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, 2008
 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
(State or other jurisdiction of 
incorporation or organization)
    
    52-2141938
(I.R.S. Employer
Identification No.)
 46000 Center Oak Plaza
Sterling, Virginia 20166
 (571) 434-5400
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



NeuStar, Inc.
Index
 PART I FINANCIAL INFORMATIONItem 1. Financial Statements
    
    3Consolidated Balance Sheets as of December 31, 2007 and September 30, 2008 (unaudited)
    
    3Unaudited Consolidated Statements of Operations for the three and nine months ended
September 30, 2007 and 2008
    
    5Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30,
2007
and 2008
    
    6Notes to Unaudited Consolidated Financial Statements
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    35Item 4. Controls and Procedures
    
    35PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    36Item 1A. Risk Factors
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    37Item 3. Defaults upon Senior Securities
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    37Item 5. Other Information
    
    37Item 6. Exhibits
    
    38Signatures
    
    39
 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 30,2007
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    98,630
    
    
    $
    102,625Restricted cash
    
    
    488
    
    
    
    543Short-term investments
    
    
    100,048
    
    
    
    17,559Accounts receivable, net of allowance
for doubtful accounts of $1,654 and
$2,504 respectively
    
    
    76,632
    
    
    
    65,773Unbilled receivable
    
    
    383
    
    
    
    1,914Notes receivable
    
    
    2,159
    
    
    
    1,315Prepaid expenses and other current assets
    
    
    9,608
    
    
    
    11,458Deferred costs
    
    
    8,281
    
    
    
    9,933Deferred tax asset
    
    
    13,907
    
    
    
    12,053Total current assets
    
    
    310,136
    
    
    
    223,173Investments, long-term
    
    
    
    
    
    
    37,255Property and equipment, net
    
    
    56,191
    
    
    
    68,531Goodwill
    
    
    204,093
    
    
    
    182,298Intangible assets, net
    
    
    36,851
    
    
    
    31,945Notes receivable, long-term
    
    
    759
    
    
    
    Deferred costs, long-term
    
    
    3,575
    
    
    
    2,300Deferred tax asset, long-term
    
    
    
    
    
    
    901Other assets
    
    
    5,056
    
    
    
    4,016Total assets
    
    $
    616,661
    
    
    $
    550,419
 See accompanying notes.
 3




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##### 



NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    September 30,2007
    
    
    2008(unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,742
    
    
    $
    7,371Accrued expenses
    
    
    47,501
    
    
    
    45,032Deferred revenue
    
    
    32,236
    
    
    
    32,309Notes payable
    
    
    2,501
    
    
    
    2,556Capital lease obligations
    
    
    3,511
    
    
    
    7,416Accrued restructuring reserve
    
    
    413
    
    
    
    453Income tax payable
    
    
    3,254
    
    
    
    35Other liabilities
    
    
    108
    
    
    
    80Total current liabilities
    
    
    99,266
    
    
    
    95,252Deferred revenue, long-term
    
    
    18,063
    
    
    
    13,222Notes payable, long-term
    
    
    5,206
    
    
    
    2,650Capital lease obligations, long-term
    
    
    5,717
    
    
    
    11,518Accrued restructuring reserve, long-term
    
    
    1,793
    
    
    
    1,445Other liabilities, long-term
    
    
    3,866
    
    
    
    3,409Deferred tax liability
    
    
    2,215
    
    
    
    Total liabilities
    
    
    136,126
    
    
    
    127,496Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.001 par value;
100,000,000 shares authorized; no
shares issued and outstanding as of
December 31, 2007 and September 30,
2008
    
    
    
    
    
    
    Class A common stock, par value $0.001;
200,000,000 shares authorized;
77,082,161 and 78,830,867 shares issued
and outstanding at December 31, 2007
and September 30, 2008, respectively
    
    
    77
    
    
    
