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UNITED PAN-EUROPE COMMUNICATIONS N.V.
(DEBTOR-IN-POSSESSION)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number: 000-25365

United Pan-Europe Communications N.V.
(Exact name of Registrant as specified in its charter)

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        The number of shares outstanding of the Registrant's common stock as of May 14, 2003 was:

        443,417,525 ordinary shares A, including
shares represented by American Depository Receipts

PART I–FINANCIAL INFORMATION

PART II–OTHER INFORMATION

1

UNITED PAN-EUROPE COMMUNICATIONS N.V.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in thousands of Euros, except par value and number of shares)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

2

The accompanying notes are an integral part of these consolidated financial statements.

3

UNITED PAN-EUROPE COMMUNICATIONS N.V.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in thousands of Euros, except par value and number of shares)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

UNITED PAN-EUROPE COMMUNICATIONS N.V.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(Stated in thousands of Euros, except number of shares)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

UNITED PAN-EUROPE COMMUNICATIONS N.V.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in thousands of Euros)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

UNITED PAN-EUROPE COMMUNICATIONS N.V.

(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     Organization and Nature of Operations

        United Pan-Europe Communications N.V. ("UPC" or the "Company"), a 53.1% owned subsidiary of UnitedGlobalCom Inc, ("United"), was formed for the purpose of acquiring and developing multi-channel television and telecommunications systems in Europe. UPC operates broadband communications networks in 11 European countries through its three primary divisions, UPC Distribution, UPC Media and Priority Telecom. UPC Distribution comprises the local operating systems and provides video, telephone and internet services for residential customers, (Triple Play). UPC Media provides broadband internet and interactive digital products and services, transactional television services such as pay per view movies, digital broadcast and post-production services, and thematic channels for distribution on UPC's network, third party networks and DTH platforms. Priority Telecom focuses on providing network solutions to the business customer. In 2003, as part of the ongoing realignment of the business, UPC has formed an Investments Division, which will manage UPC's non-consolidated investment assets. UPC continues to focus on rationalizing its investment portfolio to maximize value.

        All monetary amounts included in the items of Part I and II of this quarterly report on Form 10 Q are stated in Euros, unless indicated otherwise.

        The following chart presents a summary of the Company's significant investments as of March 31, 2003.

7

8

⁽¹⁾

The above table represents the divisional organization of the group.

⁽²⁾

UPC owns 92.0% of Médiaréseaux S.A. through its 100.0% owned subsidiary UPC France. The 8% minority shareholders in Médiaréseaux S.A. have the right to require UPC to purchase their shares in 2004 at the then fair market value.

⁽³⁾

UPC owns approximately 71.5% of Priority Telecom's issued and outstanding ordinary shares. UPC also owns 100% of the class A shares and the convertible shares of Priority Telecom. UPC owns 97.2% of Priority Telecom on a fully diluted basis.

⁽⁴⁾

On April 9, 2003, UPC sold its 21.2% ownership interest in SBS to UnitedGlobalCom Europe B.V. for 100 million.

2.     Reorganization Under Bankruptcy Code

        Historically, the Company has incurred substantial operating losses and negative cash flows from operations, which have been driven by continuing development efforts, including the introduction of new services such as digital video, telephone and internet. Additionally, substantial capital expenditures have been required to deploy these services and to acquire businesses. Management expects the Company to incur operating losses at least through 2004, primarily as a result of the continued introduction of these new services, which are in the early stages of deployment, as well as continued depreciation expense.

Defaults and Waivers

        In 2002, viewing the Company's funding requirements and the Company's possible lack of access to debt and equity capital in the near term, UPC determined that it would not make interest payments on its senior notes and senior discount notes as they fell due. On February 1, 2002, UPC failed to make required interest payments in the aggregate amount of 113.0 million (USD 100.6 million) on its outstanding 10⁷/8% Senior Notes due 2009, 11¹/4% Senior Notes due 2010 and 11¹/2% Senior Notes due 2010. The indentures related to UPC's senior notes and senior discount notes provide that failing to make interest payments constitutes an "Event of Default" under the notes if UPC is in default of the payment of interest on any of the notes for a period of time in excess of 30 days. Since UPC failed to make the interest payments on the first three series of notes, upon expiration of this 30-day grace period on March 3, 2002, Events of Default occurred under the related indentures. The occurrence of these Events of Default constituted cross Events of Default under the indentures related to the remaining series of senior notes and senior discount notes. The occurrence of the various Events of Default gives the trustees under the related indentures, or requisite number of holders of such notes, the right to accelerate the maturity of all of the Company's senior notes and senior discount notes. In addition, on May 1, 2002, August 1, 2002, November 1, 2002,

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February 1, 2003 and May 1, 2003, the Company failed to make required interest payments in the aggregate amount of 38.9 million, 123.5 million, 36.5 million, 117.8 million and 34.2 million, respectively, on its outstanding 10⁷/8% Senior Notes due 2007 and 11¹/4% Senior Notes due 2009, 10⁷/8% Senior Notes due 2009, and 11¹/4% Senior Notes due 2010 and 11¹/2% Senior Notes due 2010. Neither the trustees for the defaulted notes nor the requisite number of holders of those notes accelerated the payment of principal and interest under those notes.

