Back to GetFilings.com

Use these links to rapidly review the document
Table of Contents
Index to Financial Statements

UNITED PAN-EUROPE COMMUNICATIONS N.V.
(DEBTOR-IN-POSSESSION)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the year ended December 31, 2002

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 o    No ý

        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. o

        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 March 28, 2003 was USD 12.9 million.

        The number of shares outstanding of the Registrant's common stock as of March 31, 2003 was:

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

UNITED PAN-EUROPE COMMUNICATIONS N.V.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002

Table of Contents

2

PART I

Item 1.    Business

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 2002.

        At the end of 2001 and in 2002, we continued to take a number of actions to reorganize internally. In 2001 and 2002, 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 2002, UPC Media's activities included internet portal and content, video content and digital products and services. During 2001 and 2002, we decided that five 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 analogue and digital video services, telephone and internet services to residential customers. In addition, as part of the ongoing realignment of the business, we are in the process of forming an Investments Division, which will manage our non-consolidated investment assets. These assets were valued at 226.0 million and 127.3 million as of December 31, 2001 and 2002, respectively. The reduction in the value of the portfolio arose as a result of write-downs and asset disposals. During 2003, we have agreed to sell our shares in SBS Broadcasting S.A. ("SBS") to our affiliate, UnitedGlobalCom, Inc. ("United") for 100 million, against a year-end 2002 book value of 65.4 million, prior to the completion of our proposed restructuring, described below. As a result the pro forma value of the portfolio is 61.9 million. We continue to focus on rationalizing our investment portfolio to maximize value.

        We operated from July 1995 to December 1997 as a 50–50 joint venture between United Europe, Inc., a subsidiary of UGC Holdings, Inc., formerly known as UnitedGlobalCom, Inc. but distinct from United ("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. In May 2002, UGC Holdings became a wholly-owned subsidiary of United as of December 31, 2002, United owns 64.4% of our total outstanding ordinary shares A on a fully diluted basis.

        We have grown substantially since formation through acquisitions of cable television systems and related businesses in our existing and new markets, and though 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.

        All monetary amounts in Item 1 to Item 15 are stated in Euros, unless indicated otherwise.

3

Developments

        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 2004, primarily as a result of the continued introduction of these new services, some of 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 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 focus on products with positive net present values. During 2002, we took steps to implement our revised business plan.

Defaults and Waivers

        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 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 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 our senior notes and senior discount notes. In addition, on May 1, 2002, August 1, 2002, November 1, 2002 and February 1, 2003, we failed to make required interest payments in the aggregate amount of 38.9 million, 123.5 million, 36.5 million and 117.8 million, respectively, on our 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.

        Our failure to make the February 1, 2002, May 1, 2002, August 1, 2002 November 1, 2002 and February 1, 2003 interest payments on our senior notes, and the resulting Events of Default under the indentures relating to the senior notes and senior discount notes, gave rise to potential cross events of default under the following credit and loan facilities:

•

the senior secured credit facility among UPC Distribution Holding B.V., 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 then majority-owned subsidiary ("EWT"), as Borrower, a group of entities as Guarantors, The Royal Bank of Scotland plc ("RBS") as Facility Agent and Security Agent and a group of financial institutions (the "EWT Facility"); and

4

•

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

        The UPC Distribution Bank Facility is secured by share pledges to the banks on UPC Distribution Holding B.V., which is the holding company of most companies within the UPC Distribution group, and over certain operating companies within this group. The Exchangeable Loan is secured by pledges over the stock of Belmarken, its wholly owned subsidiary, UPC Holding B.V., and UPC Internet Holding B.V., which owns chello broadband N.V. Our interest in EWT is held indirectly through UPC Germany GmbH ("UPC Germany"), in which we held a 51% interest until July 30, 2002. 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, we 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 our 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, we 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 our outstanding senior notes and senior discount notes and any resulting cross defaults, and the duration of the waivers until March 31, 2003.

        Each of these waivers will remain effective until the earlier of

•

March 31, 2003,



•

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 described below, or five business days after United has given notice to us that, in their 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 100 million drawdown limitation under that facility, subject to certain conditions, during the period in which the waiver is in place. In addition, the waiver to the UPC Distribution Bank Facility includes amendments to the UPC Distribution Bank Facility which

•

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



•

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



•

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



•

reduce the total commitment amount under the facility to 3.5 billion; and



•

require UPC Holding B.V. to provide an additional 125 million in funding to UPC Distribution on or before March 31, 2003.

