes 8 and 9 to the financial
statements for further discussion of the Company's long-lived assets which total
$513.3 million, including intangible assets of $370.1 million, which could be
impacted as a result of the adoption of SFAS 144.

40

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is foreign
exchange rate risk from fluctuations in the Polish zloty currency exchange rate.
The Company's long term debt is primarily subject to a fixed rate, and therefore
the Company is neither materially benefited nor materially disadvantaged by
variations in interest rates. The Company's major programming commitments are
denominated in US dollars or Euros. The Company revenues from subscribers are in
Polish zloty.

FOREIGN EXCHANGE AND OTHER INTERNATIONAL MARKET RISKS.

Operating in international markets involves exposure to movements in
currency exchange rates. Currency exchange rate movements typically affect
economic growth, inflation, interest rates, governmental actions and other
factors. These changes, if material, can cause the Company to adjust its
financing and operating strategies. The discussion of changes in currency
exchange rates below does not incorporate these other important economic
factors.

International operations constitute 100% of the Company's 2001 consolidated
operating loss. Some of the Company's operating expenses and capital
expenditures are expected to continue to be denominated in or indexed in U.S.
dollars. By contrast, substantially all of the Company's revenues are
denominated in zloty. Therefore, any devaluation of the zloty against the U.S.
dollar that the Company is unable to offset through price adjustments will
require it to use a larger portion of its revenue to service its U.S. dollar
denominated obligations and contractual commitments.

The Company estimates that a further 10% change in foreign exchange rates
would impact operating loss by approximately $2.4 million. In other terms a 10%
depreciation of the Polish zloty against the U.S. dollar, would result in a $2.4
million decrease in the reported operating loss for the year ended December 31,
2001. The Company believes that this quantitative measure has inherent
limitations because, as discussed in the first paragraph of this section, it
does not take into account any governmental actions or changes in either
customer purchasing patterns or the Company's financing or operating strategies.

The Company does not generally hedge currency translation risk. While the
Company may consider entering into transactions to hedge the risk of exchange
rate fluctuations, there is no assurance that it will be able to obtain hedging
arrangements on commercially satisfactory terms. Therefore, shifts in currency
exchange rates may have an adverse effect on the Company's financial results and
on its ability to meet its U.S. dollar denominated debt obligations and
contractual commitments.

Poland has historically experienced high levels of inflation and significant
fluctuations in the exchange rate for the zloty. The Polish government has
adopted policies that slowed the annual rate of inflation from approximately
250% in 1990 to approximately 7.3% in 1999, approximately 10.1% in 2000 and
approximately 5.5% in 2001. The exchange rate for the zloty has stabilized and
the rate of devaluation of the zloty has generally decreased since 1991. The
zloty depreciated against the U.S. dollar by approximately 17.4% for the year
ended December 31, 1999. However for the years ended December 31, 2000 and 2001,
the zloty appreciated against the U.S. dollar by approximately 0.12% and

41

3.80%, respectively. Inflation and currency exchange fluctuations may have a
material adverse effect on the business, financial condition and results of
operations of the Company.

42

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholder of UPC Polska, Inc.:

We have audited the accompanying consolidated balance sheets of UPC
Polska, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, comprehensive
loss, changes in stockholder's equity and cash flows for the years ended
December 31, 2001 and 2000, and for the periods from January 1, 1999 through
August 5, 1999 and from August 6, 1999 through December 31, 1999. These
consolidated 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. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of UPC Polska, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years ended December 31, 2001 and 2000,
and for the periods from January 1, 1999 through August 5, 1999 and from
August 6, 1999 through December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 4 to the consolidated financial statements, the Company has suffered
recurring losses and negative cash flows from operations and has a negative
working capital and a shareholder's deficit that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 4. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

Arthur Andersen Sp. z o.o.

Warsaw, Poland
March 31, 2002

43

UPC POLSKA, INC.
CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

44

UPC POLSKA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

45

UPC POLSKA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

See accompanying notes to consolidated financial statements.

46

UPC POLSKA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)

See accompanying notes to consolidated financial statements.

47

UPC POLSKA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements

48

UPC POLSKA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999

1. ORGANIZATION AND FORMATION OF HOLDING COMPANY

UPC Polska, Inc. (previously @Entertainment, Inc.), a Delaware corporation
and wholly-owned subsidiary of United Pan-Europe Communications N.V. ("UPC") was
established in May 1997. UPC Polska, Inc. succeeded Poland Communications, Inc.
("PCI") as the group holding company to facilitate an initial public offering of
stock in the United States and internationally (the "IPO"). PCI was founded in
1990 by David T. Chase, a Polish-born investor. On August 6, 1999, UPC, through
its wholly-owned subsidiary, Bison Acquisition Corporation ("Bison") acquired
all of the outstanding shares of the Company. The period from January 1, 1999
through August 5, 1999 and the period from August 6, 1999 through December 31,
1999 are referred to herein as the "seven months of 1999" and "five months of
1999", respectively.

UPC Polska, Inc. and its subsidiaries (the "Company") offer cable television
and internet services to business and residential customers in Poland. Prior to
December 7, 2001, its revenues were derived primarily from monthly basic and
premium service fees for cable and digital satellite direct-to-home ("D-DTH")
television services provided primarily to residential, rather than business,
customers. In September 1998, the Company launched its D-DTH broadcasting
service throughout Poland. In addition to developing and acquiring programming
for distribution on its cable and D-DTH television networks, the Company
distributed a branded digital encrypted platform of Polish-language programming
under the brand name Wizja TV on its cable and D-DTH television networks. On
December 7, 2001, the Company merged its existing D-DTH platform with the D-DTH
and premium television business of Telewizja Korporacja Partycypacyjna S.A.
("TKP"), an entity controlled and operated by Group Canal+ S.A. ("Canal+"). The
Company has a 25% equity interest in TKP. This transaction resulted in the
discontinuance of the Company's D-DTH and programming businesses. (See Note 2
for further information.)

At December 31, 2001, the Company's consolidated financial statements
include wholly-owned PCI, @Entertainment Programming, Inc. ("@EPI")--United
States corporations, At Entertainment Services Limited ("@ES")--a United Kingdom
corporation, Wizja TV B.V. (previously Sereke Holding B.V. ("Wizja TV BV")--a
Netherlands corporation and Atomic TV Sp. z o.o. (previously Ground Zero Media
Sp. z o.o.) ("Atomic TV"), a Polish corporation. On December 7, 2001, two
subsidiaries of the Company until such time, UPC Broadcast Centre Limited ("UPC
Broadcast Centre Ltd"), a United Kingdom corporation, and Wizja TV Sp. Z o.o., a
Polish corporation, were contributed to and merged into Telewizja Korporacja
Partycypacyjna S.A. ("TKP") as part of the Company's transaction with Canal+.
PCI owns 92.3% of the capital stock of Poland Cablevision (Netherlands) B.V.
("PCBV"), a Netherlands corporation and first-tier subsidiary of PCI. In
addition, during the second quarter of 2000 and third quarter of 2001, Wizja TV
B.V. purchased 1.4% and 6.3%, respectively, of the capital stock of PCBV. UPC
Polska, PCI and PCBV are holding companies that directly or indirectly hold
controlling interests in a number of Polish cable television companies,
collectively referred to as the "UPC TK Companies". As of December 31, 2001,
substantially all of the assets and operating activities of the Company were
located in Poland.

2. MERGER OF D-DTH BUSINESS

On August 10, 2001, the Company, UPC, and Canal+, the television and film
division of Vivendi Universal, announced the signing of a Shareholder Agreement
and Contribution and Subscription Agreement ("Definitive Agreements") to merge
their respective Polish D-DTH platforms, as well as the Canal+ Polska premium
channel, to form a common Polish D-DTH platform (the "Canal+ Merger").

49

The transaction contemplated by such agreements was consummated on
December 7, 2001. As part of the transactions, the Company, through its
affiliate Polska Telewizja Cyfrowa TV Sp. z o.o. ("PTC"), contributed UPC
Broadcast Centre Ltd. and Wizja TV Sp. z o.o., respectively the Company's Polish
and United Kingdom D-DTH businesses, to TKP, the Polish subsidiary of Canal+.
The Company received 150.0 million euros (approximately $133.4 million as of
December 7, 2001) in cash and PTC received a 25% ownership interest in TKP upon
receipt of court approval and other legal matters in connection with the
issuance of new TKP shares. In connection with the requirements of the
Definitive Agreements, the Company was required to fund 30 million Euros
($26.8 million) at the final closing. Accordingly, this has been reflected as
Restricted Cash in the December 31, 2001 Consolidated Balance Sheet.
Additionally, the Company terminated the operation of Wizja Sport and
transferred or assigned its economic benefits and obligations of programming
agreements, to the extent that they were directly related to the D-DTH business.

On February 1, 2002, the Company and Canal+ completed all Polish legal
formalities in connection with the transaction. The Company funded TKP with
30.0 million euros (approximately $26.8 million as at December 7, 2001) in the
form of a shareholder loan and registered its 25% investment in TKP with the
Commercial Court in Poland. The Company has included the value of the
shareholder loan in its valuation of the fair value of its 25% investment in
TKP. Accordingly, based on the contractual liability, it has accrued this amount
as due to TKP in the December 31, 2001 Consolidated Balance Sheet. As of
February 2002, the Company began distribution of Canal+ Multiplex, a
Polish-language premium package of three movie, sport and general entertainment
channels, across its network on terms as specified in the Contribution and
Subscription Agreement. The Company and TKP are currently negotiating the
definitive long-term channel carriage agreement for carriage of Canal+
Multiplex.

The total loss recognized on disposition of the Company's D-DTH assets
amounts to $428.1 million and is composed of the following items:

PROCEEDS:
Cash received............................................. $ 133,380
Value of 25% interest in TKP.............................. 26,811
---------
Total Proceeds.......................................... $ 160,191
---------
EXPENSES:
Net assets of D-DTH business.............................. $ 320,222
Write-off of programming goodwill......................... 217,561
Loan to TKP............................................... 26,811
Termination of programming agreements..................... 12,770
Professional fees and other............................... 10,931
---------
Total Expenses.......................................... 588,295
---------
LOSS ON DISPOSAL............................................ $(428,104)
=========

The Company valued its 25% ownership interest at $26,811,000, which
represents the fair market value of this ownership on December 7, 2001, taking
into consideration the loan to TKP. The Company also eliminated all aspects of
its programming operations as a direct result of the D-DTH disposition and has
included into the loss on disposition $217,561,000 related to the write-down of
the programming goodwill. Additionally, the Company had numerous contractual
arrangements which provided benefits to both the Company's cable operations and
its D-DTH operations. The Company incurred numerous professional fees, including
investment banking, legal, and accounting fees, in connection with the
disposition, which totaled $10,931,000, of which $2,056,000 was paid as of

50

December 31, 2001. The following table presents selected financial data of the
disposed D-DTH business as of December 7, 2001:

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 5,090
Property, plant and equipment, net........................ 86,428
Intangible assets, net.................................... 252,936
Total assets.............................................. 374,483
Net assets of D-DTH business.............................. $320,222
========

Pursuant to the indentures governing the Company's 14 1/2% Senior Discount
Notes due 2008, Series C Discount Notes due 2008 and 14 1/2% Senior Discount
Notes due 2009 (together, the "UPC Polska Notes"), discussed in more detail in
Note 13, the Company is required to use the net cash proceeds from the Canal+
merger within 12 months of the transaction date, December 7, 2001, for certain
limited purposes. These include:

- to permanently repay or prepay senior bank indebtedness or any
unsubordinated indebtedness of the Company;

- to invest in any one or more businesses engaged, used or useful in the
Company's cable, D-DTH or programming businesses; or

- to invest in properties or assets that replace the properties and assets
sold.

