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audit years. Approximately 10 additional imprints accounted for
the remainder of its book sales.
During the audit years, Random House’s publishing business
consisted of the following primary activities: acquisition of
rights to manuscripts, editing manuscripts, contracting for the
manufacture of books, and marketing and selling books. Random
House primarily sold books to individual bookstores, book
wholesalers, book retail chains, mass marketers, and book clubs
(customers). Random House customers sold books purchased from
Random House and other publishers to the general public
(consumers). Under the terms of its sales agreements with
customers, the customers had the right, under certain
circumstances, to return books for full credit.
Random House and its subsidiaries entered into written
contracts with each Random House author or licensor (author
contracts). The principal terms covered by an author contract
included delivery timetables for the manuscripts, royalty rates,
and payment terms. The Random House Adult Trade and Alfred A.
Knopf (Knopf) imprints used one standard form of author contract
and the Ballantine Books division (Ballantine) used another. Over
99 percent of all executed author contracts utilized such standard
contracts. Under the terms of all author contracts, authors
generally earned royalties as a percentage of the publisher’s
invoice price on copies of books sold by the publisher. The
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Last modified: May 25, 2011