SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to______
Commission file number 0-15811
BRODERBUND SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2768218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Redwood Blvd.
Novato, CA 94948-6121
(Address of principal executive offices)
Telephone Number (415) 382-4400
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.
Yes _X_ No ___
As of November 30, 1997 there were 20,819,875 shares of the Registrant's Common
Stock Outstanding.
1
<PAGE>
BRODERBUND SOFTWARE, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at November 30, 1997
and August 31, 1997..............................................3
Condensed Consolidated Statements of Income-Three Months
Ended November 30, 1997 and 1996.................................4
Condensed Consolidated Statements of Cash Flows-Three Months
Ended November 30, 1997 and 1996.................................5
Notes to Condensed Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................15
Signature.................................................................16
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
BRODERBUND SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
November 30, August 31,
1997 1997
------------------------
(Unaudited)
Assets
Current assets:
Cash and short-term investments $ 93,819 $ 94,078
Accounts receivable, net 62,250 18,047
Inventories 9,782 4,527
Deferred income taxes 26,131 14,975
Other current assets 3,273 3,799
----------------------
Total current assets 195,255 135,426
----------------------
Property and equipment, net 18,443 18,664
Purchased technology and other intangibles 18,367 20,308
Deferred income taxes 11,649 11,002
Other assets 1,049 1,203
----------------------
$244,763 $186,603
======================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 17,147 $ 8,928
Accrued compensation 8,898 8,545
Accrued income taxes 23,164 4,621
Other accrued expenses 33,791 14,397
----------------------
Total current liabilities 83,000 36,491
----------------------
Other liabilities 1,950 2,030
----------------------
Total liabilities 84,950 38,521
----------------------
Stockholders' equity:
Common stock 28,357 27,422
Retained earnings 131,456 120,660
----------------------
Total stockholders' equity 159,813 148,082
----------------------
$244,763 $186,603
======================
See accompanying notes.
3
<PAGE>
BRODERBUND SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended
November 30,
-----------------------
1997 1996
-----------------------
Net revenues $ 99,197 $ 61,491
Cost of revenues 34,637 22,177
Amortization of purchased technology 2,222 1,022
-----------------------
Gross margin 62,338 38,292
-----------------------
Operating expenses:
Sales and marketing 27,019 14,154
Research and development 13,012 7,713
General and administrative 6,885 2,907
-----------------------
Total operating expenses 46,916 24,774
-----------------------
Income from operations 15,422 13,518
Interest and dividend income, net 1,219 1,549
Equity in losses of joint venture -- (603)
-----------------------
Income before income taxes 16,641 14,464
Provision for income taxes 6,064 5,569
-----------------------
Net income $ 10,577 $ 8,895
=======================
Net income per share $ 0.49 $ 0.42
=======================
Shares used in computing per share data 21,497 21,109
=======================
See accompanying notes.
4
<PAGE>
BRODERBUND SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
November 30,
----------------------
1997 1996
----------------------
Operating activities
Net income $ 10,577 $ 8,895
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in losses of joint venture -- 603
Depreciation and amortization 3,538 2,066
Deferred income taxes (647) (3,596)
Changes in operating assets and liabilities (13,505) (11,111)
----------------------
Net cash used by operating activities (37) (3,143)
----------------------
Investing activities
Disposals (additions) to equipment and improvements (1,095) 647
Investments in affiliates -- (150)
Other (127) 73
----------------------
Net cash provided (used) for investing activities (1,222) 570
----------------------
Financing activities
Employee stock purchase plan 379 413
Exercise of stock options 376 115
Tax benefit from exercise of stock options 180 55
----------------------
Net cash provided by financing activities 935 583
----------------------
Translation adjustment 65 200
----------------------
Decrease in cash and short-term investments (259) (1,790)
Cash and short-term investments, beginning of period 94,078 150,893
----------------------
Cash and short-term investments, end of period $ 93,819 $ 149,103
======================
See accompanying notes.
5
<PAGE>
BRODERBUND SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements for Broderbund Software, Inc.
(the "Company") for the three months ended November 30, 1997 and 1996 are
unaudited and reflect all adjustments, consisting of normal recurring
adjustments, which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
(Form 10-K) for the year ended August 31, 1997. The results of operations for
the three months ended November 30, 1997 are not necessarily indicative of the
results for the entire fiscal year ending August 31, 1998.
