MOZILLA FOUNDATION
AND SUBSIDIARYDECEMBER 31, 2018 AND 2017

INDEPENDENT AUDITORS’ REPORTAND

CONSOLIDATED FINANCIAL STATEMENTS

Mozilla Foundation and Subsidiary
Independent Auditors’ Report andConsolidated 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 Functional Expenses

5

Consolidated Statement of Cash Flows6

Notes to Consolidated Financial Statements

7 - 27

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, 2018 and 2017, and the related consolidated statements of activities and change in net
assets, and cash flows for the years then ended, the statement of functional expenses for the year ended
December 31, 2018, and the related notes to the consolidated financial statements (collectively, thefinancial statements).
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements inaccordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fairpresentation of 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 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 financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to Mozilla’s preparationand fair presentation of the financial statements in order to design 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 theappropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.

San Francisco ● San Jose ● San Mateo ● Petaluma

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of Mozilla Foundation and Subsidiary as of December 31, 2018 and 2017 and thechange in their net assets and their cash flows for the years then ended in accordance with accounting
principles generally accepted in the United States of America.
Effect of Adopting New Accounting Standard
As described in Note 2u, Mozilla adopted the Financial Accounting Standards Board AccountingStandards Update (ASU) 2016-14, Not-For-Profit Entities (Topic 958): Presentation of Financial
Statements of Not-for-Profit Entities. Accordingly, the accounting change has been retrospectively
applied to all periods presented with the exception of the omission of certain information as permitted by
the ASU. Our opinion is not modified with respect to that matter.

San Jose, California
September 26, 20192

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

December 31,

2018

2017

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

113,133
60,93718,187368,806
12,242
10,205
14,391
23,415
1,427$

49,74356,6289,041
414,171
25,8196,501
16,68226,017
2,667$

622,743$

607,269$

20,11875,063
616
3,409

$

30,45755,219430
6,991

Liabilities and Net Assets
Liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Unrecognized tax positions
Total liabilities

99,206

93,097

Net Assets:
Without donor restrictions
With donor restrictions

516,7676,770

510,243
3,929

Total net assets

523,537

514,172

Total liabilities and net assets$

622,743

See accompanying notes to financial statements.
3$607,269

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

Years Ended December 31,

2018

Net Assets Without Donor Restrictions:
Revenues and other support:
Royalties
Subscription and advertising revenue
Interest and dividend income
Net realized and unrealized (loss) gain on investments, net
Contributions
Other
Foreign currency exchange (loss) gain
Loss on sale of assets
Net assets released from restrictions$

Total revenue and support

429,695
5,377
7,905(1,688)6,335
864(2,402)
(42)
4,816

2017

$

539,168
2,653
4,919
819
6,438
553
2,409
(43)
5,363

450,860

562,279

277,767
33,484

259,549
20,71352,80586,04565,92874,473

1,270

1,124

451,371

421,787(511)

140,492

Provision for income tax expense (benefit)(7,035)50,588Change in Net Assets Without Donor Restrictions

6,524

89,904

Change in Net Assets With Donor Restrictions:Contributions
Net assets released from restriction

7,657(4,816)

3,495(5,363)

Change in Net Assets With Donor Restrictions

2,841(1,868)Change in Net Assets

9,365

88,036514,172

426,136

Expenses:
Program:
Software development
Other program services
Management and general:
Branding and marketing
General and administrative
Fundraising:Fundraising and development
Total expenses
Change in Net Assets Without Donor Restrictions before
Provision for Income Taxes

Net Assets - beginning of year
Net Assets - end of year$

523,537

See accompanying notes to financial statements.
4$514,172

Mozilla Foundation and Subsidiary
Consolidated Statement of Functional Expenses(In thousands)

Year Ended December 31, 2018

Management
and General

Program
Salaries and benefits
Information technology
Consultants
Advertising and promotion
Conferences, conventions, and meetings
Occupancy
Grants and donations
Legal
Dues and subscriptions
TravelOffice expenses
Accounting
Insurance
Depreciation
Other expenses$

