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UNITEDGLOBALCOM, INC. TABLE OF CONTENTS

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

FORM 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

FOR THE QUARTER ENDED MARCH 31, 2002

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 No. 000-496-58

UnitedGlobalCom, Inc.
(Exact name of Registrant as specified in its charter)

State of Delaware
(State or other jurisdiction of
incorporation or organization)		   84-1602895
(I.R.S. Employer
Identification No.)

4643 South Ulster Street, #1300
Denver, Colorado
(Address of principal executive offices)
 
80237
(Zip code)

Registrant's telephone number, including area code: (303) 770-4001

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 15, 2002 was:

Class A common stock – 110,291,192 shares
Class B common stock –    8,870,332 shares
Class C common stock – 303,123,542 shares


UNITEDGLOBALCOM, INC.
TABLE OF CONTENTS

 
    
PART I – FINANCIAL INFORMATION

Item 1.
 
Financial Statements

 
 
Condensed Consolidated Balance Sheets as of March 31, 2002 (Unaudited) and December 31, 2001

 
 
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2002 and 2001 (Unaudited)

 
 
Condensed Consolidated Statement of Stockholders' Deficit for the Three Months Ended March 31, 2002 (Unaudited)

 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 (Unaudited)

 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk

PART II – OTHER INFORMATION

Item 2.
 
Changes in Securities and Use of Proceeds

Item 3.
 
Defaults Upon Senior Securities

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

Item 6.
 
Exhibits and Reports on Form 8-K

1

UnitedGlobalCom, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value and number of shares)
(Unaudited)

 
   March 31,
2002
   December 31,
2001
  
Assets              
Current assets              
  Cash and cash equivalents   $ 775,823   $ 920,140  
  Restricted cash     36,507     86,625  
  Short-term liquid investments     76,729     78,946  
  Subscriber receivables, net of allowance for doubtful accounts of $62,481 and $51,405, respectively     143,644     152,025  
  Notes receivable, related parties     8,314     310,904  
  Other receivables, including related party receivables of $36,774 and $32,145, respectively     93,626     107,704  
  Deferred financing costs, net of accumulated amortization of $35,577 and $39,178, respectively     100,182     132,564  
  Deferred taxes     4,183     3,604  
  Business transferred under contractual arrangement     59,247     78,672  
  Other current assets, net     97,171     72,067  
   
 
 
    Total current assets     1,395,426     1,943,251  
Investments in affiliates, accounted for under the equity method, net     200,365     231,625  
Property, plant and equipment, net of accumulated depreciation of $1,219,899 and $1,174,197, respectively     3,560,329     3,692,485  
Goodwill and other intangible assets, net of accumulated amortization of $537,205 and $552,370, respectively     2,807,656     2,843,922  
Deferred financing costs, net of accumulated amortization of $147 and $7,688     210     18,371  
Derivative assets     25,309     131,320  
Deferred taxes     9,763     8,866  
Business transferred under contractual arrangement     126,743     143,124  
Other assets, net     18,964     25,676  
   
 
 
    Total assets   $ 8,144,765   $ 9,038,640  
   
 
 
Liabilities and Stockholders' Deficit              
Current liabilities              
  Accounts payable, including related party payables of $2,643 and $1,347, respectively   $ 224,744   $ 350,813  
  Accrued liabilities     625,501     697,827  
  Subscriber prepayments and deposits     129,095     88,975  
  Short-term debt     71,781     77,614  
  Notes payable, related party     102,728     –    
  Current portion of senior notes and other long-term debt, related party     –       2,314,992  
  Current portion of senior notes and other long-term debt     6,020,604     6,074,502  
  Business transferred under contractual arrangement     610,325     607,350  
  Other current liabilities     10,924     11,052  
   
 
 
    Total current liabilities     7,795,702     10,223,125  
Senior discount notes and senior notes     376,181     1,565,856  
Other long-term debt     76,171     78,037  
Business transferred under contractual arrangement     245,763     228,012  
Deferred taxes     193,355     80,300  
Other long-term liabilities     142,155     148,135  
   
 
 
    Total liabilities     8,829,327     12,323,465  
   
 
 
Minority interests in subsidiaries     1,244,723     1,240,665  
   
 
 
Series B convertible preferred stock, stated at liquidation value, nil and 113,983 shares issued and outstanding, respectively     –       29,990  
   
 
 
Stockholders' deficit              
Preferred stock, $0.01 par value, 10,000,000 shares authorized, nil shares issued and outstanding     –       –    
Series C convertible preferred stock, nil and 425,000 shares issued and outstanding, respectively     –       425,000  
Series D convertible preferred stock, nil and 287,500 shares issued and outstanding, respectively     –       287,500  
Class A common stock, $0.01 par value, 1,000,000,000 shares authorized, 109,691,192 and 98,042,205 shares issued and outstanding, respectively     1,097     981  
Class B common stock, $0.01 par value, 1,000,000,000 shares authorized, 8,870,332 and 19,027,130 shares issued and outstanding, respectively     89     190  
Class C common stock, $0.01 par value, 400,000,000 shares authorized, 303,123,542 and nil shares issued and outstanding, respectively     3,031     –    
Additional paid-in capital     3,704,660     1,537,944  
Deferred compensation     (64,796 )   (74,185 )
Treasury stock, at cost, 5,569,240 and 5,604,948 shares of Class A common stock, respectively     (29,061 )   (29,984 )
Accumulated deficit     (5,328,733 )   (6,437,290 )
Other cumulative comprehensive income (loss)     (215,572 )   (265,636 )
   
 
 
    Total stockholders' deficit     (1,929,285 )   (4,555,480 )
   
 
 
    Total liabilities and stockholders' deficit   $ 8,144,765   $ 9,038,640  
   
 
 

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

2

UnitedGlobalCom, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
(In thousands, except per share amounts and number of shares)
(Unaudited)

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
Revenue   $ 349,040   $ 394,745  
Operating expenses     (184,916 )   (294,836 )
Selling, general and administrative expenses     (118,129 )   (174,221 )
Depreciation and amortization     (165,184 )   (271,114 )
Impairment and restructuring charges     (3,458 )   –    
   
 
 
      Operating income (loss)     (122,647 )   (345,426 )
Interest income, including related party income of $2,465 and $5,667, respectively     9,921     31,227  
Interest expense, including related party expense of $18,773 and nil, respectively     (184,134 )   (266,477 )
Foreign currency exchange loss, net     (46,365 )   (91,003 )
Provision for loss on investments     (6,705 )   –    
Derivative losses and other expenses, net     (163,537 )   (36,537 )
   
 
 
      Income (loss) before other items     (513,467 )   (708,216 )
Income tax expense, net     (11,718 )   (772 )
Minority interests in subsidiaries     (23,987 )   61,345  
Share in results of affiliates, net     (70,962 )   (48,190 )
   
 
 
      Income (loss) from continuing operations before extraordinary gain and cumulative effect of change in accounting principle     (620,134 )   (695,833 )
Extraordinary gain on early retirement of debt, net of income tax     1,732,709     –    
Cumulative effect of change in accounting principle     –       32,574  
   
 
 
      Net income (loss)   $ 1,112,575   $ (663,259 )
   
 
 
Basic net income (loss) attributable to common stockholders   $ 1,108,401   $ (676,185 )
   
 
 
Diluted net income (loss) attributable to common stockholders   $ 1,108,401   $ (676,185 )
   
 
 
Net income (loss) per common share:              
  Basic net income (loss) before extraordinary gain and cumulative effect of change in accounting principle   $ (1.96 ) $ (7.27 )
  Extraordinary gain on early retirement of debt     5.45     –    
  Cumulative effect of change in accounting principle     –       0.33  
   
 
 
      Basic net income (loss)   $ 3.49   $ (6.94 )
   
 
 
  Diluted net income (loss) before extraordinary gain and cumulative effect of change in accounting principle   $ (1.92 ) $ (7.27 )
  Extraordinary gain on early retirement of debt     5.32     –    
  Cumulative effect of change in accounting principle     –       0.33  
   
 
 
      Diluted net income (loss)   $ 3.40   $ (6.94 )
   
 
 
Weighted-average number of common shares outstanding:              
      Basic     317,936,595     97,439,092  
   
 
 
      Diluted     325,549,541     97,439,092  
   
 
 
Comprehensive income (loss):              
Net income (loss)   $ 1,112,575   $ (663,259 )
Foreign currency translation adjustments     42,529     (43,753 )
Change in fair value of derivative assets     7,555     –    
Change in unrealized gain on available-for-sale securities     57     36,426  
Cumulative effect on other comprehensive income of change in accounting principle     –       523  
Amortization of cumulative effect of change in accounting principle     (77 )   –    
   
 
 
      Comprehensive income (loss)   $ 1,162,639   $ (670,063 )
   
 
 

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

3

UnitedGlobalCom, Inc.
Condensed Consolidated Statement of Stockholders' Deficit
(In thousands, except number of shares)
(Unaudited)

 
   Series C
Preferred Stock
   Series D
Preferred Stock
   Class A
Common Stock
   Class B
Common Stock
   Class C
Common Stock
    
    
    
    
    
    
    
  
 
    
    
   Treasury Stock
    
   Other
Cumulative
Comprehensive
Loss
    
  
 
   Additional
Paid-In
Capital
   Deferred
Compensation
   Accumulated
Deficit
    
  
 
   Shares
   Amount
   Shares
   Amount
   Shares
   Amount
   Shares
   Amount
   Shares
   Amount
   Shares
   Amount
   Total
  
Balances, December 31, 2001   425,000   $ 425,000   287,500   $ 287,500   98,042,205   $ 981   19,027,130   $ 190   –     $ –     $ 1,537,944   $ (74,185 ) 5,604,948   $ (29,984 ) $ (6,437,290 ) $ (265,636 ) $ (4,555,480 )
Merger/reorganization transaction   (425,000 )   (425,000 ) (287,500 )   (287,500 ) 11,628,674     116   (10,156,798 )   (101 ) 21,835,384     218     770,449     –     (35,708 )   923     –       –       59,105  
Issuance of Class C common stock for financial assets   –       –     –       –     –       –     –       –     281,288,158     2,813     1,396,479     –     –       –       –       –       1,399,292  
Accrual of dividends on Series B, C and D convertible preferred stock   –       –     –       –     –       –     –       –     –       –       (156 )   –     –       –       (4,018 )   –       (4,174 )
Issuance of Class A common stock in connection with 401(k) plan   –       –     –       –     20,313     –     –       –     –       –       110     –     –       –       –       –       110  
Equity transactions of subsidiaries   –       –     –       –     –       –     –       –     –       –       97     (97 ) –       –       –       –       –    
Interest on loans to related parties   –       –     –       –     –       –     –       –     –       –       (263 )   –     –       –       –       –       (263 )
Amortization of deferred compensation   –       –     –       –     –       –     –       –     –       –       –       9,486   –       –       –       –       9,486  
Net income   –       –     –       –     –       –     –       –     –       –       –       –     –       –       1,112,575     –       1,112,575  
Foreign currency translation adjustments   –       –     –       –     –       –     –       –     –       –       –       –     –       –       –       42,529     42,529  
Change in fair value of derivative assets   –       –     –       –     –       –     –       –     –       –       –       –     –       –       –       7,555     7,555  
Change in unrealized gain on available-for-sale securites   –       –     –       –     –       –     –       –     –       –       –       –     –       –       –       57     57  
Amortization of cumulative effect of change in accounting principle   –       –     –       –     –       –     –       –     –       –       –       –     –       –       –       (77 )   (77 )
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances, March 31, 2002   –     $ –     –     $ –     109,691,192   $ 1,097   8,870,332   $ 89   303,123,542   $ 3,031   $ 3,704,660   $ (64,796 ) 5,569,240   $ (29,061 ) $ (5,328,733 ) $ (215,572 ) $ (1,929,285 )
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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

4

UnitedGlobalCom, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
   Three Months Ended March 31,
  
 
   2002
   2001
  
Cash Flows from Operating Activities              
Net income (loss)   $ 1,112,575   $ (663,259 )
Adjustments to reconcile net income (loss) to net cash flows from operating activities:              
  Depreciation and amortization     165,184     271,114  
  Impairment and restructuring charges     3,458     –    
  Stock-based compensation     8,709     3,222  
  Accretion of interest on senior notes and amortization of deferred financing costs     74,679     120,672  
  Unrealized foreign exchange losses     52,519     123,373  
  Provision for loss on investments     6,705     –    
  Loss (gain) on derivative securities     155,918     (17,231 )
  Minority interests in subsidiaries     23,987     (61,345 )
  Share in results of affiliates, net     70,962     48,190  
  Extraordinary gain on early retirement of debt     (1,732,709 )   –    
  Cumulative effect of change in accounting principle     –       (32,574 )
  Increase in receivables, net     (6,526 )   (30,973 )
  Decrease (increase) in other assets     11,074     (39,962 )
  Decrease in accounts payable, accrued liabilities and other     (23,647 )   (136,230 )
   
 
 
    Net cash flows from operating activities     (77,112 )   (415,003 )
   
 
 

Cash Flows from Investing Activities
 
 
 
 
 
 
 
Purchase of short-term liquid investments     (687,872 )   (304,855 )
Proceeds from sale of short-term liquid investments     690,140     376,847  
Restricted cash released, net     49,480     29  
Investments in affiliates and other investments     (1,339 )   (18,980 )
Dividends received from affiliates     11,542     3,170  
New acquisitions, net of cash acquired     (252,728 )   (24,195 )
Capital expenditures     (114,660 )   (205,052 )
Increase in notes receivable from affiliates     (444 )   (35,028 )
Other     (660 )   454  
   
 
 
    Net cash flows from investing activities     (306,541 )   (207,610 )
   
 
 

Cash Flows from Financing Activities
 
 
 
 
 
 
 
Issuance of common stock     200,006     3,178  
Proceeds from short-term and long-term borrowings     576     184,298  
Proceeds from notes payable to shareholder     102,728     –    
Deferred financing costs     (13,008 )   (1,688 )
Repayments of short-term and long-term borrowings     (28,426 )   (25,528 )
   
 
 
    Net cash flows from financing activities     261,876     160,260  
   
 
 
Effect of Exchange Rates on Cash     (22,540 )   (58,947 )
   
 
 
Decrease in Cash and Cash Equivalents     (144,317 )   (521,300 )
Cash and Cash Equivalents, Beginning of Period     920,140     1,876,828  
   
 
 
Cash and Cash Equivalents, End of Period   $ 775,823   $ 1,355,528  
   
 
 

Supplemental Cash Flow Disclosures:
 
 
 
 
 
 
 
  Cash paid for interest   $ 13,781   $ 183,320  
   
 
 
  Cash received for interest   $ 8,252   $ 24,258  
   
 
 

Non-cash Investing and Financing Activities:
 
 
 
 
 
 
 
  Assumption of note payable for financial assets   $ 304,598   $ –    
   
 
 
  Issuance of common stock for financial assets   $ 1,206,441   $ –    
   
 
 

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

5

UnitedGlobalCom, Inc.
Notes to Condensed Consolidated Financial Statements
As of March 31, 2002
(Unaudited)

1. Organization and Nature of Operations

UnitedGlobalCom, Inc. (together with its majority-owned subsidiaries, the "Company" or "United") provides video, telephone and Internet services, which the Company refers to as "Triple Play Distribution", in numerous countries worldwide. The following chart presents a summary of the Company's ownership structure as of March 31, 2002.

CHART

6

2. Merger Transaction

The Company was formed in February 2001 as part of a series of planned transactions with UGC Holdings and Liberty Media Corporation (together with its subsidiaries and affiliates "Liberty"), intended to restructure and recapitalize United's business. On January 30, 2002, United completed a transaction with Liberty and UGC Holdings, pursuant to which the following occurred.

Immediately prior to the merger transaction on January 30, 2002:

As a result of the merger transaction:

Immediately following the merger transaction:

7

In December 2001, IDT United, Inc. commenced a cash tender offer for, and related consent solicitation with respect to, the entire $1.375 billion face amount of senior discount notes of UGC Holdings (the "UGC Holdings 1998 Notes"). As of the expiration of the tender offer on February 1, 2002, holders of the notes had validly tendered and not withdrawn notes representing approximately $1.350 billion aggregate principal amount at maturity. At the time of the tender offer, Liberty had an equity and debt interest in IDT United.

Prior to the merger on January 30, 2002, United acquired from Liberty $751.2 million aggregate principal amount at maturity of the UGC Holdings 1998 Notes (which had previously been distributed to Liberty by IDT United in redemption of a portion of Liberty's equity interest and in prepayment of a portion of IDT United's debt to Liberty), as well as all of Liberty's remaining interest in IDT United. The purchase price for the UGC Holdings 1998 Notes and Liberty's interest in IDT United was:

On January 30, 2002, Liberty loaned United approximately $17.3 million, of which approximately $2.3 million was used to purchase shares of preferred stock and promissory notes issued by IDT United. Following January 30, 2002, Liberty loaned United an additional approximately $85.4 million. United used the proceeds of these loans to purchase additional shares of preferred stock and promissory notes issued by IDT United. These notes to Liberty accrue interest at 8.0% annually, compounded and payable quarterly, and each note matures on its first anniversary. The Company consolidates IDT United as a "special purpose entity", due to insufficient third party residual equity at risk.

On May 14, 2002, the Principal Founders transferred all of the shares of UGC Holdings common stock held by them to United in exchange for an aggregate of 600,000 shares of United Class A common stock pursuant to an Exchange Agreement dated May 14, 2002, among such individuals and United. This Exchange Agreement superseded the Exchange Agreement entered into at the time of the merger transaction. As a result of this exchange, UGC Holdings is now a wholly-owned subsidiary of United, and United is entitled to elect the entire board of directors of UGC Holdings. This transaction was the final step in the recapitalization of the Company.

