FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (TMF Debit)

Broderbund Software
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500 Redwood Boulevard
Novato, CA 94948-6121
(415) 382-4400
http://www.broderbund.com

UNION CITY, CA (June 23, 1997)/FOOLWIRE/ --- Broderbund Software reported their third quarter 1997 results after the market close on June 19th. Revenue increased 12% to $39.3 million. The company broke even, so they posted zero EPS. For the first nine months, revenue has declined 6% over the same period last year and, excluding the one -time charge they incurred in the second quarter in connection with Living Books and the one time gain last year they realized due to a termination fee, net income for the nine month period is $12.1 million compared to $31.7 million in the same period last year. Taking those two one-time charges into account, net income has declined to $5.4 million compared to $41 million in the year earlier period.

QUARTER REVENUE BREAKDOWN BY CATEGORY. Revenue of $39.3 million breaks down by category and what they have done for comparable purposes is reclassified Living Books revenue from prior periods into the education category. During the quarter, productivity software was up 42% and represented 54% of their sales. Productivity increases in Q3 were the result of releasing 3 Home Interiors and an updated version of 3D Home Architect as well as 3 new ClickArt packs -- a 40,000 graphic package, a 65,000 graphic package, and a 125,000 package. Entertainment was down 21% and represented 17% of sales. Entertainment, although it continued to decline, has not declined as much and that was obviously the result of the decline in sales of Myst and that was partially offset by the release of Last Express in the third quarter. Education was down 9% and represented 27% of sales. Education was impacted by the number of new products they released this year. They center around four Learning Advantage libraries as compared to the same period in the prior year. Affiliated labels represented 2% of sales in Q2 and were negligible in the same period in the prior year without Living Books.

NINE-MONTH REVENUE BREAKDOWN BY CATEGORY. For the first nine months, revenue of $145 million breaks down as follows. Productivity software is up 12% and represents 52% of year-to-date sales. Entertainment is down 34% representing 15% of sales. Education is down 9% representing 30% of sales. Affiliated labels is down 29% and represents 4% of sales.

GROSS MARGINS. Gross margins in the quarter, at about 67%, is up from the first two quarters attributable to the fact that affiliated labels is only 2% of revenue. Looking forward at gross margins in Q4, Broderbund expects them to remain in the mid-60% range. That has to do with the mix and in some cases they are getting a little improvement in prices which was demonstrated in PC Data the last couple months.

OPERATING EXPENSES. Operating expenses for the quarter total $26.4 million. This is an increase of 69%. It is up slightly over the second quarter. This is primarily attributable to sales and marketing expenses. Given where they are, they are spending money in advance of product releases, especially in their entertainment category and during this quarter they had a big press event announcing the Red Orb studio. R&D is also increasing, obviously in part because they have picked up the Living Books group for the full quarter and also headcount has increased as they are increasing their development efforts.

BALANCE SHEET. Cash at the end of the quarter was $127 million. That reflects a decline of about $17 million. The primary reason for that was tax payments that they make in the March and April time period as well as a stock repurchase and additions to royalty advances and online investments and equipment purchases they are making in connection with infrastructure development. Accounts receivable at the end of the quarter is $15.6 million, up slightly compared to the end of the second quarter. The reserve balance is $26.5 million, down from the end of the last quarter. However, in their third quarter is when they seasonally customarily realize most of the returns that were received from the seasonal selling period. This is in line with what happened in the prior year quarter except that in absolute dollars the returns were well above that experienced last year, so the adjustment for the reserve was in line with the actual returns.

AGGRESSIVE PRODUCT CYCLE. Obviously they are not satisfied with their results this quarter, even recognizing that this quarter is a relatively slow selling season and that according to PC Data the overall growth rate has slowed compared to the same period in the prior year. In Broderbund's case there are a couple of reasons focusing on the expense level. They consistently discussed with their stockholders and analysts on Wall Street that follow them that there are really two main reasons. The first is that they took a very aggressive product cycle this year and they are nearing completion of that cycle. To-date they have released 20 new products compared to 12 in the same period last year and both of those include Living Books. Those 20 titles do not include upgrades or affiliated label titles, those are in-house developed or published.

ENTERTAINMENT TITLES COMING. Some of the more significant projects they have been working on which were either released this quarter or will be released between now and the Christmas selling season include: Blast Express, Warlords 3, Take No Prisoners, and Riven -- the long-awaited sequel to Myst.