Expenses before income tax
provision (benefit)
Provision for income tax expense (benefit)
Total expenses$

202,087
24,864
23,672
230
13,411
8,318
8,702
4,929
3,070
3,912
4,167
254
12,0901,545

82,423
7,681
7,359
21,860
6,344
2,577
730
1,779
2,700
1,466
1,722
1,611
91
23
484

311,251

138,850(5,359)(1,676)

305,892$$

137,174

See accompanying notes to financial statements.
5

Fundraising
$

1,061
18

Total
$

4

285,571
32,56331,031
22,23319,755
10,895
9,432
6,708
5,770
5,418
5,893
1,611
345
12,113
2,033

1,270

451,371

143

40
4(7,035)
$

1,270

$

444,336

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

Years Ended December 31,

2018

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

$

9,365

2017

$

88,036

12,113
1,688
2,402
(414)
(4,119)
42

9,035
(819)
(2,409)407(4,722)43(4,362)(9,307)
10,403
10,471(3,424)
8,082(13,609)20,80228,282

101,422(6,385)(290,453)
333,946(9,674)(315,245)
231,083(29,262)

37,108(123,098)

Effect of Exchange Rate Changes on Cash(2,000)2,355

Net Change in Cash and Cash Equivalents

63,390(19,321)

Cash and Cash Equivalents - beginning of year

49,74369,064

Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of property and equipment
Purchases of investments
Proceeds from sale of investments
Acquisitions, net of cash acquired
Net cash provided (used) by investing activities

Cash and Cash Equivalents - end of year$

113,133$

49,743

Supplemental Disclosure:
Cash paid for taxes, net of refunds$(14,543)$

83,115

See accompanying notes to financial statements.
6

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 not-forprofit corporation that exists to improve and protect the internet as a public resource byworking with thousands of volunteers to 1) keep the internet a universal open platform
and 2) promote continued innovation on the internet. The Foundation supports thedevelopment of open source, standards compliant, free internet applications useable freeof 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 the internet; andb) fuels the movement for an open internet through educational work that connects open
internet leaders with each other and mobilizes grassroots activities around the 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 andthe vast Mozilla community. It provides internet based open source software and services(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 andaccessible to all. The Corporation has wholly-owned subsidiaries operating in the UnitedStates, 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.

7

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Net Assets Without Donor Restrictions – The portion of net assets that are not subject totime or donor-imposed restrictions and may be expended for any purpose in achieving the
primary objective of the Foundation.
Net Assets With Donor Restrictions – represent contributions that are limited in use by
Mozilla in accordance with donor imposed stipulations. These stipulations may expire
with time or may be satisfied and removed by the actions of Mozilla according to theterms of the contribution. Net assets with donor restrictions also include net assets to beretained in perpetuity of which Mozilla has none as of December 31, 2018 and 2017.
d. Cash and Cash Equivalents
For purposes of the statement of cash flows, Mozilla considers its operating checking andsweep 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 considered depending upon prior history
and management’s assessment of collectability. For 2018 and 2017, management
considers all amounts to be fully collectible. Therefore, no allowance has been
established.
Mozilla has $1,298,000 and $1,684,000 in grants receivable at December 31, 2018 and2017, respectively.
f.

Investments
Investments, which consist of money market funds, marketable debt securities, mutual
funds, government issued securities, commercial paper and hedge funds, are stated at fairvalue. 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 ofobservable inputs for similar assets. The fair value of mutual funds is based on theirquoted prices for identical assets in active or inactive markets. The fair value of hedge
funds has been estimated using the net asset value (NAV) per share or ownership interestof the investment. Changes in fair value are recognized on a current basis in the statementof activities and change in net assets.

g. 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.

