MMTRS 10-Q
Mills Music Trust (MMTRS)
10-Q
2021-11-15
For: 2021-09-30
View Original
Added on
April 06, 2026
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file
Number — 000-02123
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices and ZIP Code)
(Registrant’s telephone number, including area code) (212 ) 525-1349
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
N/A |
N/A |
N/A |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act. | Large accelerated filer |
☐ |
Accelerated filer |
☐ | |||
| |
☒ |
Smaller reporting company |
| |||
| Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒
12b-2
of the Exchange Act). Yes ☐ No The number of the Registrant’s Trust Units outstanding as of September 30, 2021 was 277,712 .
TABLE OF CONTENTS
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PART I — FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
MILLS MUSIC TRUST
STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS
THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020
(UNAUDITED)
Three Months Ended September 30 |
Nine Months Ended September 30 |
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2021 |
2020 |
2021 |
2020 |
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| Receipts from EMI |
$ | $ | $ | $ | ||||||||||||
| Undistributed Cash at Beginning of Period |
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| Disbursements — Administrative Expenses |
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| Balance Available for Distribution |
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| Cash Distributions to Unit Holders |
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| Undistributed Cash at End of period |
$ |
$ |
$ |
$ |
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| Cash Distribution per Unit (based on |
$ |
$ |
$ |
$ |
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The accompanying notes are an integral part of the unaudited financial statements.
The Trust does not prepare a balance sheet or a statement of cash flows.
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MILLS MUSIC TRUST
NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS
THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020
(UNAUDITED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Background
Mills Music Trust (the “December 3, 1964 (the “
Trust
”) was created by a Declaration of Trust, dated Declaration of Trust
”), for the purpose of acquiring from Mills Music, Inc. (“Old Mills
”), the right to receive payment of a deferred contingent purchase price obligation (the “Contingent Portion
”) payable to Old Mills. The obligation to pay the Contingent Portion arose as the result of the sale by Old Mills of its music and lyric copyright catalogue (the “Catalogue
”) to a newly formed company pursuant to an asset purchase agreement dated December 5, 1964 (the “Asset Purchase Agreement
”). Pursuant to the Asset Purchase Agreement, payment of the Contingent Portion to the Trust continues until the end of the year in which the last copyright in the Catalogue expires and cannot be renewed. The Contingent Portion amounts are currently payable by EMI Mills Music Inc. (“
EMI
”), the owner of the copyrighted materials contained in the Catalogue. The Trust has been advised that Sony/ATV Music Publishing LLC is the administrator and manager of EMI and the Catalogue. HSBC Bank, USA, N.A. is the Corporate Trustee of the Trust (the “
Corporate Trustee
”), and Lee Eastman and Michael E. Reiss are the Individual Trustees of the Trust (the “Individual Trustees
” and together with the Corporate Trustee, the “Trustees
”). Proceeds from Contingent Portion Payments
The Trust receives quarterly payments of the Contingent Portion from EMI and distributes the amounts it receives to the registered owners of Trust certificates (the “
Unit Holders
”) representing interests in the Trust (the “Trust Units
”), after payment of, or withholdings in connection with, expenses and liabilities of the Trust. The Declaration of Trust provides that these are the Trust’s sole responsibilities and that the Trust is prohibited from engaging in any business activities. Payments of the Contingent Portion to the Trust are based on royalty income which the Catalogue generates. The Trust does not own the Catalogue or any copyrights or other intellectual property rights and is not responsible for collecting royalties in connection with the Catalogue. As the current owner and administrator of the Catalogue, EMI is obligated under the Asset Purchase Agreement to use its best efforts to collect all royalties, domestic and foreign, in connection with the Catalogue and to remit a portion of its royalty income to the Trust as its Contingent Portion payment obligation, in accordance with the terms of the Asset Purchase Agreement.