    79Class B common stock, par value $0.001;
100,000,000 shares authorized; 4,538
shares issued and outstanding at
December 31, 2007 and September 30,
2008
    
    
    
    
    
    
    Additional paid-in capital
    
    
    293,785
    
    
    
    315,430Treasury stock, 99,286 and 4,942,565
shares at December 31, 2007 and
September 30, 2008, respectively, at
cost
    
    
    (3,221
    )
    
    
    (128,268
    )Accumulated other comprehensive loss
    
    
    (140
    )
    
    
    (1,122
    )Retained earnings
    
    
    190,034
    
    
    
    236,804Total stockholders equity
    
    
    480,535
    
    
    
    422,923Total liabilities and stockholders equity
    
    $
    616,661
    
    
    $
    550,419
 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 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Revenue:Addressing
    
    $
    28,451
    
    
    $
    32,470
    
    
    $
    82,311
    
    
    $
    94,899Interoperability
    
    
    15,191
    
    
    
    16,237
    
    
    
    43,153
    
    
    
    49,228Infrastructure and other
    
    
    67,115
    
    
    
    75,103
    
    
    
    182,434
    
    
    
    217,305Total revenue
    
    
    110,757
    
    
    
    123,810
    
    
    
    307,898
    
    
    
    361,432Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately
below)
    
    
    24,093
    
    
    
    27,683
    
    
    
    70,417
    
    
    
    78,983Sales and marketing
    
    
    16,317
    
    
    
    17,865
    
    
    
    52,602
    
    
    
    56,808Research and development
    
    
    5,977
    
    
    
    7,140
    
    
    
    19,297
    
    
    
    22,442General and administrative
    
    
    12,978
    
    
    
    15,407
    
    
    
    35,018
    
    
    
    47,040Depreciation and amortization
    
    
    9,498
    
    
    
    10,552
    
    
    
    27,937
    
    
    
    30,958Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,02168,863
    
    
    
    78,647
    
    
    
    205,271
    
    
    
    265,252Income from operations
    
    
    41,894
    
    
    
    45,163
    
    
    
    102,627
    
    
    
    96,180Other (expense) income:Interest and other expense
    
    
    (529
    )
    
    
    (1,110
    )
    
    
    (851
    )
    
    
    (4,434
    )Interest income
    
    
    1,148
    
    
    
    359
    
    
    
    2,829
    
    
    
    3,200Income before income taxes
    
    
    42,513
    
    
    
    44,412
    
    
    
    104,605
    
    
    
    94,946Provision for income taxes
    
    
    16,811
    
    
    
    16,038
    
    
    
    41,786
    
    
    
    48,176Net income
    
    $
    25,702
    
    
    $
    28,374
    
    
    $
    62,819
    
    
    $
    46,770Net income per common share:Basic
    
    $
    0.34
    
    
    $
    0.39
    
    
    $
    0.83
    
    
    $
    0.63Diluted
    
    $
    0.32
    
    
    $
    0.38
    
    
    $
    0.79
    
    
    $
    0.61Weighted average common shares outstanding:Basic
    
    
    76,461
    
    
    
    73,581
    
    
    
    75,664
    
    
    
    74,293Diluted
    
    
    79,272
    
    
    
    75,017
    
    
    
    79,120
    
    
    
    76,361
 See accompanying notes.
 5




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##### 



NEUSTAR, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2008Operating activities:Net income
    
    $
    62,819
    
    
    $
    46,770Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    27,937
    
    
    
    30,958Stock-based compensation
    
    
    11,589
    
    
    
    13,339Amortization of deferred financing costs
    
    
    115
    
    
    
    129Excess tax benefits from stock-based compensation
    
    
    (17,997
    )
    
    
    (2,291
    )Deferred income taxes
    
    
    1,737
    
    
    
    (560
    )Provision for doubtful accounts
    
    
    1,876
    
    
    
    1,906Other-than-temporary loss on investments
    
    
    
    
    