8

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Mozilla carries certain assets and liabilities at fair value. Fair value is defined as the pricethat 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, certain
investments are reported using the NAV per share method practical expedient whichallows NAV per share to represent fair value for reporting purposes when the criteria forusing 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.
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 other than quoted prices included within Level 1 for theasset or liability.
Level 3: Unobservable inputs for the asset or liability that are not corroborated bymarket 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 and amortization.
Depreciation is calculated over the estimated useful lives of the related assets, generally
one to seven years, using the straight-line method. Leasehold improvements areamortized over the useful life or the term of the lease, whichever is shorter.
Mozilla recognizes asset retirement obligations (AROs) in the period in which it has anexisting legal obligation associated with the retirement of a tangible long-lived asset, andthe amount of the liability can be reasonably estimated. The ARO is recognized at fairvalue when the liability is incurred with a corresponding increase in the carrying amountof the related long-lived asset. Mozilla depreciates the tangible asset over its estimateduseful life. The liability is adjusted in subsequent periods through accretion expense, ifany, which represents the increase in the present value of the liability due to the passageof time. Such depreciation and accretion expenses are included in depreciation expense.

9

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Mozilla’s AROs are primarily the result of requirements under facility lease agreements
which generally have “return to original condition” clauses which would require Mozillato remove or restore items such as demising walls and office buildouts, among others.
The significant assumptions used in estimating the aggregate ARO are the timing ofremovals, the probability of a requirement to perform, estimated cost and associatedexpected inflation rates that are consistent with historical rates and credit-adjusted riskfree rates that approximate Mozilla’s incremental borrowing rate.
During 2018, there was $3,220,000 of liabilities incurred with no liabilities assumed or
settled, and no accretion expense for the ARO at December 31, 2018 of $3,220,000.
i.

Goodwill and Intangible Assets
Goodwill represents the excess of the cost of net assets acquired over the fair value ofidentifiable net assets at the date of acquisition. Intangible assets consist of acquired userbase, trade names and trademarks, and developed technology.
Effective January 1, 2018 Mozilla adopted the private company alternative accounting
policy for goodwill. Goodwill is amortized over a 10-year estimated useful life andimpairment is assessed at the reporting unit level. Mozilla performs an impairment test
only when there is a triggering event by comparing the fair value of the reporting unit to
its carrying value.

j.

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.

k. Recognition of Revenue
Mozilla’s primary source of revenue is royalty income from contracts with various searchengine and information providers. Revenue from these contracts is determined by thesearch and information providers based upon end user activity or as contractually agreed
to. Mozilla records revenue on the accrual basis of accounting based upon the amounts
received.

10

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Other sources of revenue include advertising for content providers and monthly andannual subscriptions, which are recognized when the services are performed. Deferred
revenue is recorded for the amount billed for which the service period has not yet
occurred.
l.

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. When donor restrictions expire, that is, when a stipulated time restriction
ends or a purpose restriction is fulfilled, net assets with donor restrictions are reclassified
to net assets without donor restriction and reported in the consolidated statement ofactivities and change in net assets as net assets released from restrictions.
Conditional promises are not recognized until they become unconditional, that is when
the conditions on which they depend are substantially met. Mozilla received $13,992,000
and $9,933,000 in contributions during the years ending December 31, 2018 and 2017,
respectively, and has $2,441,000 and $100,000 in conditional promises at December 31,
2018 and 2017, respectively.

m. 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.
n. Advertising Costs
Mozilla expenses advertising costs as incurred. Amounts paid in advance of services
provided are recorded as a prepaid expense. Advertising expense for the year ended
December 31, 2018 and 2017 amounted to $17,991,000 and $30,670,000, respectively.
o. Grants
Grants are recorded when approved and all significant conditions are met.
p. 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.

11

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

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.
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.

s. Functional Expenses
The costs of providing various programs and activities have been summarized on afunctional basis in the statement of activities and changes in net assets. Expenses such as
salaries and benefits and facilities are allocated among program, management andgeneral, and fundraising based on time estimates determined by Mozilla’s management.
Office supplies and other indirect costs are allocated based on time and effort. All othercosts are allocated directly to the functions they benefit.
t.