5

        On July 30, 2002, we transferred a 22.3% holding in UPC Germany shares to the holders of the remaining minority interest in UPC Germany (as described in Note 5 of the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K). Due to the share transfer, such holders became the majority shareholders of UPC Germany. The EWT Facility was refinanced by the new majority shareholders and the potential cross default ceased to exist.

Agreement for Restructuring

        On February 1, 2002, we 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 our senior notes and senior discount notes to attempt to reach agreement on a means to restructure our indebtedness at the holding company level.

        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. United and their advisors and the steering committee and their advisors completed their due diligence on us and our current financial condition.

        On September 30, 2002, we announced that a binding agreement had been reached with United and the members of the ad hoc noteholders committee on a recapitalization plan for us. If implemented under its current terms, the agreed recapitalization will substantially delever our balance sheet eliminating approximately 4.1 billion accreted value of senior notes and senior discount notes, accrued interest on the senior notes of 351.5 million, 894.5 million of Exchangeable Loan debt, and 1.7 billion of convertible preference shares (all amounts as of December 31, 2002) in exchange for equity issued by a newly formed Delaware corporation, United European Communications, Inc. ("New UPC"). The agreement consists primarily of the following key terms:

•

United will receive approximately 65.5% of New UPC's pro forma equity (subject to dilution under certain circumstances) for the exchange of its 1.5 billion in our senior and senior discount notes including accrued interest on the senior notes and its 894.5 million Exchangeable Loan as of December 31, 2002;



•

third-party noteholders will receive approximately 32.5% of New UPC's pro forma equity for the exchange of their holding of 2.9 billion of our notes (including accrued interest on the senior notes) as of December 31, 2002;



•

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



•

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



•

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

We are currently negotiating and expect to receive an extension to the original bank waiver.

        If we complete the sale of our SBS shares to United prior to the completion of the restructuring described below, as is contemplated the proceeds from the sale will reduce the Maximum Subscription Amount to zero and as a result, our third-party noteholders will not have the right to subscribe for any shares of New UPC common stock. The Plan and the Akkoord and the other transactions contemplated by

6

the restructuring agreement are to become effective on a date (the "Effective Date") identified by us and falling no more than 11 days after all conditions to the consummation of the Plan and Akkoord have been satisfied or waived.

        In addition, the restructuring agreement contains an agreement by the parties (other than us) to forbear on exercising rights and remedies relating to defaults on the senior notes, senior discount notes and Exchangeable Loan while the restructuring agreement remains in effect.

The Plan of Reorganization

        In order to effectuate the restructuring, on December 3, 2002 (the "Petition Date"), we filed a petition for relief under Chapter 11 (the "Chapter 11 Case") of the United States Bankruptcy Code (the "U.S. Bankruptcy Code") and we 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, us, as contemplated by the Memorandum of Understanding.

Akkoord

        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, we commenced a moratorium of payments in The Netherlands under Dutch bankruptcy law (the "Dutch Bankruptcy Case"). On December 3, 2002, we filed a proposed plan of compulsory composition (the "Akkoord") with the Amsterdam Court (Rechtbank) (the "Dutch Bankruptcy Court") under the Dutch Faillissementswet (the "Dutch Bankruptcy Code"). We 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 24, 2003, InterComm Holdings L.L.C. ("ICH"), a creditor in the Dutch moratorium proceeding with a EUR1.00 claim and one vote, based on a claim against us, appealed the Dutch Court's ratification of the Akkoord. The Dutch Court of Appeals has scheduled an expedited hearing for the appeal for April 1, 2003 and is expected to rule on the appeal shortly thereafter. We believe 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. We do not expect that this appeal will affect the successful completion of our restructuring, which in all other respects has been finalized. The appeal will however, delay completion of the restructuring beyond March 31, 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 us. Therefore, in order to facilitate implementation of the Plan with respect to certain of our Ordinary Shares A in accordance with Dutch law, New UPC commenced an offer, solely with respect to holders of our 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 our Ordinary Shares A in consideration for the delivery by such holders of our Ordinary Shares A to New UPC (the "Dutch Implementing Offer").

7

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, we held an extraordinary meeting of the holders of our Ordinary Shares A, our Priority Shares and our Preference Shares A (the "Extraordinary General Meeting") to approve certain amendments to our Articles of Association and other shareholder proposals (the "Shareholder Proposals").

