MILLS MUSIC TRUST - Quarter Report: 2010 September (Form 10-Q)

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file Number — 2-22997

MILLS MUSIC TRUST

New York		13-6183792
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

C/O HSBC Bank USA, N/A Corporate Trust Issuer Services, 452 Fifth Avenue, New York, New York 10018-2706
(Address of principal executive offices)		(ZIP Code)

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.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (As defined in rule 12b-2 of the Exchange Act). YES o NO þ

The number of the Registrant’s Trust Units outstanding as of September 30, 2010 was 277,712.

 

 

PART I — FINANCIAL STATEMENTS

Item 1. Financial Information

MILLS MUSIC TRUST
STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)

		Three Months Ended								Nine Months Ended
		September 30								September 30
		2010				2009				2010				2009
Receipts:
From EMI		$	294,241			$	236,815			$	673,522			$	751,622
Undistributed cash at beginning of the period			67				88				4,457				88
Disbursements- administrative expenses *			(22,043	)			(7,792	)			(98,759	)			(59,599	)
Balance available for distribution		$	272,265			$	229,111				579,220				692,111
Cash distribution to unit holders			272,199				229,029				579,154				692,029
Undistributed cash at end of the period		$	66			$	82			$	66			$	82
Cash distribution per unit (based on 277,712 units outstanding)		$	.98			$	.82			$	2.09			$	2.49

See accompanying notes to statements of Cash Receipts and Disbursements.

MILLS MUSIC TRUST
NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS
THREE MONTHS AND NINE MONTH ENDED SEPTEMBER 30, 2010 AND 2009

(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, relating to certain copyright materials. The amounts are currently payable by EMI (the current owner and administrative entity for the copyrighted materials). The contingent payments are determined quarterly and are based on a formula set forth in the assets purchase agreement, dated December 5, 1964 (the “Asset Purchase Agreement”), which takes into account gross royalty income paid to composers, authors and others, and less amounts deducted by EMI in accordance with contract terms. Through December 31, 2009, the contingent payment was calculated as the gross royalty income from existing copyrights for the applicable period, less the sum of royalty expenses and 25% to 35% of gross royalty income, and was guaranteed to be at least a minimum of $167,500 per quarter under the terms of the Asset Purchase Agreement. Commencing with the first quarter of 2010, which was reported on a cash basis for the three months ended June 30, 2010, the contingent portion for each quarterly period is required to be calculated as 75% of the gross royalty income, less related royalty expenses with no guaranteed minimum.

     The Trust is of the view that EMI’s payment of the contingent portion received by the Trust for the first quarter of 2010 exceeded the amount required by the Asset Purchase Agreement, by $6,390.65. EMI was informed of the overpayment. EMI indicated that it would consider the matter. The Trust has yet to hear back from EMI on the matter. The Trust received $294,240.66 for the second quarter contingent fee payment. The Trust is of the view that the amount of this payment is deficient by $138,084.83. EMI was informed of the underpayment and has not yet responded to the Trust. Based on the payments received by the Trust for the first and second quarters of 2010, it appears that during 2010 EMI continues to apply the former method of calculating the contingent portion that the Trust considers to be exclusively applicable to periods ending prior to 2010.

     Payments from EMI 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 disbursements 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.

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.

MILLS MUSIC TRUST
NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(CONTINUED)

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, 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.

Disbursements to related parties were made as follows for the three and nine months ended September 30, 2010 and 2009:

		Three Months Ended								Nine Months Ended
		September 30								September 30
		2010				2009				2010				2009
HSBC Bank USA:
Trustee Fees		$	625			$	625			$	2,500			$	1,875
Transfer agent and registrar		$	3,750			$	3,750			$	15,000			$	11,250

     In December 2009, $4,375 of Trustee and transfer agent fees, scheduled to be paid, went unpaid. These disbursements were made in January 2010.

MILLS MUSIC TRUST
NOTES TO STATEMENTS OF CASH RECEIPTS AND DISBURSEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(CONTINUED)

(UNAUDITED)

NOTE 4. ROYALTIES

     A listing received in 2010 from EMI (the current owner and administrative entity for the copyright materials) of the top 50 money earning songs for the year 2009, of the subject copyrighted songs, with the original copyright dates shown, indicates that the copyright dates range from 1917 to 1965. The listing indicates that copyrights for four songs have expired, which means that the songs are in the “public domain”. The gross royalties EMI received for these four songs aggregated approximately 2% of the gross income for the year 2009 of the top 50 earning songs. EMI continues to administer these songs for the copyright owners.

     No copyrights of the balance of the top 50 songs will reach the 95-year expiration within the next five years.

     Ten of the top 50 songs account for approximately 67% of the earnings attributable to the top 50 songs. The earliest expiration date of a copyright for any of the top ten songs is in 2023.

     The Trust cannot determine EMI’s ability to secure renewals of the copyrighted material; however, under the Asset Purchase Agreement, EMI must use its best efforts to do so.

     EMI and the Trust agreed to continue efforts to settle disputes of a net $259,500 arising from deductions taken by EMI in connection with royalty payments to the Trust in prior years, without any litigation.