Reclassification
Certain accounts in the 2017 financial statements have been reclassified for comparative
purposes to conform with the presentation in the 2018 financial statements. These
reclassifications had no effect on net assets or change in net assets.

12

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

u. Recent Accounting Pronouncements
Pronouncements Adopted:
In August 2016, the Financial Accounting Standards Board (FASB) issued AccountingStandards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958) Presentation of
Financial Statements of Not-for-Profit Entities, which changes presentation anddisclosure requirements for nonprofit entities to provide more relevant information about
their resources (and the changes in those resources) to donors, grantors, creditors, andother users. These include qualitative and quantitative requirements in the following
areas: net asset classes, expenses, and liquidity. Mozilla adopted the ASU as of January 1,
2018. Accordingly, the accounting change has been retrospectively applied to all periods
presented, with the exception of the omission of prior year functional expense andliquidity and availability of resource information as permitted by the ASU.
Pronouncements Effective in the Future:
The FASB issued authoritative guidance, Revenue from Contracts with Customers (Topic
606). These amendments provide that revenue should be recognized to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled 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.
In June 2018, the FASB issued ASU 2018-08, Clarifying the Scope and the Accounting
Guidance for Contributions Received and Contributions Made (Topic 958). The ASU
clarifies and improves current guidance about whether a transfer of assets, or the
reduction, settlement, or cancellation of liabilities, is a contribution or an exchangetransaction. It provides criteria for determining whether the resource provider is receiving
commensurate value in return for the resources transferred which, depending on theoutcome, determines whether the organization follows contribution guidance or exchangetransaction guidance in the revenue recognition and other applicable standards. The ASU
does not apply to transfers of assets from governments to businesses. The amendments inthe update related to contributions received are effective for fiscal years beginning after
December 15, 2018, while the amendments related to contributions made are effective
one year later. Mozilla is currently evaluating the impact of this pronouncement on its
financial statements.
The FASB issued ASU 2016-02—Leases (Topic 842). Under the ASU, a lessee will be
required to recognize right-to-use assets and liabilities 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 allorganizations. Mozilla has started to implement this ASU as of December 31, 2018.

13

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

v. Subsequent Events
Mozilla evaluated subsequent events from December 31, 2018 through September 26,
2019, the date these financial statements were available to be issued. Except as disclosed
in the following paragraph, there were no material subsequent events that required
additional disclosure in these financial statements.
The Corporation entered into a minority investment transaction with Cliqz GmbH (Cliqz)
in August 2016 to further explore and promote privacy-focused search innovation by
Cliqz. As a result of this transaction, the Corporation maintained a 10% share of Cliqz
with a total investment of EUR 1,610,000 ($1,800,000), which includes an initialpurchase price of EUR 10,026 and two subsequent investments. In July 2019, theCorporation sold the Cliqz shares back to Cliqz at the nominal fee for which the shareswere initially purchased by the Corporation, and the Corporation is no longer ashareholder in Cliqz.
Note 3 -Availability of Financial Assets and Liquidity:
Mozilla’s financial assets available within one year of December 31, 2018 for general
expenditures are as follows:
Financial assets at year-end:
Cash and cash equivalents
Receivables
Investments$ 113,133,000
60,937,000
368,806,000

Total financial assets

542,876,000

Less amounts not available to be used within one year:
Long-term contributions and notes receivable
Investments not convertible to cash within 12 months
Other assets
Net assets with donor restrictions
Add net assets with purpose restrictions to be met in less than a year

(12,500,000)(352,173,000)(1,000,000)(6,770,000)
6,693,000

Total amounts not available to be used within one year

(365,750,000)

Financial assets available to meet general expenditures
over the next twelve months