        UPC's failure to make these interest payments on its senior notes, and the resulting Events of Default under the indentures relating to the senior notes and senior discount notes, gave rise to potential cross events of default under the following credit and loan facilities:

•

the senior secured credit facility among UPC Distribution Holding B.V., UPC's indirect wholly-owned subsidiary ("UPC Distribution"), as Borrower, TD Bank Europe Limited and Toronto Dominion (Texas), Inc., as Facility Agents, and a group of banks and financial institutions (the "UPC Distribution Bank Facility");



•

the revolving loan facility among EWT Elektro & Nachrichtentechnik GmbH, UPC's then majority-owned subsidiary ("EWT"), as Borrower, a group of entities as Guarantors, The Royal Bank of Scotland plc ("RBS") as Facility Agent and Security Agent and a group of financial institutions (the "EWT Facility"); and



•

the USD 856.8 million 6% Guaranteed Discount Notes due 2007 issued under the loan agreement among Belmarken Holding B.V. ("Belmarken"), UPC, UPC Internet Holding B.V. and Liberty Belmarken, Inc. as the original lender (the "Exchangeable Loan"). The Exchangeable Loan was transferred to United in January 2002.

        The UPC Distribution Bank Facility is secured by share pledges to the banks on UPC Distribution Holding B.V., which is the holding company of most companies within the UPC Distribution group, and over certain operating companies within this group. The Exchangeable Loan is secured by pledges over the stock of Belmarken, its wholly owned subsidiary UPC Holding B.V., and UPC Internet Holding B.V., which owns chello broadband N.V. The Company's interest in EWT is held indirectly through UPC Germany GmbH ("UPC Germany"), in which the Company held a 51% interest until July 30, 2002 upon which date the EWT Facility was refinanced by the majority shareholder. The occurrence of matured cross events of default under the UPC Distribution Bank Facility and the Exchangeable Loan would have given the creditors under those facilities the right to accelerate the maturity of the loans and to foreclose upon the collateral securing the loans.

        On March 4, 2002, UPC received the first waivers from the lenders under the UPC Distribution Bank Facility, the EWT Facility and the Exchangeable Loan for the potential cross events of defaults under such facilities that existed or may have existed as a result of its failure to make the interest payment due on February 1, 2002 on its outstanding 10⁷/8% Senior Notes due 2009, 11¹/4% Senior Notes due 2010 and 11¹/2% Senior Notes due 2010 within the applicable cure periods and any resulting cross defaults. During the period from June 4, 2002 to September 27, 2002, the Company received bi-weekly waivers from the bank lenders and United. On September 27, 2002, the bank lenders and United extended the coverage of the waivers to all its outstanding senior notes and senior discount notes and any resulting cross defaults,

10

and the duration of the waivers until March 31, 2003. By entering into the Restructuring Agreement described below, the Company received an extension of the waiver for the Exchangeable Loan until at least September 3, 2003. Pursuant to a letter dated April 4, 2003, the bank lenders extended the duration of the waiver until September 30, 2003.

        The bank waiver will remain effective until the earlier of

•

September 30, 2003;



•

in the event an appeal is brought before the Dutch Supreme Court in relation to the decision of the Amsterdam Court of March 13, 2003 (such an appeal was filed on April 23, 2003), whereby the Akkoord was ratified, the date falling eleven business days after a judgment by the Dutch Supreme Court in relation to such appeal is rendered and has become final and conclusive;



•

if a Dutch Court, a Dutch Court of Appeals or the Dutch Supreme Court renders a judgment that has become final and conclusive that annuls or otherwise reverses or overturns the decision of the Amsterdam Court of March 13, 2003, whereby the Akkoord was ratified or that otherwise has the effect that the Akkoord is no longer effective or cannot be implemented; or



•

the occurrence of any other Event of Default under the respective credit or loan facility that is not covered by the waiver.

        In addition, each of these waivers contains certain other conditions and undertakings and will terminate if there is a default by UPC of the terms of that waiver. The waiver under the UPC Distribution Bank Facility originally subjected UPC to a 100 million drawdown limitation under that facility, subject to certain conditions, during the period in which the waiver is in place. As of May 2, 2003, the Company has met the conditions, as a result, no further limitations on the drawdown under the UPC Distribution Bank Facility exists. In addition, the waiver to the UPC Distribution Bank Facility includes amendments to the UPC Distribution Bank Facility which

•

increase operational headroom for the UPC Distribution group by increasing and extending the maximum permitted ratios of senior debt to annualized EBITDA and by lowering and extending the minimum required ratios of EBITDA to total cash interest and EBITDA to senior debt service;



•

increase the interest margin on outstanding loans under the facility by 1.5%;



•

include a fee of 0.25% on the total commitment amount; and



•

reduce the total commitment amount under the facility to 3.5 billion.

Agreement for Restructuring

        On February 1, 2002, the Company signed a Memorandum of Understanding with United and its subsidiary, UGC Holdings ("the Memorandum of Understanding"). The Memorandum of Understanding is a non-binding agreement in principle with United and UGC Holdings to enter into negotiations with the holders of the Company's senior notes and senior discount notes to attempt to reach agreement on a means to restructure its indebtedness at the holding company level.

