<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
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: 0-26310
NETSCAPE COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3200270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 East Middlefield Road, Mountain View, California 94043
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (415) 254-1900
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 [ ]
The number of shares outstanding of the registrant's Common Stock as of July 31,
1996 was 84,493,997.
<PAGE> 2
INDEX
NETSCAPE COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
<S> <C> <C>
(a) Condensed Consolidated Balance Sheets
as of June 30, 1996 and December 31, 1995.................................................... 3
(b) Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1996 and 1995.................................... 4
(c) Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995.............................................. 5
(d) Notes to Condensed Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 20
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 20
Item 6. Exhibits and Reports on Form 8-K............................................................. 21
Signatures................................................................................................. 22
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETSCAPE COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 54,997 $ 55,276
Short-term investments 85,214 96,841
Accounts receivable, net 58,045 27,099
Other current assets 11,370 6,405
--------- ---------
Total current assets 209,626 185,621
Property and equipment, net 57,445 20,872
Long-term investments 35,191 21,714
Other assets 4,805 2,947
--------- ---------
$ 307,067 $ 231,154
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,927 $ 8,533
Accrued compensation and related liabilities 11,064 6,567
Other accrued liabilities 13,281 6,111
Deferred revenues 64,616 30,032
Current portion of long-term obligations and
installment notes payable 1,379 1,326
--------- ---------
Total current liabilities 119,267 52,569
Long-term obligations and installment notes payable 948 1,198
Stockholders' equity:
Preferred stock, common stock and additional paid-in capital 211,467 207,196
Notes receivable from stockholders (425) (763)
Deferred compensation (7,356) (8,584)
Unrealized gain on available-for-sale securities 1,748 2,157
Accumulated deficit (18,639) (22,716)
Accumulated translation adjustment 57 97
--------- ---------
Total stockholders' equity 186,852 177,387
--------- ---------
$ 307,067 $ 231,154
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
NETSCAPE COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1996 1995 1996 1995
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Product revenues $ 62,296 $ 13,095 $ 111,347 $ 19,152
Service revenues 12,710 977 19,780 1,365
-------- -------- --------- --------
Total revenues 75,006 14,072 131,127 20,517
Cost of revenues:
Cost of product revenues 9,703 982 16,514 1,413
Cost of service revenues 2,325 337 4,008 537
-------- -------- --------- --------
Total cost of revenues 12,028 1,319 20,522 1,950
-------- -------- --------- --------
Gross profit 62,978 12,753 110,605 18,567
Operating expenses:
Research and development 17,826 5,105 31,952 7,932
Sales and marketing 32,506 8,224 58,311 12,935
General and administrative 6,018 2,612 11,224 4,986
Merger related charges 6,100 - 6,100 -
Property rights agreement and related charges - - - 500
-------- -------- --------- --------
Total operating expenses 62,450 15,941 107,587 26,353
-------- -------- --------- --------
Operating income (loss) 528 (3,188) 3,018 (7,786)
Interest income, net 1,878 396 4,309 487
Equity in net losses of joint ventures (416) - (416) -
-------- -------- --------- --------
Interest and other income, net 1,462 396 3,893 487
-------- -------- --------- --------
Income (loss) before income taxes 1,990 (2,792) 6,911 (7,299)
Provision for income taxes 1,084 - 2,416 -
-------- -------- --------- --------
Net income (loss) $ 906 $ (2,792) $ 4,495 $ (7,299)
======== ======== ========= ========
Net income (loss) per share $ 0.01 $ (0.04) $ 0.05 $ (0.10)
======== ======== ========= ========
Shares used in computing net income (loss) per share 87,937 69,919 86,470 69,917
======== ======== ========= ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
NETSCAPE COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1996 1995
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 4,495 $ (7,299)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities net of
companies acquired:
Depreciation and amortization 5,152 799
Amortization of deferred compensation 1,228 1,275
Changes in assets and liabilities:
Accounts receivable (30,943) (8,298)
Other current assets (4,951) (853)
Accounts payable 20,244 3,301
Accrued compensation and related liabilities 4,487 1,460
Other accrued liabilities 6,845 562
Deferred revenues 34,584 12,822
--------- ----------
Net cash provided by operating activities 41,141 3,769
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (41,641) (5,196)
Increase in other assets (1,847) (541)
Purchases of investments available-for-sale (259,059) (18,967)
Maturity of investments available-for-sale 174,921 -
Sale of investments available-for-sale 81,879 -
-------- ----------
Net cash used in investing activities (45,747) (24,704)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of installment notes payable - 2,243
Payments on installment notes payable (197) (137)
Proceeds from issuance of preferred and common stock, net 4,326 22,916
-------- ----------
Net cash provided by financing activities 4,129 25,022
Net increase (decrease) in cash and cash equivalents (279) 4,087
Cash and cash equivalents at beginning of period 55,276 10,021
-------- ----------
Cash and cash equivalents at end of period $ 54,997 $ 14,108
======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 282 $ 223
======== ==========
</TABLE>
See accompanying notes.
5
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NETSCAPE COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary for a fair
presentation of the results for the periods shown. The results of operations for
such periods are not necessarily indicative of the results expected for the full
fiscal year or for any future period. The accompanying financial statements
should be read in conjunction with the audited consolidated financial statements
of Netscape Communications Corporation ("Netscape" or the "Company") for the
year ended December 31, 1995 and the notes thereto and the unaudited condensed
consolidated financial statements for the quarter ended March 31, 1996. Certain
prior period balances have been reclassified to conform with the current period
presentation.
All results have been restated to reflect the Company's acquisition of InSoft,
Inc. ("InSoft") which has been accounted for as a pooling of interests.
Operating results since January 1, 1996 have been restated to reflect the
Company's acquisitions of Netcode Corporation ("Netcode") and Paper Software,
Inc. ("Paper"). Operating results for 1995 and prior periods have not been
restated to reflect the acquisitions of Netcode and Paper as such adjustments
are immaterial.
