MOZILLA FOUNDATION
AND SUBSIDIARYDECEMBER 31, 2016 AND 2015

INDEPENDENT AUDITORS’ REPORTAND

CONSOLIDATED FINANCIAL STATEMENTS

Mozilla Foundation and Subsidiary
Independent Auditors’ Report
and Consolidated Financial Statements

Independent Auditors’ Report

1-2

Consolidated Financial Statements

Consolidated Statement of Financial Position

3

Consolidated Statement of Activities and Change in Net Assets

4Consolidated Statement of Cash Flows5

Notes to Consolidated Financial Statements

6 - 21

Independent Auditors’ Report
THE BOARD OF DIRECTORSMOZILLA FOUNDATION AND SUBSIDIARY
Mountain View, California
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of MOZILLA FOUNDATION
AND SUBSIDIARY (Mozilla) which comprise the consolidated statement of financial position as ofDecember 31, 2016 and 2015, and the related consolidated statements of activities and change in net
assets, and cash flows for the years then ended and the related notes to the consolidated financial
statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparationand fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to Mozilla’s preparation and fair presentation of the consolidated financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of Mozilla’s internal control. Accordingly, we express no such opinion. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness ofsignificant accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.

1

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Mozilla Foundation and Subsidiary as of December 31, 2016 and 2015,
and the change in their net assets and their cash flows for the years then ended in accordance withaccounting principles generally accepted in the United States of America.

San Jose, California
September 26, 20172

Mozilla Foundation and Subsidiary
Consolidated Statement of Financial Position(In thousands)

December 31,

2016

2015

AssetsCash and cash equivalents
Receivables
Prepaid expenses and other assets
Investments
Prepaid income taxes
Deferred taxes
Furniture and equipment, net
Total assets$

69,06452,863
16,669329,774
12,004
1,570
13,937$70,20941,855
11,316
227,478
3,157
1,103
17,218$495,881$372,336$

28,36034,297
504
6,584

$

13,27027,486529
7,440

Liabilities and Net Assets
Liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Unrecognized tax positions
Total liabilities
Net Assets:
Unrestricted
Temporarily restricted
Total net assets
Total liabilities and net assets$

69,74548,725420,339
5,797

316,493
7,118

426,136

323,611495,881See accompanying notes to financial statements.
3$372,336

Mozilla Foundation and Subsidiary
Consolidated Statement of Activities and Change in Net Assets(In thousands)

Years Ended December 31,

2016

Unrestricted Net Assets:
Revenues and other support:
Royalties
Interest and dividend income
Net realized and unrealized gain (loss) on investments
Contributions
Other
Foreign currency exchange loss
Loss on sale of assets
Net assets released from restrictions$

Total unrestricted revenue and support

503,677
3,018
1,076
5,440
191
(1,241)
(124)
8,336

2015

$

417,380
1,573(1,874)
4,543
174(6,012)(20)
5,511

520,373421,275

17,015225,942
6,947

11,907214,187
8,716

47,311
59,911
2,248

59,95139,499
2,303

1,224
2

1,135

Total expenses

360,600

337,698

Change in Unrestricted Net Assets before
Provision for Income Taxes

159,773

83,577

Provision for income taxes

55,927

28,799Change in Unrestricted Net Assets

103,846

54,778Change in Temporarily Restricted Net Assets:
Contributions
Net assets released from restriction

7,015(8,336)

7,839(5,511)

Change in Temporarily Restricted Net Assets(1,321)

2,328

Change in Net Assets

102,525

57,106

Net Assets - beginning of year

323,611

266,505

Expenses:
Program:
Program services
Software development
Depreciation
Support:Branding and marketing
General and administrative
Depreciation
Fundraising:Fundraising and development
Depreciation

Net Assets - end of year$

426,136

See accompanying notes to financial statements.
4$

323,611

Mozilla Foundation and Subsidiary
Consolidated Statement of Cash Flows(In thousands)