    
    2,637Impairment of goodwill
    
    
    
    
    
    
    29,021Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (22,490
    )
    
    
    9,242Unbilled receivables
    
    
    563
    
    
    
    (1,531
    )Notes and securitized notes receivable
    
    
    1,481
    
    
    
    1,603Prepaid expenses and other current assets
    
    
    (519
    )
    
    
    (1,653
    )Deferred costs
    
    
    (1,475
    )
    
    
    (377
    )Income tax receivable
    
    
    16,581
    
    
    
    Other assets
    
    
    (57
    )
    
    
    919Other liabilities
    
    
    48
    
    
    
    (864
    )Accounts payable and accrued expenses
    
    
    (1,774
    )
    
    
    (4,156
    )Income taxes payable
    
    
    
    
    
    
    (774
    )Accrued restructuring reserve
    
    
    (274
    )
    
    
    (308
    )Deferred revenue
    
    
    8,889
    
    
    
    (5,674
    )Net cash provided by operating activities
    
    
    89,049
    
    
    
    118,336Investing activities:Purchases of property and equipment
    
    
    (20,718
    )
    
    
    (18,528
    )Sales of investments, net
    
    
    (8,615
    )
    
    
    40,380Business acquired, net of cash
    
    
    (1,569
    )
    
    
    (13,762
    )Net cash (used in) provided by investing activities
    
    
    (30,902
    )
    
    
    8,090Financing activities:Disbursement of restricted cash
    
    
    (139
    )
    
    
    (55
    )Principal repayments on notes payable
    
    
    (2,522
    )
    
    
    (2,501
    )Principal repayments on capital lease obligations
    
    
    (3,705
    )
    
    
    (3,670
    )Proceeds from exercise of common stock options
    
    
    12,533
    
    
    
    6,018Excess tax benefits from stock-based compensation
    
    
    17,997
    
    
    
    2,291Repurchase of restricted stock awards
    
    
    (3,172
    )
    
    
    (192
    )Repurchase of common stock
    
    
    
    
    
    
    (124,855
    )Net cash provided by (used in) financing activities
    
    
    20,992
    
    
    
    (122,964
    )Effect of foreign exchange rates on cash and cash equivalents
    
    
    
    
    
    
    533Net increase in cash and cash equivalents
    
    
    79,139
    
    
    
    3,995Cash and cash equivalents at beginning of period
    
    
    39,242
    
    
    
    98,630Cash and cash equivalents at end of period
    
    $
    118,381
    
    
    $
    102,625
 See accompanying notes.
 6




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##### 



NEUSTAR, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2008
 1. DESCRIPTION OF BUSINESS AND ORGANIZATION
   
    
    Addressing.The Company enables CSPs 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 manage their
networks more efficiently 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)
 Use of Estimates
   Reclassification
  Investments
   8




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Goodwill
 Goodwill and Other Intangible Assets
  Identifiable Intangible Assets
 Accounting for Impairment or Disposal of Long-Lived Assets
  Years
    
    MethodAcquired technologies
    
    3 to 5
    
    Straight-lineCustomer lists and relationships
    
    3 to 7
    
    VariousTrade name
    
    
    3
    
    
    Straight-line
  Impairment of Long-Lived Assets
  9




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Revenue Recognition
 Revenue Recognition
 Addressing
    Interoperability
  10




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Infrastructure and Other
  Significant Contracts
   Service Level Standards
  11




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Cost of Revenue and Deferred Costs
   Stock-Based Compensation
 Share-Based Payment
 Basic and Diluted Net Income per Common Share
  Income Taxes
 Accounting for Income
Taxes .
  Accounting for Uncertainty
in Income Taxesan interpretation of FASB Statement No. 109 i.e.
 12




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Foreign Currency
   Comprehensive Income
  Recent Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 Effective Date of FASB
Statement No. 157 ,
 13