14$ 177,126,000

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Mozilla has certain donor-restricted assets limited to use which are available for general
expenditure within one year in the normal course of operations. Accordingly, these assets
have been included in the quantitative information above for financial assets to meet general
expenditures within one year. Donor restricted assets that are not available for general
expenditure within the next year, are more fully described in Note 9.
As part of the Mozilla’s liquidity management plan, cash in excess of daily requirements isinvested in a managed portfolio of fixed income and equity securities.
Note 4 -Acquisition:
On February 24, 2017, Mozilla acquired 100% of the outstanding stock of Read It Later, Inc.,
known as Pocket, (RIL) for a total purchase price of $25 million in cash, and $5 million indeferred payments. The results of RIL are included in Mozilla’s consolidated financial
statements since the date of acquisition.
RIL is headquartered in California and provides a platform that helps people save interestingarticles, videos and more from the web for later enjoyment. Once saved, the list of content isvisible on any device — phone, tablet or computer — via its mobile and web applications.
RIL’s save-for-later service has been integrated into the Firefox web browser to provide
Firefox users a better user experience. The goodwill arising from the acquisition will create
growth opportunities and expected synergies and enhancements with Firefox integration.
None of the goodwill recognized is expected to be deductible for income tax purposes.
Assets acquired, and liabilities assumed at the date of acquisition consisted of:Cash
Accounts receivable
Restricted cash
Other assets
Intangible assets$

187,000
315,000
374,000
9,000
3,700,000

Total assets acquired$

4,585,000

Accounts payable and accrued expenses
Deferred revenue
Other accrued expenses$

130,000
608,000
40,000Total liabilities assumed$

778,000

15

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 5 -Net assets acquired
Goodwill$

3,807,000
26,017,000

Purchase price$

29,824,000

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:
2018
Money market funds
Commercial paper
Mutual funds
Domestic
ETF: Minerals
Municipal bonds
U.S. agency funds
Asset-backed securities
Corporate debentures/bonds:
Industrial
Financial

Total$

8,901,000 $ 8,901,000
19,830,000$
14,170,000
433,000
2,379,000
39,263,000
57,596,000
151,789,000
72,739,000

Total assets measured at fair value

11,875,000
433,000

Level 2
19,830,000
2,295,000
2,379,000
39,263,000
57,596,000
151,789,000
72,739,000

367,100,000 $ 21,209,000 $ 345,891,000

Hedge fund investments measured at net
asset value as a practical expedient
Total

Level 1

1,706,000$ 368,806,000

16Level 3

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

2017
Money market funds
Commercial paper
Mutual funds
Domestic
ETF: Minerals
Municipal bonds
U.S. agency funds
Asset-backed securities
Corporate debentures/bonds:
Industrial
Financial

Total$

182,827,000
31,922,000

Level 39,506,000
442,000

4,589,000
1,786,000
107,079,000
49,333,000
182,827,000
31,922,000

410,116,000 $ 19,289,000 $ 390,827,000

Hedge fund investments measured at net
asset value as a practical expedient
Total

Level 2

9,341,000 $ 9,341,000
13,291,000$ 13,291,000
14,095,000
442,000
1,786,000
107,079,000
49,333,000

Total assets measured at fair value

Level 1

4,055,000$ 414,171,000

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, 2018 and 2017.
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 use ofdifferent methodologies or assumptions to determine fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.

17

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

The following table provides information for investments using NAV to determine fair value
as of December 31:
Redemption
Fair
Redemption Notice Period
2018
No. of Funds
Value
Frequency(days)
Global macro fund (a)Feeder fund (d)11$ 1,286,000
420,000

Total$ 1,706,000

2017

No. of Funds

Fair
Value

1
1
1
1

$ 1,139,000
1,738,000
838,000
340,000

Global macro fund (a)Event driven fund (b)Long and short fund (c)Feeder fund (d)TotalQuarterly
None

90
N/A

Redemption
Redemption Notice Period
Frequency(days)
QuarterlyMonthlyMonthly
None

90
30
60
N/A

$ 4,055,000

There were $257,000 and $300,000 in unfunded commitments as of December 31, 2018 andDecember 31, 2017, respectively.
(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)This fund invests in an affiliated Master Fund LP, whose investment strategy is toachieve positive returns from capital appreciation and income generation.