     In furtherance of those efforts, on October 4, 2007, EMI and the Trust executed a Tolling Agreement, pursuant to which the parties agreed to suspend recognition of the passage of time for purposes of any relevant statute of limitations defenses either party could claim under the agreement governing the payment of royalties and not to commence litigation while the Tolling Agreement is in force. The Tolling Agreement, which was scheduled to initially expire on April 1, 2008, has been extended by mutual written consent through December 15, 2010.

PART I — FINANCIAL STATEMENTS

Item 2. Management’s Discussion and Analysis of Results of Operations

     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.

     The Trust’s contingent fee income over the last three years has averaged approximately $1,061,352 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, the effect of electronic copying of materials without permission and a change in the calculation of the contingent portion payable to the Trust from EMI beginning for the first quarter of 2010 that was received beginning in the second quarter of 2010. Prior to the calculation change taking effect, the contingent portion of the payment was guaranteed at a minimum of $167,500 per quarter. It is the Trust’s view that starting with the first quarter of 2010, there is no longer a guarantee for the minimum payment. During the past five years, the quarterly calculation of the contingent portion of the payment has infrequently been below the guaranteed minimum amount. However, there can be no assurance that future quarterly contingent portion payments will not be below the previously guaranteed minimum amount.

     The Trust is of the view that EMI’s payment of the contingent portion received by the Trust for the first quarter of 2010 exceeded the amount required by the Asset Purchase Agreement, by $6,390.65. EMI was informed of the overpayment. EMI indicated that it would consider the matter. The Trust has yet to hear back from EMI on the matter. The Trust received $294,240.66 for the second quarter contingent fee payment. The Trust is of the view that the amount of this payment is deficient by $138,084.83. EMI was informed of the underpayment and has not yet responded to the Trust. Based on the payments received by the Trust for the first and second quarters of 2010, it appears that during 2010 EMI continues to apply the former method of calculating the contingent portion that the Trust considers to be exclusively applicable to periods ending prior to 2010.

     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. The amendment increased the total copyright term to 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 generally provided an additional 20 years of copyright protection. For works

created by identified natural persons the term now lasts from creation until 70 years after the author’s death. For anonymous works, pseudonymous works, and works made for hire, the term is 95 years from publication or 120 years from creation whichever expires first. For works published before 1978 with existing copyrights as of the effective date of the Act, the Act extends the term to 95 years from publication. In January 2003, the U.S. Supreme Court upheld the constitutionality of the Act in the Eldred v. Ashcroft decision, which affirmed a 2001 decision of the U.S. Court of Appeals for the District of Columbia Circuit.

     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, 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 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.

     A listing received in 2010 from EMI (the current owner and administrative entity for the copyright materials) of the top 50 money earning songs for the year 2009, of the subject copyrighted songs, indicates that original copyright dates range from 1917 to 1965. The listing also indicates that copyrights for four songs have expired, which means that the songs are in the “public domain”. The gross royalties EMI received for these four songs aggregated approximately 2% of the gross income of the top 50 earning songs. EMI continues to administer the songs for the copyright owner.

     No copyrights of the balance of the top 50 songs will reach the 95-year expiration within the next five years.

     Ten of the top 50 songs account for approximately 67% of the earnings attributable to the top 50 songs. The earliest expiration date of a copyright for any of the top ten songs is in 2023.

     The Trust cannot determine EMI’s ability to secure renewals of the copyrighted material; however, under the Asset Purchase Agreement, EMI must use its best efforts to do so.

     EMI and the Trust agreed to continue efforts to settle disputes of a net $259,500 arising from deductions taken by EMI in connection with royalty payments to the Trust in prior years, without any litigation.

     In furtherance of those efforts, on October 4, 2007, EMI and the Trust executed a Tolling Agreement pursuant to which the parties agreed to suspend recognition of the passage of time for purposes of any relevant statute of limitations defenses to either party could claim under the agreement governing the payment of royalties and not to commence litigation while the Tolling Agreement is in force. The Tolling Agreement, which was scheduled to initially expire on April 1, 2008, has been extended by mutual written consent through December 15, 2010.

Item 3. Quantitative and Quantitative Disclosures About Market Risk.

     Not applicable.

Item 4. Disclosure 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 Securities and Exchange Act of 1934, as amended) 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 SEC’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 R 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended)during the fiscal period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, the Trust’s control over financial reporting.

PART II — OTHER INFORMATION

Item 1.		Legal Proceedings.

     None

Item 1A.		Risk Factors

     Not applicable

Item 2.		Unregistered Sale of Equity Securities and Use of Proceeds.

     None

Item 3.		Default Upon Senior Securities

     None

Item 5.		Other Information.

     None

Item 6.		Exhibits

(a)

Documents Filed As Part of This Report

Exhibit No.		Description
31.1		Certification of the chief financial individual providing accounting services (filed herewith)
31.2		Certification of the trust officer of the corporate trustee (filed herewith)
32.1		Certification of chief financial individual providing accounting services pursuant to 18 U.S.C. § 1350 (furnished herewith)*
32.2		Certification of trust officer for the corporate trustee pursuant to 18 U.S.C. §1350 (furnished herewith)*

(b)

Reports on Form 8-K

None

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.