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Determination of the Useful
Life of Intangible Assets Goodwill and Other Intangible Assets
 etermining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active
 3. INVESTMENTS
  September 30, 2008Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash reserve fund
    
    $
    17,575
    
    
    $
    3⁄4
    
    
    $
    (16
    )
    
    $
    17,559Auction rate securities
    
    
    40,084
    
    
    
    3⁄4
    
    
    
    (2,829
    )
    
    
    37,255$
    57,659
    
    
    $
    3⁄4
    
    
    $
    (2,845
    )
    
    $
    54,814
 December 31, 2007Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash reserve fund
    
    $
    49,851
    
    
    $
    3⁄4
    
    
    $
    (628
    )
    
    $
    49,223Auction rate securities
    
    
    50,825
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    50,825$
    100,676
    
    
    $
    3⁄4
    
    
    $
    (628
    )
    
    $
    100,048
  14




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
       15




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 4. FAIR VALUE MEASUREMENTS
 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.
   Level 1
    
    Level 2
    
    Level 3
    
    TotalShort-term investments
    
    
    
    
    
    
    
    
    
    $
    17,559
    
    
    $
    17,559Long-term investments
    
    
    
    
    
    
    
    
    
    $
    37,255
    
    
    $
    37,255Marketable securities (1)
    
    $
    122
    
    
    
    
    
    
    
    
    
    
    $
    122Deferred compensation (2)
    
    $
    114
    
    
    
    
    
    
    
    
    
    
    $
    114
 
 (1)
    
    In June 2008, the Company established the NeuStar, Inc. Deferred Compensation Plan (the Plan) that gives
directors and certain employees 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.  Short-term
    
    
    Long-termInvestments
    
    
    InvestmentsBalance on January 1, 2008
    
    $
    
    
    
    $
    Transfers in and/or (out) of Level 3
    
    
    49,851
    
    
    
    50,825Total losses realized / unrealized included in
earnings
    
    
    (1,492
    )
    
    
    (1,641
    )Total unrealized losses included in other
comprehensive loss
    
    
    (16
    )
    
    
    (2,829
    )Purchases, sales, issuances and settlements, net
    
    
    (30,784
    )
    
    
    (9,100
    )Balance on September 30, 2008
    
    $
    17,559
    
    
    $
    37,255
  16




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 5. ACQUISITION
 Webmetrics, Inc.
   6. GOODWILL AND INTANGIBLE ASSETS
  Clearinghouse
    
    
    NGMServices
    
    
    Services
    
    
    TotalBalance at December 31, 2007
    
    $
    88,148
    
    
    $
    115,945
    
    
    $
    204,093Acquisitions
    
    
    7,226
    
    
    
    
    
    
    
    7,226Impairment charge
    
    
    
    
    
    
    (29,021
    )
    
    
    (29,021
    )Balance at September 30, 2008
    
    $
    95,374
    
    
    $
    86,924
    
    
    $
    182,298
  17




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Weighted-AverageAmortizationDecember 31,
    
    
    September 30,
    
    
    Period2007
    
    
    2008
    
    
    (In Years)(unaudited)
    
    
    (unaudited)Intangible assets:Customer lists and relationships
    
    $
    43,740
    
    
    $
    47,504
    
    
    
    5.5Accumulated amortization
    
    
    (15,463
    )
    
    
    (22,653
    )Customer lists and relationships, net
    
    
    28,277
    
    
    
    24,851Acquired technology
    
    
    17,068
    
    
    
    19,757
    
    
    
    3.3Accumulated amortization
    
    
    (8,581
    )
    
    
    (12,700
    )Acquired technology, net
    
    
    8,487
    
    
    
    7,057Trade name
    
    
    200
    
    
    
    200
    
    
    
    3.0Accumulated amortization
    
    
    (113
    )
    
    
    (163
    )Trade name, net
    
    
    87
    
    
    