PER SHARE DATA
Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of the incremental common shares
issuable upon the exercise of stock options and warrants using the treasury
stock method.
CASH, CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
Cash and cash equivalents consist of cash on deposit with banks and money market
instruments with original maturity dates of 90 days or less. Short and long-term
investments, all of which are classified as available-for-sale, consist of high
quality debt securities with original maturity dates between 90 days and five
years. Available for sales securities are stated at fair value as determined by
the quoted market prices of the securities.
BUSINESS COMBINATIONS
In April 1996, the Company completed its acquisition of InSoft, a provider of
network-based communications and collaborative software for the enterprise, in a
transaction accounted for as a pooling of interests. Under the terms of the
agreement, Netscape purchased all of the outstanding capital stock and assumed
all of the outstanding stock options of InSoft, a privately held company, for an
aggregate of 2.0 million shares of Netscape stock. The Company incurred direct
transaction costs of $5.1 million in the acquisition, primarily associated with
fees for investment banking, legal, accounting, severance costs and other
related charges, which were charged to operations during the quarter ended June
30, 1996. The results of operations for InSoft are included in the consolidated
results of operations for all periods.
In April 1996, the Company completed its acquisition of Netcode, a creator of a
Java-based visual interface builder and object toolkit for rapidly developing
Java applications, in a transaction accounted for as a pooling of interests.
Under the terms of the agreement, Netscape purchased all of the outstanding
capital stock and assumed all of the outstanding stock options of Netcode, a
privately held company. The Company incurred direct transaction costs of
$300,000 associated with the transaction which were charged to operations during
the quarter ended June 30, 1996. The historical results of operations for
Netcode are not material in relation to those of Netscape and financial
information for 1995 and prior periods has not been restated to reflect the
merger. Operating results since January 1, 1996, however, have been restated to
reflect the operating results of Netcode.
6
<PAGE> 7
In May 1996, the Company completed its acquisition of Paper, a provider of
distributed three-dimensional graphics and maker of WebFX VRML software, in a
transaction accounted for as a pooling of interests. Under the terms of the
agreement, Netscape purchased all of the outstanding capital stock and assumed
all of the outstanding stock options of Paper, a privately held company. The
Company incurred direct transaction costs of $700,000 associated with the
transaction which were charged to operations during the quarter ended June 30,
1996. The historical results of operations for Paper are not material in
relation to those of Netscape and financial information for 1995 and prior
periods has not been restated to reflect this merger. Operating results since
January 1, 1996, however, have been restated to reflect the operating results of
Paper.
JOINT VENTURES
The Company entered into two joint ventures during the quarter ended June 30,
1996 which required the contribution of certain technology licenses and cash for
an approximately 50% interest in each of the companies. The Company reports its
share of earnings and losses of the joint ventures under the equity method of
accounting. Each of the joint ventures is in the development stage and will
incur escalating losses in the near term. The balance of investments in joint
ventures at June 30, 1996 was insignificant.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's operating performance each quarter is subject to various risks and
uncertainties as discussed in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (the "Form 10-K"), the First Annual Report 1995 to
Stockholders (the "Annual Report") and the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 (the "Form 10- Q"). The following discussion should
be read in conjunction with the section entitled "Factors Affecting the
Company's Business, Operating Results and Financial Condition" in the Form 10-K
and the section entitled "Management's Discussion and Analysis" in the Annual
Report. In addition, the factors set forth below in "Factors Affecting Operating
Results" could affect the Company's future operating results.
OVERVIEW
Netscape Communications Corporation ("Netscape" or the "Company") is a leading
provider of open client and server software, commercial applications and
development tools that link people and information over the Internet and private
transmission control protocol/internet protocol ("TCP/IP") networks. The Company
was incorporated in April 1994, and completed its acquisitions of Collabra
Software Inc. in November 1995 and InSoft in April 1996. Each of the
acquisitions was treated as a pooling of interests for accounting purposes, and
accordingly, the historical financial statements for the Company have been
restated as if the transactions occurred at the beginning of the earliest period
presented. The Company additionally completed its acquisitions of Netcode and
Paper in April and May 1996, respectively, in transactions accounted for as
pooling of interests. The historical results of operations for Netcode and Paper
are not material in relation to those of Netscape and financial information for
1995 and prior periods has not been restated to reflect the acquisitions.
Operating results since January 1, 1996, however, have been restated to reflect
the operating results of Netcode and Paper.
In the second quarter of 1996, Netscape experienced significant growth in
several aspects of its business. Revenues of $75 million reflected an increase
of 34% over the immediately prior quarter. In addition, the Company continued to
make investments in all aspects of its business in order to enable growth. Such
investments included the hiring of permanent and contract labor in research and
development, the expansion of facilities in both the United States and Europe,
ongoing investment in sales and marketing programs, and the implementation of
major management information systems across the majority of the Company's
functional areas. Operating income of $6.6 million, excluding $6.1 million in
merger related charges in the quarter, reflected an increase of 166% over the
immediately prior quarter. Including merger related charges, operating income
declined from $2.5 million to $528,000 quarter to quarter.
The Company believes that significant ongoing investment in all areas of the
business will continue to be critical to the success of Netscape. Specifically,
the Company plans to continue increasing its operating expenses to fund greater
levels of research and development, expand the direct sales force and
international sales and marketing operations, improve core management
information systems and broaden customer support capabilities. In addition, the
Company believes that there will be increases in operating expenses associated
with the development and integration of new products, technologies and employees
acquired as part of the acquisitions of InSoft, Netcode and Paper. The Company
believes that the increases in operating expenses associated with the
development and integration of these new products, technologies and employees
will, in the near term, greatly exceed any associated increases in revenues.