PRINT SHOP. In the Print Shop area they are releasing in Q4 the Print Shop Premiere Edition. This is a total rewrite of the product, all new code, and is based on consumer research they conducted. The results of the research said that the product should be focused on 3 methods -- starting a project from scratch, a step-by-step guide to walk you through how to accomplish the tasks you would like to initiate, and setting up quick-step layouts so that the consumer that is accustomed to the product can go right to it and select what they want to use. Broderbund thinks that this product will get rave reviews. They are combining it with Press Writer which was released in the second quarter to form a publishing suite. These two products will be integrated much as the Microsoft Office products are integrated. Another product is Print Shop Signature Greeting. This product features art from Marcel Sherman. On the West Coast it is better know in the Papyrus chains but are expanding. These are very high quality products and really takes advantage of the photo quality printers that are being released on the market by HP, Canon, and Epson. They will also be releasing Print Shop Live Mail as well as another 200,000 pack in the ClickArt line. Print Shop Live Mail is email that actually moves. The personalized animated greetings include sound, it goes over the Internet, and only the sender really needs the Live Mail product to make it work. All the receiver needs is access to the Internet and a browser.

BANNER BLUE RELEASES. From Banner Blue this quarter they are releasing Family Tree Deluxe Edition 3 which contains 9 CDs which incorporates a number of their best archives. It has full Internet search capabilities for genealogical searches of one's ancestors and there are new layout and printing capabilities including web page capability. The search feature also covers the archive CDs to tell people which CDs they should buy to find more information. This helps drive additional sales.

NEW EDUCATION RELEASES. From their education group they have 3 new Success Starters -- Preschool, Kindergarten, and First Grade. They have also done a rewrite of Math Workshop. The Cat in the Hat from Dr. Seuss will be released as well as Where in Time is Carmen Sandiego and, taking the Carmen franchise to more educational products, the first one will be Carmen Sandiego Word Detective.

PRODUCTIVITY RELEASES. From the productivity group this quarter they released 3D Home Interiors and an update to 3D Home Architect.

MARKETING COSTS FOR NEW RELEASES. In addition to the development costs they have been incurring, the second reason impacting their results this quarter and next quarter is where they are in their product cycle. Because they are introducing more entertainment products this year, they must market those products in advance of their release to really generate the buzz at the time of their release. Historically productivity and education marketing costs coincide with the release of those products so Broderbund is incurring expenses in advance of revenue which is sort of new to Broderbund this year. Also, the market has been requiring that they spend more to promote their products and they believe this is important because it will result in improved sell-through. These costs take a variety of forms and they are monitoring, to the extent possible, their returns on those investments. They have made progress as their channel inventory levels are lower than in the prior quarter on an absolute basis, but higher than they would like them to be given this time of the year.

HIGHER THAN NORMAL RETURNS. Also impacting results this quarter were higher than normal returns, primarily in the Print Shop line due to release of upgraded versions at the end of Q2.

OUTLOOK. Looking forward, they would expect their revenue and operating results in Q4 to be comparable to the Q3 level, with the exception that should they close the Parsons deal, they will obviously realize a loss on the in-process writeoff which would cause a loss for the quarter. They are also spending to develop new capabilities such as online commerce which they plan to introduce in July. So, for Q4, they anticipate that operating expenses will remain at about the same level as they were in Q3. They are looking at reducing expenses in areas other than those critical to ensure the timely and successful delivery of their products to market. But the key to their return to profitability is the success of their new products and their direct-to-consumer efforts. They have a lot of confidence and are positioning them with the retail channel for the upcoming Christmas season.

PARSONS ACQUISITION. During this quarter, Broderbund signed a letter of intent with Intuit to acquire Parsons Technology. This excludes the Parsons tax business. They are in the process of completing due diligence and drafting the definitive agreement. Both of these activities are progressing as planned and they are confident they will be able to accomplish these tasks and close this transaction before the end of this quarter. This transaction will be accounted for as a purchase for which they intend to use cash and it is their estimate at this time that at least 50% of the purchase price will be allocated to in-process technology and charged to expense at the time of closing. They anticipate that Parsons will provide additional opportunities to leverage their combined cost structure as well as delivering new customers to Broderbund's product line.