(c)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.

(d)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.

18

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 6 -Property and Equipment:
Property and equipment as of December 31, are as follows:
2018

2017

Useful Life
(Years)Computer equipment
Furniture and office equipment
Leasehold improvements
Software$ 21,753,000
12,321,000
30,870,000
305,000$ 20,059,000
11,944,000
28,181,000
223,000

3
3-7
3-5
1-3

Less accumulated depreciation

65,249,000(50,858,000)

60,407,000(43,725,000)

Net property and equipment$ 14,391,000$ 16,682,000

Depreciation and amortization expense, excluding amortization on intangibles and goodwill
totaled $8,271,000 and $8,002,000 for the years ended December 31, 2018 and 2017,
respectively.
Note 7 -Goodwill:
Goodwill is amortized over an estimated useful life of 10 years. Amortization expense for thefor the year ended December 31, 2018 was $2,602,000. Goodwill is as follows as ofDecember 31:
Estimated
Useful Life
2018
2017
(Years)Goodwill
Less: Accumulated amortization$ 26,017,000(2,602,000)$ 26,017,000

Total goodwill, net$ 23,415,000$ 26,017,000

19

10

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Mozilla adopted the private company alternative accounting policy for goodwill effective
January 1, 2018 to reduce the complexity and costs of the original goodwill accounting
method. Since the carrying amount of goodwill was recorded at fair value as of December
31, 2017, and given the recent nature of the transaction giving rise to the goodwill,
management determined to apply the alternate guidance on a prospective basis. The results ofwhich are reflected in these financial statements.
Note 8 -Intangible Assets:
Intangible assets are amortized over their estimated useful lives on a straight-line basis. No
residual value is estimated for the intangible assets.
The components of intangible assets are as follows as of December 31:

2018

2017

Estimated
Useful Life
(Years)$ 1,500,000
1,200,000
1,000,000$ 1,500,000
1,200,000
1,000,000

2543,700,000

3,700,000

Accumulated amortization(2,273,000)(1,033,000)

Total intangible assets, net$ 1,427,000$ 2,667,000

User baseTrade names and trademark
Developed technology

Amortization expense for the year ended December 31, 2018 was $1,240,000 and for theperiod from February 24, 2017 through December 31, 2017 was $1,033,000. Estimatedaggregate amortization expense is as follows:
2019
2020
2021
2022
Total

20

$

615,000
490,000
282,000
40,000$1,427,000

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 9 -Net Assets With Donor Restrictions:
Net assets with donor restrictions consist of the following at December 31, 2018:

Leadership Development: Ford-Mozilla OpenWeb Program
Leadership Development: Mozilla MITI/OIE
Fellowships
Leadership Development: Mozilla Science
Fellowships
Leadership Development: Hive
Community: Coral Software Project
Leadership Development: Responsible
Computer Science Challenge
Thunderbird
Other

2018

2017

$ 1,090,000$ 1,012,000

814,000
1,021,000
32,0001,213,000
174,000
203,000

1,287,000
1,805,000
721,000

1,077,000
250,000$ 6,770,000$ 3,929,000

Net assets were released from donor restrictions during the year ended December 31, 2018and 2017 by incurring expenses satisfying the purpose of the restriction, by the passage oftime, or by the occurrence of other specific events as follows:
2018
Leadership Development: Hive
Leadership Development: Ford- Mozilla MITI/OIE
Fellowships
Leadership Development: Ford-Mozilla Open Web
Program
Leadership Development: Mozilla Science
Fellowships
Leadership Development: Knight-Mozilla
OpenNews
Community: Coral Software Project
Leadership Development: Responsible Computer
Science Challenge
Thunderbird
Agenda-setting: Digital Skills Observatory
Other

