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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

(Mark One)  

ý

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

For the quarter ended March 31, 2003

or

o

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: 000-25365


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

The Netherlands
(State or other jurisdiction of
incorporation or organization)
  98-0191997
(I.R.S. Employer
Identification No.)

Boeing Avenue 53,
Schiphol Rijk, The Netherlands

(Address of principal executive offices)

 

1119 PE
(Zip code)

(31) 20-778-9840
(Registrant's telephone number, including area code)

        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

 
 
  Page
Number

Item 1– Financial Statements    
  Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002   2
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002   4
  Condensed Consolidated Statements of Shareholders' Equity (Deficit) for the Three Months Ended March 31, 2003   5
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002   6
  Notes to Condensed Consolidated Financial Statements   7

Item 2–

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

35

Item 3–

Quantitative and Qualitative Disclosure About Market Risk

 

48

Item 4–

Controls and Procedures

 

53


PART II–OTHER INFORMATION

 
 
  Page
Number


Item 1–

Legal Proceedings

 

54

Item 2–

Changes in Securities and Use of Proceeds

 

54

Item 3–

Defaults Upon Senior Securities

 

54

Item 4–

Submission of Matters to a Vote of Security Holders

 

54

Item 5–

Other Information

 

54

Item 6–

Exhibits and Reports on Form 8-K

 

57

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)

 
  As of
March 31,
2003

  As of
December 31,
2002

ASSETS:        
Current assets        
  Cash and cash equivalents   248,839   255,062
  Restricted cash   36,412   18,352
  Subscriber receivables, net of allowance for doubtful accounts of 43,572 and 52,232, respectively   95,679   95,526
  Costs to be reimbursed by affiliated companies   5,850   4,054
  Other receivables   38,055   40,588
  Deferred financing costs, net   56,284   59,375
  Prepaid expenses and other current assets   83,532   79,345
   
 
    Total current assets   564,651   552,302
Marketable equity securities of parent, at fair value   15,618   12,760
Investments in and advances to affiliated companies   105,854   114,575
Property, plant and equipment, net   3,016,594   3,175,363
Goodwill, net   990,822   995,946
Other intangible assets, net   73,595   76,331
Derivative assets   976  
Other assets   6,159   3,740
   
 
    Total assets   4,774,269   4,931,017
   
 

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

2


 
  As of
March 31,
2003

  As of
December 31,
2002

 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):          
Current liabilities          
Not subject to compromise:          
  Accounts payable, including related party payables of 5,908 and 5,189 respectively   161,672   166,679  
  Accrued liabilities   256,091   281,211  
  Subscriber prepayments and deposits   170,105   121,749  
  Derivative liabilities     10,133  
  Short-term debt   59,535   58,363  
  Current portion of long-term debt   3,147,014   3,212,302  
   
 
 
    Total current liabilities not subject to compromise   3,794,417   3,850,437  
   
 
 
Subject to compromise:          
  Accounts payable   36,889   36,889  
  Accrued liabilities   342,309   351,500  
  Current portion of long-term debt, including related party debt of 2,280,824 and 2,358,380 respectively   4,881,701   5,043,346  
   
 
 
    Total current liabilities subject to compromise   5,260,899   5,431,735  
   
 
 
Long-term liabilities not subject to compromise:   .      
  Long term debt   420,589   427,444  
  Deferred gain on sale of assets   150,321   150,321  
  Other long-term liabilities   81,826   83,999  
   
 
 
    Total long-term liabilities not subject to compromise   652,736   661,764  
   
 
 
Commitments and contingencies (Note 8)          
Minority interests in subsidiaries   1,541   1,660  
   
 
 
Convertible preferred stock subject to compromise:          
  Convertible preferred stock   1,664,689   1,664,689  
   
 
 
Shareholders' equity (deficit)          
  Priority stock, 0.02 par value, 300 shares authorized, issued and outstanding      
  Ordinary stock, 0.02 par value, 1,000,000,000 shares authorized, 443,417,525 shares issued and outstanding   8,868   443,418  
  Additional paid-in capital   3,175,136   2,740,586  
  Deferred compensation   (12,995 ) (16,888 )
  Accumulated deficit   (10,007,307 ) (10,053,630 )
  Accumulated other comprehensive income   236,285   207,246  
   
 
 
    Total shareholders' equity (deficit)   (6,600,013 ) (6,679,268 )
   
 
 
    Total liabilities and shareholders' equity (deficit)   4,774,269   4,931,017  
   
 
 

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)

 
  For the Three Months
Ended March 31,

 
 
  2003
  2002
 
Service and other revenue   359,100   346,312  
Operating expense (exclusive of items shown separately below)   (158,423 ) (188,031 )
Selling, general and administrative expense   (98,082 ) (110,257 )
Depreciation and amortization   (166,616 ) (172,632 )
Impairment and restructuring charges     (3,943 )
   
 
 
    Operating income (loss)   (64,021 ) (128,551 )
Interest income   3,569   5,985  
Interest expense   (82,377 ) (171,789 )
Interest expense-related party     (58,416 )
Foreign currency exchange gain (loss)   133,355   (56,057 )
Other income (expense), net   66,486   (62,429 )
   
 
 
    Net income (loss) before income taxes and other items   57,012   (471,257 )
Reorganization expenses, net   (7,641 )  
Income tax benefit (expense)   (488 ) 1,244  
Minority interests in subsidiaries   (65 ) (190 )
Share in results of affiliates, net   (2,495 ) (21,303 )
   
 
 
    Income (loss) before cumulative effect of change in accounting principle   46,323   (491,506 )
Cumulative effect of change in accounting principle     (1,498,871 )
   
 
 
    Net income (loss)   46,323   (1,990,377 )
   
 
 
Basic and diluted net income (loss) attributable to common shareholders   46,323   (2,026,182 )
   
 
 
Net income (loss) per common share:          
  Basic net income (loss) per ordinary share before cumulative effect of change in accounting principle   0.10   (1.19 )
  Cumulative effect of change in accounting principle     (3.38 )
   
 
 
    Basic net income (loss)   0.10   (4.57 )
   
 
 
  Diluted net income (loss) per ordinary share before cumulative effect of change in accounting principle.   0.07   (1.19 )
  Cumulative effect of change in accounting principle     (3.38 )
   
 
 
    Diluted net income (loss)   0.07   (4.57 )
   
 
 
Weighted-average number of ordinary shares outstanding:          
  Basic   443,417,525   443,417,525  
   
 
 
  Diluted   645,504,396   443,417,525  
   
 
 
Other comprehensive income (loss), net of tax:          
  Net income (loss)   46,323   (1,990,377 )
  Foreign currency translation adjustments   19,777   (43,995 )
  Change in fair value of derivative assets   6,402   8,002  
  Change in unrealized gain in available-for-sale securities   2,860   3,008  
   
 
 
    Comprehensive income (loss)   75,362   (2,023,362 )
   
 
 

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)

 
  Priority Stock
  Ordinary Stock
   
   
   
  Accumulated
Other
Comprehensive
Income

   
 
 
  Additional
Paid-In
Capital

  Deferred
Compensation

  Accumulated
Deficit

   
 
 
  Shares
  Amount
  Shares
  Amount
  Total
 
Balances, December 31, 2002   300     443,417,525   443,418   2,740,586   (16,888 ) (10,053,630 ) 207,246   (6,679,268 )
Decrease in nominal value         (434,550 ) 434,550          
Amortization of deferred compensation             3,893       3,893  
Net income               46,323     46,323  
Unrealized gain in available-for-sale securities                 2,860   2,860  
Change in fair value of derivative assets                 6,402   6,402  
Change in foreign currency translation adjustments.                 19,777   19,777  
   
 
 
 
 
 
 
 
 
 
Balances, March 31, 2003   300     443,417,525   8,868   3,175,136   (12,995 ) (10,007,307 ) 236,285   (6,600,013 )
   
 
 
 
 
 
 
 
 
 

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)

 
  For the Three Months
Ended March 31,

 
 
  2003
  2002
 
Cash flows from operating activities:          
Net income (loss)   46,323   (1,990,377 )
Adjustments to reconcile net income (loss) to net cash flows from operating activities:          
  Depreciation and amortization   166,616   172,632  
  Non cash impairment and restructuring charges     3,943  
  Reorganization expenses   7,641    
  Stock-based compensation expense   3,893   6,790  
  Accretion of interest expense   12,693   90,418  
  Amortization of deferred financing costs   3,235   4,926  
  Foreign exchange (gain) losses,net   (128,421 ) 59,059  
  Loss on derivative assets   4,383   177,809  
  Cumulative effect of change in accounting principle     1,498,871  
  Minority interests in subsidiaries   65   190  
  Share in results of affiliated companies   2,495   21,303  
  Gain on extinguishment of liabilities     (124,511 )
  Gain on DIC loan   (69,364 )  
  Other   (113 ) 2,978  
  Changes in assets and liabilities:          
    Decrease in restricted cash     30,314  
    Increase in receivables   (4,070 ) (1,874 )
    Increase (decrease) in other current liabilities   16,499   (40,249 )
    Increase in deferred taxes and other long-term liabilities   8,667   26,252  
   
 
 
Net cash flows from operating activities   70,542   (61,526 )
   
 
 
Cash flows from investing activities:          
Restricted cash deposited, net   (18,060 )  
Purchase of derivatives   (9,090 )  
Dividends received     8,031  
Capital expenditures   (42,915 ) (102,017 )
Proceeds received from the sale of assets   663    
Acquisitions, net of cash acquired     (24,060 )
   
 
 
Net cash flows from investing activities   (69,402 ) (118,046 )
   
 
 
Cash flows from financing activities:          
Proceeds from long-term and short-term borrowings   1,381   657  
Repayments of long-term and short-term borrowings   (3,810 ) (31,874 )
   
 
 
Net cash flows from financing activities   (2,429 ) (31,217 )
   
 
 
Effect of exchange rates on cash   (4,934 ) (3,002 )
   
 
 
Net decrease in cash and cash equivalents   (6,223 ) (213,791 )
Cash and cash equivalents at beginning of period   255,062   855,001  
   
 
 
Cash and cash equivalents at end of period   248,839   641,210  
   
 
 

Supplemental cash flow disclosures:

 

 

 

 

 
  Cash paid for reorganization expenses   (2,868 )  
   
 
 
  Cash paid for interest   (63,703 ) (10,680 )
   
 
 
  Cash received for interest   2,200   7,786  
   
 
 

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.

