UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number 001-32548
 NeuStar, Inc.
  Delaware
    
    52-2141938(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 46000 Center Oak Plaza  Sterling, Virginia 20166
 (571) 434-5400
 þ o
 o o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



NeuStar, Inc.
Index
 PART I FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets as of December 31, 2008 and September 30, 2009 (unaudited)
    
    
    3Unaudited Consolidated Statements of Operations for the three and nine months ended
September 30, 2008 and 2009
    
    
    5Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30,
2008 and 2009
    
    
    6Notes
to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4.
    
    Controls and Procedures
    
    
    39PART II OTHER INFORMATION
    
    
    40Item 1.
    
    Legal Proceedings
    
    
    40Item 1A.
    
    Risk Factors
    
    
    40Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3.
    
    Defaults upon Senior Securities
    
    
    40Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    40Item 5.
    
    Other Information
    
    
    40Item 6.
    
    Exhibits
    
    
    41Signatures
    
    
    42EX-10.1.4EX-10.3.4EX-10.4.1EX-31.1EX-31.2EX-32.1
  2




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##### 



PART I  FINANCIAL INFORMATION
 
 Item 1.
Financial Statements
 
 NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    September 30,2008
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    150,829
    
    
    $
    262,614Restricted cash
    
    
    496
    
    
    
    498Short-term investments
    
    
    10,824
    
    
    
    40,614Accounts receivable, net of allowance for doubtful accounts
of $1,209 and $1,402 respectively
    
    
    71,805
    
    
    
    63,016Unbilled receivables
    
    
    830
    
    
    
    1,310Notes receivable
    
    
    759
    
    
    
    Prepaid expenses and other current assets
    
    
    8,928
    
    
    
    10,657Deferred costs
    
    
    8,518
    
    
    
    7,467Income taxes receivable
    
    
    4,621
    
    
    
    3,445Deferred tax assets
    
    
    11,079
    
    
    
    8,542Total current assets
    
    
    268,689
    
    
    
    398,163Investments, long-term
    
    
    40,506
    
    
    
    Property and equipment, net
    
    
    64,160
    
    
    
    67,203Goodwill
    
    
    118,067
    
    
    
    118,417Intangible assets, net
    
    
    16,594
    
    
    
    10,523Deferred costs, long-term
    
    
    3,333
    
    
    
    1,672Deferred tax assets, long-term
    
    
    4,244
    
    
    
    3,556Other assets
    
    
    3,573
    
    
    
    4,390Total assets
    
    $
    519,166
    
    
    $
    603,924
 See accompanying notes.
 3




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##### 



NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    September 30,2008
    
    
    2009(unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,901
    
    
    $
    5,960Accrued expenses
    
    
    52,202
    
    
    
    51,039Deferred revenue
    
    
    32,530
    
    
    
    35,659Notes payable
    
    
    2,587
    
    
    
    1,777Capital lease obligations
    
    
    7,536
    
    
    
    9,470Accrued restructuring reserve
    
    
    1,867
    
    
    
    2,300Other liabilities
    
    
    430
    
    
    
    3,891Total current liabilities
    
    
    104,053
    
    
    
    110,096Deferred revenue, long-term
    
    
    11,657
    
    
    
    9,036Notes payable, long-term
    
    
    1,777
    
    
    
    Capital lease obligations, long-term
    
    
    10,156
    
    
    
    6,959Accrued restructuring reserve, long-term
    
    
    1,589
    
    
    
    1,099Other liabilities, long-term
    
    
    3,281
    
    
    
    4,215Total liabilities
    
    
    132,513
    
    
    
    131,405Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.001 par value; 100,000,000 shares authorized; no shares
issued and outstanding as of December 31, 2008 and September 30, 2009
    
    
    
    
    
    
    Class A common stock, par value $0.001; 200,000,000 shares authorized;
78,925,222 and 79,319,294 shares issued and outstanding at
December 31, 2008 and September 30, 2009, respectively
    
    
    79
    
    
    
    79Class B common stock, par value $0.001; 100,000,000 shares authorized;
4,538 shares issued and outstanding at December 31, 2008 and
September 30, 2009, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    321,528
    
    
    
    333,601Treasury stock, 4,949,771 and 4,961,249 shares at December 31, 2008 and
September 30, 2009, respectively, at cost
    
    
    (128,403
    )
    
    
    (128,598
    )Accumulated other comprehensive loss
    
    
    (879
    )
    
    
    (229
    )Retained earnings
    
    
    194,328
    
    
    
    267,666Total stockholders equity
    
    
    386,653
    
    
    
