Exnidit, cont.

Memo to:

-3

January 15, 1973

Companies in Record and Tape

Manufacturing Industry

(1) SUMMARY REPORT and (2) COST of GOODS SOLD REPORT (Comments on Accounts)

Gross Sales

(Gross sales should include all domestic and export sales of
records and tapes. Since record clubs are being considered
as "retailing" or "distributing" operations for our purposes,
sales to, not by, record clubs will be reported in gross sales
just as sales made to any other type of distributive organiza-
tion. If your company sells through a wholly owned sales
subsidiary, sales, as well as the expenses of your sales
subsidiary, should be included in your financial reporting of
record manufacturing operations. If your company sells or
markets records through partially or wholly owned distribu-
tors, financial results of the distributor organization would
not be reported, although sales to distributors would be. In
addition, income from activities other than record manu-
facturing, such as publishing, should not be included in the
financial reporting forms, although income from leased
facilities or custom pressing of records for others will be
accounted for in other accounts.)

(Include all returns on shipments regardless

of whether the returns are then dumped or destroyed.)

• Exchanges, Allowances, Cash Discounts

Bad Debts, State Excise Taxes

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Cost of Goods Sold (Details of C of GS are on Form #(2))

A&R Costs

(These costs would be the salaries and expenses of the
A&R Department in your company and/or wages paid
to part-time A&R personnel.)

Studio Costs

(Salaries of engineers and technicians and costs of
studio facilities would be included in this account.
Such costs usually include editing and manufacture
of a so-called "lacquer". If your firm owns studios
which are leased to others, then income derived
from this activity should be deducted from your
Studio Costs. If your firm does not own a studio
but leases studios owned by others for recording
sessions, your leasing costs would be included in
this account.)

Recording Session Costs

(These costs are often referred to as talent costs and
include all payments made to musicians, vocalists,
leaders, arrangers, orchestrators, copyists or other
"talents".

Artists' royalties should not be included. Also, any
advances against royalties and any unrecoupable flat
payments to the artist should not be included.)

Artists' Royalty Payments

(Self-explanatory)

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Unrecoupable Flat Payments to Artists:

(Any special lump sum or flat or bonus payments to
the artist which are unrecoupable and unrelated to
direct sales performance.)

(All payments to the trustees of this fund, including the
U.S. Trust Company portion.)

Purchased or Leased Masters

(In some instances, record companies purchase or lease
masters produced by others, often by independent A&R men.
The total cost of any purchased or leased masters, including
royalties, if any, should be included in this account.)

Art Department Costs

(This is the cost of an in-house art department, or fees
paid for outside art services (directly or through a
producer) for use on album jackets or any other related
art work.)

139

Total Cost of Goods Sold (Final number on Form # (2) )

(Self-explanatory)

Gross Profit

(Self-explanatory)

Expenses

Selling, Advertising and Promotion

(These expense categories can be combined. Remember,
if your company has a wholly owned sales subsidiary,
include the costs of the subsidiary in this account.)

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