11

        During the month of March 2002, UPC met with representatives of United, which currently holds the Exchangeable Loan and a significant portion of the Company's senior notes and senior discount notes, and a steering committee representing the holders of the Company's senior notes and senior discount notes (other than United) to begin preliminary discussions with respect to a process for, and terms of, a restructuring of those notes and the Exchangeable Loan. United and its advisors and the steering committee and its advisors completed the due diligence about the Company and the Company's current financial condition.

        On September 30, 2002, the Company announced that a binding agreement ("the Restructuring Agreement") had been reached with United and the members of the ad hoc noteholders committee on a recapitalization plan for the Company. If implemented under its current terms, the agreed recapitalization will substantially delever its balance sheet eliminating approximately 4.0 billion accreted value of senior notes and senior discount notes, accrued interest on the senior notes of 0.3 billion, 0.9 billion of Exchangeable Loan debt, and 1.7 billion of convertible preference shares (all amounts as of March 31, 2003) in exchange for equity issued by a newly formed Delaware corporation, New UPC, Inc. ("New UPC"). The Restructuring Agreement consists primarily of the following key terms:

•

United will receive approximately 65.5% of New UPC's pro forma equity (subject to dilution under certain circumstances) for the exchange of its 1.4 billion in the Company's notes including accrued interest on the senior notes and its 0.9 billion Exchangeable Loan as of March 31, 2003;



•

third-party noteholders will receive approximately 32.5% of New UPC's pro forma equity for the exchange of their holding of 2.6 billion of the Company's notes (including accrued interest on the senior notes) as of March 31, 2003;



•

approximately 2% of New UPC's pro forma equity will be available for the Company's existing preferred and ordinary shareholders, including United;



•

in addition, United agreed to purchase up to 100 million (the "Maximum Subscription Amount") in shares of New UPC ("New UPC Common Stock") at the consummation of the Company's restructuring, subject to reduction if it sold any assets or raised any non-dilutive capital in the interim. United agreed to purchase the stock at the valuation implied by the restructuring; and



•

the third-party noteholders would have certain board representation and minority rights in New UPC.

        On April 9, 2003, UPC sold six million shares of SBS to UnitedGlobalCom Europe B.V. for 100 million. As the Company completed the sale of its SBS shares to United prior to the completion of the restructuring described below, the proceeds from the sale reduced the Maximum Subscription Amount to zero and, as a result, the Company's third-party noteholders do not have the right to subscribe for any shares of New UPC's common stock. UPC transferred the proceeds from the sale of the SBS shares to UPC Holding B.V., which, in turn, transferred these funds to UPC Distribution Holding B.V., as part of a 125 million funding contemplated in the UPC Distribution Bank Facility waiver.

        Unless the parties agree to an extension, any party to the Restructuring Agreement may terminate its obligations under the agreement after September 3, 2003, the date nine months after the filing of the

12

Chapter 11 Case; however, no creditor may change or withdraw its acceptance or rejection of the Plan (as defined below) absent order of the U.S. Bankruptcy Court (as defined below) for cause shown.

The Plan of Reorganization

        In order to effectuate the restructuring, on December 3, 2002 (the "Petition Date"), the Company filed a petition for relief under Chapter 11 (the "Chapter 11 Case") of the United States Bankruptcy Code (the "U.S. Bankruptcy Code") and the Company filed a pre-negotiated plan of reorganization, dated December 3, 2002 (the "Plan"), with the United States Bankruptcy Court for the Southern District of New York (the "U.S. Bankruptcy Court"). The first amended Plan was filed with the U.S. Bankruptcy Court on December 23, 2002 and second amended Plan was filed with the U.S. Bankruptcy Court on January 7, 2003. The Plan, as amended and modified by the first modifications dated February 18, 2003, was confirmed by the U.S. Bankruptcy Court on February 20, 2003. In general, the Plan provides for the transfer of New UPC common stock for various claims against, and equity interests in, the Company, as contemplated by the Memorandum of Understanding and Restructuring Agreement.

Akkoord

        In order to achieve fully the restructuring, including the distributions contemplated by the Plan, it was also necessary to effect the restructuring under the laws of certain non-U.S. jurisdictions, including Dutch law. Accordingly, in conjunction with the commencement of the Chapter 11 Case, on December 3, 2002, the Company commenced a moratorium of payments in The Netherlands under Dutch bankruptcy law (the "Dutch Bankruptcy Case"). On December 3, 2002, the Company filed a proposed plan of compulsory composition (the "Akkoord") with the Amsterdam Court (Rechtbank) (the "District Court") under the Dutch Faillissementswet (the "Dutch Bankruptcy Code"). The Company submitted a revision to the Akkoord to the District Court on December 23, 2002 and a subsequent revision on January 7, 2003. The District Court ratified the Akkoord on March 13, 2003. On March 21, 2003, InterComm Holdings L.L.C. ("ICH"), a creditor in the Dutch moratorium proceeding with a EUR 1.00 claim and one vote, based on a claim against the Company, appealed the District Court's ratification of the Akkoord. On April 15, 2003, the Dutch Court of Appeals confirmed the judgment by the District Court of March 13, 2003 that ratified the Akkoord. On April 23, 2003, ICH appealed the ratification of the Akkoord to the Dutch Supreme Court. The Dutch Supreme Court has scheduled briefs to be submitted by May 23, 2003 and is expected to rule on the appeal expeditiously. UPC believes the appeal is without merit. The U.S. Bankruptcy Court has already overruled a similar objection brought by ICH in the parallel United States Chapter 11 process. UPC does not expect that this appeal will affect the successful completion of UPC's restructuring, which in all other respects has been finalized. The appeal, however, is expected to delay completion of the restructuring beyond June 30, 2003.