    472,519Total liabilities and stockholders equity
    
    $
    519,166
    
    
    $
    603,924
 See accompanying notes.
 4




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##### 



NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Revenue:Addressing
    
    $
    32,470
    
    
    $
    32,139
    
    
    $
    94,899
    
    
    $
    96,157Interoperability
    
    
    16,237
    
    
    
    13,926
    
    
    
    49,228
    
    
    
    42,122Infrastructure and other
    
    
    75,103
    
    
    
    71,138
    
    
    
    217,305
    
    
    
    207,876Total revenue
    
    
    123,810
    
    
    
    117,203
    
    
    
    361,432
    
    
    
    346,155Operating expense:Cost of revenue (excluding depreciation and
amortization shown separately below)
    
    
    27,683
    
    
    
    26,629
    
    
    
    78,983
    
    
    
    82,808Sales and marketing
    
    
    17,865
    
    
    
    20,447
    
    
    
    56,808
    
    
    
    59,193Research and development
    
    
    7,140
    
    
    
    3,948
    
    
    
    22,442
    
    
    
    12,775General and administrative
    
    
    15,407
    
    
    
    13,472
    
    
    
    47,040
    
    
    
    41,274Depreciation and amortization
    
    
    10,552
    
    
    
    9,538
    
    
    
    30,958
    
    
    
    28,115Restructuring charges
    
    
    
    
    
    
    2,733
    
    
    
    
    
    
    
    2,733Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    29,021
    
    
    
    78,647
    
    
    
    76,767
    
    
    
    265,252
    
    
    
    226,898Income from operations
    
    
    45,163
    
    
    
    40,436
    
    
    
    96,180
    
    
    
    119,257Other (expense) income:Interest and other expense
    
    
    (1,110
    )
    
    
    (2,596
    )
    
    
    (4,434
    )
    
    
    (4,669
    )Interest and other income
    
    
    359
    
    
    
    2,747
    
    
    
    3,200
    
    
    
    6,352Income before income taxes
    
    
    44,412
    
    
    
    40,587
    
    
    
    94,946
    
    
    
    120,940Provision for income taxes
    
    
    16,038
    
    
    
    16,068
    
    
    
    48,176
    
    
    
    47,602Net income
    
    $
    28,374
    
    
    $
    24,519
    
    
    $
    46,770
    
    
    $
    73,338Net income per common share:Basic
    
    $
    0.38
    
    
    $
    0.33
    
    
    $
    0.63
    
    
    $
    0.99Diluted
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.61
    
    
    $
    0.97Weighted average common shares outstanding:Basic
    
    
    73,859
    
    
    
    74,356
    
    
    
    74,509
    
    
    
    74,269Diluted
    
    
    75,259
    
    
    
    75,594
    
    
    
    76,548
    
    
    
    75,409
 See accompanying notes.
 5




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##### 



NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Nine Months EndedSeptember 30,2008
    
    
    2009Operating activities:Net income
    
    $
    46,770
    
    
    $
    73,338Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    30,958
    
    
    
    28,115Stock-based compensation
    
    
    13,339
    
    
    
    10,123Amortization of deferred financing costs
    
    
    129
    
    
    
    127Excess tax benefits from stock-based compensation
    
    
    (2,291
    )
    
    
    (492
    )Deferred income taxes
    
    
    (560
    )
    
    
    3,191Impairment of goodwill
    
    
    29,021
    
    
    
    Provision for doubtful accounts
    
    
    1,906
    
    
    
    1,965Other-than-temporary loss on available-for-sale investments
    
    
    2,637
    
    
    
    Gain on available-for-sale investments and trading securities
    
    
    
    
    
    
    (3,055
    )Loss on auction rate securities rights
    
    
    
    
    
    
    1,771Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    9,242
    
    
    
    5,884Unbilled receivables
    
    
    (1,531
    )
    
    
    (480
    )Notes receivable
    
    
    1,603
    
    
    
    759Prepaid expenses and other current assets
    
    
    (1,653
    )
    
    
    (1,729
    )Deferred costs
    
    
    (377
    )
    
    
    2,712Income taxes receivable
    
    
    
    
    
    
    1,668Other assets
    
    
    919
    
    
    
    (633
    )Other liabilities
    
    
    (864
    )
    
    
    4,395Accounts payable and accrued expenses
    
    
    (4,156
    )
    
    
    (1,164
    )Income taxes payable
    
    
    (774
    )
    
    
    Accrued restructuring reserve
    
    
    (308
    )
    
    
    (57
    )Deferred revenue
    
    
    (5,674
    )
    
    
    508Net cash provided by operating activities
    
    
    118,336
    
    
    
    126,946Investing activities:Purchases of property and equipment
    
    
    (18,528
    )
    
    
    (18,921
    )Sales of investments, net
    
    
    40,380
    
    
    
    12,154Business acquired, net of cash
    
    
    (13,762
    )
    