    37Intangible assets, net
    
    $
    36,851
    
    
    $
    31,945
  7. NOTES PAYABLE
    18




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 8. STOCKHOLDERS EQUITY
 Stock-Based Compensation
   Stock Options
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2008
    
    2007
    
    2008Dividend yield
    
       0.00%
    
    0.00%
    
    0.00%
    
    0.00%Expected volatility
    
    32.81%
    
    37.4437.74%
    
    33.25%
    
    35.82-37.74%Risk-free interest rate
    
    4.46%
    
    2.96-3.12%
    
    4.46%
    
    2.56-3.12%Expected life of options (in years)
    
    4.60
    
    4.37
    
    4.61
    
    4.37
    19




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Weighted-AverageShares
    
    Exercise PriceOutstanding at December 31, 2007
    
    
    5,668,501
    
    
    $
    15.42Options granted
    
    
    1,153,415
    
    
    
    26.31Options exercised
    
    
    (1,519,181
    )
    
    
    3.96Options canceled
    
    
    (578,128
    )
    
    
    28.03Outstanding September 30, 2008
    
    
    4,724,607
    
    
    
    20.22Exercisable at September 30, 2008
    
    
    2,756,674
    
    
    
    14.55
  Restricted Stock
  Weighted-AverageGrant DateShares
    
    Fair ValueNon-vested December 31, 2007
    
    
    75,660
    
    
    $
    31.55Granted
    
    
    257,020
    
    
    
    25.09Vested
    
    
    (23,535
    )
    
    
    31.86Forfeited
    
    
    (27,495
    )
    
    
    28.60Non-vested September 30, 2008
    
    
    281,650
    
    
    
    25.97
  20




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Performance Vested Stock Units
  Weighted-AverageGrant DateShares
    
    Fair ValueNon-vested December 31, 2007
    
    
    303,080
    
    
    $
    32.59Granted
    
    
    288,213
    
    
    
    26.28Vested
    
    
    
    
    
    
    Forfeited
    
    
    (147,810
    )
    
    
    31.03Non-vested September 30, 2008
    
    
    443,483
    
    
    
    29.02
   Restricted Stock Units
    21




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Phantom Stock Units
  Treasury Stock
   9. BASIC AND DILUTED NET INCOME PER COMMON SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Computation on basic net income per common share:Net income
    
    $
    25,702
    
    
    $
    28,374
    
    
    $
    62,819
    
    
    $
    46,770Weighted average common shares outstanding 
basic
    
    
    76,461
    
    
    
    73,581
    
    
    
    75,664
    
    
    
    74,293Basic net income per common share
    
    $
    0.34
    
    
    $
    0.39
    
    
    $
    0.83
    
    
    $
    0.63Computation on diluted net income per common share:Net income
    
    $
    25,702
    
    
    $
    28,374
    
    
    $
    62,819
    
    
    $
    46,770Weighted average common shares outstanding 
basic
    
    
    76,461
    
    
    
    73,581
    
    
    
    75,664
    
    
    
    74,293Effect of dilutive securities:Stock-based awards
    
    
    2,811
    
    
    
    1,436
    
    
    
    3,456
    
    
    
    2,068Weighted average common shares outstanding 
diluted
    
    
    79,272
    
    
    
    75,017
    
    
    
    79,120
    
    
    
    76,361Diluted net income per common share
    
    $
    0.32
    
    
    $
    0.38
    
    
    $
    0.79
    
    
    $
    0.61
 22




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 10. SEGMENT INFORMATION
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Revenue:Clearinghouse services
    
    $
    108,960
    
    
    $
    120,183
    
    
    $
    304,013
    
    
    $
    350,612NGM services
    
    
    1,797
    
    
    
    3,627
    
    
    
    3,885
    
    
    
    10,820Total revenue
    
    $
    110,757
    
    
    $
    123,810
    
    
    $
    307,898
    
    
    $
    361,432Depreciation and amortization:Clearinghouse services
    
    $
    7,098
    
    
    $
    7,309
    
    
    $
    21,025
    
    
    $
    22,049NGM services
    
    
    2,400
    
    
    