Dutch Implementing Offer

        Unlike the U.S. Bankruptcy Code, the Dutch Bankruptcy Code does not provide for the Akkoord to reorganize or cancel any of the equity interests, ownership interests or shares in the Company. Therefore, in order to facilitate implementation of the Plan with respect to certain of the UPC Ordinary Shares A in accordance with Dutch law, New UPC commenced an offer, solely with respect to holders of UPC

13

Ordinary Shares A who were not U.S. Persons (as defined in Rule 902(k) of Regulation S promulgated under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act"), "U.S. Persons") and were not located or residing within the United States, to deliver shares of New UPC common stock to such holders of UPC Ordinary Shares A in consideration for the delivery by such holders of their UPC Ordinary Shares A to New UPC (the "Dutch Implementing Offer").

Extraordinary General Meeting of Shareholders

        Similarly, the Dutch Bankruptcy Code does not provide for the Dutch Bankruptcy Case to exempt compliance from otherwise applicable corporate law. Therefore, in order to facilitate implementation of the Plan, the Company held an extraordinary meeting of the holders of the UPC Ordinary Shares A, the UPC Priority Shares and the UPC Preference Shares A (the "Extraordinary General Meeting") to approve certain amendments to the Company's Articles of Association and other shareholder proposals (the "Shareholder Proposals").

        At UPC's Extraordinary General Meeting of shareholders, which was held on February 19, 2003, the following amendments were adopted:

•

proposal to amend the Company's Articles of Association (the "First Amendment") to



(i)

decrease the nominal value of each issued and outstanding UPC Ordinary Share A from 1.00 to 0.02 without repayment; and



(ii)

decrease the nominal value of each UPC Priority Share and UPC Preference Share A from 1.00 to 0.02 without repayment.



•

proposal to amend the Company's Articles of Association (the "Second Amendment") to



(i)

decrease the number of authorized UPC Ordinary Shares A to 450,000,000;



(ii)

remove the UPC Preference Shares A from the authorized capital of the Company;



(iii)

authorize a new class of 50,000,000,000 registered Ordinary Shares C ("UPC Ordinary Shares C") with a nominal value of 0.02;



(iv)

in the event Dutch law allows the issuance of nonvoting stock, prohibit the issuance of nonvoting stock and prohibit cooperation in connection with the issuance of depository receipts; and



(v)

remove the UPC Ordinary Shares B and the UPC Preference Shares B from the authorized capital of the Company;

14

•

proposal to convert the UPC Preference Shares A on a one-for-one basis into registered UPC Ordinary Shares A, effective upon the Second Amendment and the Effective Date;



•

proposal to amend the Company's Articles of Association (effective on the later to occur of the Effective Date and the date of the delisting of the UPC Ordinary Shares A from Euronext Amsterdam N.V.) (the "Third Amendment") to provide that the Company will have Articles of Association of a non-listed company, including, inter alia, provisions:



(i)

allowing registered shares;



(ii)

restricting transfers of shares;



(iii)

amending the management structure of the Company to a one-tier board (i.e., that the Company's Supervisory Board will be eliminated, the holders of the UPC Priority Shares will have certain rights with respect to the Company's Board of Management and the Company's Board of Management will consist of one or more members);



(iv)

authorizing holders of UPC Ordinary Shares A to exercise the rights attached to their UPC Ordinary Shares A only upon exchange of their bearer UPC Ordinary Shares A into registered UPC Ordinary Shares A; and



(v)

as soon as all the Company's issued shares in the Company are held by one shareholder, converting each issued UPC Priority Shares into one UPC Ordinary Share C, and all powers of the holders of the UPC Priority Shares under UPC's Articles of Association of the Company vesting, to the extent possible, in the general meeting of shareholders of the Company.