    
    (350
    )Net cash provided by (used in) investing activities
    
    
    8,090
    
    
    
    (7,117
    )Financing activities:Disbursement of restricted cash
    
    
    (55
    )
    
    
    (2
    )Principal repayments on notes payable
    
    
    (2,501
    )
    
    
    (2,587
    )Principal repayments on capital lease obligations
    
    
    (3,670
    )
    
    
    (7,429
    )Proceeds from exercise of common stock options
    
    
    6,018
    
    
    
    1,458Excess tax benefits from stock-based compensation
    
    
    2,291
    
    
    
    492Repurchase of restricted stock awards
    
    
    (192
    )
    
    
    (195
    )Repurchase of common stock
    
    
    (124,855
    )
    
    
    Net cash used in financing activities
    
    
    (122,964
    )
    
    
    (8,263
    )Effect of foreign exchange rates on cash and cash equivalents
    
    
    533
    
    
    
    219Net increase in cash and cash equivalents
    
    
    3,995
    
    
    
    111,785Cash and cash equivalents at beginning of period
    
    
    98,630
    
    
    
    150,829Cash and cash equivalents at end of period
    
    $
    102,625
    
    
    $
    262,614
 See accompanying notes.
 6




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2009
 1. DESCRIPTION OF BUSINESS AND ORGANIZATION
   
    
    Addressing. The Company enables CSPs and enterprises to use critical, shared
addressing resources, such as telephone numbers, Internet top-level domain names,
and U.S. Common Short Codes.
    
    Interoperability. The Company enables CSPs to exchange and share critical
operating data so that communications originating on one providers network can be
delivered and received on the network of another CSP. The Company also facilitates
order management and work flow processing among CSPs.
    
    Infrastructure and Other. The Company enables CSPs to more efficiently manage
their networks by centrally managing certain critical data they use to route
communications over their own networks.
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Unaudited Interim Financial Information
   7




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Reclassification
  Use of Estimates
  Fair Value of Financial Instruments
   December 31, 2008
    
    September 30, 2009(unaudited)Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueCash and cash equivalents
    
    $
    150,829
    
    
    $
    150,829
    
    
    $
    262,614
    
    
    $
    262,614Restricted cash (current assets)
    
    $
    496
    
    
    $
    496
    
    
    $
    498
    
    
    $
    498Short-term investments
    
    $
    10,824
    
    
    $
    10,824
    
    
    $
    40,614
    
    
    $
    40,614Investments, long-term
    
    $
    40,506
    
    
    $
    40,506
    
    
    $
    
    
    
    $
    Marketable securities (long-term
other assets)
    
    $
    268
    
    
    $
    268
    
    
    $
    1,435
    
    
    $
    1,435Deferred compensation (long-term
other liabilities)
    
    $
    284
    
    
    $
    284
    
    
    $
    1,448
    
    
    $
    1,448Notes payable, long-term
    
    $
    1,777
    
    
    $
    1,777
    
    
    $
    
    
    
    $
    
 8




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Investments
    Goodwill
   Impairment of Long-Lived Assets
  9




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Revenue Recognition
  Significant Contracts
    10




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NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Addressing
    Interoperability
   11




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Infrastructure and Other
  Service Level Standards
  Cost of Revenue and Deferred Costs
   Stock-Based Compensation
  12




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Basic and Diluted Net Income per Common Share
 .
  Income Taxes
   i.e.
 Comprehensive Income
   13




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Net income
    
    $
    28,374
    
    
    $
    24,519
    
    
    $
    46,770
    
    
    $
    73,338Unrealized loss / gain on
investments
    
    
    (519
    )
    
    
    (158
    )
    
    
    (1,354
    )
    
    
    295Accumulated translation adjustments
    
    
    124
    
    
    
    396
    
    
    
    372
    
    
    
    355Total comprehensive income
    
    $
    27,979
    
    
    $
    24,757
    
    
    $
    45,788
    
    
    $
    73,988
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2009
    
    2008
    
    2009Tax (provision) benefit:Unrealized loss / gain on
investments
    
    $
    321
    
    
    $
    (114
    )
    
    $
    863
    
    
    $
    (169
    )Accumulated translation
adjustments
    
    $
    26
    
    
    $
    (239
    )
    
    $
    (162
    )
    
    $
    57
 Recent Accounting Pronouncements
    14




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. INVESTMENTS
  December 31, 2008Amortized
    
    
    Gross Unrealized
    
    
    
    
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash reserve fund
    
    $
    10,824
    
    
    $
    
    
    
    $
    
    
    
    $
    10,824September 30, 2009GrossAmortized
    
    
    Unrealized
    
    
    