DIRECT-TO-CONSUMER EFFORTS. Parsons should help their direct-to-consumer efforts significantly. Retail has been and will be their number one priority. That is where they will still sell the large majority of their goods and it is the place that is the most efficient distribution system. But, they have been interested in direct-to-consumer for quite a long time. They have hired quite a few people recently with direct-to-consumer backgrounds. They most recently hired a senior manager out of American Express. They are doing this because there is an 80/20 rule in this business but it is not the usual one people think about. The odds are 20% that if you walk into a retail store you will be able to find the title you are looking for that is currently on the market. The facts are that there is an 80% chance that title will not be there. Broderbund knows too that there are some consumers who will always prefer direct as a way they would like to buy. Additionally, Broderbund's titles are lasting longer and longer. They have always been known as a company that wanted to produce evergreen titles. But, looking at Living Books, that is a very clear example. They have nearly 20 titles and the stories are everlasting, they don't go out of style, and the code in them is still good. Broderbund anticipates looking at the technology right now, that the code they have produced in the last couple of years is going to be good for more than another couple of years. Given that they have a significant investment so their goal is to develop a combined integrated system that incorporates inbound, outbound, direct mail, and online. They feel they are good at online commerce and are going to get much better. They feel that online cannot exist as effectively as it needs to without good direct mail and good outbound. The reason is that, to a large measure, online is a passive medium and they need to have an active intrusion to prompt people to make some of the purchases.

COMPANY CULTURES ARE A GOOD FIT. Parsons is a culture of people who fit in very well with the culture at Broderbund. When they were with Intuit, they were never really integrated into the operation because, for Intuit, it wasn't something that was their core business. Parsons have really wanted to become a part of a company. So, Broderbund is underway with that and have made visits there and have a new person who will spend half of his life in Cedar Rapids at Parsons. They are going to find some Cedar Rapids people to come and live in San Francisco. This week they had 25 of Parsons top managers and employees out for a visit to Broderbund.

GOOD PENETRATION OF HOME SOFTWARE MARKET. Parsons vision for the business is the same as Broderbund. Broderbund has used some of Parsons lists for direct mail and found the results very encouraging. Parsons has a list of about 3.9 million software purchasers. Broderbund has a list of about 3 million purchases. When they merge the lists they expect that to net out to 6 million. Looking at the forecast at-home computer penetration and the multimedia portion of that there are about 18 million multimedia sets in use. So, they are approaching about a third of the names of households and people who have multimedia computers. They think that is going to give them a real opportunity to move a lot of their product that is currently not getting the play that it needs at retail. They think it will be a competitive advantage as well. Thusfar they have explained to the retailers exactly what they are doing. They are actually going to take those 6 million names and turn it around and deliver 6 million customers and drive not only business directly to homes, but also back into stores for offers where they can go and make redemptions at the store level.

PLANS TO INCORPORATE AND SUPPORT PARSONS TITLES. They have gotten a couple of arms-length transactions with Parsons to the extent that they are going to be including quite a few of their titles in Parsons' mailing this Summer. They are also looking to Parsons for some work potentially on some inbound phoning. They will be working on a thing called experience curves. Those are the mathematical algorithms they need to understand list, offer, and price on a test basis so they can then apply strong funding behind those experience curves. Their anticipation is that they will spend the first half of next fiscal year doing that and then should be in a position to leverage that more aggressively in the second half of the year. They think this is the right thing strategically for Broderbund to be doing in this market right now and they feel good about the actions they are taking.

THE E3 TRADE SHOW. At the E3 trade show, Broderbund's booth was reasonably well attended and was very well attended during the press announcement of Riven, the sequel to Myst. Attending were Rand and Robyn Miller as well as Richard Vander Wende who has been helping develop the product. They showed the product and actually got, from a very cynical audience, some applause which they thought was noteworthy. The product will be out for the Christmas selling season this year. The developers explained also that if you are a Myst user, you start in the same spot where you ended Myst and if you were not a Myst user, it is relatively easy for people to pick up and take off. They explained a couple of things about the basic format. Once again the player is on an island in the sense that you can explore different worlds. But they didn't explain a whole lot about the game play because the real excitement in the game play is discovery. They got a good review on the multiplayer station demo. They are not giving pricing for the product yet.

DEAL WITH NICKELODEON. Broderbund entered into an exclusive arrangement with Nickelodeon to develop educational software products using their Rug Rat characters. This is going to give them two additional titles each over the next three years.

STOCK REPURCHASE. Broderbund repurchased an additional 100,000 shares of their common stock in the open market.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.