Years Ended December 31,

2016

Cash Flows from Operating Activities:
Change in net assets
Adjustments to reconcile change in net assets
to net cash provided by operations:
Depreciation
Net realized and unrealized (gain) loss on investments
Foreign currency exchange loss
Unrecognized income tax positions
Deferred income taxes
Loss on sale of assets
Changes in assets and liabilities:
Receivables
Prepaid expenses and other assets
Accounts payable and accrued expenses
Prepaid income taxes$

102,525

2015$

57,106

9,197(1,076)
1,241
(856)
88
124

11,019
1,874
6,012
(205)
(1,973)20(11,047)(5,385)21,928(8,874)432(3,804)
2,266
7,284

107,865

80,031(6,082)(219,822)
118,025(2,983)(181,283)
90,309Net cash used by investing activities(107,879)(93,957)

Effect of Exchange Rate Changes on Cash

(1,131)(6,073)

Net Change in Cash and Cash Equivalents(1,145)(19,999)

Cash and Cash Equivalents - beginning of year

70,20990,208Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property and equipment
Purchases of investments
Proceeds from sale of investments

Cash and Cash Equivalents - end of year$

69,064$70,209Supplemental Disclosure:
Cash paid for income taxes$

64,433$

22,207

See accompanying notes to financial statements.
5

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 1 -Nature of the Organization:
Established in July 2003, the Mozilla Foundation (the Foundation) is a California notfor-profit corporation that exists to improve and protect the Internet as a public resource
by working with thousands of volunteers to 1) keep the Internet a universal open
platform and 2) promote continued innovation on the Internet. The Foundation supports
the development of open source, standards compliant, free Internet applications useable
free of charge to hundreds of millions of users. It also a) develops foundational
technologies that can be used to build the values of openness and interoperability into theinternet; and b) fuels the movement for an open internet through educational work thatconnects open internet leaders with each other and mobilizes grassroots activities aroundthe world.
The Foundation has a wholly-owned for-profit subsidiary, Mozilla Corporation (theCorporation). The Corporation serves the non-profit, public benefit goals of its parent
and the vast Mozilla community. It provides internet based open source software andservices (Mozilla Products) which are made available to hundreds of millions of users
worldwide to fulfill Mozilla’s worldwide mission to make the internet and the web open
and accessible to all. The Corporation has wholly-owned subsidiaries operating in
Canada, Europe, China and several other international branches to further its worldwide
mission.

Note 2 -Summary of Significant Accounting Policies:
a. Basis of Accounting
The financial statements have been prepared on the accrual basis of accounting which
recognizes revenue and support when earned and expenses when incurred and,accordingly, reflect all significant receivables, payables, and other liabilities inaccordance with accounting principles generally accepted in the United States ofAmerica.
b. Principles of Consolidation
The consolidated financial statements include the accounts of the Foundation and its
wholly-owned subsidiary, the Corporation (collectively “Mozilla”). All significant
intercompany accounts and transactions have been eliminated.
c. Basis of Presentation
Net assets, revenues, expenses, gains and losses are classified based on the existence orabsence of donor imposed restrictions.

6

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Unrestricted net assets represent unrestricted resources available to support theoperations and temporarily restricted resources which become available for use by
Mozilla in accordance with the intentions of donors.
Temporarily restricted net assets represent contributions that are limited in use by
Mozilla in accordance with temporary donor imposed stipulations. These stipulations
may expire with time or may be satisfied and removed by the actions of Mozillaaccording to the terms of the contribution. Upon satisfaction of such stipulations, theassociated net assets are released from temporarily restricted net assets and recognized as
unrestricted net assets.
Permanently restricted net assets represent contributions to be held in perpetuity as
directed by the donor. Mozilla does not have any permanently restricted net assets as ofDecember 31, 2016 and 2015.
d. Cash and Cash Equivalents
For purposes of the statement of cash flows, Mozilla considers its operating checking
and sweep accounts to be cash and cash equivalents.
e. Receivables
Receivables consist primarily of amounts due from contracts with multiple search engine
and information providers, and grantors. Receivables are carried at original invoice
amount or accrued based on contractual agreements with each search provider or grantor.
An allowance for uncollectible receivables is appropriately considered depending uponprior history and management’s assessment of collectability. For 2016 and 2015,
management considers all amounts to be fully collectible. Therefore, no allowance has
been established.
Mozilla has $469,000 and $1,871,000 in grants receivable at December 31, 2016 and2015, respectively.
f.

