<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 10, 2000
NETWORK SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-22967 52-1146119
(State or other (Commission File (I.R.S. Employer
Jurisdiction of Incorporation) Number) Identification Number)
505 Huntmar Park Drive, Herndon, Virginia 20170
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 742-0400
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ITEM 5. OTHER EVENTS.
On February 10, 2000, the Company announced its 1999 fourth quarter and
annual financial results.
A copy of the Company's press release, announcing such financial
results is attached hereto as Exhibit 99.1 and incorporated by reference herein.
This report and the Company's press release attached hereto contain
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from those stated or implied by such
forward-looking statements. The potential risks and uncertainties include, among
others, increased competition, including price competition in the domain name
registration business, customer acceptance of new products and services offered
by the Company in addition to or as enhancements of its registration services,
risks associated with the Company's international business, uncertainty of
Internet privatization, uncertainty of future revenue and profitability and
fluctuations in its quarterly operating results. More information about
potential factors that could affect the Company's business and financial results
is included in the Company's filings with the Securities and Exchange
Commission, especially in the Company's Registration Statement on Form S-3 filed
on December 22, 1999, as amended, Annual Report on Form 10-K for the year ended
December 31, 1998, and Quarterly Reports on Form 10-Q for the periods ended
March 31, 1999, June 30, 1999, and September 30, 1999, which are on file with
the Securities and Exchange Commission (http://www.sec.gov).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
99.1 Text of Press Release dated February 10, 2000
SIGNATURES
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 hereunto duly authorized.
NETWORK SOLUTIONS, INC.
Date: February 10, 2000 By: /s/ JONATHAN W. EMERY
-------------------------
Jonathan W. Emery
Senior Vice President, General
Counsel and Secretary
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NETWORK SOLUTIONS, INC.
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
99.1 Text of Press Release dated February 10, 2000
<PAGE> 1
NETWORK SOLUTIONS ANNOUNCES RECORD 1999
FOURTH QUARTER AND ANNUAL REVENUE AND EARNINGS
<TABLE>
<CAPTION>
Financial Highlights Fourth Quarter 1999 Full Year 1999
<S> <C> <C>
Net new registrations 1.6 million 5.0 million
International net new registrations 539,000 1.5 million
Net revenue $75.9 million $220.8 million
Cash from operations $90.3 million $198.6 million
Net income $9.0 million $26.9 million
Earnings per share $0.25 per share $0.77 per share
</TABLE>
Herndon, Va., February 10, 2000 - Network Solutions, Inc. (NASDAQ: NSOL)
today reported record net revenue of $75.9 million for the three months ended
December 31, 1999, up 143 percent from $31.3 million in the quarter one year
ago. Operating income increased 160 percent to $11.8 million in the quarter
versus $4.5 million for the fourth quarter of 1998. Net income increased 142
percent to a record $9.0 million or $0.25 per share on a diluted basis, compared
to $3.7 million or $0.11 per share for the same quarter last year.
Net revenue was $220.8 million in 1999 versus $93.7 million last year, an
increase of 136 percent. Operating income grew 171 percent to $35.7 million from
$13.2 million in 1998. For 1999, net income increased 139 percent to $26.9
million or $0.77 per share on a diluted basis, compared to $11.2 million or
$0.34 per share last year.
Network Solutions' Registrar (NSI Registrar) registered a record 1.6
million net new domain names in the fourth quarter of 1999, up 161 percent from
the fourth quarter 1998 total of 621,000 names and up 23 percent from the third
quarter 1999 total of 1.3 million. For 1999, the NSI Registrar registered 5.0
million net new domain names versus 1.9 million in 1998. Network Solutions'
cumulative total of net registrations grew 140 percent from nearly 3.4 million
at December 31, 1998 to over 8.1 million at December 31, 1999.
In the fourth quarter of 1999, the number of the NSI Registrar's net new
international registrations in .com, .net and .org totaled 539,000, up 220
percent from the fourth quarter 1998 total of 168,000. For 1999, the NSI
Registrar registered more than 1.5 million net new international registrations
versus 532,000 in 1998.
Non-NSI Registrars registered an additional 890,000 names with Network
Solutions' Registry in 1999. Currently, 26 additional registrars are operational
and registering domain names in .com, .net and .org.
"In the fourth quarter, we began to see the tremendous untapped potential
for Internet identities worldwide as new registrations grew 50 percent from the
previous quarter," said Jim Rutt, chief executive officer, Network Solutions.
"In addition to growth in new registrations, we sold value added services to
approximately 17 percent of our Registrar's 1.6 million registrations in the
quarter."
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"Cash from operations grew 213 percent to $199 million in 1999, of which
$90 million was in the fourth quarter alone," said Robert Korzeniewski, chief
financial officer, Network Solutions. "Upon the completion of our latest common
stock offering and based on our most recent balance sheet, we will have cash and
investments of approximately $850 million, which is a powerful war chest for
strategic investments and acquisitions during the year. We also enter 2000 with
a balance sheet that has never been stronger with $362 million of deferred
revenue."