    3,243
    
    
    
    6,912
    
    
    
    8,909Total depreciation and amortization
    
    $
    9,498
    
    
    $
    10,552
    
    
    $
    27,937
    
    
    $
    30,958Income (loss) from operations:Clearinghouse services
    
    $
    51,506
    
    
    $
    56,625
    
    
    $
    128,683
    
    
    $
    158,585NGM services
    
    
    (9,612
    )
    
    
    (11,462
    )
    
    
    (26,056
    )
    
    
    (62,405
    )Income (loss) from operations
    
    $
    41,894
    
    
    $
    45,163
    
    
    $
    102,627
    
    
    $
    96,180
  December 31,
    
    
    September 30,2007
    
    
    2008Total assets:Clearinghouse services
    
    $
    449,523
    
    
    $
    407,207NGM services
    
    
    167,138
    
    
    
    143,212Total assets
    
    $
    616,661
    
    
    $
    550,419Goodwill:Clearinghouse services
    
    $
    88,148
    
    
    $
    95,374NGM services
    
    
    115,945
    
    
    
    86,924Goodwill
    
    $
    204,093
    
    
    $
    182,298Intangible assets:Clearinghouse services
    
    $
    14,973
    
    
    $
    15,525NGM services
    
    
    21,878
    
    
    
    16,420Intangible assets
    
    $
    36,851
    
    
    $
    31,945
 11. INCOME TAXES
  23




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
    24




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Overview
    Critical Accounting Policies and Estimates
  25




---



##### 



Investments
 Accounting for Certain Investments in Debt and Equity Securities
 Goodwill
 Goodwill and Other
Intangible Assets
   26




---



##### 



Acquisitions
 I-View.com, Inc. (d/b/a MetaInfo)
  Webmetrics, Inc.
  27




---



##### 



Consolidated Results of Operations
 Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2008
  Three Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2008
    
    
    2007 vs. 2008$
    
    
    $
    
    
    $ Change
    
    
    % Change(unaudited)(in thousands, except per share data)Revenue:Addressing
    
    $
    28,451
    
    
    $
    32,470
    
    
    $
    4,019
    
    
    
    14.1
    %Interoperability
    
    
    15,191
    
    
    
    16,237
    
    
    
    1,046
    
    
    
    6.9Infrastructure and other
    
    
    67,115
    
    
    
    75,103
    
    
    
    7,988
    
    
    
    11.9Total revenue
    
    
    110,757
    
    
    
    123,810
    
    
    
    13,053
    
    
    
    11.8Operating expense:Cost of revenue (excluding
depreciation and
amortization shown
separately below)
    
    
    24,093
    
    
    
    27,683
    
    
    
    3,590
    
    
    
    14.9Sales and marketing
    
    
    16,317
    
    
    
    17,865
    
    
    
    1,548
    
    
    
    9.5Research and development
    
    
    5,977
    
    
    
    7,140
    
    
    
    1,163
    
    
    
    19.5General and administrative
    
    
    12,978
    
    
    
    15,407
    
    
    
    2,429
    
    
    
    18.7Depreciation and amortization
    
    
    9,498
    
    
    
    10,552
    
    
    
    1,054
    
    
    
    11.168,863
    
    
    
    78,647
    
    
    
    9,784
    
    
    
    14.2Income from operations
    
    
    41,894
    
    
    
    45,163
    
    
    
    3,269
    
    
    
    7.8Other (expense) income:Interest and other expense
    
    
    (529
    )
    
    
    (1,110
    )
    
    
    (581
    )
    
    
    109.8Interest income
    
    
    1,148
    
    
    
    359
    
    
    
    (789
    )
    
    
    (68.7
    )Income before income taxes
    
    
    42,513
    
    
    
    44,412
    
    
    
