The Company plans to renovate both the interior and exterior of the 22-year-old existing building to be compatible with the new buildings and the new corporate image. This will involve architectural and landscaping work for better exterior landscape scenery, a construction of a new parking lot building to accommodate the increase of employees' and customers' vehicles and the entire interior and exterior signage works. The building and landscape refurbishment project will take approximately 2 years (2004-2005) to complete. This includes the renovation of the television station building, the renovation of the office building, the construction of a multi-purpose building, the landscape and architectural work, and the signage work. For this project, a budget in the amount of approximately 607 million Baht, drawn from the accumulated money and working capital, was approved for the Company in 2003. In addition, the Company has planed to establish a "Regional Hub of Communication," at the Company's headquarter site with the goal to establish a center, or hub, for leading news agencies around the world. The Company plans to invest a total of approximately 600 million Baht in the next five years for this project. 2. The MCOT Television (MCOT TV) The Company plans to expand its local TV network to the international level by investing in the MCOT Television project, which will produce and broadcast TV programs in English, under a concept called "Window to the Oriental World." The target viewers are around the world. However, emphasis remains in 20 target countries. From the preliminary study, the Company estimates the total investment of the project to be approximately 2,200 million Baht which will be gradually invested in the next 2-4 years. 3. The Digital Broadcasting System The Company expects that in the future, Thailand may employ the digital TV broadcasting technology. The Company, therefore, has formulated a plan to accommodate programs produced by the stations, which shall be boosted according to the digital broadcasting plan. The Company however is required to initially invest in the production house. The Company has already invested more than 50 percent of the budget allocated for this purpose to purchase the digital equipment to replace its analog system. The Company estimates that an additional 473 million Baht of investment in this area will be required in the next four years. 4. Expansion of broadcasting and television service areas nationwide The Company plans to expand its TV service areas to cover 70,000 villages nationwide in 2007 by improving the efficiency of the existing TV stations and by establishing additional TV signal relay stations. The Company plans to improve the efficiency of its existing TV stations as well as new TV signal relay stations in four phases from 2004 to 2007. As a result, the Company will set up a total of 52 new TV signal relay stations, which will cover an additional 53,225 square kilometers and an additional 7,261 villages in the service areas. When combined with the existing coverage areas, it will be able to extend its TV service to 97.3 percent of the country's total areas and to the people in approximately 70,000 villages. At present, the Company is awaiting the approval from the National Broadcasting and Television Business Commission. With regard to the expansion of the Company's radio broadcast service, it plans to extend its radio service to cover approximately 70,000 villages nationwide within 2007 by improving the efficiency of its existing radio stations and establish new network stations. The Company plans to establish additional radio network stations in 4 phases from 2004 to 2007. As a result, the Company will set up a total of 65 new network stations and an additional 4,557 villages in the target areas. When combined with the existing coverage areas, it will be able to extend the MCOT radio network broadcast service to 98.7 percent of the country's total areas and covers approximately 70,000 villages within the target areas. However, it is not certain that the Company will be able to fulfill the plan and achieve the target as the Company is waiting for an approval to set up radio stations from the National Broadcasting and Television Business Commission and other relevant state agencies. 5. Efficiency improvement of regional radio and television transmission stations The Company plans to replace television transmission devices and other accessories which are in bad condition, expired, or defunct. According to the plan, there will be improvements made to 14 regional television stations, requiring funds of approximately 169.4 million Baht in the period of 2-3 years. 6. Efficiency improvement of central and regional FM radio stations The Company plans to replace original equipment and machines which have been in decline, expired, or defunct. It also plans to purchase the UPS power supply system and FM radio transmission devices to improve efficiency in its operation and replace those which have been run down due to years of services. It also prepares a power back-up system and an energy-saving, cost-effective transmission system for more efficient business operations. The project to develop the Company's radio stations into Modern Radio is expected to be approximately 530 million Baht for the next 2-3 years. 