 
  UPC's Equity
Ownership(1)

 
UPC Distribution:      

Austria:

 

 

 
  Telekabel Group   95.0%  

Belgium:

 

 

 
  UPC Belgium   100.0%  

Czech Republic:

 

 

 
  KabelNet   100.0%  
  Kabel Plus   99.9%  

France:

 

 

 
  Médiaréseaux S.A   92.0% (2)

Hungary:

 

 

 
  UPC Magyarorszag   100.0%  
  Monor Telefon Tarsasag Rt. ("Monor")   98.9%  

The Netherlands:

 

 

 
  UPC Nederland   100.0%  

Norway:

 

 

 
  UPC Norge AS ("UPC Norge")   100.0%  

Sweden:

 

 

 
  UPC Sweden   100.0%  
       

7



Slovak Republic:

 

 

 
  Trnavatel   95.0%  
  Kabeltel   100.0%  
  UPC Slovensko s.r.o   100.0%  

Romania:

 

 

 
  Eurosat   100.0%  
  AST Romania   100.0%  

Poland:

 

 

 
  UPC Polska, Inc ("UPC Polska")   100.0%  
  Wizja TV B.V   100.0%  

UPC Media:

 

 

 

Pan-European

 

 

 
  chello broadband N.V. ("chello broadband")   85.3%  

The Netherlands:

 

 

 
  UPC Programming B.V. ("UPCtv")   100.0%  
  Extreme Sports Channel VOF   70.0%  

Priority Telecom:

 

 

 
  Priority Telecom N.V. ("Priority Telecom")   71.5% (3)

UPC Investments:

 

 

 

Poland:

 

 

 
  Telewizyjna Korporacja Partycpacyjna S.A. ("TKP")   25.0%  
  Fox Kids Poland Inc   20.0%  

Malta:

 

 

 
  Melita Cable TV P.L.C. ("Melita")   50.0%  

Germany:

 

 

 
  EWT/TSS Group   28.7%  
  PrimaCom AG ("PrimaCom")   25.0%  

Spain:

 

 

 
  Iberian Programming Services ("IPS")   50.0%  

United Kingdom:

 

 

 
  Xtra Music Ltd   50.0%  
  Reality TV Ltd   49.0%  
       

8



Other:

 

 

 
  SBS Broadcasting SA ("SBS")   21.2% (4)
  MTV Polska VOF   50.0%  

(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,

9



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 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


        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

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:


        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:

14


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):

Cinenova   11,667
Philips   25,222
   
  Total accounts payable   36,889
   
Accrued interest   342,309
   
July 1999 notes   1,465,803
October 1999 notes   1,000,295
January 2000 notes   1,554,022
The Exchangeable Loan   861,581
   
  Total senior notes, senior discount notes and other debt (see Note 7)   4,881,701
   
Convertible preferred stock   1,664,689
   
  Total liabilities subject to compromise   6,925,588
   

        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,

19



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

 
  For the Three Months Ended March 31,
 
 
  2003
  2002
 
 
  (In thousands of Euros, except per share amounts)

 
Basic net income (loss) attributable to common shareholders, as reported   46,323   (2,026,182 )
Add: Stock-based compensation expense included in reported net income (loss), net of related tax effects   3,893   6,790  
Deduct: Total stockbased compensation expense determined under fair value based method, net of related tax effects   (17,324 ) (20,427 )
   
 
 
Pro forma net income (loss)   32,892   (2,039,819 )
   
 
 
Earnings per share:          
  Basic earnings per share–as reported   0.10   (4.57 )
   
 
 
  Basic earnings per share–pro forma   0.07   (4.60 )
   
 
 
  Diluted earnings per share–as reported   0.07   (4.57 )
   
 
 
  Diluted earnings per share–pro forma   0.05   (4.60 )
   
 
 

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

 
  As of
March 31,
2003

  As of
December 31,
2002

 
 
  (In thousands of Euros)

 
Cable distribution networks   3,449,980   3,461,209  
Subscriber premises equipment and converters   900,302   890,589  
DTH, MMDS and distribution facilities   87,610   87,666  
IT systems, office equipment and fixtures   293,220   295,300  
Buildings and leasehold improvements   141,000   144,606  
Other   58,513   58,711  
   
 
 
    4,930,625   4,938,081  
  Accumulated depreciation   (1,914,031 ) (1,762,718 )
   
 
 
  Property, plant and equipment, net   3,016,594   3,175,363  
   
 
 

6.     Goodwill and Other Intangible Assets

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

 
  As of
December 31,
2002

  Acquisitions
  Cumulative
Translation
Adjustment
& Other

  As of
March 31,
2003

 
  (In thousands of Euros)

Distribution:                
  The Netherlands   610,704     163   610,867
  Austria   133,963       133,963
  Belgium   13,634     (1,276 ) 12,358
  Norway   8,607     (677 ) 7,930
  Hungary   70,517   195   (1,685 ) 69,027
  Sweden   136,275     (1,105 ) 135,170
  Other   22,246     (739 ) 21,507
   
 
 
 
Total   995,946   195   (5,319 ) 990,822
   
 
 
 

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

 
  As of March 31, 2003
  As of December 31, 2002
 
  Gross
Intangible
Assets

  Accumulated
Amortization

  Net
Intangible
Assets

  Gross
Intangible
Assets

  Accumulated
Amortization

  Net
Intangible
Assets

 
  (In thousands of Euros)

License fees   114,803   (42,661 ) 72,142   117,882   (42,675 ) 75,207
Other   7,549   (6,096 ) 1,453   3,969   (2,845 ) 1,124
   
 
 
 
 
 
  Total intangible assets   122,352   (48,757 ) 73,595   121,851   (45,520 ) 76,331
   
 
 
 
 
 

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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:

Nine Months Ended December 31, 2003   8,664
Twelve Months Ended December 31, 2004   7,684
Twelve Months Ended December 31, 2005   7,460
Twelve Months Ended December 31, 2006   7,359
Twelve Months Ended December 31, 2007   7,358
Thereafter   35,070
   
  Total   73,595
   

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7.     Long-Term Debt

 
  As of
March 31,
2003

  As of
December 31,
2002

 
 
  (In thousands of Euros)

 
July 1999 Notes   1,465,803   1,513,558  
October 1999 Notes   1,000,295   1,027,625  
January 2000 Notes   1,554,022   1,607,706  
UPC Distribution Bank Facility   3,127,759   3,140,139  
Exchangeable Loan   861,581   894,457  
UPC Polska Notes   358,922   359,951  
DIC Loan (see Note 4)     54,438  
Other   80,922   85,218  
   
 
 
    8,449,304   8,683,092  
  Less current portion(1)   (8,028,715 ) (8,255,648 )
   
 
 
  Total   420,589   427,444  
   
 
 

(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

23



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.

24



        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".

25



        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)

 
  As of
March 31,
2003

  As of
December 31,
2002

 
 
  (In thousands of Euros)

 
Forein currency translation adjustments   251,404   231,627  
Fair value of derivative assets   (3,731 ) (10,133 )
Unrealized gain (loss) on available-for-sale securities   (11,388 ) (14,248 )
   
 
 
  Total accumulated other comprehensive income   236,285   207,246  
   
 
 

26


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:

 
  For the Three
Months Ended
March 31, 2003

 
  (Number of Shares)

Exchangeable Loan   136,797,268
Preference Shares   48,314,874
Stock option plans   16,974,728
   
  Total number of shares potentially exercisable   202,086,871
   

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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.

28



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

 
  Revenues for the Three Months Ended March 31,
 
 
  2003
  2002
 
 
  (In thousands of Euros)

 
Triple Play(1):          
  The Netherlands   127,382   115,863  
  Austria   55,714   50,074  
  Belgium   6,923   6,510  
  Czech Republic   9,772   8,218  
  Norway   21,786   18,973  
  Hungary   31,845   27,966  
  France   24,767   25,539  
  Poland   19,020   21,934  
  Sweden   15,950   13,436  
  Other   9,633   8,783  
   
 
 
  Total Triple Play Distribution   322,792   297,296  
   
 
 
Germany     12,491  
DTH   9,202   7,212  
Corporate      
Other   6,471   9,834  
Intercompany Eliminations      
   
 
 
  Total Distribution   338,465   326,833  
   
 
 
Priority Telecom   26,604   32,116  
UPC Media   20,671   18,515  
UPC Investments   123   123  
Intercompany Eliminations   (26,763 ) (31,275 )
   
 
 
  Total   359,100   346,312  
   
 
 

(1)
Triple Play includes cable television, telephone, internet and digital for residential customers, offered on a standalone basis or as a bundle.

29


 
  Triple Play Revenues for the
Three Months Ended March 31, 2003

 
  Cable
Television(1)

  Telephone
  Internet/
Data

  Total
 
  (In thousands of Euros)

Triple Play:                
  The Netherlands   70,322   19,079   37,981   127,382
  Austria   22,811   13,821   19,082   55,714
  Belgium   4,222     2,701   6,923
  Czech Republic   7,752   173   1,847   9,772
  Norway   14,713   3,030   4,043   21,786
  Hungary   21,593   6,461   3,791   31,845
  France   16,385   6,219   2,163   24,767
  Poland   17,702     1,318   19,020
  Sweden   10,023     5,927   15,950
  Other   9,633       9,633
   
 
 
 
  Total Triple Play Distribution   195,156   48,783   78,853   322,792
   
 
 
 
 
  Triple Play Revenues for the
Three Months Ended March 31, 2002

 
  Cable
Television(1)

  Telephone
  Internet/
Data

  Total
 
  (In thousands of Euros)

Triple Play:                
  The Netherlands   65,808   20,977   29,078   115,863
  Austria   21,724   12,816   15,534   50,074
  Belgium   3,962     2,548   6,510
  Czech Republic   7,265   210   743   8,218
  Norway   13,273   2,454   3,246   18,973
  Hungary   19,456   6,666   1,844   27,966
  France   16,188   6,831   2,520   25,539
  Poland   20,934     1,000   21,934
  Sweden   9,337     4,099   13,436
  Other   8,960     (177 ) 8,783
   
 
 
 
  Total Triple Play Distribution   186,907   49,954   60,435   297,296
   
 
 
 

(1)
Digital is included in Cable Television.