United accounted for the merger transaction on January 30, 2002 as a reorganization of entities under common ownership at historical cost, similar to a pooling of interests. Under reorganization accounting, the Company has consolidated the financial position and results of operations of UGC Holdings as if the merger transaction had been consummated at the inception of UGC Holdings. The purchase of the UGC Holdings 1998 Notes directly from Liberty and the purchase of Liberty's interest in IDT United were recorded at fair value. The issuance of United's new shares of Class C common stock to Liberty for cash, UPC Bonds and the Belmarken Notes was recorded at the fair value of United's common stock at closing. The estimated fair value of the these financial assets (with the exception of the Belmarken Notes) was significantly less than the accreted value of such debt securities as reflected in UGC Holdings' historical financial statements. Accordingly, for consolidated financial reporting purposes, United recognized an

8


extraordinary gain of approximately $1.624 billion from the effective retirement of such debt outstanding at that time equal to the excess of the then accreted value of such debt over United's cost, net of income tax, as follows:

 
   Fair Value
at Acquisition
   Book Value
   Gain/(Loss)
  
 
   (In thousands)

  
UGC Holdings 1998 Notes   $ 530,149   $ 1,210,974   $ 680,825  
UPC Bonds     312,831     1,428,340     1,115,509  
Belmarken Notes     891,671     891,671     –  
Write-off of deferred financing costs     –     (62,224 )   (62,224 )
Income tax     –     (110,583 )   (110,583 )
   
 
 
 
  Total extraordinary gain on early retirement of debt   $ 1,734,651   $ 3,358,178   $ 1,623,527  
   
 
 
 

3. Risks, Uncertainties and Liquidity

UPC

UPC 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. In addition, substantial capital expenditures have been required to deploy these services and to acquire businesses. Management expects UPC 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 and amortization expense. As of March 31, 2002, there was substantial uncertainty whether UPC's sources of capital, working capital and projected operating cash flow were sufficient to fund its expenditures and service its indebtedness through 2002. In addition, as a result of the events of default described below, the UPC Bonds, Belmarken Notes and the senior secured credit facility among UPC Distribution Holdings, B.V. ("UPC Distribution") as borrower and 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"), have been classified as current. These factors raise substantial doubt about UPC's ability to continue as a going concern. UPC's ability to continue as a going concern is dependent on (i) its ability to restructure its senior notes and senior discount notes, the Belmarken Notes and its convertible preferred stock and (ii) its ability to generate enough cash flow to enable it to recover its assets and satisfy its liabilities in the normal course of business. During 2001, UPC reviewed its current and long-range plan for all segments of its business and hired a strategic consultant to assist it in the process. UPC worked extensively with this consultant to revise its strategic and operating plans, 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 products with positive net present values.

Given UPC's funding requirements and 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 as they fell due. On February 1, 2002, UPC failed to make required interest payments in the aggregate amount of $100.6 million on its outstanding 10.875% Senior Notes due 2009, 11.25% Senior Notes due 2010 and 11.5% Senior Notes due 2010. The indentures related to its 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

9


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 these 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 resulted in 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 gave the trustees under the related indentures, or the requisite number of holders of such notes, the right to accelerate the maturity of all of UPC's senior notes and senior discount notes and to foreclose on the collateral securing the loan. As of May 15, 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. In addition, on May 1, 2002, UPC failed to make required interest payments in the aggregate amount of $35.3 million on its outstanding 10.875% Senior Notes due 2007 and 11.25% Senior Notes due 2009.

UPC's failure to make the February 1, 2002 interest payments on certain of its outstanding senior notes gave rise to cross events of default under the following credit and loan facilities:

The UPC Distribution Bank Facility is secured by share pledges on UPC Distribution which is the holding company of most companies within the UPC Distribution group. The EWT Facility is secured by share pledges over EWT to RBS. The occurrence of the cross events of default under such facilities gave 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 waivers from the lenders under the UPC Distribution Bank Facility, the EWT Facility and the Belmarken Notes for the cross events of default under such facilities that existed or may exist as a result of UPC's failure to make the interest payments due on February 1, 2002 within the applicable cure periods, or any resulting cross defaults.

Each of these waivers 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 subjects UPC to a €100.0 million drawdown limitation under that facility, subject to certain conditions, during the period in which the waiver is in place.

10


As of May 15, 2002, UPC had not made the interest payments on the 10.875% Senior Notes due 2009, 11.25% Senior Notes due 2010, 11.5% Senior Notes due 2010, 10.875% Senior Notes due 2007 and the 11.25% Senior Notes due 2009. None of the events described above have had a material adverse effect on the operations of UPC's subsidiaries or their or UPC's relationships with customers, suppliers and employees.

The Memorandum of Understanding relates to an agreement in principle among UPC, United and UGC Holdings to effectuate a series of transactions, which, if consummated, would result in a restructuring of the outstanding debt obligations of UPC and its subsidiaries. The Memorandum of Understanding with United and UGC Holdings is conditional, among other things, on the receipt of tenders of 95.0% of all UPC notes outstanding in an exchange offer. United has agreed in principle to convert $2.6 billion (face amount) of UPC's indebtedness and $0.3 billion of convertible preference shares held by UGC Holdings into new UPC ordinary shares as part of the recapitalization.

During March 2002, United met with representatives of UPC and a steering committee representing the holders of UPC'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 such notes and the Belmarken Notes. United and its advisors and the note holders' steering committee and its advisors have completed the due diligence about UPC and UPC's current financial condition. United has not reached any decisions with either UPC or the note holders' steering committee regarding the terms or timing of a debt restructuring. United expects that this process will take a number of months to complete. If completed, the restructuring will result in substantial dilution of UPC's existing shareholders, a loss of some or all of the value of UPC's outstanding securities, including UPC's ordinary shares, preference shares, senior notes and senior discount notes and the Belmarken Notes. Since United is in preliminary discussions with UPC and the note holders' steering committee, United cannot predict the terms or the timing of its restructuring. In addition, United cannot be assured that it will be able to reach agreement with either UPC or the note holders on mutually satisfactory terms.

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

Pursuant to the agreement to acquire EWT/TSS Group, UPC is required to fulfill a contribution obligation no later than March 2003, by contribution of certain assets amounting to approximately €358.8 ($320.7) million. If UPC fails to make such contribution by such date or in certain circumstances such as a material default by UPC under its financing agreements, the 49.0% stockholder of UPC Germany may acquire 22.0% of the outstanding shares of UPC Germany from UPC for nominal consideration. As a result of events discussed above, on March 5, 2002, UPC received the 49.0% stockholder's notice of exercise. Upon settlement of the exercise, UPC's interest in UPC Germany would be reduced to 29.0% and UPC would no longer consolidate UPC Germany. UPC believes delivery of the UPC Germany shares would extinguish the contribution obligation.

11


VTR

VTR's working capital as of March 31, 2002 and projected operating cash flows were sufficient to fund VTR's operations over the next year, however they were not sufficient to service its indebtedness, raising substantial doubt about its ability to continue as a going concern. VTR's ability to continue as a going concern is dependent on a successful refinancing of its $176.0 million bank facility (the "VTR Bank Facility"), which matures on May 29, 2002. Though VTR believes the refinancing will be successful, there can be no assurance that it will occur on terms that are satisfactory to VTR or the Company or at all. Any refinancing that occurs on terms that are less favorable than expected could adversely affect VTR's ability or the ability of the Company to obtain new or alternative financing. If VTR fails to refinance this facility, its lenders would have certain enforceable rights, including the right to commence involuntary bankruptcy proceedings or any other action available to creditors. VTR would then need to obtain funding from external sources, restructure its operations or sell assets in order to repay the VTR Bank Facility and pay its other liabilities when due. VTR needs approximately $50.0 million to $70.0 million from the Company to meet its growth needs through the remainder of 2002, although there can be no assurance that the Company will fund all or a portion of such amount.

4. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

See Note 2 for a discussion related to the application of reorganization accounting in connection with the merger and related transactions.

Certain prior year amounts have been reclassified to conform with the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and all subsidiaries where it exercises a controlling financial interest through the ownership

12


of a direct and indirect majority voting interest. UAP was deconsolidated effective November 15, 2001 in connection with the sale of 49.99% of the Company's interest in UAP (see Note 8). All significant intercompany accounts and transactions have been eliminated in consolidation.

New Accounting Principle

In April 2002, the Financial Accounting Standards Board issued 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"). Under SFAS 145, most gains and losses from extinguishment of debt will not be classified as extraordinary items unless they meet much more narrow criteria in Opinion 30 Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 145 may be early adopted, but is otherwise effective for fiscal years beginning after May 15, 2002, and must be adopted with retroactive effect. The Company has not yet decided whether it will adopt such standard in the quarter ending June 30, 2002 or whether it will wait to adopt such standard in fiscal 2003 in accordance with the effective date and transition guidance provided for in SFAS 145.

13

5. Investments in Affiliates

 
   March 31, 2002
 
   Contributions
   Cumulative
Dividends
Received
   Cumulative
Share in Results
of Affiliates(1)
   Cumulative
Translation
Adjustments
   Cumulative
Impairments
   Total
 
   (In thousands)
PrimaCom   $ 341,017   $ –     $ (73,585 ) $ (32,905 ) $ (232,623 ) $ 1,904
SBS     264,675     –       (80,610 )   (8,390 )   (102,037 )   73,638
Tevel     120,877     (6,180 )   (113,577 )   (1,120 )   –       –  
TKP     26,812     –       (15,501 )   (490 )   –       10,821
Melita     14,224     –       (1,406 )   (4,306 )   –       8,512
Iberian Programming     11,947     (9,602 )   15,883     4,653     –       22,881
Xtra Music     14,546     –       (7,262 )   (1,073 )   –       6,211
Other UPC     52,226     (695 )   (31,607 )   1,747     –       21,671
Telecable     71,819     (20,862 )   (5,569 )   (6,888 )   –       38,500
MGM Networks LA     15,528     –       (15,528 )   –       –       –  
Jundiai     7,438     (1,572 )   1,124     (2,469 )   –       4,521
Pilipino Cable Corporation     18,852     –       (4,558 )   (2,588 )   –       11,706
Hunan International TV     6,394     –       (2,424 )   16     (3,986 )   –  
   
 
 
 
 
 
  Total   $ 966,355   $ (38,911 ) $ (334,620 ) $ (53,813 ) $ (338,646 ) $ 200,365
   
 
 
 
 
 
 
   December 31, 2001
 
   Contributions
   Cumulative
Dividends
Received
   Cumulative
Share in Results
of Affiliates
   Cumulative
Translation
Adjustments
   Cumulative
Impairments
   Total
 
   (In thousands)
PrimaCom   $ 341,017   $ –     $ (67,834 ) $ (32,747 ) $ (232,623 ) $ 7,813
SBS     264,675     –       (74,217 )   1,368     (102,037 )   89,789
Tevel     120,877     (6,180 )   (113,577 )   (1,120 )   –       –  
TKP     26,812     –       (3,015 )   15     –       23,812
Melita     14,224     –       (1,426 )   (3,493 )   –       9,305
Iberian Programming     11,947     (2,560 )   10,130     3,103     –       22,620
Xtra Music     14,546     –       (7,156 )   (1,055 )   –       6,335
Other UPC     43,875     (695 )   (31,890 )   2,105     –       13,395
Telecable     71,819     (20,862 )   (5,891 )   (6,672 )   –       38,394
MGM Networks LA     15,080     –       (15,080 )   –       –       –  
Jundiai     7,438     (1,572 )   1,004     (2,444 )   –       4,426
Pilipino Cable Corporation     18,680     –       (4,342 )   (2,588 )   –       11,750
Hunan International TV     6,394     –       (2,424 )   16     –       3,986
   
 
 
 
 
 
  Total   $ 957,384   $ (31,869 ) $ (315,718 ) $ (43,512 ) $ (334,660 ) $ 231,625
   
 
 
 
 
 
(1)
Excludes share in results attributable to UAP ($52.1 million loss) for the three months ended March 31, 2002.

14

6. Property, Plant and Equipment

 
   March 31,
2002
   December 31,
2001
  
 
   (In thousands)

  
Cable distribution networks   $ 3,353,356   $ 3,417,040  
Subscriber premises equipment and converters     823,362     825,320  
Direct-to-home ("DTH") and other distribution facilities     71,523     105,575  
Information technology systems, office equipment, furniture and fixtures     248,081     261,747  
Buildings and leasehold improvements     165,222     164,475  
Other     118,684     92,525  
   
 
 
      4,780,228     4,866,682  
  Accumulated depreciation     (1,219,899 )   (1,174,197 )
   
 
 
    Net property, plant and equipment   $ 3,560,329   $ 3,692,485  
   
 
 

7. Goodwill and Other Intangible Assets

 
   March 31,
2002
   December 31,
2001
  
 
   (In thousands)

  
Goodwill:              
  UPC   $ 3,042,431   $ 3,083,979  
  VTR     182,551     182,860  
  TV Show Brasil     6,448     6,487  
Other Intangible Assets:              
  UPC     113,253     122,767  
  Multitel     178     199  
   
 
 
      3,344,861     3,396,292  
    Accumulated amortization goodwill     (501,347 )   (515,887 )
    Accumulated amortization other intangible assets     (35,858 )   (36,483 )
   
 
 
      Net goodwill and other intangible assets   $ 2,807,656   $ 2,843,922  
   
 
 

Statement of Financial Accounting Standards No. 142

The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142") effective January 1, 2002. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, but are tested for impairment on an annual basis and whenever indicators of impairment arise. In addition, goodwill on equity method investments is no longer amortized, but tested for impairment in accordance with Accounting Principles Board Opinion No. 18 The Equity Method of Accounting for Investments in Common Stock ("APB 18"). The goodwill impairment test, which is based on fair value, is performed on a reporting unit level. All recognized intangible assets that are deemed not to have an indefinite life are amortized over their estimated useful lives.

15


The following presents the pro forma effect on net loss from the reduction of amortization expense and the reduction of amortization of excess basis on equity method investments, as a result of the adoption of SFAS 142:

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Net income (loss) as reported   $ 1,112,575   $ (663,259 )
Add back:              
  Goodwill amortization              
    UPC and subsidiaries     –       89,442  
    VTR     –       3,113  
    Austar United and subsidiaries     –       3,821  
    Other     –       482  
  Amortization of excess basis on equity investments              
    UPC affiliates     –       9,216  
    Austar United affiliates     –       823  
    Other     –       507  
   
 
 
Adjusted net income (loss)   $ 1,112,575   $ (555,855 )
   
 
 

Basic net income (loss) per common share as reported
 
$
3.49
 
$
(6.94
)
Add back:              
  Goodwill amortization              
    UPC and subsidiaries     –       0.92  
    VTR     –       0.03  
    Austar United and subsidiaries     –       0.04  
  Amortization of excess basis on equity investments              
    UPC affiliates     –       0.09  
    Austar United affiliates     –       0.01  
    Other     –       0.01  
   
 
 
Adjusted basic net income (loss) per common share   $ 3.49   $ (5.84 )
   
 
 

Diluted net income (loss) per common share as reported
 
$
3.40
 
$
(6.94
)
Add back:              
  Goodwill amortization              
    UPC and subsidiaries     –       0.92  
    VTR     –       0.03  
    Austar United and subsidiaries     –       0.04  
  Amortization of excess basis on equity investments              
    UPC affiliates     –       0.09  
    Austar United affiliates     –       0.01  
    Other     –       0.01  
   
 
 
Adjusted diluted net income (loss) per common share   $ 3.40   $ (5.84 )
   
 
 

The Company is still in the process of comparing the fair value of its reporting units with their respective carrying amounts, including goodwill. This process will enable the Company to identify any potential goodwill impairment from the adoption of SFAS 142. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test will be performed to measure the amount of impairment loss. It is possible that a substantial cumulative effect adjustment may be required as a result of this process. As of March 31, 2002, net goodwill of approximately $2.7 billion is included in the accompanying consolidated balance sheet.

16


8. Business Transferred Under Contractual Arrangement

Prior to November 15, 2001, Asia/Pacific owned approximately 99.99% of UAP's outstanding common stock. On November 15, 2001, Asia/Pacific entered into a series of transactions, pursuant to which it transferred an approximate 49.99% interest in UAP to an independent third party for nominal consideration. As a result of these transactions, Asia/Pacific now holds 50.00% of UAP's outstanding common stock. For accounting purposes, these transactions resulted in the deconsolidation of UAP from November 15, 2001 forward and presenting the assets and liabilities of UAP in a manner consistent with the guidance set forth in Staff Accounting Bulletin No. 30 Accounting for Divestiture of a Subsidiary or Other Business Operation ("SAB 30") as follows:

 
   March 31,
2002
   December 31,
2001
  
 
   (In thousands)

  
Assets              
  Business transferred under contractual arrangement, current   $ 59,247   $ 78,672  
  Business transferred under contractual arrangement, long-term     126,743     143,124  
Liabilities              
  Business transferred under contractual arrangement, current     (610,325 )   (607,350 )
  Business transferred under contractual arrangement, long-term     (245,763 )   (228,012 )
   
 
 
    Net negative investment in UAP   $ (670,098 ) $ (613,566 )
   
 
 

No gain was recognized upon the deconsolidation of UAP (equal to the amount of the Company's negative investment in UAP at the transaction date). For the three months ended March 31, 2002, the Company recorded equity in losses of approximately $52.1 million related to its investment in UAP.

As of March 31, 2002, UAP's working capital and projected operating cash flow were not sufficient to fund its expected expenditures and repay its senior notes, raising substantial doubt about its ability to continue as a going concern. On March 29, 2002, voluntary and involuntary petitions were filed under Chapter 11 of the United States Bankruptcy Code with respect to UAP. UAP's ability to continue as a going concern is dependent on the outcome of this bankruptcy proceeding.