Accordingly, as of December 31, 2001, a significant portion of the Company's
cash and cash equivalents were restricted by the limitations imposed by the
Company's indentures. The Company is currently evaluating the potential uses for
its net cash proceeds from the Canal+ merger, which were $82.9 million as of
December 31, 2001. The net cash proceeds, as defined, are net of the related
costs of termination of programming agreements of $12.8 million and professional
fees and other of $10.9 million. Additionally, the Company's agreements related
to the notes payable to UPC and its affiliates contain limitations on the use of
cash proceeds from the sale of assets. The Company has received a waiver from
UPC and its affiliate to specifically exempt the proceeds from this transaction.

The following unaudited pro forma information for the years ended
December 31, 2000 and 2001 give effect to the disposition of the D-DTH business
as if it had occurred at the beginning of the periods presented. This pro forma
condensed consolidated financial information does not purport to represent what
the Company's results would actually have been if such transaction had in fact
occurred on such date.

3. CONSUMMATION OF UPC TENDER OFFER AND MERGER

On June 2, 1999, the Company entered into an Agreement and Plan of Merger
with UPC, whereby UPC and its wholly-owned subsidiary, Bison Acquisition Corp.
("Bison"), initiated a tender offer to purchase all of the outstanding shares of
the Company in an all cash transaction valuing the Company's shares of common
stock at $19.00 per share.

51

The tender offer, initiated pursuant to the Agreement and Plan of Merger
with UPC and Bison, closed at 12:00 midnight on August 5, 1999. On August 6,
1999, Bison reported that it had accepted for payment a total of 33,701,073
shares of the Company's common stock (including 31,208 shares tendered pursuant
to notices of guaranteed delivery) representing approximately 99% of the
Company's outstanding shares of common stock (the "Acquisition"). In addition
UPC acquired 100% of the outstanding Series A and Series B 12% Cumulative
Preference Shares of the Company and acquired all of the outstanding warrants
and stock options.

Also on August 6, 1999, Bison was merged with and into the Company with the
Company continuing as the surviving corporation (the "Merger"). Accordingly, the
Company became a wholly-owned subsidiary of UPC. UnitedGlobalCom, Inc. is the
majority stockholder of UPC. The Company believes that a Change of Control
occurred on August 6, 1999 as a result of the Acquisition and Merger. UPC
Polska, Inc. prior to the Acquisition, is herein referred to as the
"Predecessor" while the Company after the Acquisition is referred to as the
"Successor".

The Acquisition was accounted for under the purchase method of accounting,
with all of the purchase accounting adjustments "pushed-down" to the
consolidated financial statements of the Company. Accordingly, the purchase
price was allocated to the underlying assets and liabilities based upon their
estimated fair values and any excess to goodwill. The Company restated some of
its assets and liabilities at August 5, 1999. At this date the Notes of the
Company and PCI were restated to reflect the market value and as a result were
increased by $61.9 million and deferred financing costs of $16.1 million and
deferred revenues of $2.0 million were written down to zero. The consideration
paid by UPC for all shares outstanding, warrants and options totaled
$812.5 million. At this time the Company had negative net assets of
approximately $53.3 million and existing goodwill at net book value of
$37.5 million which was realized on previous transactions. As a result of the
above considerations, UPC recognized goodwill of approximately $979.3 million.
During the year ended December 31, 2000 this figure increased by $12.3 million
to $991.6 million mainly due to the results of an arbitration settlement between
the Company and TKP. As a result of the Acquisition, UPC pushed down its basis
to the Company establishing a new basis of accounting as of the acquisition
date.

4. GOING CONCERN AND LIQUIDITY RISKS

These consolidated financial statements have been prepared on a going
concern basis, which contemplates the continuation and expansion of trading
activities as well as the realization of assets and liquidation of liabilities
in the ordinary course of business. Pay television operators typically
experience losses and negative cash flow in their initial years of operation due
to the large capital investment required for the construction or acquisition of
their cable networks, acquisition of programming rights and reception system for
its D-DTH business and the administrative costs associated with commencing
operations. Consistent with this pattern, the Company has incurred substantial
operating losses since inception (1990). During 2001, the Company reviewed its
long term plan for all segments of its operations and identified businesses
which are profitable today on an operating profits basis and businesses, which
required extensive additional financing to become profitable. The Company has
also assessed its ability to obtain additional financing on terms acceptable to
it. These reviews proved that today, the Company's only profitable business on
an operating profits basis is cable television and it cannot provide further
financing to its D-DTH and programming businesses. As a result, the Company
changed its business strategy towards its operating segments. The Company,
decided to dispose of its D-DTH and programming businesses and revised its
business strategy for cable television from aggressive growth to focus on
achievement of positive cash flow. The Company expects to have positive EBITDA
and positive cash flows in 2002. As of December 31, 2001, the Company has
negative working capital of $382.3 million, stockholder's deficit of
$244.1 million and has experienced operating losses of $185.2 million and
$179.0 million during the years ended December 31, 2001 and 2000, respectively.
It also has significant commitments under non-cancelable operating leases and
for programming rights, as well as repayment obligations related to the PCI
Notes and the UPC Polska Notes. The Company has

52

also approximately $17.0 million in outstanding notes payable to RCI (former
minority stockholder of PCBV), which the Company intends to repay in 2002. In
2003, the Company will also be required to fulfill its repayment obligation of
approximately $14.5 million in principal amount under the PCI Notes, and the
Company will be required to commence cash interest payments under the UPC Polska
Notes aggregating approximately $50.8 million per annum in 2004 and
approximately $69.2 million per annum in 2005, and thereafter. The Company also
has an aggregate of approximately $44.3 million in interest payments due to UPC
in 2002 on its outstanding indebtedness. In prior years, UPC has permitted the
Company to defer payment of interest owing it. The Company, however, has no
assurances that UPC will permit such deferral in 2002.

The Company, since its August 6, 1999 Merger, has relied completely on
funding from its shareholder UPC and UPC's affiliates. As a result of UPC's
decision to not make interest payments on its senior notes and senior discount
notes on February 1, 2002, and its failure to make the interest payment upon the
expiration of the applicable 30-day grace period, these actions constituted
Events of Default pursuant to UPC's senior notes and senior discount notes. The
occurrence of these Events of Default gave the related trustees under the
indebtedness, or requisite number of holders of such notes, the right to
accelerate the maturity of all of UPC's senior notes and senior discount notes
and then to foreclose on the collateral securing these notes. As of the date of
the filing of this Annual Report on Form 10-K, neither any of the trustees for
the respective notes nor the requisite number of holders of those notes have
accelerated the payment of principal and interest under these notes. UPC has
entered into a Memorandum of Understanding which is a non-binding agreement to
enter into negotiations with UnitedGlobalCom, Inc., UPC's parent to attempt to
reach agreement on a means to restructure UPC's indebtedness. Although the
Company had anticipated being able to rely on UPC to meet these and other
payment obligations, given UPC's liquidity concerns, the Company is not certain
that it will receive the necessary financing from UPC. If the Company is unable
to rely on UPC for financial support, it will have to meet its payment
obligations with cash on hand or with funds obtained from public or private debt
or bank financing or any combination thereof, subject to the restrictions
contained in the indentures governing the outstanding senior indebtedness of the
Company, UPC, and UnitedGlobalCom, Inc., UPC's parent.

The Company has approximately $114.9 million of unrestricted cash as of
December 31, 2001. However, as a result of the limitations imposed on it by the
indentures governing the UPC Polska Notes and the notes payable to UPC and its
affiliates, the Company is limited in its utilization of approximately
$89.9 million of this unrestricted cash, which is net of the costs associated
with the Canal+ merger and Twoj Styl asset sales of approximately $23.7 million
and $0.3 million, respectively. As a result of these limitations and the
potential inability of UPC to provide necessary funding, if required, the
Company has limited sources of funding available to it outside of its operating
cash flows. Additionally, the Company's loan agreements with UPC contain various
covenants, including a provision which provides UPC with the ability to declare
the loans immediately due and payable if in its opinion, a material adverse
change has occurred in the business, operations, prospects or condition
(financial or otherwise) of the Company or any of its subsidiaries or, if in the
opinion of UPC, any event or circumstance has occurred that could have a
material adverse effect on the Company's ability to fulfill its obligations
under the loan agreement in question. Additionally, one of the loan agreements
with a UPC affiliate (which had a balance of $17.6 million outstanding as of
December 31, 2001, and $13.3 million outstanding as of February 28, 2002)
contains a provision, which would require the Company to accelerate payment of
the outstanding amount if there is an Event of Default under either of the UPC
senior notes which is not cured or waived within the applicable grace period and
which causes those notes to be accelerated. As of the date of filing this Annual
Report on Form 10-K, the Company has not received any notification that the UPC
senior notes have been accelerated. However, as a result of the UPC Events of
Default, the UPC senior notes are classified as current rather than long-term
obligations. In the event UPC or its affiliates accelerates payment owed to them
by the Company under their loans, the Company would have limited funds or
available borrowings to repay

53

these notes. If the Company were to default on its loan payments to UPC or its
affiliates, the acceleration clauses in the indentures governing the UPC Polska
Notes may be triggered requiring those notes to be paid off as well, and the
Company would likely not have sufficient funds or available borrowings to repay
those notes. Additionally, the UPC Polska, Inc. Notes discussed in Note 13 have
various defined Events of Default, including the acceleration of the payment of
other debt of the Company in excess of $15 million. In the event the Company's
debt associated with the material adverse change clauses, the provisions that
would cause the Company to have to accelerate payment, or other events of
default which were not cured in a timely manner pursuant to the respective
agreements, resulted in the acceleration of the related debt, the UPC Polska,
Inc. Notes discussed in Note 13 would be currently due. The Company has
evaluated the likelihood of it experiencing an Event of Default as of the date
of filing this Annual Report on Form 10-K and has determined, based on its
assessment, that it its not "virtually certain" that an Event of Default will
occur. As such, the amounts related to the UPC Polska Notes and the PCI Notes,
discussed in Note 13, of $403.7 million has been reflected as long-term. The
Company's available cash on hand will be insufficient to satisfy all of its
obligations, and the Company cannot be certain that it will be able to obtain
the necessary financing at all, or on terms that will be favorable to the
Company. Moreover, if the Company's plans or assumptions change, if its
assumptions prove inaccurate, if it consummates unanticipated investments in or
acquisitions of other companies, if it experiences unexpected costs or
competitive pressures, or if existing cash, and projected cash flow from
operations prove to be insufficient, the Company may need to obtain greater
amounts of additional financing. While it is the Company's intention to enter
only into new financing or refinancings that it considers advantageous, there
can be no assurance that such sources of financing would be available to the
Company in the future, or, if available, that they could be obtained on terms
acceptable to the Company.

Management of the Company believes that significant opportunities exist for
pay television providers capable of delivering high quality, Polish-language
programming on a multi-channel basis and other services on cable (i.e. data and
telephones). As such, the Company's current focus is on its cable television
market. The Company's business strategy is designed to increase its average
revenue per subscriber and also, although to a lesser extent, to increase its
subscriber base. The Company intends to achieve these goals by increasing
penetration of new service products within existing upgraded homes; providing
additional revenue-generating services to existing customers, including Internet
services; developing content tailored to the interests of existing subscribers;
and improving the effectiveness of the Company's sales and marketing efforts.

The Company also intends to increase the effectiveness of its operations and
reduce its expenses by enhancing internal controls; improving corporate
decision-making processes; reorganizing the Company so as to simplify its legal
structure; and using local rather than expatriate employees in management,
thereby reducing general and administrative costs.

