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 March 31, 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 46000 Center Oak Plaza
Sterling, Virginia 20166
 (571) 434-5400
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Small 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, 2008 and March 31, 2009 (unaudited)
    
    
    3Unaudited Consolidated Statements of Operations for the three months ended March 31,
2008 and 2009
    
    
    5Unaudited Consolidated Statements of Cash Flows for the three months ended March 31,
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
    
    
    42Item 4. Controls and Procedures
    
    
    42PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Defaults upon Senior Securities
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    44Signatures
    
    
    45
 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,
    
    
    March 31,2008
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    150,829
    
    
    $
    197,299Restricted cash
    
    
    496
    
    
    
    445Short-term investments
    
    
    10,824
    
    
    
    7,791Accounts receivable, net of allowance
for doubtful accounts of $1,209 and
$1,413 respectively
    
    
    71,805
    
    
    
    64,173Unbilled receivables
    
    
    830
    
    
    
    735Notes receivable
    
    
    759
    
    
    
    192Prepaid expenses and other current assets
    
    
    8,928
    
    
    
    10,220Deferred costs
    
    
    8,518
    
    
    
    8,208Income taxes receivable
    
    
    4,621
    
    
    
    Deferred tax asset
    
    
    11,079
    
    
    
    10,696Total current assets
    
    
    268,689
    
    
    
    299,759Investments, long-term
    
    
    40,506
    
    
    
    40,982Property and equipment, net
    
    
    64,160
    
    
    
    63,239Goodwill
    
    
    118,067
    
    
    
    118,067Intangible assets, net
    
    
    16,594
    
    
    
    14,330Deferred costs, long-term
    
    
    3,333
    
    
    
    2,749Deferred tax assets, long-term
    
    
    4,244
    
    
    
    3,806Other assets
    
    
    3,573
    
    
    
    4,203Total assets
    
    $
    519,166
    
    
    $
    547,135
 See accompanying notes.
 3




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##### 



NEUSTAR, INC.
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share data)
 December 31,
    
    
    March 31,2008
    
    
    2009(unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,901
    
    
    $
    5,365Accrued expenses
    
    
    52,202
    
    
    
    42,973Deferred revenue
    
    
    32,530
    
    
    
    34,861Notes payable
    
    
    2,587
    
    
    
    2,707Capital lease obligations
    
    
    7,536
    
    
    
    9,672Accrued restructuring reserve
    
    
    1,867
    
    
    
    626Income tax payable
    
    
    
    
    
    
    8,560Other liabilities
    
    
    430
    
    
    
    110Total current liabilities
    
    
    104,053
    
    
    
    104,874Deferred revenue, long-term
    
    
    11,657
    
    
    
    10,304Notes payable, long-term
    
    
    1,777
    
    
    
    894Capital lease obligations, long-term
    
    
    10,156
    
    
    
    10,319Accrued restructuring reserve, long-term
    
    
    1,589
    
    
    
    1,428Other liabilities, long-term
    
    
    3,281
    
    
    
    3,493Total liabilities
    
    
    132,513
    
    
    
    131,312Commitments 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 March 31, 2009
    
    
    
    
    
    
    Class A common stock, par value $0.001;
200,000,000 shares authorized; 78,925,222
and 79,248,871 shares issued and
outstanding at December 31, 2008 and
March 31, 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 March 31, 2009, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    321,528
    
    
    
    326,999Treasury stock, 4,949,771 and 4,957,045
shares at December 31, 2008 and March 31,
2009, respectively, at cost
    
    
    (128,403
    )
    
    
    (128,535
    )Accumulated other comprehensive loss
    
    
    (879
    )
    
    
    (1,401
    )Retained earnings
    
    
    194,328
    
    
    
    218,681Total stockholders equity
    
    
    386,653
    
    
    
    415,823Total liabilities and stockholders equity
    
    $
    519,166
    
    
    $
    547,135
 See accompanying notes.
 4




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##### 



NEUSTAR, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 Three Months EndedMarch 31,2008
    