30


 
  Adjusted EBITDA for the Three Months Ended March 31,
 
 
  2003
  2002
 
 
  (In thousands of Euros)

 
Triple Play(1):          
  The Netherlands   48,188   28,103  
  Austria   20,879   13,994  
  Belgium   2,653   1,808  
  Czech Republic   4,643   3,562  
  Norway   5,682   3,114  
  Hungary   14,510   10,988  
  France   1,070   (3,134 )
  Poland   4,873   3,200  
  Sweden   6,594   3,161  
  Other   4,006   2,753  
   
 
 
  Total Triple Play Distribution   113,098   67,549  
   
 
 
Germany     5,521  
DTH   1,216   524  
Corporate   (17,861 ) (14,254 )
Other   5,139   5,827  
   
 
 
  Total Distribution   101,592   65,167  
   
 
 
Priority Telecom   2,601   (4,676 )
UPC Media   2,465   (5,575 )
UPC Investments   (170 ) (102 )
   
 
 
  Total   106,488   54,814  
   
 
 

(1)
Triple Play includes cable television, telephone, internet and digital for residential customers, offered on a standalone basis or as a bundle.

31


        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.

 
  For the Three Months
Ended March 31,

 
 
  2003
  2002
 
 
  (In thousands of Euros)

 
Adjusted EBITDA   106,488   54,814  
Depreciation and amortization   (166,616 ) (172,632 )
Impairment and restructuring charges     (3,943 )
Stock-based compensation   (3,893 ) (6,790 )
   
 
 
  Operating income (loss)   (64,021 ) (128,551 )
Interest income   3,569   5,985  
Interest expense   (82,377 ) (230,205 )
Foreign exchange gain (loss)   133,355   (56,057 )
Other income (expense)   66,486   (62,429 )
   
 
 
  Income (loss) before income taxes and other items   57,012   (471,257 )
   
 
 
 
  Total Assets
 
  As of
March 31,
2003

  As of
December 31,
2002

 
  (In thousands of Euros)

Corporate and UPC Investments   518,687   542,113
UPC Media   71,802   69,253
Priority Telecom   235,347   249,412
Distribution:        
  The Netherlands   1,776,724   1,798,320
  Austria   422,336   430,027
  Belgium   41,745   42,422
  Czech Republic   117,546   121,881
  Norway   214,434   238,397
  Hungary   308,389   327,667
  France   561,089   580,956
  Poland   221,522   233,969
  Sweden   223,339   226,807
  Other   61,309   69,793
   
 
Total   4,774,269   4,931,017
   
 

11.   Impairment and Restructuring Charges

        During 2001, in reviewing the current and long-range plan, the Company implemented a Company-wide restructuring plan to both lower operating expenses and strengthen its competitive and

32



financial position. Management began implementation of the plan during the second half of 2001 by eliminating certain employee positions, reducing office space and related overhead expenses, recognizing losses related to excess capacity under certain contracts and cancellation of certain programming contracts.

        The following table summarizes these costs by type and related segment of the business as per March 31, 2003.

 
  Employee
Severance &
Termination
Costs

  Office
Closures

  Programming
and Lease
Contracts
Termination Costs

  Asset
Disposal
Losses and
Other Costs

  Total
Impairment and
Restructuring
Charges

 
 
  (In thousands of Euros)

 
Impairment and restructuring liability, December 31, 2002   18,545   13,550   35,184   4,195   71,474  
   
 
 
 
 
 
Total impairment and restructuring charges for the three months ended March 31, 2003            
Cash paid during three months ended March 31, 2003   (5,674 ) (1,416 ) (1,550 ) (879 ) (9,519 )
Non-cash release of restructuring liability            
   
 
 
 
 
 
Impairment and restructuring liability, March 31, 2003   12,871   12,134   33,634   3,316   61,955  
   
 
 
 
 
 
Short-term portion impairment and restructuring liability   7,233   5,423   888   3,253   16,797  
Long-term portion impairment and restructuring liability   5,638   6,711   32,746   63   45,158  
   
 
 
 
 
 
Impairment and restructuring liability, March 31, 2003   12,871   12,134   33,634   3,316   61,955  
   
 
 
 
 
 

12.   Other Income (Expense)

        The other income of 66.5 million for the three months ended March 31, 2003, relates primarily to the gain on the Tevel transaction (see Note 4). The other expense of 62.4 million for the three months ended March 31, 2002, consists primarily of a gain relating to the restructuring and cancellation of costs associated with excess capacity of certain Priority Telecom vendor contracts of 124.5 million and a loss of 177.8 million in connection with the mark-to-market valuations of our cross currency and interest rate derivative contracts from period to period.

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13.   Basic and Diluted Net Income (Loss) Attributable to Common Shareholders

 
  For the Three Months
Ended March 31,

 
 
  2003
  2002
 
 
  (In thousands of Euros)

 
Basic:          
  Net income (loss)   46,323   (1,990,377 )
  Accretion of Series 1 convertible preferred stock     (35,805 )
   
 
 
  Basic net income (loss) attributable to common shareholders   46,323   (2,026,182 )
Diluted:          
  Accretion of Series 1 convertible preferred stock     (1)
   
 
 
  Diluted net income (loss) attributable to common shareholders   46,323   (2,026,182 )
   
 
 

(1)
Conversion of preferred stock is not assumed for the calculation of diluted net income (loss) attributable to common shareholders because the effect is anti-dilutive.

14.   Subsequent Events

Polish Restructuring

        UPC Polska has met with representatives of UPC (which through subsidiaries holds debt obligations of UPC Polska) and certain holders of the UPC Polska Notes (other than UPC and its affiliates) to discuss a process for, and terms of, a restructuring of those obligations and notes. UPC and its advisors and the noteholders and their advisors have had substantive discussions with UPC Polska about the terms of a possible debt restructuring. As of the date of the filing of this Quarterly Report on Form 10-Q, UPC Polska has not entered into a definitive agreement with either UPC, its affiliates or the noteholders' regarding the terms of a debt restructuring.

Cross Currency swaps

        In November 2002, UPC's cross currency swaps on UPC Distribution Bank Facility were frozen at a settlement price of 64.6 million. Of the 64.6 million obligation, 12.0 million has been paid with the remaining 52.6 million being recorded under short-term debt as per March 31, 2003. As per May 15, 2003, 41.5 million of this obligation has been repaid.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements may include, and be identified by statements concerning our future plans and strategies, objectives and future economic prospects, expectations, beliefs, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as our contemplated restructuring. These forward-looking statements involve both known and unanticipated risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from what we say or imply with the forward-looking statements. These factors include, among other things, changes in television viewing preferences and habits by our subscribers and potential subscribers, their acceptance of new technology, programming alternatives and new video services we may offer. They also include the timing, cost, and effectiveness of technological developments, competitive factors, our ability to complete announced transactions and to manage and grow our newer telephone, digital and internet/data services. With respect to our announced restructuring, these factors include our ability to successfully complete the restructuring as anticipated. These forward-looking statements apply only as of the time of this Quarterly Report on Form 10-Q and we have no obligation or plans to provide updates or revisions to these forward-looking statements or any other changes in events or circumstances on which these forward-looking statements are based.

        The report of our independent public accountants KPMG Accountants N.V. on our consolidated financial statements for the year ended December 31, 2002, includes a paragraph that states that we are currently under bankruptcy court supervision in both the United States and in the Netherlands, have suffered substantial recurring losses from operations, are currently in default under certain of our senior notes and senior discount notes, obtained waivers from the lenders under the UPC Distribution Bank Facility and the Exchangeable Loan for potential events of cross defaults, and have a net capital deficiency. Management expects the Company to incur operating losses at least through 2004. Accordingly there is substantial doubt about our ability to continue as a going concern. Our management's plans in regard to these matters are described in Note 2 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. Our 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 we be unable to continue as a going concern. Investors in our company should review carefully the report of KPMG Accountants N.V. There can be no assurance we will be able to continue as a going concern.

        The following discussion and analysis of financial condition and results of operations covers the three month period ended March 31, 2003, and 2002, and should be read together with our consolidated financial statements and related notes included elsewhere herein. These consolidated financial statements provide additional information regarding our financial activities and condition.

        All monetary amounts in Management's Discussion and Analysis are stated in Euros, unless indicated otherwise. All capitalized terms used and not otherwise defined in Item 2–Management's Discussion and Analysis of Financial Condition and Results of Operations have the meanings given to them in Notes to the Consolidated Financial Statements contained in Part I–Financial Statements.

Reorganization Under Bankruptcy Code

        For information regarding the reorganization under bankruptcy code, see Note 2 to our condensed consolidated financial statements included elsewhere herein.

Summary of Status of the Restructuring

        As of the date of the filing of this Quarterly Report on Form 10-Q, our restructuring has not been completed, but is in the final stages. The Plan, which provides for the transfer of New UPC common stock

35



for various claims against, and interests in our equity, 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 we believe it is without merit and intend 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 our Articles of Association were adopted during an Extraordinary General Meeting of our 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 our Ordinary Shares A from Euronext Amsterdam. The Plan and the Akkoord are expected to become effective and our restructuring complete soon after the appeal against the Akkoord is resolved. From and after the Effective Date of the Plan, we expect to operate our businesses and properties as a reorganized entity pursuant to the terms of the Plan.

        We believe subscriber growth has been impacted in some countries by our financial restructuring; however, we believe the restructuring has not had a material adverse effect on our subsidiaries or our relationships with suppliers and employees.