7. Land development for future expansion in the central areas and procurement of equipment for efficiency improvement in program production and distribution to the Company's various types of media The Company plans to develop the land in and around its head office to prepare for any future expansion and procure necessary technical equipments required to be installed at the operations building, which was completely constructed in September 2004 and equipped with full-fledged, state-of-art equipment and devices to provide efficient television, radio broadcasting and news operations 24 hours a day. The Company expects to invest around 1,062 million Baht in this area for the next five years. Related Transactions 1. Connected transaction with a subsidiary company and related companiesFor the accounting period of 2003 and the six months period ending 31 March 2004, MCOT entered into connected transactions with its subsidiary and other related companies as follows: 1.1 Operating expenses related transactions with its subsidiaryThe operating expense related transaction are expenses related to the production of television and radio for the six month period ending 31 March 2004. Subsidiary : Panorama Worldwide Company Limited Relationship with MCOT: - MCOT held 49% of its shares. - MCOT's directors (Mr. Mingkwan Saengsuwan, Mrs. Ornanong Maneekarn and Mr. Thongthong Chandrangsu) were directors of Panorama Worldwide Company Limited. - MCOT's executive (Mrs. Aranrat Kongyoo) was a director of Panorama Worldwide Company Limited. Nature of Transaction: - MCOT hired Panorama Worldwide Company Limited to produce programs and paid remuneration therefor. Value: 2,170,000 Baht - MCOT hired Panorama Worldwide Company Limited to produce programs. The amounts shown were the remuneration for the production of programs not yet paid to Panorama Worldwide Company Limited and were booked as trade account payables. Value: a. Trade account payable: 529,650 Baht b. Other payable: 1,170,000 Baht Condition/Pricing Policy : Remuneration for the production of programs payable to Panorama Worldwide Company Limited was fixed on an arm's length basis. 1.2 Revenue Sharing under Joint Operation Agreements with related companyThe following are the shares of revenue received by MCOT under its Joint Operation Agreements with related companies during the 2003 accounting period and the six-month period ending 31 March 2004. 1.2.1 Related Company: United Broadcasting Corporation Public Company Limited Relationship with MCOT: - MCOT's executive (Mrs. Aranrat Yookong) was a director of United Broadcasting Corporation Public Company Limited. Nature of Transaction: MCOT entered into the agreement for joint operation of television station, radio station and pay television network service with United Broadcasting Corporation Public Company Limited, under which United Broadcasting Corporation Public Company Limited as a joint operator shall share the revenue derived from that operation with MCOT. Value : Year 2003: 291,262,370 Baht 6-month period ended 31 March 2004: 152,596,424 Baht Condition/Pricing Policy : The share of revenue which MCOT received from United Broadcasting Corporation Public Company Limited under such agreement was at the same rate as received by other joint operators and was on the arm's length terms. 1.2.2 Related Company: UBC Cable Network Public Company Limited Relationship with MCOT: - MCOT's executive (Mrs. Aranrat Yookong) was a director of UBC Cable Network Public Company Limited. Nature of Transaction: MCOT entered into the agreement for joint operation of television station, radio station and pay television network service with UBC Cable Network Public Company Limited, under which UBC Cable Network Public Company Limited as a joint operator shall share the revenue derived from that operation with MCOT. Value : Year 2003: 142,491,967 Baht 6-month period ended 31 March 2004: 70,138,787 Baht Condition/Pricing Policy: The share of revenue which MCOT received from UBC Cable Network Public Company Limited under such agreement was at the same rate as received by other joint operators and was on the arm's length terms. 1.2.3 Related Company: Bangkok Entertainment Co., Ltd. Relationship with MCOT: - MCOT's director (Mr. Mingkwan Saengsuwan) was the President of Television Channel 3 TV according to the conditions of the agreement. Nature of Transaction : MCOT entered into the agreement for joint operation of television station, radio station and pay television network service with Bangkok Entertainment Co., Ltd., under which Bangkok Entertainment Co., Ltd. as a joint operator shall share the revenue derived from that operation with MCOT. Value : Year 2003: 58,461,250 Baht 6-month period ended 31 March 2004: 31,294,375 Baht Condition/Pricing Policy: The share of revenue which MCOT received from Bangkok Entertainment Co., Ltd. was in accordance with the terms of the agreement. 2. Connected Transactions with the Companies in which MCOT's Directors were the Directors, Executives or Majority ShareholdersFor the 2003 accounting period and 6-month period ending 31 March 2004, MCOT had transactions with those companies as follows: 2.1 Operating Income The following lists the sale or provision of service by MCOT to the specified company. Related Company : CAT Telecom Public Company Limited Relationship with MCOT: - MCOT's director (Mr. Mingkwan Saengsuwan) was the President of Television Channel 3 TV according to the conditions of the agreement. Nature of Transaction: CAT Telecom Public Company Limited hired MCOT to launch advertisement. The value shown was the total remuneration under the agreement which MCOT was entitled to received from CAT Telecom Public Company Limited. Value : Year 2003: 4,831,585 Baht 6-month period ended 31 March 2004: 7,931,315 BahtCondition/Pricing Policy: The remuneration was fixed on an arm's length basis. 2.2 Other Receivables The following lists MCOT's receivables from the specified companies. 2.2.1 Related Company: CAT Telecom Public Company Limited Relationship with MCOT: - MCOT's director (Mr. Rongpol Charoenphan) was a director of CAT Telecom Public Company Limited. Nature of Transaction: CAT Telecom Public Company Limited hired MCOT to launch advertisement. The value shown was the amount which was not yet paid by CAT Telecom Public Company Limited. Value : Year 2003: 2,838,620 Baht 6-month period ended 31 March 2004: 8,672,360 BahtCondition/Pricing Policy: The remuneration was fixed on an arm's length basis. 2.2.2 Related Company: The Tourism Authority of Thailand Relationship with MCOT: - MCOT's director (Mr. Mingkwan Saengsuwan) was a director of the Tourism Authority of Thailand. Nature of Transaction: The Tourism Authority of Thailand purchased advertisement from MCOT. Value : Year 2003: 2,803,738.32 Baht 6-month period ended 31 March 2004: 11,853,738.32 BahtCondition/Pricing Policy: The advertisement fee was fixed on an arm's length basis. 