21

$

174,0002017$ 1,165,000

361,000
1,422,000

1,399,000

1,181,000

950,000

846,000

106,000
1,227,000

73,000477,000
282,000

183,000
137,000
196,000$ 4,816,000$ 5,363,000

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 10 -Income Taxes:
Mozilla's income tax provision (benefit) consists of the following:
2018
Current provision (benefit)
Foundation
Corporation
Deferred provision (benefit)
Corporation
Total

$

FederalState

Foreign

Total

54,000(4,298,000) $48,000$ 1,087,000

54,000(3,163,000)(2,701,000)(1,301,000)

76,000(3,926,000)$$ (6,945,000) $ (1,253,000) $ 1,163,000 $ (7,035,000)
2017
FederalCurrent provision (benefit)
Foundation
Corporation
Deferred provision (benefit)
Corporation
Total

$

State

(60,000)
49,809,000 $ 1,080,000(3,329,000)$ 46,420,000(126,000)$

954,000

ForeignTotal$$ 3,408,000(60,000)
54,297,000(194,000)(3,649,000)$ 3,214,000 $ 50,588,000

The provision for income taxes differs from taxes calculated at the federal statutory rate
primarily due to the activity related to Mozilla’s unrecognized tax positions, nondeductible
expenses, research and development credits, accrued expenses and other reserves, and state
income taxes net of federal tax benefit.
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was signed into law,enacting a broad range of changes to the U.S. Internal Revenue Code. The Tax Act makes
broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing
the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to
pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3)generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4)requiring a current inclusion in U.S. federal taxable income of certain earnings of controlledforeign corporations; and (5) creating the base erosion anti-abuse tax (BEAT), a newminimum tax. The Tax Act also imposes significant limitations on the deductibility ofinterest, executive compensation and future net operating losses. The Tax Act allows for the
expensing of certain capital expenditures.

22

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

As part of the transition to the new territorial tax system, the Tax Act imposes a one-time tax
on deemed repatriation of historical earnings of foreign subsidiaries. For the period ended
December 31, 2017, Mozilla recorded a provisional tax expense of $1,782,000 based on
Mozilla’s interpretation and understanding of the Tax Act at the time. During the twelve
months ended December 31, 2018, Mozilla completed the accounting for tax effects of all
income tax effects of the Tax Act and based on management’s analysis, there wereimmaterial changes from provisional amounts previously recorded for the year ended
December 31, 2017. These revisions will be treated in accordance with the measurement
period guidance outlined in Staff Accounting Bulletin No. 118.
Deferred taxes are reflected in the statement of financial position as follows:

Total assets
Total liabilities

2018

2017

$ 11,756,000(1,551,000)$ 7,518,000(1,017,000)$ 10,205,000$ 6,501,000

As of December 31, 2018, Mozilla had net operating loss carryforwards for federal and state
income tax purposes of approximately $27.7 million and $20.2 million, respectively. Federal
and state net operating losses incurred before tax year 2018 begin to expire in years beginningin 2032 and 2032, respectively. Federal net operating losses incurred during 2018 and futureyears will be carried forward indefinitely.
As of December 31, 2018, Mozilla had tax credit carryforwards for state income tax purposesof approximately $13.7 million. The state credits do not expire.
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.

23

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

The activity related to Mozilla’s unrecognized tax positions is set forth below:
Foundation

Corporation

Total

Balance at December 31, 2016
Increases related to current tax
positions
Increases related to prior year
tax positions
Lapse of time restrictions$ 6,584,000$ 6,584,000

1,484,000

1,484,000

545,000(1,622,000)

545,000(1,622,000)

Balance at December 31, 2017
Decreases related to current tax
positions
Increases related to prior year
tax positions
Lapse of time restrictions

6,991,000

6,991,000(1,004,000)(1,004,000)

1,174,000(1,259,000)

1,174,000(1,259,000)$ 5,902,000$ 5,902,000

Balance at December 31, 2018

Mozilla also accrued potential penalties and interest of $128,000 and $73,000 related to these
unrecognized tax benefits during 2018 and 2017, respectively, and in total, has recorded aliability for potential penalties and interest of $372,000 and $260,000, as of December 31,
2018 and 2017, 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 positions 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 2015 and 2014,
respectively. In foreign jurisdictions, the 2012 through 2018 tax years generally remainsubject to examination by their respective taxing authorities.