        We have 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 in Note 2 to our condensed consolidated financial statements included elsewhere herein., our 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 our sources of capital, working capital and projected operating cash flow will be sufficient to fund our expenditures and service our indebtedness over the next year. Accordingly, there is substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern is dependent on (i) completion of the restructuring and (ii) our ability to generate the cash flows required to enable us to recover the carrying value of our assets and satisfy our liabilities, in the normal course of business, at the amounts stated in the consolidated financial statements. Due to the uncertainty of our 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, we believe that we will have sufficient sources of capital, working capital and operating cash flows to enable us to continue as a going concern.


Description of Business

        We own and operate broadband communications networks in 11 countries in Europe. Our operations are organized into three principal divisions: UPC Distribution, UPC Media and Priority Telecom. UPC Distribution delivers video, internet and telephone services to residential customers (the "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 our network, third party networks and DTH platforms. Priority Telecom operates our competitive local exchange carrier ("CLEC") business and provides telephone and data network solutions to the business market. The Priority Telecom brand is also used to offer telephone services to residential customers through UPC Distribution. In addition, as part of the ongoing realignment of the business, we have formed an Investments Division, which will manage our non-consolidated investment assets. We continue to focus on rationalizing our investment portfolio to maximize value.

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        Our subscriber base is one of the largest of any group of broadband communications networks operated across Europe. Our goal is to enhance our position as a leading pan-European distributor of video programming services and to become a leading pan-European provider of telephone, internet and enhanced video services, offering a one-stop shopping solution for residential and business communication needs. We plan to execute on this goal by increasing the penetration of our new services, such as digital video, telephone and internet, primarily within our existing customer base.

        Since formation, we have developed largely through acquisitions and organic growth in new services, which have resulted in significant growth in our consolidated revenues and expenditures.


Results of Operations

Revenue

        Revenue increased 12.8 million, or 3.7%, from 346.3 million for the three months ended March 31, 2002 to 359.1 million for the three months ended March 31, 2003. The increase in revenue is mainly due to a combination of organic subscriber growth and the increase in average revenue per subscriber in our Triple Play business. The following table provides revenue detail for our operating segments for the three months ended March 31, 2003 and 2002.

 
  Revenue
 
  For the Three Months Ended March 31,
  2003 over 2002
 
  2003
  2002
  Change
  % Change
 
  (In thousands of Euros)

   
Triple Play Distribution(1)   322,792   297,296   25,496   8.6%
Germany(2)     12,491   (12,491 ) –100.0%
DTH   9,202   7,212   1,990   27.6%
Corporate         0.0%
Other(3)   6,471   9,834   (3,363 ) –34.2%
   
 
 
   
  Total Distribution   338,465   326,833   11,632   3.6%
Priority Telecom(4)   26,604   32,116   (5,512 ) –17.2%
UPC Media(5)   20,671   18,515   2,156   11.6%
UPC Investment(6)   123   123     0.0%
Intercompany Eliminations(7)   (26,763 ) (31,275 ) 4,512   –14.4%
   
 
 
   
  Total   359,100   346,312   12,788   3.7%
   
 
 
   

(1)
Triple Play includes cable television, telephone, internet and digital for residential customers offered on a standalone basis or as a bundle.

(2)
As of August 1, 2002, Germany (EWT/TSS) is a non-consolidated company.

(3)
Other revenue is primarily revenue recognized for the provision of network related services to Priority Telecom.

(4)
Priority Telecom represents UPC's CLEC business and provides telephone and data network solutions to the business market.

(5)
UPC Media consists of chello broadband internet-content business and UPC's content and programming business.

(6)
UPC Investment Division was formed in 2003, and manages our non-consolidated investment assets.

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(7)
Intercompany eliminations are the eliminations of intercompany revenues within UPC Media and network revenues.

        UPC Distribution.    Revenue for UPC Distribution increased 11.6 million from 326.8 million for the three months ended March 31, 2002 to 338.5 million for the three months ended March 31, 2003, a 3.6% increase. This increase is attributable to:

        Priority Telecom.    Revenue for Priority Telecom decreased 5.5 million from 32.1 million for the three months ended March 31, 2002 to 26.6 million for the three months ended March 31, 2003. This decrease is attributable to:

        UPC Media.    Revenue for UPC Media increased 2.2 million from 18.5 million for the three months ended March 31, 2002 to 20.7 million for the three months ended March 31, 2003. This increase is attributable to:

        Intercompany eliminations.    Intercompany eliminations decreased by 4.5 million from 31.3 million for the three months ended March 31, 2002 to 26.8 million for the three months ended March 31, 2003. The intercompany elimination of 26.8 million for the three months ended March 31, 2003, relates to inter-divisional revenue that is received by Priority Telecom, UPC Media, and UPC Distribution.

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Operating Expenses

        Operating expenses include direct costs and costs relating to network operations, customer operations, customer care, billing and collecting, broadcasting, programming, content and franchise fees. The following table shows the operating expenses for three months ended March 31, 2003 and 2002.

 
  Operating Expenses
 
  Three Months Ended March 31,
  2003 over 2002
 
  2003
  2002
  Change
  % Change
 
  (In Thousands of Euros)

   
Germany(1)     5,240   (5,240 ) –100.0%
Distribution excluding Germany   161,327   173,275   (11,948 ) –6.9%
   
 
 
   
  Total Distribution   161,327   178,515   (17,188 ) –9.6%
Priority Telecom(2)   15,058   24,495   (9,437 ) –38.5%
UPC Media(3)   6,906   12,384   (5,478 ) –44.2%
UPC Investment(4)         0.0%
Intercompany Eliminations   (24,868 ) (27,363 ) 2,495   –9.1%
   
 
 
   
  Total   158,423   188,031   (29,608 ) –15.7%
   
 
 
   

(1)
As of August 1, 2002, Germany (EWT/TSS) is a non-consolidated company.

(2)
Priority Telecom represents our CLEC business and provides telephone and data network solutions to the business market.

(3)
UPC Media consists of chello broadband internet-content business and UPC's content and programming business.

(4)
UPC Investment Division was formed in 2003, and manages our non-consolidated investment assets.

        Operating expenses decreased 29.6 million, or 15.7%, from 188.0 million for the three months ended March 31, 2002 to 158.4 million for the three months ended March 31, 2003. This decrease is attributable to:

39


Selling, General & Administrative Expenses

        Selling, general and administrative expenses ("SG&A expenses") include costs relating to human resources, IT, general services, management, finance, legal, and marketing. SG&A expenses also include stock-based compensation charges.

 
  Selling General & Administrative Expenses
 
  Three Months Ended March 31,
  2003 over 2002
 
  2003
  2002
  Change
  % Change
 
  (In Thousands of Euros))

Germany(1)     1,730   (1,730 ) –100.0%
Distribution excluding Germany   75,694   81,422   (5,728 ) –7.0%
   
 
 
   
  Total Distribution   75,694   83,152   (7,458 ) –9.0%
Priority Telecom(2)   8,946   12,297   (3,351 ) –27.3%
UPC Media(3)   11,300   11,705   (405 ) –3.5%
UPC Investment(4)   293   225   68   30.2%
Stock-based compensation   3,893   6,790   (2,897 ) –42.7%
Intercompany Eliminations   (2,044 ) (3,912 ) 1,868   –47.8%
   
 
 
   
  Total   98,082   110,257   (12,175 ) –11.0%
   
 
 
   

(1)
As of August 1, 2002, Germany (EWT/TSS) is a non-consolidated company.

(2)
Priority Telecom represents our CLEC business and provides telephone and data network solutions to the business market.

(3)
UPC Media consists of chello broadband internet-content business and UPC's content and programming business.

(4)
UPC Investment Division was formed in 2003, and manages our non-consolidated investment assets.

        SG&A expenses decreased 12.2 million, or 11.0%, from 110.3 million for the three months ended March 31, 2002 to 98.1 million for the three months ended March 31, 2003. This decrease is attributable to:

40


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 our chief decision makers to measure our 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 our chief decision makers, that Adjusted EBITDA provides investors with the means to evaluate the financial results of us compared to other companies within the same industry and that 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. Our 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 variable plan accounting for certain of our subsidiaries' stock option and phantom stock option plans.

        Adjusted EBITDA increased 51.7 million, for the three months ended March 31, 2003 compared to the three months ended March 31, 2002 primarily due to increased revenues, improved gross margin and continued cost control across all our operating segments. The following table provides Adjusted EBITDA detail for our operating segments.

 
  Adjusted EBITDA
 
 
  For the Three Months Ended March 31,
  2003 over 2002
 
 
  2003
  2002
  Change
  % Change
 
 
  (In thousands of Euros, unaudited)

 
Triple Play Distribution(1)   113,098   67,549   45,549   67.43 %
Germany(2)     5,521   (5,521 ) -100.00 %
DTH   1,216   524   692   132.06 %
Corporate   (17,861 ) (14,254 ) (3,607 ) 25.31 %
Other(3)   5,139   5,827   (688 ) -11.81 %
   
 
 
     
  Total Distribution   101,592   65,167   36,425   55.89 %
   
 
 
     
Priority Telecom(4)   2,601   (4,676 ) 7,277   -155.62 %
UPC Media(5)   2,465   (5,575 ) 8,040   -144.22 %
UPC Investment(6)   (170 ) (102 ) (68 ) 66.67 %
   
 
 
     
  Total   106,488   54,814   51,674   94.27 %
   
 
 
     

(1)
Triple Play includes cable television, telephone, internet and digital for residential customers offered on a standalone basis or as a bundle.

(2)
As of August 1, 2002, Germany (EWT/TSS) is a non-consolidated company.

(3)
Other is primarily recognized for the provision of network related services to Priority Telecom.

(4)
Priority Telecom represents UPC's CLEC business and provides telephone and data network solutions to the business market.

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(5)
UPC Media consists of chello broadband internet-content business and UPC's content and programming business.

(6)
UPC Investment Division was formed in 2003, and manages our non-consolidated investment assets.