    
    2009Revenue:Addressing
    
    $
    30,161
    
    
    $
    32,491Interoperability
    
    
    16,440
    
    
    
    14,307Infrastructure and other
    
    
    70,812
    
    
    
    66,390Total revenue
    
    
    117,413
    
    
    
    113,188Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately below)
    
    
    24,489
    
    
    
    27,843Sales and marketing
    
    
    18,724
    
    
    
    19,507Research and development
    
    
    7,548
    
    
    
    4,313General and administrative
    
    
    16,482
    
    
    
    13,501Depreciation and amortization
    
    
    10,120
    
    
    
    9,245Impairment of goodwill
    
    
    29,021
    
    
    
    106,384
    
    
    
    74,409Income from operations
    
    
    11,029
    
    
    
    38,779Other (expense) income:Interest and other expense
    
    
    (458
    )
    
    
    (1,224
    )Interest and other income
    
    
    1,608
    
    
    
    2,459Income before income taxes
    
    
    12,179
    
    
    
    40,014Provision for income taxes
    
    
    16,639
    
    
    
    15,661Net (loss) income
    
    $
    (4,460
    )
    
    $
    24,353Net (loss) income per common share:Basic
    
    $
    (0.06
    )
    
    $
    0.33Diluted
    
    $
    (0.06
    )
    
    $
    0.32Weighted average common shares outstanding:Basic
    
    
    76,247
    
    
    
    73,862Diluted
    
    
    76,247
    
    
    
    75,085
 See accompanying notes.
 5




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##### 



NEUSTAR, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Three Months EndedMarch 31,2008
    
    
    2009Operating activities:Net (loss) income
    
    $
    (4,460
    )
    
    $
    24,353Adjustments to reconcile net (loss) income to net cash provided
by operating activities:Depreciation and amortization
    
    
    10,120
    
    
    
    9,245Stock-based compensation
    
    
    4,429
    
    
    
    3,699Amortization of deferred financing costs
    
    
    44
    
    
    
    42Excess tax benefits from stock-based compensation
    
    
    (91
    )
    
    
    (462
    )Deferred income taxes
    
    
    3,481
    
    
    
    1,441Impairment of goodwill
    
    
    29,021
    
    
    
    Provision for doubtful accounts
    
    
    1,024
    
    
    
    765Loss on trading securities
    
    
    
    
    
    
    410Gain on auction rate securities rights
    
    
    
    
    
    
    (886
    )Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    13,727
    
    
    
    6,760Unbilled receivables
    
    
    (361
    )
    
    
    95Notes receivable
    
    
    524
    
    
    
    567Prepaid expenses and other current assets
    
    
    (742
    )
    
    
    (1,292
    )Deferred costs
    
    
    (632
    )
    
    
    894Income tax receivable
    
    
    
    
    
    
    5,083Other assets
    
    
    216
    
    
    
    (672
    )Other liabilities
    
    
    271
    
    
    
    (107
    )Accounts payable and accrued expenses
    
    
    87
    
    
    
    (10,659
    )Income taxes payable
    
    
    (1,164
    )
    
    
    8,560Accrued restructuring reserve
    
    
    (101
    )
    
    
    (1,402
    )Deferred revenue
    
    
    (1,313
    )
    
    
    978Net cash provided by operating activities
    
    
    54,080
    
    
    
    47,412Investing activities:Purchases of property and equipment
    
    
    (6,702
    )
    
    
    (1,418
    )Sales of investments, net
    
    
    25,904
    
    
    
    3,102Business acquired, net of cash
    
    
    (12,915
    )
    
    
    Net cash provided by investing activities
    
    
    6,287
    
    
    
    1,684Financing activities:(Disbursement) reduction of restricted cash
    
    
    (44
    )
    
    
    51Principal repayments on notes payable
    
    
    (848
    )
    
    
    (763
    )Principal repayments on capital lease obligations
    
    
    (1,573
    )
    
    
    (2,343
    )Proceeds from exercise of common stock options
    
    
    1,518
    
    
    