Several of the Company's Polish subsidiaries have statutory shareholders'
equity less than the legally prescribed limits because of accumulated losses. As
required by Polish law, the management of these companies will have to make
decisions on how to increase the shareholders' equity to be in compliance with
the Polish Commercial Code. The Company is currently considering several
alternatives, including the conversion of intercompany debt into equity, in
order to resolve these deficiencies.

5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP").

54

The Company maintains its books of account in Poland, The Netherlands and in
the United States of America in accordance with accounting standards in the
respective countries. These financial statements include all adjustments to the
Company's statutory books to present these financial statements in accordance
with U.S. GAAP.

The consolidated financial statements include the financial statements of
UPC Polska, Inc. and its wholly owned and majority owned and controlled
subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.

USE OF ESTIMATE

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 during the
reporting period. Our actual results could differ from those estimates, which
include, but are not limited to: allowance for doubtful accounts, impairment
charges of long lived assets, equity investment and revenue recognition.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and other short-term investments
with original maturities of less than three months. See Note 4 for the
discussion related to the limitations on the use of $89.9 million of the cash
and cash equivalents.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The allowance for doubtful accounts is based upon the Company's assessment
of probable loss related to overdue accounts receivable. Upon disconnection of
the subscriber, the account is fully reserved. The allowance is maintained on
the books either until receipt of payment, or until the account is deemed
uncollectable for a maximum of three years.

REVENUE RECOGNITION

Revenue related to the provision of cable television, internet and D-DTH
services to customers are recognized in the period in which the related services
are provided in accordance with SAB 101 REVENUE RECOGNITION IN FINANCIAL
STATEMENTS and SFAS 51 FINANCIAL REPORTING BY CABLE TELEVISION COMPANIES.

CABLE TELEVISION REVENUES:

Cable television revenues are recognized in accordance with SFAS 51
FINANCIAL REPORTING BY CABLE TELEVISION COMPANIES. Revenue from subscription
fees is recognized on a monthly basis as the service is provided.

Installation fee revenue for connection to the Company's cable
television system, is recognized to the extent of direct selling costs and
the balance is deferred and amortized to income over the estimated average
period that new subscribers are expected to remain connected to the systems.

D-DTH SUBSCRIPTION REVENUES:

D-DTH subscription revenues were recognized in accordance with SFAS 51
FINANCIAL REPORTING BY CABLE TELEVISION COMPANIES. Until April 1, 1999, the
Company provided its Wizja TV package (consisting of a one-year rental of a
D-DTH reception system, installation and a one-year subscription to the
Company's D-DTH service) to retail customers for one up-front payment at the
time of installation. The Company recognized subscription revenues at the
time of installation to the extent of direct selling costs incurred, and the
balance was deferred and

55

amortized to income over the remaining term of the subscription. There were
no revenues derived from D-DTH subscription revenues prior to 1998. Since
April 1, 1999, the Company has no longer provided its Wizja TV package based
on up-front one year payment for installation and subscription. As a result
the Company recognized revenue from subscription fees on a monthly basis as
the service is provided.

INTERNET SERVICE REVENUES:

During the fourth quarter of 2000, the Company began providing Internet
services to its D-DTH and cable television customers. Revenue from
subscription is recognized on a monthly basis as the service is provided.
Installation fee revenue is deferred and amortized to income over the
estimated average period that new subscribers are expected to remain
connected to the system in accordance with SAB 101 REVENUE RECOGNITION IN
FINANCIAL STATEMENTS.

OTHER REVENUES:

Advertising revenues are recognized when advertisements are aired under
broadcast contracts.

TAXATION

Income taxes are accounted for under the asset and liability method in
accordance with SFAS 109, "Accounting for Income Taxes". Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.

U.S. TAXATION:

The Company and PCI are subject to U.S. federal income taxation on their
worldwide income. Polish companies that are not engaged in a trade or
business within the U.S. or that do not derive income from U.S. sources are
not subject to U.S. income tax.

FOREIGN TAXATION:

Polish companies are subject to corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import duties on
materials imported by them into Poland.

Income tax for other foreign companies is calculated in accordance with
foreign tax regulations. Due to differences between accounting practices
under foreign tax regulations and those required by U.S. GAAP, certain
income and expense items are recognized in different periods for financial
reporting purposes and income tax reporting purposes, which may result in
deferred income tax assets and liabilities.

Effective January 1998, the Company adopted EITF 92-8, "Accounting for the
Income Tax Effects under FASB Statement No. 109 of a Change in Functional
Currency When an Economy Ceases to Be Considered Highly Inflationary". As a
result of adopting EITF 92-4, "Accounting for a Change in Functional Currency
When the Economy Ceases to Be Considered Highly Inflationary", the Company's
functional currency bases exceeded the local currency tax bases of non-monetary
items. The difference between the new functional currency and the tax bases have
been recognized as temporary differences in accordance with EITF 92-8.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment includes assets used in the development and
operation of the Company's cable television systems and set-top boxes. During
the period of construction, plant costs

56

and a portion of design, development and related overhead costs are capitalized
as a component of the Company's investment in cable television systems. When
material, the Company capitalizes interest costs incurred during the period of
construction in accordance with SFAS No. 34, "Capitalization of Interest Cost".
Interest is not capitalized for short-term construction projects. During the
year 2001, 2000, and the five months of 1999 and seven months of 1999, no
interest costs were capitalized.

Cable subscriber related costs and general and administrative expenses are
charged to operations when incurred.

Depreciation is computed for financial reporting purposes using the
straight-line method over the following estimated useful lives:

Cable system assets......................................... 10 years
Set-top boxes............................................... 5 years
Vehicles.................................................... 5 years
Other property, plant and equipment......................... 5-10 years

INVENTORIES FOR CONSTRUCTION

Inventories for construction are stated at the lower of cost, determined by
the average cost method, or net realizable value. Inventories are principally
related to cable systems. Cost of inventory includes purchase price,
transportation, customs and other direct costs.

GOODWILL AND OTHER INTANGIBLES

Prior to the Merger, goodwill, which represents the excess of purchase price
over fair value of net assets acquired, was amortized on a straight-line basis
over the expected periods to be benefited, generally ten years, with the
exception of amounts paid relating to non-compete agreements. The portion of the
purchase price relating to the non-compete agreements was amortized over the
term of the underlying agreements, generally five years.

Effective as of the Merger Date, August 6, 1999, the Company revalued all
its previously existing goodwill, including amounts related to non-compete
agreements that related to transactions completed prior to the Merger. The
goodwill that was pushed down to the Company is amortized using straight-line
basis over the expected periods to be benefited, which is fifteen years.

Through its subsidiaries, the Company has entered into lease agreements with
the Polish national telephone company ("TPSA"), for the use of underground
telephone conduits for cable wiring. Costs related to obtaining conduit and
franchise agreements with housing cooperatives and governmental authorities are
capitalized and amortized generally over a period of ten years. In the event the
Company does not proceed to develop cable systems within designated cities,
costs previously capitalized will be charged to expense.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
("SFAS 141"), which is required to be adopted July 1, 2001. SFAS 141 requires
the purchase method of accounting for all business combinations initiated after
June 30, 2001. The Company has applied SFAS 141 to its only applicable
transactions, the purchase of the minority interest in TKP and PCBV in
December 7, 2001 and August 28, 2001, respectively.

PROGRAMMING AND BROADCAST RIGHTS

The Company enters into contracts for the purchase of certain exhibition or
broadcast rights. Broadcast or exhibition rights consist principally of rights
to broadcast syndicated programs, sports and feature films and are accounted for
as a purchase of rights by the licensee. The asset and liability for the rights
acquired and obligations incurred under a license agreement are reported by the
Company,

57

at the gross amount of the liability, when the license period begins and certain
specified conditions have been met, in accordance with the guidelines
established within SFAS No. 63, "Financial Reporting By Broadcasters".

DEFERRED FINANCING COSTS

Costs incurred to obtain financing have been deferred and amortized as
interest expense over the life of the related loan using the effective interest
method. Such costs were included at the Merger as part of the purchase
accounting adjustment in 1999.

INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD

For those investments in companies in which the Company's ownership interest
is 20% to 50%, its investments are held through a combination of voting common
stock, preferred stock, debentures or convertible debt and/or the Company exerts
significant influence through board representation and management authority, or
in which majority control is deemed to be temporary, the equity method of
accounting is used. Under this method, the investment, originally recorded at
cost, is adjusted to recognize the Company's proportionate share of net earnings
or losses of the affiliates, limited to the extent of the Company's investment
in and advances to the affiliates, including any debt guarantees or other
contractual funding commitments. The Company's proportionate share of net
earnings or losses of affiliates includes the amortization of the excess of its
cost over its proportionate interest in each affiliate's net tangible assets or
the excess of its proportionate interest in each affiliate's net tangible assets
in excess of its cost.

STOCK-BASED COMPENSATION

The Company has adopted SFAS No. 123, "Accounting For Stock-Based
Compensation", which gives companies the option to adopt the fair value based
method for expense recognition of employee stock options and other stock-based
awards or to account for such items using the intrinsic value method as outlined
under APB Opinion No. 25, "Accounting For Stock Issued To Employees", with pro
forma disclosure of net loss and loss per share as if the fair value method had
been applied. The Company has elected to apply APB Opinion No. 25 and related
interpretations for stock options and other stock-based awards.

FOREIGN CURRENCIES

Foreign currency transactions are recorded at the exchange rate prevailing
at the date of the transactions. Assets and liabilities denominated in foreign
currencies are translated at rates of exchange at balance sheet date. Gains and
losses on foreign currency transactions are included in the consolidated
statement of operations.

The financial statements of foreign subsidiaries are translated to U.S.
dollars using (i) exchange rates in effect at period end for assets and
liabilities, and (ii) average exchange rates during the period for results of
operations. Adjustments resulting from translation of financial statements are
reflected in accumulated other comprehensive loss as a separate component of
stockholder's equity. The Company considers all of its intercompany loans to its
Polish subsidiaries to be of a long-term investment nature. As a result, any
foreign exchange gains or losses resulting from the intercompany loans are
reported in accumulated other comprehensive loss.

Effective January 1, 1998, Poland is no longer deemed to be a highly
inflationary economy. In accordance with this change, the Company established a
new functional currency basis for non-monetary items of its Polish subsidiaries
in accordance with guidelines established within EITF Issue 92-4, "Accounting
For A Change In Functional Currency When An Economy Ceases To Be Considered
Highly Inflationary". That basis is computed by translating the historical
reporting currency amounts of non-monetary items into the local currency at
current exchange rates. As a result of this

58

change, the Company's functional currency bases exceeded the local currency tax
bases of nonmonetary items. The difference between the new functional currency
and the tax bases have been recognized as temporary differences.

Prior to January 1, 1998, the financial statements of foreign subsidiaries
were translated into U.S. dollars using (i) exchange rates in effect at period
end for monetary assets and liabilities, (ii) exchange rates in effect at
transaction dates (historical rates) for non monetary assets and liabilities,
and (iii) average exchange rates during the period for revenues and expenses,
other than those revenues and expenses that related to non monetary assets and
liabilities (primarily amortization of fixed assets and intangibles) which were
translated using the historical exchange rates applicable to those non monetary
assets and liabilities. Adjustments resulting from translation of financial
statements prior to the year 1998 were reflected as foreign exchange gains or
losses in the consolidated statements of operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value Of Financial Instruments"
requires the Company to make disclosures of fair value information of all
financial instruments, whether or not recognized on the consolidated balance
sheets, for which it is practicable to estimate fair value.

The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses and notes payable.