    1,899
    
    
    
    4.5Provision for income taxes
    
    
    16,811
    
    
    
    16,038
    
    
    
    (773
    )
    
    
    (4.6
    )Net income
    
    $
    25,702
    
    
    $
    28,374
    
    
    $
    2,672
    
    
    
    10.4
    %Net income per common share:Basic
    
    $
    0.34
    
    
    $
    0.39Diluted
    
    $
    0.32
    
    
    $
    0.38Weighted average common shares
outstanding:Basic
    
    
    76,461
    
    
    
    73,581Diluted
    
    
    79,272
    
    
    
    75,017
 28




---



##### 



Revenue
 Total revenue.
 Addressing.
 Interoperability.
 Infrastructure and other.
 Expense
 Cost of revenue.
 Sales and marketing.
 Research and development.
 General and administrative.
 29




---



##### 



Depreciation and amortization.
 Interest and other expense
 Interest income
 Provision for income taxes
 30




---



##### 



Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2008
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2008
    
    
    2007 vs. 2008$
    
    
    $
    
    
    $ Change
    
    
    % Change(in thousands, except per share data)Revenue:Addressing
    
    $
    82,311
    
    
    $
    94,899
    
    
    $
    12,588
    
    
    
    15.3
    %Interoperability
    
    
    43,153
    
    
    
    49,228
    
    
    
    6,075
    
    
    
    14.1Infrastructure and other
    
    
    182,434
    
    
    
    217,305
    
    
    
    34,871
    
    
    
    19.1Total revenue
    
    
    307,898
    
    
    
    361,432
    
    
    
    53,534
    
    
    
    17.4Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately
below)
    
    
    70,417
    
    
    
    78,983
    
    
    
    8,566
    
    
    
    12.2Sales and marketing
    
    
    52,602
    
    
    
    56,808
    
    
    
    4,206
    
    
    
    8.0Research and development
    
    
    19,297
    
    
    
    22,442
    
    
    
    3,145
    
    
    
    16.3General and administrative
    
    
    35,018
    
    
    
    47,040
    
    
    
    12,022
    
    
    
    34.3Depreciation and amortization
    
    
    27,937
    
    
    
    30,958
    
    
    
    3,021
    
    
    
    10.8Impairment of goodwill
    
    
    
    
    
    
    29,021
    
    
    
    29,021
    
    
    
    100.0205,271
    
    
    
    265,252
    
    
    
    59,981
    
    
    
    29.2Income from operations
    
    
    102,627
    
    
    
    96,180
    
    
    
    (6,447
    )
    
    
    (6.3
    )Other (expense) income:Interest and other expense
    
    
    (851
    )
    
    
    (4,434
    )
    
    
    (3,583
    )
    
    
    421.0Interest income
    
    
    2,829
    
    
    
    3,200
    
    
    
    371
    
    
    
    13.1Income before income taxes
    
    
    104,605
    
    
    
    94,946
    
    
    
    (9,659
    )
    
    
    (9.2
    )Provision for income taxes
    
    
    41,786
    
    
    
    48,176
    
    
    
    6,390
    
    
    
    15.3Net income
    
    $
    62,819
    
    
    $
    46,770
    
    
    $
    (16,049
    )
    
    
    (25.5
    )%Net income per common share:Basic
    
    $
    0.83
    
    
    $
    0.63Diluted
    
    $
    0.79
    
    
    $
    0.61Weighted average common shares outstanding:Basic
    
    
    75,664
    
    
    
    74,293Diluted
    
    
    79,120
    
    
    
    76,361
 Revenue
 Total revenue.
 Addressing.
 31




---



##### 



Interoperability.
 Infrastructure and other.
 Expense
 Cost of revenue.
 Sales and marketing.
 Research and development.
 General and administrative.
 Depreciation and amortization.
 32




---



##### 



Impairment of Goodwill.
 Interest and other expense
 Interest income
 Provision for income taxes
 Liquidity and Capital Resources
       33