Furthermore, the Company continues to seek acquisitions, strategic investments
and joint ventures that complement the Company's overall business strategy. As a
result of these factors, the Company directs a significant percentage of its
revenues towards operating expenses and towards non-operating expenses
associated with equity interests in joint ventures and strategic investments and
anticipates continuing to do so for the near future with the goal of achieving a
minimal level of growth in earnings per share after adjusting for the impact of
merger related charges. Net income was 7.7% of total revenues in the second
quarter of 1996 as compared to 6.4% in the immediately prior quarter, excluding
the impact of merger related charges. Earnings per share in the second quarter
of 1996 was $0.07 as compared to $0.04 in the immediately prior quarter, after
adjusting for merger related charges. Including merger-related charges, net
income for the quarter ended June 30, 1996 was 1.2% of revenues and earnings per
share was $0.01.
Although Netscape achieved earnings per share growth in previous quarters, the
Company's expenses are relatively fixed in the near term and unexpected
variances in planned revenues, which are difficult to forecast, can result in
variations in operating margins and earnings. As a result of its strategy of
focusing on software sales for intranets in large corporations, Netscape expects
that a limited number of large sales to enterprise customers may account for a
significant portion of revenue in some quarters, resulting in
8
<PAGE> 9
fluctuations in revenue in future periods. Any significant shortfall in demand
for, or any significant reduction in the prices of, the Company's products and
services in relation to the Company's expectations would have an immediate
material adverse impact on the Company's business, operating results and
financial condition.
The Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets. To address these risks, the
Company must, among other things, respond to competitive developments, continue
to attract, retain and motivate qualified persons, and continue to upgrade its
technologies and commercialize products and services incorporating such
technologies. There can be no assurance that the Company will be successful in
addressing such risks. The Company incurred net losses in each quarter from
inception through the quarter ended June 30, 1995. As of June 30, 1996, the
Company had an accumulated deficit of $18.6 million. Although the Company has
experienced revenue growth in recent periods, such growth rates will not be
sustainable and are not indicative of future operating results. There can be no
assurance that the Company will sustain profitability.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth operating results as a percentage of total
revenues for the three month periods ended June 30, 1996 and March 31, 1996. Due
to the significant growth in revenues and operating expenses between the three
and six month periods ended June 30, 1995 versus the three and six month periods
ended June 30, 1996, the Company believes that a comparison of operating results
between the comparable periods in each year is not meaningful.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------
June 30, 1996 March 31, 1996
------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Total revenues $ 75,006 100.0% $ 56,121 100.0%
Cost of revenues 12,028 16.0% 8,494 15.1%
------------------ ------------------
Gross profit 62,978 84.0% 47,627 84.9%
Operating expenses:
Research and development 17,826 23.8% 14,126 25.2%
Sales and marketing 32,506 43.3% 25,805 46.0%
General and administrative 6,018 8.0% 5,206 9.3%
Merger related charges 6,100 8.1% - -
------------------ ------------------
Total operating expenses 62,450 83.3% 45,137 80.4%
------------------ ------------------
Operating income 528 0.7% 2,490 4.4%
Interest income, net 1,878 2.5% 2,431 4.3%
Equity in net losses of joint ventures (416) (0.6%) - -
------------------ ------------------
Interest and other income, net 1,462 1.9% 2,431 4.3%
------------------ ------------------
Income before income taxes 1,990 2.7% 4,921 8.8%
Provision for income taxes 1,084 1.4% 1,332 2.4%
------------------ ------------------
Net income $ 906 1.2% $ 3,589 6.4%
================== ==================
Net income per share $ 0.01 $ 0.04
================== ==================
Net income per share excluding merger related charges (1) $ 0.07 $ 0.04
================== ==================
</TABLE>
(1) Net income per share excluding merger related charges reflects actual net
income per share adjusted for the impact of $6.1 million ($4.9 million
after tax) in merger related charges incurred during the quarter ended June
30, 1996.
10
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REVENUES
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
June 30, 1996 March 31, 1996
---------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Client $ 45,052 60.1% $ 34,987 62.3%
Server, Commercial Applications and Other 17,244 23.0% 14,064 25.1%
------------------ ---------------------
Total Product Revenues 62,296 83.1% 49,051 87.4%
Service 12,710 16.9% 7,070 12.6%
------------------ --------------------
Total Revenues 75,006 100.0% 56,121 100.0%
================== ====================
</TABLE>
The Company derives its revenues from two product categories, product and
service. Product revenues consist of product licensing fees, and service
revenues consist of fees for technical support, training, consulting and
advertising space.
Product Mix. The Company experienced absolute growth in both major product
groups and in service revenues in the second quarter of 1996 as compared to the
immediately prior quarter. With respect to product revenues, the revenue growth
between periods in client revenues was primarily attributable to unit volume
increases in sales of Netscape Navigators. Server, commercial applications and
other revenue growth was primarily attributable to significant unit volume
increases in sales of server products. The quarter ended June 30, 1996 was the
first full quarter the Company distributed its server products subject to the
substantial (greater than 60% on average) price reduction announced during the
quarter ended March 31, 1996. As a result, the quarter to quarter revenue growth
reflects an even greater unit volume increase in the product line driven by
absolute growth in the market for such server products and the Company's
introduction of several new server products. Newly released server products
during the quarter include Netscape Enterprise Server 2.0, Netscape FastTrack
Server 2.0, Netscape Mail Server 2.0, Netscape News Server 2.0, Netscape Proxy
Server 2.0 and the Netscape SuiteSpot Server bundle which is a flexible suite of
five integrated servers for businesses.
The Company expects that the percentage of product revenues attributable to its
server, commercial applications and other software products as compared to its
client product line will fluctuate in future periods depending upon consumer
buying patterns, pricing actions taken by the Company, competition and the
timing of new product introductions. In general, it is the Company's strategy to
achieve a greater percentage of revenues from its server product family in
future periods, although there can be no assurance that the Company will be
successful at achieving this goal. From time to time, the Company may reduce the
prices of its products. If such price reductions occur and do not generate
sufficient increases in the volume of its software licenses, the Company's
operating results will be materially adversely affected.
Service revenues continued to show absolute revenue growth quarter to quarter
primarily due to increased sales of advertising space and, to a lesser extent,
technical support revenues. The growth in advertising revenues was primarily
attributable to the introduction of a program whereby Netscape receives fees
from Internet search and directory content provider companies in return for
prominent placement of content on the Netscape web site. Increases in technical
support revenues were primarily associated with providing service to a larger
installed base.