At December 31, 2001 and 2000, the carrying value of cash and cash
equivalents, accounts receivable, and accounts payable and accrued expenses on
the accompanying consolidated balance sheets approximates fair value due to the
short maturity of these instruments.

At December 31, 2001 and 2000, the fair value of the Company's notes payable
balance approximates $96,072,000 and $205,900,000, respectively, based on the
last trading price of the notes payable in the respective years. It was not
practical to estimate the fair value due to affiliate and notes receivable from
affiliates due to the nature of these instruments, the circumstances surrounding
their issuance, and the absence of quoted market prices for similar financial
instruments.

At the date of the Merger, the Company's and PCI Notes were restated to
their fair market value at this date. The resulting $61.9 million increase was
recorded in the pushed-down purchase accounting entries.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company assesses the recoverability of long-lived assets (mainly
property, plant and equipment, intangibles, and certain other assets) by
determining whether the carrying value of the assets can be recovered over the
remaining lives through projected undiscounted future operating cash flows,
expected to be generated by such assets. If an impairment in value is estimated
to have occurred, the assets carrying value is reduced to its estimated fair
value. The assessment of the recoverability of long-lived assets will be
impacted if estimated future operating cash flows are not achieved. As
identified in note 4, the Company's existing liquidity problems may result in
future impairments of long-lived assets if the Company does not have adequate
financing available to execute its business strategy. Additionally, if the
Company's plans or assumptions change, if its assumptions prove inaccurate, if
it consummates unanticipated investments in or acquisitions of other companies,
if it experiences unexpected costs or competitive pressures, or if existing
cash, and projected cash flow from operations prove to be insufficient, the
Company may need to impair certain of its long-lived assets. In connection with
its adoption of the New Accounting Principle, SFAS 144 discussed under "New
Accounting Principles", the Company is aware that the adoption could result in
material adjustments to its long-lived assets and its Statement of Operations
during 2002.

59

ADVERTISING COSTS

All advertising costs of the Company are expensed as incurred. For the years
ended December 31, 2001, and 2000, the five month period in 1999 and the seven
month period in 1999, the Company incurred advertising costs of approximately
$5,532,000, $14,217,000, $9,552,000 and $11,655,000, respectively.

SUPPLEMENTED DISCLOSURE OF CASH FLOW INFORMATION.

RECLASSIFICATIONS

Certain amounts have been reclassified in the prior year consolidated
financial statements to conform to the presentation contained in the 2001
periods.

NEW ACCOUNTING PRINCIPLES

ADOPTED

Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No.133, "Accounting for Derivative and Hedging
activities", which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. The adoption of SFAS 133 did not have a material impact on the
Company's financial position, as it does not have any derivative instruments.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
("SFAS 141"), which is required to be adopted July 1, 2001. SFAS 141 requires
the purchase method of accounting for all business combinations initiated after
June 30, 2001. The Company has applied SFAS 141 to its only applicable
transactions, the purchase of the minority interest in TKP and PCBV in
December 7, 2001 and August 28, 2001, respectively.

TO BE ADOPTED

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), which requires goodwill and
intangible assets with indefinite useful lives to no longer be amortized, but to
be tested for impairment at least annually. Intangible assets that have finite
lives will continue to be amortized over their estimated useful lives. The
amortization and non-amortization provisions of SFAS 142 will be applied to all
goodwill and intangible assets acquired after June 30, 2001. Effective
January 1, 2002, we are required to apply all other provisions of SFAS 142. We
are currently evaluating the potential impact, if any, the adoption of SFAS 142
will have on our financial position and results of operations.

60

In August 2001, the Financial Accounting Standards Board issued SFAS
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). This
statement addresses the financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset and reported as a liability. This statement is effective for
fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 is not
anticipated to have a material impact on our financial position or results of
operations.

In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"), which is effective for fiscal periods beginning after
December 15, 2001 and interim periods within those fiscal years. SFAS 144
establishes an accounting model for impairment or disposal of long-lived assets
to be disposed. The Company is currently evaluating the potential impact, if
any, the adoption of SFAS 144 will have on its financial position and results of
operation. The Company expects that it will have its SFAS 144 evaluation
completed during the fourth quarter of 2002. At this point, management is aware
that the adoption of SFAS 144 could result in material adjustments to its
long-lived assets and its statement of operations during 2002. See Notes 8 and 9
for further discussion of the Company's long-lived assets which total
$513,268,000, including intangible assets of $370,062,000, which could be
impacted as a result of the adoption of SFAS 144.

6. VALUATION AND QUALIFYING ACCOUNTS

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

(1) The amount of $8,061,000 relates to the disposition of D-DTH business.

7. ACQUISITIONS

On August 28, 2001 and on June 2, 2000, Wizja TV B.V. acquired 6.3% and 1.4%
of the outstanding capital stock of PCBV from minority shareholders of PCBV. The
Company paid $21.2 million and $2.2 million, respectively, and has considered
these amounts as additional goodwill. The Company issued debt of $17.0 million
in partial payment for the August 28, 2001, acquisition.

The Company made several acquisitions in 1999 details of which follow. In
each case, the acquisition was accounted for using the purchase method, whereby
the purchase price was allocated to the underlying assets and liabilities based
on their proportionate share of fair values on the date of acquisition and any
excess to goodwill. The results of operations of each of the businesses acquired
are included in the Company's consolidated financial statements since the date
of acquisition. In each case, the goodwill life was 10 years. However, as
discussed in Note 5, the revalued goodwill resulting from the Merger is being
amortized over 15 years.

61

On February 25, 1999, the Company purchased for approximately $1.8 million a
30% interest in Mazowiecki Klub Sportowy Sportowa Spolka Akcyjna, a joint stock
company which owns Hoop Pekaes Pruszkow, a Polish basketball club, ("MKS"). In
connection with this purchase the Company agreed to act as a sponsor for Hoop
Pekaes Pruszkow. During 2001, the Company transferred its 30% interest in common
stock of MKS to Central Capital Investment Ltd.

On March 31, 1999, a subsidiary of PCI purchased certain cable television
system assets for an aggregate consideration of approximately $509,000. The
acquisition was accounted for using the purchase method, whereby the purchase
price was allocated among the fixed assets acquired based on their fair value on
the date of acquisition and any excess to goodwill. The purchase price exceeded
fair value of the assets acquired by approximately $108,000.

On July 9, 1999, a subsidiary of the Company entered into an agreement to
acquire 100% of a cable television system for total consideration of
approximately $7,500,000. The acquisition has been accounted for under the
purchase method where the purchase price was allocated to the underlying assets
and liabilities based upon their estimated fair values and any excess to
goodwill. The acquisition did not have a material effect on the Company's
results of operations in 1999. The purchase price exceeded fair value of the
assets acquired by approximately $5,336,000.

On July 26, 1999, a subsidiary of the Company entered into an agreement to
purchase all of the assets and subscriber lists of a cable television system for
total consideration of approximately $2,800,000. The purchase was accounted for
under the purchase method where the purchase price was allocated to the
underlying assets based upon their estimated fair values and the excess to
goodwill. The purchase price did not materially exceed the value of the assets
acquired.

Had these acquisitions occurred at the beginning of the respective periods,
the Company's pro-forma consolidated results for the year ended December 31,
1999, would not be materially different from those presented in the Consolidated
Statements of Operations.

8. PROPERTY, PLANT AND EQUIPMENT

As a result of the D-DTH disposition, as described in note 2, the net value
of disposed property, plant and equipment was $86,428,000, and consists of D-DTH
equipment of $80,824,000, vehicles of $625,000 and other of $4,979,000.

Between April 1, and November 8, 1999, the Company was selling D-DTH
reception systems to customers. Prior to April 1, 1999, the systems were leased
to customers, classified as fixed assets and depreciated over 5 years. Due to
this change in 1999, the Company classified reception systems as

62

inventory. As a result, the Company wrote down the value of all reception
systems acquired after April 1, 1999 and before November 8, 1999 to their net
realizable value. The effect of the change was to increase operating loss by
approximately $8,852,000, and $19,891,000 for the five months of 1999 and seven
months of 1999, respectively. Due to the change of ownership of the Company in
connection with the Merger, beginning November 8, 1999 the Company returned to
leasing its D-DTH reception systems and as a result there was no similar one off
cost in 2000. The Company has impaired the value of D-DTH boxes leased to
customers, that have been disconnected and where it is unlikely for the Company
to recover the value of the boxes. The amount of impairment in 2001, 2000 and
for the five months of 1999 was $22,322,000, $7,734,000, and $1,091,000,
respectively.

The Company incurred depreciation charges for tangible fixed assets of
$60,879,000, $48,052,000, $14,079,000 and $19,733,000 for the year ended
December 31, 2001, 2000 and for the five months of 1999 and seven months of
1999, respectively.

9. INTANGIBLE ASSETS

Intangible assets consist of the following:

As a result of the D-DTH disposition, as described in note 2, net goodwill
amounting to $470,497,000 has been included as a component of the Loss on
Disposal of the D-DTH Business.

The Acquisition was accounted for under the purchase method of accounting,
with all of the purchase accounting adjustments "pushed-down" to the
consolidated financial statements of the Company. Accordingly, the purchase
price was allocated to the underlying assets and liabilities based upon their
estimated fair values and any excess to goodwill. The Company restated some of
its assets and liabilities at August 5, 1999. At this date the notes of the
Company and PCI were restated by $61.9 million and deferred financing costs of
$16.1 million and deferred revenue of $2.0 million were written down to zero.
The consideration paid by UPC for all shares outstanding, warrants and options
totaled $812.5 million. At this time the Company had negative net assets of
approximately $53.3 million and existing goodwill at net book value of
$37.5 million which was realized on previous transactions.

As a result of the above considerations, UPC recognized goodwill of
approximately $979.3 million for the year ended December 31, 1999. During the
year ended December 31, 2000, this figure increased by $12.3 million to
$991.6 million mainly due to the results of an arbitration between the Company
and TKP. As a result of the Acquisition, UPC pushed down its basis to the
Company establishing a new basis of accounting as of the acquisition date. The
Company incurred amortization charges for intangible assets of $65,163,000,
$61,451,000, $26,110,000 and $4,194,000 for the year ended December 31, 2001,
2000 and five and seven months of 1999, respectively.

63

10. PROGRAMMING AND BROADCAST RIGHTS

Programming and broadcast rights include approximately $0 and $10,317,000
paid for certain broadcast rights purchased as of December 31, 2001 and 2000,
respectively, but not yet available for viewing. Following the Canal+ merger, no
such rights existed as of December 31, 2001.

11. INVESTMENTS IN AFFILIATED COMPANIES

The Company's related investment balances in its affiliated Companies as of
December 31, 2001 and 2000 are as follows:

Investment in affiliated companies at December 31, 2001 consists of 25%
common stock of TKP and 20% of the common stock of Fox Kids Poland Ltd. ("FKP");
and in 2000 consist of 30% of common stock of Mazowiecki Klub Sportowy Sportowa
Spolka Akcyjna ("MKS"), 20% of the common stock of FKP and 50% of the common
stock of Twoj Styl Sp. z o.o. ("Twoj Styl").

For the period of twenty four days ended 31 December 2001, the Company
recorded a loss related to TKP investment of $7,721,000.

On February 25, 1999, the Company purchased for approximately $1.8 million a
30% interest in MKS, a joint stock company, which owns Hoop Pekaes Pruszkow, a
Polish basketball team. In connection with this purchase UPC Polska, Inc. has
agreed to act as a sponsor for Hoop Pekaes Pruszkow. During November and
December of 2001, the Company entered into various agreements with Central
Capital Investments Ltd and its affiliates ("PJG"). As a result of these
agreements, UPC Polska transferred its 30% interest in common stock of MKS to
PJG. The Company has recorded a $5,048,000 loss on this transaction.