Calculation of Contingent Portion
The amount of each payment of the Contingent Portion is based on a formula set forth in the Asset Purchase Agreement. For information regarding the calculation of the Contingent Portion and a related dispute between EMI and the Trust see “Contingent Portion Payments” under Part I — Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Cash Distributions to Unit Holders
The Declaration of Trust provides for the distribution to the Unit Holders of all funds the Trust receives after payment of, or withholdings in connection with, expenses and liabilities of the Trust. For information regarding disbursements made to Unit Holders for the three and nine months ended September 30, 2021 and September 30, 2020 see the table headed “Statements of Cash Receipts and Disbursements” under Part I — Item 1, “Financial Statements”.
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The Copyright Catalogue
The Catalogue is estimated to be composed of over 12,000 music titles (the “1,430 produced royalty income in recent years. EMI has provided the Trust with a listing of the top 50 earning songs in the Catalogue during the 2020 calendar year (the “50 Songs (the “
Copyrighted Songs
”), of which approximately Top 50 Songs
”), together with certain copyright information with respect to each of the Top 2020 Listing
”). A copy of the 2020 Listing, as provided to the Trust, is included in the Trust’s annual report on Form 10-K for the fiscal year
ended December 31, 2020. The 2020 Listing does not include any information regarding Copyrighted Songs for the 2021 calendar year.Accounting Policies
Payments to the Trust of the Contingent Portion are typically made in March, June, September and December for the prior calendar quarter. The payments received are accounted for on a cash basis, as are expenses of the Trust. The Declaration of Trust provides for the distribution of the amounts it receives in Contingent Portion payments to the Unit Holders after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
The Trust’s financial statements 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 generally accepted accounting principles in the United States. The Trust does not prepare a balance sheet or a statement of cash flows.
These unaudited financial statements should be read in conjunction with the financial statements and related notes in the Trust’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2020. The cash receipts and distributions for the interim periods presented are not necessarily indicative of the results to be expected for the full year. NOTE 2. INCOME TAXES
NOTE 3. GOVERNANCE OF THE TRUST
The Trust does not have, nor does the Declaration of Trust provide for, officers, a board of directors or any employees. HSBC Bank, USA, N.A. is the Corporate Trustee of the Trust, and Lee Eastman and Michael E. Reiss are the Individual Trustees of the Trust. Pursuant to the Declaration of Trust, the Trustees of the Trust serve until their removal, resignation, incapacity, or in the case of Individual Trustees, their death.
On December 23, 2014, the Trust adopted a code of ethics (as defined
in Item 406 of Regulation S-K under the Securities Exchange
Act of 1933) applicable to the Individual Trustees and the trust officers of the Corporate Trustee. A copy of the Code of Ethics will be provided to any person without charge upon written request to the Trust at its administrative office, c/o HSBC BANK USA, N.A., Corporate Trust, Issuer Services, 452 Fifth Avenue, New York, NY. In addition, the Trust relies on the Corporate Trustee to abide by HSBC Bank, USA, N.A.’s Statement of Business Principles and Code of Ethics, which is available on the Corporate Trustee’s website at http://www.us.hsbc.com. The Trust is not a corporate entity and thus does not have an Audit Committee. The Trust has established a policy with regard to
audit, audit-related and certain non-audit engagements of its independent
auditors. Under this policy, the Trust annually approves certain limited, specified recurring services which may be provided by the Trust’s accountant or independent auditors. All other engagements for services to be performed by the Trust’s independent auditors must be separately preapproved by the Trust. Joel Faden acts as Chief Financial Individual providing accounting services for the Trust. 5
NOTE 4. RELATED PARTY TRANSACTIONS
The Trustees are paid in accordance with the Declaration of Trust, which provides that each Trustee shall receive annual compensation of $2,500 , provided that such aggregate compensation to the Trustees as a group may not exceed 3 % of the Contingent Portion amounts received by the Trust in any year. The Declaration of Trust also provides for the reimbursement of expenses reasonably incurred in the performance of a Trustee’s duties to the Trust, including clerical and administrative services. Accordingly, the Trustees are entitled to receive annual compensation and reimbursement for services performed for the Trust, including the Corporate Trustee’s services as the Registrar and Transfer Agent of the certificates representing the Trust Units. The Declaration of Trust also provides that if a Trustee performs unusual or extraordinary services, reasonable compensation for such services shall be paid, subject to the terms and conditions of the Declaration of Trust.