Note 2. Recently Issued Accounting Principles
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings per Share." SFAS No. 128 requires dual presentation of basic
and diluted earnings per share for periods ending after December 15, 1997, for
all entities with complex capital structures. Beginning in the second quarter of
fiscal 1998, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the quarter ended November 30, 1997 of
approximately $0.02 per share and no change to fully diluted earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and displaying of comprehensive
income and its components. The Company will adopt SFAS No. 130 effective
September 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new requirements
for the reporting of information regarding operating segments, products,
services, geographic areas and major customers. The Company will adopt SFAS No.
131 effective September 1, 1998.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the consolidated
financial statements and the notes thereto and in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Annual Report (Form 10-K) for the fiscal year ended August 31, 1997.
This Quarterly Report on Form 10-Q, and in particular Management's Discussion
and Analysis of Financial Condition and Results of Operations, contains forward
looking statements regarding future events or the future performance of the
Company that involve certain risks and uncertainties including, but not limited
to, those discussed in "Factors Affecting Future Operating Results" below at
pages 11 to 14, as well as in the Company's 1997 Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission ("S.E.C."). Actual events or
the actual future results of the Company may differ materially from any forward
looking statements due to such risks and uncertainties. The Company assumes no
obligation to update these forward looking statements to reflect actual results
or changes in factors or assumptions affecting such forward looking statements.
This analysis is provided pursuant to applicable S.E.C. regulations and is not
intended to serve as a basis for projections of future events.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of income data as
a percentage of net revenues for the periods indicated:
Three months ended
November 30,
------------
1997 1996
---- ----
Net revenues 100% 100%
Cost of revenues 35% 36%
Amortization of purchased technology 2% 2%
---- ----
Gross margin 63% 62%
Operating expenses:
Sales and marketing 27% 23%
Research and development 13% 12%
General and administrative 7% 5%
---- ----
Total operating expenses 47% 40%
---- ----
Income from operations 16% 22%
Nonoperating income 1% 2%
---- ----
Income before income taxes 17% 24%
Provision for income taxes 6% 9%
---- ----
Net income 11% 15%
==== ====
7
<PAGE>
NET REVENUES
The Company derives revenue from products which are published by Broderbund
(published products) and products from other software publishers which are
distributed by Broderbund (affiliated label products). The Company sells its
products in North America through distributors and retailers, as well as
directly to consumers. The Company's international sales are derived from a
foreign subsidiary and licensing and distribution arrangements with foreign
distributors.
Net revenues for the first quarter of fiscal 1998 were $99.2 million, an
increase of 61% from the $61.5 million recorded in the first quarter of fiscal
1997. The increase for the first quarter of fiscal 1998 was primarily due to the
release of Riven(TM): The Sequel to Myst(R). The increase was also impacted by
the sales efforts of the Company's Parsons Technology division on existing
products, as well as products obtained in the August 1997 acquisition of Parsons
Technology.
Net revenues in the personal productivity category for the first quarter of
fiscal 1998 were up 29% over the same period last year. The increase in the
productivity revenues during this first quarter compared to the first quarter of
the prior year was primarily due to the increase in Broderbund sales of existing
Parsons Technology products, as well as Parsons Technology sales of existing
Broderbund productivity products. The personal productivity category comprised
41% of the Company's total net revenues for the first quarter of fiscal 1998.
Net revenues in the entertainment category increased more than 300% for the
first quarter of fiscal 1998 compared to the same quarter of fiscal 1997. The
increase for the first quarter of fiscal 1998 was primarily due to the release
of Riven: The Sequel to Myst. The entertainment category comprised 37% of the
Company's total net revenues for the first quarter of fiscal 1998.
Net revenues in the education category decreased 12% for the first quarter of
fiscal 1998 as compared to the same quarter of fiscal 1997 after adjusting prior
year revenues to include Living Books revenues in this category rather than as
affiliated label revenue. The decreases in this category were primarily the
result of a decline in sales from the Carmen Sandiego(R) product line and Dr.
Seuss's Green Eggs and Ham, which was partially offset by sales from Arthur's
Reading Race and the release of Dr. Seuss's The Cat in the Hat in the first
quarter of fiscal 1998. The education category comprised 17% of the Company's
total net revenues for the first quarter of fiscal 1998.