The Company believes that service revenues may increase as a percentage of total
revenues in future periods as a result of continued growth in the installed base
of technical support contracts as well as an increase in advertising revenues
associated with the placement of advertisements and other content on the
Company's web site. However, the relative growth in service revenues experienced
in the quarter ended June 30, 1996 was largely attributable to the inception of
the Internet search and directory program and such growth will not be
maintained.
11
<PAGE> 12
Channel Mix. The Company distributes substantially all of its products through a
combination of direct (including field sales, Internet-based sales and
telesales), OEM, VAR and retail channels. In the second quarter of 1996, direct
sales accounted for 53% of total revenues as compared to 48% in the immediately
prior quarter. Indirect channels, comprised of OEMs and VARs, accounted for 38%
of revenues during the quarter as compared to 42% in the immediately prior
quarter. The Company believes that the growth in the direct channel was
primarily a function of several significant successes in strategic corporate
accounts and the ability of direct sales personnel to generate demand during
major product upgrades more effectively than indirect sales channels. Retail
revenues accounted for a relatively equal percentage of revenues between
quarters, reflecting 9% and 10% of revenues in the quarters ended June 30, 1996
and March 31, 1996, respectively.
The Company believes that the percentage of total revenues accounted for by the
retail channel may decrease in the future as a result of relatively greater
revenue in other channels. In addition, the Company expects other indirect
channels to account for an increasing percentage of total revenues in future
periods as such reseller channels become more established and familiar with new
products. The distribution of revenues among channels will fluctuate in absolute
dollars depending upon the timing of new product releases, the Company's ability
to expand and leverage the distribution and OEM reseller channels and, to a
lesser extent, consumer buying patterns which typically impact revenues in the
retail channel.
Geographic Mix. International revenues (sales outside of North America)
accounted for approximately 30% of total revenues in the second quarter of 1996
as compared to approximately 27% in the immediately prior quarter. The increase
in international revenues, in both absolute dollars and as a percentage of total
revenues, was primarily due to increased sales and marketing efforts in Europe
and Japan, as well as increased demand for Internet related products in
international markets. The Company began efforts to hire personnel and open
offices in Australia, Hong Kong, Singapore and certain European countries
during the quarter ended June 30, 1996.
The Company invoices the customers of its international subsidiaries in both
U.S. dollars and the local currencies of its subsidiaries. The Company has not
engaged in foreign currency hedging activities and international revenues are
currently subject to currency exchange fluctuation risk. The Company anticipates
that international revenues will increase as a percentage of total revenues in
the future, and, as a result, foreign currency exposure may increase.
GROSS MARGIN
Gross margin on total revenues declined a percentage point to 84.0% in the
second quarter of 1996 from 84.9% in the immediately prior quarter primarily as
a result of increased royalties paid to third parties for technology included in
server products. The Company feels that this decline is consistent with its
stated goal of continuing efforts to rapidly upgrade its products partially
through the incorporation of third party technologies. Cost of product revenues
in both periods consisted primarily of the cost of product materials, licensed
technology and amounts paid to third party vendors for sales administration,
order fulfillment and telephone support to customers. Cost of service revenues
in both periods consisted primarily of outside consulting services and personnel
related costs incurred in providing customer support, consulting services and,
to a lesser extent, fees paid to a third party related to the sale of
advertising.
Gross margins on total revenues may be impacted by the mix of distribution
channels used by the Company, the mix of products or services sold, the mix of
product revenues versus service revenues, the mix of international versus North
American revenues and the prices charged for products. The Company typically
realizes higher gross margins on direct sales than on sales through indirect
channels, higher gross margins on North American sales than international sales,
and higher gross margins on product revenues than on service revenues. In
addition, the Company earns lower gross margins on shrink-wrap product licenses
than on right-to-copy licenses. The Company believes that gross margins may be
adversely impacted in the future due to increased sales through indirect
channels, increased international revenues as a percentage of total revenues and
increased service revenues as a percentage of total revenues. In addition, the
Company believes that the total gross margin may decrease further in future
periods due to increased costs associated with licensed technology included in
both client and server products and product warranty costs, which includes free
telephone support for Netscape Navigator products.
12
<PAGE> 13
OPERATING EXPENSES
The Company's operating expenses, excluding Property Rights Agreement and
Related Charges and Merger Related Charges, have increased in absolute dollar
amounts in every consecutive quarter through the quarter ended June 30, 1996.
This trend reflects the Company's rapid growth and expansion in all operating
areas. The Company believes that continued expansion of operations is essential
to achieving and maintaining market leadership. In addition, the Company
anticipates continued increases in its infrastructure-related expenses, such as
costs for facilities, telecommunications and management information systems.
The Company recorded deferred compensation of $11.1 million for the difference
between the grant price and the deemed fair value of the Company's common stock
for stock options granted in the first six months of 1995. Operating expenses in
the quarters ended March 31,1996 and June 30, 1996 each include $600,000 of
non-cash charges associated with the amortization of such deferred compensation.
The Company will record additional operating expenses of $600,000 in each of the
remaining quarters in 1996 and periods thereafter associated with the
amortization of deferred compensation.
Research and Development. Research and development expenses consist primarily of
salaries and consulting fees to support product development. Research and
development expenses in the second quarter of 1996 increased in absolute dollars
as compared to the immediately prior quarter, although such expenses declined as
a percentage of total revenues from 25.2% to 23.8%. The dollar increases in the
period were primarily attributable to increased staffing and consulting costs.
Management believes that research and development activities are the single most
critical area for investment in the Company and, as a result, intends to
increase the level of research and development expenses in future periods which
may cause them to increase as a percentage of total revenues in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation, consulting fees, trade show expenses and advertising. Sales and
marketing expenses in the second quarter of 1996 increased in absolute dollars
as compared to the immediately prior quarter, although such expenses declined as
a percentage of total revenues from 46.0% to 43.3%. The increases in dollar
amounts in the second quarter of 1996 were primarily attributable to increased
staffing, marketing programs, costs associated with opening new sales offices
and sales commissions on increased sales. The Company intends to increase the
level of sales and marketing expenses in future periods.
