Newhouse Broadcasting Corporation and Subsidiaries, et al. - Page 6

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           contract, also require semiannual accountings and royalty                                   
           payments; and the procedures followed with respect to royalties                             
           payable under all three forms of author contract are identical.                             
           Thus, along with the royalty check for the 6-month royalty period,                          
           Random House typically issued a royalty statement to the author                             
           covering such period.  Each statement contains a column entitled                            
           "earnings" and a subsequent column entitled "charges".  The former                          
           shows cumulative earnings to date based upon total books sold less                          
           total books actually returned through the beginning of the                                  
           statement period.  Where the prior withholding based upon the                               
           "reasonable reserve for returns" was in excess of the amount                                
           justified by the actual returns for the prior period, the earnings                          
           column also includes an amount for "refund of reserves" (refund of                          
           reserves).  Thus, for each 6-month royalty period, the prior                                
           estimated reserve is adjusted to reflect actual experience.  The                            
           "charges" column includes an amount representing actual returns                             
           for the period and an amount for the "current reserve for                                   
           returns".  These charges are an offset to any royalty based on                              
           sales that might otherwise be due for the period.                                           
                 Random House was contractually required to, and did, pay                              
           royalties with respect to books that were sold and not returned,                            
           even though Random House never received payment for the books and                           
           wrote off the debt as uncollectible (e.g., because of the                                   
           customer’s bankruptcy).  The royalty payable upon the sale of a                             






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