---



##### 



Discussion of Cash Flows
 Cash flows from operations
  Cash flows from investing
  Cash flows from financing
  Recent Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements,
 Effective Date of FASB
Statement No. 157
 34




---



##### 



Determination of the Useful
Life of Intangible Assets Goodwill and Other Intangible Assets
 etermining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active
 Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
    35




---



##### 



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  The recent financial crisis could negatively affect market acceptance of our services and may harm
our financial results.
  36




---



##### 



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, 2008
    
    
    94
    
    
    $
    21.20
    
    
    
    
    
    
    $
    August 1 through August 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1 through September 30, 2008
    
    
    226
    
    
    $
    20.77
    
    
    
    
    
    
    
    Total
    
    
    320
    
    
    $
    20.90
    
    
    
    
    
    
    $
    
 
 (1)
    
    Includes shares of common stock tendered by employees to satisfy the employees
tax withholding obligations arising as a result of vesting of restricted stock grants
under our stock incentive plan, which shares were purchased by us based on their fair
market value on the vesting date. 
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  37




---



##### 



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, 2008.10.1.2
    
    Amendment to the contractor services agreement by and between
NeuStar, Inc. and North American Portability Management LLC,
as amended.10.2.5
    
    Amendments to the contractor services agreement between
Canadian LNP Consortium Inc. and NeuStar, Inc., as amended.10.2.6
    
    Exhibit P to the Contractor Services Agreement, restated as of June 1, 2003, by and between Canadian LNP Consortium Inc. and
Neustar, Inc., as amended.10.3.3
    
    Amendment to the National Thousands-Block Pooling
Administration agreement awarded to NeuStar, Inc. by the
Federal Communications Commission.10.4.3
    
    Amendments to the North American Numbering Plan Administrator
agreement awarded to NeuStar, Inc. by the Federal
Communications Commission.10.5.3
    
    Amendment to .us Top-Level Domain Registry Management and
Coordination agreement awarded to NeuStar, Inc. by the
National Institute of Standards and Technology on behalf of
the Department of Commerce on October 18, 2007.10.99.2
    
    Amendment to .us Top-Level Domain Registry Management and
Coordination agreement awarded to NeuStar, Inc. by the
National Institute of Standards and Technology on behalf of
the Department of Commerce on October 26, 2001.31.1
    
    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.
 38




---



##### 



SIGNATURES
  NeuStar, Inc.Date: November 10, 2008
    
    By:
    
    /s/ Jeffrey A. Babka

Jeffrey A. BabkaChief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
 39




---



##### 



EXHIBIT LIST
 
 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, 2008.10.1.2
    
    Amendment to the contractor services agreement by and between
NeuStar, Inc. and North American Portability Management LLC,
as amended.10.2.5
    
    Amendments to the contractor services agreement between
Canadian LNP Consortium Inc. and NeuStar, Inc., as amended.10.2.6
    
    Exhibit P to the Contractor Services Agreement, restated as of June 1, 2003, by and between Canadian LNP Consortium Inc. and
Neustar, Inc., as amended.10.3.3
    
    Amendment to the National Thousands-Block Pooling
Administration agreement awarded to NeuStar, Inc. by the
Federal Communications Commission.10.4.3
    
    Amendments to the North American Numbering Plan Administrator
agreement awarded to NeuStar, Inc. by the Federal
Communications Commission.10.5.3
    
    Amendment to .us Top-Level Domain Registry Management and
Coordination agreement awarded to NeuStar, Inc. by the
National Institute of Standards and Technology on behalf of
the Department of Commerce on October 18, 2007.10.99.2
    
    Amendment to .us Top-Level Domain Registry Management and
Coordination agreement awarded to NeuStar, Inc. by the
National Institute of Standards and Technology on behalf of
the Department of Commerce on October 26, 2001.31.1
    
    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.