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Consolidated Pro Forma Financials 

Table of Contents

1  Currency and Number Formats  
2  Analysis of Revenue Model and Registry Growth  
2.1  Methodology  
2.2  Revenue Model Assumptions  
2.3  Projected Registry Size  
2.4  Projected Revenue Stream  
3  Consolidated 5-Year Pro Forma Analysis of Cash Flow and Debt  
3.1  Methodology  
3.2  Pro Forma Net Income After Operations Costs at €6.35 Name  
3.3  Debt, Capital Expense, and Public Works at €6.35 and Debt Financing  
3.4  Debt, Capital Expense, and Public Works at €5.82  
3.5  Analysis of Working Capital and Additional Expenses  
3.6  Working Capital and Reserves at €6.35 and Debt Financing  
3.7  Working Capital and Reserves at €5.82  
4.  Certification and Purpose  
§ Authors' Addresses  
A.  Document Formats   DOC  



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1. Currency and Number Formats

This document has all budget items and registry sizes in the format of thousands of units. For example, 1,100,000 is listed as 1,100 in the tables.

This document uses €(European Euro) as the unit of currency. This document is also available in the following currency formats:


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2. Analysis of Revenue Model and Registry Growth

2.1 Methodology

We present here a highly conservative pro forma analysis of registry growth, revenue, expense, debt, and reserves. Our conservative assumptions are reflected in low renewal rates, a declining price forced by market conditions, and a decreasing rate of new registrants. The underlying revenue model contains data obtained from VeriSign via ICANN under NDA, so we are not publishing the full model, only aggregate information that can be derived from public sources. However, the full model is available to ICANN staff upon request.

Our financial analysis is based on two financing scenarios, one in which debt financing is used to cover initial startup costs, and a second scenario in which the debt financing is supplemented by a portion of the VeriSign endowment:

In either case, we believe that we will only use 60% of our available credit, leaving a substantial cushion in case revenue or expenses differ from projections.

2.2 Revenue Model Assumptions

Parameter                                Assumption
=========                                ==========
Assumption for Percentage Renewals           24.00%
New Registrations As % of Installed Base      1.92%
Average Renewal Period in Years                 1.5

2.3 Projected Registry Size

                         2003       2004       2005       2006       2007
                      =======    =======     ======     =======   =======
New Registrants           443        427        470         690       793
Renewals                  307        290        135         139       150
Total Registrations       750        717        606         829       944
Size at EOY             1,787      2,004      2,473       3,132     3,911
% Change in Registry  -20.85%     12.14%     23.41%      26.63%    24.88%

Size of Registry at Beginning of Period        2,258
Size of Registry at End of Period              3,911
Change in Registry in 5-year Period       +1,653,289

2.4 Projected Revenue Stream

Beginning Registry Price                      €5.82
Annual Decline in Price                     -10.00%
Cumulative Revenue                          €26,700
                         2003       2004       2005       2006       2007
                      =======    =======     ======     =======   =======
Price at EOY            €5.53      €5.00      €4.51       €4.06     €3.67
Gross Revenue          €6,426     €5,522     €4,597      €4,825    €5,329

Based on an initial price point of €6per name, gross revenue changes as follows: 

Beginning Registry Price                      €6.35
Annual Decline in Price                     -10.00%
Cumulative Revenue                          €29,128
                         2003       2004       2005       2006       2007
                      =======    =======     ======    =======    =======
Price at EOY            €6.03      €5.44      €4.91      €4.43      €4.00
Gross Revenue          €7,010     €6,024     €5,015     €5,264     €5,812

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3. Consolidated 5-Year Pro Forma Analysis of Cash Flow and Debt

3.1 Methodology

Our assessment of expenses is based on the deliverables detailed in the .org Proposal, analysis of past sending, and firm price quotes on key items such as capital expenditures.

Our funding priorities are to first cover the operation of the core registry function. The pro forma net income after cost of operations presented in the next section is based on a staff of 19.75 FTE. Pro forma net income after cost of operations is modeled under two scenarios, one with the VeriSign endowment, the other without use of the endowment. Note that costs are identical in both scenarios.

