-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R0M7VKVZ6s3OZ5v9gqo118IY1xzilVqmPLERHJWUHMnkoADH8v0NunmccmFBo7Tc 0LiXvp4Yp7eC+yVO85bmpQ== 0000950123-02-010950.txt : 20021114 0000950123-02-010950.hdr.sgml : 20021114 20021114164359 ACCESSION NUMBER: 0000950123-02-010950 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILLS MUSIC TRUST CENTRAL INDEX KEY: 0000066496 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 136183792 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02123 FILM NUMBER: 02825558 BUSINESS ADDRESS: STREET 1: C/O JOEL FADEN & COMPANY STREET 2: 1775 BROADWAY SUITE 708 CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2122467203 MAIL ADDRESS: STREET 1: 1775 BROADWAY SUITE 708 CITY: NEW YORK STATE: NY ZIP: 10019 10-Q 1 y65828e10vq.txt MILLS MUSIC TRUST SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2002 Commission file number: 2-22997 ------- MILLS MUSIC TRUST (Exact name of registrant as specified in its charter) New York 13-6183792 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o HSBC Bank USA, Issuer Services, 452 Fifth Avenue, New York, NY 10018-2706 - -------------------------------------------------------------------------------- (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code (212) 525-1349 -------------------- 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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Number of Trust Units outstanding as of September 30, 2002 277,712 --------- 2 PART I - FINANCIAL STATEMENTS Item 1. Financial Information MILLS MUSIC TRUST STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
Three Months Ended Nine Months Ended September 30 September 30 ------------------------------- -------------------------------- ------------------------------- -------------------------------- 2002 2001 2002 2001 ---- ---- ---- ---- Receipts: Mills Music, Inc. $228,381 $ -0- $563,381 $577,562 Undistributed cash at beginning of the period 51 51 335,044 51 Disbursements- administrative expenses ( 29,015) -0- ( 139,758)* (42,384) ----------- --------- ----------- --------- Balance available for distribution 199,417 51 758,667 535,229 Cash distribution to unit holders 199,366 -0- 758,616** 535,178 ---------- --------- ----------- --------- ---------- --------- ----------- --------- Undistributed cash at end of the period $ 51 $ 51 $ 51 $ 51 ========== ========= ============ ========== ========== ========= ============ ========== Cash distribution per unit (based on 277,712 units outstanding) $ .72 $ -0- $ 2.73 $ 1.93 ================= ============ =========== ===========
See accompanying Notes to Statements of Cash Receipts and Disbursements. * Includes $56,156 of administrative expenses paid in January 2002 pertaining to 2001 income received December 31, 2001. ** Includes $278,844 distributed in January, 2002 pertaining to 2001 income received December 31, 2001. 3 MILLS MUSIC TRUST NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) 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 received during 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 disbursement reflect only cash transactions and do not include transactions that would be recorded in financial statements presented on the accrual basis of accounting, as contemplated by accounting principles generally accepted in the United States of America. The cash basis of accounting is used as a significant accounting policy since the trust has no ability to estimate the underlying income (royalties). 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 further provides that if 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 interest of Trust Certificate holders. Pursuant to these provisions, disbursements to related parties were made as follows for the three months and nine month ended September 30, 2002 and 2001. 4 MILLS MUSIC TRUST NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (CONTINUED) (UNAUDITED) 2002 2001 ------------ ------------- Trustee Fees: Bernard D. Fischman $ 1,250 HSBC Bank USA $1,875 1,250 HSBC Bank USA Transfer agent and registrar $188 $5,345 As reported in Form 8-K dated October 10, 2001, Bernard Fischman, one of the originally named Trustees under the Trust, died on July 11, 2001. As a result, HSBC is currently the sole Trustee. NOTE 4. ROYALTIES (a) The original (1964) Asset Purchase Agreement assumed by the Trust's collecting/paying entity ("EMI") provides for a revised royalty calculation when the amount calculated is less than $167,500 for the quarter. This occurred in the quarter ended December 31, 1999, for which the calculation (and remittance) was $155,717. EMI did not calculate that quarter's payment using the revised royalty calculation. In the quarter ended June 30, 2001 EMI remitted the difference between the $167,500 and the $155,717 previously remitted. (b) During the quarter ended September 30, 2001 the Trust did not receive any payment of the deferred contingent purchase price from EMI. EMI charged the Trust with an adjustment for certain costs relating to copyright renewals incurred over several years and a retroactive adjustment relating to a recent court decision, which negatively affected all holders of U.S. copyrights. For the quarter ended December 31, 2001, EMI applied the debit balance arising from the adjustment of the previous quarter to amounts owing for that quarter and initially remitted approximately $60,000 to the Trust. After discussion between EMI and the Trust and the Trust's counsel, EMI remitted an additional amount which brought the total for the each of the quarters ended September 30, and December 31, 2001 to the $167,500 minimum quarterly distributions. EMI has taken the position that the additional distributions would be considered advances against the future contingent portion of earnings and the un-recouped copyright renewals. 