Net revenues from sales of affiliated label products increased 155% for the
first quarter of fiscal 1998 compared to fiscal 1997, after excluding the
effects of Living Books affiliated label revenue from prior periods. The
increase in the first quarter of fiscal 1998 was primarily due to the release of
Encyclopaedia Britannica(R) CD 98. This category comprised 5% of the Company's
total net revenues for the first quarter of fiscal 1998.
During the first quarter of fiscal 1998, the Company released a total of 19 new
titles, including five new affiliated label titles. In the same period of the
prior year, the Company released a total of ten new titles, including seven new
affiliated label titles.
COST OF REVENUES AND AMORTIZATION OF PURCHASED TECHNOLOGY
Cost of revenues includes cost of goods sold, royalties paid to developers and
accrued technical support costs, which relate primarily to telephone support
provided to consumers shortly after they purchase software. The Company does not
capitalize software development costs as the impact on the
8
<PAGE>
financial statements would be immaterial. Amortization of purchased technology
is the value of the technology purchased in the Company's acquisitions of
Parsons Technology in August 1997, Random House's 50% interest in the Living
Books joint venture in January 1997, T/Maker Company in August 1996 and Banner
Blue Software, Inc. in April 1995, each amortized ratably over a three year
period from the date of acquisition.
In the first quarter of fiscal 1998, the Company's gross margin was 63% compared
to 62% in the first quarter of fiscal 1997. The increase in gross margin for the
period was primarily due to the higher margin recognized from the Living Books
product line, which was an affiliated label in the first quarter of fiscal 1997
and, hence, carried a lower gross margin. The increase was partially offset by
an increase in the component of revenues represented by affiliated label
products and higher royalty-rate entertainment products. The Company currently
expects the gross margin to remain in the low to mid 60% range as the revenue
from published entertainment titles will continue to represent a higher
percentage of overall revenue.
SALES AND MARKETING
Sales and marketing expenses increased 90% to $27.0 million in the first quarter
of fiscal 1998 from $14.2 million in the first quarter of fiscal 1997. The
increase was primarily due to the addition of sales and marketing efforts of
Parsons Technology. In addition, the Company has continued to emphasize consumer
advertising and promotions related to new product releases, including Riven: The
Sequel to Myst, as well as promotional spending with the Company's channel
partners. The Company also incurred additional expenses in order to monitor its
channel partners' compliance with these programs and to track inventory levels
at individual retail outlets. The intense competition for high quality and
adequate levels of retail shelf space continues to increase as the number of
software products increases. As a result, the Company believes that it may
sustain, or incur further increases in sales and marketing expenses in the
future, particularly in the entertainment category where it is common for
significant marketing costs to be incurred in advance of product release, in an
effort to more clearly distinguish its products from its competitors' products
and to obtain adequate shelf space.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 69% to $13.0 million in the first
quarter of fiscal 1998 from $7.7 million in the first quarter of fiscal 1997.
The additions of Parsons Technology and Living Books have contributed to higher
employee-related expenses from increased headcount, and higher numbers of new
products under development. In addition, the Company has invested in a number of
research and development stage Internet related companies in order to keep
abreast of developments in this rapidly-evolving area, and to position itself as
a leading participant in this emerging platform. The Company continues to invest
in the development of CD-ROM based multimedia products with expanded sound,
graphics, animation video and/or information content. The development of
products with more content increases research and development costs and in
future periods, the development of products for emerging platforms, such as DVD,
and new technologies, such as 3-D, may cause development expenses to increase
even further. To partially offset this increase in content costs, the Company
has implemented, and continues to develop, proprietary development systems to
reduce the number of programming hours required to bring a product to market on
multiple platforms.
9
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 138% to $6.9 million in the first
quarter of fiscal 1998 from $2.9 million in the first quarter of fiscal 1997.
The increases were primarily due to the Company's increase in staffing and the
related employee expenses, principally as a result of the Parsons Technology
acquisition in August of 1997, as well as increased legal costs.
NONOPERATING INCOME
Included in nonoperating income is interest and dividend income and other
nonoperating items. Interest and dividend income was $1.2 million and $1.5
million in the first quarter of 1998 and 1997, respectively. The decrease was
primarily due to lower cash balances in the current quarter related to cash used
to fund the purchases of Parsons Technology and Living Books, as well as the
repurchase of a total of 500,000 shares of the Company's stock in the open
market in the second and third quarters of fiscal 1997. Prior to the acquisition
of Random House's 50% interest in Living Books in the second quarter of fiscal
1997, the equity in losses of the Living Books joint venture was included as
nonoperating income (loss).