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

•

proposal to amend our Articles of Association (the "First Amendment") to



(i)

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



(ii)

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

        which capital reduction will permit us to eliminate our accumulated deficit;

•

proposal to amend our Articles of Association (the "Second Amendment") to



(i)

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



(ii)

remove our Preference Shares A from our authorized capital;



(iii)

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



(iv)

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



(v)

remove our Ordinary Shares B and our Preference Shares B from our authorized capital;




•

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



•

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



(i)

allowing registered shares;



(ii)

restricting transfers of shares;



(iii)

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



(iv)

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



(v)

as soon as all of our issued shares are held by one shareholder, converting each of our issued Priority Shares into one Ordinary Share C, and vesting all powers of the holders of the our

8

Priority Shares under our Articles of Association, to the extent possible, in the general meeting of our shareholders.

Summary of Status of the Restructuring

        As of the date of the filing of this Annual Report on Form 10-K, our restructuring 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 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 Dutch Bankruptcy Court. An appeal was filed against the ratification of the Akkoord on March 24, 2003, but we believe it is without merit and intend to oppose it vigorously. The Dutch Court of Appeals has scheduled a hearing for the appeal for April 1, 2003. The Dutch Implementing Offer, which was scheduled to expire on March 21, 2003, has been extended to April 14, 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 (e.g., no later than five Euronext business days after the effective date of the Plan). Certain amendments to our Articles of Association were adopted during an Extraordinary General Meeting of our shareholders. Some of the amendments were effective immediately 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 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. We are currently negotiating and expect to receive an extension to the waiver on our UPC Distribution Bank Facility with the coordinating committee of senior bank lenders in case such a waiver is required. 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.

        As of December 31, 2002, we had not made the interest payments on the 10⁷/8% Senior Notes due 2009, 11¹/4% Senior Notes due 2010, 11¹/2% Senior Notes due 2010, 10⁷/8% Senior Notes due 2007 and the 11¹/4% Senior Notes due 2009. We believe subscriber growth has been impacted in some countries by our financial restructuring in particular The Netherlands; 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 December 31, 2002, 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 and 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. 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) 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 Accountant 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.

Narrative 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

9

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 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 are in the process of forming an Investments Division, which will manage our non-consolidated investment assets. These assets were valued at 226.0 million and 127.3 million as of December 31, 2001 and 2002, respectively. We continue to focus on rationalizing our investment portfolio to maximize value.

        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.

        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. Our strategic vision has changed our focus from an aggressive digital roll-out to increasing the volume of our sales of products and services that have better gross margins and profitability. The revised business plan focuses on improved average revenue per subscriber and margins, increased penetration of new service products within existing upgraded homes, efficient deployment of capital and focus on products with positive net present values.

        Information regarding the revenues and the long-lived assets of our business segments and geographic areas of our business is contained in Note 12 to our audited consolidated financial statements contained in this Annual Report on Form 10-K.

10

Summary Operating Data for 2002 and 2001

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

(2)

"Homes Passed" represents a home 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)

"Basic Subscriber", is generally defined as a home taking our basic cable service.

(5)

"DTH Subscriber" is generally defined as a home or commercial unit with one or more television sets that receive video programming that is broadcast directly to the home via geosynchronous satellites.

(6)

"Digital Subscriber" is generally described as a home with one or more digital converter boxes. A digital subscriber is also counted as a Basic Subscriber.

(7)

Statistics of PrimaCom are as of September 30, 2002.

(8)

Statistics of Israel are as of March 31, 2002.

(9)

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.

(10)

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

11

Summary Operating Data (Continued)

(1)

"Telephony Homes Serviceable" represents a home that can be connected to our cable distribution system, or our copper network in certain areas where customers can request and receive the installation of a voice port that allows for the provision of voice (broadband) services.

(2)

Residential telephony Subscriber is generally defined as a home with one or more voice ports connected to our broadband network where a customer has requested and is receiving voice services. Certain of our systems provide traditional switched telephone services in the local loop.

(3)

"Telephony Lines" are defined as the number of lines provided to a Telephony Subscriber.

(4)

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

(5)

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

12

Summary Operating Data (Continued)

(1)

"Internet Homes Serviceable" represents a home that can be connected to our cable distribution system where customers can request and receive the installation of cable modem, which allows for the provision of high-speed internet access services.

(2)

"Internet Subscriber" is generally defined as a home or commercial unit with one or more cable modems connected to our broadband network, where a customer has requested and is receiving high-speed internet access services.

(3)

Internet subscribers who are not served by chello broadband.

(4)

Statistics of PrimaCom are as of September 30, 2002.

(5)

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

(6)

Statistics of Israel are as of March 31, 2002.

13