Summary of Status of the Restructuring

        As of the date of the filing of this Quarterly Report on Form 10-Q, the restructuring of the Company has not been completed, but is in the final stages. The Plan, which provides for the transfer of New UPC common stock for various claims against, and equity interests in the Company, has been confirmed by the U.S. Bankruptcy Court. In addition, the Akkoord, which was filed to effect the restructuring under Dutch law, has been ratified by the District Court. An appeal was filed against the ratification of the Akkoord, and on April 15, 2003, the Dutch Court of Appeals confirmed the judgment by the District Court. On April 23, 2003, a further appeal was filed with the Dutch Supreme Court, but the Company believes it is without merit and intends to oppose it vigorously. The Dutch Supreme Court has scheduled briefs to be submitted by May 23, 2003. The Dutch Implementing Offer, which was scheduled to expire on April 24, 2003, has been extended to June 30, 2003. The Dutch Implementing Offer will become unconditional on the Effective Date of the Plan and the settlement of the Dutch Implementing Offer will occur no later than five Euronext business days after the Dutch Implementing Offer becomes unconditional. Certain amendments to UPC's Articles of Association were adopted during an Extraordinary General Meeting of its shareholders. One of the amendments was effective immediately, two amendments will become effective upon the Effective Date of the Plan and the remaining amendments will become effective upon the later to occur of the effective date of the Plan and the date of the delisting of the Company's Ordinary

15

Shares A from Euronext Amsterdam. The Plan and the Akkoord are expected to become effective and the Company's restructuring complete soon after the appeal against the Akkoord is resolved. From and after the Effective Date of the Plan, the Company expects to operate its businesses and properties as a reorganized entity pursuant to the terms of the Plan.

        UPC believes subscriber growth has been impacted in some countries by the Company's financial restructuring; however, the Company believes the restructuring has not had a material adverse effect on its subsidiaries or its relationships with suppliers and employees.

        UPC has experienced net losses since formation. As of March 31, 2003, as a result of the events of default and potential cross events of default as described above, UPC's senior notes, senior discount notes, the Exchangeable Loan and the UPC Distribution Bank Facility have been classified as current liabilities and there is substantial uncertainty whether UPC's sources of capital, working capital and projected operating cash flow will be sufficient to fund the Company's expenditures and service the Company's indebtedness over the next year. Accordingly, there is substantial doubt regarding the Company's ability to continue as a going concern. UPC's ability to continue as a going concern is dependent on (i) completion of the restructuring and (ii) UPC's ability to generate the cash flows required to enable it to recover the carrying value of the Company's assets and satisfy the Company's liabilities, in the normal course of business, at the amounts stated in the consolidated financial statements. Due to the uncertainty of UPC's ability to continue as a going concern, the Report of Independent Accountant in the audited financial statements for the year ended December 31, 2002, includes a modification in this respect. Following the successful completion of the planned restructuring, UPC believes that the Company will have sufficient sources of capital, working capital and operating cash flows to enable the Company to continue as a going concern.

        As part of the Plan, the Company has rejected certain leases and contracts, as allowed by the Bankruptcy Code.

3.     Basis of Presentation

Basis of Presentation

        As discussed in Note 2, the Company filed a petition for relief under Chapter 11 of the U.S Bankruptcy Code and the Company filed a Plan with the U.S. Bankruptcy Court. In order to fully achieve the restructuring, including the distributions contemplated by the Plan, it was also necessary to effect the restructuring under the laws of certain non-U.S. jurisdictions, including Dutch law. Accordingly, in conjunction with the commencement of the Chapter 11 Case, on December 3, 2002, the Company commenced a moratorium of payments in The Netherlands under Dutch bankruptcy law. The petition affects only the Company's Dutch corporate parent and does not include any of its subsidiaries. UPC is operating its business as a debtor-in-possession.

        The accompanying consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles. The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

16

and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The financial statements have been prepared on a going-concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities and commitments in the normal cause of business. As a result of the Company's recurring losses from operations and net capital deficiency, and the Chapter 11 Case and related circumstances, realization of assets and liquidation of liabilities are subject to significant uncertainty. These matters, among others, raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern depends on, among other things, its ability to successfully complete the financial restructuring and maintain business and financial operations consistent with those expected in the Plan (see Note 2).

        While operating as a debtor-in-possession, the Company may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements. Further, the Plan could materially change the amounts and classifications reported in the consolidated financial statements.

        In connection with the Chapter 11 Case, the Company is required to prepare its consolidated financial statements as of March 31, 2003, in accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under Bankruptcy Code ("SOP 90-7"), issued by the American Institute of Certified Public Accountants. In accordance with SOP 90–7, all of the Company's pre-petition liabilities that are subject to compromise under the proposed Plan are segregated in the Company's consolidated balance sheet as liabilities and convertible preferred stock subject to compromise. These liabilities and the convertible preferred stock are recorded at the amounts expected to be allowed as claims in the Chapter 11 Case rather than at the estimated amounts for which those allowed claims may be settled as a result of the approval of the Plan. The amounts for Chapter 11 related reorganization expenses included in the consolidated debtor-in-possession statement of operations consist of professional fees of 7.6 million for the three months period ended March 31, 2003.

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        Liabilities and convertible preferred stock included in the consolidated debtor-in-possession balance sheet as of March 31, 2003, which are subject to compromise under the terms of the Plan, are summarized as follows (in thousands of Euros):

        In accordance with SOP 90–7 interest expense is reported only to the extent that it will be paid during the bankruptcy proceedings or that it is an allowed claim. The interest expense allowed as a claim is nil for the three months ended March 31, 2003. The contractual interest expense is 122.1 million for the three months ended March 31, 2003.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation. The Company adopted Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS 145"). SFAS 145 required the Company to reclassify gains and losses associated with the extinguishment of debt from extraordinary classification to other income (expense) in the accompanying condensed consolidated statements of operations. For the three months ended March 31, 2002, a total of 124.5 million in gains associated with the extinguishment of debt is included in other income (expense).