3.2 Pro Forma Net Income After Operations Costs at €6Name

                 2002       2003       2004       2005       2006       2007
              =======  =========  =========  =========  =========  =========
Gross Revenue             €7,010     €6,024     €5,015     €5,264     €5,812 
COGS[1]                     -€70       -€59       -€50       -€52       -€57
Net Revenue               €6,939     €5,964     €4,965     €5,211     €5,754
----------------------------------------------------------------------------
Bid Prep.[2]      €89
Payroll[3]       €977     €2,063     €2,165     €2,347     €2,465     €2,710
Contract[4]      €119       €210       €210       €286       €308       €321
Prof Srvs[5]      €44       €108       €110       €112       €114       €117
Operations[6]    €132       €522       €602       €630       €660       €693
Total          €1,362     €2,902     €3,088     €3,376     €3,549     €3,843
----------------------------------------------------------------------------
Net Income After Operations
              -€1,362     €4,037     €2,875     €1,589     €1,663     €1,911
Average Net Income as a Percent of Gross Revenue: 37%

Notes

[1] Cost of Goods Sold (COGS) is a 1% average cost for merchant processing fees, bank charges, and other costs directly related to revenue.

[2] Bid Preparation includes the ICANN examination fee, travel, and outside legal fees. This category also includes negotiation of the registry agreement.

[3] Payroll is based on 19.75 Full Time Equivalents (FTE).

[4] Contractors includes fees for security, database throughput, routing, and other outside leading experts to provide quarterly reviews.

[5] Professional Services includes legal, insurance, accounting, and other professional services and includes provisions for yearly audits of financial statements and operations.

[6] Cost of Operations includes co-location fees, transit costs, hardware and software support fees, travel, and rent, and other costs needed to provide the core registry function, the software deliverables listed in the proposal, the advanced development function, and front- and back-office functions.

3.3 Debt, Capital Expense, and Public Works at €6.35 and Debt Financing

                 2002       2003       2004       2005       2006       2007
              =======  =========  =========  =========  =========  =========
Net Income After Operations
              -€1,362     €4,037     €2,875     €1,589     €1,663     €1,911
----------------------------------------------------------------------------
Capital Expense[7]
                 €732       €339       €175        €53       €212         €0
Interest          €51       €130         €0         €0         €0         €0
Debt Repayment     €0     €1,587         €0         €0         €0         €0
Total Debt and Capital Expense
                 €784     €2,056       €175        €53       €212         €0
----------------------------------------------------------------------------
Net Cash Flow After Capital and Debt
              -€2,146     €1,980     €2,701     €1,536     €1,451     €1,911

Notes

[7] Capital Expense includes 3 large towers during pre-launch and launch periods. Additional line items are provided for development machines, and supplemental towers in additional exchange points in years 2-5 of the contract.

3.4 Debt, Capital Expense, and Public Works at €5.82

                 2002       2003       2004       2005       2006       2007
              =======  =========  =========  =========  =========  =========
Net Income After Operations
              -€1,362     €3,459     €2,378     €1,175     €1,228     €1,432
----------------------------------------------------------------------------
Capital Expense[7]
                 €732       €339       €175        €53       €212         €0
   
Interest          €51        €48         €0         €0         €0         €0
Debt Repayment     €0     €1,587         €0         €0         €0         €0

Total Debt and Capital Expense
                 €784     €1,974       €175        €53       €212         €0
----------------------------------------------------------------------------
Net Cash Flow After Capital and Debt
              -€2,146     €1,485     €2,203     €1,122      €1,016    €1,432

3.5 Analysis of Working Capital and Additional Expenses

Once capital costs, debt, and the core operation of the registry are covered, we staff recommendations to the board of directors are considered for programs that meet our mission of running the .org TLD as a public trust and meets our core goals:

  1. Providing service and differentiation to the .org registrants.
  2. Providing public infrastructure that will promote the stable functioning of .org registry and other registries and will promote better service and more competition.