1999 and recent highlights include:
* NSI, DoC and ICANN Agreements - In November 1999, Network Solutions,
the U.S. Department of Commerce (DoC) and the Internet Corporation for
Assigned Names and Numbers (ICANN) entered into a series of
wide-ranging agreements relating to the future of the Internet's
domain name system. Under the terms of the agreements, Network
Solutions was made an accredited registrar through November 2004 with
a right to renew indefinitely, and will also operate the registry for
.com, .net and .org for at least four years. If the ownership of NSI's
registrar and registry operations is separated by May 2001 in
accordance with the agreement, the term of the registry agreement will
extend an additional four years to November 2007.
* NSI Registry Multiyear Offering - On January 15, 2000, NSI's Registry
began offering all registrars the ability to register domain names in
one-year increments from 1 to 10 years. For its role in the domain
name registration process, the NSI Registry collects $6 per
registration per year, unless increased to cover higher registry
costs.
* Strategic Marketing Agreements - Network Solutions expanded its
worldwide distribution channel programs with small business, financial
services and technology leaders, entering into agreements with
Yupi.com, Yahoo! (NASDAQ: YHOO), UPS (NYSE: UPS), Netscape, Microsoft
(NASDAQ: MSFT), Looksmart (NASDAQ: LOOK), InfoSpace (NASDAQ: INSP),
IBM (NYSE: IBM), Hewlett Packard (NYSE: HWP), GTE SuperPages.com?,
Go2Net, Inc. (NASDAQ: GNET), eFax (NASDAQ: EFAX), AltaVista and
American Express (NYSE: AXP), among others.
* NSI Registrar Alliance, Premier and Affiliate Channels - Network
Solutions expanded its relationships with some of the world's leading
Internet Service Providers and Web hosting companies, enhancing its
affiliations with its key Alliance partners EarthLink (NASDAQ: ELNK),
Interliant, Inc. (NASDAQ: INIT) and Interland. The NSI Registrar
signed agreements with over 150 new channel partners in 1999 for a
total of 240 partners. Among them are global telecommunications
providers including British Telecom (NYSE: BTY), Telecom Italia (NYSE:
TI), KPN Telecom (NYSE: KPN), China Telecom (NYSE: CHL), Korea Telecom
(NYSE: KTC), Singapore Telecom, and Hong Kong Telecom. The NSI
Registrar also added over 30,000 Affiliate members during 1999 for a
current total of 41,000 Affiliates.
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* New Product Offerings - In 1999, Network Solutions launched the dot
com directoryTM, the Company's find engine for online businesses.
Since launch, Network Solutions has logged 20 million impressions. In
addition, to serve the large number of small businesses coming online,
Network Solutions introduced the dot com essentialsT service in 1999,
a turnkey package that gives small businesses and individuals tools
they need to establish a professional online presence including a Web
address, a dot com mailT e-mail service, a dot com biz cardT one-page
Web site, and a listing in the dot com directory. IdNamesT announced
additional corporate services to meet the growing needs of global
companies including anonymous registrations and maintenance services.
Through its acquisition of ImageCafe, Network Solutions allows small
businesses to design professional Web sites.
* Legal and Regulatory Decisions - Recently, the United States Supreme
Court declined to hear a petition by William Thomas, et al,
challenging the company's right to charge fees for its registration
services. The Court's denial ends a series of legal actions that
started in October 1997. Additionally, the NSI Registry, which serves
as the administrator of the primary root zone server for the Internet,
was held by the U.S. Court of Appeals for the 2nd Circuit (New York),
in the NameSpace (formerly PG Media) decision, to be immune from
antitrust liability with respect to its refusal to add new generic Top
Level Domains (gTLDs) to the root zone file under the direction of the
National Science Foundation. In addition, the United States Department
of Justice's Antitrust Division and the European Commission recently
closed their respective investigations of Network Solutions, in each
case without any enforcement action.
About Network Solutions
Founded in 1979, Network Solutions, Inc. (NASDAQ: NSOL) pioneered the
development of registering Web addresses ending in .com, .net, .org and .edu and
is the world's leading Registrar with more than 8.1 million net registrations.
Separately, Network Solutions plays a critical role in the infrastructure of the
Internet through its Registry business. Network Solutions' Registry customers
include all the Registrars of domain names ending in .com, .net and .org.
Network Solutions also provides Internet Technology Services that assist large
commercial organizations in the evolution and management of their Internet
technologies. For more information, see the www.netsol.com/nsi Web site.
Statements in this announcement other than historical data and information
constitute forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those stated or implied by
such forward-looking statements. The potential risks and uncertainties include,
among others, increased competition, including price competition, in the domain
name registration business, customer acceptance of new products and services
offered by the company in addition to or as enhancements of its registration
services, risks associated with acquisitions and investments, risks associated
with the company's international business, potential volatility in the company's
stock price, uncertainty of Internet privatization, uncertainty of future
revenue and profitability and fluctuations in its quarterly operating results.
More information about potential factors that could affect the company's
business and financial results is included in the company's filings with the
Securitie s and Exchange Commission, especially in the company's Registration
<PAGE> 4
Statement on Form S-3 filed on December 22, 1999, as amended, and previous
Securities and Exchange filings.