For the period of one year ended December 31, 2001 and 2000, and for five
and seven months of 1999 the Company recorded a gain/(loss) related to this
investment of $68,000, $(380,000), $(325,000) and $(473,000), respectively.

In December 1997, the Company acquired a 20% interest in FKP, a joint
venture formed to provide programming to the Company for an aggregate purchase
price of approximately $10,000,000. The purchase price exceeded the fair value
of the Company's ownership percentage of net assets by approximately
$10,000,000. During 1998, the Company contributed an additional $4,926,000 to
the joint

64

venture which was accounted for as an additional investment in affiliated
companies. These differences are being amortized over five years as a charge to
equity in profits of affiliated companies.

For the years ended December 31, 2001 and 2000, and for the five months of
1999, and seven months of 1999, the Company recorded losses related to this
investment of $671,000, $1,000,000, $333,000 and $445,000, respectively.

In December 1997, the Company acquired a 50% interest in Twoj Styl, a
magazine publishing company for an aggregate purchase price of approximately
$11,100,000. In 1998, the Company paid approximately $302,000 for stamp duty and
professional fees, which was added to the cost of the investment. The purchase
price exceeded the fair value of the Company's ownership percentage of net
assets by approximately $9,600,000. This difference was amortized over fifteen
years as a charge to equity in income of affiliated companies. In addition, the
Company agreed to provide additional future financing to Twoj Styl, either debt
or equity, of up to $7,700,000 to develop Polish-language programming and
ancillary services. This additional financing has never been provided to Twoj
Styl. On October 29, 2001 the Company entered into the share sale agreement with
Polska Grupa Interim Sp. z o.o. (PGI) pursuant to which UPC Polska sold 10,000
shares of Wydawnictwo Prasowe Twoj Styl Sp. z o.o. (WPTS), representing a 50%
interest in WPTS for consideration of $7,260,000 in cash and incurred costs on
the transaction of approximately $260,000. The Company has recorded a $1,456,000
loss on this transaction.

For the year ended December 31, 2001 and 2000, and five months of 1999 and
seven months of 1999, the Company recorded a (loss)/profit related to this
investment of $(466,000), $485,000, $367,000, and $(86,000), respectively.

It was not practical to estimate the market value of other investments in
affiliated companies due to the nature of these investments, the relatively
short existence of the affiliated companies and the absence of quoted market
price for the affiliated companies. Because these acquisitions occurred only
shortly before the Acquisition, the historical investments costs were assessed
as the fair values.

12. INCOME TAXES

Income tax (expense)/benefit consists of:

65

Sources of loss before income taxes and minority interest are presented as
follows:

Income tax expense for the year ended December 31, 2001 and for 2000 and for
five months of 1999, seven months of 1999 and the year ended December 31, 1998
differed from the amounts computed by applying the U.S. federal income tax rate
of 34 percent to pre-tax loss as a result of the following:

The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:

The net increase in the valuation allowance for the years ended
December 31, 2001 and 2000 and five and seven months of 1999 was $52,733,000,
$25,353,000, $33,722,000 and $29,932,000, respectively. In assessing the
realiability of deferred tax assets, management considers whether it is more
likely than

66

not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at December 31, 2001.

As each of the Polish, Netherlands and UK subsidiaries of the Company are
not subject to group taxation, the deferred tax assets and liabilities in the
individual companies must be evaluated on a stand-alone basis. The reported
foreign net operating losses are presented on an aggregate basis and are not
necessarily indicative of the actual losses available to the individual
companies. As a result, some of the foreign subsidiaries may have no losses or
other deferred tax assets available to them individually. Subsequently
recognized tax benefits relating to the valuation allowance for deferred tax
assets as of December 31, 2001 will be reported in the consolidated statement of
operations.

Prior to 1999, foreign losses carryforwards can be offset against Polish
subsidiaries taxable income and utilized at rate of one-third per year in each
of the three years subsequent to the year of loss. If there is no taxable income
in a given year during the carryforward period, the portion of the loss
carryforward to be utilized is permanently forfeited. Foreign loss carryforwards
starting from 1999 can be offset against the Polish subsidiaries taxable income
and utilized during each of the five years subsequent to the year of the loss
with no more than 50% of the loss in one given year. For losses incurred in U.S.
taxable years prior to 1998, loss carryforwards can be applied against taxable
income three years retroactively and fifteen years into the future. For losses
incurred in U.S. taxable years from 1998, loss carryforwards can be applied
against taxable income two years retroactively and twenty years into the future.
As of December 31, 2001, the Company has approximately $237.0 million of U.S.
net operating loss carryforwards.

At December 31, 2001, the Company has foreign net operating loss
carryforwards of approximately $105,055,000 which will expire as follows:

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13. NOTES PAYABLE AND OFFER TO REPURCHASE NOTES

Notes payable excluding amounts due to UPC and its affiliates consist of the
following:

NOTES PAYABLE TO RCI

In settlement of legal claims against the Company, on August 28, 2001, the
Company itself and through its subsidiary issued promissory notes for
$17 million, which promissory notes accrue interest at 7% per annum and are
payable in increments over a period of 36 months in cash or UPC common stock, at
the payor's election. The Company intends to repay these notes in 2002.

UPC POLSKA NOTES

On January 27, 1999, the Company sold 256,800 units (collectively, the
"Units") to two initial purchasers pursuant to a purchase agreement, each Unit
consisting of $1,000 principal amount at maturity of 14 1/2% Senior Discount
Notes (the "Notes") due 2009 and four warrants (each a "Warrant"), each
initially entitling the holder thereof to purchase 1.7656 shares of common
stock, par value $0.01per share at an exercise price of $9.125 per share,
subject to adjustment. The Notes were issued at a discount to their aggregate
principal amount at maturity and, together with the Warrants generated gross
proceeds to the Company of approximately $100,003,000, of which $92,551,000 has
been allocated to the initial accreted value of the Notes and approximately
$7,452,000 has been allocated to the Warrants.

The Notes are unsubordinated and unsecured obligations. Cash interest on the
Notes will not accrue prior to February 1, 2004. Thereafter cash interest will
accrue at a rate of 14.5% per annum on the principal amount and will be payable
semiannually in arrears on August 1 and February 1 of each year, commencing
August 1, 2004. The Notes will mature on February 1, 2009. At any time prior to
February 1, 2002, the Company may redeem up to a maximum of 35% of the
originally issued aggregate principal amount at maturity of the Notes at a
redemption price equal to 117.5% of the accreted value thereof at the redemption
date, plus accrued and unpaid interest, if any, to the date of redemption with
some or all of the net cash proceeds of one or more public equity offerings;
provided, however, that not less than 65% of the originally issued aggregate
principal amount at maturity of the Notes remain outstanding immediately after
giving effect to such redemption.

The Warrants initially entitled the holders thereof to purchase 1,813,665
shares of common stock, representing, in the aggregate, approximately 5% of the
outstanding common stock on a fully-diluted basis (using the treasury stock
method) immediately after giving effect to the Units offering and the Company's
offering of Series A 12% Cumulative Preference Shares and Series B 12%
Cumulative Preference Shares. In July and August 1999 certain warrant holders
executed their right to purchase

68

common stock (see note 13). The remaining unexercised Warrants were redeemed in
connection with the Merger.

On January 20, 1999, the Company sold $36,001,000 aggregate principal amount
at maturity of Series C Senior Discount Notes (collectively the "Series C
Notes") due 2008. The Series C Notes are senior unsecured obligations of the
Company ranking PARI PASSU in right of payment with all other existing and
future unsubordinated obligations of the Company. The Series C Notes were issued
at a discount to their aggregate principal amount at maturity and generated
gross proceeds to the Company of approximately $9,815,000. Cash interest on the
Series C Notes will not accrue prior to July 15, 2004. Thereafter cash interest
will accrue at a rate of 7.0% per annum on the principal amount at maturity, and
will be payable semiannually in arrears on July 15 and January 15 of each year
commencing January 15, 2005. The Series C Notes will mature on July 15, 2008.

On July 14, 1998, the Company sold 252,000 units (collectively, the "Units")
to two initial purchasers pursuant to a purchase agreement, each Unit consisting
of $1,000 principal amount at maturity of 14 1/2% Senior Discount Notes (the
"Discount Notes") due 2008 and four warrants (each a "Warrant"), each initially
entitling the holder thereof to purchase 1.81 shares of common stock, par value
$0.01 per share (the "Common Stock") at an exercise price of $13.20 per share,
subject to adjustment.

The Discount Notes were issued at a discount to their aggregate principal
amount at maturity and, together with the Warrants generated gross proceeds to
the Company of approximately $125,100,000 of which $117,485,000 has been
allocated to the initial accreted value of the Discount Notes and approximately
$7,615,000 has been allocated to the Warrants. The portion of the proceeds that
is allocable to the Warrants was accounted for as part of paid-in capital. The
allocation was made based on the relative fair values of the two securities at
the time of issuance. Net proceeds to the Company after deducting initial
purchasers' discount and offering expenses were approximately $118,972,000.

The Discount Notes are unsubordinated and unsecured obligations. Cash
interest on the Discount Notes will not accrue prior to July 15, 2003.
Thereafter cash interest will accrue at a rate of 14.5% per annum and will be
payable semiannually in arrears on January 15 and July 15 of each year,
commencing January 15, 2004. The Discount Notes will mature on July 15, 2008. At
any time prior to July 15, 2001, the Company may redeem up to a maximum of 25%
of the originally issued aggregate principal amount at maturity of the Discount
Notes at a redemption price equal to 114.5% of the accreted value thereof at the
redemption date, plus accrued and unpaid interest, if any, to the date of
redemption with some or all of the net cash proceeds of one or more public
equity offerings; provided, however, that not less than 75% of the originally
issued aggregate principal amount at maturity of the Discount Notes remains
outstanding immediately after giving effect to such redemption. The effective
interest rate of the Discount Notes is approximately 16.5%.

The Warrants initially entitled the holders thereof to purchase 1,824,514
shares of Common Stock, representing, in the aggregate, approximately 5% of the
outstanding Common Stock on a fully-diluted basis immediately after giving
effect to the sale of the Units. The Warrants were exercisable at any time and
will expire on July 15, 2008. The remaining unexercised Warrants were redeemed
in connection with the Merger.

Pursuant to the Indenture governing the Notes, Series C Notes, and the
Discount Notes (the "Indenture"), the Company is subject to certain restrictions
and covenants, including, without limitation, covenants with respect to the
following matters: (i) limitations on additional indebtedness; (ii) limitations
on restricted payments; (iii) limitations on issuance and sales of capital stock
of restricted subsidiaries; (iv) limitations on transactions with affiliates;
(v) limitations on liens; (vi) limitations on guarantees of indebtedness by
restricted subsidiaries; (vii) purchase of Notes upon a change of control;
(viii) limitations on sale of assets; (ix) limitations on dividends and other
payment restrictions affecting restricted subsidiaries; (x) limitations on
investments in unrestricted subsidiaries;

69

(xi) consolidations, mergers, and sale of assets; (xii) limitations on lines of
business; and (xiii) provision of financial statements and reports. As of
December 31, 2001 the Company is in compliance with these covenants. However, as
discussed further in Note 4, there is a risk that the Company could experience
an Event of Default during 2002. As this risk has been assessed by the Company
and the Company has determined it is not "virtually certain", the Company
continues to reflect these Notes as long-term.