New Accounting Principles

        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 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 Company has adopted SFAS 143 and determined, that based on its analyses, that although it has asset

18

retirement obligations relating to certain contracts, it cannot make a reasonable estimate of the fair value of the liability due to the contingent nature of the obligation and uncertainty about the timing of the settlement, if any. To date, the Company has not made any cash payments with respect to the settlement of any potential asset retirement obligation.

        In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities-an Interpretation of ARB No. 51 ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for variable interest entities created or acquired after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003 for variable interest entities created or acquired prior to February 1, 2003. The Company is currently evaluating the potential impact, if any, the adoption of FIN 46 will have on its financial position and results of operations.

Stock-Based Compensation

        The Company accounts for its stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB 25"). The Company has provided pro forma disclosures of net loss as if the fair value based method of accounting for these plans, as prescribed by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, ("SFAS 123"), had been applied. SFAS 123 is amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure and Amendment of FASB Statement No. 123 ("SFAS 148"). The intrinsic value method results in compensation expense for the difference between the grant price and the fair market value at each new measurement date. In addition, the Company, chello broadband and Priority Telecom have stock-based compensation plans which are equivalent to stock appreciation rights. Accordingly, variable plan accounting is used in which compensation expense and deferred compensation is recorded based on the difference between the grant price and the market value of the underlying shares at each financial statement date. For our plans, which follow fixed plan accounting, compensation expense and deferred compensation is recorded based on the difference between the grant price and the market value of the underlying shares at grant date. The Company has adopted the disclosure requirements of SFAS 123.

        Based upon Black-Scholes single option pricing model, the total aggregate fair value of options granted was nil for the three-month period ended March 31, 2003. The amount of the total aggregate fair values is being 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. Stock-based compensation, net of the effect of forfeitures and net of actual compensation expense recorded in the statement of operations, was 17.3 million and 20.4 million, for the three month period ended March 31,

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2003 and March 31, 2002, respectively. This stock-based compensation had the following pro forma effect on net income (in thousands):

4.     Acquisition, Disposition and Other

Tevel

        UPC's 100% indirect subsidiary, Cable Network Zuid-oost Brabant Holding B.V. ("Cable Brabant"), holds through its 100% subsidiary U.C.T. Netherlands B.V. ("UCTN") and its 100% subsidiary, Tishdoret Achzakot Ltd ("Tishdoret"), a 46% interest in Tevel Israel Communications Ltd. ("Tevel") the largest cable operator in Israel. The economic and regulatory situation in Israel together with the instability in the region led the Company to write the value of this minority investment down to zero at the year end 2001. On April 22, 2002, Tevel filed for court protection from creditors and a trustee was appointed by the Israeli Court to form a plan of reorganization. In connection with the original acquisition of the cable assets in Israel, Cable Brabant is indebted to the First International Bank of Israel in the principal amount of 55 million ("the FiBI loan"), which was due, together with accrued interest, on November 9, 2002. The FiBI loan is secured by a pledge of half of the shares in Tevel. UPC's indirect subsidiary Cable Brabant sold all of its material assets (including the shares in UCTN, and indirectly the shares in Tishdoret and Tevel) to the First International Bank of Israel. The parties consider this to be the full repayment of the FiBI loan of approximately 69 million. This transaction closed on February 24, 2003, resulting in a gain of approximately 69 million from the extinguishment of this obligation.

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5.     Property, Plant and Equipment

6.     Goodwill and Other Intangible Assets

        The following table presents the movement of net goodwill during 2003:

        The following table presents other intangible assets, as of March 31, 2003 and December 31, 2002:

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        The aggregate amortization expense on goodwill and other intangibles for the three months ended March 31, 2003 and 2002 was 3.2 million and 9.8 million, respectively. The Company's future estimated amortization expenses are as follows:

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7.     Long-Term Debt

⁽¹⁾

As discussed in Note 2 "Reorganization Under Bankruptcy Code", since March 3, 2002, the Company has been in default under its senior notes and senior discount notes and has received short term waivers with respect to the UPC Distribution Bank Facility and the Exchangeable Loan. Accordingly, these borrowings have been reclassified to the current portion of long-term debt. All non- Euro denominated borrowings are recorded each period using the period end spot rate with the result being recorded as foreign exchange gain or loss.

        The UPC Polska Notes are currently classified as long term debt on the basis of waivers that UPC Polska has obtained regarding certain covenant violations, on loans it owes to the Company and its affiliates. These waivers extend until April 1, 2004, but are subject to early termination upon the occurrence of certain conditions, including termination of waivers on certain cross defaults on the Company's and its affiliates loans. If such cross defaults or other conditions were to occur and would not be cured, the waivers on UPC Polska's loans from the Company and its affiliates could terminate, which in turn could allow the UPC Polska Notes to be accelerated.