General and Administrative. General and administrative expenses consist
primarily of salaries and fees for professional services. General and
administrative expenses in the second quarter of 1996 increased in absolute
dollars as compared to the immediately prior quarter, although such expenses
declined as a percentage of total revenues from 9.3% to 8.0%The dollar increases
in the period were primarily attributable to increased staffing, legal
expenditures and contract labor to support higher revenue levels. The Company
intends to increase the level of general and administrative expenses in future
periods.
Merger Related Charges. The Company incurred certain merger related expenses
totaling $6.1 million for the quarter ended June 30, 1996. These expenses relate
to the Company's acquisitions of InSoft, Netcode and Paper and were primarily
associated with fees for investment banking, legal, accounting, severance costs
and other related charges incurred with the acquisitions. The Company does not
anticipate incurring any additional material non-recurring charges associated
with these mergers, however there can be no assurance that such charges will not
be incurred in subsequent quarters. The Company believes that there will be
increases in operating expenses associated with development and integration of
new products, technologies and employees acquired as part of the acquisitions of
InSoft, Netcode and Paper. See Overview and Notes to Condensed Consolidated
Financial Statements.
INTEREST INCOME, NET
Net interest income decreased $553,000 in the second quarter of 1996 as compared
to the immediately prior quarter primarily as a result of the lower pre-tax
interest income earned on investment balances. The Company continued to
transition its investment portfolio to tax-exempt investment instruments which
yielded lower pre-tax interest rates in the second quarter of 1996 in order to
achieve higher after-tax earnings. Pre-tax interest income in future periods may
fluctuate as a result of fluctuations in average cash balances maintained by the
Company and changes to market rates for investments.
13
<PAGE> 14
EQUITY IN NET LOSSES OF JOINT VENTURES
The Company entered into two joint ventures during the quarter ended June
30,1996 which required the contribution of certain technology licenses and cash
for an approximately 50% interest in each of the companies. Equity in net losses
of joint ventures of $416,000 for the second quarter of 1996 reflects the
Company's share of the net losses of the joint ventures under the equity method
of accounting. The balance of investments in joint ventures at June 30, 1996 is
insignificant, although the Company may provide additional contributions to
these joint ventures in the future. Each of the joint ventures is in the
development stage and will incur escalating net losses in the near term.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for the second quarter and the six months ended
June 30, 1996 increased to 54% and 35%, respectively. The provision in the
second quarter reflected an increase over the first quarter due primarily to the
effect of non-deductible merger expenses and the resulting change in estimate by
the Company of its expected effective tax rate for the year.
The Company anticipates its fiscal 1996 effective tax rate, exclusive of the
effect of one-time acquisition charges, to be approximately 27%. This rate is
lower than the statutory U.S. federal rate due primarily to the benefit of net
operating loss and tax credit carryovers. This rate could change based upon a
change in the estimated amount or geographic mix of the Company's earnings, the
amount of permanent reinvestment offshore of a portion of the Company's 1996
earnings, changes in U.S. tax law such as reinstatement of the research tax
credit, or additional benefits of net operating loss and credit carryovers of
future acquisitions.
14
<PAGE> 15
FACTORS AFFECTING OPERATING RESULTS
COMPETITION
The market for Internet-based software and services is new, intensely
competitive, rapidly evolving and subject to rapid technological change. The
Company expects competition to persist, intensify and increase in the future.
Almost all of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger installed customer bases
and significantly greater financial, technical and marketing resources than the
Company. Such competition could materially adversely affect the Company's
business, operating results or financial condition. The Company's current and
potential competitors can be divided into several groups: Microsoft Corporation
("Microsoft"), web server software and service vendors, browser software
vendors, and PC and Unix software vendors.
Microsoft Corporation. Microsoft is devoting a significant portion of its
substantial resources to developing, marketing and distributing Internet
software and services in an attempt to gain market share. Microsoft has bundled
its own browser with its Windows 95 operating system, allows it to be downloaded
for free over the Internet and is offering it as a free product to distributors
and end-users, including distributors and end-users of the Company's products.
Microsoft has also announced that future versions of its Microsoft Office
Applications suite will offer enhanced Internet capability that may be dependent
upon certain functionality of Microsoft's browser. Further, in August 1996,
Microsoft shipped Version 2.0 of its Internet Information Server ("IIS") that is
bundled with Microsoft's Windows NT Advanced Server operating system at no
additional cost, which may cause further price pressure on Netscape's server
products. Microsoft has also been adding Internet capability to its range of
server software offered on the Windows NT operating system. Microsoft is
bundling a web authoring tool for free with its NT Server and recently
introduced a server that will compete with Netscape Proxy Server. Further,
Microsoft is expected to soon begin offering products in the commercial
applications software area, particularly products competitive to Netscape
Merchant System. In June 1996, Microsoft announced server products for Internet
service providers ("ISPs") and content providers to set up web servers and
related services. Microsoft's significant focus and product development activity
in the market for Internet products and services and the penetration of
Microsoft's software into its installed base of PC users has significantly
increased the competitive pressures on the Company. Such pressures may result in
price reductions in Netscape's products and may also materially reduce
Netscape's market share.
The Company believes that Microsoft has attempted to create competitive
advantages for its browser and server products by bundling these products with
its operating systems, often at no additional cost. Moreover, Microsoft has
announced its intention to bundle its browser and server products in a more
tightly integrated fashion with its underlying operating systems. If Microsoft's
browser and server products are more tightly integrated with Microsoft's
operating systems, the ability of Microsoft's competitors, including Netscape,
to obtain effective access to Microsoft's operating systems could be impeded,
particularly if such competitors are not timely given the application
programming interfaces or other technical information necessary to access
Microsoft's operating systems. Microsoft may also use other means of attempting
to restrict access to its operating systems. For example, Microsoft may assert
licensing or other restrictions which could restrict the access of competitors
to its operating systems. In particular, Microsoft has asserted that its Windows
NT Workstation operating system is not meant to be used as a server operating
system for a web site. If Microsoft is successful in restricting access to its
operating systems, sales of Netscape's server and commercial application
products in particular, and Netscape's business, operating results and financial
condition in general, could be materially adversely effected.
