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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 1999 Omission file
number 2-22997
MILLS MUSIC TRUST
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(Exact name of registrant as specified in its charter)
New York 13-6183792
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o HSBC Bank USA, 140 Broadway, New York, NY 10015
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 658-6014
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Securities Registered Pursuant to Section 12(b) of the Act:
NONE
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(Title of Class)
Securities Registered Pursuant to Section 12(g) of the Act:
UNITS OF BENEFICIAL INTEREST
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(Title of Class)
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 (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for at least the past 90 days.
YES X NO
--- ---
As of March 6,2000, 277,712 Trust Units were outstanding. The aggregate
market value of the Units of Mills Music Trust held by nonaffiliates was
$8,331,360.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
Item 1. Business.
Mills Music Trust (the "Trust") was created by a Declaration of Trust
dated December 3, 1964, for the purpose of acquiring from Mills Music, Inc.
("OLD Mills") the rights to receive payment of a deferred contingent purchase
price obligation payable to OLD Mills. The purchase price obligation arose as
the result of the sale by OLD Mills of its musical copyright catalogue to a
newly formed company ("New Mills").
In payment for the aforementioned catalogue, New Mills agreed to make
quarterly payments to Old Mills (the "Contingent Portion") measured by the
royalty income generated from the catalogue and, subject to certain limitations
and conditions, from any copyrights thereafter acquired by New Mills.
The contingent Portion for each quarterly period to and including the
last quarter of 2009 is to be an amount equal to the excess, if any, of (a) the
gross royalty income from the exploitation of the purchased copyrights during
such period (whether received by New Mills, its affiliated companies or any
other party) over (b) the sum of (i) the greater of (x) 25% of such gross
royalty income or (y) the lesser of $87,500 (as adjusted for inflation by
reflecting changes in average weekly earnings of employees in the printing,
publishing and allied industries since 1964) or 30% of such gross royalty
income; and (ii) royalties required to be paid to composers, authors and others
with respect to the existing copyrights. If the Contingent Portion as so
computed is less than $167,500, then the Contingent Portion will be computed on
the basis of the gross royalty income and related expense of New Mills, its
affiliated companies and their successors and assigns during such period not
only from the exploitation of purchased copyrights, but also from any copyrights
originated or acquired by New Mills and its affiliated companies subsequent to
December 5, 1964 (with the deductions referred to in (i) and (ii) above) except
that, when computed in this manner, the Contingent Portion cannot exceed
$167,500. In addition, for any quarterly period in which the contingent portion
as calculated above exceeds $250,000, the percentage specified in (x) above is
increased to as high as 35% based upon gross royalties for the quarter.
Commencing with the first quarter of the year 2010, the Contingent
Portion for each quarterly period is to be an amount equal to 75% of the gross
royalty income of New Mills and/or its affiliated companies and their successors
and assigns from the exploitation of the existing copyrights for such period,
less the related royalty expense.
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3
The acquisition purchase agreement provides that the obligation to make
payments will terminate on the last day of the year in which the last purchased
copyright, or a renewal thereof, expires and cannot be renewed. When the
existing copyrights begin to expire, the size of each payment through the year
2009 will become increasingly dependent on the success which New Mills has in
acquiring and exploiting new copyrights.
The composition of Old Mills Catalogue is estimated to be in the excess
of 25,000 titles of which approximately 1,500 are at present producing royalty
income. The major portion of the royalty income generated by the catalogue in
recent years, however, was produced by a relatively small number of well-known
songs, many of which have remained popular and have generated substantial
royalty income over a long period.
The Declaration of Trust prohibits the Trust from engaging in any
business; the Trust's sole activity is the receipt of the periodic installments
of the purchase price and the distribution thereof, (after payment of expenses
of the Trust) to the owners of units of beneficial interest in the Trust.
ITEM 2. Properties.
The administrative office of the Mills Music Trust is at 140 Broadway,
New York, New York 10015. There is no expense being charged or paid for office
space and office equipment being utilized by the Trust.
ITEM 3. Legal Proceedings
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders.
NONE
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PART II
ITEM 5. Is not applicable.
ITEM 6. Selected Financial Data.
The following selected financial data for the years ended December 31, 1999
through 1995 are derived from the trust's audited financial statements. The data
set forth below should be read in connection with financial statements of the
Trust and the notes thereto and "management discussions and analysis" appearing
elsewhere herein.
Cash Cash
Year Ended Receipts From Distributions Distribution
December 31, Mills Music, Inc. To Unit Holders Per Unit*
------------ ----------------- --------------- ---------
1999 $ 915,168 $ 871,523 $3.14
1998 $1,035,853 $ 999,705 $3.60
1997 $1,137,919 $1,101,434 $3.97
1996 $1,175,543 $1,148,285 $4.13
1995 $1,268,400 $1,227,155 $4.42
* Based on the 277,712 Trust Units outstanding
ITEM 7. Management's Discussion and Analysis of the Trust's
Receipts.
The Trust's receipts are derived principally from copyrights
established prior to 1964 and such receipts fluctuate based upon public interest
in the "nostalgia" appeal of older copyrighted songs.