No gain was recorded in the consolidated statement of operations upon the deconsolidation of UAP or upon the filing of the bankruptcy petitions on March 29, 2002, as the Company does not believe such transaction qualifies as a divestiture for accounting purposes. A gain would be recognized upon deconsolidation of UAP upon the ultimate liquidation of the Company's indirect 50.0% interest in UAP, which may or may not occur at the completion of the bankruptcy proceedings. If in the future Asia/Pacific acquires the requisite voting control over UAP, the Company would reconsolidate UAP with no gain or loss realized. The Company will continue to present 100% of the assets and liabilities of UAP similar to the SAB 30 presentation above and continue to record 100% of UAP's operating results in its statement of operations until completion of the bankruptcy proceedings and/or facts and circumstances change regarding the ownership and/or control of UAP.

17


9. Senior Discount Notes and Senior Notes

 
   March 31,
2002
   December 31,
2001
  
 
   (In thousands)

  
UGC Holdings 1998 Notes (see Note 2)   $ 22,478   $ 1,222,533  
UPC July 1999 Senior Notes (1):              
  UPC 10.875% dollar Senior Notes due 2009     558,800     558,842  
  UPC 10.875% euro Senior Notes due 2009     200,759     205,675  
  UPC 12.5% dollar Senior Discount Notes due 2009     376,359     365,310  
UPC October 1999 Senior Notes (1):              
  UPC 10.875% dollar Senior Notes due 2007     143,853     143,864  
  UPC 10.875% euro Senior Notes due 2007     59,919     61,386  
  UPC 11.25% dollar Senior Notes due 2009     125,976     125,967  
  UPC 11.25% euro Senior Notes due 2009     60,088     61,547  
  UPC 13.375% dollar Senior Discount Notes due 2009     234,846     227,424  
  UPC 13.375% euro Senior Discount Notes due 2009     77,943     77,044  
UPC January 2000 Senior Notes (1):              
  UPC 11.25% dollar Senior Notes due 2010     387,741     387,697  
  UPC 11.25% euro Senior Notes due 2010     118,358     121,234  
  UPC 11.5% dollar Senior Notes due 2010     215,082     215,067  
  UPC 13.75% dollar Senior Discount Notes due 2010     457,127     442,129  
  UPC Polska Senior Discount Notes     353,703     343,323  
   
 
 
      3,393,032     4,559,042  
    Less current portion     (3,016,851 )   (2,993,186 )
   
 
 
    Total senior discount notes and senior notes   $ 376,181   $ 1,565,856  
   
 
 
(1)
As discussed in Note 3, UPC is in default under its senior notes and senior discount notes. Accordingly, these borrowings have been classified as current.

10. Other Long-Term Debt

 
   March 31,
2002
   December 31,
2001
  
 
   (In thousands)

  
UPC Distribution Bank Facility (1)   $ 2,768,321   $ 2,827,629  
UPC DIC Loan     47,048     48,049  
Other UPC     85,949     104,591  
VTR Bank Facility     176,000     176,000  
Other     2,606     3,084  
   
 
 
      3,079,924     3,159,353  
  Less current portion     (3,003,753 )   (3,081,316 )
   
 
 
  Total other long-term debt   $ 76,171   $ 78,037  
   
 
 
(1)
As discussed in Note 3, UPC is in default under certain of its credit and loan facilites. Accordingly, these borrowings have been classified as current.

18

11. Current Portion of Senior Notes and Other Long-Term Debt, Related Party

 
   March 31,
2002
   December 31,
2001
 
   (In thousands)
Belmarken Notes (see Note 2)   $ –     $ 887,315
UPC Bonds (see Note 2)     –       1,427,677
   
 
  Total   $ –     $ 2,314,992
   
 

12. Derivative Instruments

In connection with certain borrowings, UPC has entered into both cross-currency swaps and interest rate swaps, providing economic hedges to both currency and interest rate exposure. The following table details the fair value of the derivative instruments outstanding by their related borrowing:

Borrowing
   March 31,
2002
   December 31,
2001
  
 
   (In thousands)

  
UPC July 1999 Senior Notes cross currency/interest rate swap   $ 27,639   $ 90,925  
UPC October 1999 Senior Notes cross currency/interest rate swap     18,944     49,622  
UPC January 2000 Senior Notes cross currency/interest rate swap     3,489     32,837  
UPC Distribution Bank Facility cross currency/interest rate swap     (24,763 )   (42,064 )
   
 
 
  Total derivative assets, net   $ 25,309   $ 131,320  
   
 
 

Of the above derivative instruments, only the €1.725 billion (notional amount) interest rate swap on the UPC Distribution Bank Facility qualifies as an accounting cash flow hedge. Accordingly, the changes in fair value of this instrument are recorded through other comprehensive income in the consolidated statement of stockholders' deficit. The remaining instruments are marked-to-market each period with the corresponding fair value gain or loss recorded as a part of foreign exchange gain (loss) and other income (expense) in the accompanying consolidated statements of operations. For the quarters ended March 31, 2002 and 2001, UPC recorded a loss of $155.9 million and $42.3 million, respectively, in connection with the mark-to-market valuations.

19


13. Minority Interests in Subsidiaries

 
   March 31,
2002
   December 31,
2001
 
   (In thousands)
UPC (1)   $ 1,099,596   $ 1,104,732
Subsidiaries of UPC     132,802     135,933
IDT United     12,325     –  
   
 
  Total minority interests in subsidiaries   $ 1,244,723   $ 1,240,665
   
 
(1)
Represents UPC convertible preference shares not held by the Company, including $235.1 million held by Liberty. The minority interests' share of results in the consolidated statement of operations for the three months ended March 31, 2002 and 2001 includes $4.6 million and $5.5 million, respectively, of accrual of dividends on UPC convertible preference shares held by Liberty. The minority interests' basis in the common equity of UPC was reduced to nil in January 2001.

14. Stockholders' Deficit

Common Stock

The Company's Class A common stock, Class B common stock and Class C common stock have identical economic rights. They do, however, differ in the following respects:

Holders of the Company's Class A, Class B and Class C common stock vote as one class on all matters to be voted on by the Company's stockholders, except for the election of directors or as specified by the Delaware General Corporation Law. Shares of the Company's Class C common stock vote separately to

20


elect four of the Company's 12 person Board of Directors until such time as the shares of Class C common stock become convertible in full into shares of Class B common stock. Holders of Class A and B common stock, voting together, elect the other eight Directors. After all shares of Class C common stock become convertible in full into shares of Class B common stock, all 12 of the Company's 12-person Board of Directors will be elected by the holders of shares of Class A common stock, Class B common and Class C common stock voting together. Shares of Class C common stock will become convertible in full into shares of Class B common stock upon the occurrence of certain events relating to the indentures of UGC Holdings and certain of its subsidiaries.

The Company's certificate of incorporation provides that if there is any dividend, subdivision, combination or reclassification of any class of common stock, a proportionate dividend, subdivision, combination or reclassification of one other class of common stock will be made at the same time.

Rights of Holders of Class C Common Stock under Certificate of Incorporation

Liberty and certain of its subsidiaries hold all of the issued and outstanding shares of the Company's Class C common stock. Under the Company's certificate of incorporation, the Company is not permitted to take any action with respect to any of the following matters without the consent of a majority of the directors elected by the holders of the Company's Class C common stock:

Under the Company's certificate of incorporation, if, prior to such time as UGC Holdings is no longer subject to the change of control provisions of the indentures of certain of its subsidiaries, the Company

21


issues shares of the Company's Class B common stock and such issuance, together with any prior issuances of the Company's Class B common stock as to which the holders of the Company's Class C common stock did not have purchase rights under the Company's certificate of incorporation, results in the voting power held by the holders of the Company's Class C common stock being reduced below 90.0% of the voting power held by the holders of the Company's Class C common stock immediately prior to such issuance or the first such issuance, each holder of shares of the Company's Class C common stock will be entitled to acquire additional shares of the Company's Class C common stock from the Company that would restore the voting power of such holder of the Company's Class C common stock to 100% of its voting power immediately prior to such issuance or the first such issuance (whichever is greater). Holders of the Company's Class C common stock may acquire such Class C common stock pursuant to this purchase right by purchasing it from the Company for cash or other form of consideration acceptable to the Company and/or exchanging shares of the Company's Class A common stock on a one-for-one basis. The holders of the Company's Class C common stock will not be entitled to the foregoing purchase rights in respect of any issuance of the Company's Class B common stock in an amount such that, immediately following such issuance, the persons who were holders of equity securities immediately prior to such issuance then hold less than 30.0% of the voting power of the Company's outstanding equity securities in the election of directors generally.

Other Cumulative Comprehensive Income (Loss)

 
   March 31,
2002
   December 31,
2001
  
 
   (In thousands)

  
Foreign currency translation adjustments   $ (211,881 ) $ (254,410 )
Fair value of derivative assets     (16,504 )   (24,059 )
Unrealized gain on available-for-sale securities     12,619     12,562  
Cumulative effect of change in accounting principle, net     194     271  
   
 
 
  Total other cumulative comprehensive income (loss)   $ (215,572 ) $ (265,636 )
   
 
 

22

15. Basic and Diluted Net Income (Loss) Attributable to Common Stockholders

 
   Three Months Ended March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Basic:              
  Net income (loss)   $ 1,112,575   $ (663,259 )
  Accrual of dividends on Series B convertible preferred stock     (156 )   (457 )
  Accrual of dividends on Series C convertible preferred stock     (2,397 )   (7,438 )
  Accrual of dividends on Series D convertible preferred stock     (1,621 )   (5,031 )
   
 
 
    Basic net income (loss) attributable to common stockholders     1,108,401     (676,185 )
Diluted:              
  Accrual of dividends on Series B convertible preferred stock     –     (1)   –     (2)
  Accrual of dividends on Series C convertible preferred stock     –     (1)   –     (2)
  Accrual of dividends on Series D convertible preferred stock     –     (1)   –     (2)
   
 
 
    Diluted net income (loss) attributable to common stockholders   $ 1,108,401   $ (676,185 )
   
 
 
(1)
Excluded from the calculation of diluted net income (loss) attributable to common stockholders because 100% of the convertible preferred stock has been converted as of March 31, 2002.
(2)
Excluded from the calculation of diluted net income (loss) attributable to common stockholders because the effect is anti-dilutive.

16. Segment Information

The Company provides Triple Play Distribution services in numerous countries worldwide, and related content (programming) and other media services in a growing number of international markets. 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 represents net operating earnings before depreciation, amortization, stock-based compensation charges and impairment and restructuring charges. Stock-based compensation charges result from variable plan accounting for our subsidiaries' regular and phantom stock option plans. Industry analysts generally consider Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flows or for any other measure of performance or liquidity under generally accepted accounting principles, or as an indicator of a company's operating performance. The presentation of Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate Adjusted EBITDA in the same manner.

23


Revenue

 
   Three Months Ended
March 31,
 
   2002
   2001
 
   (In thousands)
Europe:            
  Triple Play Distribution            
    The Netherlands   $ 94,247   $ 85,034
    Austria     41,699     39,189
    Belgium     5,708     5,627
    Czech Republic     7,207     7,913
    Norway     16,396     14,587
    Hungary     24,523     19,112
    France     22,395     19,089
    Poland     19,234     18,963
    Sweden     11,704     10,001
    Germany     10,772     11,386
    Other     7,702     6,661
   
 
      Total Triple Play Distribution     261,587     237,562
  DTH     6,324     20,010
  Content     –       395
  Other     8,804     2,887
   
 
      Total Distribution     276,715     260,854
  Priority Telecom     22,762     43,511
  UPC Media     4,091     2,070
  Corporate and other     108     834
   
 
      Total Europe     303,676     307,269
   
 

Latin America:
 
 
 
 
 
 
  Triple Play Distribution            
    Chile     42,693     40,692
    Brazil     1,008     1,118
    Other     780     558
   
 
      Total Triple Play Distribution     44,481     42,368
  Other     8     26
   
 
      Total Latin America     44,489     42,394
   
 

Asia/Pacific:
 
 
 
 
 
 
  Triple Play Distribution            
    Australia     –       42,385
   
 
      Total Triple Play Distribution     –       42,385
  Content     –       2,590
  Other     275     107
   
 
      Total Asia/Pacific     275     45,082
   
 

Corporate and other
 
 
600
 
 
–  
   
 
     
Total consolidated revenue
 
$
349,040
 
$
394,745
   
 

24

Adjusted EBITDA

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Europe:              
  Triple Play Distribution              
    The Netherlands   $ 25,141   $ 8,682  
    Austria     14,231     10,920  
    Belgium     1,967     995  
    Czech Republic     3,418     2,172  
    Norway     3,735     1,829  
    Hungary     10,557     7,202  
    France     (1,940 )   (5,937 )
    Poland     3,186     (1,338 )
    Sweden     3,767     970  
    Germany     5,730     5,567  
    Other     2,598     2,324  
   
 
 
      Total Triple Play Distribution     72,390     33,386  
  DTH     460     (5,091 )
  Content     –       (11,220 )
  Other     4,223     428  
   
 
 
      Total Distribution     77,073     17,503  
  Priority Telecom     (4,101 )   (19,502 )
  UPC Media     (4,890 )   (32,769 )
  Corporate and other     (19,112 )   (20,357 )
   
 
 
      Total Europe     48,970     (55,125 )
   
 
 

Latin America:
 
 
 
 
 
 
 
  Triple Play Distribution              
    Chile     7,987     5,664  
    Brazil     (130 )   (146 )
    Other     (467 )   (135 )
   
 
 
      Total Triple Play Distribution     7,390     5,383  
  Other     (750 )   (1,034 )
   
 
 
      Total Latin America     6,640     4,349  
   
 
 

Asia/Pacific:
 
 
 
 
 
 
 
  Triple Play Distribution              
    Australia     –       (9,576 )
    Other     –       –    
   
 
 
      Total Triple Play Distribution     –       (9,576 )
  Content     –       (1,536 )
  Other     150     (441 )
   
 
 
      Total Asia/Pacific     150     (11,553 )
   
 
 
Corporate and other     (1,056 )   (8,761 )
   
 
 
      Total consolidated Adjusted EBITDA   $ 54,704   $ (71,090 )
   
 
 

25

Triple Play Distribution Revenue

 
   Three Months Ended March 31, 2002
 
   Video
   Voice
   Internet
   Total
 
   (In thousands)
Europe:                        
  The Netherlands   $ 57,706   $ 11,437   $ 25,104   $ 94,247
  Austria     19,049     9,028     13,622     41,699
  Belgium     3,474     –       2,234     5,708
  Czech Republic     6,371     184     652     7,207
  Norway     11,639     1,911     2,846     16,396
  Hungary     17,061     5,845     1,617     24,523
  France     14,195     5,990     2,210     22,395
  Poland     18,357     –       877     19,234
  Sweden     8,110     –       3,594     11,704
  Germany     10,720     11     41     10,772
  Other     7,857     –       (155 )   7,702
   
 
 
 
    Total Europe     174,539     34,406     52,642     261,587
   
 
 
 
Latin America:                        
  Chile     26,461     14,293     1,939     42,693
  Brazil     1,008     –       –       1,008
  Other     707     –       73     780
   
 
 
 
    Total Latin America     28,176     14,293     2,012     44,481
   
 
 
 
    Total consolidated Triple Play Distribution revenue   $ 202,715   $ 48,699   $ 54,654   $ 306,068
   
 
 
 

26

 
   Three Months Ended March 31, 2001
 
   Video
   Voice
   Internet
   Total
 
   (In thousands)
Europe:                        
  The Netherlands   $ 58,046   $ 13,069   $ 13,919   $ 85,034
  Austria     19,208     9,784     10,197     39,189
  Belgium     3,597     –       2,030     5,627
  Czech Republic     7,518     198     197     7,913
  Norway     11,381     1,524     1,682     14,587
  Hungary     13,327     5,346     439     19,112
  France     13,714     4,040     1,335     19,089
  Poland     18,758     –       205     18,963
  Sweden     7,776     –       2,225     10,001
  Germany     11,362     10     14     11,386
  Other     6,661     –       –       6,661
   
 
 
 
    Total Europe     171,348     33,971     32,243     237,562
   
 
 
 
Latin America:                        
  Chile     28,055     11,713     924     40,692
  Brazil     1,118     –       –       1,118
  Other     558     –       –       558
   
 
 
 
    Total Latin America     29,731     11,713     924     42,368
   
 
 
 
Asia/Pacific:                        
  Australia     38,479     873     3,033     42,385
  Other     –       –       –       –  
   
 
 
 
    Total Asia/Pacific     38,479     873     3,033     42,385
   
 
 
 
    Total consolidated Triple Play Distribution revenue   $ 239,558   $ 46,557   $ 36,200   $ 322,315
   
 
 
 

27

Revenue by Geographical Area

 
   Three Months Ended
March 31,
 
   2002
   2001
 
   (In thousands)
Europe:            
  The Netherlands   $ 120,588   $ 106,955
  Austria     45,095     42,011
  Belgium     5,709     6,174
  Czech Republic     9,857     9,939
  Norway     20,113     16,849
  Hungary     28,002     22,231
  France     22,593     20,097
  Poland     20,439     35,558
  Sweden     11,961     10,127
  Germany     10,953     13,237
  Other     8,366     24,091
   
 
    Total Europe     303,676     307,269
   
 
Latin America:            
  Chile     42,693     40,692
  Brazil     1,008     1,118
  Other     788     584
   
 
    Total Latin America     44,489     42,394
   
 
Asia/Pacific:            
  Australia     –       45,082
  Other     275     –  
   
 
    Total Asia/Pacific     275     45,082
   
 
Corporate and other     600     –  
   
 
    Total consolidated revenue   $ 349,040   $ 394,745
   
 