Pursuant to the Declaration of Trust, disbursements were made as follows to the Trustees for the three and nine months ended September 30, 2021 and September 30, 2020:
Three Months Ended September 30 |
Nine Months Ended September 30 |
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2021 |
2020 |
2021 |
2020 |
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| Corporate Trustee Fees and Expenses |
$ | $ | $ | $ | ||||||||||||
| Individual Trustee Fees and Expenses |
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| Transfer Agent and Registrar (1) |
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| Total |
$ |
$ |
$ |
$ |
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(1) These services are performed by the Corporate Trustee.
The administrative office of the Trust is located at the offices of the Corporate Trustee, HSBC Bank, USA, N.A., Corporate Trust Issuer Services, 452 Fifth Avenue, New York, New York 10018. Except for fees paid to the Corporate Trustee in accordance with the Declaration of Trust, no expense is being charged or paid by the Trust for the office space and office equipment of the Corporate Trustee that is being utilized for the Trust.
NOTE 5. Subsequent Events.
None.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Copyright Catalogue
The Catalogue is estimated to be composed of over 12,000 music titles, of which approximately 1,430 produced royalty income in recent years. Based on the 2020 Listing, the Trust’s receipts are derived principally from copyrights established prior to 1960 in the Unites States. The receipts fluctuate based on consumer interest in the nostalgia appeal of older songs and the overall popularity of the songs contained in the Catalogue. The Catalogue also generates royalty income in Canada and other foreign countries in which copyright is claimed.
A number of factors create uncertainties with respect to the Catalogue’s ability to continue to generate royalty income on a continuing, long-term basis for the Trust. These factors include: (i) the effect that foreign and domestic copyright laws and any changes thereto have or will have on renewal rights (e.g., vesting of renewal term rights), (ii) the length of the term of copyright protection under foreign and domestic copyright laws, (iii) reversionary rights that may effect whether EMI is able to retain its rights to the Copyrighted Songs during certain renewal terms (e.g., statutory termination of transfers or “copyright recapture”) and (iv) ongoing disputes regarding the payment and calculation of the Contingent Portion.
The Trust does not own the Catalogue or any copyrights or other intellectual property rights and is not responsible for collecting royalties in connection with the Catalogue. As the current owner and administrator of the Catalogue, EMI is obligated under the Asset Purchase Agreement to use its best efforts to collect all royalties, domestic and foreign, in connection with the Catalogue and to remit a portion of its royalty income to the Trust in accordance with its Contingent Portion payment obligation.
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The Trust’s income is dependent, in part, on EMI’s ability to maintain its rights in the Copyrighted Songs through copyright protection. As the copyrights for the Copyrighted Songs expire, less royalty income will be generated and the size of each payment of the Contingent Portion will be reduced accordingly.
Based on the 2020 Listing, the Top 50 Songs obtained copyright registration under the United States Copyright Act of 1909 (the “
1909 Act
”) between 1922 and 1960. For copyrighted works subject to the 1909 Act, copyright law generally provides for a possible 95 years of copyright protection, subject to certain factors, including the initial registration date of each copyright and compliance with certain statutory provisions including notice and renewal. The Copyright expiration dates for the Top 50 Songs range between 2022 and 2055, as set forth in the 2020 Listing. The Copyrighted Songs are subject to statutory rights of termination of transfers, which may impact whether EMI is able to retain its ownership of the Copyrighted Songs during their respective terms of copyright protection. For copyrights governed by the 1909 Act, this termination right vests at the end of two different renewal terms, which vary for each Copyrighted Song. As the owner of the Catalogue, EMI (and not the Trust) is responsible for administrating the Catalogue and seeking renewals of the Copyrighted Songs. The Asset Purchase Agreement provides that EMI is obligated to use its best efforts to secure renewals.
