Accounting Policies and General Information |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies and General Information | NOTE 1. ACCOUNTING POLICIES AND GENERAL INFORMATION Organization and Background Mills Music Trust (the “ Trust ”) was created by a Declaration of Trust, dated December 3, 1964 (the “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 (“Sony/ATV ”) 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 is the Individual Trustee of the Trust (the “Individual Trustee ” 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. 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. 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 (the “Calculation Method Dispute”). As a result of the New Calculation Method not being applied, after giving effect to the Settlement described below, EMI’s payments of the Contingent Portion have been deficient, in the Trust’s view by the following amounts as of December 31, 2025 (the “Calculation Method Underpayments ”):
As of the date hereof, the Trust has not received any amounts in respect of the Calculation Method Underpayments, and EMI has expressly disagreed with the Trust. The Trust can offer no assurance that it will be able to recover any portion of the Calculation Method Underpayments or that it will resolve favorably the ongoing dispute relating to the New Calculation Method with respect to future payments of the Contingent Portion. Recent Audit Settlement On October 1, 2020, the Trust engaged Citrin Cooperman & Company LLP, an accounting firm specializing in auditing royalty income (“ Citrin ”), to conduct a special audit of the books and records of EMI administered by Sony/ATV to determine the areas and extent of underpayment, if any, of quarterly Contingent Portion payments payable to the Trust for the periods beginning January 1, 2016 and ended December 31, 2020 (the “Audit Period ”). Citrin’s final report (the “Citrin Report ”) was delivered to the Trustees on April 4, 2022. The Citrin Report identified multiple asserted royalty omissions and expense over-deductions from the Contingent Portion during the Audit Period in addition to the Calculation Method Underpayments. The Trust distributed the Citrin Report to EMI on or about April 13, 2022. EMI has disputed the findings of the Citrin Report. On October 30, 2025 (the “Settlement Date”), the Trust, Trustees, EMI and certain EMI affiliates entered into a settlement agreement, effective as of July 1, 2025 (the “Settlement Agreement”), pursuant to which the parties agreed to settle (the “Settlement”) all claims (the “Settled Claims”) of the Trust and/or the Trustees (i) for all periods of time prior to December 31, 2024 relating to EMI’s obligation to make Contingent Portion payments under the Asset Purchase Agreement, and (ii) regarding the interpretation of certain provisions of the Asset Purchase Agreement that had been subject to a tolling agreement between EMI and the Trust. Under the terms of the Settlement, among other things, (i) EMI made a payment to the Trust in the amount of $500,000 on November 5, 2025 in full and final settlement of the Settled Claims (the “Settlement Payment”), (ii) the Trust and EMI agreed to amend Section 1(c)(i)(A) of the Asset Purchase Agreement to provide that beginning with the quarterly period beginning July 1, 2025, in calculating any Contingent Portion Payment due and payable by EMI to the Trust, EMI shall cap the foreign sub-publishing fee between EMI and any foreign affiliate thereof at twenty-five percent (25%), which cap acts as a limitation on certain deductions that EMI can make against payments due to the Trust, and (iii) the Trust and EMI agreed to amend Section 1(c)(i)(B) of the Asset Purchase Agreement to provide that beginning with the quarterly period beginning July 1, 2025, EMI shall only be entitled to offset the costs associated with EMI obtaining U.S. copyright renewals for a song against royalty income collected by EMI in the U.S. for such song (and not against any foreign royalty income collected outside of the U.S. for such song), and this modification also serves to narrow permissible offsets to payments due from EMI to the Trust. The Settlement includes all claims relating to the Calculation Method Dispute through December 31, 2024 and all claims relating to the underpayments in the Citrin Report. The Settlement does not include any claims for any periods after December 31, 2024 nor does it resolve the Calculation Method Dispute. As such, the Trustees and EMI have not agreed to settle any claims relating to the Calculation Method Dispute or the Calculation Method Underpayments for any period of time after December 31, 2024. The Trust can offer no assurance that it will be able to recover any portion of the Calculation Method Underpayments that were not subject to the Settlement, or that it will favorably resolve the Calculation Method Dispute with respect to future payments of the Contingent Portion. For the full text of the pro forma Asset Purchase Agreement, as amended by the Settlement Agreement, please refer to the Current Report on Form 8-K, dated October 30, 2025, which the Trust filed with the Securities and Exchange Commission on November 5, 2025. Unit Holder Distributions and Trust Expenses Recent Payments During the year ended December 31, 2025, the Trust received a total of $1,570,141 from EMI, of which $500,000 was attributable to the Settlement Payment and the remainder of which was attributable to ordinary Contingent Portion Payments made by EMI to the Trust during the 2025 calendar year. During the year ended December 31, 2024, the Trust received a total of $1,291,775 from EMI, all of which was attributable to ordinary Contingent Portion Payments which EMI made to the Trust during the 2024 calendar year. Recent Distributions During the year ended December 31, 2025, the Trust made cash distributions to Unit Holders in the aggregate amount of $652,817 ($2.35 per Trust Unit), as compared to cash distributions to Unit Holders in the aggregate amount of $658,733 ($2.37 per Trust Unit) during the year ended December 31, 2024. For computation details regarding the distributions made during the year ended December 31, 2025, please see the table headed “Statements of Cash Receipts and Disbursements” under Part II, Item 8, “Financial Statements and Supplementary Data”. Cash and Administrative Expenses As of December 31, 2025 the Trust had an aggregate of $0 in unpaid administrative expenses for services rendered to the Trust. As of March 31, 2026, the Trust had no unpaid administrative expenses for services rendered to the Trust prior to such date. Recent Accounting Pronouncements The Trustees do not believe that any recently issued, but not yet effective, accounting standards, if adopted, would have a material effect on the Trust’s financial statement. Accounting Policies Payments from EMI 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. The Declaration of Trust provides for the distribution of all funds received by the Trust to the Unit Holders after expenses are paid. 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. |
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