28

 
   March 31,
2002
   December 31,
2001
 
   (In thousands)
Total Assets            
Europe:            
  The Netherlands   $ 3,695,272   $ 4,151,306
  Poland     622,948     689,208
  Germany     155,238     144,517
  France     733,416     765,964
  Austria     404,023     410,534
  Sweden     370,912     372,368
  Hungary     340,655     351,825
  Norway     301,890     302,006
  Czech Republic     214,125     221,149
  Belgium     54,332     43,158
  Other     107,789     94,935
   
 
    Total Europe     7,000,600     7,546,970
   
 
Latin America:            
  Chile     545,929     544,937
  Brazil     19,795     20,055
  Other     53,790     92,317
   
 
    Total Latin America     619,514     657,309
   
 
Asia/Pacific:            
  Australia     210,242     249,499
  New Zealand     –       –  
  Other     –       –  
   
 
    Total Asia/Pacific     210,242     249,499
   
 
Corporate and other     314,409     584,862
   
 
    Total consolidated assets   $ 8,144,765   $ 9,038,640
   
 

Consolidated Adjusted EBITDA reconciles to the condensed consolidated statement of operations as follows:

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Operating loss   $ (122,647 ) $ (345,426 )
Depreciation and amortization     165,184     271,114  
Stock-based compensation     8,709     3,222  
Impairment and restructuring charges     3,458     –    
   
 
 
  Consolidated Adjusted EBITDA   $ 54,704   $ (71,090 )
   
 
 

29

17.  Impairment and Restructuring Charges

 
   Employee
Severance and
Termination
Costs
   Office
Closures
   Programming
and Lease
Contract
Termination
Costs
   Asset Disposal
Losses and
Other Costs
   Total Impairment
and Restructuring
Charges
  
 
   (In thousands)

  
Impairment and restructuring liability as of December 31, 2001   $ 33,565   $ 9,956   $ 91,207   $ 14,504   $ 149,232  
Impairment and restructuring charges during 2002     3,458     –       –       –       3,458  
Cash paid during 2002     (9,363 )   (5,893 )   (4,448 )   (3,134 )   (22,838 )
Non-cash release of restructuring liability     –       –       (8,896 )   (4,031 )   (12,927 )
Cumulative translation adjustments     (821 )   (238 )   (2,179 )   (348 )   (3,586 )
   
 
 
 
 
 
Impairment and restructuring liability as of March 31, 2002   $ 26,839   $ 3,825   $ 75,684   $ 6,991   $ 113,339  
   
 
 
 
 
 

UPC implemented a restructuring plan during the second half of 2001 to both lower operating expenses and strengthen its competitive and financial position. This included eliminating certain employee positions, reducing office space and related overhead expenses, recognizing losses related to excess capacity under certain contracts and canceling certain programming contracts. UPC also incurred certain restructuring charges during the three months ended March 31, 2002 related to employee severance and termination costs.

Employee Severance and Termination Costs.    These costs included salaries, benefits, outplacement and other costs related to employee terminations. The total workforce reduction was effected through a combination of involuntary terminations and a reorganization of operations to permanently eliminate open positions resulting from normal employee attrition. Salaries and benefits earned during the transition period have not been included in the restructuring charge.

Office Closures.    In addition to the reduction of employee positions, UPC's restructuring plan included reductions in office space and related overhead expenses. Office closure and consolidation costs are the estimated costs to close specifically identified facilities, costs associated with obtaining subleases, lease termination costs and other related costs.

Programming and Lease Contract Termination Costs.    These costs included restructuring and/or cancellation of excess capacity of certain contracts.

30


The following table summarizes the number of employees scheduled for termination in connection with UPC's restructuring (by division and by function):

 
   Number of Employees
Scheduled for Termination as of
 
   March 31,
2002
   December 31,
2001
Division:        
  UPC Distribution   604   873
  Priority Telecom   5   23
  UPC Media   21   86
  Corporate   3   4
   
 
    Total   633   986
   
 

Function:
 
 
 
 
  Programming   –     1
  Network Operations   408   498
  Customer Operations   37   112
  Customer Care   51   92
  Billing and Collection   3   4
  Customer Acquisition and Marketing   78   164
  Administration   56   115
   
 
    Total   633   986
   
 

18.  Subsequent Events

Cignal Litigation

On April 26, 2002, UPC received notice that certain former shareholders of Cignal Global Communications ("Cignal") have filed a lawsuit against UPC in the District Court in Amsterdam, The Netherlands, claiming $200.0 million on the basis that UPC failed to honor certain option rights which were granted to those shareholders in connection with the acquisition of Cignal by Priority Telecom. UPC believes that it has complied in full with its obligations to these shareholders through the successful consummation of the initial public offering of Priority Telecom on September 27, 2001. Accordingly, UPC believes that the Cignal shareholders' claims are without merit and intends to defend this suit vigorously.

Bankruptcy Filing Tevel

UPC holds an indirect 46.6% interest in Tevel, the largest cable operator in Israel. The economic and regulatory situation in Israel, together with the current volatility in the region, led UPC to write the value of this minority investment down to zero at December 31, 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. The trustee has until June 2002 to formulate a plan (or make significant progress towards a plan) that is acceptable to the different classes of creditors.

31


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

The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements may include, and be identified by, among other things, statements concerning our and our subsidiaries' and affiliates' plans, objectives and future economic prospects, expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from what we say or imply with such 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, subscribers' acceptance of our newer digital video, telephone and Internet access services, our ability to manage and grow our newer digital video, telephone and Internet access services, our ability to secure adequate capital to fund other system growth and development and our planned acquisitions, our ability to successfully close proposed transactions, risks inherent in investment and operations in foreign countries, changes in government regulation and changes in the nature of key strategic relationships with joint ventures. Certain of our subsidiaries and affiliates are in breach of covenants with respect to their indebtedness, have filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code and/or are planning to restructure their capital structure. The outcome of the breaches of covenants, the Chapter 11 bankruptcy proceeding and the planned restructuring is uncertain and subject to many factors outside of our control, including whether creditors accept such proposed restructuring. These forward-looking statements apply only as of the time of this report, and we have no obligation or plans to provide updates or revisions to these forward-looking statements or any other changes in events, conditions or circumstances on which these statements are based.

The following discussion reflects the historical results of UGC Holdings and subsidiaries prior to January 30, 2002, and the consolidated results of United and subsidiaries thereafter, as a result of the merger transaction described in the notes to the condensed consolidated financial statements included elsewhere herein.

Material Trends, Events and Uncertainties

The broadband communications industry is subject to rapid and significant changes in technology and the effect of technological changes on our businesses cannot be predicted. Our core offerings may become outdated due to technological breakthroughs rendering our products out of date. In addition, our business plan contemplates the introduction of services using new technologies. Our investments in these new services may prove premature and we may not realize anticipated returns on these new products. The cost of implementation for emerging and future technologies could be significant, and our ability to fund such implementation may depend on our ability to obtain additional financing. We cannot be certain that we would be successful in obtaining any additional financing required.

Our principal business activities are regulated and supervised by various governmental bodies. Changes in laws, regulations or governmental policy or the interpretations of those laws or regulations affecting our activities and those of our competitors, such as licensing requirements, changes in price regulation and deregulation of interconnection arrangements, could have a material adverse effect on us. We are also subject to regulatory initiatives of the European Commission. Changes in European Union ("EU") Directives may reduce our range of programming and increase the costs of purchasing television programming or require us to provide access to our cable network infrastructure to other service providers, which could have a material adverse effect on us.

32


The provision of Internet services has, to date, not been materially restricted by regulation. However, in Germany a number of Internet services are the subject of pending regulation with respect to licensing and notification requirements and content. If these regulations are implemented, it could result in our loss of cable and broadband subscribers. In addition, the legal and regulatory framework applicable to the Internet is uncertain and may change. In particular, new laws and regulations may be enacted and existing laws and regulations may be applied to the Internet and e-commerce. For example, existing pressure to liberalize high-speed Internet access in The Netherlands may become stronger in the future. New and existing laws may cover issues like: value-added sales or other taxes; user privacy; pricing controls; characteristics and quality of products and services; consumer protection; cross-border commerce; libel and defamation; electronic signatures; transmission security; copyright, trademark and patent infringement; and other claims based on the nature and content of Internet materials. Any new laws and regulations or the uncertainty associated with their enactment could increase our costs and hinder the development of our business and limit the growth of our revenues.

A significant component of our strategy to increase our average revenue per unit is to successfully market broadband products to our existing residential client base. Broadband usage by residential customers is in its infancy. Notwithstanding, we believe that our triple play offering of telephony, broadband access to the Internet and digital television will prove attractive to our existing customer base and allow us to increase our average revenue per user. Notwithstanding, we face significant competition in these markets, through digital satellite and digital terrestrial television and through alternative Internet access media, such as digital subscriber lines offered by incumbent broadband communications operators. Some of our competitors have substantially greater financial and technical resources than we do. If we are unable to charge prices for broadband services that are anticipated in our business plan in response to competition or if our competition delivers a better product to our customers, our average revenue per unit and our results of operations will be adversely affected.

Continued weak global economic conditions could adversely impact our revenues and growth rate. During the past year, the information technology market weakened, first in the United States, then in Europe and Asia. Continued softness in these markets, particularly in the broadband communications and consumer sectors, and customers' uncertainty about the extent of the global economic downturn could result in lower demand for our products and services. We have observed effects of the global economic downturn in many areas of our business. The economic downturn has led, in part, to restructuring actions and contributed to write-downs to reflect the impairment of certain investments in our investment portfolio. Revenues, gross margins and earnings could deteriorate or our growth rate could be adversely affected in the future as a result of these economic conditions.

Despite the regulatory and economic factors discussed above we believe that there is and will continue to be significant growth in the demand for Internet access, voice and video services in the residential and business marketplace. The increase in computing power, number of computers accessing the Internet, and connection speeds of computers are driving tremendous increases in communications uses for the Internet and data services. Prices for mobile and long distance voice services have decreased, resulting in increased demand for these services. In addition, cost savings and network efficiencies are driving demand for more robust voice and data network equipment. However, the business marketplace for communications products is highly competitive. The number and size of customers, the geographic scope and product platform preferences of our target customer base dictates the competition we face. The market for wireless mobile and data communications services and product sales is highly competitive on a national and international basis. The level of competition intensifies, while the number of qualified competitors diminishes as the level of technological and design expertise rises and product distribution rights narrow.

Our cable communications systems compete with a number of different sources which provide news, information and entertainment programming to consumers, including local television broadcast stations that provide off-air programming which can be received using a roof-top antenna and television set, program distributors that transmit satellite signals containing video programming, data and other

33


information to receiving dishes of varying sizes located on the subscriber's premises, other operators who build and operate communications systems in the same communities that we serve, interactive online computer services and home video products. In order to compete effectively, we strive to provide, at a reasonable price to subscribers, new products and services, superior technical performance, superior customer service and a greater variety of video programming.

DTH service can be received throughout many of our service areas through the installation of a small roof top or side-mounted antenna. DTH systems use video compression technology to increase channel capacity and digital technology to improve the quality and quantity of the signals transmitted to their subscribers. Our digital cable service is competitive with the programming, channel capacity and the digital quality of signals delivered to subscribers by DTH systems.

DTH providers are also developing ways to bring advanced communications services to their customers. They are currently offering satellite-delivered high-speed Internet access services with a telephone return path and are beginning to provide true two-way interactivity. We believe that our Internet access service is superior to the service currently offered by DTH providers because our service does not rely on a telephone line. In order for DTH providers to offer true two-way high-speed Internet access services, additional equipment is required and their service is typically offered at higher prices for equivalent services.

34

Summary Operating Data

Grand Total Triple Play (Video, Voice and Internet) Revenue Generating Units

 
   March 31, 2002
Grand Total Aggregate RGUs   12,994,400
   
Grand Total Consolidated RGUs (1)   9,153,500
   
Grand Total Proportionate RGUs (2)   5,909,900
   

Operating System Data – Video

 
   March 31, 2002
 
   UGC Holdings
Ownership
   System Ownership
   Homes in Service Area
   Homes Passed by Network
   Two-way Homes Passed (3)
   Analog Cable
Subscribers
   Digital Cable Subscribers
   Digital DTH Subscribers
   Total Subscribers
UPC:                                    
  The Netherlands   53.1%   100.0%   2,646,000   2,516,000   2,215,700   2,332,400   60,900   –     2,393,300
  Germany (4)   13.3-27.1%   25.0-51.0%   2,748,100   2,665,500   460,100   1,882,300   11,900   –     1,894,200
  Poland   13.3-53.1%   25.0-100.0%   1,864,600   1,864,600   184,600   1,005,700   –     660,100   1,665,800
  Hungary   52.5-53.1%   98.9-100.0%   1,001,100   946,500   464,600   665,800   –     58,200   724,000
  Austria   50.4%   95.0%   1,081,400   923,300   920,100   498,400   10,100   –     508,500
  Israel   24.7%   46.6%   680,000   670,300   425,000   403,000   180,200   –     583,200
  Czech Republic   53.0-53.1%   99.9-100%   913,000   681,400   237,300   305,200   –     42,800   348,000
  France   48.9%   92.0%   2,656,600   1,328,200   633,400   437,900   9,600   –     447,500
  Norway   53.1%   100.0%   529,000   479,000   165,500   335,300   31,300   –     366,600
  Slovak Republic   50.4-53.1%   95.0-100.0%   517,800   376,900   17,300   302,400   –     10,600   313,000
  Romania   27.1-53.1%   51.0-100.0%   659,600   458,400   –     319,700   –     –     319,700
  Sweden   53.1%   100.0%   770,000   421,600   250,800   266,600   9,100   –     275,700
  Belgium   53.1%   100.0%   530,000   152,600   152,600   125,500   –     –     125,500
  Malta   26.6%   50.0%   184,900   184,900   82,100   90,500   –     –     90,500
           
 
 
 
 
 
 
      Total           16,782,100   13,669,200   6,209,100   8,970,700   313,100   771,700   10,055,500
           
 
 
 
 
 
 

Latin America:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Chile   100.0%   100.0%   2,350,000   1,687,400   901,100   437,600   –     8,400   446,000
  Mexico   90.3%   90.3%   395,300   288,900   111,400   78,300   –     –     78,300
  Brazil (Jundiai)   49.0%   49.0%   70,200   67,900   –     16,300   –     –     16,300
  Brazil (TV Show Brasil)   100.0%   100.0%   463,000   390,000   –     8,400   8,300   –     16,700
  Peru   100.0%   100.0%   140,000   65,000   18,500   10,800   –     –     10,800
           
 
 
 
 
 
 
      Total           3,418,500   2,499,200   1,031,000   551,400   8,300   8,400   568,100
           
 
 
 
 
 
 

Asia/Pacific:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Australia   55.8%   100.0%   2,085,000   2,083,100   –     50,500   –     378,700   429,200
  Philippines   19.6%   49.0%   600,000   517,500   29,500   166,100   –     –     166,100
  New Zealand   23.2%   41.6%   170,600   145,200   140,300   28,500   –     –     28,500
           
 
 
 
 
 
 
      Total           2,855,600   2,745,800   169,800   245,100   –     378,700   623,800
           
 
 
 
 
 
 
Aggregate Video   23,056,200   18,914,200   7,409,900   9,767,200   321,400   1,158,800   11,247,400
           
 
 
 
 
 
 
Consolidated Video (1)   16,905,300   12,991,500   6,180,700   7,629,500   129,300   120,000   7,878,800
           
 
 
 
 
 
 
Proportionate Video (2)   12,188,300   9,698,300   3,981,300   4,519,500   118,000   366,500   5,004,000
           
 
 
 
 
 
 
(1)
Summation of the operating system data for those systems that we consolidate in our financial statements due to majority ownership and control.
(2)
Summation of the operating system data multiplied by our ownership percentage.
(3)
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 box, cable modem and/or voice port which, in most cases, allows for the provision of video, voice and data (broadband) services.
(4)
Includes 300,900 subscribers in The Netherlands.

35

Operating System Data – Voice

 
   March 31, 2002
 
    
    
    
   Subscribers
   Lines
 
   UGC Holdings
Ownership
   System
Ownership
   Homes
Serviceable
 
   Residential
   Business
   Residential
   Business
UPC:                            
  The Netherlands   53.1%   100.0%   1,539,100   174,900   –     216,600   –  
  Austria   50.4%   95.0%   899,700   142,600   –     143,900   –  
  Hungary   52.5-53.1%   98.9-100.0%   84,900   66,100   –     71,900   –  
  France   48.9%   92.0%   633,400   57,300   –     59,100   –  
  Norway   53.1%   100.0%   126,000   20,500   –     22,500   –  
  Czech Republic   53.0-53.1%   99.9-100%   17,700   3,200   –     3,200   –  
  Germany   27.1%   51.0%   1,300   100   –     100   –  
  Priority Telecom   42.0%   79.1%   7,900   7,900   –     7,900   –  
           
 
 
 
 
      Total           3,310,000   472,600   –     525,200   –  
           
 
 
 
 
VTR:                            
  Chile   100.0%   100.0%   901,100   192,600   2,100   216,800   4,000
           
 
 
 
 
Austar United:                            
  New Zealand   23.2%   41.6%   1,300,000   173,000   45,900   180,400   56,700
  Australia   55.8%   100.0%   –     15,300   –     15,300   –  
           
 
 
 
 
      Total           1,300,000   188,300   45,900   195,700   56,700
           
 
 
 
 
Aggregate Voice   5,511,100   853,500   48,000   937,700   60,700
           
 
 
 
 
Consolidated Voice (1)   4,211,100   665,200   2,100   742,000   4,000
           
 
 
 
 
Proportionate Voice (2)   2,908,600   485,100   12,800   538,800   17,200
           
 
 
 
 
(1)
Summation of the operating system data for those systems that we consolidate in our financial statements due to majority ownership and control.
(2)
Summation of the operating system data multiplied by our ownership percentage.