2.3 Other Payables MCOT's payables to the specified company. Related Company : CAT Telecom Public Company Limited Relationship with MCOT: - MCOT's director (Mr. Rongpol Charoenphan) was a director of CAT Telecom Public Company Limited. Nature of Transaction: MCOT hired CAT Telecom Public Company Limited to transmit television signals via satellite, and had not yet pay the remuneration therefor. Value : Year 2003: - Baht 6-month period ended 31 March 2004: 200,000 Baht Condition/Pricing Policy: The remuneration was fixed on an arm's length basis. 2.4 Operating Expenses Service fees which MCOT had to pay to the specified company for the 2003 accounting period and 6-month period ended 31 March 2004. Related Company: Krung Thai Bank Public Company Limited Relationship with MCOT: - MCOT's director (Mr. Raewat Chamchalerm) was a director of Krung Thai Bank Public Company Limited. Nature of Transaction: MCOT used banking services of Krung Thai Bank Public Company Limited, and paid the fees therefor such as fund transfer fee, cost of cheque book etc Value : Year 2003: 608,338.73 Baht 6-month period ended 31 March 2004: 536,964.85 Baht Condition/Pricing Policy : The fees which MCOT had to pay to Krung Thai Bank were on an arm's length basis. 3. Connected Transaction between the Subsidiary and its Director - Short-Term Loan from Director The below table indicates a short-term loan which Panorama Worldwide Company Limited, a subsidiary of MOCT, borrowed from its director during the 6-month period ended 31 March 2004. Related Company/Person : Miss Lakana Jirachan Relationship with MCOT : An executive of Panorama Worldwide Company Limited. Nature of Transaction : Panorama Worldwide Company Limited borrowed this loan for paying salaries to its employees. Value : 400,000 Baht Condition/Pricing Policy : Non-interest bearing loan. Contingencies and Commitments As of 30 June 2004, the Company has commitments under services and rental agreements of which are less than one year in the amount of 40,930,000 Baht and of which are one to five years in the amount of 55,390,000 Baht. The total amount is 96,320,000 Baht. The Company also has capital commitment from construction of office building in the amount of 33,520,000 Baht and from additions of equipment in the amount of 514,680,000 Baht. The total amount is 548,200,000 Baht. Risk Factors 1. Risks relating to the Company and its business 1.1 Changes of frequency allocation and supervisory rules of the television and broadcasting businesses - The laws governing the radio and television broadcasting business is currently being drafted in order to be proposed to the Parliament for its approval. Therefore, it is uncertain with respect to the operation of radio and television broadcast business in the future. - The National Broadcasting and Television Business Commission (the "NBC") members are currently in the selection process and there is uncertainty surrounding the laws governing broadcasting and television businesses. - If, in the future, a law governing the broadcasting and television businesses is enacted and/or if there is an appointment of the NBC and the Joint Committee under the NBC Act, the Company cannot assure whether the rights, power and benefits from its broadcasting and television businesses which it has been exempted by not being subject to the laws governing radio and television broadcasting and the laws governing the radio communications as described above including its right under a license to set up a radio communication station permitted by the Director-General of the Post and Telegraph Department under the provision of the laws governing radio communication will be affected. - Therefore, in the future, if the Company is required to obtain a license under the rules and conditions of the laws governing the broadcasting and television businesses which will be enacted later and under the NBC's requirements under the NBC Act, the Company may have to compete with other operators within the entertainment, radio and television media businesses to apply for licenses to operate broadcasting and television businesses from an independent body with legal power. The Company may have to pay license fees at the rates the NBC requires. The Company is unable to estimate the amount it needs to pay the fee in order to obtain these licenses. 1.2 Obligations and rights under joint operation agreements, joint venture agreements or any other agreements the Company has with private operators who are contractual parties may be changed Currently, the Company enjoys incomes from its joint operations with other private operators under joint operation agreements through two major businesses; namely, Channel 3, and Pay TV, the latter of which is operated with United Broadcasting Corporation Public Company Limited Group or the UBC Group. The joint operation agreements are also in a form of the Build-Transfer-Operate (BTO) Agreements. Ownership of properties built or purchased by the private operator for use in the business under the joint operation agreement in the part of equipment and construction will immediately be transferred to the Company within the period stipulated by the joint operation agreement. Accordingly, the Company cannot assure that its contractual parties will not invoke the reasons described earlier or any other reasons so that they will not have to comply with the agreements previously entered with the Company. 1.3 The Company's business to partly depends on third-party operators especially independent producers to produce and provide quality programs as raw material to the television station If these producers cannot create programs which attract viewers, or if they cannot produce or provide good programs for the Company, it may affect the Company's potential and ability to offer quality programs, which may have a materially negative effect on the Company's operations. 1.4 The Company's operation depends on the advertisement industry Currently, the Company's main revenue is from advertisement, while of the remaining revenue comes from airtime rental. As a result, the Company's operation depends on the popularity of viewers for its television broadcasts and listeners for its radio broadcasts, as well as on the overall market situation of the advertising industry. The Company is unable to guarantee that it can respond to any changes in the advertisement business to maintain or increase its share in advertising spending. (more)