    
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash reserve fund
    
    $
    2,258
    
    
    $
    154
    
    
    $
    
    
    
    $
    2,412
     15




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   4. FAIR VALUE MEASUREMENTS
  
    
    Level 1. Observable inputs, such as quoted prices in active markets;
    
    Level 2. Inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and
    
    Level 3. Unobservable inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
  Assets and Liabilities Measured at Fair Value on a Recurring Basis
  16




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Level 1
    
    Level 2
    
    Level 3
    
    TotalCash reserve fund  available-for-sale
securities (short-term investments)
    
    $
    
    
    
    $
    
    
    
    $
    2,412
    
    
    $
    2,412Auction rate securities  trading securities
(short-term investments)
    
    $
    
    
    
    $
    
    
    
    $
    30,557
    
    
    $
    30,557Auction rate securities rights (short-term investments)
    
    $
    
    
    
    $
    
    
    
    $
    7,645
    
    
    $
    7,645Marketable securities (1)
    
    $
    1,435
    
    
    $
    
    
    
    $
    
    
    
    $
    1,435Deferred compensation (2)
    
    $
    1,448
    
    
    $
    
    
    
    $
    
    
    
    $
    1,448
 
 (1)
    
    In June 2008, the Company established the NeuStar, Inc. Deferred Compensation Plan (the
Plan) to provide directors and certain employees with the ability to defer a portion of
their compensation. The assets of the Plan are invested in marketable securities that are
held in a Rabbi Trust and reported at market value in other assets.(2)
    
    Obligations to pay benefits under the Plan are included in other long-term liabilities.  Cash
    
    
    AuctionReserve
    
    
    Rate
    
    
    ARSFund
    
    
    Securities
    
    
    RightsBalance on December 31, 2008
    
    $
    10,824
    
    
    $
    31,090
    
    
    $
    9,416Transfers in and/or (out) of Level 3
    
    
    
    
    
    
    
    
    
    
    Total gains (losses) realized / unrealized
included in earnings
    
    
    338
    
    
    
    2,717
    
    
    
    (1,771
    )Total unrealized gains included in accumulated
other comprehensive loss
    
    
    154
    
    
    
    
    
    
    
    Purchases, sales, issuances and settlements, net
    
    
    (8,904
    )
    
    
    (3,250
    )
    
    
    Balance on September 30, 2009
    
    $
    2,412
    
    
    $
    30,557
    
    
    $
    7,645
    17




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 5. GOODWILL AND INTANGIBLE ASSETS
  Clearinghouse
    
    
    NGMServices
    
    
    Services
    
    
    TotalBalance at December 31, 2007
    
    $
    88,148
    
    
    $
    115,945
    
    
    $
    204,093Acquisitions
    
    
    6,379
    
    
    
    
    
    
    
    6,379Purchase price adjustments
    
    
    847
    
    
    
    
    
    
    
    847Impairment charge
    
    
    
    
    
    
    (29,021
    )
    
    
    (29,021
    )Balance at September 30, 2008
    
    $
    95,374
    
    
    $
    86,924
    
    
    $
    182,298
  Clearinghouse
    
    
    NGMServices
    
    
    Services
    
    
    TotalBalance at December 31, 2008
    
    $
    95,724
    
    
    $
    22,343
    
    
    $
    118,067Acquisitions
    
    
    
    
    
    
    
    
    
    
    Purchase price adjustments
    
    
    350
    
    
    
    
    
    
    
    350Impairment charge
    
    
    
    
    
    
    
    
    
    
    Balance at September 30, 2009
    
    $
    96,074
    
    
    $
    22,343
    
    
    $
    118,417
    18




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Weighted-AverageAmortizationDecember 31,
    
    
    September 30,
    
    
    Period2008
    
    
    2009
    
    
    (in years)(unaudited)
    
    
    (unaudited)Intangible assets:Customer lists and relationships
    
    $
    36,659
    
    
    $
    36,659
    
    
    
    5.6Accumulated amortization
    
    
    (24,196
    )
    
    
    (28,157
    )Customer lists and relationships, net
    
    
    12,463
    
    
    
    8,502Acquired technology
    
    
    17,744
    
    
    
    17,744
    
    
    
    3.3Accumulated amortization
    
    
    (13,633
    )
    
    
    (15,723
    )Acquired technology, net
    
    
    4,111
    
    
    
    2,021Trade name
    
    
    200
    
    
    
    200
    
    
    
    3Accumulated amortization
    
    
    (180
    )
    
    
    (200
    )Trade name, net
    
    
    20
    
    
    
    Intangible assets, net
    
    $
    16,594
    
    
    $
    10,523
  6. NOTES PAYABLE
   7. STOCKHOLDERS EQUITY
 Stock-Based Compensation
  19