PROVISION FOR INCOME TAXES
The Company's effective income tax rate decreased to 36.5% from 38.5% for the
first quarter of fiscal year 1998 and 1997, respectively. The decrease in the
effective income tax rate for the first quarter of fiscal 1998 was primarily
attributable to the extension of the federal research and development tax credit
and favorable changes in the State of California's research and development tax
credit rules.
NET INCOME
Net income was $10.6 million or $0.49 per share in the first quarter of fiscal
1998 compared with net income of $8.9 million or $0.42 per share for the same
period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's primary source of liquidity has been cash generated from
operations. The Company's working capital increased $13.4 million during the
first quarter of fiscal 1998 to $112.3 million from $98.9 million at August 31,
1997. Cash and short-term investments decreased $0.3 million to $93.8 million at
November 30, 1997 from $94.1 million at the end of the prior fiscal year. The
decrease in cash and short-term investments was due to the Company's seasonal
use of cash to generate revenues during the holiday selling season prior to the
collection of accounts receivable generated from that season.
The Company uses its working capital to finance ongoing operations and to fund
the expansion and development of its product lines. In addition, the Company
evaluates from time to time, acquisitions of products or companies that
complement the Company's business.
Management believes the existing cash and short-term investments balances and
cash generated from operations will be sufficient to meet the Company's
liquidity and capital needs for the coming year.
10
<PAGE>
FACTORS AFFECTING FUTURE OPERATING RESULTS
Broderbund operates in a rapidly changing environment that is subject to many
risks and uncertainties. Some of the important risks and uncertainties which may
cause the Company's operating results to differ materially and/or adversely are
discussed below and elsewhere in this Form 10-Q. An additional discussion is
included in the Company's Annual Report and Form 10-K for the 1997 fiscal year,
both on file with the S.E.C.
FLUCTUATIONS IN PERFORMANCE AND OPERATING RESULTS
The Company has experienced, and expects to continue to experience, significant
fluctuations in operating results due to a variety of factors, including but not
limited to, the rate of growth of the consumer software market, market
acceptance of the Company's products or those of its competitors, the timing of
new product introductions, expenses relating to the development and promotion of
new product introductions, changes in pricing policies by the Company or its
competitors, projected and actual changes in platforms and technologies, timely
and successful adaptation to such platforms or technologies, the accuracy of
forecasts of consumer demand, product returns, market seasonality, the timing of
orders from major customers and order cancellations, and changes or disruptions
in the consumer software distribution channels and the successful acquisition
and integration of new businesses, products and technologies.
The Company's business has generally been highly seasonal, with net revenues and
operating income normally highest in the first fiscal quarter during the
calendar year-end holiday selling season, lower in the second fiscal quarter,
and lowest in the seasonally slow third and fourth fiscal quarters. The Company
also believes that the market conditions which resulted in the year-over-year
decline in profitability experienced in fiscal 1997 may continue in future
periods. The Company has adjusted its sales and marketing strategy in an effort
to increase prices on several products, and increase net revenues while
maintaining unit volume and market share achieved during fiscal 1997 when prices
on such products were lowered. However, there can be no assurance that the
Company will be successful in implementing the strategy, or that, if
successfully implemented, such strategy will be effective or will generate or
sustain revenue growth, unit volume or market share in the future. In addition
to seasonal and product pricing factors, the Company anticipates that its
results for the last three quarters of fiscal 1998 will be affected by the
timing and the number of new product releases or upgraded versions of existing
products, as well as marketing and promotional expenditures in connection with
the product releases and the timing of product announcements or introductions by
the Company's competitors. Products are generally shipped as orders are
received, therefore sales and operating results depend on the volume and timing
of orders received during the fiscal year, which are difficult to predict. A
significant portion of the Company's operating expenses are relatively fixed and
planned expenditures are based on sales forecasts. Thus, if revenue levels are
below expectations due to either the timing of orders received or delays in
product releases, operating results are likely to be materially adversely
affected. Due to the foregoing factors, the Company believes that quarter to
quarter comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance.