    1,310Excess tax benefits from stock-based compensation
    
    
    91
    
    
    
    462Repurchase of restricted stock awards
    
    
    (95
    )
    
    
    (132
    )Repurchase of common stock
    
    
    (103,792
    )
    
    
    Net cash used in financing activities
    
    
    (104,743
    )
    
    
    (1,415
    )Effect of foreign exchange rates on cash and cash equivalents
    
    
    142
    
    
    
    (1,211
    )Net (decrease) increase in cash and cash equivalents
    
    
    (44,234
    )
    
    
    46,470Cash and cash equivalents at beginning of period
    
    
    98,630
    
    
    
    150,829Cash and cash equivalents at end of period
    
    $
    54,396
    
    
    $
    197,299
 See accompanying notes.
 6




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##### 



NEUSTAR, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED MARCH 31, 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
   Accounting for the
Impairment or Disposal of Long-Lived Assets
  8




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Investments
   Accounting for Certain
Investments in Debt and Equity Securities
 Goodwill
 Goodwill and
Other Intangible Assets
  9




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##### 



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




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##### 



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




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Interoperability
   Infrastructure and Other
  12




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Service Level Standards
  Cost of Revenue and Deferred Costs
   Stock-Based Compensation
 Share-Based Payment
 13




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Basic and Diluted Net (Loss) Income per Common Share
 Earnings Per
Share
 Income Taxes
 Accounting for Income
Taxes .
  Accounting for Uncertainty
in Income Taxesan interpretation of FASB Statement No. 109 i.e.
 Foreign Currency
   14




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Comprehensive (Loss) Income
   Three Months EndedMarch 31,2008
    
    
    2009Net (loss) income
    
    $
    (4,460
    )
    
    $
    24,353Change in
unrealized loss on available-for-sale securities, net of tax of $1,068 and $1, respectively
    
    
    (1,646
    )
    
    
    68Change in accumulated translation adjustments, net of tax of $109 and $622, respectively
    
    
    33
    
    
    
    (590
    )Total comprehensive (loss) income
    
    $
    (6,073
    )
    
    $
    23,831
 Recent Accounting Pronouncements
 Recognition and Presentation of Other-Than-Temporary
Impairments
 Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
 Interim
Disclosures about Fair Value of Financial Instruments
 Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies
 15




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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
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    10,824
 March 31, 2009Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash reserve fund
    
    $
    7,725
    
    
    $
    66
    
    
    $
    3⁄4
    
    
    $
    7,791
     16




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 The Fair
Value Option for Financial Assets and Financial Liabilities Including
an amendment of FASB Statement No. 115
  4. FAIR VALUE MEASUREMENTS
 Fair Value Measurements Effective Date of FASB Statement No. 157
 
    
    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
    
    TotalCash reserve fund -
available-for-sale
securities (short-term
investments)
    
    $
    
    
    
    $
    
    
    
    $
    7,791
    
    
    $
    7,791Auction rate securities -
trading securities
(long-term investments)
    
    
    
    
    
    
    
    
    
    
    30,680
    
    
    
    30,680Auction rate securities
rights (long-term
investments)
    
    
    
    
    
    
    
    
    
    
    10,302
    
    
    
    10,302Marketable securities (1)
    
    
    813
    
    
    
    
    
    
    
    
    
    
    
    813Deferred compensation (2)
    
    
    820
    
    
    
    
    
    
    
    
    
    
    
    820
 
 (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 17




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 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 Reserve
    
    
    Auction RateFund
    
    
    Securities
    
    
    ARS 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
    
    
    4
    
    
    
    (410
    )
    
    
    886Total unrealized gains included in other comprehensive loss
    
    
    66
    
    
    
    
    
    
    
    Purchases, sales, issuances and settlements, net
    
    
    (3,103
    )
    
    
    
    
    
    
    Balance on March 31, 2009
    
    $
    7,791
    
    
    $
    30,680
    
    
    $
    10,302
    5. ACQUISITION
 Webmetrics, Inc.
 Business Combinations,
 18




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NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   6. GOODWILL AND INTANGIBLE ASSETS
  Clearinghouse
    