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Stock Options
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2009
    
    2008
    
    2009Dividend yield
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Expected volatility
    
    
    37.74
    %
    
    
    41.84
    %
    
    
    35.86
    %
    
    
    43.85
    %Risk-free interest rate
    
    
    2.96
    %
    
    
    2.17
    %
    
    
    2.57
    %
    
    
    1.54
    %Expected life of options (in years)
    
    
    4.37
    
    
    
    4.42
    
    
    
    4.37
    
    
    
    4.42
     20




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Weighted-AverageWeighted-
    
    Aggregate
    
    RemainingAverage
    
    Intrinsic
    
    ContractualExercise
    
    Value
    
    LifeShares
    
    Price
    
    (in millions)
    
    (in years)Outstanding at December 31, 2008
    
    
    4,660,565
    
    
    $
    20.15Options granted
    
    
    1,965,619
    
    
    
    16.57Options exercised
    
    
    (319,112
    )
    
    
    4.57Options canceled
    
    
    (491,176
    )
    
    
    26.48Outstanding at September 30, 2009
    
    
    5,815,896
    
    
    
    19.26
    
    
    $
    35.7
    
    
    
    4.97Exercisable at September 30, 2009
    
    
    2,983,661
    
    
    $
    18.41
    
    
    $
    24.0
    
    
    
    3.92
  Restricted Stock
  Weighted-
    
    AggregateAverage
    
    IntrinsicGrant Date
    
    ValueShares
    
    Fair Value
    
    (in millions)Outstanding at December 31, 2008
    
    
    260,298
    
    
    $
    25.50Granted
    
    
    105,500
    
    
    
    19.17Vested
    
    
    (38,453
    )
    
    
    27.03Forfeited
    
    
    (30,540
    )
    
    
    27.60Outstanding at September 30, 2009
    
    
    296,805
    
    
    $
    22.83
    
    
    $
    6.7
  Performance Vested Stock Units
  21




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Weighted-AverageGrant DateShares
    
    Fair ValueNon-vested at December 31, 2008
    
    
    413,143
    
    
    $
    28.98Granted
    
    
    524,473
    
    
    
    15.46Forfeited
    
    
    (89,055
    )
    
    
    23.87Non-vested at September 30, 2009
    
    
    848,561
    
    
    $
    21.15
   Restricted Stock Units
  AggregateWeighted-Average
    
    IntrinsicGrant Date
    
    ValueShares
    
    Fair Value
    
    (in millions)Outstanding at December 31, 2008
    
    
    110,599
    
    
    $
    26.21Granted
    
    
    52,512
    
    
    
    22.85Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2009
    
    
    163,111
    
    
    $
    25.13
    
    
    $
    3.7
 22




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  8. BASIC AND DILUTED NET INCOME PER COMMON SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Computation on basic net income percommon share:Net income
    
    $
    28,374
    
    
    $
    24,519
    
    
    $
    46,770
    
    
    $
    73,338Weighted average common shares andparticipating
securities
outstanding  basic
    
    
    73,859
    
    
    
    74,356
    
    
    
    74,509
    
    
    
    74,269Basic net income per common share
    
    $
    0.38
    
    
    $
    0.33
    
    
    $
    0.63
    
    
    $
    0.99Computation on diluted net income percommon share:Net income
    
    $
    28,374
    
    
    $
    24,519
    
    
    $
    46,770
    
    
    $
    73,338Weighted average common shares andparticipating
securities
outstanding  basic
    
    
    73,859
    
    
    
    74,356
    
    
    
    74,509
    
    
    
    74,269Effect of dilutive securities:Stock-based awards
    
    
    1,400
    
    
    
    1,238
    
    
    
    2,039
    
    
    
    1,140Weighted average common sharesoutstanding  diluted
    
    
    75,259
    
    
    
    75,594
    
    
    
    76,548
    
    
    
    75,409Diluted net income per common share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.61
    
    
    $
    0.97
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2009
    
    2008
    
    2009Shares excluded from EPS denominator due to
anti-dilutive effect:Common stock options
    
    
    3,242
    
    
    
    2,977
    
    
    
    3,111
    
    
    
    3,953
 9. SEGMENT INFORMATION
  23




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Revenue:Clearinghouse
    
    $
    120,183
    
    
    $
    114,187
    
    
    $
    350,612
    
    
    $
    336,592NGM
    
    
    3,627
    
    
    
    3,016
    
    
    
    10,820
    
    
    
    9,563Total revenue
    
    $
    123,810
    
    
    $
    117,203
    
    
    $
    361,432
    
    
    $
    346,155Depreciation and amortization:Clearinghouse
    
    $
    7,309
    
    
    $
    7,593
    
    
    $
    22,049
    
    
    $
    22,513NGM
    
    
    3,243
    
    
    