Investments
Investments, which consist of money market funds, marketable debt securities, mutual
funds, various government issued securities, commercial paper and hedge funds arestated at fair value. The fair value of money market funds is based on quoted market
prices for identical assets in active markets. The fair value of marketable debt,
government issued securities and commercial paper is based upon models that maximize
the use of observable inputs for similar assets. The fair value of hedge funds have been
estimated using the net asset value (NAV) per share or ownership interest of theinvestment. Changes in fair value are recognized on a current basis in the statement ofactivities and change in net assets.

7

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

g. Fair Value Measurements
Mozilla carries certain assets and liabilities at fair value. Fair value is defined as theprice that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. In addition, theFoundation reports certain investments using the NAV per share method practical
expedient which allows NAV per share to represent fair value for reporting purposes
when the criteria for using this method are met.
Mozilla classifies its financial assets and liabilities according to three levels, andmaximizes the use of observable inputs and minimizes the use of unobservable inputs
when measuring fair value or in accordance with practical expedient NAV rules, whichallow for either Level 2 or Level 3 reporting depending on lock up and notice periods
associated with the underlying funds.
Level 1: Quoted market prices (unadjusted) in active markets for identical assets or
liabilities that the entity has the ability to access at the measurement date.
Level 2: Observable inputs or unobservable inputs that are corroborated by market
data.
Level 3: Unobservable inputs that are not corroborated by market data.
In determining the appropriate levels, Mozilla performed an analysis of the assets andliabilities. Any assets and liabilities for which the fair value measurement is based on
significant unobservable inputs are classified as Level 3.
h. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation andamortization. Depreciation is calculated over the estimated useful lives of the related
assets, generally one to seven years, using the straight-line method. Leasehold
improvements are amortized over the useful life or the term of the lease, whichever isshorter.
i.

Long-Lived Assets
Mozilla evaluates its long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of such assets may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows expected to be generated by theasset. If such assets are considered to be impaired, the impairment to be recognized ismeasured by the amount by which the carrying amount of the assets exceeds the fairvalue of the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

8

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statementsj.

Recognition of Revenue
Mozilla receives royalty income from contracts with various search engine andinformation providers. Revenue from these contracts is determined by the search andinformation providers based upon end user activity or as contractually agreed to Mozillarecords revenue on the accrual basis of accounting based upon the amounts received.

k. Contributions
Contributions are recorded at fair value when the donor makes an unconditional promise
to give. Contributions collected by third parties are recorded as revenue when received
by the third party. Donor-restricted contributions are reported as an increase intemporarily or permanently restricted net assets, depending on the nature of therestriction. When a restriction expires or is fulfilled, temporarily restricted net assets arereclassified to unrestricted net assets and reported in the statement of activities andchange in net assets as net assets released from restrictions. Conditional promises are notrecognized until they become unconditional, that is when the conditions on which they
depend are substantially met. Mozilla received $12,455,000 and $12,382,000 incontributions during the years ending December 31, 2016 and 2015, respectively, andhas $980,000 and $2,008,000 in conditional promises at December 31, 2016 and 2015,
respectively.
l.

Software Development Costs
Mozilla develops open source web-based solutions which are available free of charge tousers. In addition, due to the open source nature of the development, there is generally no
passage of time between achievement of technological feasibility and the availability for
general release. Therefore, Mozilla expenses the cost of software development asincurred.

m. Advertising Costs
Mozilla expenses advertising costs as incurred. Amounts paid in advance of services
provided are recorded as a prepaid expense. Advertising and promotional expense for theyear ended December 31, 2016 and 2015 amounted to $14,696,000 and $29,630,000,
respectively.
n. Grants
Grants are recorded when approved and all significant conditions are met.