ITEM 8. Financial Statements.
The financial statements begin on page 5 of this report.
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MILLS MUSIC TRUST
STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS
YEARS ENDED DECEMBER 31
1999 1998 1997
---------- ----------- ----------
Receipts from Mills Music, Inc. $ 915,168 $1,035,853 $1,137,919
Total Receipts $ 915,168 $1,035,853 $1,137,919
Undistributed Cash at Beginning 39 8 21
of Year
Disbursements -
Administrative Expenses ( 43,653) ( 36,117) ( 36,498)
---------- ----------- ----------
Balance Available for Distribution 871,554 999,744 1,101,442
Cash Distributions to Unit Holders ( 871,523) ( 999,705) (1,101,434)
---------- ----------- ----------
Undistributed Cash at
End of the year $ 31 $ 39 $ 8
---------- ---------- ----------
Cash Distributions Per Unit
(based on the 277,712
Trust Units Outstanding) $ 3.14 $ 3.60 $ 3.97
========== ========== ==========
The Trust does not prepare a balance sheet or a statement of cash
flows.
See accompanying Notes to Statements of Cash Receipts and
Disbursements.
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MILLS MUSIC TRUST
NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
Note 1. Accounting Policies and General Information.
Mills Music Trust (the "Trust") was created in 1964 for the purpose of
acquiring the rights to receive payment of a deferred contingent purchase price
contract obligation payable by Mills Music, Inc. ("Mills"). The contingent
payments are determined quarterly and are based on a formula which takes into
account gross royalty income paid to composers, authors and others, and less
amounts deducted by Mills in accordance with contract terms.
Payments from Mills to the Trust are made in March, June, September and
December and include net royalty income of the preceding calendar quarter. The
payments received are accounted for on a cash basis, as are expenses. The
Declaration of Trust requires the distribution of all funds received by the
Trust to the unit holders after payment of expenses.
The statements of cash receipts and disbursements reflect only cash
transactions and do not present transactions that would be included in financial
statements presented on the accrual basis of accounting, as contemplated by
generally accepted accounting principles.
Note 2. Federal Income Taxes
No provision for income taxes has been made since the liability
therefore is that of the unit holders and not the Trust.
Note 3. Related Party Transactions
The Declaration of Trust provides that each trustee shall receive
annual compensation of $2,500 per year for services as trustee, provided that
such aggregate compensation to the trustees as a group may not exceed 3% of the
monies received by the Trust in any year, and reimbursement for expenses
reasonably incurred in the performance of their duties. The Declaration of Trust
further provides for reimbursement to the corporate trustee for its clerical and
administrative services to the Trust. Accordingly, HSBC Bank USA (formerly
Marine Midland Bank), the corporate trustee, also receives reimbursement for
such services (including services performed as Registrar and Transfer Agent of
the Certificates representing Units).
The Declaration of Trust also provides, that if in the future any
trustee performs unusual or extraordinary services, reasonable compensation for
such services shall be paid, subject to certain limitations and to prior
confirmation by a majority in interest of Trust Certificate holders.
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MILLS MUSIC TRUST
NOTE TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1999
Note 3. Related Party Transactions (continued).
Pursuant to these provisions, disbursements were made as follows for
the years ended December 31:
Trustees 1999 1998 1997
- -------- ------- ------- ------
HSBC Bank USA (formerly
Marine Midland Bank) $ 2,500 $ 2,500 $ 2,500
Bernard Fischman 2,500 2,500 2,500
HSBC Bank USA (formerly
Marine Midland Bank) as
registrar and transfer agent 5,542 5,839 5,932
Note 4. Royalties
(a) The original (1964) sale agreement assumed by the Trust's
collecting/paying entity ("EMI") provides for a revised royalty calculation when
the remittance to the Trust is less than $167,500 for the quarter. This occurred
in the quarter ended December 31, 1999, for which the remittance was $155,717.
EMI did not calculate that quarter's payment using the revised royalty
calculation, and has been notified about this matter. Additional monies due to
the Trust, if any, under the revised calculation would be capped at an amount
that, when added to the prior distribution, would not exceed $167,500. The
timing of the receipt of any additional monies due to the Trust is dependent
upon EMI's ability to provide the information required under the revised royalty
calculation.
(b) In addition, EMI made a computational error in its remittance for
the fourth quarter of 1999, resulting in a $19,000 overpayment.
The net effect of (a) and (b) above will reduce the Trust's revenue in
a future quarter. The maximum revenue effect to the Trust ($19,000), if no
additional funds are due from EMI, is $.07 per unit.
Note 5. Royalty Examination
The Trust's claim against Belwin Mills Publishing Corporation, the
former administrators of the Old Mills Catalogue, in connection with a 1987
royalty examination is pending final resolution by the Trust. It cannot be
determined at this time, what, if any, amount may ultimately be received by the
Trust. No examination of royalty information has been performed subsequent to
1987. However, the Trust has arranged for a limited royalty examination to be
performed in early 2000.
ITEM 9. Is not applicable.
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PART III
ITEM 10. Directors of the Registrant.