5 MILLS MUSIC TRUST NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (CONTINUED) NOTE 4. ROYALTIES (Continued) The Trust has taken the position that such minimum distributions are due regardless of the adjustment based upon the inclusion of gross royalty income of Related Companies as defined in the relevant agreement. If EMI's position is correct, then future income of the Trust will be impacted by the recognition and amount of such advances. The Trust's auditors have evaluated the recasting of the adjustment to years to which it pertains and the Trust has submitted a letter to EMI, which recasts the amount of future contingent royalty payment reductions from $275,000 claimed by EMI to $155,000. The revision does not include the unresolved contract issue of advance (EMI's position) versus entitlement (the Trust's position). The Trust has yet to receive a response from EMI. In the quarter ended September 30, 2002, the amount paid to the Trust by EMI was net of approximately $244,000 of the balance of the adjustment claimed by EMI. The Trust believes that the deduction should have been reduced by approximately $120,000. (c) The Trust received the additional distributions late on December 31, 2001. The Trust made distributions based upon its receipt of the additional distribution from EMI in January, 2002, after complying with the NASDAQ distribution notification requirements. In January 2002, the Trust made the distribution to unit holders of $278,844 ($1.00 per unit), as well as paying Trustee fees, printing and legal and professional fees totaling $56,156, (of which approximately $33,000 relates to the EMI matter previously discussed), resulting in undistributed cash of $44 at the end of January. These transactions are reported in the Trust's 2002 fiscal year. For federal income tax purposes, the January 2002 distribution of cash received in 2001 was included in the unit holder's 2001 taxable income. 6 PART I - FINANCIAL STATEMENTS ----------------------------- Item 2. Management's Discussion and Analysis of Results of Operations The Trust's receipts from Mills Music, Inc. are derived from copyrights established prior to 1964 and such receipts fluctuate based upon public interest in the "nostalgia" appeal of older songs. The Trust's contingent fee income over the last three years has averaged approximately $981,000 per year. In addition to the above, there are a number of factors which create uncertainties with respect to the ability of the Trust to continue to generate that level of income on a continuing, long-term basis. Those factors include the effect that foreign and domestic copyright laws and any changes therein have or will have on both licensing fees and renewal rights ultimately, copyright expirations under such laws and the effect of electronic copying of materials without permission. In 1976, the copyright law was changed for works that were within renewal terms between December 31, 1976 and December 31, 1978 to add an extension of 19 years to the 28-year renewal term. The original copyright term is 28 years. That amendment made the copyright term 75 years. The Copyright Act of 1976 provided for a single term of life plus 70 years after author's death (with some variations in different circumstances) for works created after January 1, 1978. The 1976 act provided that the writer and his heirs could terminate a transfer or license of the renewal copyright that was executed before 1978, so long as the termination was effected in a five-year period following the end of the initial 56-year period. The copyright laws were modified by the Sonny Bono 1998 Copyright Term Extension Act (the "Act"), which provided an additional 20 years of copyright protection, such that the term of copyrights is now 95 years. In February 2002, the U.S. Supreme Court granted certiorari to review a 2001 decision by the U.S. Court of Appeals for the District of Columbia Circuit in Eldred v. Ashcroft, which rejected certain constitutional challenges to the Act. Oral arguments in the case are being heard in October of this year. The Trust is unable to determine what impact, if any, the adverse decision by the Supreme Court would have on royalties payable to and distributions by the Trust. The copyright laws provide that renewals vest in any person who is entitled under the rules of statutory succession to the renewal and extension of the copyright at the time the application to renew is made. If no renewal is made, renewals vest in any person entitled under the rules of statutory extension as of the last day of the original term of copyright to the renewal and extension of copyright. The writer (and not the publisher to whom the copyright was originally assigned) owns the renewal right. The laws name specified classes of persons (the writer's wife, his children, etc.) who will succeed to the renewal right if the writer dies before the end of the original term. The Act does not distinguish between composers and lyricists. However, if the composer and lyricist are not