9

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statementso. Income Taxes
The Foundation qualifies as a public benefit charitable organization exempt from income
taxes on related income under Section 501(c)(3) of the Internal Revenue Code andapplicable sections of the California Revenue and Taxation Code. The Foundation
provides for tax, if any, on unrelated business income.
The Corporation is a C corporation. Income taxes are accounted for using an asset andliability approach, which requires the recognition of deferred tax liabilities and assets forthe expected future tax consequences of temporary differences between the financial
statement and tax basis of assets and liabilities at the applicable enacted tax rates.
Differences relate primarily to state taxes, property and equipment, prepaid and accrued
expenses. Valuation allowances are established, when necessary, to reduce deferred tax
assets to amounts that are more likely than not to be realized.
In accordance with the accounting standard on accounting for uncertainty in income
taxes, no portion of an uncertain tax position will be recognized if the position has lessthan a 50% likelihood of being sustained upon audit by the relevant taxing authority.
Also, interest expense, if any, is recognized on the full amount of deferred benefits for
uncertain tax positions.
p. Fair Value of Financial Instruments
The carrying value of financial instruments not otherwise disclosed herein, approximatesfair value due to the short-term nature of these financial instruments.
q. Foreign Currency Translation
The financial statements of the foreign subsidiaries, which have defined their functional
currency as their local currency, translate their balance sheet accounts at the exchange
rate existing at the balance sheet date, and translate their income statement items at the
average exchange rate for the year. The resulting translation adjustments are included inforeign currency exchange gain (loss) in the consolidated statement of activities andchange in net assets.
r.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to makeestimates and assumptions. Actual results could differ from those estimates.

10

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

s. Functional Expenses
Expenses are allocated to functional areas based on management’s estimates.
Fundraising expenses were $1,226,000 for 2016 and $1,135,000 for 2015. Program
expenses include costs related to furthering the Mozilla open-source project. Grants
totaling approximately $2,560,000 and $775,000 are included in program expenses for2016 and 2015, respectively.
t.

Reclassification
Certain accounts in the prior year financial statements have been reclassified forcomparative purposes to conform with the presentation in the current year financial
statements.

u. Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued authoritative guidance,
Revenue from Contracts with Customers (Topic 606). These amendments provide thatrevenue should be recognized to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which the entity expects to beentitled in exchange for those goods or services. This guidance is effective for fiscal
years beginning after December 15, 2018. The impact of adopting this guidance on
subsequent periods has not yet been determined.
The FASB issued Accounting Standards Update (ASU) No. 2016-02—Leases (Topic
842). Under the ASU, a lessee will be required to recognize right-to-use assets andliabilities on their balance sheet for all leases with lease terms of more than twelve
months. The ASU is effective for fiscal years beginning after December 15, 2019. Early
application will be permitted for all organizations. Mozilla is currently assessing theimpact the adoption of this ASU will have on its financial statements.
In August 2016, the FASB issued ASU No. 2016-14 - Not-For-Profit Entities (Topic
958): Presentation of Financial Statements of Not-For-Profit Entities.
These
amendments make improvements to the information provided in financial statements andaccompanying notes of not-for-profit entities. The amendments are effective for fiscal
years beginning after December 15, 2017. Early application of the update is permitted
and applied retrospectively. Mozilla is currently evaluating the impact of this guidanceon its financial statements.

11

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

v. Subsequent Events
Mozilla evaluated subsequent events from December 31, 2016 through September 26,
2017, the date these financial statements were available to be issued. Except as follows
and in Note 9, there were no material subsequent events that required additional
disclosure in these financial statements.
On February 24, 2017, the Corporation acquired Read It Later, Inc. (RIL), the developerof Pocket (a save-for-later service available for major devices and platforms), whereby
the Corporation obtained 100% of RIL’s outstanding stock for an amount equating tosignificantly less than 10% of total assets of the Corporation.
Note 3 -Investments and Fair Value Measurements:
The tables below present investments measured at fair value on a recurring basis by levelwithin the valuation hierarchy at December 31:

2016

Total

Level 1

Level 2

Money market funds
Commercial paper
Mutual funds
Domestic
ETF: Minerals
Municipal bonds
U.S. Agency funds
Asset-backed securities
Corporate debentures/bonds:
Industrial
Financial
Utility$ 25,536,000 $ 25,536,000
4,694,000$