    1,945
    
    
    
    8,909
    
    
    
    5,602Total depreciation and amortization
    
    $
    10,552
    
    
    $
    9,538
    
    
    $
    30,958
    
    
    $
    28,115Income (loss) from operations:Clearinghouse
    
    $
    56,625
    
    
    $
    47,629
    
    
    $
    158,585
    
    
    $
    137,232NGM
    
    
    (11,462
    )
    
    
    (7,193
    )(a)
    
    
    (62,405
    )(b)
    
    
    (17,975
    )(a)Income (loss) from operations
    
    $
    45,163
    
    
    $
    40,436
    
    
    $
    96,180
    
    
    $
    119,257
 
 (a)
    
    includes $2.7 million of restructuring charges(b)
    
    includes $29.0 million of impairment charges  December 31,
    
    
    September 30,2008
    
    
    2009Total assets:Clearinghouse
    
    $
    458,689
    
    
    $
    548,086NGM
    
    
    60,477
    
    
    
    55,838Total assets
    
    $
    519,166
    
    
    $
    603,924Goodwill:Clearinghouse
    
    $
    95,724
    
    
    $
    96,074NGM
    
    
    22,343
    
    
    
    22,343Goodwill
    
    $
    118,067
    
    
    $
    118,417Intangible assets:Clearinghouse
    
    $
    13,552
    
    
    $
    9,040NGM
    
    
    3,042
    
    
    
    1,483Intangible assets
    
    $
    16,594
    
    
    $
    10,523
 10. RESTRUCTURING CHARGES
 Clearinghouse
  24




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   NGM
   Severance
    
    
    Lease AndAnd Related
    
    
    Facilities ExitCosts
    
    
    Costs
    
    
    TotalBalance at December 31, 2008
    
    $
    1,187
    
    
    $
    460
    
    
    $
    1,647Additional restructuring liability recorded
    
    
    2,733
    
    
    
    
    
    
    
    2,733Cash payments
    
    
    (2,275
    )
    
    
    (151
    )
    
    
    (2,426
    )Balance at September 30, 2009
    
    $
    1,645
    
    
    $
    309
    
    
    $
    1,954
  11. OTHER (EXPENSE) INCOME
  25




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008
    
    
    2009Interest and other expense:Interest expense
    
    $
    464
    
    
    $
    436
    
    
    $
    1,345
    
    
    $
    1,635(Gain) loss on asset disposals
    
    
    34
    
    
    
    (33
    )
    
    
    (12
    )
    
    
    173Loss on auction rate securities rights
    
    
    
    
    
    
    2,235
    
    
    
    
    
    
    
    2,657Foreign currency transaction loss
(gain)
    
    
    7
    
    
    
    (42
    )
    
    
    (32
    )
    
    
    (206
    )Impairments and realized losses
cash reserve fund
    
    
    281
    
    
    
    
    
    
    
    1,492
    
    
    
    Impairments and trading losses
auction rate securities
    
    
    324
    
    
    
    
    
    
    
    1,641
    
    
    
    410Total
    
    $
    1,110
    
    
    $
    2,596
    
    
    $
    4,434
    
    
    $
    4,669Interest and other income:Interest income
    
    $
    359
    
    
    $
    183
    
    
    $
    3,200
    
    
    $
    821Realized gains on cash reserve fund
    
    
    
    
    
    
    293
    
    
    
    
    
    
    
    338Trading gains on auction rate securities
    
    
    
    
    
    
    2,271
    
    
    
    
    
    
    
    3,127Gain on auction rate securities rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    886Gain on indemnification claims
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,180Total
    
    $
    359
    
    
    $
    2,747
    
    
    $
    3,200
    
    
    $
    6,352
  12. INCOME TAXES
    26




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  27




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Overview
     Critical Accounting Policies and Estimates
  28




---



##### 



Revenue Recognition
    Restructuring
  29




---



##### 



Goodwill
   Investments
   30




---



##### 



Stock-Based Compensation
    31




---



##### 



Consolidated Results of Operations
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2009
  Three Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008 vs. 2009$
    
    
    $
    
    
    $ Change
    
    
    % Change(unaudited)(in thousands, except per share data)Revenue:Addressing
    
    $
    32,470
    
    
    $
    32,139
    
    
    $
    (331
    )
    
    
    (1.0
    )%Interoperability
    
    
    16,237
    
    
    
    13,926
    
    
    
    (2,311
    )
    
    
    (14.2
    )%Infrastructure and other
    
    
    75,103
    
    
    
    71,138
    
    
    
    (3,965
    )
    
    
    (5.3
    )%Total revenue
    
    
    123,810
    
    
    
    117,203
    
    
    