    
    NGMServices
    
    
    Services
    
    
    TotalBalance at December 31, 2007
    
    $
    88,148
    
    
    $
    115,945
    
    
    $
    204,093Acquisitions
    
    
    6,379
    
    
    
    
    
    
    
    6,379Purchase price adjustments
    
    
    
    
    
    
    
    
    
    
    Impairment charge
    
    
    
    
    
    
    (29,021
    )
    
    
    (29,021
    )Balance at March 31, 2008
    
    $
    94,527
    
    
    $
    86,924
    
    
    $
    181,451
  Clearinghouse
    
    
    NGMServices
    
    
    Services
    
    
    TotalBalance at December 31, 2008
    
    $
    95,724
    
    
    $
    22,343
    
    
    $
    118,067Acquisitions
    
    
    
    
    
    
    
    
    
    
    Purchase price adjustments
    
    
    
    
    
    
    
    
    
    
    Impairment charge
    
    
    
    
    
    
    
    
    
    
    Balance at March 31, 2009
    
    $
    95,724
    
    
    $
    22,343
    
    
    $
    118,067
  19




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Weighted-AverageAmortizationDecember 31,
    
    
    March 31,
    
    
    Period2008
    
    
    2009
    
    
    (In Years)(unaudited)
    
    
    (unaudited)Intangible assets:Customer lists and relationships
    
    $
    36,659
    
    
    $
    36,659
    
    
    
    5.6Accumulated amortization
    
    
    (24,196
    )
    
    
    (25,510
    )Customer lists and relationships, net
    
    
    12,463
    
    
    
    11,149Acquired technology
    
    
    17,744
    
    
    
    17,744
    
    
    
    3.3Accumulated amortization
    
    
    (13,633
    )
    
    
    (14,567
    )Acquired technology, net
    
    
    4,111
    
    
    
    3,177Trade name
    
    
    200
    
    
    
    200
    
    
    
    3.0Accumulated amortization
    
    
    (180
    )
    
    
    (196
    )Trade name, net
    
    
    20
    
    
    
    4Intangible assets, net
    
    $
    16,594
    
    
    $
    14,330
  7. NOTES PAYABLE
    20




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 8. STOCKHOLDERS EQUITY
 Stock-Based Compensation
   Stock Options
   Three Months EndedMarch 31, 20092008
    
    2009Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    35.82
    %
    
    
    44.28
    %Risk-free interest rate
    
    
    2.56
    %
    
    
    1.46
    %Expected life of options (in years)
    
    
    4.37
    
    
    
    4.42
     21




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Weighted-AverageShares
    
    Exercise PriceOutstanding at December 31, 2008
    
    
    4,660,565
    
    
    $
    20.15Options granted
    
    
    1,505,965
    
    
    
    15.43Options exercised
    
    
    (296,389
    )
    
    
    4.42Options canceled
    
    
    (160,061
    )
    
    
    28.06Outstanding at March 31, 2009
    
    
    5,710,080
    
    
    
    19.50Exercisable at March 31, 2009
    
    
    2,780,473
    
    
    $
    17.62
  Restricted Stock
  Weighted-AverageGrant DateShares
    
    Fair ValueOutstanding December 31, 2008
    
    
    260,298
    
    
    $
    25.50Granted
    
    
    36,000
    
    
    
    17.36Vested
    
    
    (19,500
    )
    
    
    27.53Forfeited
    
    
    (8,740
    )
    
    
    24.58Outstanding March 31, 2009
    
    
    268,058
    
    
    $
    24.29
  22




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Performance Vested Stock Units
  Weighted-AverageGrant DateShares
    
    Fair ValueNon-vested December 31, 2008
    
    
    413,143
    
    
    $
    28.98Granted
    
    
    515,425
    
    
    
    15.39Vested
    
    
    
    
    
    
    Forfeited
    
    
    (19,910
    )
    
