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UNITED PAN-EUROPE COMMUNICATIONS N.V. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001
PART IV
TABLE OF CONTENTS 3

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the year ended December 31, 2001

or

For the transition period from                          to            

Commission File No. 000-25365

UNITED PAN-EUROPE COMMUNICATIONS N.V.
(Exact name of Registrant as specified in its charter)

Registrant's telephone number, including area code: (31) 20-778-9840
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
American Depository Shares each representing one ordinary share

        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 /x/    No / /

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

        The aggregate market value of the voting stock held by nonaffiliates of the Registrant, computed by reference to the last sales price of such stock, as of the close of trading on April 9, 2002 was USD 75.4 million.

        The number of shares outstanding of the Registrant's common stock as of March 31, 2002 was:

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

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Annual Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement relating to the annual meeting of stockholders to be held in June 2002, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report relates.

UNITED PAN-EUROPE COMMUNICATIONS N.V.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001

Table of Contents

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PART I

Item 1. Business

(a)  General Development of Business

        We began business as a provider of cable television services. Over the last few years we have been upgrading many of our networks so that they are capable of providing two-way telecommunications services, such as telephone, internet access and enhanced digital video services. We launched telephone services to business and residential customers in many of our operating companies under the brand name Priority Telecom in 1998 and 1999. Also in 1999, many of our operating companies launched internet services using our chello broadband access and portal. We continued to develop our video, telephone and internet businesses in 2001.

        In 2001, we took a number of actions to reorganize internally. We combined the management of our internet subsidiary, chello broadband N.V., and our programming businesses, led by UPCtv, to form a division, UPC Media. In December 2001, we transferred the assets and employees relating to the technical network and systems access to the internet from chello broadband N.V. to our UPC Distribution operating companies. In addition to internet services and pay television, UPC Media is developing interactive services and transactional television. At the end of 2001, UPC Media's activities included internet portal and content, video content and digital products and services. During 2001 and 2002, we decided that four of the eight thematic channels produced by UPCtv would be closed as part of the revision of our strategy. During 2001, certain of our operating companies spun off their business telephone activities and assets to our subsidiary, Priority Telecom N.V., which operates as a separate competitive local exchange carrier, or "CLEC", and as our provider of telephone and data network solutions to business customers, leveraging off our operating systems' existing network infrastructure. Priority Telecom N.V. was listed on the Euronext Amsterdam N.V. stock exchange ("Euronext") in September 2001. Our operating companies, which we sometimes refer to as UPC Distribution, provide analog and digital video services and telephone and internet services to residential customers.

        We operated from July 1995 to December 1997 as a 50–50 joint venture between United Europe, Inc., a subsidiary of UnitedGlobalCom, Inc., now known as UGC Holdings, Inc. ("UGC Holdings"), and Philips Electronics N.V. ("Philips"). In December 1997, we and United Europe, Inc. acquired the 50% of our ordinary shares held by Philips. Following this acquisition and until our initial public offering in February 1999, we were a wholly owned indirect subsidiary of UGC Holdings. As of December 31, 2001, UGC Holdings indirectly owned approximately 53.1% of our total outstanding ordinary shares A.

        We have grown substantially since formation through acquisitions of cable television systems and related businesses in our existing and new markets, and through organic growth from the sale of new services. We expect our new services, such as telephone, internet and digital video, to continue to develop and become an increasingly important part of our business.

        During 2001, we reviewed our current and long-range plan for all segments of our business and we hired a strategic consultant to assist us in the process. We worked extensively with this consultant to revise our strategic and operating plans. We have revised our strategic vision, no longer focusing on an aggressive digital roll-out, but on increasing sales of products and services that have better gross margins and are currently profitable. The revised business plan focuses on average revenue per subscriber and margin improvement, increased penetration of new service products within existing upgraded homes, efficient deployment of capital and focuses on products with positive net present values. As a result of the strategic review and other actions taken by us in 2001, we have recorded significant charges for asset impairments and various restructuring measures in 2001.

        On January 30, 2002, New UnitedGlobalCom Inc., now known as UnitedGlobalCom, Inc. ("United"), completed a transaction with Liberty Media Corporation ("Liberty"), pursuant to which United acquired a 99.5% economic interest in UGC Holdings, and Liberty increased its economic interest in United to 72.6%

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from the 19.7% economic interest it had held in UGC Holdings prior to the completion of the transaction. In addition, United acquired approximately USD 1,435 million and EUR 263 million principal amount at maturity of our 10⁷/8% Senior Notes due 2007, 10⁷/8% Senior Notes due 2009, 11¹/4% Senior Notes due 2009, 11¹/4% Senior Notes due 2010, 11¹/2% Senior Notes due 2010, 12¹/2% Senior Discount Notes due 2009, 13³/8% Senior Discount Notes due 2009 and 13³/4% Senior Discount Notes due 2010, which we refer to as our "senior notes" and "senior discount notes", as well as a EUR 1.0 billion Exchangeable Loan borrowed by our subsidiary Belmarken Holding B.V. ("Belmarken") and ourselves pursuant to the loan agreement among Belmarken and ourselves, as Obligors, UPC Internet Holding B.V., as Guarantor, and Liberty Belmarken, Inc., as Lender, dated as of May 25, 2001 (the "Exchangeable Loan"). Belmarken is one of our primary wholly-owned subsidiaries and is the indirect owner of most of our operating companies. 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.