Any significant shortfall in net revenues and earnings from the levels expected
by securities analysts and stockholders could result in a substantial decline in
the trading price of the Company's common stock. There can be no assurance that
the Company's stock price will remain at or near its current level. Moreover,
the Company's stock is subject to the volatility generally associated with
technology stocks and may also be affected by broader market trends or the
results reported by other market
11
<PAGE>
participants. For example, during the first quarter of fiscal 1998, the price
per share of the Company's common stock ranged from $26.88 to $37.25 and during
fiscal 1997 ranged from $18.38 to $35.13.
INDUSTRY AND COMPETITION
End user demand for consumer software has historically been volatile in this
industry, affected by changing technology, limited hardware platform life
cycles, hit products, competition, seasonality, consumer spending and other
economic trends. There can be no assurance that such demand will continue at
existing levels or that there will not be a material slowdown in end user demand
either of which could have a material adverse affect on the Company's future
growth in net revenues. In addition, the intense competition in the consumer
software business continues to accelerate as an increasing number of companies,
many of which have financial, managerial, technical and intellectual property
resources greater than those of the Company, offer products that compete
directly with one or more of the Company's products. In particular, one or more
competitors have actively developed, and aggressively marketed, products
directly competitive to the Company's best-selling series, The Print Shop(R). As
a result, an increasingly large number of products are competing for limited
shelf space. As discussed above and in prior filings, the Company decreased
prices on a number of its products in order to maintain and/or increase market
share, including The Print Shop series, as well as Myst, which placed negative
pressure on net revenues and gross margins. Although the Company has attempted
to increase prices on certain products, there can be no assurance that its
attempts to maintain or increase market share will be successful or that product
prices will not continue to decline as competition increases, and if such
conditions persist, the Company's net revenues and profitability could be
materially and adversely affected. Further, there can be no assurance that sales
of the Company's existing products will continue to sustain market acceptance
and to generate significant levels of revenue in subsequent quarters or that a
shortfall in revenue from any product could be replaced in a timely manner.
In addition, sales of products on older platforms and in certain product lines
have declined, and there can be no assurance that sales of these products will
not decline further or experience lower than expected sales levels. Retailers of
the Company's products typically have a limited amount of shelf space and
promotional resources for which there is intense competition. For example, there
are 21 products available from Living Books and it has become increasingly
difficult to maintain shelf space in the retail channel for all of these
products. There can be no assurance that retailers will continue to purchase all
of these products or provide these products with adequate levels of shelf space
and promotional support. In addition, competition for creative talent, including
independent developers, has also intensified, and the attraction and retention
of key personnel have become increasingly difficult.
PRODUCTS AND PLATFORMS
The Company's future success will depend in large part on its ability to develop
and release new products on a timely basis and to achieve widespread market
acceptance for such products. The Myst sequel product, Riven: The Sequel to
Myst, was released in the first quarter of fiscal 1998, and the initial sales of
the highly anticipated sequel product was the primary reason for the significant
increase in net revenues for the first quarter of fiscal 1998 compared to prior
periods. However, there can be no assurance that revenues from Riven: The Sequel
to Myst will continue at the rate experienced during the initial sell-in period,
nor that the product will achieve prolonged and continued widespread market
acceptance. There can be no assurance that expected new product introductions
will not experience material delays, that new products introduced by the Company
will achieve any significant degree of market acceptance, or that such
acceptance will be sustained for any length of
12
<PAGE>
time. In addition, because the Company expects that the cost of developing and
introducing new products will continue to increase, the financial risks
associated with new product development will increase as will the risks
associated with material delays in the introduction of such new products. The
Company's increased focus and commitment towards the development and
introduction of entertainment titles increases the risk associated with the
development and marketing of products and their market acceptance since the
entertainment sector is more hit-driven, and with titles generally having a
relatively shorter life-cycle. Further, the substantial year-over-year decline
in Myst revenues was not fully replaced until the release of Riven: The Sequel
to Myst, and there can be no assurance that the shortfall from the continuing
decline in Myst revenues will continue to be replaced by its sequel product, or
by other products.