8.     Guarantees, Commitments and Contingencies

Guarantees

        The Company has entered into agreements that contain features, which meet the definition of a guarantee under FIN 45. FIN 45 defines a guarantee to be a contract that contingently requires the Company to make payments (either in cash, financial instruments, other assets, common shares of the Company or through provision of services) to a third party based upon changes in an underlying economic characteristic (such as interest rates or market value) that is related to an asset, a liability or an equity

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security of the other party. The Company has the following major types of guarantees that are subject to the disclosure requirements of FIN 45:

Business sale agreements

        In connection with agreements for the sale of portions of the Company's business, including certain discontinued operations, the Company typically retained the liabilities of a business, which relate to events occurring prior to its sale, such as tax, environmental, litigation and employment matters. The Company generally indemnifies the purchaser of its business in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically extend for a number of years.

        The Company is unable to estimate the maximum potential liability for these types of indemnification guarantees as the business sale agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and the likelihood of which cannot be determined at this time.

        Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

Lease agreements

        The Digital Media Center ("DMC") sub-lease transponder capacity to a third party. Under this sub-lease agreement, the Company guaranteed certain performance criteria. These issued performance guarantees are fully matched with the guarantees received under the lease agreements between UPC and the third party.

Indemnification of lenders and agents under credit facilities

        Under its credit facilities, the Company has agreed to indemnify its lenders under such facilities against costs or losses resulting from changes in laws and regulation, which would increase the lenders' costs, and for legal action brought against the lenders. These indemnifications generally extend for the term of the credit facilities and do not provide for any limit on the maximum potential liability.

        Historically, the Company has not made any significant indemnification payments under such agreements and no material amounts have been accrued in the accompanying financial statements with respect to these indemnification guarantees.

Other indemnification agreements

        The DMC has third party contracts for the play out of channels from the DMC, which require the DMC to perform according to industry standard practice, with penalties attached should performance drop below the agreed criteria. Additionally, UPC Media's interactive service group also entered into third party contracts for the delivery of interactive content with certain performance criteria guarantees.

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        The Company has certain franchise obligations under which the Company must meet performance requirements to construct networks under certain circumstances. Non-performance of these obligations could result in penalties being levied against the Company. The Company continues to meet its obligations so as not to incur such penalties.

        In the ordinary course of business, the Company provides customers with certain performance guarantees, should a service outage occur in excess of a certain period in time, UPC will compensate those customers for the outage.

        Historically, the Company has not made any significant payments under any of these indemnifications or guarantees. In certain cases, due to the nature of the agreement, the Company has not been able to estimate its maximum potential loss, the maximum potential loss has not been specified.

Litigation and Claims

        The following is a description of certain legal proceedings to which UPC or one of UPC's subsidiaries is a party. In addition, from time to time, UPC may become involved in litigation relating to claims arising out of our operations in the normal course of the Company's business. In the opinion of the Company's management, the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on UPC's subsidiaries' business, results of operations, financial condition or liquidity. As these legal proceedings are resolved, to the extent that UPC has any liability and such liability is owed by the Company, and to the extent the Plan and Akkoord become effective, UPC will distribute shares of New UPC Common Stock as provided under the Plan and the Akkoord in satisfaction of such claim.

        On July 4, 2001, InterComm Holdings L.L.C., InterComm France CVOHA ("ICF I"), InterComm France II CVOHA ("ICF II"), and Reflex Participations ("Reflex"), collectively with ICF I and ICF II, the "ICF Party") served a demand for arbitration on UPC, UGC Holdings, and its subsidiaries, Belmarken and UPC France Holding B.V. The claimants allege breaches of obligations allegedly owed by UPC in connection with the ICF Party's position as a minority shareholder in Médiaréseaux S.A. The claimants seek relief in the nature of immediate acceleration of an alleged right to require UPC or an affiliate to purchase all or any of the remaining shares in Médiareséaux S.A. from the ICF Party and/or compensatory damages, but in either case for a maximum of 192 million, plus reasonable fees and costs. The ICF Party has not specified from which entity it is seeking such relief however, UGC Holdings is not a party to any agreement with the claimants and has been dismissed from the proceedings. UPC and its affiliates, as respondents, deny these claims. UPC is vigorously defending the arbitration proceedings and has filed appropriate counter claims. The ICF party withdrew its claims on January 31, 2003; this arbitration is however still pending as a result of the decision of UPC and its affiliates to maintain their counterclaims. On February 14, 2003, the ICF Party served a new demand for arbitration on UPC, Belmarken and UPC France in which the ICF Party filed again claims similar to those withdrawn on January 31, 2003. UPC and its affiliates have answered such new demand for arbitration on April 29, 2003 and will, again deny vigorously the merit of these claims.

        On December 3, 2002, UPC filed a petition for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. For further details, please see Note 2 "Reorganization Under Bankruptcy Code".