36

Operating System Data – Internet

 
   March 31, 2002
 
   UGC Holdings
Ownership
   System
Ownership
   Homes
Serviceable
   Subscribers
UPC:                
  The Netherlands   53.1 % 100.0 % 2,211,100   256,200
  Austria   50.4 % 95.0 % 920,100   152,500
  Sweden   53.1 % 100.0 % 250,800   50,800
  Germany   13.3-27.1 % 25.0-51.0 % 460,100   35,300
  Norway   53.1 % 100.0 % 165,500   25,700
  Belgium   53.1 % 100.0 % 152,600   22,600
  France   48.9 % 92.0 % 633,400   21,900
  Hungary   52.5-53.1 % 98.9-100.0 % 339,400   17,000
  Czech Republic   53.0-53.1 % 99.9-100.0 % 238,300   7,900
  Poland   53.1 % 100.0 % 184,600   9,900
  Malta   26.6 % 50.0 % 82,100   8,000
  chello broadband subscribers outside of UPC's network   53.1 % 100.0 % 10,000   10,000
           
 
      Total           5,648,000   617,800
           
 
Latin America:                
  Chile   100.0 % 100.0 % 846,700   30,400
  Mexico   90.3 % 90.3 % 111,400   2,400
  Uruguay   100.0 % 100.0 % 5,200   400
  Peru   100.0 % 100.0 % 18,500   900
           
 
      Total           981,800   34,100
           
 
Austar United:                
  Australia   55.8 % 100.0 % –     68,500
  New Zealand   23.2 % 41.6 % 1,300,000   125,100
           
 
      Total           1,300,000   193,600
           
 
Aggregate Internet   7,929,800   845,500
           
 
Consolidated Internet (1)   5,995,400   607,400
           
 
Proportionate Internet (2)   4,018,000   408,000
           
 
(1)
Summation of the operating system data for those systems that we consolidate in our financial statements due to majority ownership and control.
(2)
Summation of the operating system data multiplied by our ownership percentage.

37

Operating System Data – Content

 
   March 31, 2002
 
   UGC Holdings
Ownership
   System
Ownership
   Subscribers
UPC:            
  UPCtv   53.1 % 100.0 % 10,138,000
  Spain/Portugal   26.6 % 50.0 % 8,508,000
  MTV Joint Venture   26.6 % 50.0 % 3,253,000
           
      Total           21,899,000
           
MGM Networks LA:            
  Latin America   50.0 % 50.0 % 14,685,800
           
Austar United:            
  Australia   27.9 % 50.0 % 7,055,000
           
Aggregate Content   43,639,800
           
Consolidated Content (1)   10,138,000
           
Proportionate Content (2)   17,817,100
           
(1)
Summation of the operating system data for those systems that we consolidate in our financial statements due to majority ownership and control.
(2)
Summation of the operating system data multiplied by our ownership percentage.

38

Grand Total Triple Play (Video, Voice and Internet) Revenue Generating Units

 
   March 31, 2001
Grand Total Aggregate RGUs   11,912,300
   
Grand Total Consolidated RGUs (1)   9,662,600
   
Grand Total Proportionate RGUs (2)   5,758,100
   

Operating System Data – Video

 
   March 31, 2001
 
   UGC Holdings Ownership
   System Ownership
   Homes in Service Area
   Homes Passed by Network
   Two-way Homes Passed (3)
   Analog Cable
Subscribers
   Digital Cable Subscribers
   Digital DTH Subscribers
   Total Subscribers
UPC:                                    
  The Netherlands   53.3 % 100.0 % 2,626,500   2,509,500   2,074,400   2,312,900   24,400   –     2,337,300
  Germany (4)   13.3-27.2 % 25.0-51.0 % 2,706,100   2,706,100   427,300   1,880,400   6,000   –     1,886,400
  Poland   53.3 % 100.0 % 1,950,000   1,855,200   151,800   1,045,400   –     388,800   1,434,200
  Hungary   52.7-53.3 % 98.9-100.0 % 1,001,100   876,800   271,800   636,900   –     35,600   672,500
  Austria   50.6 % 95.0 % 1,168,700   919,700   916,400   488,400   –     –     488,400
  Israel   24.8 % 46.6 % 645,300   645,300   400,500   445,000   –     –     445,000
  Czech Republic   53.2-53.3 % 99.9-100 % 913,000   786,400   179,400   379,100   –     30,400   409,500
  France   49.0 % 92.0 % 2,653,200   1,240,300   430,900   405,900   8,800   –     414,700
  Norway   53.3 % 100.0 % 529,000   474,400   143,800   331,600   –     –     331,600
  Slovak Republic   50.6-53.3 % 95.0-100.0 % 517,800   370,800   17,300   318,600   –     11,500   330,100
  Romania   27.2-37.3 % 51.0-70.0 % 648,500   450,700   –     287,600   –     –     287,600
  Sweden   53.3 % 100.0 % 770,000   421,600   238,600   255,300   –     –     255,300
  Belgium   53.3 % 100.0 % 530,000   152,100   152,100   123,800   –     –     123,800
  Malta   26.7 % 50.0 % 179,400   179,400   –     83,800   –     –     83,800
           
 
 
 
 
 
 
      Total           16,838,600   13,588,300   5,404,300   8,994,700   39,200   466,300   9,500,200
           
 
 
 
 
 
 
Latin America:                                    
  Chile   100.0 % 100.0 % 2,350,000   1,617,600   699,300   419,300   –     9,500   428,800
  Mexico   90.3 % 90.3 % 395,300   262,600   27,300   72,500   –     –     72,500
  Brazil (Jundiai)   49.0 % 49.0 % 70,200   67,900   –     17,800   –     –     17,800
  Brazil (TV Show Brasil)   100.0 % 100.0 % 463,000   306,000   –     15,300   –     –     15,300
  Peru   100.0 % 100.0 % 140,000   63,900   –     7,900   –     –     7,900
           
 
 
 
 
 
 
      Total           3,418,500   2,318,000   726,600   532,800   –     9,500   542,300
           
 
 
 
 
 
 
Asia/Pacific:                                    
  Australia   73.4 % 100.0 % 2,085,000   2,083,100   –     60,500   –     366,200   426,700
  Philippines   19.6 % 49.0 % 600,000   517,500   29,500   187,900   –     –     187,900
  New Zealand   36.7 % 50.0 % 136,500   107,000   107,000   22,100   –     –     22,100
           
 
 
 
 
 
 
      Total           2,821,500   2,707,600   136,500   270,500   –     366,200   636,700
           
 
 
 
 
 
 
Aggregate Video   23,078,600   18,613,900   6,267,400   9,798,000   39,200   842,000   10,679,200
           
 
 
 
 
 
 
Consolidated Video (1)   19,127,600   14,909,900   5,285,100   7,664,000   33,200   842,000   8,539,200
           
 
 
 
 
 
 
Proportionate Video (2)   12,557,200   9,812,000   3,323,300   4,500,100   18,100   526,800   5,045,000
           
 
 
 
 
 
 
(1)
Summation of the operating system data for those systems that we consolidate in our financial statements due to majority ownership and control.
(2)
Summation of the operating system data multiplied by our ownership percentage.
(3)
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 box, cable modem and/or voice port which, in most cases, allows for the provision of video, voice and data (broadband) services.
(4)
Includes 296,500 subscribers in The Netherlands.

39

Operating System Data – Voice

 
   March 31, 2001
 
    
    
    
   Subscribers
   Lines
 
   UGC Holdings
Ownership
   System
Ownership
   Homes
Serviceable
 
   Residential
   Business
   Residential
   Business
UPC:                            
  The Netherlands   53.3 % 100.0 % 1,454,300   189,400   8,800   177,100   8,800
  Austria   50.6 % 95.0 % 896,200   114,600   –     115,900   –  
  Hungary   52.7-53.3 % 98.9-100.0 % 84,900   69,000   –     74,100   –  
  France   49.0 % 92.0 % 391,600   47,000   –     49,600   600
  Norway   53.3 % 100.0 % 112,600   16,700   –     18,100   –  
  Czech Republic   53.2-53.3 % 99.9-100.0 % 17,700   3,500   –     3,500   –  
  Germany   27.2 % 51.0 % 1,300   100   –     100   –  
  Priority Telecom   53.3 % 100.0 % 6,000   6,000   –     6,000   –  
           
 
 
 
 
      Total           2,964,600   446,300   8,800   444,400   9,400
           
 
 
 
 
VTR:                            
  Chile   100.0 % 100.0 % 699,300   137,200   1,200   152,000   3,000
           
 
 
 
 
Austar United:                            
  New Zealand   36.7 % 50.0 % 1,300,000   34,100   1,600   40,000   4,800
  Australia   73.4 % 100.0 % –     7,400   –     7,400   –  
           
 
 
 
 
      Total           1,300,000   41,500   1,600   47,400   4,800
           
 
 
 
 
Aggregate Voice   4,963,900   625,000   11,600   643,800   17,200
           
 
 
 
 
Consolidated Voice (1)   3,663,900   590,900   10,000   603,800   12,400
           
 
 
 
 
Proportionate Voice (2)   2,715,600   387,900   6,500   403,700   9,800
           
 
 
 
 
(1)
Summation of the operating system data for those systems that we consolidate in our financial statements due to majority ownership and control.
(2)
Summation of the operating system data multiplied by our ownership percentage.

40

Operating System Data – Internet

 
   March 31, 2001
 
   UGC Holdings
Ownership
   System
Ownership
   Homes
Serviceable
   Subscribers
UPC:                
  The Netherlands   53.3%   100.0%   2,069,000   197,800
  Austria   50.6%   95.0%   916,400   112,200
  Sweden   53.3%   100.0%   238,600   37,600
  Germany   13.3-27.2%   25.0-51.0%   418,900   24,500
  Belgium   53.3%   100.0%   152,100   17,100
  Norway   53.3%   100.0%   143,800   18,600
  France   49.0%   92.0%   406,400   16,300
  Hungary   52.6%   100.0%   197,700   5,100
  Czech Republic   52.7-53.3%   98.9-100.0%   114,700   2,600
  Poland   53.3%   100.0%   151,800   1,800
  chello broadband subscribers outside of UPC's network   53.3%   100.0%   17,500   17,500
           
 
      Total           4,826,900   451,100
           
 
Latin America:                
  Chile   100.0%   100.0%   846,700   11,600
  Mexico   90.3%   90.3%   114,500   300
           
 
      Total           961,200   11,900
           
 
Austar United:                
  Australia   73.4%   100.0%   –     84,200
  New Zealand   36.7%   50.0%   1,300,000   49,300
           
 
      Total           1,300,000   133,500
           
 

Aggregate Internet
 
7,088,100
 
596,500
           
 
Consolidated Internet (1)   5,262,600   522,500
           
 
Proportionate Internet (2)   3,791,800   318,700
           
 
(1)
Summation of the operating system data for those systems that we consolidate in our financial statements due to majority ownership and control.
(2)
Summation of the operating system data multiplied by our ownership percentage.

41

Operating System Data – Content

 
   March 31, 2001
 
   UGC Holdings
Ownership
   System
Ownership
   Subscribers
UPC:            
  Ireland   42.6%   80.0%   5,188,600
  UPCtv   53.3%   100.0%   4,039,000
  Spain/Portugal   26.7%   50.0%   1,740,000
  Poland   53.3%   100.0%   1,106,800
  Hungary   53.3%   100.0%   35,600
  Czech Republic   53.3%   100.0%   30,400
  Slovak Republic   53.3%   100.0%   11,500
           
      Total           12,151,900
           
MGM Networks LA:            
  Latin America   50.0%   50.0%   13,826,500
           
Austar United:            
  Australia   36.7%   50.0%   6,656,500
           

Aggregate Content
 
32,634,900
           
Consolidated Content (1)   10,411,900
           
Proportionate Content (2)   14,816,300
           
(1)
Summation of the operating system data for those systems that we consolidate in our financial statements due to majority ownership and control.
(2)
Summation of the operating system data multiplied by our ownership percentage.

42

Results of Operations

Revenue

 
   Three Months Ended
March 31,
 
   2002
   2001
 
   (In thousands)
UPC   $ 303,676   $ 307,269
VTR     42,693     40,692
Austar United (1)     –       45,082
Other Latin America     1,796     1,702
Other     875     –  
   
 
  Total revenue   $ 349,040   $ 394,745
   
 
(1)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

Revenue decreased $45.7 million, or 11.6%, for the three months ended March 31, 2002 compared to the three months ended March 31, 2001, the detail of which is as follows:

 
   Three Months Ended
March 31,
 
   2002
   2001
 
   (In thousands)
UPC revenue:            
  Triple Play Distribution   $ 261,587   $ 237,562
  DTH     6,324     20,010
  Content     –       395
  Other     8,804     2,887
   
 
    Total Distribution     276,715     260,854
  Priority Telecom     22,762     43,511
  UPC Media     4,091     2,070
  Other     108     834
   
 
    Consolidated UPC revenue   $ 303,676   $ 307,269
   
 
    Consolidated UPC revenue in euros   € 346,312   € 333,448
   
 
VTR revenue:            
  Triple Play Distribution   $ 42,693   $ 40,692
   
 
    Consolidated VTR revenue   $ 42,693   $ 40,692
   
 
    Consolidated VTR revenue in Chilean pesos   CP 28,589,715   CP 23,360,813
   
 
Austar United revenue (1):            
  Triple Play Distribution   $ –     $ 42,385
  Content     –       2,590
  Other     –       107
   
 
    Consolidated Austar United revenue   $ –     $ 45,082
   
 
    Consolidated Austar United revenue in A$   A$ –     A$ 85,328
   
 
(1)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

43

Revenue for UPC in U.S. dollars decreased $3.6 million, or 1.2%, from $307.3 million for the three months ended March 31, 2001 to $303.7 million for the three months ended March 31, 2002. On a functional currency basis, UPC's revenue increased €12.9 million, or 3.9%, from €333.4 million for the three months ended March 31, 2001 to €346.3 million for the three months ended March 31, 2002, primarily due to an increase in Triple Play Distribution revenue of €40.5 million, offset by decreases in revenue from DTH and Priority Telecom. Consolidated Triple Play Distribution RGU's increased from an average of approximately 7,989,500 for the three months ended March 31, 2001 to an average of approximately 8,409,100 for the three months ended March 31, 2002. In addition, the average monthly revenue per Triple Play subscriber (excluding Germany and including DTH) increased from €11.48 for the three months ended March 31, 2001 to €12.97 for the three months ended March 31, 2002. Video revenue accounted for €13.1 million of the Triple Play Distribution revenue increase for the three months ended March 31, 2002, representing a 7.0% increase in video revenue compared to the prior period, primarily due to an increase in the number of consolidated video subscribers from an average of approximately 7,236,200 subscribers for the three months ended March 31, 2001 to an average of approximately 7,404,500 subscribers for the three months ended March 31, 2002. Voice revenue accounted for €2.4 million of the Triple Play Distribution revenue increase for the three months ended March 31, 2002, representing a 6.4% increase in voice revenue compared to the prior period, primarily due to telephone subscriber growth (consolidated average of approximately 459,700 subscribers for the three months ended March 31, 2002 compared to a consolidated average of approximately 377,000 subscribers for the three months ended March 31, 2001). Internet revenue accounted for €25.0 million of the Triple Play Distribution revenue increase for the three months ended March 31, 2002, representing a 71.6% increase in Internet revenue compared to the prior period, primarily due to Internet subscriber growth (consolidated average of approximately 544,900 subscribers for the three months ended March 31, 2002 compared to a consolidated average of approximately 376,300 subscribers for the three months ended March 31, 2001). DTH revenue decreased €14.5 million from the same period in the prior year due to the deconsolidation of UPC's DTH operations in Poland upon the merger with Canal+ Group effective December 7, 2001. Revenue from Priority Telecom decreased €21.3 million for the three months ended March 31, 2002 compared to the same period in the prior year due to the unwinding of its international wholesale business.

Revenue for VTR in U.S. dollars increased $2.0, or 4.9%, from $40.7 million for the three months ended March 31, 2001 to $42.7 million for the three months ended March 31, 2002. On a functional currency basis, VTR's revenue increased CP5.2 billion, or 22.2%, from CP23.4 billion for the three months ended March 31, 2001 to CP28.6 billion for the three months ended March 31, 2002. Voice revenue accounted for CP2.8 billion of this increase for the three months ended March 31, 2002, representing a 42.2% increase in telephone revenue compared to the prior period, primarily due to telephone subscriber growth (average of approximately 189,900 subscribers for the three months ended March 31, 2002 compared to an average of approximately 129,800 subscribers for the three months ended March 31, 2001), offset by lower average monthly revenue per telephone subscriber from CP15,499 ($26.99) for the three months ended March 31, 2001 to CP14,992 ($22.39) for the three months ended March 31, 2002, due to reduction of outgoing traffic because of a general contraction in the market. Video revenue accounted for CP1.6 billion of the total revenue increase for the three months ended March 31, 2002, representing a 10.1% increase in video revenue compared to the prior period, primarily due to an increase in the number of video subscribers from an average of approximately 425,800 subscribers as of March 31, 2001 to an average of approximately 447,200 subscribers as of March 31, 2002, as well as an increase in the average monthly revenue per video subscriber from CP12,633 ($22.01) for the three months ended March 31, 2001 to CP13,247 ($19.78) for the three months ended March 31, 2002.