Bernard D. Fischman is the individual Trustee and HSBC Bank USA
(formerly Marine Midland Bank) is the Corporate Trustee of the Registrant. The
Trustees serve until their removal, resignation, incapacity, or in the case of
individual Trustees, their death.
Mr. Fischman, age 85, has served as a trustee since December, 1964. He
is an attorney and a member of the firm of LeBoeuf, Lamb, Green & McRae.
HSBC Bank USA has been the corporate trustee since February, 1965 and
is a national banking association organized under the laws of the Unites States.
ITEM 11. Executive Compensation. See Item 13.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners.
To the best knowledge of the Trustees, the only persons who
beneficially own more than 5% of the Trust Units are as follows:
Percent
Name and Address of Number of of Units
Beneficial Owner Units Owned Outstanding
- ---------------- ----------- -----------
MPL Communications, Ltd.
39 West 54th Street
New York, New York 10019 79,609 Units 28.67%
Cede & Co.
Fast Cod Balance
P.O. Box 20
Bowling Green Station
New York, New York 10004 136,470 Units 49.14%
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(b) Security Ownership of Management.
The present Trustees have beneficial ownership in the Trust as follows:
Nature of Percentage
Beneficial of Units
Trustee Ownership Outstanding
------- --------- -----------
Bernard D. Fischman 351 Units .13%
(Sole Owner)
HSBC Bank USA None None
(c) Changes in Control.
The Trustees know of no contractual arrangements which may result in a
change in control of the Trust at a subsequent date.
ITEM 13. Certain Relationships and Related Transactions.
Remunerations of Directors and Officers.
The Declaration of Trust provides that each trustee shall receive
annual compensation of $2,500 per year for his services as trustee, provided
that such aggregate compensation to the trustees as a group may not exceed 3% of
the monies received by the Trust in any year, and reimbursement for expenses
reasonably incurred in the performance of his duties. The Declaration of Trust
further provides for reimbursement to the corporate trustee for its clerical and
administrative services to the Trust. Accordingly, HSBC Bank USA also
receives reimbursement for such services (including services performed as
Registrar and Transfer Agent of the Certificates representing Units). The
Declaration of Trust further provides that if in the future any trustee performs
unusual or extraordinary services, reasonable compensation for such services
shall be paid, subject to certain limitations and to prior confirmation by a
majority in interest of Trust Certificate holders. During 1999, pursuant to
these provisions, Bernard D. Fischman received $2,500 and HSBC Bank USA $2,500.
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PART IV
ITEM 14. Exhibits, Financial Statements Schedules and Reports on Form
8-K
(a) 1. Financial Statements Page
----
Independent Auditors' Report 5
Statements of cash receipts and disbursements -
years ended December 31, 1999, 1998 and 1997 6
Notes to statements of cash receipts and disbursements. 7-8
2. Financial Statement Schedules None
3. Exhibits None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MILLS MUSIC TRUST
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(Registrant)
By: BERNARD D. FISCHMAN
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Bernard D. Fischman, Trustee
By: HSBC Bank USA
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HSBC Bank USA
Corporate Trustee
Dated as of March 6, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
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The Trustees and Unit Owners
Mills Music Trust
We have audited the accompanying statement of cash receipts and disbursements of
Mills Music Trust for each of the years in the two years ended December 31,
1999. This financial statement is the responsibility of the Trust's Management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1, this financial statement was prepared on the basis of
cash receipts and disbursements, which is a comprehensive basis of accounting
other than generally accepted accounting principles.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the cash receipts and disbursements of Mills Music Trust
for each of the years in the two year period ended December 31, 1999, on the
basis of accounting described on Note 1.
/s/ David Berdon & Co. LLP
Certified Public Accountants
February 4, 2000
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KPMG
345 Park Avenue
New York, NY 10154
INDEPENDENT AUDITOR' REPORT
The Trustees and Unit Owners
Mills Music Trust:
We have audited the accompanying statement of cash receipts and disbursements of
Mills Music Trust for the year ended December 31, 1997. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of cash receipts and disbursements is free
of material misstatement. An audit of a statement of cash receipts and
disbursements includes examining, on a test basis, evidence supporting the
amounts and disclosures in the statement of cash receipts and disbursements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
cash receipts and disbursements presentation. We believe that our audit provides
a reasonable basis for our opinion.
As described in Note 1, this financial statement was prepared on the basis of
cash receipts and disbursements, which is a comprehensive basis of accounting
other than generally accepted accounting principles.
In our opinion, the statement of cash receipts and disbursements referred to
above presents fairly, in all material respects, the cash receipts and
disbursements of Mills Music Trust for the year ended December 31, 1997, on the
basis of accounting described in Note 1.
KPMG LLP
March 19, 1998
New York, New York
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 915,168
<TOTAL-REVENUES> 915,168
<CGS> 43,653
<TOTAL-COSTS> 43,653
<OTHER-EXPENSES> 871,523
<LOSS-PROVISION> 0
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<INCOME-TAX> 0
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<CHANGES> 0
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<EPS-BASIC> 0
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