        UPC Distribution.    Adjusted EBITDA for UPC Distribution increased 36.4 million, or 55.9%, from 65.2 million for the three months ended March 31, 2002 to 101.6 million for the three months ended March 31, 2003. This movement is attributed to:

        Priority Telecom.    Adjusted EBITDA for Priority Telecom improved by 7.3 million from negative 4.7 million for the three months ended March 31, 2002 to positive 2.6 million for the three months ended March 31, 2003. This movement is attributable to:

        UPC Media.    Adjusted EBITDA for UPC Media improved by 8.0 million from negative 5.6 million for the three months ended March 31, 2002 to positive 2.5 million for the three months ended March 31, 2003. This movement is attributable to:

        The following is a reconciliation of our Adjusted EBITDA to our net income (loss) before income taxes and other items for the three months ended March 31, 2003 and 2002:

 
  For the Three Months
Ended March 31,

 
 
  2003
  2002
 
 
  (In thousands of Euros)

 
Adjusted EBITDA   106,488   54,814  
Depreciation and amortization   (166,616 ) (172,632 )
Impairment and restructuring charges     (3,943 )
Stock-based compensation   (3,893 ) (6,790 )
   
 
 
  Operating income (loss)   (64,021 ) (128,551 )
Interest income   3,569   5,985  
Interest expense   (82,377 ) (230,205 )
Foreign exchange gain (loss)   133,355   (56,057 )
Other income (expense)   66,486   (62,429 )
   
 
 
  Income (loss) before income taxes and other items   57,012   (471,257 )
   
 
 

        The improvement of our income (loss) before income taxes and other items from a loss of 471.3 million to income of 57.0 million in the three months ended March 31, 2002 and 2003, respectively, is

42



primarily attributable to the factors leading to improved Adjusted EBITDA, discussed above, and the decrease in interest expense and interest expense-related party, the increase in foreign currency exchange gain (loss) and the increase in other income (expense), discussed below.

Depreciation and Amortization

        During the three months ended March 31, 2003, our depreciation and amortization expense decreased 6.0 million to 166.6 million from 172.6 million for the three months ended March 31, 2002, a 3.5% decrease is due to the deconsolidation of UPC Germany as of August 1, 2002.

Interest Income

        During the three months ended March 31, 2003, interest income decreased 2.4 million to 3.6 million from 6.0 million, a 40.4% decrease. The decrease primarily resulted from decreased cash balances.

Interest Expense

        During the three months ended March 31, 2003, interest expense, including interest expense related party, decreased 147.8 million to 82.4 million, from 230.2 million during the three months ended March 31, 2002, a 64.2% decrease. This decrease was primarily due to the cessation of accruing interest on our senior notes and accreting interest on our senior discount notes on December 3, 2002, when we filed a petition of relief under Chapter 11 of the U.S. Bankruptcy Code in accordance with SOP 90–7. Should our restructuring (as detailed above) be successful, these notes will be exchanged for equity in New UPC. In addition, the decrease in interest expense is attributable to an increase of the euro against the U.S. dollar.

 
  For the Three Months Ended March 31,
 
 
  2003
  2002
 
 
  (In thousands of Euros, unaudited)

 
Cash Current Pay:          
  Bank   (66,449 ) (62,614 )
  Senior Notes     (72,247 )
   
 
 
    (66,449 ) (134,861 )
   
 
 
Non-Cash Accretion:          
  Discount Notes   (12,693 ) (75,095 )
  Exchangeable Loan     (15,323 )
  Deferred Financing   (3,235 ) (4,926 )
   
 
 
    (15,928 ) (95,344 )
   
 
 
Total Interest Expense   (82,377 ) (230,205 )
   
 
 

Foreign Exchange Gain (Loss)

        Foreign exchange gain (loss) and other expense reflect a gain of 133.4 million for three months ended March 31, 2003 as compared to a loss of 56.1 million for three months ended March 31, 2002. The gain during 2003 was primarily a result of a significant foreign exchange gain on our dollar denominated senior notes as the euro strengthened against the U.S. dollar.

Other Income (Expense)

        The other income of 66.5 million for the three months ended March 31, 2003, relates primarily to the gain on the Tevel transaction (see Note 4 of our consolidated financial statements). The other expense of

43



62.4 million for the three months ended March 31, 2002, consist of a gain relating to the restructuring and cancellation of costs associated with excess capacity of certain Priority Telecom vendor contracts of 124.5 million and a loss of 177.8 million in connection with the mark-to-market valuations of our cross currency and interest rate derivative contracts from period to period.

Reorganization Expenses, Net

        In connection with the Chapter 11 Case, we are required to prepare our consolidated financial statements as of December 31, 2002, in accordance with Statement of Position 90–7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code ("SOP 90–7"), issued by the American Institute of Certified Public Accountants. The reorganization expenses for the three months ended March 31, 2003 included professional fees of 7.6 million.

Share in Results of Affiliated Companies, Net

        For the three months ended March 31, 2003, our share in net losses of affiliated companies decreased 18.8 million to 2.5 million from 21.3 million for the three months ended March 31, 2002, a 88.3% decrease. The decrease is primarily due to our investments in PrimaCom and SBS. No losses being recorded for PrimaCom during the first three months of 2003, as we had completely written off our investment in PrimaCom at June 30, 2002. Our losses in SBS decreased during 2003 as SBS showed improved financial results compared to 2002.

Cumulative Effect of Change in Accounting Principle

        Effective January 1, 2002, we adopted SFAS 142, which establishes that goodwill and intangible assets with indefinite lives will not be amortized, but will be tested for impairment on an annual basis and whenever indicators of impairment arise. The adoption of SFAS 142 on January 1, 2002, resulted in a cumulative decrease of income of 1,498.9 million and a cumulative decrease of net goodwill of 1,498.9 million during the three months period ended March 31, 2002. The amount of net loss as shown for the first quarter of 2002 has been restated to include the effect of adoption of SFAS 142 of January 1, 2002. The following table represents the cumulative effect of change in accounting principle by reporting unit:

 
  For the Three Months
Ended March 31, 2002

 
 
  (In thousands of Euros)

 
  The Netherlands   (491,737 )
  Czech Republic   (98,463 )
  Norway   (43,572 )
  Hungary   (56,071 )
  France   (178,692 )
  Poland   (409,906 )
  Sweden   (189,447 )
  Other   (30,983 )
   
 
Total   (1,498,871 )
   
 

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Liquidity and Capital Resources

        Historically, we have financed our operations and acquisitions primarily from:

        In general, we have been primarily dependent on the capital markets in the past to fund acquisitions, developing systems and products and corporate overhead, using the cash contributed by United Europe, Inc. upon formation and debt and equity raised at the holding company levels for such purposes. However, going forward we may not be able to access the capital markets as a source of capital. Our current plans do not anticipate such access, although we might access such markets if we were able and the terms of such financing were acceptable to us.

        In addition, we have financed our systems from our UPC Distribution Bank Facility and with operating cash flow. Well-established systems generally have stable positive cable cash flows that are used to partially offset funding necessary for new product offerings, including telephone and internet/data. Developing systems are at various stages of construction and development and generally depend on us for some of the funding for their operating needs.

        In 2003 and thereafter, we anticipate that the sources of capital possibly available to us will include working capital and operating cash flows, proceeds from the disposal of non-core investments, draw downs under the UPC Distribution Bank Facility and vendor financing. We do not anticipate access to the capital markets as a source of funding unless we are able to restructure our existing indebtedness. If we are able to complete our planned recapitalization satisfactorily and are able to implement a rationalization of our non-core investments and continue to improve our operating performance, we believe that our existing cash balances, our working capital and operating cash flow and draw downs available under the UPC Distribution Bank Facility will be sufficient to fund operations for the foreseeable future. Should our planned debt restructuring and recapitalization be unsuccessful or our operating results fall behind our current business plan, there will be uncertainty whether we have sufficient funds to meet our planned capital expenditures and/or existing debt commitments and it will be doubtful we are able to continue as a going concern.

Liquidity Requirements

        As a result of our failure to pay interest when due on certain of our senior notes, the maturity of those notes, our senior discount notes, the Exchangeable Loan and the UPC Distribution Facility may be accelerated at any time, subject, in the case of the Exchangeable Loan, and the UPC Distribution Facility to conditional waivers granted by the holders of such indebtedness. Consequently, all such indebtedness has been classified as current portion of long-term debt.

45



        The table below shows the maturity dates of our future obligations, based on the classification of our defaulted indebtedness as current portion of long-term debt.

 
  Payments due by Period
 
  Less than
1 year

  1–3 years
  4–5 years
  After
5 years

  Total
 
  (In thousands of Euros)

Contractual Obligations                    
Short term debt   59,535         59,535
Long term debt   8,028,715   16,056   8,921   395,612   8,449,304
Operating Leases   50,432   64,660   42,758   36,039   193,889
Programming and satellite commitments   41,242   79,661   40,115   64,455   225,473
Purchase commitments   32,771   16,560   3,589   5,314   58,234
   
 
 
 
 
Total Contractual Cash   8,212,695   176,937   95,383   501,420   8,986,435
   
 
 
 
 

Restrictions under our July 1999, October 1999 and January 2000 Indentures

        Our activities are restricted by the covenants of our indentures dated July 30, October 29, 1999 and January 20, 2000, under which our senior notes and senior discount notes were issued. Among other things, our indentures place certain limitations on our ability, and the ability of our subsidiaries, to borrow money, pay dividends or repurchase stock, make investments, create certain liens, engage in certain transactions with affiliates, and sell certain assets or merge with or into other companies. Should our planned debt restructuring be successful, our senior and senior discount notes, to which these indentures apply, will be exchanged for equity in New UPC.

Sources of Capital

        We had approximately 248.8 million of cash and cash equivalents on hand as of March 31, 2003. Of our 248.8 million of cash and cash equivalents on hand, USD 107.0 million is held by UPC Polska, our Polish subsidiary, and, as a result of the limitations imposed by the indentures governing the UPC Polska Notes, is limited in its utilization. Our ability to access our borrowing capacity at the holding company and subsidiary level was restricted or eliminated as a result of the payment defaults under our senior notes in the first twelve months of 2002 and the first quarter of 2003. To date, our principal sources of capital have been debt and equity capital raised at our holding company level and debt securities and bank debt issued or borrowed by subsidiaries. As of the date of the filing, we have no restrictions to make additional drawings under the UPC Distribution Bank Facility.