44

Adjusted EBITDA (1)

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC   $ 48,076   $ (56,034 )
VTR     7,237     4,914  
Austar United (2)     –       (12,082 )
Corporate and other     (1,056 )   (8,761 )
Eliminations and other     447     873  
   
 
 
  Consolidated Adjusted EBITDA   $ 54,704   $ (71,090 )
   
 
 

Consolidated Adjusted EBITDA reconciles to the condensed consolidated statement of operations as follows:

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Operating loss   $ (122,647 ) $ (345,426 )
Depreciation and amortization     165,184     271,114  
Stock-based compensation     8,709     3,222  
Impairment and restructuring charges     3,458     –    
   
 
 
  Consolidated Adjusted EBITDA   $ 54,704   $ (71,090 )
   
 
 
(1)
Adjusted EBITDA represents net operating earnings before depreciation, amortization, stock-based compensation charges and impairment and restructuring charges. Stock-based compensation charges result from variable plan accounting of our subsidiaries' regular and phantom stock option plans. Industry analysts generally consider Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flows or for any other measure of performance or liquidity under generally accepted accounting principles, or as an indicator of a company's operating performance. The presentation of Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate Adjusted EBITDA in the same manner.
(2)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

45

Adjusted EBITDA increased $125.8 million during the three months ended March 31, 2002 compared to the three months ended March 31, 2001, the detail of which is as follows:

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC Adjusted EBITDA:              
  Triple Play Distribution   $ 72,390   $ 33,386  
  DTH     460     (5,091 )
  Content     –       (11,220 )
  Other     4,223     428  
   
 
 
    Total Distribution     77,073     17,503  
  Priority Telecom     (4,101 )   (19,502 )
  UPC Media     (4,890 )   (32,769 )
  Corporate and other     (20,006 )   (21,266 )
   
 
 
    Consolidated UPC Adjusted EBITDA   $ 48,076   $ (56,034 )
   
 
 
    Consolidated UPC Adjusted EBITDA in euros   € 54,814   € (60,808 )
   
 
 

VTR Adjusted EBITDA:
 
 
 
 
 
 
 
  Triple Play Distribution   $ 7,987   $ 5,664  
  Management fees and other     (750 )   (750 )
   
 
 
    Consolidated VTR Adjusted EBITDA   $ 7,237   $ 4,914  
   
 
 
    Consolidated VTR Adjusted EBITDA in Chilean pesos   CP 4,853,492   CP 2,818,598  
   
 
 

Austar United Adjusted EBITDA (1):
 
 
 
 
 
 
 
  Triple Play Distribution   $ –     $ (9,576 )
  Content     –       (1,536 )
  Management fees and other     –       (970 )
   
 
 
    Consolidated Austar United Adjusted EBITDA   $ –     $ (12,082 )
   
 
 
    Consolidated Austar United Adjusted EBITDA in A$   A$ –     A$ (22,867 )
   
 
 
(1)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

Adjusted EBITDA for UPC in U.S. dollars increased $104.1 million, from negative $56.0 million for the three months ended March 31, 2001 to positive $48.1 million for the three months ended March 31, 2002. On a functional currency basis, UPC's Adjusted EBITDA increased €115.6 million from negative €60.8 million for the three months ended March 31, 2001 to positive €54.8 million for the three months ended March 31, 2002. UPC Distribution accounted for €68.9 million of this increase for the three months ended March 31, 2002, primarily due to cost cutting and cost control, improvements in processes and systems and organizational rationalization, improved gross margins brought about by continued negotiations with major vendors, successfully driving higher service penetration in existing customers and continuing to achieve increased average revenue per unit. UPC Media's Adjusted EBITDA increased €30.0 million for the three months ended March 31, 2002 compared to the three months ended March 31, 2001, primarily due to a significant decrease in direct costs resulting from the carve out of the Internet access business (including the Always On Ready to Access ("AORTA") backbone) to UPC Distribution, as well as a decrease in chello broadband expenses through cost control and operational efficiencies. Priority

46


Telecom's Adjusted EBITDA increased €16.5 million from period to period, due to cost savings as a result of the unwinding of its international wholesale business.

Adjusted EBITDA for VTR's Triple Play Distribution in U.S. dollars increased $2.3 million from $5.7 million for the three months ended March 31, 2001 to $8.0 million for the three months ended March 31, 2002. On a functional currency basis, VTR's Adjusted EBITDA for Triple Play Distribution increased CP2.1 billion, or 63.6%, from CP3.3 billion for the three months ended March 31, 2001 to CP5.4 billion for the three months ended March 31, 2002. The increase in VTR's video and voice Adjusted EBITDA accounted for CP0.8 billion and CP0.6 billion of this increase, respectively, primarily due to subscriber growth outpacing development and marketing costs. VTR's Internet Adjusted EBITDA increased CP0.7 billion for the three months ended March 31, 2002 compared to the same period in the prior year due to improving margins as a result of the increased subscriber base and a reduction in bandwidth costs.

Depreciation and Amortization

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC   $ (151,379 ) $ (225,931 )
VTR     (12,801 )   (13,423 )
Austar United (1)     –       (30,346 )
Other     (1,004 )   (1,414 )
   
 
 
  Total depreciation and amortization   $ (165,184 ) $ (271,114 )
   
 
 
(1)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

UPC's depreciation and amortization expense in U.S. dollars decreased $74.5 million from $225.9 million for the three months ended March 31, 2001 to $151.4 million for the three months ended March 31, 2002. On a functional currency basis, UPC's depreciation and amortization expense decreased €72.6 million, or 29.6% from €245.2 million for the three months ended March 31, 2001 to €172.6 million for the three months ended March 31, 2002, primarily due to the non-amortization of goodwill effective January 1, 2002, in accordance with SFAS 142.

Stock-Based Compensation

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC   $ (8,517 ) $ (977 )
VTR     (146 )   (1,172 )
Austar United (1)     –       (2,066 )
Other     (46 )   993  
   
 
 
  Total stock-based compensation   $ (8,709 ) $ (3,222 )
   
 
 
(1)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

47

Stock-based compensation increased $5.5 million for the three months ended March 31, 2002 compared to the three months ended March 31, 2001, due to fluctuations in the value of the common stock of our subsidiaries. Stock-based compensation is recorded as a result of applying variable plan accounting to our subsidiaries' stock-based compensation plans. These plans include the UPC phantom stock option plan, the chello phantom stock option plan, the Priority Telecom stock option plan, the Austar United stock option plan, the ULA phantom stock option plan and the VTR phantom stock option plan. Under variable-plan accounting, increases in the fair market value of these vested options result in compensation charges to the statement of operations, while decreases in the fair market value to these vested options will cause a reversal of previous charges taken.

Interest Expense

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC   $ (167,229 ) $ (201,086 )
VTR     (4,031 )   (5,527 )
Austar United (1)     –       (6,593 )
Other     (12,874 )   (53,271 )
   
 
 
  Total interest expense   $ (184,134 ) $ (266,477 )
   
 
 

Interest expense decreased $82.3 million during the three months ended March 31, 2002 compared to the three months ended March 31, 2001, the detail of which is as follows:

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Cash Pay:              
  UPC senior notes   $ (49,033 ) $ (66,485 )
  UPC bank facilities     (54,905 )   (68,667 )
  VTR bank facility     (2,790 )   (3,833 )
  Austar bank facility (1)     –       (6,018 )
  Other     (2,727 )   (802 )
   
 
 
      (109,455 )   (145,805 )
   
 
 

Non Cash:
 
 
 
 
 
 
 
  UPC senior discount notes accretion     (54,452 )   (57,963 )
  UGC Holdings senior discount notes accretion     (10,919 )   (35,866 )
  Amortization of deferred financing costs     (4,788 )   (10,612 )
  Belmarken Notes     (4,520 )   –    
  UAP senior discount notes accretion (1)     –       (16,231 )
   
 
 
      (74,679 )   (120,672 )
   
 
 
    Total interest expense   $ (184,134 ) $ (266,477 )
   
 
 
(1)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

48

Foreign Currency Exchange Loss

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC   $ (46,603 ) $ (44,104 )
VTR     (184 )   (17,597 )
Austar United (1)     –       (2,518 )
Other     422     (26,784 )
   
 
 
  Total foreign currency exchange loss, net   $ (46,365 ) $ (91,003 )
   
 
 
(1)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

Foreign currency exchange loss decreased $44.6 million, from $91.0 million for the three months ended March 31, 2001 to $46.4 million for the three months ended March 31, 2002. In 2001 we had a foreign currency exchange forward contract to reduce our currency exposure to the euro which was out of the money by approximately $25.3 million as of March 31, 2001. This contract was fully settled in the fourth quarter of 2001.

Derivative Losses and Other Expenses

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC   $ (163,925 ) $ (40,769 )
VTR     900     (962 )
Austar United (1)     –       2,725  
Other     (512 )   2,469  
   
 
 
  Total derivative losses and other expenses   $ (163,537 ) $ (36,537 )
   
 
 
(1)
As a result of the sale of 49.99% of our interest in UAP, we deconsolidated the results of operations of Austar United effective November 15, 2001.

Derivative losses and other expenses increased $127.0 million from $36.5 million for the three months ended March 31, 2001 to $163.5 million for the three months ended March 31, 2002, primarily due to the mark-to-market valuation of certain of UPC's derivative instruments.

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Minority Interests in Subsidiaries

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Accrual of dividends on UPC convertible preference shares   $ (21,381 ) $ (25,742 )
UPC     (167 )   54,231  
Other     (2,439 )   32,856  
   
 
 
  Total minority interests in subsidiaries   $ (23,987 ) $ 61,345  
   
 
 

The minority interests' share of losses decreased $85.3 million from $61.3 million for the three months ended March 31, 2001 to negative $24.0 million for the three months ended March 31, 2002, due primarily to the reduction of the minority interests' basis in the common equity of UPC to nil in January 2001, as well as the deconsolidation of UAP effective November 15, 2001. We cannot allocate a portion of UPC's net losses to the minority shareholders once the minority shareholders' common equity basis has been exhausted. We will consolidate 100% of the net losses of UPC until such time as the preference shareholders convert their holdings into common equity or until additional common equity is contributed by third-party investors.

Share in Results of Affiliates

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC   $ (18,680 ) $ (42,477 )
UAP     (52,060 )   –    
Austar United     –       (5,632 )
Other     (222 )   (81 )
   
 
 
  Total share in results of affiliates   $ (70,962 ) $ (48,190 )
   
 
 

The increase in losses from recording our share in results of affiliates of $22.8 million for the three months ended March 31, 2002 compared to the same period in the prior year was primarily due to the sale of 49.99% of our interest in UAP which resulted in the pickup of 100% of UAP's losses under the equity method of accounting.

50


Extraordinary Gain on Early Retirement of Debt

 
   Three Months Ended
March 31,
 
   2002
   2001
 
   (In thousands)
United   $ 1,623,527   $ –  
UPC     109,182     –  
   
 
  Total extraordinary gain on early retirement of debt   $ 1,732,709   $ –  
   
 

As part of our recapitalization, we purchased certain debt securities of our subsidiaries at fair value, including the UPC Bonds, Belmarken Notes and UGC Holdings 1998 Notes (directly from Liberty and indirectly through the purchase of Liberty's interest in IDT United). The estimated fair value of these financial assets (with the exception of the Belmarken Notes) was significantly less than the accreted value of those debt securities as reflected in UGC Holdings' historical financial statements. For consolidated financial reporting purposes we recognized an extraordinary gain of approximately $1.624 billion (net of income tax) from the effective retirement of such debt outstanding at that time equal to the excess of the then accreted value of such debt over our cost.

The gain from UPC relates to the restructuring and cancellation of capital lease obligations associated with excess capacity of certain Priority Telecom vendor contracts.

51

Liquidity and Capital Resources

Sources and Uses

We have financed our acquisitions and funding of our video, voice and Internet access businesses in the three main regions of the world in which we operate primarily through public and private debt and equity as well as cash received from the sale of non-strategic assets by certain subsidiaries. These resources have also been used to refinance certain debt instruments and facilities as well as to cover corporate overhead. Our subsidiaries have supplemented contributions from us with the sale of debt and equity, bank financing and operating cash flow. The following table outlines the sources and uses of cash, cash equivalents, restricted cash and short-term liquid investments (for purposes of this table only, "cash") for United and UGC Holdings from inception to date:

 
   Inception to
December 31, 2001
   Three Months
Ended
March 31, 2002
   Total
  
 
   (In millions)

  
United and UGC Holdings Corporate
                    
Financing Sources:                    
  Debt   $ 1,347.0   $ 102.7   $ 1,449.7  
  Equity     1,717.7     200.0     1,917.7  
  Asset sales, dividends and note payments     376.6     –       376.6  
  Interest income and other     237.4     20.4     257.8  
   
 
 
 
      Total sources     3,678.7     323.1     4,001.8  
   
 
 
 
Application of Funds:                    
  Investment in:                    
    UPC     (717.8 )   –       (717.8 )
    Asia/Pacific     (422.2 )   (0.3 )   (422.5 )
    Latin America     (961.9 )   (20.2 )   (982.1 )
    Other     (89.8 )   4.1     (85.7 )
   
 
 
 
      Total     (2,191.7 )   (16.4 )   (2,208.1 )
  Loan to Liberty     (287.6 )   287.6     –    
  Repayment of bonds     (793.4 )   (530.1 )   (1,323.5 )
  Offering and merger costs     (118.6 )   (13.9 )   (132.5 )
  Litigation settlement     195.4     –       195.4  
  Corporate and other     (222.1 )   (11.4 )   (233.5 )
   
 
 
 
      Total uses     (3,418.0 )   (284.2 )   (3,702.2 )
   
 
 
 

Period change in cash
 
 
260.7
 
 
38.9
 
 
299.6
 
Cash, beginning of period     –       260.7     –    
   
 
 
 
Cash, end of period   $ 260.7   $ 299.6     299.6  
 
  
 
 
 
United's Subsidiaries
                    
Cash, end of period:                    
  UPC     564.6  
  Latin America     24.4  
  Other     0.5  
 
    
    
  
 
      Total United's subsidiaries     589.5  
 
    
    
  
 
United consolidated cash, cash equivalents, restricted cash and short-term liquid investments as of March 31, 2002   $ 889.1  
 
    
    
  
 

52

United and UGC Holdings Corporate.    We had $299.6 million of cash, cash equivalents, restricted cash and short-term liquid investments on hand as of March 31, 2002. As a result of the merger transaction on January 30, 2002, we received a net $71.1 million in cash. Additional sources of cash in 2002 may include the raising of additional private or public debt and/or equity and/or proceeds from the disposition of non-strategic assets. Uses of cash through 2002 will include fundings to the Latin America region to meet the existing growth plans of our systems and corporate overhead. We believe that our existing capital resources will enable us to assist in satisfying the operating and development requirements of our subsidiaries in Latin America and cover corporate overhead for the next year. To the extent we pursue new acquisitions or development opportunities, we will need to raise additional capital or seek strategic partners.

UPC.    UPC 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, voice and Internet. In addition, substantial capital expenditures have been required to deploy these services and to acquire businesses. Management expects UPC 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 and amortization expense. As of March 31, 2002, there was substantial uncertainty whether UPC's sources of capital, working capital and projected operating cash flow were sufficient to fund its expenditures and service its indebtedness over the next year. In addition, as a result of certain events of default, the majority of UPC's indebtedness has been classified as current. These factors raise substantial doubt about UPC's ability to continue as a going concern. UPC's ability to continue as a going concern is dependent on (i) its ability to restructure its senior notes and senior discount notes, the Belmarken Notes and its convertible preferred stock and (ii) its ability to generate enough cash flow to enable it to recover its assets and satisfy its liabilities in the normal course of business.

On March 4, 2002, UPC received waivers from the lenders under the UPC Distribution Bank Facility, the EWT Facility and the Belmarken Notes for the cross events of default under such facilities that existed or may exist as a result of UPC's failure to make the interest payment due on certain of its senior notes on February 1, 2002. Each of these waivers will remain effective until June 3, 2002, and will terminate if there is a default by UPC of the terms of that waiver. The waiver under the UPC Distribution Bank Facility subjects UPC to a €100.0 million drawdown limitation under that facility, subject to certain conditions, during the period in which the waiver is in place.

As of May 15, 2002, UPC had not made the required interest payments on its senior notes. None of the notes or facilities described above have been accelerated or subjected to enforcement actions and none of the defaults described above have had a material adverse effect on the operations of UPC's subsidiaries or their or UPC's relationships with customers, suppliers and employees.

On February 1, 2002, UPC signed a Memorandum of Understanding with us and UGC Holdings. The Memorandum of Understanding relates to an agreement in principle among UPC, us and UGC Holdings to effectuate a series of transactions, which, if consummated, would result in a restructuring of the outstanding debt obligations of UPC and its subsidiaries. The Memorandum of Understanding is conditional, among other things, on the receipt of tenders of 95.0% of all UPC notes outstanding in an exchange offer. We have agreed in principle to convert $2.6 billion (face amount) of UPC's indebtedness and $0.3 billion of convertible preference shares held by UGC Holdings into new UPC ordinary shares as part of the recapitalization.

During March 2002, we met with UPC and a steering committee representing the holders of UPC's senior notes and senior discount notes (other than us) to begin preliminary discussions with respect to a process for, and terms of, a restructuring of such notes and the Belmarken Notes. We and our advisors and the note holders' steering committee and its advisors have completed the due diligence about UPC and UPC's current financial condition. We have not reached any decisions with either UPC or the note holders' steering committee regarding the terms or timing of a debt restructuring. We expect that this process will

53


take a number of months to complete. If completed, the restructuring would result in substantial dilution of UPC's existing shareholders, a loss of some or all of the fair value of UPC's outstanding securities, including UPC's ordinary shares, preference shares, senior notes and senior discount notes and the Belmarken Notes. Since we are in preliminary discussions with UPC and the note holders' steering committee, we cannot predict the terms or the timing of its restructuring. In addition, we cannot be assured that we will be able to reach agreement with either UPC or the note holders on mutually satisfactory terms.