Total assets measure at fair value

325,699,000 $ 33,321,000 $ 292,378,000

11,857,000
392,000
4,070,000
132,906,000
25,280,000
56,234,000
63,768,000
962,000

Hedge fund investments measured at net
asset value as a practical expedientTotal

4,075,000$329,774,000

12

7,393,000
392,000

4,694,000
4,464,000
4,070,000
132,906,000
25,280,000
56,234,000
67,768,000
962,000

Level 3

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

2015

Total

Level 1

Level 2

Money market funds
Equities
Mutual funds
Domestic
ETF: Minerals
Municipal bonds
U.S. Agency funds
Asset-backed securities
Corporate debentures/bonds:
Industrial
Financial
Utility$ 14,066,000 $ 14,066,000
1,000
1,000

Total assets measure at fair value$ 222,517,000 $ 21,349,000 $ 201,168,000

10,337,000
362,000
8,147,000
42,812,000
25,810,000
40,888,000
73,517,000
6,577,000

Hedge fund investments measured at net
asset value as a practical expedientTotal

6,920,000 $
362,000

Level 3

3,417,000
8,147,000
42,812,000
25,810,000
40,888,000
73,517,000
6,577,000

4,961,000$227,478,000

An investment's categorization within the valuation hierarchy is based on the lowest level of
input that is significant to the fair value measurement. There has been no change in themethodology used for December 31, 2016 and 2015.
The method described above may produce a fair value calculation that may not be indicativeof net realizable value or reflective of future fair values. Furthermore, while Mozilla believes
its valuation methods are appropriate and consistent with other market participants, the useof different methodologies or assumptions to determine fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.

13

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Mozilla uses NAV to determine the fair value of all the underlying investments which do nothave a readily determinable fair value. The following table provides information forinvestments using NAV to determine fair value as of December 31:
Redemption
Fair
Redemption Notice Period
2016
No. of Funds
Value
Frequency(days)
Global macro fund (a)Event driven fund (b)121,203,000
1,866,000

Long and short fund (d)Feeder fund (e)11755,000
251,000

QuarterlyMonthly/
QuarterlyMonthly
None

90
30/45
60
N/A

Total

$ 4,075,000

2015

No. of Funds

Fair
Value

Global macro fund (a)1$ 1,168,000

Quarterly90

Event driven fund (b)32,616,000

90/45/30

Long term growth fund (c)Long and short fund (d)11454,000
723,000

Monthly/
Quarterly/Monthly
QuarterlyMonthly

Total

Redemption
Redemption Notice Period
Frequency(days)

60
60$ 4,961,000

There were $372,000 in unfunded commitments as of December 31, 2016, and no unfunded
commitments as of December 31, 2015.
(a)This fund invests in an affiliated Master Fund LP, whose investment strategy iscomprised of global investment strategies and a number of long and short strategies
that may have directional risk.

(b)

These funds invest in affiliated Master Fund LPs, whose investment strategy includes
global common stock, preferred stock, and convertible debt, futures, forward
settlement contracts, short option contracts, swap agreements and various otherderivatives.

14

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 4 -(c)

This fund invests in an affiliated Master Fund LP, an exempt limited partnership,
whose investment universe includes companies with debt-like obligations rated below
investment grade, or securities trading at yields comparable to the high yield market.

(d)This fund invests in affiliated Master Fund LP, whose objectives are to maximize risk
adjusted, absolute returns over the course of various market cycles through a portfolio
consisting of long and short equity investments and whose investment strategy
combines elements of long and short equities and corporate credit relative value
trading.

(e)This fund invests in an affiliated Master Fund LP, whose objective is to invest on aleveraged basis, in whole or in part, in collateralized and unsecured commercial loans
and debt securities of corporations, partnerships, companies or other securities.

Property and Equipment:
Property and equipment as of December 31, are as follows:
2016

2015

Useful Life
(Years)Computer equipment
Furniture and office equipment
Leasehold improvements
Software$ 15,813,000
11,959,000
22,913,000
217,000$ 25,192,000
11,779,000
22,842,000
185,000

3
3-7
3-5
1-3

Less accumulated depreciation

50,902,000(36,965,000)

59,998,000(42,780,000)

Net property and equipment$ 13,937,000$ 17,218,000

Depreciation and amortization expense totaled $9,197,000 and $11,019,000 for the years
ended December 31, 2016 and 2015, respectively.