24

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Note 11 -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$8,090,000 and $7,213,000 for 2018 and 2017, respectively.
For certain other foreign locations, Mozilla contributes employee benefits due in accordancewith local labor regulations. Contributions totaled $2,361,000 and $2,386,000 for 2018 and2017, respectively.
The Corporation maintains a Long-Term Incentive Plan whereby a Board committee annually
approves the participants and amount. Expenses of approximately $21,819,000 and$14,288,000 were recorded in 2018 and 2017, respectively.

Note 12 -Concentrations of Risk:
Mozilla has entered into contracts with search engine providers for royalties which expire
through November 2020.
Approximately 91% and 93% of Mozilla’s royalty revenues were derived from thesecontracts for 2018 and 2017, respectively, with receivables from these contracts representing
approximately 75% and 79% of the December 31, 2018 and 2017 outstanding receivables,
respectively.
Mozilla has defined its financial instruments which are potentially subject to credit risk as
cash and cash equivalents and investments. At December 31, 2018 and 2017, essentially all of
the cash and cash equivalents accounts are in excess of the federally insured limits. In
addition, investments in general are exposed to various risks, such as interest rate, credit andoverall market volatility. To address these risks, Mozilla maintains an investment policy thatsets out performance criteria, investment, and asset allocation guidelines, and actively
manages the investments to these policies.

25

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

At December 31, 2018 and 2017, the financial statements include the following amounts ofassets, liabilities and foreign currency transaction gains and losses relating to subsidiaries andbranches outside the United States of America:

Assets:EuropeAsia
North America
Australia and Oceanic

Liabilities:
EuropeAsia
North America
Australia and Oceanic

Foreign currency transaction gain (loss), net

Note 13 -

2018

2017

$ 17,342,000
19,282,000
1,638,000
150,000$ 15,029,000
17,660,000
1,644,000
168,000$ 38,412,000$ 34,501,000$ 1,535,000
939,000
8,544,000
754,000$ 5,821,000
1,807,000
8,588,000
638,000$ 11,772,000$ 16,854,000$$(134,000)

166,000

Commitments:
Included in cash at December 31, 2018 and 2017 is approximately $1,000,000 of collateralpledged for lease agreements.
Mozilla leases office space under leases, which expire through August 2023. Some leases
have options to renew and certain leases are guaranteed by letters of credit. Rent expense for2018 and 2017 totaled $10,869,000 and $9,758,000, respectively. Future minimum leasecommitments are as follows and include all base rent and operating expenses.
2019
2020
2021
2022
2023

$

Total scheduled payments

9,843,000
10,663,000
7,629,000
4,844,000
2,972,000$ 35,951,000

26

Mozilla Foundation and Subsidiary
Notes to Consolidated Financial Statements

Mozilla is currently involved in litigation matters arising in the normal course of its
operations. This includes Yahoo Holdings Inc. v. Mozilla Corporation, scheduled for trial in
California State Court on September 29, 2019. Mozilla will vigorously defend itself in thepending actions and management does not anticipate any adverse material financial impact
resulting from such matters. No accrual has been made in these financial statements.
Note 14 -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 current year in license fees per alicense agreement. The Corporation incurred $8,500,000 and $10,796,000 in license fees to
the Foundation in 2018 and 2017, respectively.
During 2018, the Corporation also paid a one-time additional flat fee of $4.5 million to theFoundation based on a one-time supplemental agreement between the parties.
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.

27