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

During 2001, UPC reviewed its current and long-range plan for all segments of its business and hired a strategic consultant to assist it in the process. UPC worked extensively with this consultant to revise its strategic and operating plans, 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 products with positive net present values.

UPC's ordinary shares are traded in the form of American Depositary Receipts ("ADRs") on the Nasdaq National Market ("Nasdaq") under the symbol "UPCOY". Nasdaq has traditionally maintained certain rules regarding minimum bid prices for continued listing on the market. UPC's ADRs will be delisted from Nasdaq prior to the end of May 2002, as UPC does not currently meet the minimum bid price requirement. UPC's shares will commence trading on the Over the Counter Bulletin Board ("OTC BB") in the United States in due course. UPC does not expect the delisting to affect the normal course of business for UPC's operating companies. UPC will be eligible to relist on Nasdaq if it completes its restructuring and complies with Nasdaq rules. UPC's shares continue to trade on the Euronext Amsterdam Exchange under the symbol UPC.

ULA.    ULA had $24.4 million of cash, cash equivalents, restricted cash and short-term liquid investments on hand as of March 31, 2002, held almost exclusively by VTR. VTR's working capital as of March 31, 2002 and projected operating cash flows were sufficient to fund VTR's operations over the next year, however they were not sufficient to service its indebtedness, raising substantial doubt about its ability to continue as a going concern. VTR's ability to continue as a going concern is dependent on a successful refinancing of the VTR Bank Facility, which matures on May 29, 2002. Though VTR believes the refinancing will be successful, there can be no assurance that it will occur on terms that are satisfactory to VTR or us or at all. Any refinancing that occurs on terms that are less favorable than expected could adversely affect VTR's ability or our ability to obtain new or alternative financing. If VTR fails to refinance this facility, its lenders would have certain enforceable rights, including the right to commence involuntary bankruptcy proceedings or any other action available to creditors. VTR would then need to obtain funding from external sources, restructure its operations or sell assets in order to repay the VTR Bank Facility and pay its other liabilities when due. VTR needs approximately $50.0 million to $70.0 million from us to meet its growth needs through the remainder of 2002, although there can be no assurance that we will fund all or a portion of such amount. ULA's other systems in Latin America need approximately $4.8 million from us through the remainder of 2002 to continue their development. To the extent ULA pursues additional

54


acquisitions or development opportunities, ULA will need to raise additional capital or seek strategic partners.

UAP.    UAP has $492.9 million face amount 14.0% senior discount notes due May 15, 2006 (the "UAP Notes"). On May 15, 2001, cash interest began to accrue and was payable semi-annually on each May 15 and November 15, commencing November 15, 2001. UAP failed to make the required interest payment due November 15, 2001, and failed to cure this default within the 30-day cure period. As a result, an event of default under the indentures governing the UAP Notes occurred on, and has continued since, December 15, 2001. As of March 31, 2002, UAP's working capital and projected operating cash flow were not sufficient to fund its expected expenditures and repay the UAP Notes over the next year, raising substantial doubt about its ability to continue as a going concern. On March 29, 2002, voluntary and involuntary petitions were filed under Chapter 11 of the United States Bankruptcy Code with respect to UAP. UAP's ability to continue as a going concern is dependent on the outcome of this bankruptcy proceeding.

Statements of Cash Flows

We had cash and cash equivalents of $775.8 million as of March 31, 2002, a decrease of $144.3 million from $920.1 million as of December 31, 2001. Cash and cash equivalents of $1,355.5 million as of March 31, 2001 represented a decrease of $521.3 million from $1,876.8 million as of December 31, 2000.

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Cash flows from operating activities   $ (77,112 ) $ (415,003 )
Cash flows from investing activities     (306,541 )   (207,610 )
Cash flows from financing activities     261,876     160,260  
Effect of exchange rates on cash     (22,540 )   (58,947 )
   
 
 
Net increase in cash and cash equivalents     (144,317 )   (521,300 )
Cash and cash equivalents at beginning of period     920,140     1,876,828  
   
 
 
Cash and cash equivalents at end of period   $ 775,823   $ 1,355,528  
   
 
 

Three Months Ended March 31, 2002

Principal sources of cash during the three months ended March 31, 2002 included $200.0 million from the issuance of common stock, $102.7 million of loan proceeds from notes payable to Liberty, $49.5 million of restricted cash released, $11.5 million of dividends received from affiliates, $2.3 million of net proceeds from the sale of short-term liquid investments and $0.6 million from other investing and financing activities.

Principal uses of cash during the three months ended March 31, 2002 included $231.6 million for the purchase of Liberty's interest in IDT United, $114.7 million of capital expenditures, $28.4 million for the repayment of debt, $22.5 million negative exchange rate effect on cash, $21.1 million for the acquisition of UPC's remaining 30.0% interest in AST Romania, $13.0 million for deferred financing costs, $77.1 million for operating activities and $2.5 million for other investing and financing activities.

Three Months Ended March 31, 2001

The principle source of cash during the three months ended March 31, 2001 was $184.3 million of borrowings on UPC's bank facility. Additional sources of cash included $72.0 million of net proceeds from

55


the sale of short-term liquid investments, $3.2 million from the exercise of stock options and $3.6 million from affiliate dividends and other investing sources.

Principal uses of cash during the three months ended March 31, 2001 included $205.1 million of capital expenditures, $58.9 million negative exchange rate effect on cash, $35.0 million in loans to affiliates and $25.5 million for the repayment of debt. Additional uses of cash included $24.2 million for new acquisitions, net of cash, $19.0 million for investments in affiliates, $1.7 million for deferred financing costs and $415.0 million for operating activities.

New Accounting Principles

We adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), effective January 1, 2002. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, but are tested for impairment on an annual basis and whenever indicators of impairment arise. In addition, goodwill on equity method investments is no longer amortized, but tested for impairment in accordance with APB 18. The goodwill impairment test, which is based on fair value, is performed on a reporting unit level. All recognized intangible assets that are deemed not to have an indefinite life are amortized over their estimated useful lives. We are still in the process of comparing the fair value of our reporting units with their respective carrying amounts, including goodwill. This process will enable us to identify any potential goodwill impairment from the adoption of SFAS 142. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test will be performed to measure the amount of impairment loss. It is possible a substantial cumulative effect adjustment may be required as a result of this process. As of March 31, 2002, net goodwill of approximately $2.7 billion is included in the accompanying consolidated balance sheet.

In April 2002, the Financial Accounting Standards Board issued 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, which updates, clarifies and simplifies existing accounting pronouncements, addresses the reporting of debt extinguishments and accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. A principal effect will be the prospective characterization of gains and losses from debt extinguishments used as part of an entity's risk management strategy. Under Statement No. 4, all gains and losses from extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. SFAS 145 eliminates Statement No. 4. As a result, most gains and losses from extinguishment of debt will not be classified as extraordinary items unless they meet much more narrow criteria in Opinion 30 Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 145 may be early adopted, but is otherwise effective for fiscal years beginning after May 15, 2002 and must be adopted with retroactive effect. We have not yet decided whether we will adopt such standard in the quarter ending June 30, 2002 or whether we will wait to adopt such standard in fiscal 2003 in accordance with the effective date and transition guidance provided for in SFAS 145.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Investment Portfolio

We do not use derivative financial instruments in our non-trading investment portfolio. We place our cash and cash equivalent investments in highly liquid instruments that meet high credit quality standards with original maturities at the date of purchase of less than three months. We generally place our short-term investments in liquid instruments that meet high credit quality standards with original maturities at the date of purchase of between three and twelve months. We also limit the amount of credit exposure to any one issue, issuer or type of instrument. These investments are subject to interest rate risk and will fall in value if market interest rates increase. We do not expect, however, any material loss with respect to our investment portfolio.

Equity Prices

We are exposed to equity price fluctuations related to our investments in equity securities. Changes in the price of the stock are reflected as unrealized gains (losses) in our statement of stockholders' deficit until such time as the stock is sold, at which time the realized gain (loss) is reflected in the statement of operations. Investments in publicly traded securities at March 31, 2002 included the following:

 
   Number
of Shares
   Fair Value
March 31, 2002
 
    
   (In thousands)
PrimaCom   4,948,039   $ 7,640
SBS   6,000,000   $ 113,696

We are also exposed to equity price fluctuations related to UPC's debt that is convertible into UPC ordinary shares, such as the UPC DIC Loan and the Belmarken Notes.

Impact of Foreign Currency Rate Changes

The functional currency of our major systems UPC, Austar United and VTR is the euro, Australian dollar and Chilean peso, respectively. We are exposed to foreign exchange rate fluctuations related to our operating subsidiaries' monetary assets and liabilities and the financial results of foreign subsidiaries when their respective financial statements are translated into U.S. dollars during consolidation. Foreign currency rate changes also affect our share in results of our unconsolidated affiliates. Our exposure to foreign exchange rate fluctuations also arises from items such as notes payable, the cost of equipment, management fees, programming costs and certain other charges that are denominated in U.S. dollars but recorded in the functional currency of the foreign subsidiary. The relationship between these foreign currencies and the U.S. dollar, which is our reporting currency, is shown below, per one U.S. dollar:

 
   Spot Rate
   Average Rate
  
 
   Euro
   Australian
Dollar
   Chilean
Peso
   Euro
   Australian
Dollar
   Chilean
Peso
  
December 31, 2001   1.1189   1.9591   654.7900   1.1200   1.9432   634.4300  
March 31, 2002   1.1463   1.8742   655.9000   1.1404   1.9283   669.7100  
March 31, 2001   1.1368   2.0604   594.9700   1.0852   1.8927   574.3500  
% Increase (Devaluation) 2001 to 2002   (0.8% ) 9.0%   (10.2% ) (5.1% ) (1.9% ) (16.6% )

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The table below presents the impact of foreign currency fluctuations on our revenue and Adjusted EBITDA:

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
UPC:              
  Revenue   $ 303,676   $ 307,269  
   
 
 
  Adjusted EBITDA   $ 48,076   $ (56,034 )
   
 
 
 
Revenue based on prior year exchange rates
 
$
319,123
 
$
329,527
 
   
 
 
  Adjusted EBITDA based on prior year exchange rates   $ 50,511   $ (60,093 )
   
 
 
 
Revenue impact
 
$
(15,447
)
$
(22,258
)
   
 
 
  Adjusted EBITDA impact   $ (2,435 ) $ 4,059  
   
 
 

VTR:
 
 
 
 
 
 
 
  Revenue   $ 42,693   $ 40,692  
   
 
 
  Adjusted EBITDA   $ 7,237   $ 4,914  
   
 
 
 
Revenue based on prior year exchange rates
 
$
49,778
 
$
45,580
 
   
 
 
  Adjusted EBITDA based on prior year exchange rates   $ 8,450   $ 5,499  
   
 
 
 
Revenue impact
 
$
(7,085
)
$
(4,888
)
   
 
 
  Adjusted EBITDA impact   $ (1,213 ) $ (585 )
   
 
 

The table below presents the foreign currency translation adjustments arising from translating our foreign subsidiaries' assets and liabilities into U.S. dollars for the three months ended March 31, 2002 and 2001:

 
   Three Months Ended
March 31,
  
 
   2002
   2001
  
 
   (In thousands)

  
Foreign currency translation adjustments   $ 42,529   $ (43,753 )
   
 
 

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Certain of our operating companies have notes payable which are denominated in a currency other than their own functional currency as follows:

 
   March 31, 2002
   December 31, 2001
 
   Third Party
   Related Party
   Third Party
   Related Party
 
   (In thousands)
U.S. Dollar Denominated Facilities:                        
  UPC 12.5% Senior Discount Notes due 2009 (1)   $ 376,359   $ 177,110   $ 365,310   $ 171,911
  UPC 13.375% Senior Discount Notes due 2009 (1)     234,846     107,185     227,424     103,798
  UPC 13.75% Senior Discount Notes due 2010 (1)     457,127     229,347     442,129     221,821
  UPC 11.25% Senior Notes due 2010 (1)     387,741     207,732     387,697     208,709
  UPC Polska Senior Discount Notes (1)     353,703     –     343,323     –
  Belmarken Notes (1)     –     900,588     –     887,315
  VTR Bank Facility (2)     176,000     –     176,000     –
  Intercompany Loan to VTR (2)     –     364,971     –     347,971
   
 
 
 
    $ 1,985,776   $ 1,986,933   $ 1,941,883   $ 1,941,525
   
 
 
 
(1)
Functional currency of UPC is Euros.
(2)
Functional currency of VTR is Chilean Pesos.

Derivative Instruments

We use derivative instruments from time to time to manage interest rate risk on our floating-rate debt facilities and reduce our exposure to foreign currency exchange rate risk. In connection with certain borrowings, UPC has entered into both cross-currency swaps and interest rate swaps, providing economic hedges to both currency and interest rate exposure. The following table details the fair value of these derivative instruments outstanding by their related borrowing:

Borrowing
   March 31,
2002
   December 31,
2001
  
 
   (In thousands)

  
UPC July 1999 Senior Notes cross currency/interest rate swap   $ 27,639   $ 90,925  
UPC October 1999 Senior Notes cross currency/interest rate swap     18,944     49,622  
UPC January 2000 Senior Notes cross currency/interest rate swap     3,489     32,837  
UPC Distribution Bank Facility cross currency/interest rate swap     (24,763 )   (42,064 )
   
 
 
  Total derivative assets, net   $ 25,309   $ 131,320  
   
 
 

Concurrent with the closing of the UPC July 1999 Senior Notes, UPC entered into a cross-currency swap, swapping the $800.0 million, 10.875% fixed-rate senior notes into fixed and variable-rate euro notes with a notional amount totaling €754.7 million. Of the euro notes, 50.0% have a fixed interest rate of 8.54% through August 1, 2004, thereafter switching to a variable interest rate of Euro Interbank Offer Rate ("EURIBOR") + 4.15%. The remaining 50.0% have a variable interest rate of EURIBOR + 4.15% through August 1, 2009. The cross-currency swap provides the bank with the right to terminate the swap at market value commencing August 1, 2004 with the payment of a call premium equal to the call premium UPC would pay to the $800.0 million senior note holders if the notes are called on or after August 1, 2004.

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Concurrent with the closing of the UPC October 1999 Senior Notes, UPC entered into a cross-currency swap, swapping the $252.0 million, 11.25% fixed-rate senior notes into fixed-rate and variable-rate euro notes with a notional amount totaling €240.2 million and swapping the $200.0 million 10.875% fixed-rate senior notes into fixed-rate and variable-rate euro notes with a notional amount of €190.6 million. One half of the total euro notes (€215.4 million) have a fixed interest rate of 9.92% through November 1, 2004, thereafter switching to a variable interest rate of EURIBOR + 4.80%. The remaining €215.4 million have a variable interest rate of EURIBOR + 4.80% through November 1, 2009. The cross-currency swap provides the bank with the right to terminate the swap at fair value commencing November 1, 2004 with the payment of a call premium equal to the call premium UPC would pay to the $252.0 million and $200.0 million senior note holders if the notes were called on or after November 1, 2004.

UPC has entered into cross-currency swaps with respect to the UPC January 2000 Senior Notes, swapping a total of $300.0 million of the UPC 11.25% dollar Senior Notes due 2010 into 10.0% fixed euro notes with a notional amount of €297.0 million until August 2008.

Concurrent with the closing of the UPC Distribution Bank Facility in October 2000, UPC entered into cross currency and interest rate swaps, pursuant to which a $347.5 million obligation under the UPC Distribution Bank Facility was swapped at an average rate of 0.852 euros per U.S. dollar until November 29, 2002. UPC entered into an interest rate swap of €1,725.0 million to fix the EURIBOR portion of the interest calculation to 4.55% for the period ending April 15, 2003.

Of the above derivative instruments, only the €1.725 billion interest rate swap on the UPC Distribution Bank Facility qualifies as an accounting cash flow hedge. Accordingly, the changes in fair value of this instrument are recorded through other comprehensive income in the consolidated statement of stockholders' (deficit) equity. The remaining instruments are marked to market each period with the corresponding fair value gain or loss recorded as a part of foreign exchange gain (loss) and other income (expense) in the consolidated statement of operations. The fair values as calculated by an independent third party consider all rights and obligations of the respective instruments, including the set-off provisions described below. For the three months ended March 31, 2002 and 2001, UPC recorded a loss of $155.9 million and $42.3 million, respectively, in connection with the mark-to-market valuations.

Certain derivative instruments outlined above include set-off provisions that provide for early termination upon the occurrence of certain events, including an event of default. In an event of default, any amount payable to one party by the other party, will, at the option of the non-defaulting party, be set off against any matured obligation owed by the non-defaulting party to such defaulting party. If UPC is the defaulting party and the counterparty to the swap holds bonds of UPC, these bonds may be used to settle the obligation of the counterparty to UPC. In such an event of settlement, UPC would recognize an extraordinary gain upon the delivery of the bonds. The amount of bonds that must be delivered is based on the principal (i.e. face) amount of the bonds held and not the fair value, which may be substantially less.

Effective January 31, 2002, UPC amended certain swap agreements with respect to the UPC July 1999 Senior Notes, the UPC October 1999 Senior Notes and the UPC January 2000 Senior Notes. The swap agreements were subject to early termination upon the occurrence of certain events, including the defaults described elsewhere herein. The amendment provides that the bank's obligations to UPC 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 UPC, the bank is entitled to offset, and will deliver to UPC, approximately €400.0 ($348.9) million, subject to adjustment in certain circumstances, in aggregate principle amount of UPC's senior notes and senior discount notes held by such bank. Upon offset against, and delivery to UPC of the senior notes and senior discount notes, UPC's indebtedness will be reduced by approximately €400.0 million and UPC will recognize a gain based on the difference in the fair value of the associated swaps and the accreted value of such bonds delivered in settlement.