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        In order to achieve fully the restructuring contemplated by the Plan under the U.S. Chapter 11 Case, including the distributions contemplated by the Plan, it was also necessary to effect the restructuring under the laws of certain non-U.S. jurisdictions, including Dutch law. Accordingly, in conjunction with the commencement of the U.S. Chapter 11 Case, on December 3, 2002, UPC commenced the "Dutch Bankruptcy Case. On December 3, 2002, UPC filed the Akkoord with the "Dutch Bankruptcy Court" under the Dutch Bankruptcy Code. UPC submitted a revision to the Akkoord to the Dutch Bankruptcy Court on December 23, 2002 and a subsequent revision on January 7, 2003. The Dutch Bankruptcy Court ratified the Akkoord on March 13, 2003. On March 21, 2003, InterComm Holdings L.L.C. ("ICH"), a creditor in the Dutch moratorium proceeding with a EUR 1.00 claim and one vote, based on a claim against the Company, appealed the District Court's ratification of the Akkoord. On April 15, 2003, the Dutch Court of Appeals confirmed the judgment by the District Court of March 13, 2003 that ratified the Akkoord. On April 23, 2003, ICH appealed the ratification of the Akkoord to the Dutch Supreme Court. The Dutch Supreme Court has scheduled briefs to be submitted by May 23, 2003 and is expected to rule on the appeal expeditiously. UPC believes the appeal is without merit. The U.S. Bankruptcy Court has already overruled a similar objection brought by ICH in the parallel United States Chapter 11 process. UPC does not expect that this appeal will affect the successful completion of UPC's restructuring, which in all other respects has been finalized. The appeal, however, is expected to delay completion of the restructuring beyond June 30, 2003.

        On December 3, 2002, Europe Movieco Partners Limited ("Movieco") filed a request for arbitration (the "Request") against the Company with the International Court of Arbitration of the International Chamber of Commerce. The Request contains claims, which are based on a cable affiliation agreement entered into between the parties on December 21, 1999 (the "CAA"). The arbitral proceedings were suspended from December 17, 2002 to March 18, 2003. They have been reactivated and are currently pending. Movieco claims (i) USD 11.3 million plus interest, (ii) USD 3.8 million (or such higher sum as may be due at the date of the award), plus interest (iii) legal and arbitration costs (iv) an order for specific performance of the CAA or, in the alternative, damages for breach of that agreement, to be assessed. UPC has denied the claims in their entirety and has filed counterclaims.

9.     Stockholders' Deficit

Accumulated Other Comprehensive Income (Loss)

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Number of Shares Potentially Exercisable

        As of March 31, 2003, the aggregate number of shares potentially exercisable under the Company's stock option plans and shares which could be issued as a result of conversion of convertible securities issued by the Company, were as follows:

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10.     Segments and Geographic Information

        The Company's business has historically been derived from cable television. Commencing in 1998, the Company began launching telephone and internet services over parts of its upgraded network. The Company is managed internally as three primary businesses, UPC Distribution, UPC Media and Priority Telecom (with the UPC Media division managing the chello broadband and programming businesses). UPC Distribution focuses on providing cable television, DTH, internet and telephone services to residential customers and is comprised of the local operating systems. UPC Media includes, chello broadband, the internet access provider, and UPCtv, which provides video content and programming as well as UPC's digital products. UPC Media provides broadband internet and interactive digital products and services, transactional television services such as pay per view movies, digital broadcast and post production services, and thematic channels for distribution on our network, third party networks and DTH platforms. Priority Telecom is focused on providing telephone and internet services to business customers. In 2003, UPC has formed an Investment Division, which manages UPC's non-consolidated investment assets.

        The Company evaluates performance and allocates resources based on the results of these divisions. The key operating performance criteria used in this evaluation include revenue growth and "Adjusted EBITDA". Adjusted EBITDA is not a generally accepted accounting principle ("GAAP") measure. The most directly comparable financial measure to Adjusted EBITDA that is calculated and presented in accordance with GAAP is income (loss) before income taxes and other items. Adjusted EBITDA represents net operating earnings before depreciation, amortization, stock-based compensation charges, and impairment and restructuring charges. Adjusted EBITDA is one of the primary measures used by the Company's chief decision makers to measure the Company's operating results and to measure segment profitability and performance. Management believes that Adjusted EBITDA is meaningful to investors because it provides an analysis of operating results using the same measures used by the Company's chief decision makers, that Adjusted EBITDA provides investors with the means to evaluate the financial results of the Company compared to other companies within the same industry and it is common practice for institutional investors and investment bankers to use various multiples of current or projected Adjusted EBITDA for purposes of estimating current or prospective enterprise value. The Company's calculation of Adjusted EBITDA may or may not be consistent with the calculation of this measure by other companies in the same industry. Investors should not view adjusted EBITDA as an alternative to GAAP measure of income as a measure of performance, or to cash flows from operating investing and financing activities as a measure of liquidity. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. Adjusted EBITDA excludes non-cash and cash stock-based compensation charges, which result from the Company's and its subsidiaries' stock option and phantom stock option plans.

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        A summary of the segment information by geographic area is as follows:

⁽¹⁾

Triple Play includes cable television, telephone, internet and digital for residential customers, offered on a standalone basis or as a bundle.

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⁽¹⁾

Digital is included in Cable Television.

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⁽¹⁾

Triple Play includes cable television, telephone, internet and digital for residential customers, offered on a standalone basis or as a bundle.

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        Following is a reconciliation of Adjusted EBITDA to UPC's net income (loss) before income taxes and other items for the three months ended March 31, 2003 and 2002.