The Company also believes that Microsoft is attempting to use its dominant
position in desktop software to secure preferential distribution and bundling
contracts with third parties such as ISPs, online service providers and VARs,
including third parties with whom the Company has relationships. In addition,
the Company believes that Microsoft may promote technologies and standards with
which Netscape's products are not compatible. For example, Microsoft is
promoting its proprietary Active X technology as an alternative to the Java
programming language for Internet application software. Although Netscape
supports Active X through a third party plug-in, if Microsoft is successful in
promoting widespread adoption of its Active X technology as an alternative to
Java, Netscape's business, operating results and financial condition could be
materially adversely affected.
Microsoft has a longer operating history, a much larger installed base and
number of employees and dramatically greater financial, technical and marketing
resources, access to distribution channels and name recognition than the
Company. Microsoft's substantially greater resources are a significant
competitive advantage. For example, Microsoft is currently offering certain of
its Internet products for free or for no additional charge when bundled with
another product and may eventually offer all of its Internet products for free
or for no additional charge. In addition, Microsoft is investing significantly
in localizing Internet software in non-English languages,
15
<PAGE> 16
which may be a competitive threat as Netscape expands its international
business. As a result of all of the foregoing, there can be no assurance that
Netscape's business, operating results and financial condition will not be
materially adversely affected.
Server Software and Service Vendors. Several companies are currently offering
web server software products that compete directly with the Company's web server
products, and others are offering web server software that they install and
operate on behalf of their customers or bundle with other services. Companies
offering competing web server products include Microsoft, IBM, Oracle, Novell,
Inc., Spyglass, Open Market, Inc. ("Open Market"), Quarterdeck and O'Reilly &
Associates, Inc., among others. In addition, some of these companies are
enhancing the functionality of their existing products through their web product
offerings. In addition to Microsoft's bundling of IIS with its Windows NT
Advanced Server, Lotus Development Corporation ("Lotus"), a subsidiary of IBM,
has developed a web server based on its popular Notes group software program,
and Oracle has introduced a web server product that works with its large
installed base of database software. Service companies include Open Market and
Internet Media Services, which publish content from third parties on their own
web servers. In the future, software companies which have server products in
other product categories, such as database vendors, may choose to enhance the
functionality of existing products or develop new products which are competitive
with the Company's web server and Commercial Applications products. In addition
to the commercial companies providing web server software, there is the
continued competition from "freeware" server software available on Unix
platforms to customers at no cost. The most significant such competitor today is
Apache, which has the largest measured market share of web servers on the
Internet as of July, 1996.
Browser Software Vendors. In addition to Microsoft, several companies are
currently offering a client-based web browser. The National Center for
Supercomputing Applications at the University of Illinois, additionally,
distributes its product, NCSA Mosaic, for free for noncommercial use. These
client-based web browser products all compete directly with the Company's
Netscape Navigator product line.
PC and Unix Software Vendors. The Company believes that PC software vendors may
become particularly formidable competitors. In addition to Microsoft, IBM is
currently incorporating web client software, and may incorporate web server
software, in its OS/2 operating system, and the Company believes that other PC
operating system vendors, including Apple Computer, Inc., will also incorporate
some web client or server functionality into their operating systems as standard
features. The Company also expects Unix operating systems vendors, such as Sun
Microsystems, Inc., Hewlett-Packard Company, IBM, Digital Equipment Corporation,
Santa Cruz Operations, Inc. and Silicon Graphics, Inc., to incorporate web
client and server software into their operating systems. If these companies
incorporate web client or server functionality into their software products and
to the extent such technology is not licensed from Netscape or is licensed from
Netscape at significantly reduced prices, the Company's revenues could be
materially adversely affected.
Additional competition could come from client/server applications and tools
vendors, multimedia companies, document management companies, networking
software companies, network management companies and educational software
companies. Further, the Company's current products are designed around certain
standards, and industry acceptance of competing standards could decrease the
demand for the Company's products.
Competitive factors in the Internet-based software and services market include
core technology, breadth of product features, product quality, marketing and
distribution resources, and customer service and support. The Company believes
it presently competes favorably with respect to each of these factors. However,
the market and competition are still new and rapidly emerging, and there can be
no assurance that the Company will be able to compete successfully against
current or future competitors, nor can there be any assurance that this
competition will not result in price reductions of the Company's products or
loss of market share or otherwise will not materially adversely affect the
Company's business, operating results and financial condition.
16
<PAGE> 17
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
As a result of the Company's limited operating history, the Company does not
have historical financial data for a significant number
of periods on which to base planned operating expenses. Accordingly, the
Company's expense levels are based in part on its expectations as to future
revenues and to a large extent are fixed. In addition, the Company typically
operates with minimal backlog. As a result, quarterly sales and operating
results generally depend on the volume and timing of and ability to fulfill
orders received within the quarter, which are difficult to forecast. As a result
of its strategy of focusing on software sales for intranets in large
corporations, Netscape expects that a limited number of large sales to
enterprise customers may account for a significant portion of revenue in some
quarters, resulting in fluctuations in revenue in future periods. The Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall of demand
for the Company's products and services in relation to the Company's
expectations would have an immediate adverse impact on the Company's business,
operating results and financial condition. In addition, the Company (i) plans to
increase its operating expenses to fund greater levels of research and
development, increase its sales and marketing operations, develop new
distribution channels, improve its operational and financial systems and broaden
its customer support capabilities and (ii) may continue to incur significant
merger-related charges and other increases in operating expenses associated with
recently completed and any future acquisitions. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results and financial condition will be materially adversely
affected.