the same, each owns a portion of the renewal rights. The composer and the lyricist may, and frequently do, assign their respective interests in the renewal rights to a publisher at the time of the assignment of the original copyright term. Such an assignment of the renewal term is effective, however, only if the 7 assignor survives the original term. If he does not, his heirs will succeed to his share of the renewal rights; and, in such event, these heirs are not obligated by the assignment of the rights to the publisher to whom the original assignment was made unless they joined in the assignment. In addition, the 1998 Copyright Extension Act allows writers (or their heirs) to elect, after either a 35 or 40 year period as specified in the statute, to terminate a transfer of license or renewal within five years of the expiration. In 2001, the trustees were able to obtain a listing of the top 50 songs in the subject copyrighted songs of EMI (the current owner and administrative entity for the copyright materials) with the original copyright dates listed. The copyright dates range from 1922 to 1962. The song listing indicates that only one copyright of the top 50 songs will reach the 95 year expiration within the next five years. The listing does not provide an indication of the percentage of income earned by each copyright to total income. The Trust cannot determine EMI's ability to secure renewals of the copyrighted material; however, under the trust agreement, EMI must use its best efforts to do so. During the quarter ended September 30, 2001 the Trust did not receive any payment of the deferred contingent purchase price from EMI. EMI charged the Trust with an adjustment for certain costs relating to copyright renewals incurred over several years and a retroactive adjustment relating to a recent court decision, which negatively affected all holders of U.S. copyrights. For the quarter ended December 31, 2001, EMI applied the debit balance arising from the adjustment of the previous quarter to amounts owing for that quarter and initially remitted approximately $60,000 to the Trust. After discussion between EMI and the Trust and the Trust's counsel, EMI remitted an additional amount which brought the total for the each of the quarters ended September 30, and December 31, 2001 to the $167,500 minimum quarterly distributions. EMI has taken the position that the additional distributions would be considered advances against the future Contingent Portion of earnings and the unrecouped copyright renewals. The Trust has taken the position that such minimum distributions are due regardless of the adjustment based upon the inclusion of the gross royalty income of Related Companies as defined in the relevant agreement. The ultimate resolution of this disagreement may be material to both the amount and timing of future distribution to be received by the Trust. The Trust received the additional distributions from EMI on December 31, 2001. The Trust made distributions based upon the additional distributions from EMI in January 2002 after complying with the NASDAQ distribution notification requirements. In January 2002, the Trust made the distribution to unit holders of $278,844 ($1.00 per unit), as well as paying Trustee fees, printing and legal and professional fees totaling $56,156, (of which approximately $33,000 relates to the EMI matter previously discussed), resulting in undistributed cash of $44 at the end of January. These transactions will be reported in the Trust's 2002 fiscal year. For federal income tax purposes, the January 2002 distribution of cash received in 2001 was included in the unit holder's 2001 taxable income. 8 Administrative expenses (primarily legal fees) have increased due to increased public company rules and regulations and their implementation. They have also increased due to the ongoing attempts to resolve current issues with EMI. PART II - OTHER INFORMATION --------------------------- Items 1 through 6, inclusive, are not applicable. 9 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized. MILLS MUSIC TRUST ----------------- (Registrant) Date: November 14, 2002 By: MARCIA MARKOWSKI -------------------- ---------------------- HSBC Bank USA Corporate Trustee I, Joel Faden, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mills Music Trust; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, *results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 10 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 JOEL FADEN --------------------- -------------------------------------- Joel Faden, Joel Faden & Company, Inc. Chief Financial Individual Providing accounting services I, Marcia Markowski, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mills Music Trust; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, *results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; 11 b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 MARCIA MARKOWSKI --------------------- --------------------------- Marcia Markowski Trust officer of The Corporate Trustee * The statements of cash receipts and disbursements reflect only cash transactions and do not include transactions that would be recorded in financial statements presented on the accrual basis of accounting. The Trust is required to distribute all funds received. Accordingly, the Trust has no statements of financial condition or cash flows. -----END PRIVACY-ENHANCED MESSAGE-----