The Company believes that electronic or Internet products and services will
become an increasingly important platform and distribution media. Although the
Company has initiated steps, at significant costs, to take advantage of
opportunities created by the Internet and on-line networks there can be no
assurance that the Company's Internet strategy will be successful, or that the
costs and investments will provide adequate, or any, returns. The Company's
failure to timely and successfully adapt to and utilize such technologies and
media could materially and adversely affect its competitive position and its
financial results. In addition, the Company believes that potential customers
for its software are spending increasing amounts of time online, and therefore
may be less likely to purchase the Company's (and its competitors) software.
Just as the Company competes with other forms of entertainment (e.g., books,
television), the Company now competes with the Internet.
DISTRIBUTION
The distribution channels through which consumer software products are sold have
been characterized by intense competition and continuing uncertainties, and
there can be no assurance that distributors and retailers will continue to
purchase the Company's products or provide the Company's products with adequate
levels of shelf space and promotional support. There is increasing pressure from
distributors and retailers to obtain marketing and promotional funds and
discounts in connection with access to shelf space, in-store promotion and sale
of products which has an adverse impact on the Company's net revenues and
profitability, and there can be no assurance that these pressures will not
continue or increase. In addition, the Company also permits distributors and
retailers to return products under certain circumstances and in recent periods,
the Company has experienced an increase in the rate of returns as the
competition in the distribution channel increases and as mass merchants, office
and warehouse stores become an increasing percentage of the Company's sales. The
Company believes that the rate of product returns may continue at this pace, and
there can be no assurance that return rates will not increase further. The
Company establishes allowances based on estimated future returns of product
after considering various factors, and accordingly, if the level of actual
returns exceeds management's estimates, it could have a material adverse impact
on the Company's operating results. Further, certain distributors and retailers
have experienced business difficulties and there can be no assurance such
difficulties for these or additional distributors and retailers will not
continue which could have an adverse effect on the operating results and
financial condition of the Company. The Company manufactures its products based
upon estimated future sales, and accordingly, if the level of actual orders of
products falls short of management's estimates, inventory levels could be
excessive which could lead to inventory write-offs and have an adverse impact on
the Company's operating results.
Sales to a limited number of distributors and retailers have constituted and are
expected to continue to constitute a substantial amount of the Company's
revenues. Arrangements with these accounts generally may be terminated at any
time by the distributor or retailer. The loss of, a significant
13
<PAGE>
reduction in sales to or inability to collect receivables from, or any other
adverse change in the Company's relationship with, any of the Company's
principal resellers or accounts sold through such resellers could materially
adversely affect the Company's results of operations. In addition, sales of the
Company's products are typically made on credit, with terms that vary depending
upon the customer and the nature of the product. The Company's retailers and
distributors compete in a volatile industry and are subject to the risk of
bankruptcy or other business failure, and certain distributors and retailers
have experienced difficulties. Although the Company maintains a reserve for
uncollectible receivables which it believes is adequate, there can be no
assurance that its reserve will prove to be sufficient or that the difficulties
for these or additional distributors and retailers will not continue, which
could have an adverse effect on the operating results and financial condition of
the Company.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial performance
should not be considered a reliable indicator of future performance, and
investors should not use historical trends to anticipate results or trends in
future periods.
14
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On November 20, 1997, the Company filed a report on Form 8-K which
included the Stock Purchase Agreement by and among Intuit Inc.,
Broderbund Software, Inc. and Parsons Technology, Inc.
15
<PAGE>
SIGNATURE
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 thereunto duly authorized.
BRODERBUND SOFTWARE, INC.
(Registrant)
Dated: January 14, 1998
By: /s/ J. Mark Hattendorf
----------------------
J. Mark Hattendorf
Vice President and
Chief Financial Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 93,819
<SECURITIES> 0
<RECEIVABLES> 105,158
<ALLOWANCES> 42,908
<INVENTORY> 9,782
<CURRENT-ASSETS> 195,255
<PP&E> 35,347
<DEPRECIATION> 16,904
<TOTAL-ASSETS> 244,763
<CURRENT-LIABILITIES> 83,000
<BONDS> 0
0
0
<COMMON> 28,357
<OTHER-SE> 131,456
<TOTAL-LIABILITY-AND-EQUITY> 244,763
<SALES> 99,197
<TOTAL-REVENUES> 0
<CGS> 36,859
<TOTAL-COSTS> 46,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,641
<INCOME-TAX> 6,064
<INCOME-CONTINUING> 15,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,577
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>