    (6,607
    )
    
    
    (5.3
    )%Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately below)
    
    
    27,683
    
    
    
    26,629
    
    
    
    (1,054
    )
    
    
    (3.8
    )%Sales and marketing
    
    
    17,865
    
    
    
    20,447
    
    
    
    2,582
    
    
    
    14.5
    %Research and development
    
    
    7,140
    
    
    
    3,948
    
    
    
    (3,192
    )
    
    
    (44.7
    )%General and administrative
    
    
    15,407
    
    
    
    13,472
    
    
    
    (1,935
    )
    
    
    (12.6
    )%Depreciation and amortization
    
    
    10,552
    
    
    
    9,538
    
    
    
    (1,014
    )
    
    
    (9.6
    )%Restructuring charges
    
    
    
    
    
    
    2,733
    
    
    
    2,733
    
    
    
    100.0
    %78,647
    
    
    
    76,767
    
    
    
    (1,880
    )
    
    
    (2.4
    )%Income from operations
    
    
    45,163
    
    
    
    40,436
    
    
    
    (4,727
    )
    
    
    (10.5
    )%Other (expense) income:Interest and other expense
    
    
    (1,110
    )
    
    
    (2,596
    )
    
    
    (1,486
    )
    
    
    133.9
    %Interest and other income
    
    
    359
    
    
    
    2,747
    
    
    
    2,388
    
    
    
    665.2
    %Income before income taxes
    
    
    44,412
    
    
    
    40,587
    
    
    
    (3,825
    )
    
    
    (8.6
    )%Provision
for income taxes
    
    
    16,038
    
    
    
    16,068
    
    
    
    30
    
    
    
    0.2
    %Net income
    
    $
    28,374
    
    
    $
    24,519
    
    
    $
    (3,855
    )
    
    
    (13.6
    )%Net income per common share:Basic
    
    $
    0.38
    
    
    $
    0.33Diluted
    
    $
    0.38
    
    
    $
    0.32Weighted average common shares outstanding:Basic
    
    
    73,859
    
    
    
    74,356Diluted
    
    
    75,259
    
    
    
    75,594
 32




---



##### 



Revenue
 Total revenue.
 Addressing.
 Interoperability.
 Infrastructure and other.
 Expense
 Cost of revenue.
 Sales and marketing.
 Research and development.
 General and administrative.
 33




---



##### 



Depreciation and amortization.
 Restructuring charges.
 Interest and other expense
 Interest and other income
 Provision for income taxes
 34




---



##### 



Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2009
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2009
    
    
    2008 vs. 2009$
    
    
    $
    
    
    $ Change
    
    
    % Change(unaudited)(in thousands, except per share data)Revenue:Addressing
    
    $
    94,899
    
    
    $
    96,157
    
    
    $
    1,258
    
    
    
    1.3
    %Interoperability
    
    
    49,228
    
    
    
    42,122
    
    
    
    (7,106
    )
    
    
    (14.4
    )%Infrastructure and other
    
    
    217,305
    
    
    
    207,876
    
    
    
    (9,429
    )
    
    
    (4.3
    )%Total revenue
    
    
    361,432
    
    
    
    346,155
    
    
    
    (15,277
    )
    
    
    (4.2
    )%Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately below)
    
    
    78,983
    
    
    
    82,808
    
    
    
    3,825
    
    
    
    4.8
    %Sales and marketing
    
    
    56,808
    
    
    
    59,193
    
    
    
    2,385
    
    
    
    4.2
    %Research and development
    
    
    22,442
    
    
    
    12,775
    
    
    
    (9,667
    )
    
    
    (43.1
    )%General and administrative
    
    
    47,040
    
    
    
    41,274
    
    
    
    (5,766
    )
    
    
    (12.3
    )%Depreciation and amortization
    
    
    30,958
    
    
    
    28,115
    
    
    
    (2,843
    )
    
    
    (9.2
    )%Restructuring charges
    
    
    
    
    
    
    2,733
    
    
    
    2,733
    
    
    
    100.0
    %Impairment of goodwill
    
    
    29,021
    
    
    
    
    
    
    
    (29,021
    )
    
    
    (100.0
    )%265,252
    
    
    
    226,898
    
    
    
    (38,354
    )
    
    
    (14.5
    )%Income from operations
    
    
    96,180
    
    
    
    119,257
    
    
    
    23,077
    
    
    
    24.0
    %Other (expense) income:Interest and other expense
    
    
    (4,434
    )
    
    
    (4,669
    )
    
    
    (235
    )
    
    
    5.3
    %Interest and other income
    
    
    3,200
    
    
    
    6,352
    
    
    
    3,152
    
    
    
    98.5
    %Income before income taxes
    
    
    94,946
    
    
    