PCI NOTES

On October 31, 1996, PCI sold $130,000,000 aggregate principal amount of
Senior Notes ("PCI Notes") to an initial purchaser pursuant to a purchase
agreement. The initial purchaser subsequently completed a private placement of
the PCI Notes. In June 1997, substantially all of the outstanding PCI Notes were
exchanged for an equal aggregate principal amount of publicly-registered PCI
Notes.

The PCI Notes have an interest rate of 9 7/8% and a maturity date of
November 1, 2003. Interest is paid on the PCI Notes on May 1 and November 1 of
each year. As of December 31, 2001 and 2000 PCI accrued interest expense of
$240,000 and $236,000, respectively. Prior to November 1, 1999, PCI could have
redeemed up to a maximum of 33% of the initially outstanding aggregate principal
amount of the PCI Notes with some or all of the net proceeds of one or more
public equity offerings at a redemption price equal to 109.875% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption; provided that immediately after giving effect to such redemption, at
least $87 million aggregate principal amount of the PCI Notes remains
outstanding.

PCI has pledged to State Street Bank and Trust Company, the trustee for the
PCI Notes (for the benefit of the holders of the PCI Notes) intercompany notes
issued by PCBV, of a minimum aggregate principal amount (together with cash and
cash equivalents of PCI), equal to at least 110% of the outstanding principal
amount of the PCI Notes, and that, in the aggregate, provide cash collateral or
bear interest and provide for principal repayments, as the case may be, in
amounts sufficient to pay interest on the PCI Notes. Notes payable from PCBV to
PCI were $249,765,000 and $210,530,000 at December 31, 2001 and 2000,
respectively.

Pursuant to the PCI Indenture, PCI is subject to certain restrictions and
covenants, including, without limitation, covenants with respect to the
following matters: (i) limitations on additional indebtedness; (ii) limitations
on restricted payments; (iii) limitations on issuances and sales of capital
stock of restricted subsidiaries; (iv) limitations on transactions with
affiliates; (v) limitations on liens; (vi) limitations on guarantees of
indebtedness by subsidiaries; (vii) purchase of PCI Notes upon a change of
control; (viii) limitations on sale of assets; (ix) limitations on dividends and
other payment restrictions affecting subsidiaries; (x) limitations on
investments in unrestricted subsidiaries; (xi) consolidations, mergers and sale
of assets; (xii) limitations on lines of business; and (xiii) provision of
financial statements and reports. As of December 31, 2001, the Company was in
compliance with such covenants. However, as discussed further in Note 4, there
is a risk that the Company could experience an Event of Default during 2002. As
this risk has been assessed by the Company and the Company has determined it is
not "virtually certain", the Company continues to reflect these Notes as
long-term.

Pursuant to the terms of the indentures covering each of the UPC Polska
Notes and the PCI Notes (as defined hereinafter), which provided that, following
a Change of Control (as defined therein), each holder of UPC Polska Notes and
PCI Notes had the right, at such holder's option, to require the Company and
PCI, respectively to offer to repurchase all or a portion of such holder's UPC
Polska Notes and PCI Notes. The Company and PCI made offers to repurchase (the
"Offers") from the holders of UPC Polska's 14 1/2% Series B Senior Discount
Notes due 2008, 14 1/2% Senior Discount Notes due 2008, Series C Senior Discount
Notes due 2008, 14 1/2% Series B Senior Discount Notes due 2009, and 14 1/2%
Senior Discount Notes due 2009 (collectively, the "UPC Polska Notes") and PCI's
9 7/8% Series B Senior Notes Due 2003 and 9 7/8% Senior Notes Due 2003
(collectively, the "PCI Notes"). The Offers expired at 12:01 PM, New York City
time, on November 2, 1999.

70

The Company was required to offer to repurchase the UPC Polska Notes at 101%
of their accreted value per $1,000 principal amount of UPC Polska Notes at
maturity on the Expiration Date plus accrued and unpaid interest and PCI was
required to offer to repurchase the PCI Notes at their purchase price of $1,010
per $1,000 principal amount of the PCI Notes, which is 101% per $1,000 principal
amount of the PCI. As of August 5, 1999, the Company had $376,943,000 aggregate
principal amount at maturity of UPC Polska Notes outstanding and PCI had
$130,000,000 aggregate principal amount at maturity of PCI Notes outstanding.
Pursuant to its repurchase offer, the Company has purchased $49,139,000
aggregate principal amount of UPC Polska Notes for an aggregate price of
$26,455,014, and PCI has purchased $113,237,000 aggregate principal amount of
PCI Notes for an aggregate price of $114,369,370. In December 1999 and
March 2000, PCI repurchased an additional $2,000,000 and $390,000, respectively,
aggregate principal amount of PCI Notes for an aggregate price of $2,040,024 and
$402,944, respectively. PCI's repurchases were funded by the sale of 14,000
shares of PCI's Mandatorily Redeemable Debenture Stock to the Company for
$140 million. To secure its obligations under the Debenture Stock, PCI has
pledged to the Company notes issued by its subsidiary PCBV with an aggregate
principal amount of $176,815,000. The PCI Noteholders are equally and ratably
secured by the pledge in accordance with the terms of the PCI Indenture.

NOTES PAYABLE TO UPC AND ITS AFFILIATES

As of December 31, 2001 and 2000, the Company had loans payable to UPC and
its affiliate of approximately $444,479,000 and $365,497,000, respectively. The
amounts include accrued interest of approximately $44,331,000 and $32,055,000 as
of December 31, 2001 and 2000, respectively. All of the interest was accrued in
the years 2001 and 2000. The loans bear interest at a rate of 11.0% per annum
and mature in 2007 and 2009. Loans from UPC with an aggregate principal amount
of $150.0 million have been subordinated to the UPC Polska Notes. The agreements
related to these notes contain various covenants, including a material adverse
change covenant which provides UPC with the right to subjectively accelerate
payment on these loans, as described more completely in Note 4. Additionally,
one of the loans contains a provision, which would require the Company to
accelerate payment on the outstanding amount if there is an Event of Default
under either of the UPC senior notes which is not cured or waived within the
applicable grace period and which causes those notes to be accelerated. As a
result of these provisions, the debt has been reflected as a current liability.

BANK ROZWOJU EKSPORTU S.A. DEUTSCHE-MARK FACILITY

The Deutsche Mark credit of DEM 1,101,750 was revalued to Euros as of
September 30, 2001 at the exchange rate of 0.5113 of Euro to DEM. This credit
bears interest at LIBOR plus 2.0% (5.33% as at December 31, 2001) and is
repayable in full on December 27, 2002, and is ultimately secured by a pledge of
the common shares of one of the Company's subsidiaries.

Interest expense relating to notes payable was in the aggregate
approximately $95,538,000, $73,984,000, $24,459,000 and $28,818,000 for the year
2001, 2000 and for the five months of 1999, the seven months of 1999,
respectively.

71

FAIR VALUE OF FINANCIAL INSTRUMENTS AND MATURITY AMOUNTS

Fair value is based on market prices for the same or similar issues.
Carrying value is used when a market price is unavailable.

14. PREFERENCE OFFERINGS

On January 22, 1999, the Company sold 50,000 (45,000 Series A and 5,000
Series B) 12% Cumulative Redeemable Preference Shares (collectively "the
Preference Shares") and 50,000 Warrants (each a "Preference Warrant") each
Preference Warrant initially entitling the holders thereof to purchase 110
shares of common stock, par value $0.01 per share, of the Company at an exercise
price of $10.00 per share, subject to adjustment. The Preference Shares together
with the Preference Warrants generated gross proceeds to the Company of
$50,000,000 of which approximately $28,812,000 has been allocated to the initial
unaccreted value of the Preference Shares (net of commissions and offering costs
payable by the Company of approximately $1,700,000), and approximately
$19,483,000 has been allocated to the Preference Warrants.

The Series A 12% Cumulative Redeemable Preference Shares, the Series A 12%
Cumulative Redeemable Preference Shares and the Preference Warrants issued in
the Preference offering were registered on a registration statement on
Form S-3. This registration statement was declared effective on July 2, 1999.

In the Tender Offer, initiated pursuant to the Agreement and Plan of Merger
with UPC and Bison, UPC acquired 100% of the outstanding Series A and Series B
12% Cumulative Redeemable Preference Shares, and the Preference Warrants.

15. RELATED PARTY TRANSACTIONS

During the ordinary course of business, the Company enters into transactions
with related parties. The principal related party transactions are described
below.

PROGRAMMING

Programming is provided to the Company by certain of its affiliates. The
Company incurred programming fees from these affiliates of $5,756,000 for the
year ended December 31, 2001, $1,800,000

72

for the year ended December 31, 2000 and $1,745,000 and $1,025,000 for five and
seven months of 1999, respectively.

The Company has provided certain programming and broadcast services to UPC's
affiliates. The total revenue from these services amounted to $3,305,000 and
$12,469,000 for the years 2001 and 2000, respectively. The amounts receivable in
relation to these services were $0 and $12,469,000 as of December 31, 2001 and
2000, respectively.

MANAGEMENT CHARGES

During the fourth quarter of the year 2000 and during the year 2001, the
Company was invoiced $5,190,000 (equivalent of EUR 6,000,000) and $10,290,000
(equivalent of EUR 11,206,000), respectively, for general management services
("GSA") from UPC. The above charges are reflected as a component of selling,
general and administration in the Consolidated Statements of Operations.

INTEREST EXPENSE

During the year 2001 the Company incurred interest expense in relation to
the loans payable to UPC and its affiliates of $44,331,000 as compared to
$32,055,000 in year 2000 and $2,804,000 in the five month period of 1999.

16. PER SHARE INFORMATION

Basic loss per share has been computed by dividing net loss attributable to
common stockholders by the weighted average number of common shares outstanding
during the year. The effect of potential common shares (stock options and
warrants outstanding) is antidilutive, accordingly, dilutive loss per share is
the same as basic loss per share. As of August 5, 1999 and December 31, 1998
options for 3,904,250 and 3,924,000 shares, respectively were excluded from the
calculation of earnings per share.

The following table provides a reconciliation of the numerator and
denominator in the loss per share calculation:

17. CAPITAL CONTRIBUTIONS

During the years ended December 31, 2001 and 2000, UPC made capital
contributions of $48,451,000 and $50,562,000, respectively, in cash.

18. STOCK OPTION PLANS

UPC POLSKA, INC. (FORMERLY @ENTERTAINMENT, INC.) STOCK OPTION PLAN

On June 22, 1997, the Company adopted its own stock option plan (the "1997
Plan") pursuant to which the Company's Board of Directors may grant stock
options to officers, key employees and

73

consultants of the Company. The 1997 Plan authorizes grants of options to
purchase up to 4,436,000 shares, subject to adjustment in accordance with the
1997 Plan. At December 31, 1998, options for 3,924,000 shares had been granted.
Of this amount, 1,671,000 options became exercisable upon the IPO but could not
be sold for a period of two years from July 30, 1997.

The Company granted 1,671,000 stock options in January 1997 at a price
substantially below the IPO price of $21.00 per share. Such options vested in
full upon the completion of the IPO. In accordance with generally accepted
accounting principles, the Company recognized approximately $18,102,000 of
compensation expense included in selling, general, and administrative expenses
for these options in 1997 representing the difference between the exercise price
of the options and the fair market value of the shares on the date of grant.

Future stock options were granted with an exercise price that must be at
least equal to the stock's fair market value at the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of stock of the Company, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value on the
grant date and the maximum term of an incentive stock option must not exceed
five years. The term of all other options granted under the 1997 Plan may not
exceed ten years. Options become exercisable at such times as determined by the
Board of Directors and as set forth in the individual stock option agreements.
Generally, all stock options vest ratably over 2 to 5 years commencing one year
after the date of grant.