        Viewing our funding requirements and our possible lack of access to debt and equity capital in the near term, we determined that we would not make interest payments on our senior notes and senior discount notes, as they fell due. On February 1, 2002, we failed to make required interest payments in the aggregate amount of EUR 113.0 million (USD 100.6 million) on our outstanding 10⁷/8% Senior Notes due 2009, 11¹/4% Senior Notes due 2010 and 11¹/2% Senior Notes due 2010. The indentures related to our senior notes and senior discount notes provide that failing to make interest payments constitutes an "Event of Default" under the notes if we are in default of the payment of interest on any of the notes for a period of time in excess of 30 days. Since we failed to make the interest payments upon expiration of this 30-day grace period on March 3, 2002, Events of Default occurred under those 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 our senior notes and senior discount notes. As of March 31, 2002, neither the trustees for those notes nor the requisite number of holders of those notes have accelerated the payment of principal and interest under those notes.

        On February 1, 2002, as more fully described in the Form 8-K we filed with the Securities and Exchange Commission on that date, we signed a Memorandum of Understanding with United and UGC Holdings. The Memorandum of Understanding describes a non-binding agreement in principle with United and UGC Holdings to enter into negotiations with the holders of our senior notes and senior discount notes to attempt to reach agreement on a means to restructure our indebtedness at the holding company level.

        Our failure to make the February 1, 2002 interest payment on our outstanding 10⁷/8% Senior Notes due 2009, 11¹/4% Senior Notes due 2010 and 11¹/2% Senior Notes due 2010, and the resulting Events of Default under the indentures relating to our senior notes and senior discount notes, gave rise to cross events of default under the following credit and loan facilities:

•

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



•

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



•

the Exchangeable Loan.

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        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 operating companies within this group. The EWT Facility is secured by share pledges over EWT to RBS. The occurrence of the cross events of default under those facilities give 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, as more fully described in the Form 8-K we filed with the Securities and Exchange Commission on that date, we received waivers from the lenders under the UPC Distribution Bank Facility, the EWT Facility and the Exchangeable Loan for the cross events of defaults under such facilities that existed or may exist as a result of our failure to make the interest payment due on February 1, 2002, on our outstanding 10⁷/8% Senior Notes due 2009, 11¹/4% Senior Notes due 2010 and 11¹/2% Senior Notes due 2010, failure by us to make the interest payment due on May 1, 2002 on our outstanding 10⁷/8% Senior Notes due 2007 and 11¹/4% Senior Notes due 2009 within the applicable cure periods, or any resulting cross defaults. Each of these waivers will remain effective until the earlier of

•

June 3, 2002,



•

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



•

in the case of the waiver for the Exchangeable Loan only, the acceleration of any advances under the UPC Distribution Bank Facility, the conversion of the notes under the credit or loan facility into our ordinary shares in accordance with the terms of the Memorandum of Understanding, or five business days after United has given notice to us that, in its judgment, restructuring negotiations with holders of the senior notes and senior discount notes are not progressing satisfactorily.

        In addition, each of these waivers contains certain other conditions and undertakings and will terminate if there is a default by us of the terms of that waiver. The waiver under the UPC Distribution Bank Facility subjects us to a EUR 100 million drawdown limitation under that facility, subject to certain conditions, during the period in which the waiver is in place.

        As of April 12, 2002, we had not made the interest payment on the 10⁷/8% Senior Notes due 2009, 11¹/4% Senior Notes due 2010 and 11¹/2% Senior Notes due 2010. None of the notes or facilities described above had been accelerated or subject to enforcement actions, and none of the defaults described above had a material adverse effect on the operations of our subsidiaries or their or our relationships with customers, suppliers and employees.

        The occurrence of the events of default described above also triggered the right of the holders of a minority interest in our 51% owned subsidiary, UPC Germany, to acquire from us for nominal consideration shares of UPC Germany constituting 22% of UPC Germany's outstanding shares. On March 5, 2002, we received notice of the holders' notice of exercise. After settlement of this exercise, our interest in UPC Germany will be reduced to 29%. The involved parties are in discussion about this exercise notice.

        During the month of March 2002, we met with representatives of United, which currently holds the Exchangeable Loan and a significant portion of our senior notes and senior discount notes, and a steering committee representing the holders of our 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. Currently, United and its advisors and the noteholders' steering committee and its advisors are conducting due diligence about us and our current financial condition. We have not reached any decisions with either United or the noteholders' steering committee regarding the terms or timing of a debt restructuring. We expect that this process will take a number of months to complete. If completed, the restructuring will result in substantial dilution of our existing shareholders, a loss of some or all of the fair value of our outstanding securities, including our ordinary shares, preference shares and senior notes and

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senior discount notes, as well as the Exchangeable Loan. Since we are in preliminary discussions with United and the noteholders' steering committee, we cannot predict the terms or the timing of our restructuring. In addition, we cannot assure you that we will be able to reach agreement with either United or the noteholders on mutually satisfactory terms for the debt restructuring.