Consolidated Capital Expenditures

        Since 1995, we have been upgrading our existing cable television system infrastructure and constructing our new-build infrastructure with two-way high capacity technology to support digital video, telephone and internet/data services. Capital expenditures for the upgrade and new-build construction can be reduced at our discretion, although such reductions require lead-time in order to complete work-in-progress and can result in higher total costs of construction. At the end of 2001, we completed a strategic review of the business, which resulted in a reduced capital expenditure program for 2002 and 2003, as we focused on increasing penetration of new services in our existing upgraded footprint and efficient deployment of capital on a limited basis, aimed at causing product deployment to result in positive net present values.

        In addition to the network infrastructure and related equipment and capital resources described above, development of our newer businesses, chello broadband, Priority Telecom, our digital distribution platform and DTH, including expansion into Central Europe, requires capital expenditures for

46



construction and development of our pan-European distribution and programming facilities, including our origination facility, network operating center, and related support systems and equipment.

        For the year 2003, we plan a slight increase on capital expenditures. Customer premise equipment ("CPE") costs decreased in 2002 and are expected to decrease further based on current prices, which are negotiated centrally, and continue to decrease as market rates for such equipment continue to fall. In addition, tighter field controls have been implemented leading to higher rates of CPE retrieval.

        We expect that network and upgrade capital expenditure will also see a reduction as we are limiting additional network investment primarily to that needed to cover maintenance and costs necessary to support expansion of services. We expect our existing network to largely cope with the anticipated increase in traffic. In addition, we plan to limit new build expenditures primarily to these areas where essential franchise commitments require investment and to limit additional upgrade investment until such a time that existing upgraded areas are fully serviced, although in certain areas of Eastern Europe, we are upgrading our network to launch internet services.


Statements of Cash Flows

        As of March 31, 2003 we had cash and cash equivalents of 248.8 million, a decrease of 6.2 million from 255.1 million as of December 31, 2002. As of March 31, 2002 we had cash and cash equivalents of 641.2 million, a decrease of 213.8 million from 855.0 million as December 31, 2001.

 
  For the Three Months
Ended March 31,

 
 
  2003
  2002
 
 
  (In thousands of Euros)

 
Cash flows from operating activities   70,542   (61,526 )
Cash flows from investing activities   (69,402 ) (118,046 )
Cash flows from financing activities   (2,429 ) (31,217 )
Effect of exchange rates on cash   (4,934 ) (3,002 )
   
 
 
Net decrease in cash and cash equivalents   (6,223 ) (213,791 )
Cash and cash equivalents at beginning of period   255,062   855,001  
   
 
 
Cash and cash equivalents at end of period   248,839   641,210  
   
 
 

For the three months period ended March 31, 2003

        Principal sources of cash during the three month period ended March 31, 2003, included 70.5 million from operating activities, 1.4 million of proceeds from long- and short-term borrowings, and 0.7 million from investing activities.

        Principal uses of cash during the three month period ended March 31, 2003, included 3.8 million for repayment of long- and short-term debt facilities, 42.9 million of capital expenditures, 9.1 million for purchase of derivatives, and 18.1 million for restricted cash deposited.

For the three months period ended March 31, 2002

        Principal sources of cash during the three month period ended March 31, 2002, included 8.0 million of dividends received, and proceeds of 0.7 million from long- and short-term debt facilities.

        Principal uses of cash during the three month period ended March 31, 2002, included 61.5 million for operating activities, 102.0 million for capital expenditures, 24.1 million for acquisitions, and 31.9 million for the repayment of long- and short-term debt facilities.

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New Accounting Principles

        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. We are currently evaluating the potential impact, if any, the adoption of FIN 46 will have on our financial position and results of operations.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Investment Portfolio

        As of March 31, 2003, we had cash and cash equivalents of approximately 248.8 million. We have invested this cash in highly liquid instruments, which meet high credit quality standards with original maturities at the date of purchase of less than three months. These investments are subject to interest rate risk and foreign exchange fluctuations (with respect to amounts invested in currencies outside the European Monetary Union). However, we do not expect any material losses with respect to our investment portfolio.

Credit Risk

        We monitor the financial risk of our trade counter parties. Subject to a materiality test, new vendors go through a credit check before a contract is awarded. Periodical financial analyses are made of a group of vendors that provide material proprietary services or products. As of March 31, 2003, we believe our portfolio of these vendors as a whole meets our internal criteria for acceptability.

Inflation and Foreign Currency Exchange Rate Losses

        To date, we have not been impacted materially by inflation.

        The value of our monetary assets and liabilities is affected by fluctuations in foreign currency exchange rates as accounts payable for certain equipment purchases and certain operating expenses, such as DTH and programming expenses, are denominated in currencies other than the functional currency of the entity making such payments. We and some of our operating companies have notes payable and notes receivable that are denominated in, and loans payable that are linked to, a currency other than their own functional currency, exposing us to foreign currency exchange risks on these monetary assets and liabilities. Historically, we have not hedged our exposure to foreign currency exchange rate operating risks. Accordingly, we may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations.

        The functional currency for our operations generally is the applicable local currency for each operating company. We have consolidated operations in countries outside of the European Monetary Union including Norway, Sweden, Poland, Hungary, Romania, Slovak Republic and Czech Republic. Assets and liabilities of foreign subsidiaries are translated at the exchange rates in effect at period-end, and the statements of operations are translated at the average exchange rates during the period. Exchange rate fluctuations on translating foreign currency financial statements into Euros result in unrealized gains or losses referred to as translation adjustments. Cumulative translation adjustments are recorded as a separate component of shareholders' equity. Transactions denominated in currencies other than the local currencies are recorded based on exchange rates at the time such transactions arise. Subsequent changes in

48



exchange rates result in transaction gains and losses, which are reflected in income as unrealized, based on period-end translations, or realized upon settlement of the transactions.

        Cash flows from our operations in foreign countries are translated based on their reporting currencies. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not agree to changes in the corresponding balances on the consolidated balance sheets. The effects of exchange rate changes on cash balances held in foreign currencies are reported as a separate line below cash flows from financing activities.

Impact of Foreign Currency Rate Changes

        We are exposed to foreign exchange rate fluctuations related to our monetary assets and liabilities, including those of our operating subsidiaries, which are denominated in currencies outside of the European Monetary Union, notably the EUR/USD risk arising from our U.S. dollar denominated liabilities. Our exposure to foreign exchange rate fluctuations also arises from intercompany charges.

        The table below provides information about UPC's and its consolidated subsidiaries' foreign currency risk for cash, which is denominated in foreign currencies outside of the European Monetary Union as of March 31, 2003. The information is presented in Euro equivalents, as the Euro is our reporting currency.

 
  Amount Outstanding
as of March 31, 2003

 
  Book Value
  Fair Value
 
  (In thousands of Euros)

Cash and Cash Equivalents        
USD Cash   129,653   129,653

        We are risk averse towards foreign currency risk and therefore actively seek to manage our foreign currency risk by entering into hedge instruments where appropriate and available to us in the financial markets. We use cross currency swaps, currency deposits and forward contracts to hedge the exposure. We actively monitor the various financial instruments available to us and expect to shift the use of instruments to less credit capacity intensive instruments in the near future, driven by the current credit risk appetite in the financial markets. We have consistently managed our foreign currency risk through the use of these instruments.

        For descriptions of our senior notes, senior discount notes and the Exchangeable Loan we refer to Note 8 of our audited consolidated financial statements for the year ended December 31, 2002, as included in our form 10-K. The interest rates of the notes are included in the interest rate sensitivity tables to which we refer.

        The table below provides information about our foreign currency exchange risk for debt, which is denominated in foreign currencies outside of the European Monetary Union as of March 31, 2003, including cash flows, based on the expected repayment date and related weighted-average interest rates for debt. The instruments' actual cash flows are denominated in foreign currency. The information is presented in Euro equivalents, which is our reporting currency and is based on classification of

49



indebtedness in our consolidated financial statements for the three months ended March 31, 2003. Contractual maturities of the indebtedness differ from the information shown in the tables.

 
  Amount Outstanding as of March 31, 2003
  Expected Repayment as of March 31, 2003
 
  Book
Value

  Fair
Value

  2003
  2004
  2005
  2006
  2007
  2008 and
thereafter

 
  (In thousands of Euros)

Dollar Denominated Facilities                                
UPC Senior Notes due 2009(1)   700,313   63,028   700,313          
UPC Senior Notes due 2007(1)   156,223   12,498   156,223          
UPC Senior Notes due 2009(1)   219,090   19,718   219,090          
UPC Senior Notes due 2010(1)   209,909   18,892   209,909          
UPC Senior Discount Notes due 2009(1)   552,443   40,548   552,443          
UPC Senior Discount Notes due 2009(1)   341,633   26,259   341,633          
UPC Senior Discount Notes due 2010(1)   678,455   58,790   678,455          
UPC Senior Notes due 2010(1)   519,910   46,972   519,910          
PCI Notes   13,340   13,340   13,340          
UPC Polska 1998 Senior Discount Notes   175,918   47,636             175,918
UPC Polska 1999 Senior Discount Notes   163,876   45,344             163,876
UPC Polska 1999 Series C Senior Discount Notes   19,128   7,282             19,128
Exchangeable Loan(1)   861,581   861,581   861,581          

(1)
These senior notes, senior discount notes and the Exchangeable Loan are subject to compromise as of March 31, 2003.. We refer to Note 2 "Reorganization Under Bankruptcy Code" to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

Interest Rate Sensitivity

        We actively manage our exposure to interest rates and use various financial instruments like interest rate swaps, interest rate caps and fixed and floating rate credit instruments, when available to us and appropriate. We aim at fixing a minimum 50% of the interest rates on our bank debt to average tenors with a minimum tenor of one year. We actively monitor the various financial instruments available to us and expect to shift the use of instruments to less credit capacity intensive instruments in the near future, driven by the current credit risk appetite in the financial markets. We have consistently managed, where possible, our interest rate exposure through the use of these instruments.

        For descriptions of our senior notes, senior discount notes and the Exchangeable Loan we refer to Note 8 of our audited consolidated financial statements for the year ended December 31, 2002, as included in our form 10-K.