The Company expects to experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including demand for the
Company's products, introduction or enhancement of products by the Company and
its competitors, market acceptance of new products, the timing of large sales,
price reductions by the Company (such as those made in October 1995 and March
1996) or its competitors, mix of distribution channels through which products
are sold, mix of products and services sold, mix of international and North
American revenues, and general economic conditions. In particular, the Company
believes that quarterly operating results may fluctuate due to the timing of
revenue from a limited number of large sales as a result of the Company's focus
on the enterprise market. In addition, as a strategic response to changes in the
competitive environment, the Company may from time to time make certain pricing
or marketing decisions or acquisitions (such as the InSoft, Netcode and Paper
Software acquisitions) that could have a material adverse effect on the
Company's business, results of operations or financial condition. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. Because of all of the foregoing factors, it is
likely that in some future quarters the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
the price of the Company's common stock would likely be materially adversely
affected.
SECURITY RISKS
The Company has included in its products security protocols which operate in
conjunction with encryption and authentication technology licensed from RSA Data
Security Inc. Despite the existence of these technologies, the Company's
products have been found to be vulnerable to break-ins and similar disruptive
problems caused by Internet users. In the last year, there have been several
instances in which weaknesses or vulnerabilities in the Company's security
implementation were discovered. In each instance in which a vulnerability or
weakness was discovered in the Company's security implementation, the Company
attempted to address the vulnerability or weakness by making the various design
changes in its security and reviewing those changes both internally and with a
broad set of outside industry experts. The design changes appear to have
resolved known security vulnerabilities and weaknesses in the Company's
products.
In addition, the Company's products incorporate technology from other software
companies which could be vulnerable to security flaws. For example, in March
1996 certain security flaws were discovered in the Java programming language; in
particular, one security flaw was discovered which could have jeopardized the
security of information stored in the computer of Netscape Navigator users. Sun
Microsystems Inc. ("Sun"), the licensor of Java, has corrected this particular
security flaw and has distributed the software fix to the Company. However,
there can be no assurance that the Company's products will not be susceptible to
other security flaws, whether in Java or other technology incorporated into the
Company's products.
Despite the Company's attempts to address the vulnerabilities and weaknesses in
its security implementation, the Company's products and licensed technology
incorporated in such products may continue to be vulnerable to break-ins and
similar disruptive problems caused by Internet users. Further, as is generally
known, weaknesses in the environment in which Netscape products are used may
17
<PAGE> 18
compromise the security of confidential electronic information exchanges across
the Internet. This includes, but is not limited to, the security of the physical
network, security of the physical machines used for the information transfer and
the security of the operating system on top of which the Netscape products are
running. Any such flaws in the Internet or the end-user environment, or
weaknesses or vulnerabilities in the Company's products or licensed technology
incorporated in such products, would jeopardize the security of confidential
information sent over the Internet using Netscape software, such as e-mail and
credit card numbers, and might enable others to dismantle the special security
techniques meant to protect such transactions.
Any further computer break-ins or other disruptions could jeopardize the
security of information stored in and transmitted through the computer systems
of end-users of the Company's products, which may result in significant
liability to the Company and may also deter potential customers. Moreover, the
security and privacy concerns of existing and potential customers, as well as
concerns related to computer viruses, may inhibit the growth of the Internet
marketplace generally, and the Company's customer base and revenues in
particular. The Company attempts to limit its liability to its customers,
including liability arising from failure of the security implementation
contained in the Company's products, through contractual provisions. However,
there can be no assurance that such limitations will be effective. The Company
currently does not have product liability insurance to protect against risks
associated with forced break-ins or disruptions. There can be no assurance that
additional security vulnerabilities and weaknesses will not be discovered in the
Company's products or licensed technology incorporated in such products or that
weaknesses in the end-user environments will not limit the use of the Internet
as a commercial medium. Any additional security related problems in the
Company's products or licensed technology incorporated in such products may
require significant expenditures of capital and resources by the Company to
alleviate such problems, may result in lawsuits against the Company, may result
in loss of customers and may cause interruptions, delays or cessations of
product shipments to the Company's customers. Any such expenditures, lawsuits,
loss of customers, interruptions, cessations or delays would likely have a
material adverse effect on the Company's business, operating results and
financial condition.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's principal source of liquidity was approximately
$140.2 million in cash, cash equivalents and short-term investments, a $11.9
million decrease from December 31, 1996 balances. During the same period,
long-term investments increased $13.5 million to $35.2 million at June 30, 1996.
In general, Netscape invests in instruments that are liquid, investment grade
and have average maturities of less than one year with the intent to make such
funds readily available for strategic investment and operating purposes.
For the six months ended June 30, 1996, cash provided by operating activities of
$41.1 million was primarily due to increases in deferred revenues as a result of
an increase in non-refundable pre-payments received pursuant to software license
and support contracts and an increase in accounts payable, partially offset by
increases in accounts receivable. Deferred revenues primarily consist of the
unrecognized portion of revenues received pursuant to support and software
subscription contacts and the unrecognized portion of non-refundable, prepaid
license royalties received pursuant to reseller agreements.
Capital expenditures in the first half of 1996 totaled $41.6 million and are
expected to be even greater in the second half of 1996. Capital expenditures
have generally been comprised of purchases of computer hardware and software as
well as leasehold improvements related to leased facilities.
Management believes existing cash and investments together with cash flows
expected to be generated from operations will be sufficient to meet the
Company's operating requirements for at least the next twelve months.
Netscape does not currently have any lines of credit available and has not paid
cash dividends on its common stock.
20
<PAGE> 20
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 2 1996, Elk Industries Inc. ("Elk") filed suit in the United States
District Court for the Southern District of Florida against the Company alleging
infringement of U.S. Patent No. 4,124,773 titled "Audio Storage and
Distribution" (the "Elk Patent"). The complaint alleges that Netscape Navigator
and possibly other Company products infringe the Elk Patent, and also that the
Company is inducing infringement and contributing to the infringement of the Elk
Patent. Elk is seeking unspecified monetary damages and injunctive relief.