Contingent Portion Payments
Payments of the Contingent Portion to the Trust are ordinarily made on a quarterly basis, approximately two to three months after a quarter ends. The Trust distributes the amounts it receives in Contingent Portion payments to the Unit Holders after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
The amount of each payment of the Contingent Portion is based on a formula provided in the Asset Purchase Agreement. Prior to the first quarter of 2010, the Contingent Portion was calculated as an amount ranging from 65% to 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty expenses. In addition, the Contingent Portion was guaranteed to be at least a minimum of $167,500 per quarter (the “
Minimum Payment Obligation
”). Beginning with the first quarter of 2010, the Asset Purchase Agreement provides for certain changes with respect to the calculation of the Contingent Portion. One such change is that the Minimum Payment Obligation is no longer in effect. The Trust is also of the view that the Contingent Portion payable to the Trust changed to a fixed 75% of gross royalty income from the exploitation of the Catalogue for each quarterly period, less royalty related expenses (the “
New Calculation Method
”). However, EMI has disputed that the New Calculation Method is the correct interpretation of the Asset Purchase Agreement. As a result of the New Calculation Method not being applied, EMI’s payments of the Contingent Portion have been deficient, in the Trust’s view, by the following amounts (the “Underpayments
”): | Quarterly Payment Period |
Amount of Deficiency |
|||
| March 31, 2016 |
$ | 79,889 | ||
| September 30, 2016 |
37,529 | |||
| March 31, 2017 |
85,359 | |||
| September 30, 2017 |
41,557 | |||
| March 31, 2018 |
98,901 | |||
| September 30, 2018 |
75,712 | |||
| March 31, 2019 |
71,489 | |||
| June 30, 2019 |
41,786 | |||
| September 30, 2019 |
68,571 | |||
| December 31, 2019 |
42,572 | |||
| March 31, 2020 |
40,025 | |||
| June 30, 2020 |
15,557 | |||
| September 30, 2020 |
40,085 | |||
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| March 31, 2021 |
42,742 | |||
| June 30, 2021 |
43,148 | |||
| September 30, 2021 |
38,846 | |||
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| Total |
$ |
863,768 |
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As of the date hereof, the Trust has not received the Underpayments. The Trust can offer no assurance that it will be able to recover any of the Underpayments or that it will resolve the dispute relating to the New Calculation Method with respect to future payments of the Contingent Portion.
The Trust has engaged Citrin Cooperman & Company LLP, an accounting firm specializing in auditing royalty income, to conduct a special audit of the books and records of EMI administered by Sony/ATV to resolve the ongoing dispute and also determine whether there have been any other material royalty omissions or expense over-deductions for the periods beginning January 1, 2016 and ended December 31, 2020.
Recent Contingent Portion Payment
On August 31, 2021 the Trust received a Contingent Portion payment of $284,082 (or $1.0229 per Trust Unit) from EMI, which was attributable to royalty income generated by the Catalog during the second quarter of 2021, as compared to $257,170 ($0.9260 per Trust Unit) for the payment attributable to the second quarter of 2020.
Recent Distributions to Unit Holders
On September 23, 2021, the Trust made a distribution of $215,933 (or $0.7775 per Trust Unit) to the Trust’s Unit Holders of record at the close of business on September 22, 2021. For computation details regarding the distribution please refer to the quarterly distribution report, dated September 23, 2021attached as Exhibit 99.1
to the Current Report on Form 8-K, filed by the Trust with
the Securities and Exchange Commission on September 23, 2021. Cash and Administrative Expenses
As of November 1, 2021, the Trust was holding $46 in cash and had received invoices for an aggregate of $12,847 in unpaid administrative expenses for services rendered to the Trust.