15

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 5 -Temporarily Restricted Net Assets:
Temporarily restricted net assets are restricted for the following purposes at December 31:

Leadership Development: Ford-Mozilla OpenWeb Program
Leadership Development: Mozilla Science Lab
Agenda-setting: Digital Skills Observatory
Leadership Development: Hive
Education: Open Badges
Leadership Development: Knight-Mozilla
OpenNews
Community: Coral Software Project
Education: Webmaker
Other

2016

2015

$ 2,411,000
1,413,000
137,000
826,000$ 3,670,000
877,000
650,000
566,000
507,000

106,000
52,000852,000

476,000
139,000
79,000154,000$ 5,797,000$ 7,118,000

Net assets were released from donor restrictions during the year ended December 31, 2016
and 2015 by incurring expenses satisfying the purpose of the restriction, by the passage oftime, or by the occurrence of other specific events as follows:
2016
Education: Open Badges
Leadership Development: Hive
Leadership Development: Knight-Mozilla
OpenNews
Leadership Development: Mozilla Science Lab
Leadership Development: Ford-Mozilla Open Web
Program
Education: WebmakerCommunity: Coral Software Project
Agenda-setting: Digital Skills Observatory
Other

16

$

507,000
1,261,000

2015$

342,000
1,006,000

1,378,000
1,209,000

1,352,000
619,000

1,259,000
79,0002,023,000
514,000
106,000

787,000
281,000
820,000
23,000281,000$ 8,336,000$ 5,511,000

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 6 -Income Taxes:
Mozilla's income tax provision (benefit) consists of the following:
2016
FederalCurrent provision
Foundation
Corporation

State

Foreign

4,000
1,321,000$ 2,570,000

13,00055,759,000

564,000

38,000(447,000)

155,000$52,441,000$ 1,363,000$ 2,123,000$55,927,000

FederalState

Foreign

Total$

Deferred provision (benefit)
Corporation
Total

9,000
51,868,000

$

Total
$

2015
Current provision
Foundation
Corporation$

24,00028,700,000

$

2,000
618,000$ 1,431,000

26,00030,749,000

28,724,000

620,000

1,431,000

30,775,000

Deferred benefit
Corporation(1,960,000)(15,000)(1,000)(1,976,000)

Total$26,764,000

605,000$ 1,430,000$28,799,000$$

The provision for income taxes differs from taxes calculated at the federal statutory rate
primarily due to the activity related to the Mozilla’s unrecognized tax positions,nondeductible expenses, research and development credits, and state income taxes net offederal tax benefit.
Deferred taxes are reflected in the statement of financial position as follows:

Total assets
Total liabilities

17

2016

2015

$ 5,567,000(3,997,000)$ 3,507,000(2,404,000)$ 1,570,000$ 1,103,000

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Mozilla has not provided for U.S. deferred taxes on its undistributed earnings for non-U.S.
subsidiaries because these earnings are intended to be permanently invested in operations
outside the United States.
The activity related to Mozilla's unrecognized tax positions is set forth below:
Foundation

Corporation

Total

Balance at December 31, 2014
Increases related to current tax
positions
Decreases related to prior year
tax positions
Lapse of time restrictions$ 7,645,000$ 7,645,000

1,273,000

1,273,000(666,000)(812,000)(666,000)(812,000)

Balance at December 31, 2015
Increases related to current tax
positions
Decreases related to prior year
tax positions
Lapse of time restrictions

7,440,000

7,440,000

889,000

889,000(828,000)(917,000)(828,000)(917,000)$ 6,584,000$ 6,584,000

Balance at December 31, 2016

Mozilla also accrued potential penalties and interest of $10,000 and $16,000 related to these
unrecognized tax benefits during 2016 and 2015, respectively, and in total, as of December
31, 2016 and 2015, Mozilla has recorded a liability for potential penalties and interest of$280,000 and $270,000, respectively. Mozilla recognizes interest and penalties related tounrecognized tax benefits within the income tax expense line in the accompanying statementof activities and change in net assets. Accrued interest and penalties are included within theunrecognized tax benefits line in the statement of financial position. Mozilla does not expect
its unrecognized tax benefits to change significantly over the next 12 months.
Mozilla files U.S., state, and foreign income tax returns in jurisdictions with varying statutesof limitations. Mozilla is generally no longer subject to income tax examination by the U.S
Federal and state taxing authorities for the tax years ending before 2013 and 2012,
respectively. In foreign jurisdictions, the 2009 through 2016 tax years generally remainsubject to examination by their respective taxing authorities.