    120,940
    
    
    
    25,994
    
    
    
    27.4
    %Provision for income taxes
    
    
    48,176
    
    
    
    47,602
    
    
    
    (574
    )
    
    
    (1.2
    )%Net income
    
    $
    46,770
    
    
    $
    73,338
    
    
    $
    26,568
    
    
    
    56.8
    %Net income per common share:Basic
    
    $
    0.63
    
    
    $
    0.99Diluted
    
    $
    0.61
    
    
    $
    0.97Weighted average common shares outstanding:Basic
    
    
    74,509
    
    
    
    74,269Diluted
    
    
    76,548
    
    
    
    75,409
 35




---



##### 



Revenue
 Total revenue.
 Addressing.
 Interoperability.
 Infrastructure and other.
 Expense
 Cost of revenue.
 Sales and marketing.
 Research and development.
 General and administrative.
 36




---



##### 



Depreciation and amortization.
 Restructuring charges.
 Impairment of goodwill.
 Interest and other expense
 Interest and other income
 Provision for income taxes
 37




---



##### 



Liquidity and Capital Resources
     Discussion of Cash Flows
 Cash flows from operations
  Cash flows from investing
  Cash flows from financing
  38




---



##### 



Recent Accounting Pronouncements
    Off-Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    Controls and Procedures
    39




---



##### 



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  Maximum Number(or ApproximateTotal
    
    
    
    
    
    Total Number of
    
    Dollar Value) ofNumber of
    
    
    
    
    
    Shares Purchased
    
    Shares that MayShares
    
    Average
    
    as Part of Publicly
    
    Yet Be PurchasedPurchased
    
    Price Paid
    
    Announced Plans
    
    Under the Plans orMonth
    
    (1)
    
    per Share
    
    or Programs
    
    ProgramsJuly 1 through July 31, 2009
    
    
    645
    
    
    $
    22.46
    
    
    
    
    
    
    $
    August 1 through August 31, 2009
    
    
    803
    
    
    
    23.05
    
    
    
    
    
    
    
    September 1 through September 30, 2009
    
    
    1,229
    
    
    
    22.92
    
    
    
    
    
    
    
    Total
    
    
    2,677
    
    
    $
    22.85
    
    
    
    
    
    
    $
    
 
 (1)
    
    The number of shares purchased consists of shares of common stock tendered by employees to us
to satisfy the employees tax withholding obligations arising as a result of vesting of restricted
stock grants under our stock incentive plan. We purchased these shares for their fair market value
on the vesting date. None of these share purchases were part of a publicly announced program to
purchase our common stock. 
 Item 3.
    
    Defaults upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  40




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##### 



Item 6.
    
    Exhibits
 Exhibit No.
    
    Description3.1
    
    Restated Certificate of Incorporation,
incorporated herein by reference to Exhibit 3.1
to Amendment No. 7 to NeuStars Registration
Statement on Form S-1, filed June 28, 2005 (File
No. 333-123635).3.2
    
    Amended and Restated Bylaws, incorporated herein
by reference to Exhibit 3.2 to NeuStars Current
Report on Form 8-K, filed September 16, 2008.10.1.4
    
    Amendment to the contractor services agreement by
and between NeuStar, Inc. and North American
Portability Management LLC.10.3.4
    
    Amendment to the National Thousands-Block Pooling
Administration agreement awarded to NeuStar, Inc.
by the Federal Communications Commission.10.4.1
    
    Amendment to North American Numbering Plan
Administrator agreement awarded to NeuStar, Inc.
by the Federal Communications Commission.31.1
    
    Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and
Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 41




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##### 



SIGNATURES
  NeuStar, Inc.Date:  October 30, 2009
    By:
    /s/ Paul S. LalljiePaul S. LalljieChief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer) 42




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##### 



EXHIBIT
INDEX
 Exhibit No.
    
    Description3.1
    
    Restated Certificate of Incorporation,
incorporated herein by reference to Exhibit 3.1
to Amendment No. 7 to NeuStars Registration
Statement on Form S-1, filed June 28, 2005 (File
No. 333-123635).3.2
    
    Amended and Restated Bylaws, incorporated herein
by reference to Exhibit 3.2 to NeuStars Current
Report on Form 8-K, filed September 16, 2008.10.1.4
    
    Amendment to the contractor services agreement by
and between NeuStar, Inc. and North American
Portability Management LLC.10.3.4
    
    Amendment to the National Thousands-Block Pooling
Administration agreement awarded to NeuStar, Inc.
by the Federal Communications Commission.10.4.1
    
    Amendment to North American Numbering Plan
Administrator agreement awarded to NeuStar, Inc.
by the Federal Communications Commission.31.1
    
    Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and
Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.