The complaint does not describe how the Company's products allegedly infringe
the Elk Patent or how the Company allegedly induces or contributes to such
infringement. The Company filed its answer and counterclaims on May 23, 1996. A
trial date of May 27, 1997 has been set. Netscape believes that the complaint is
without merit and intends to defend the litigation vigorously.
There can be no assurance that the Company will not be held to infringe, induce
infringement or contribute to the infringement of the Elk Patent. In such case,
the Company could incur additional costs and liability, including costs and
liability from claims for indemnification resulting from infringement. The
assertion of these patent rights by Elk, if successful, could also prevent the
Company's products from enabling users to retrieve and transmit digital files
that contain audio information, where such audio information has been processed
in accordance with the techniques described in the Elk Patent.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 30, 1996 (the
"Annual Meeting"). At the Annual Meeting, stockholders voted on two matters: (i)
the election of one Class I director for a term of three years expiring in 1999
and (ii) the ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors. The stockholders elected management's nominee as
the Class I director in an uncontested election and ratified the appointment of
independent auditors by the following votes, respectively:
(i) Election of Class I director for a term expiring in 1999:
<TABLE>
<CAPTION>
Broker
Votes For Votes Withheld Non-votes
<S> <C> <C> <C>
Marc L. Andreessen 49,324,723 401,781 0
</TABLE>
The Company's Board of Directors is currently comprised of five
members that are divided into three classes with overlapping
three-year terms. The term of Class II directors (James H. Clark
and John E. Warnock) will expire at the annual meeting of
stockholders to be held in 1997, and the term for Class III
directors (James L. Barksdale and L. John Doerr) will expire at
the annual meeting of stockholders to be held in 1998.
(ii) Ratification of appointment of Ernst & Young LLP as independent
auditors:
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-votes
<S> <C> <C> <C> <C>
49,538,284 98,132 90,088 0
</TABLE>
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 11.1 - Statements of Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K:
On May 10, 1996, the Company filed a report on Form 8-K dated
April 25, 1996 in conjunction with the acquisition of InSoft. On
July 8, 1996, the Company amended this filing on Form 8-K to
include the financial statements of InSoft and pro-forma combined
financial statements for Netscape and InSoft as follows:
InSoft Balance Sheets at December 31, 1994, December 31, 1995
and March 31, 1996
InSoft Statements of Operations for the years ended December
31, 1993, 1994 and 1995, and for the three months ended
March 31, 1995 and 1996
InSoft Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1993, 1994 and 1995, and for the
three months ended March 31, 1996
Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995, and for the three months ended March
31, 1995 and 1996
Pro Forma Combined Condensed Consolidated Balance Sheet at
March 31, 1996
Pro Forma Combined Condensed Consolidated Statements of
Operations for the years ended December 31, 1993, 1994 and
1995, and the three months ended March 31, 1996
ITEMS 2,3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
21
<PAGE> 22
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 thereunto duly authorized.
NETSCAPE COMMUNICATIONS CORPORATION
Date: August 12, 1996 By:/s/ PETER L.S. CURRIE
------------------- ------------------------------------------
Peter L.S. Currie,
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
Date: August 12, 1996 By:/s/ NOREEN G. BERGIN
------------------- ------------------------------------------
Noreen G. Bergin
Vice President and Corporate Controller
(Principal Accounting Officer)
22
<PAGE> 1
EXHIBIT 11.1
NETSCAPE COMMUNICATIONS CORPORATION
STATEMENTS OF COMPUTATION OF EARNINGS PER SHARE
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ---------------------
1996 1995 1996 1995
----------- -------- ------- --------
<S> <C> <C> <C> <C>
Primary:
Weighted average common stock outstanding 84,066 40,268 82,492 40,266
Stock related to SAB No.64 and 83 - 29,651 - 29,651
Net effect of dilutive stock options based on the
treasury stock method using average market price 3,871 - 3,978 -
---------- ------- ------ -------
Total weighted average common and
common equivalent shares outstanding
87,937 69,919 86,470 69,917
========== ======= ======= =======
Net income (loss) $ 906 $(2,792) $ 4,495 $(7,299)
========== ======= ======= =======
Net income (loss) per share $ 0.01 $(0.04) $ 0.05 $ (0.10)
========== ======= ======= =======
Fully diluted:
Weighted average common stock outstanding 84,066 40,268 82,492 40,266
Stock related to SAB No.64 and 83 - 29,651 - 29,651
Net effect of dilutive stock options based on the
treasury stock method using quarter-end market price 3,923 - 4,040 -
---------- ------ ------- -------
Total weighted average common and
common equivalent shares outstanding
87,989 69,919 86,532 69,917
========== ====== ======= =======
Net income (loss) $ 906 $2,792) $ 4,495 $(7,299)
========== ====== ======= =======
Net income (loss) per share $ 0.01 $(0.04) $ 0.05 $ (0.10)
========== ====== ======= =======
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial statements in the quarterly report on Form 10-Q of Netscape
Communications Corporation for the quarter ended June 30, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<EXCHANGE-RATE> 1.00 1.00
<CASH> 54,997 54,997
<SECURITIES> 120,405 120,405
<RECEIVABLES> 58,045 58,045
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 209,626 209,626
<PP&E> 57,445 57,445
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 307,067 307,067
<CURRENT-LIABILITIES> 119,267 119,267
<BONDS> 0 0
0 0
0 0
<COMMON> 211,467 211,467
<OTHER-SE> (24,615) (24,615)
<TOTAL-LIABILITY-AND-EQUITY> 307,067 307,067
<SALES> 62,296 111,347
<TOTAL-REVENUES> 75,006 131,127
<CGS> 9,703 16,514
<TOTAL-COSTS> 12,028 20,522
<OTHER-EXPENSES> 62,450 107,587
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,990 6,911
<INCOME-TAX> 1,084 2,416
<INCOME-CONTINUING> 906 4,495
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 906 4,495
<EPS-PRIMARY> 0.01 0.05
<EPS-DILUTED> 0.01 0.05
</TABLE>