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        The table below provides information about our financial instruments that are sensitive to changes in interest rates as of March 31, 2003, including cash flows based on the expected repayment dates and the related weighted-average interest rates. The information is presented in Euro equivalents, which is our reporting currency and is based on classification of indebtedness in our consolidated financial statements for the three months ended March 31, 2003. Contractual maturities of the indebtedness differ from the information shown in the table.

 
  Amount Outstanding
as of March 31, 2003

  Expected Repayment as of March 31,
 
  Book
Value

  Fair
Value

  2003
  2004
  2005
  2006
  2007
  2008 and
thereafter

 
  (In thousands of Euros)

Fixed and Variable Rate Facilities                                
Fixed rate UPC Senior Notes due 2009(1)   700,313   63,028   700,313          
  Average interest rate   10.875 % 164.900 %                      
Fixed rate UPC Senior Notes due 2007(1)   69,166   5,533   69,166          
  Average interest rate   10.875 % 139.990 %                      
Fixed rate UPC Senior Notes due 2009(1)   69,774   5,582   69,774          
  Average interest rate   11.250 % 134.800 %                      
Fixed rate UPC Senior Notes due 2009(1)   213,057   17,045   213,057          
  Average interest rate   10.875 % 164.900 %                      
Fixed rate UPC Senior Discount Notes due 2009(1)   552,433   40,548   552,433          
  Average interest rate   12.500 % 93.710 %                      
Fixed rate UPC Senior Discount Notes due 2009(1)   144,410   10,175   144,410          
Average interest rate   13.375 % 88.600 %                      
Fixed rate UPC Senior Discount Notes due 2009(1)   341,633   26,259   341,633          
  Average interest rate   13.375 % 88.600 %                      
Fixed rate UPC Senior Notes due 2007(1)   156,223   12,498   156,223          
  Average interest rate   10.875 % 139.990 %                      
Fixed rate UPC Senior Notes due 2009(1)   219,090   19,718   219,090          
  Average interest rate   11.250 % 134.800 %                      
Fixed rate UPC Senior Discount Notes due 2010(1)   678,455   58,790   678,455          
  Average interest rate   13.750 % 83.010 %                      
Fixed rate UPC Senior Notes due 2010(1)   209,909   18,892   209,909          
  Average interest rate   11.500 % 172.590 %                      
Fixed rate UPC Senior Notes due 2010(1)   519,910   46,792   519,910          
  Average interest rate   11.250 % 169.690 %                      
Fixed rate UPC Senior Notes due 2010(1)   145,748   11,660   145,748          
  Average interest rate   11.250 % 169.690 %                      
Fixed rate PCI Notes   13,340   13,340   13,340          
  Average interest rate   9.875 % 9.875 %                      
Fixed rate UPC Polska 1998 Senior Discount Notes   175,918   47,636             175,918
  Average interest rate   14.500 % 87.538 %                      
Fixed rate UPC Polska 1999 Senior Discount Notes   163,876   45,344             163,876
  Average interest rate   14.500 % 87.538 %                      
Fixed rate UPC Polska 1999 Series C Senior Discount Notes   19,128   7,282             19,128
  Average interest rate   7.000 % 42.260 %                      
Fixed rate Exchangeable Loan(1)   861,581   861,581   861,581          
  Average interest rate   6.000 % 6.000 %                      
Variable rate UPC Distribution Bank Facility   3,127,759   3,127,759   3,127,759          
  EURIBOR/USDLIBOR +0.75%–4%                                
  Average interest rate   8.060 % 8.060 %                      
Capital lease obligations   49,718   49,718   2,286   3,724   3,741   3,759   3,777   32,431
  Average interest rate   Various   Various                        
Other debt   17,863   17,863   3,628   7,301   1,290   700   685   4,259
  Average interest rate   Various   Various                        
   
 
 
 
 
 
 
 
  Total debt   8,449,304   4,507,043   8,028,715   11,025   5,031   4,459   4,462   395,612
   
 
 
 
 
 
 
 

(1)
These senior notes and senior discount notes and the Exchangeable Loan are subject to compromise. We refer to Note 2 "Reorganization Under Bankruptcy Code" of the consolidated financial statements included in this Quarterly Report on Form 10-Q.

51


 
  Expected Repayment as of March 31,
 
  2003
  2004
  2005
  2006
  2007
  2008 and
thereafter

 
  (In thousands of Euros)

Short term debt   59,535          
Operating leases   50,432   38,719   25,941   20,779   21,979   36,039
Programming and satellite commitments   41,242   40,329   39,332   28,446   11,669   64,455
Purchase commitments   32,771   9,280   7,280   1,843   1,746   5,314
   
 
 
 
 
 
  Total commitments and short term debt   183,980   88,328   72,553   51,068   35,394   105,808
   
 
 
 
 
 
  Total debt and commitments   8,212,695   99,353   77,584   55,527   39,856   501,420
   
 
 
 
 
 

Equity Prices

        As of March 31, 2003, we are exposed to equity price fluctuations related to our investments in equity securities. Our investment in UGC Holdings is classified as available for sale. Changes in the price of the stock are reflected as unrealized gains (losses) in our statement of shareholders' equity until such time as the stock is sold and any unrealized gain (loss) will be reflected in the statement of operations. Our investments in PrimaCom and SBS are accounted for under the equity method of accounting.

        We evaluate our investments in publicly traded securities accounted for under the equity method for impairment in accordance with APB 18 and SAB 59. Under APB 18, a loss in value of an investment accounted for under the equity method, which is other than a temporary decline, should be recognized as a realized loss, establishing a new carrying value for the investment. Factors we consider in making this evaluation include: the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer, including cash flows of the investee and any specific events which may influence the operations of the issuer and the intent and ability of us to retain our investments for a period of time sufficient to allow for any anticipated recovery in market value. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment.

 
  Number of Shares
  Fair Value as of
March 31, 2003

 
  (In thousands of Euros,
except share amounts)

United   5,569,240   15,618
PrimaCom AG   4,948,039   1,781
SBS   6,000,000   78,061

        As of March 31, 2003, we are also exposed to equity price fluctuations related to our debt that is convertible into our ordinary shares. The table below provides information about our convertible debt, including expected cash flows and related weighted-average interest rates. The information is presented in Euro equivalents, which is our reporting currency and is based on classification of indebtedness in our

52



consolidated financial statements for the three months ended March 31, 2003. Contractual maturities of the indebtedness differ from the information shown in the table.

 
  Amount Outstanding
as of March 31, 2003

   
   
 
  Expected Repayment
as of March 31,

Convertible Debt

  Book Value
   
  Fair Value
  2003
  2004
 
  (In thousands of Euros)

Exchangeable Loan(1)   861,581   861,581   861,581  
  6.0% per annum                

(1)
The Exchangeable Loan is subject to compromise. We refer to Note 2 "Reorganization Under Bankruptcy Code" of the consolidated financial statements included in this Quarterly Report on Form 10-Q.

Cross-Currency and Interest Rate Swaps

        We entered into an interest rate swap in respect of 1,725 million of the UPC Distribution Bank Facility to fix the EURIBOR portion of the interest calculation at 4.5475% for the period ending April 15, 2003. This swap qualifies as an accounting cash flow hedge as defined by SFAS 133. Accordingly, the changes in fair value of this instrument are recorded through other comprehensive income in the consolidated statement of shareholders' equity. As per April 15, 2003, the interest rate swap expired and ceased to exist. In the first quarter of 2003, we have bought protection on the interest rate exposure on the Euro denominated bank indebtedness for 2003 and 2004. As a result, the net rate (without the applicable margin) is capped at 3% for an amount totaling 2.7 billion. The changes in fair value of these caps are recorded through other income in the consolidated statement of operations.

        The consolidated balance sheet reflects these instruments as derivative assets or liabilities as appropriate.


Item 4.    Controls and Procedures

(a)   Evaluation of disclosure controls and procedures.

(b)   Changes in internal controls.

53



PART II–OTHER INFORMATION

Item 1–Legal Proceedings

        For information regarding developments in certain legal proceedings to which the Company or any of its subsidiaries is a party, see Notes 8 and 15 to our condensed consolidated financial statements included elsewhere herein.


Item 2–Changes in Securities and Use of Proceeds

        None.


Item 3–Defaults upon Senior Securities

        For information regarding the defaults on our senior securities, see Note 2 to our condensed consolidated financial statements included elsewhere herein.


Item 4–Submission of Matters to a Vote of Security Holders

        For information regarding submission of matters to a vote of security holders, see Note 2 to our condensed consolidated financial statements included elsewhere herein.


Item 5–Other information

Summary Operating Data

        In the tables below, the "UPC Paid In Ownership" column shows the percentage we own of the operating systems in which we have an interest. The operating data set forth below reflect the aggregate statistics of the operating systems in which we have an ownership interest.

 
  As at March 31, 2003
 
  UPC Paid in
Ownership

  Homes in
Service Area(1)

  Homes
Passed(2)

  Two Way
Homes Passed(3)

  Analog Basic
Subscribers(4)

  Basic
Penetration

  Direct to
Home
(DTH)(5)

  Digital
Subscribers(6)

  Total Video
Subscibers(7)

Multi Channel TV                                    
  Norway   100.0 % 529,000   482,600   196,200   336,200   69.7 %   32,600   368,800
  Sweden   100.0 % 770,000   421,600   264,300   274,000   65.0 %   17,800   291,800
  Belgium   100.0 % 530,000   153,600   153,600   130,600   85.0 %     130,600
  France   92.0 % 2,656,600   1,356,200   669,400   462,700   34.1 %   7,600   470,300
  The Netherlands   100.0 % 2,651,700   2,588,100   2,337,400   2,311,700   89.3 %   49,700   2,361,400
  Austria   95.0 % 1,081,400   923,300   920,100   502,200   54.4 %   21,300   523,500
       
 
 
 
     
 
 
    Total Western Europe       8,218,700   5,925,400   4,541,000   4,017,400         129,000   4,146,400
       
 
 
 
     
 
 
  Poland   100.0 % 1,869,600   1,869,600   199,400   994,500   53.2 %     994,500
  Hungary   98.9–100.0 % 1,001,100   957,800   512,200   691,200   72.2 % 82,400     773,600
  Czech Republic   99.9–100.0 % 913,000   679,800   240,200   297,600   43.8 % 58,200     355,800
  Romania   100.0 % 659,600   458,400     326,200   71.2 %     326,200
  Slovak Republic   95.0–100 % 517,800   381,800   17,300   293,600   76.9 % 10,100     303,700
       
 
 
 
     
 
 
    Total Eastern Europe       4,961,100   4,347,400   969,100   2,603,100       150,700     2,753,800
       
 
 
 
     
 
 
    Total       13,179,800   10,272,800   5,510,100   6,620,500       150,700   129,000   6,900,200
       
 
 
 
     
 
 

(1)
"Homes in Service Area" represents the number of homes in a certain franchise area that can potentially be served.