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Inflation and Foreign Investment Risk

Certain of our operating companies operate in countries where the rate of inflation is extremely high relative to that in the United States. While our affiliated companies attempt to increase their subscription rates to offset increases in operating costs, there is no assurance that they will be able to do so. Therefore, operating costs may rise faster than associated revenue, resulting in a material negative impact on reported earnings. We are also impacted by inflationary increases in salaries, wages, benefits and other administrative costs, the effects of which to date have not been material.

Our foreign operating companies are all directly affected by their respective countries' government, economic, fiscal and monetary policies and other political factors. We believe that our operating companies' financial conditions and results of operations have not been materially adversely affected by these factors.

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Interest Rate Sensitivity

The table below provides information about our primary debt obligations. The variable rate financial instruments are sensitive to changes in interest rates. The information is presented in U.S. dollar 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, 2002. Contractual maturities may differ from the information shown in the table below.

 
   March 31, 2002
   Expected payment as of December 31,
 
   Book Value
   Fair Value
   2002
   2003
   2004
   2005
   2006
   Thereafter
   Total
 
   (In thousands, except interest rates)
Fixed rate UGC Holdings 1998 Notes (dollar)   $ 22,478   $ 9,851   (1) $ –     $ –     $ –     $ –     $ –     $ 22,478   $ 22,478
  Average interest rate     10.75 %   26.34 %                                        
Variable rate UPC Senior Notes due 2009 (dollar)   $ 558,800   $ 68,455   (2)   558,800     –       –       –       –       –       558,800
  Average interest rate     10.875 %   88.34 %                                        
Fixed rate UPC Senior Notes due 2009 (euro)   $ 200,759   $ 23,589   (2)   200,759     –       –       –       –       –       200,759
  Average interest rate     10.875 %   95.08 %                                        
Fixed rate UPC Senior Discount Notes due 2009 (dollar)   $ 376,359   $ 57,477   (2)   376,359     –       –       –       –       –       376,359
  Average interest rate     12.50 %   51.54 %                                        
Variable rate UPC Senior Notes due 2007 (dollar)   $ 143,853   $ 16,903   (2)   143,853     –       –       –       –       –       143,853
  Average interest rate     10.875 %   94.85 %                                        
Fixed rate UPC Senior Notes due 2007 (euro)   $ 59,919   $ 6,741   (2)   59,919     –       –       –       –       –       59,919
  Average interest rate     10.875 %   101.39 %                                        
Variable rate UPC Senior Notes due 2009 (dollar)   $ 125,976   $ 14,887   (2)   125,976     –       –       –       –       –       125,976
  Average interest rate     11.25 %   91.17 %                                        
Fixed rate UPC Senior Notes due 2009 (euro)   $ 60,088   $ 7,100   (2)   60,088     –       –       –       –       –       60,088
  Average interest rate     11.25 %   98.32 %                                        
Fixed rate UPC Senior Discount Notes due 2009 (dollar)   $ 234,846   $ 31,179   (2)   234,846     –       –       –       –       –       234,846
  Average interest rate     13.375 %   54.68 %                                        
Fixed rate UPC Senior Discount Notes due 2009 (euro)   $ 77,943   $ 9,491   (2)   77,943     –       –       –       –       –       77,943
  Average interest rate     13.375 %   59.09 %                                        
Fixed rate UPC Senior Notes due 2010 (dollar)   $ 387,741   $ 45,829   (2)   387,741     –       –       –       –       –       387,741
  Average interest rate     11.25 %   90.18 %                                        
Fixed rate UPC Senior Notes due 2010 (euro)   $ 118,358   $ 13,394   (2)   118,358     –       –       –       –       –       118,358
  Average interest rate     11.25 %   97.25 %                                        
Fixed rate UPC Senior Notes due 2010 (dollar)   $ 215,082   $ 26,503   (2)   215,082     –       –       –       –       –       215,082
  Average interest rate     11.50 %   91.94 %                                        
Fixed rate UPC Senior Discount Notes due 2010 (dollar)   $ 457,127   $ 76,579   (2)   457,127     –       –       –       –       –       457,127
  Average interest rate     13.75 %   52.38 %                                        

62

 
   March 31, 2002
   Expected payment as of December 31,
 
   Book Value
   Fair Value
   2002
   2003
   2004
   2005
   2006
   Thereafter
   Total
 
   (In thousands, except interest rates)
Fixed rate UPC DIC Loan (dollar)   $ 47,048   $ –     (3)   47,048     –       –       –       –       –       47,048
  Average interest rate     10.00 %   10.00 %                                        
Fixed rate UPC Polska Senior Discount Notes   $ 353,703   $ 83,612   (2)   –       15,102           –       –       338,601     353,703
  Average interest rate     14.5 %   54.38 %                                        
Variable rate UPC Bank Facility   $ 2,768,321   $ 2,768,321   (4)   2,768,321     –       –       –       –       –       2,768,321
  Average interest rate     7.15 %   7.15 %                                        
Variable rate VTR Bank Facility   $ 176,000   $ 176,000   (4)   176,000     –       –       –       –       –       176,000
  Average interest rate     7.75 %   7.75 %                                        
Notes payable to Liberty   $ 102,728   $ 102,728   (4)   –       102,728     –       –       –       –       102,728
  Average interest rate     8.00 %   8.00 %                                        
Other debt   $ 88,555   $ 88,555   (4)   12,384     76,171     –       –       –       –       88,555
  Average interest rate     Various     Various                                          
   
 
 
 
 
 
 
 
 
    Total debt   $ 6,575,684   $ 3,627,194     6,020,604     194,001     –       –       –       361,079     6,575,684
   
 
 
 
 
 
 
 
 
Capital lease obligations     6,005     4,636     4,318     4,260     4,275     20,509     44,003
Operating leases     63,873     55,132     46,156     30,411     36,019     133,035     364,626
Other commitments     11,000     27,000     –       –       –       –       38,000
               
 
 
 
 
 
 
    Total commitments     80,878     86,768     50,474     34,671     40,294     153,544     446,629
               
 
 
 
 
 
 
    Total debt and commitments   $ 6,101,482   $ 280,769   $ 50,474   $ 34,671   $ 40,294   $ 514,623   $ 7,022,313
               
 
 
 
 
 
 

(1)  Fair value ($0.40 of face) is based upon the recent price paid to repurchase 98.2% of these bonds in the tender offer that expired February 1, 2002.

(2)  Fair value is based on quoted market prices in an active market.

(3)  Fair value approximates nil, due to under water convertibility feature.

(4)  Fair value approximates book value in the absence of quoted market prices.

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PART II – OTHER INFORMATION


Item 2. Changes in Securities and Use of Proceeds

On January 30, 2002, the Company issued Class B common stock and Class C common stock to the Founders and Liberty, respectively, under the exemption from registration provided by section 4(2) of the Securities Act of 1933, as amended. Holders of the Company's Class C common stock are entitled to elect one-third of the Company's board of directors, while holders of the Company's Class A common stock and Class B common stock are together entitled to elect the remaining two-thirds of the Company's board of directors. The merger transaction that occurred on January 30, 2002 and the rights of the respective classes of the Company's common stock are described in detail in Note 2 and Note 14, respectively, to the Company's condensed consolidated financial statements, which are incorporated herein by reference.


Item 3. Defaults Upon Senior Securities

Please refer to Note 3 to the Company's condensed consolidated financial statements, which is incorporated herein by reference.


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

On January 30, 2002, the then sole stockholder of United, by written consent, approved and adopted the following items: (a) the merger transaction documents to which United is a party; (b) election of the following directors: Gary S. Howard, John F. Riordan and Tina M. Wildes, each for an initial term lasting until the 2003 Annual Meeting of Stockholders; Robert R. Bennett, Albert M. Carollo, Sr., Curtis Rochelle and Mark L. Schneider, each for an initial term lasting until the 2004 Annual Meeting of Stockholders; and John C. Malone, Gene W. Schneider, Michael T. Fries, and John P. Cole, each for an initial term lasting until the 2005 Annual Meeting of Stockholders; (c) an amendment to United's Certificate of Incorporation changing its name to UnitedGlobalCom, Inc.; and (d) the Agreement and Plan of Merger between United and each limited liability company of the Founders in connection with the merger transaction.


Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1
Exchange Agreement dated May 14, 2002, among United and the Principal Founders.

64

(b) Reports on Form 8-K filed during the quarter

 
 Date of Filing
   Date of Event
   Item Reported
  January 9, 2002   December 31, 2001   Item 5 – Announcement that on December 31, 2001, UnitedGlobalCom, Inc. (f/k/a New UnitedGlobalCom, Inc.), UGC Holdings, Inc. (f/k/a UnitedGlobalCom, Inc.), Liberty Media Corporation, Liberty Media International, Inc., Liberty Global, Inc., United/New United Merger Sub, Inc. and certain major stockholders of United entered into an Amended and Restated Agreement and Plan of Restructuring and Merger.

 
February 1, 2002
 
January 30, 2002
 
Item 5 – Announcement that on January 30, 2002, UnitedGlobalCom, Inc. (f/k/a New UnitedGlobalCom, Inc.) and Liberty Media Corporation closed the merger and restructuring transaction.

 
February 5, 2002
 
January 30, 2002
 
Item 2 – Announcement that on January 30, 2002, UnitedGlobalCom, Inc. and Liberty Media Corporation closed the merger and restructuring transaction.

 
 
 
 
 
Item 5 – IDT United completed a cash tender offer for most of the $1.375 billion 103/4% Senior Discount Notes due 2008 of UGC Holdings,  Inc.

65


SIGNATURE

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.

        UNITEDGLOBALCOM, INC.

Date:
 
May 17, 2002
 
By:
 
/s/  FREDERICK G. WESTERMAN III      
Frederick G. Westerman III
Chief Financial Officer

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EXCHANGE AGREEMENT

        This Exchange Agreement (this "Agreement") dated as of May 14, 2002, is entered into among UnitedGlobalCom, Inc., a Delaware corporation ("United"), and each of the individuals indicated as a "Stockholder" on the signature pages hereto (the "Stockholders").

Background

        The Stockholders are the record and beneficial holders of an aggregate of 1,500 shares of Class A Common Stock, par value $0.01 per share (the "UGC Holdings Class A Stock"), of UGC Holdings, Inc., a Delaware corporation ("UGC Holdings"). The parties hereto desire to set forth the terms upon which the Stockholders shall assign, transfer and deliver all of their shares of UGC Holdings Class A Stock to United in exchange for an aggregate of 600,000 shares of Class A Stock, par value $0.01 per share ("United Class A Stock"), of United.

Agreement

        In consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

        Section 1. Certain Definitions. In this Agreement, the following terms shall have the indicated meanings:

        Affiliate. As defined in the Stockholders Agreement.

        Agreement. As defined in the preamble.

        Liberty. Liberty Media Corporation, a Delaware corporation.

        Person. Any individual, corporation, partnership, limited partnership, limited liability company, trust or other legal entity.

        Stockholders. As defined in the preamble.

        Stockholders Agreement. The Stockholders Agreement, dated as of January 30, 2002, among United, Liberty Media Corporation, Liberty Global, Inc., Liberty UCOMA, LLC and the individuals designated as Founders on the signature pages thereto.

        UGC Holdings.    As defined under "Background" on the first page of this Agreement.

        UGC Holdings Class A Stock.    As defined under "Background" on the first page of this Agreement.

        United. As defined in the preamble.

        United Class A Stock. As defined under "Background" on the first page of this Agreement.

        Section 2. Exchange. Concurrently with the execution and delivery of this Agreement, each Stockholder is assigning, transferring and delivering to United 375 shares of UGC Holdings Class A Stock and United is issuing to each Stockholder in exchange therefor 150,000 shares of United Class A Stock. Each promissory note executed and delivered by a Stockholder in connection with his subscription for the securities that were converted into UGC Holdings Class A Stock shall remain in full force and effect following such exchange. Until such time that the indebtedness evidenced by such promissory note is satisfied in full, the Stockholder who executed and delivered such promissory note or the relevant Affiliate shall maintain unencumbered assets in an amount sufficient for the repayment of such indebtedness.

        Section 3. Procedure for Exchange. Concurrently with the execution and delivery of this Agreement, the Stockholders are delivering to United certificates representing an aggregate of 1,500 shares of UGC Holdings Class A Stock, duly endorsed or accompanied by instruments of transfer sufficient to transfer record and beneficial ownership of all such shares to United. Upon receipt by United of the foregoing certificates and instruments of transfer, United is causing to be issued to each Stockholder 150,000 shares of United Class A Stock and is issuing and delivering to such Stockholder a certificate or


certificates representing such shares. Each such certificate representing shares of United Class A Stock shall contain the legend contemplated by Section 11 of the Stockholders Agreement, dated January 30, 2002, among United, Liberty, Liberty Global, Inc., a Delaware corporation, Liberty UCOMA, LLC, a Delaware limited liability company, and certain other stockholders of United. Each such exchange shall be deemed to have been effected at the close of business on the date hereof, and the Stockholders entitled to receive shares of United Class A Stock issued upon such exchange shall be treated for all purposes as the record holder or holders of such shares of United Class A Stock on the date hereof.

        Section 4. Entire Agreement. This Agreement supersedes that certain Exchange Agreement dated as of January 30, 2002, among United and the Stockholders (the "Original Exchange Agreement"), and contains all the terms and conditions agreed upon by the parties hereto, and no other agreements, oral or otherwise, regarding the subject matter hereof shall have any effect unless in writing and executed by the parties after the date of this Agreement, other than the terms of the Subscription Agreements, dated January 30, 2002, between UGC Holdings, on the one hand, and each of the Stockholders, on the other, which shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. The Original Exchange Agreement is hereby terminated with no liability of any of the parties thereto.

        Section 5. Applicable Law, Jurisdiction. This Agreement shall be governed by Colorado law without regard to conflicts of law rules. The parties hereby irrevocably submit to the exclusive jurisdiction of any Colorado State or United States Federal court sitting in Colorado, and only a State or Federal court sitting in Colorado will have any jurisdiction over any action or proceeding arising out of or relating to this Agreement or any agreement contemplated hereby, and the undersigned hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such State or Federal court. The undersigned further waive any objection to venue in such state and any objection to any action or proceeding in such state on the basis of a non-convenient forum. Each party hereby IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY in any proceeding brought with respect to this Agreement or the transactions contemplated hereby.

        Section 6. Remedies. Each of the parties acknowledges and agrees that in the event of any breach of this Agreement, the nonbreaching party would be irreparably harmed and could not be made whole by monetary damages. Accordingly, the parties to this Agreement, in addition to any other remedy to which they may be entitled hereunder or at law or in equity, shall be entitled to compel specific performance of this Agreement.

        Section 7. Headings. The headings in this Agreement are for convenience only and are not to be considered in interpreting this Agreement.

        Section 8. Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which will constitute a single agreement.

        Section 9. Parties in Interest. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the parties hereto and their permitted successors and assigns any benefits, rights or remedies; provided that, Liberty is an intended beneficiary of the provisions set forth in the penultimate and final sentences of Section 2, and each of the parties hereto acknowledges and agrees that Liberty would be irreparably harmed by any breach of such provisions, and could not be made whole by monetary damages. Accordingly, Liberty, in addition to any other remedy to which it may be entitled at law or in equity as an intended beneficiary of such provisions, shall be entitled to compel specific performance of such provisions. Neither this Agreement nor the rights or obligations of any party may be assigned or delegated by operation of law or otherwise without the prior written consent of each of the parties hereto.

        Section 10. Severability. The invalidity or unenforceability of any provision of this Agreement in any application shall not affect the validity or enforceability of such provision in any other application or the validity or enforceability of any other provision.

        Section 11. Interpretation. As used herein, except as otherwise indicated herein or as the context may otherwise require, the words "include," "includes" and "including" are deemed to be followed by


"without limitation" whether or not they are in fact followed by such words or words of like import; the words "hereof," "herein," "hereunder" and comparable terms refer to the entirety of this Agreement and not to any particular section hereof; any pronoun shall include the corresponding masculine, feminine and neuter forms; the singular includes the plural and vice versa; references to any agreement or other document are to such agreement or document as amended and supplemented from time to time; references to "Section" or another subdivision are to a section or subdivision hereof; and all references to "the date hereof," "the date of this Agreement" or similar terms (but excluding references to the date of execution hereof) refer to the date first above written, notwithstanding that the parties may have executed this Agreement on a later date.

        Section 12. Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

        Section 13. Waivers and Amendments. No waiver of any provision of this Agreement shall be deemed a further or continuing waiver of that provision or a waiver of any other provision of this Agreement. This Agreement may not be amended except in a writing signed by all of the parties hereto.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.


 
 
UNITEDGLOBALCOM, INC.,
a Delaware corporation

 
 
By:
/s/  MICHAEL T. FRIES      
Michael T. Fries
President

 
 
STOCKHOLDERS:

 
 
/s/  GENE W. SCHNEIDER      
Gene W. Schneider

 
 
/s/  MARK L. SCHNEIDER      
Mark L. Schneider

 
 
/s/  CURTIS W. ROCHELLE      
Curtis W. Rochelle

 
 
/s/  ALBERT M. CAROLLO, SR.      
Albert M. Carollo, Sr.

        Liberty hereby consents to the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby in the manner described herein.


 
 
LIBERTY MEDIA CORPORATION

 
 
By:
/s/  ELIZABETH M. MARKOWSKI      
    Name: Elizabeth M. Markowski
    Title: Senior Vice President


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EXCHANGE AGREEMENT