In February 1999 a number of the Company's employees were granted options
under this plan to purchase 700,000 shares of common stock at a price of $14.30
per share, vesting ratably over a three-year period starting from January 1,
2000. The exercise price of such options exceeded the quoted market price for
the Company's shares on the date of grant. All stock options were cancelled and
paid in cash in full in connection with the Merger.

Stock option activity during the periods indicated is as follows:

The per share weighted-average fair value of stock options granted during
1999 was $2.82 on the date of grant using the Black Scholes option-pricing
model. The following weighted-average assumptions were used; expected volatility
of 53%, expected dividend yield 0.0%, risk-free interest rate of 4.78%, and an
expected life of 4 years, for 1999.

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UPC STOCK OPTION PLAN

In June 1996, UPC Polska Inc.'s parent company, UPC, adopted a stock option
plan (the "Plan") for certain of its employees and those of its subsidiaries.
During 2000, management of UPC Polska Inc. were granted options by the parent
company under this plan.

There are 18,000,000 total shares available for the granting of options
under the Plan. Each option represents the right to acquire a certificate
representing the economic value of one share. The options are granted at fair
market value determined by UPC's Supervisory Board at the time of the grant. The
maximum term that the options can be exercised is five years from the date of
the grant. The vesting period for grants of options is four years, vesting in
equal monthly increments. Upon termination of an employee (except in the case of
death, disability or the like), vested options must be exercised, within
30 days of the termination date. The Supervisory Board of UPC may alter these
vesting schedules at its discretion. An employee has the right at any time to
put his certificates or shares from exercised vested options at a price equal to
the fair market value. The Company can also call such certificates or shares for
a cash payment upon termination in order to avoid dilution, except for certain
awards, which can not be called by the Company until expiration of the
underlying options. The Plan also contains anti-dilution protection and provides
that, in the case of change of control, the acquiring company has the right to
require UPC to acquire all of the options outstanding at the per share value
determined in the transaction giving rise to the change of control.

For purposes of the proforma disclosures presented below, UPC, and
consequently UPC Polska Inc., have computed the fair values of all options
granted during the year ended December 31, 2001 and 2000 periods, using the
Black-Scholes multiple-option pricing model and the following weighted-average
assumptions:

Risk-free interest rate..................................... 4.60%
Expected life regular options............................... 5 years
Expected volatility......................................... 74.14%
Expected dividend yield..................................... 0%

Based upon the Black-Scholes multiple option model, the total fair value of
options granted was approximately $1.0 million for the year ended December 31,
2000. This amount is amortized using the straight-line method over the vesting
period of the options. Cumulative compensation expense recognized in pro forma
net income, with respect to options that are forfeited prior to vesting, is
adjusted as a reduction of pro forma compensation expense in the period of
forfeiture. For the year ended December 31, 2001, stock-based compensation, net
of the effect of forfeitures and net of actual compensation expense recorded in
the statement of operations was zero. This stock-based compensation had the
following proforma effect on net income (in thousands):

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A summary of stock option activity for the Company's employees participating
in the Plan is as follows:

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

(1) The Weighted Average Exercise Price translated into US dollars at the rate
as at December 31, 2001 amounts to $39.52.

The combined weighted-average fair values and weighted-average exercise
prices of options granted are as follows:

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

(1) The Weighted Average Exercise Price translated into US dollars at the rate
as at December 31, 2001 amounts to $39.52.

The following table summarizes information about stock options outstanding,
vested and exercisable as of December 31, 2001:

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

(1) The Weighted Average Exercise Price translated into US dollars at the rate
as at December 31, 2001 amounts to $39.52.

This Plan has been accounted for as a fixed plan. Compensation expense of
zero was recognized for the year ended December 31, 2001.

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19. LEASES

Total rental expense associated with the operating leases mentioned below
for the years ended December 31, 2001 and 2000 and the five and seven month
periods of 1999 was $20,088,000, $14,745,000, $3,827,000 and $5,358,000,
respectively. As a part of the Canal+ merger, obligations under the leases for
all four Astra transponders, D-DTH technical equipment and building leases were
assigned to TKP. The cost associated with disposed operating leases for the year
ended December 31, 2001 was $11,468,000.

BUILDING LEASES

The Company leases several offices and warehouses within Poland under
cancelable operating leases. The future minimum lease payment as of
December 31, 2001 is $339,000 in 2002.

CONDUIT LEASES

The Company leases space within various telephone duct systems from TPSA
under cancelable operating leases. The TPSA leases expire at various times, and
a substantial portion of the Company's contracts with TPSA permit termination by
TPSA without penalty at any time either immediately upon the occurrence of
certain conditions or upon provision of three to six months notice without
cause. Refer to note 23 for further detail. All of the agreements provide that
TPSA is the manager of the telephone duct system and will lease space within the
ducts to the Company for installation of cable and equipment for the cable
television systems. The lease agreements provide for monthly lease payments that
are adjusted quarterly or annually, except for the Gdansk lease agreement which
provides for an annual adjustment after the sixth year and then remains fixed
through the tenth year of the lease.

Minimum future lease commitments for the aforementioned conduit leases
relate to 2002 and 2003 only, as all leases are cancelable in accordance with
the aforementioned terms. The future minimum lease commitments related to these
conduit leases approximates $1,023,000 at December 31, 2001.

CAR LEASES

The Company has operating car leases with various leasing companies in
Poland. Minimum future lease commitments for the aforementioned car leases as of
December 31, 2001 are $15,000 in 2002, $15,000 in 2003 and $11,000 in 2004.

20. QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)

During the fourth quarter of the year 2000 and the year 2001, the Company
was invoiced $5,190,000 (equivalent of EUR 6,000,000) and $10,290,000
(equivalent of EUR 11,206,000) for general

77

management services ("GSA") from UPC. The above presented adjustment allocates
the GSA expense evenly into each quarter of the year 2000.

21. SEGMENT INFORMATION

Prior to December 7, 2001, UPC Polska, Inc. and its subsidiaries operated in
four business segments, cable television, digital direct-to-home television,
programming, and corporate functions. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. The Company evaluates performance based on profit or loss from
operations before income taxes not including nonrecurring items and foreign
exchange gains and loss. The Company accounts for intersegment sales and
transfers as if the sales or transfers were to third parties, that is, at
current market prices.

The Company classified its business into four segments: (1) cable
television, (2) D-DTH television, (3) programming, and (4) corporate.
Information about the operations of the Company in these different business
segments is set forth below based on the nature of the services offered. During
1999 and in prior years, the Company presented its operations in three business
segments: (1) cable television, (2) D-DTH television and programming, and
(3) corporate. For increased transparency of the D-DTH segment, in
January 2000, management decided to separate its D-DTH operations into two
distinct segments, satellite television and programming. In addition to other
operating statistics, the Company measures its financial performance by EBITDA,
an acronym for earnings before interest, taxes, depreciation and amortization.
The Company defines EBITDA to be net loss adjusted for interest and investment
income, depreciation and amortization, interest expense, foreign currency gains
and losses, equity in losses of affiliated companies, income taxes, gains and
losses of fixed assets disposals, gain and loss of segment disposal, impairment
results, and minority interest. The items excluded from EBITDA are significant
components in understanding and assessing the Company's financial performance.
The Company believes that EBITDA and related measures of cash flow from
operating activities serve as important financial indicators in measuring and
comparing the operating performance of media companies.

As a result of the disposition of the D-DTH business and the resulting
elimination of the programming business in December 2001, beginning January 1,
2002, the Company will begin operating with only one segment, its cable
television.

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EBITDA is not a U.S. GAAP measure of profit and loss or cash flow from
operations and should not be considered as an alternative to cash flows from
operations as a measure of liquidity.

Total long-lived assets as of December 31, 2001 and 2000 and total revenues
for the years 2001 and 2000, and five and seven months of 1999, analyzed by
geographical location are as follows:

During the year 2000, UPC Broadcast Centre Ltd began providing D-DTH
transmission services and purchased and sold programming rights to other
subsidiaries of UPC in Hungary, the Czech Republic and Slovakia.

All of the Company's revenue is derived from activities carried out in
Poland and other countries in Europe. Long-lived assets consist of property,
plant, and equipment, inventories for construction and intangible assets other
than goodwill and other assets.

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22. COMMITMENTS AND CONTINGENCIES

In addition to lease commitments presented in note 19, the Company has the
following commitments and contingencies:

PROGRAMMING, BROADCAST AND EXHIBITION RIGHT COMMITMENTS

The Company has entered into long-term programming agreements and agreements
for the purchase of certain exhibition or broadcast rights with a number of
third party content providers for its cable systems. The agreements have terms
which range from one to twenty years and require that the license fees be paid
either at a fixed amount payable at the time of execution or based upon a
guaranteed minimum number of subscribers connected to the system each month. At
December 31, 2001, the Company had an aggregate minimum commitment in relation
to these agreements of approximately $132,217,000 over the next seventeen years,
approximating $22,211,000 in 2002, $19,804,000 in 2003, $16,812,000 in 2004,
$13,406,000 in 2005 and $59,984,000 in 2006 and thereafter. In connection with
the Canal+ merger, TKP assumed the programming rights and obligations there
directly related to the Company's D-DTH business and assumed the Company's
guarantees relating to the Company's D-DTH business. Pursuant to the Definitive
Agreements for the Canal+ merger, the Company remains contingently liable for
the performance under those assigned contracts. As of December 31, 2001,
management estimates its potential exposure under these assigned contracts to be
$70,091,000.

REGULATORY APPROVALS

The Company is in the process of obtaining permits from the Chairman of URT
for several of its cable television systems. If these permits are not obtained,
URT could impose penalties such as fines or in severe cases, revocation of all
permits held by an operator or the forfeiture of the operator's cable networks.
Management of the Company does not believe that these pending approvals result
in a significant risk to the Company. Additionally, in March 2001, the Company's
subsidiary notified the Chairman of the URT of its activities concerning the
provision of data transmission services and access to Internet.

LITIGATION AND CLAIMS

From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon current knowledge and
facts, management does not expect that their resolution will have a material
adverse effect on the Company's consolidated financial position or results of
operations.

PCBV MINORITY STOCKHOLDER'S CLAIM

On or about July 8, 1999, certain minority shareholders (the minority
shareholders) of Poland Cablevision (Netherlands) B.V. (PCBV), an indirect
subsidiary of the Company, filed a lawsuit against the Company, Poland
Communications, Inc. (PCI) and certain other defendants, in United States
District Court, Southern District of Ohio, Eastern Division, Civil Action
No. C2-99-621. The relief sought by the minority shareholders includes:
(1) unspecified damages in excess of $75,000, (2) an order lifting the
restrictions against transfer of shares set forth in the Shareholders' Agreement
among PCBV's shareholders, as amended (the Shareholders' Agreement) so that the
minority shareholders can liquidate their shares in PCBV, (3) damages in the
amount of 1.7 percent of the payment made by UPC for the shares of the company
as set forth in the Agreement and Plan of Merger between the Company and UPC
dated June 2, 1999, and (4) attorneys' fees and costs incurred in prosecuting
the lawsuit.

The amended complaint sets forth eight claims for relief based on
allegations that the defendants, including the Company and PCI, committed the
following wrongful acts: (1) breached a covenant not

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to compete contained in the Shareholders' Agreement relating to the shareholders
of PCBV, (2) breached a covenant in the Shareholders' Agreement requiring that
any contract entered into by PCBV with any other party affiliated with PCI be
commercially reasonable or be approved by certain of the minority shareholders,
(3) breached a provision in the Shareholders' Agreement that allegedly required
co-defendant Chase International Corp. (CIC) to offer the minority shareholders
the right to participate in certain sales of PCBV shares and that required PCBV,
(4) breached their fiduciary duties to the minority shareholders, (5) breached
the agreement between PCBV and CIC, which allegedly limited the amount of
management fees that could be paid annually by PCBV, (6) made false and
misleading statements in various documents filed with the Securities and
Exchange Commission, (7) colluded to defraud the minority shareholders by
failing to make reference in certain Forms 8-K, 8-KA and 14D-1 to the minority
shareholders or their alleged rights and claims, (8) colluded to divert assets
of PCBV to affiliates of PCI and PCBV, including the Company, that allegedly
competes with PCI and PCBV.