Our goal for management of financial resources is to insure that a minimum of €529in working capital is available in addition to our €2.65 million line of credit. This insures that we are able to meet any unforeseen contingencies and still maintain the stable operation of the .org registry.

Once these requirements are met, we attempt to use the remainder of the funds to meet those core goals. Three initial program proposals have been prepared by staff and the board has agreed that these are examples of the kinds of programs it would like to see developed and pursued. Final decisions on funding will occur once funds are available. The three initial programs are:

  1. Provision of 8% of gross revenues to fund the IETF and IAB.
  2. Funding of the development of BIND 9 with special emphasis on secure DNS with an aim of providing a secure DNS function for the .org TLD.
  3. Funding of the development of the ANANA protocols for automated namespace management and the development of identity management techniques for .org registrants.

3.6 Working Capital and Reserves at €6.35 and Debt Financing

                 2002       2003       2004       2005       2006       2007
              =======  =========  =========  =========  =========  =========
Net Cash Flow After Capital and Debt w/out Endowment
              -€2,146     €1,980      €2,701    €1,536     €1,451     €1,911
----------------------------------------------------------------------------
Internet Public Works Programs   
                   €0       €934        €946      €397       €416       €460
----------------------------------------------------------------------------
Net Cash Flow After Public Works
              -€2,146     €1,045      €1,754    €1,139     €1,034     €1,451
----------------------------------------------------------------------------
Debt at End of Year
               €1,587         €0          €0        €0         €0         €0
----------------------------------------------------------------------------
Working Capital at End of Year
                  €38     €1,084        €932      €696       €672       €377
Unallocated Reserves
                   €0       €529      €2,381    €3,281     €4,339     €6,085
Cumulative Funding for IETF/IAB:       €2,306
Cumulative Funding for BIND 9:           €749
Cumulative Funding for ANANA:            €101

3.7 Working Capital and Reserves at €5.82

This analysis assumes that startup debt of €1,587,465is back in February, 2003 and that the wholesale price is reduced to €5.82 per name." 

                 2002       2003       2004       2005       2006       2007
              =======  =========  =========  =========  =========  =========
Net Cash Flow After Capital and Debt
              -€2,146     €1,485     €2,203     €1,122     €1,016     €1,432
----------------------------------------------------------------------------
Internet Public Works Programs   
                   €0       €888       €907       €364       €382       €421
----------------------------------------------------------------------------
Net Cash Flow After Public Works
              -€2,146       €596     €1,296       €758       €634     €1,010
----------------------------------------------------------------------------
Debt at End of Year
               €1,587          €0        €0         €0         €0         €0
----------------------------------------------------------------------------
Working Capital at End of Year
                  €38        €847    €1,032       €627       €627       €419
Unallocated Reserves
                   €0      €2,752    €4,074     €4,709     €5,344     €6,562

Cumulative Funding for IETF/IAB:     €2,115
Cumulative Funding for BIND 9:         €749
Cumulative Funding for ANANA:          €101

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4. Certification and Purpose

These pro forma financials contain forward-looking projections of market conditions, expenses, and revenues. They are provided as a planning tool. Actual budgets will be developed by the program staff and approved by the IMS board of directors based on actual market conditions, expenses, and revenues. 


        /Carl Malamud/
        Signed

        Carl Malamud
        Chairman
        Internet Multicasting Service
        June 16, 2002

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Authors' Addresses

  Internet Multicasting Service
  P.O. Box 217
  Stewarts Point, CA 95450
  US
Phone:  +1.707.847.3720
Fax:  +1.415.680.1556
URI:  http://not.invisible.net/
  
  Internet Software Consortium
  950 Charter Street
  Redwood City, CA 94063
  US
Phone:  +1.650.779.7000
Fax:  +1.650.779.7055
URI:  http://www.isc.org/
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Appendix A. Document Formats

This document is available in the following formats:

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