Inflation
The Trust does not believe that inflation has materially affected its activities.
Liquidity and Capital Resources
The Declaration of Trust provides for the distribution to the Unit Holders of all funds the Trust receives after payment of, or withholdings in connection with, expenses and liabilities of the Trust.
See the table headed “Statements of Cash Receipts and Disbursements” under Part 1 — Item 1, “Financial Statements” for information regarding cash disbursements made to Unit Holders during the three and nine months ended September 30, 2021 and September 30, 2020.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on the Trust’s financial condition, changes in financial condition, revenues or expenses, results of operations or liquidity that is material to investors. 8
Impact of COVID-19
In late 2019, an outbreak of a novel coronavirus (“”) emerged and by March 11, 2020 was declared a global pandemic by The World Health Organization. Across the United States and the world, governments and municipalities instituted measures in an effort to control travel restrictions and
COVID-19
the spread of COVID-19, including quarantines, shelter-in-place orders, school closings,
the closure of non-essential businesses. By the
end of March 2020, the macroeconomic impacts became significant, exhibited by, among other things, a rise in unemployment and market volatility.
The trajectory of COVID-19 remains highly uncertain
and it is plausible that the Trust’s business and results of operations may be directly and negatively impacted. As a result, the Trust’s past results may not be indicative of its future performance and historical trends in proceeds from Contingent Portion payments and cash distributions to Unit Holders, among others, may differ materially. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
(a)
Controls and Procedures
As of the end of the period covered by this quarterly report, the Trust carried out an evaluation of the effectiveness of the design and operation of the Trust’s “disclosure controls and procedures” (as defined in Rules
13a-15(e)
and 15d-15(e)
of the Exchange Act) under the supervision and with the participation of the Trust’s management, including the Chief Financial Individual providing accounting services and the trust officer of the Corporate Trustee. Based on that evaluation, the Chief Financial Individual providing accounting services and the trust officer of the Corporate Trustee concluded that the Trust’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Trust’s reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Trust’s reports filed under the Exchange Act is accumulated and communicated to Trust’s management, including the Chief Financial Individual providing accounting services and the trust officer of the Corporate Trustee, to allow timely decisions regarding required disclosure.
(b)
Changes in Internal Control over Financial Reporting
There were no changes in the Trust’s internal control over financial reporting (as such term
is defined in Rule 13a-15(f) under the Exchange Act)
during the fiscal period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting. 9
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
General Risks
The continuing impacts
of COVID-19 are
highly unpredictable and could be significant, and may have an adverse effect on the Trust’s business, operations and future financial performance. In late school closings, travel restrictions and the closure
2019, COVID-19 emerged
and by March 11, 2020 was declared a global pandemic by The World Health Organization. Across the United States and the world, governments and municipalities instituted measures in an effort to control the spread of COVID-19, including
quarantines, shelter-in-place orders,
of non-essential businesses.
By the end of March 2020, the macroeconomic impacts became significant, exhibited by, among other things, a rise in unemployment and market volatility. The trajectory of COVID-19 remains
highly uncertain and it is plausible that the Trust’s business and results of operations may be directly and negatively impacted. As a result, the Trust’s past results may not be indicative of its future performance and historical trends in proceeds from Contingent Portion payments and cash distributions to Unit Holders, among others, may differ materially ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
10
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Schema Document | |
| 101.CAL | XBRL Calculation Linkbase Documents | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | XBRL Labels Linkbase Documents | |
| 101.PRE | XBRL Presentation Linkbase Documents | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |
| * | Furnished, not filed |
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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.
| November 15, 2020 | Mills Music Trust | |||
| (Registrant) | ||||
| By: | /s/ Garfield Barrett | |||
| Garfield Barrett | ||||
| Trust Officer of the Corporate Trustee HSBC Bank USA, NA | ||||
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