(2)
"Homes Passed" represents the number of homes that can be connected to our distribution system without further extending the cable network distribution plant.

(3)
"Two-way Homes Passed" represents the number of homes passed by our network where customers can request and receive the installation of a two-way addressable set-top box, cable modem and/or voice port which, in most cases, allows for the provision of video, voice and data (broadband) services.

(4)
"Analog Basic Subscriber" is a home or commercial unit that receives our basic cable service.

(5)
"DTH Subscriber" is a home or commercial unit with one or more television sets that receives our video programming broadcast directly to the home via geosynchronous satellites.

(6)
"Digital Subscriber" is a home or commercial unit with one or more digital converter boxes that receives our digital service. A digital subscriber is also counted as an Analog Basic Subscriber.

(7)
"Total Video Subscribers is the sum of Analog Basic Subscribers, Direct to Home and Digital Subscribers.

54


 
  As at March 31, 2003
 
  UPC Paid in
Ownership

  Homes
Serviceable(1)

  Subscribers
Residential(2)

  Lines
Residential(3)

Cable Telephony                
  Norway   100.0 % 135,100   22,900   25,400
  France   92.0 % 669,400   55,800   57,300
  The Netherlands   100.0 % 1,593,300   165,700   195,500
  Austria   95.0 % 899,700   149,800   151,200
       
 
 
    Total cable telephony       3,297,500   394,200   429,400
       
 
 
Non-cable Telephony                
  Czech Republic(4)   99.9–100.0 % 17,700   3,100   3,100
  Hungary(4)   98.9–100.0 % 84,900   64,900   71,400
       
 
 
    Total non-cable telephony       102,600   68,000   74,500
       
 
 
    Total       3,400,100   462,200   503,900
       
 
 

(1)
"Telephony Homes Serviceable" represents the number of homes that can be connected to our cable distribution system, or our copper (twisted pair) network in certain areas, where customers can request and receive voice services.

(2)
"Residential telephony Subscriber" is a home with one or more voice ports connected to our broadband network, or our copper (twisted pair) networks in certain areas, where a customer has requested and is receiving voice services.

(3)
"Telephony Lines" are the number of lines provided to our Telephony Subscribers.

(4)
Hungary (Monor) and Czech Republic offer traditional telephone services.

 
  As at March 31, 2003
 
  UPC Paid in
Ownership

  Homes
Serviceable(1)

  Residential
Subscribers(2)

  3rd Party ISP
Subscribers(3)

Internet                
  Norway   100.0 % 196,200   32,300  
  Sweden   100.0 % 264,300   64,600  
  Belgium   100.0 % 153,600   25,100  
  France   92.0 % 669,400   22,300  
  The Netherlands   100.0 % 2,337,400   309,200  
  Austria   95.0 % 920,100   187,100  
       
 
 
    Total Western Europe       4,541,000   640,600  
       
 
 
  Poland   100.0 % 199,400   15,800  
  Hungary   98.9–100.0 % 451,300   31,600   400
  Czech Republic   99.9–100.0 % 240,200   17,700  
  Slovak Republic   95.0–100.0 % 8,200    
       
 
 
    Total Eastern Europe       899,100   65,100   400
       
 
 
    Total       5,440,100   705,700   400
       
 
 

(1)
"Internet Homes Serviceable" represents the number of homes that can be connected to our cable distribution system where customers can request and receive high-speed internet access services.

55


(2)
"Residential Internet Subscriber" is a home or commercial unit connected to our broadband network, where a customer has requested and is receiving chello broadband high-speed internet access services.

(3)
Broadband Internet Subscribers who are not served by chello broadband.

Residential Revenue Generating Units

        The operating data set forth below reflect the aggregate statistics of the operating systems in which we have an ownership interest. Revenue Generating Units, or ("RGUs"), is separately an Analog Basic Subscriber, Digital Subscriber, DTH Subscriber, Residential Telephony Subscriber or Broadband Internet Subscriber. A home may contain one or more RGUs. For example, if a residential customer in our Dutch system subscribed to our analog cable service digital cable service, telephone service and high-speed internet service, the customer would constitute four RGUs.

 
  As at
March 31,
2003

Total RGUs(1)    
  Norway   424,000
  Sweden   356,400
  Belgium   155,700
  France   548,400
  The Netherlands   2,836,300
  Austria   860,400
   
    Total Western Europe   5,181,200
   
  Poland   1,010,300
  Hungary   870,500
  Czech Republic   376,600
  Romania   326,200
   
  Slovak Republic   303,700
   
    Total Eastern Europe   2,887,300
   
    Total   8,068,500
   

(1)
"Total Subscribers", or "Total RGUs" is the sum of Analog, Digital, DTH, Residential Telephony and Broadband Internet Subscribers.

56



Item 6.    Exhibits and Reports on Form 8-K

 
   
(a)   Exhibits

99.1

 

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)

 

Reports on Form 8-K filed during the Quarter
Date of Report

  Date of Event

  Item Reported

January 8, 2003   January 8, 2003   Item 5 & 7–Announcement that on January 8, 2003, the United States Bankruptcy Court approved the second amended disclosure statement for UPC's pending Chapter 11 Bankruptcy case.

January 10, 2003

 

January 9, 2003

 

Item 5 & 7–Announcement that on January 9, 2003, UPC and New UPC filed a second amended plan or reorganization and related second amended disclosure statement with the United States Bankruptcy Court and submitted a revision to the draft plan of compulsory composition (
Akkoord).

January 15, 2003

 

January 9, 2003

 

Item 5 & 7–Correction of certain information in the second amended disclosure statement dated January 7, 2003, filed by UPC to UPC'ss Report on Form 8-K filed on January 8, 2003.

January 28, 2003

 

January 27, 2003

 

Item 7 & 9–Announcement that on January 27, 2003, UPC filed with the United States Bankruptcy Court its monthly unaudited parent only operating report for the period from December 3, 2003 to December 31, 2002.

February 14, 2003

 

February 12, 2003

 

Item 7 & 9–Announcement that on February 12, 2003, UPC filed a motion with the United States Bankruptcy Court for an order authorizing the transfer of shares of SBS of UPC and the sale of SBS shares to United.

February 20, 2003

 

February 18, 2003

 

Item 7 & 9–Announcement that on February 18, 2003, UPC filed with the United States Bankruptcy Court its monthly unaudited parent only operating report for the period from January 1, 2003 to January 31, 2003.

February 21, 2003

 

February 20, 2003

 

Item 5 & 7–Announcement that on February 21, 2003, the United States Bankruptcy Court confirmed the second amended plan of reorganization, dated January 7, 2003, as modified, filed by UPC and New UPC.

March 3, 2003

 

March 3, 2003

 

Item 5 & 7–Announcement that on March 3, 2003, UPC's creditors voted in favour of the compulsory composition, the
Akkoord.

March 14, 2003

 

March 13, 2003

 

Item 5 & 7–Announcement that on March 13, 2003, the Dutch Bankruptcy Court ratified the
Akkoord subject to an appeal period.
         

57



March 25, 2003

 

March 21, 2003

 

Item 5 & 7–Announcement that on March 21, 2003, InterComm Holding, L.L.C. and three of its affiliates filed an appeal against the Dutch Bankruptcy Court's ratification of the
Akkoord.

March 31, 2003

 

March 31, 2003

 

Item 7 & 9–Announcement that on March 31, 2003, United issued a press release on its operating and financial results for the fourth quarter and year ended December 31, 2002.

58



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.

    UNITED PAN-EUROPE COMMUNICATIONS N.V.
a Dutch Public limited liability company

 

 

By:

/s/  
CHARLES H.R. BRACKEN      
Charles H.R. Bracken
Board of Management Member and
Chief Financial Officer

Date: May 15, 2003

 

 

By:

/s/  
RUTH PIRIE      
Ruth Pirie
Principal Accounting Officer
Date: May 15, 2003


CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

        I, John F. Riordan, President and Chief Executive Officer of United Pan-Europe Communications N.V., certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of United Pan-Europe Communications N.V.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.
Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–14 and 15d–14) for the registrant and we have:

a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control's; and

6.
The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003


 

 

By:

/s/  
JOHN F. RIORDAN      
John F. Riordan
President and Chief Executive Officer


CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

        I, Charles H.R. Bracken, Chief Financial Officer of United Pan-Europe Communications N.V., certify that:

1.
I have reviewed this quarterly report on Form 10-Q of United Pan-Europe Communications N.V.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.
Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–14 and 15d–14) for the registrant and we have:

a)
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control's; and

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

Date: May 15, 2003


 

 

By:

/s/  
CHARLES H.R. BRACKEN      
Charles H.R. Bracken
Chief Financial Officer



QuickLinks

PART I–FINANCIAL INFORMATION
PART II–OTHER INFORMATION
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)
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)
UNITED PAN-EUROPE COMMUNICATIONS N.V. (DEBTOR-IN-POSSESSION) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Stated in thousands of Euros) (Unaudited)
UNITED PAN-EUROPE COMMUNICATIONS N.V. (DEBTOR-IN-POSSESSION) NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Description of Business
Results of Operations
Liquidity and Capital Resources
Consolidated Capital Expenditures
Statements of Cash Flows
New Accounting Principles
PART II–OTHER INFORMATION
SIGNATURES
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002