        If we are unable to reach agreement on the terms of the debt restructuring or are otherwise unable to successfully complete an agreed upon restructuring plan for our debt, we may seek relief under a debt moratorium, leading to a suspension of payments, or bankruptcy proceeding under applicable laws. If we seek relief under either of these proceedings, or any other laws that may be available to us, holders of our outstanding securities, including our ordinary shares, preference shares and senior notes and senior discount notes, as well as the Exchangeable Loan, may lose some or all of the value of their investment in our securities. Such proceedings could result in material changes in the nature of our business, material adverse changes to our financial condition and results of operations or our liquidation.

        In a separate transaction on February 1, 2002, we amended two swap agreements with a bank effective as of January 31, 2002 and as more fully described in the Form 8-K we filed with the Securities and Exchange Commissions on such date. The swap agreements were entered into in connection with the issuance of some of our senior notes and senior discount notes. The swap agreements were subject to early termination upon the occurrence of certain events, including the defaults described above. The amendment provides that the bank's obligations to us under the swap agreements have been substantially fixed and the agreements will be unwound on or prior to July 30, 2002. In settlement of the bank's obligations to us, the bank is entitled to offset, and will deliver to us, approximately EUR 400 million, subject to adjustment in the case of certain circumstances, in aggregate principal amount of our senior notes and senior discount notes held by that bank. Upon offset against, and delivery to us of, the senior notes and senior discount notes, our indebtedness will be reduced by approximately EUR 400 million and we will recognize an extraordinary gain.

        We have experienced net losses since formation. As of December 31, 2001, there was substantial uncertainty whether our sources of capital, working capital and projected operating cash flow would be sufficient to fund our expenditures and service our indebtedness over the next year. In addition, as a result of the events of default described above, our senior notes, senior discount notes, the Exchangeable Loan and the UPC Distribution Bank Facility have been classified as current liabilities. Our ability to continue as a going concern is dependent on (i) our ability to restructure the July 1999 Notes, October 1999 Notes, January 2000 Notes, the Exchangeable Loan and the convertible preferred stock and (ii) our ability to generate the cash flows required to enable us to recover 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 Accountants includes a modification in this respect.

Narrative Description of Business

        We own and operate broadband communications networks and services in 17 countries in Europe and in Israel. Our operations are organized into three principal divisions:

•

UPC Distribution, which delivers video, internet and telephone services to residential customers (the "Triple Play");



•

UPC Media, which comprises our converging chello broadband internet business and our content and programming businesses, led by UPCtv. UPC Media's operations also include our digital products;



•

Priority Telecom, which operates our 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.

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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. Our business plan focuses on managed subscriber growth, whilst improving average revenue per subscriber, margins and penetration of products within our existing footprint.

        We have 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 to incur operating losses at least through 2005, 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. During 2001, we reviewed our current and long-range plan for all segments of our business and we hired a strategic consultant to assist us in the process. We worked extensively with this consultant to revise our strategic and operating plans. We have revised our strategic vision, no longer focusing on an aggressive digital roll-out, but on increasing sales of products and services that have better gross margins and are currently profitable. The revised business plan focuses on average revenue per subscriber and margin improvement, increased penetration of new service products within existing upgraded homes, efficient deployment of capital and focuses on products with positive net present values.

        Information regarding revenues, operating performance and assets of our business segments, revenues from external customers, and the long-lived assets of the geographic areas of our business is contained in Note 13 to our audited consolidated financial statements contained in this Annual Report on Form 10-K.

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Summary Operating Data for 2001 and 2000

        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.

(1)

Homes passed represent the number of homes, which the constructed network passes.

(2)

Two-way homes passed represents the number of homes passed where customers can request and receive the installation of a two-way addressable set top and "normal" customer services (e.g. the service is launched, customers are billed and normal service activity is available).

(3)

Basic penetration represents the number of basic subscribers as a ratio of the number of homes passed.

(4)

The 8% minority shareholders in UPC France have the ability to call for a liquidity event in 2004 at fair market values.

(5)

The occurrence of the events of default described in Item 1 "General Development of Business" also triggered the right of the holders of a minority interest in our 51% owned subsidiary, UPC Germany, to acquire from us for nominal consideration shares of UPC Germany constituting 22% of UPC Germany's outstanding shares. On March 5, 2002, we received notice of the holders' notice of exercise. If such an exercise is consummated, our interest in UPC Germany will be reduced to 29%. The involved parties are in discussion about this exercise notice.

(6)

As of December 7, 2001 our Polish DTH business was contributed to a newly formed joint venture with Canal+ ("TKP") in which we have a 25% investment and is therefore reported as a non-consolidated company.

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Summary Operating Data (Continued)

(1)

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

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Summary Operating Data (Continued)

(1)

Internet subscribers who are not served by chello broadband.

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