For Network Solutions, Media: Cheryl Regan, [email protected], 703/742-4847,
Investor Relations: Sean McClorey, [email protected], 703-326-6090, Customer
Service, 703/742-4777
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Network Solutions, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Net revenue $31,257,000 $75,926,000 $93,652,000 $220,811,000
Cost of revenue 12,079,000 27,566,000 38,530,000 81,606,000
Gross profit 19,178,000 48,360,000 55,122,000 139,205,000
Research and
development expenses 1,928,000 3,624,000 4,821,000 10,989,000
Selling, general
and administrative
expenses 12,706,000 32,936,000 37,144,000 92,517,000
Interest income (1,880,000) (3,616,000) (6,303,000) (9,928,000)
Other expenses 23,000 7,000 116,000 52,000
Income before
income taxes 6,401,000 15,409,000 19,344,000 45,575,000
Provision for
income taxes 2,683,000 6,394,000 8,109,000 18,689,000
Net income $3,718,000 $9,015,000 $11,235,000 $26,886,000
Earnings per common share:
Basic $0.11 $0.27 $0.35 $0.81
Diluted $0.11 $0.25 $0.34 $0.77
Shares used in computing earnings per common share
Basic 32,498,000 33,598,000 31,958,000 33,338,000
Diluted 34,312,000 35,627,000 33,396,000 34,953,000
</TABLE>
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Network Solutions, Inc.
Statements of Financial Position
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $12,862,000 $196,589,000
Short-term investments 118,808,000 112,523,000
Accounts receivable, net 22,628,000 31,916,000
Income taxes receivable - 16,193,000
Prepaids and other assets 4,001,000 8,809,000
Deferred tax asset 40,508,000 102,563,000
Total current assets 198,807,000 468,593,000
Furniture and equipment, net 16,005,000 57,406,000
Long-term investments 13,590,000 62,475,000
Deferred tax asset 14,831,000 28,197,000
Goodwill, net 634,000 6,379,000
Total assets $243,867,000 $623,050,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $28,287,000 $52,957,000
Due to SAIC 4,766,000 30,177,000
Income taxes payable 5,409,000 1,045,000
Current portion of
capital lease obligations 834,000 247,000
Deferred revenue, net 93,720,000 255,307,000
Total current liabilities 133,016,000 339,733,000
Capital lease obligations 247,000 -
Long-term deferred revenue, net 35,474,000 106,332,000
Other long-term liabilities - 639,000
Total liabilities 168,737,000 446,704,000
Commitments and contingencies - -
</TABLE>
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<TABLE>
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.001 par value,
authorized 10,000,000
shares; none issued and
outstanding in 1998 and 1999 - -
Common stock, $.001 par value;
authorized 210,000,000
shares; 33,882,000 issued and
outstanding in 1999 - 34,000
Class A common stock, $.001 par value;
authorized 100,000,000 shares
in 1998; 9,140,000 issued
and outstanding in 1998 9,000 -
Class B common stock, $.001 par value;
Authorized 30,000,000 shares
in 1998; 23,850,000 issued and
outstanding in 1998 24,000 -
Additional paid-in capital 72,331,000 117,289,000
Retained earnings 2,407,000 29,293,000
Accumulated other
comprehensive income 359,000 29,730,000
Total stockholders' equity 75,130,000 176,346,000
Total liabilities
and stockholders' equity $243,867,000 $623,050,000
</TABLE>
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Network Solutions, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Twelve Months Ended
December 31, December 31,
1998 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $11,235,000 $26,886,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,754,000 12,223,000
Provision for uncollectible accounts receivable 2,247,000 -
Deferred income taxes (27,317,000) (95,823,000)
Tax benefit associated with stock options 5,607,000 34,843,000
Change in operating assets and liabilities:
Increase in accounts receivable (19,083,000) (9,288,000)
Increase in income taxes receivable - (16,193,000)
Increase in prepaid and other assets (2,996,000) (4,808,000)
Increase in accounts payable
and accrued liabilities 21,861,000 22,655,000
Increase (decrease) in income taxes payable 367,000 (4,364,000)
Increase in deferred revenue 67,743,000 232,445,000
Net cash provided by operating activities 63,418,000 198,576,000
Cash flows from investing activities:
Purchase of furniture and equipment (13,070,000) (52,778,000)
Acquisition of businesses, net of cash acquired - (3,936,000)
Redemption (purchase) of short-term investments (77,990,000) 9,479,000
Purchase of long-term investments, net (13,590,000)( 11,656,000)
Proceeds from maturity of long-term investments - 9,350,000
Net cash used in investing activities (104,650,000) (49,541,000)
Cash flows from financing activities:
Net transactions with SAIC 3,516,000 25,411,000
Repayment of capital lease obligations (842,000) (834,000)
Issuance of common stock
pursuant to stock plans 10,274,000 10,115,000
Net cash provided by financing activities 12,948,000 34,692,000
Net increase in cash and cash equivalents (28,284,000) 183,727,000
Cash and cash equivalents, beginning of period 41,146,000 12,862,000
Cash and cash equivalents, end of period $12,862,000 $196,589,000
</TABLE>