18

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 7 -Employee Benefit Plans:
The Foundation and the Corporation sponsor defined contribution plans covering
substantially all employees in the United States and Canada. The Foundation and the
Corporation contribute an amount equal to 3% of the employee’s qualified salary plus anadditional discretionary 4% of their qualified salary. Contributions to the plans totaled$6,679,000 and $6,113,000 for 2016 and 2015, respectively.
For certain other foreign locations, Mozilla contributes employee benefits due in accordancewith local labor regulations. Contributions totaled $2,067,000 and $1,984,000 for 2016 and2015, respectively.
The Corporation maintains a Long-Term Incentive Plan whereby a Board committee
annually approves the participants and amount. Expenses of approximately $9,157,000 and$3,409,000 were recorded in 2016 and 2015, respectively.

Note 8 -Concentrations of Risk:
Mozilla has entered into contracts with search engine providers for royalties which expire
through December 2019.
Approximately 94% and 90% of Mozilla’s royalty revenues were derived from thesecontracts for 2016 and 2015, respectively, with receivables from these contracts representing
approximately 79% of the December 31, 2016 and 2015 outstanding receivables.
Mozilla has defined its financial instruments which are potentially subject to credit risk as
cash and cash equivalents and investments. At December 31, 2016 and 2015, essentially allof the cash and cash equivalents are in excess of the federally insured limits. In addition,
investments in general are exposed to various risks, such as interest rate, credit and overallmarket volatility. To address these risks, Mozilla maintains an investment policy that sets out
performance criteria, investment, and asset allocation guidelines, and actively manages theinvestments to these policies.

19

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

At December 31, 2016 and 2015, the consolidated financial statements include the following
amounts of assets, liabilities and foreign currency transaction gains and losses relating to
subsidiaries and branches outside the United States of America:

Assets:EuropeAsia
North America
Australia and Oceanic

Liabilities:
EuropeAsia
North America
Australia and Oceanic

Foreign currency transaction loss, net

Note 9 -

2016

2015

$ 11,727,000
17,472,000
7,552,000
801,000$ 11,392,000
14,099,000
5,435,000
1,302,000$ 37,552,000$ 32,228,000$ 3,458,000
1,771,000
7,122,000
531,000$ 4,186,000
1,516,000
4,653,000
590,000$ 12,882,000$ 10,945,000$ (1,241,000)$ (6,012,000)

Commitments:
Included in cash and cash equivalents at December 31, 2016 and 2015 is approximately $4.4
million of collateral pledged for a letter of credit in favor of a vendor. The collateral was
released in June 2017.
Mozilla leases office spaces under leases which expire through September 2021. Some leases
have options to renew and certain leases are guaranteed by letters of credit. Rent expense for2016 and 2015 totaled $9,494,000 and $9,325,000, respectively. Future minimum leasecommitments are as follows, and include all base rent and operating expenses:
Year Ended
2017
2018
2019
2020
2021

$

Total scheduled payments

8,638,000
7,822,000
5,483,000
5,494,000
2,491,000$ 29,928,000

20

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 10 -Related Party Transactions:
The Corporation pays the Foundation two percent (2%) of its annual net revenues related tothe use of the trademarks less approved expenses of the preceding year in license fees per alicense agreement. The Corporation paid $8,348,000 and $6,467,000 to the Foundation in2016 and 2015, respectively.
The Corporation provides basic administrative services, IT support and legal services under aservice agreement between the Corporation and the Foundation.
As noted in Note 2b, all significant intercompany transactions have been eliminated in the
preparation of these consolidated financial statements.

21