On or about March 31, 2000 the parties to the lawsuit reached a settlement.
In accordance with the settlement, on June 2, 2000, Wizja TV B.V., an affiliate
of PCI, purchased approximately 1.4% of the outstanding shares of PCBV for a
price of approximately $2.2 million. The case has been dismissed and releases
exchanged. The aforementioned settlement does not include the remaining minority
shareholders of PCBV.

In addition to the Ohio lawsuit, other minority shareholders of PCBV
(representing an additional approximately 6% of the shares of PCBV, hereinafter
the Reece Group) have asserted claims against the past and present directors or
officers of, or members of the Board of Managers of, PCI, PCBV and the Company
or one or more controlling shareholders of the Company but have not yet filed
suit.

The claims by the Reece Group consist of allegations previously made by
Reece Communications, Inc. (RCI). RCI's allegations were premised on, among
other things, alleged acts, errors, omissions, misstatements, misleading
statements or breaches of duty by the aforementioned officers, directors, or
controlling shareholders. The Company has negotiated a settlement of those
claims and a simultaneous purchase of the Reece Group's PCBV shares, as well as
the purchase of all other shares of PCBV held by other minority shareholders and
a settlement of their claims. On August 28, 2001, in exchange for the release of
claims and the transfer of all outstanding shares in PCBV held by minority
shareholders, the Company and/or its affiliates paid in the aggregate
approximately $3.6 million in cash at closing and issued promissory notes for
$17 million. See Note 13 for discussion on notes payable to RCI. The Company has
accounted for the $21.2 million as goodwill in the accompanying consolidated
financial statements in accordance with SFAS 141. Accordingly, there has been no
amortization recorded associated with this goodwill.

THE GROUPE JEAN-CLAUDE DARMON PROCEEDING AGAINST WIZJA TV SP. Z O.O.

On January 27, 2000, the Groupe Jean-Claude Darmon (Darmon), a French
company, commenced legal proceedings against Wizja TV Sp. z o.o., a subsidiary
of the Company, and SPN Widzew SSA Sportowa Spolka Akcyjna (Lodz Football Club)
in the Paris Commercial Court (Tribundal de Commerce de Paris).

Wizja TV Sp. z o.o. has been accused of infringing broadcast and advertising
rights which Darmon purports to hold. Darmon has accused Wizja TV Sp. z o.o. of
interrupting the broadcast signal of the UEFA Cup match on October 21, 1999
between Lodz Football Club and AS Monaco. Darmon seeks damages in the amount of
13,025,000 French francs (approximately $1,819,000) from Wizja Sp. z o.o. The
case has been suspended indefinitely as UFA, another rights agency who were
involved in the dispute, Sport+, the sport rights division of Canal+ and Darmon
merged to become a new sport rights agency. The Company is unable to predict the
outcome of this case.

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EAST SERVICES S.A.

On November 23, 2001, an affiliate of East Services S.A. initiated an ex
parte legal action in Polish court against the Company, claiming moneys owned
pursuant to an investment services agreement dated December 2, 1997, as amended
on September 16, 1998. In connection with such claim, the Polish court entered
an injunction against closing of the Canal+ merger on December 3, 2001, which
was served on a Polish affiliate of the Company on December 4, 2001. On
December 7, 2001, the parties settled their dispute, with UPC's affiliate paying
$4.2 million as directed by the claimants and the claimants releasing the
Company from any liability whatsoever relating thereto and delivering
applications to the Polish court to have the injunction lifted. As the dispute
related to the Canal+ merger, the Company has included the $4.2 million as a
component of the loss on disposition.

HBO POLSKA PROCEEDING

Two of the Company's cable television subsidiaries, Telewizja Kablowa
Gosat-Service Sp. z o.o. and PTK S.A., and four unrelated Polish cable operators
and HBO Polska Sp. z o.o. ("HBO Polska") were made defendants in a lawsuit
instituted by Polska Korporacja Telewizyjna Sp. z o.o., an indirect
partially-owned subsidiary of Canal+. The lawsuit was filed in the Provincial
Court in Warsaw, XX Economic Division (Sad Wojewodzki w Warszawie, Wydzial XX
Gospodarczy) (the "Court"). The main defendant in the proceedings is HBO Polska
which is accused of broadcasting HBO television programming in Poland without a
license from the Polish National Radio and Television Council as required by the
Polish Television Act and thereby undertaking an activity constituting an act of
unfair competition. The plaintiff has asked the Court to order HBO Polska to
cease broadcasting of its programming in Poland until it has received a
broadcasting license from the Polish National Radio and Television Council, and
that the defendant cable operators be ordered (i) to cease carrying the HBO
Polska programming on their cable networks in Poland until HBO Polska has
received a broadcasting license from the Polish National Radio and Television
Council, (ii) not to use their current filters for the purpose of unscrambling
the HBO Polska programming, and (iii) in the future, to use effective encoding
systems and systems of controlled access to the HBO Polska programming. The
Company does not believe that the lawsuit will have a material adverse effect on
its business operations.

DIVIDEND RESTRICTIONS

The Company's Polish subsidiaries are only able to distribute dividends to
the extent of accounting profit determined in accordance with Polish Accounting
Principles. As of December 31, 2001, the Company's Polish subsidiaries have no
profit available for distribution as dividends.

23. CONCENTRATIONS OF BUSINESS AND CREDIT RISK

USE OF TPSA CONDUITS

The Company's ability to build out its existing cable television networks
and to integrate acquired systems into its cable television networks depends on,
among other things, the Company's continued ability to design and obtain access
to network routes, and to secure other construction resources, all at reasonable
costs and on satisfactory terms and conditions. Many of such factors are beyond
the control of the Company. In addition, at December 31, 2001, approximately
74.3% of the Company's cable television plant had been constructed utilizing
pre-existing conduits of TPSA. A substantial portion of the Company's contracts
with TPSA allows for termination by TPSA without penalty at any time either
immediately upon the occurrence of certain conditions or upon provision of three
to six months' notice without cause.

In addition, some conduit agreements with TPSA provide that cables can be
installed in the conduit only for the use of cable television. If the Company
uses the cables for a purpose other than cable television, such as data
transmission, telephone, or Internet access, such use could be considered

82

a violation of the terms of certain conduit agreements, unless this use is
expressly authorized by TPSA. There is no guarantee that TPSA would give its
approval to permit other uses of the conduits. The Company is currently in the
process of introducing Internet services to its cable customers and
renegotiating certain conduit agreements with TPSA. As of December 31, 2001, the
Company believes it was not in material violation under any of its existing
conduit agreements.

LIMITED INSURANCE COVERAGE

While the Company carries general liability insurance on its properties,
like many other operators of cable television systems it does not insure the
underground portion of its cable television networks. Accordingly, any
catastrophe affecting a significant portion of the Company's cable television
networks could result in substantial uninsured losses and could have a material
adverse effect on the Company.

CREDIT WORTHINESS

All of the Company's customers are located in Poland. As is typical in this
industry, no single customer accounted for more than five percent of the
Company's sales in 2001 or 2000. The Company estimates an allowance for doubtful
accounts based on the credit worthiness of its customers as well as general
economic conditions. Consequently, an adverse change in those factors could
effect the Company's estimate of its bad debts.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) FINANCIAL STATEMENTS AND SCHEDULES.

The financial statements as set forth under Item 8 of this report on
Form 10-K are incorporated herein by reference. Financial statement schedules
have been omitted since they are either not required, not applicable, or the
information is otherwise included.

(B) REPORTS ON FORM 8-K

The Company filed the following Current Reports on Form 8-K during the
quarter ended December 31, 2001:

Current Report on Form 8-K, filed on December 21, 2001, relating to
consummation of a transaction with Canal+ Group (the television and film
division of Vivendi Universal S.A.) pursuant to which the companies merged their
Polish D-DTH platforms. An amendment to this Current Report was filed on
Form 8-K/A on February 20, 2002, to include pro forma financial information
related to this transaction.

(C) EXHIBIT LISTING

3(i) Amended and Restated Certificate of Incorporation of UPC
Polska, Inc. dated March 7, 2002.

3(ii) Amended and Restated By-Laws of UPC Polska, Inc., dated
January 2000 (incorporated by reference to
Exhibit 3(ii) of the Company's Annual Report on Form 10-K,
filed on April 2, 2001).

4.1 Indenture dated as of July 14, 1998, between the Company and
Bankers Trust Company relating to the 14 1/2% Senior
Discount Notes due 2008 and 14 1/2% Series B Senior Discount
Notes 2008 (incorporated by reference to Exhibit 4.11 of the
Company's Registration Statement on Form S-4, filed on
August 5, 1998).

4.2 Indenture dated as of January 20, 1999 between the Company
and Bankers Trust Company relating to UPC Polska, Inc.
Series C Senior Discount Notes due 2008 (incorporated by
reference to Exhibit 4.1 of the Company's Annual Report on
Form 10-K, filed on April 2, 2001).

4.3 Indenture dated as of January 27, 1999 between the Company
and Bankers Trust Company relating to UPC Polska, Inc.
14 1/2% Senior Discount Notes due 2009 and its 14 1/2%
Series B Senior Discount Notes due 2009 (incorporated by
reference to Exhibit 4.2 of the Company's Annual Report on
Form 10-K, filed on April 2, 2001).

10.1 Shareholders agreement, dated as of August 10, 2001, by and
among the Company, UPC, Canal+, Polska Telewizja Cyfrowa TV
Sp. z o.o. ("PTC") and Telewizyjna Korporacja Partycypacyjna
S.A. ("TKP") (incorporated by reference to Exhibit 2.2 of
the Company's Current Report on Form 8-K, filed on
December 21, 2001).

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10.2 Contribution and Subscription Agreement, dated as of
August 10, 2001, by and among the Company, UPC, Canal+, PTC
and TKP (incorporated by reference to Exhibit 2.3 of the
Company's Current Report on Form 8-K, filed on December 21,
2001).

10.3 Closing Agreement, dated as of December 7, 2001, by and
among the Company, Canal+, PTC and TKP (incorporated by
reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed on December 21, 2001).

10.4 Form of Qualified Loan Agreement dated July 31, 2001,
between Belmarken Holding B.V. and the Company.

10.5 Subordination of right to receive payments under Securities
issued pursuant to the Indentures upon a liquidation of UPC
Polska, Inc. dated August 20, 2001, by UPC.

10.6 Form of Master (Loan) Agreement dated May 24, 2001, between
UPC and the Company.

10.7 Form of Subordinated Master (Loan) Agreement dated
December 31, 1999, between UPC and the Company.

10.8 Amendment Agreement to the Subordinated Master (Loan)
Agreement dated March 26, 2002, between UPC and the
Company.

11 Statement re computation of per share earnings (contained in
Note 16 to Consolidated Financial Statements in this Annual
Report on Form 10-K)

99 Letter re Auditor Representation

No annual report or proxy material is being sent to security holders.

85

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.

UPC POLSKA, INC.

BY: /S/ SIMON BOYD
-----------------------------------------
Simon Boyd
PRESIDENT AND CHIEF EXECUTIVE OFFICER

In accordance with 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 stated.