    
    23.35Non-vested March 31, 2009
    
    
    908,658
    
    
    $
    21.42
   Restricted Stock Units
  Weighted-AverageGrant DateShares
    
    Fair ValueOutstanding December 31, 2008
    
    
    110,599
    
    
    $
    26.21Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding March 31, 2009
    
    
    110,599
    
    
    $
    26.21
   23




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Treasury Stock
   9. BASIC AND DILUTED NET (LOSS) INCOME PER COMMON SHARE
  Three Months EndedMarch 31,2008
    
    
    2009Computation on basic net (loss) income per common share:Net (loss) income
    
    $
    (4,460
    )
    
    $
    24,353Weighted average common shares outstanding  basic
    
    
    76,247
    
    
    
    73,862Basic net (loss) income per common share
    
    $
    (0.06
    )
    
    $
    0.33Computation on diluted net (loss) income per common share:Net (loss) income
    
    $
    (4,460
    )
    
    $
    24,353Weighted average common shares outstanding  basic
    
    
    76,246
    
    
    
    73,862Effect of dilutive securities:Stock-based awards
    
    
    
    
    
    
    1,223Weighted average common shares outstanding  diluted
    
    
    76,246
    
    
    
    75,085Diluted net (loss) income per common share
    
    $
    (0.06
    )
    
    $
    0.32
  24




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 10. SEGMENT INFORMATION
   Three Months EndedMarch 31,2008
    
    
    2009Revenue:Clearinghouse
    
    $
    113,552
    
    
    $
    109,715NGM
    
    
    3,861
    
    
    
    3,473Total revenue
    
    $
    117,413
    
    
    $
    113,188Depreciation and amortization:Clearinghouse
    
    $
    7,404
    
    
    $
    7,430NGM
    
    
    2,716
    
    
    
    1,815Total depreciation and amortization
    
    $
    10,120
    
    
    $
    9,245Income (loss) from operations:Clearinghouse
    
    $
    50,401
    
    
    $
    43,144NGM
    
    
    (39,372
    )
    
    
    (4,365
    )Income (loss) from operations
    
    $
    11,029
    
    
    $
    38,779
  December 31,
    
    
    March 31,2008
    
    
    2009Total assets:Clearinghouse
    
    $
    458,689
    
    
    $
    489,934NGM
    
    
    60,477
    
    
    
    57,201Total assets
    
    $
    519,166
    
    
    $
    547,135Goodwill:Clearinghouse
    
    $
    95,724
    
    
    $
    95,724NGM
    
    
    22,343
    
    
    
    22,343Goodwill
    
    $
    118,067
    
    
    $
    118,067Intangible assets:Clearinghouse
    
    $
    13,552
    
    
    $
    11,807NGM
    
    
    3,042
    
    
    
    2,523Intangible assets
    
    $
    16,594
    
    
    $
    14,330
 11. RESTRUCTURING CHARGES
  25




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   12. OTHER (EXPENSE) INCOME
  Three Months Ended March 31,2008
    
    
    2009Interest expense
    
    $
    442
    
    
    $
    350(Gain) loss on asset disposals
    
    
    (37
    )
    
    
    203Foreign currency transaction (gain) loss
    
    
    (187
    )
    
    
    261Impairments and realized losses cash reserve fund
    
    
    240
    
    
    
    Impairments and realized losses auction rate securities
    
    
    
    
    
    
    410Total interest and other expense
    
    $
    458
    
    
    $
    1,224Interest income
    
    $
    1,608
    
    
    $
    389Gain on auction rate securities rights
    
    
    
    
    
    
    886Gain on indemnification claims
    
    
    
    
    
    
    1,180Other income
    
    
    
    
    
    
    4Total interest and other income
    
    $
    1,608
    
    
    $
    2,459
  13. INCOME TAXES
   26




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   27




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##### 



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
 Revenue Recognition
 Significant Contracts
   29




---



##### 



Addressing
    Interoperability
   30




---



##### 



Infrastructure and Other
  Service Level Standards
   Restructuring
  31




---



##### 



Goodwill
 Goodwill and Other
Intangible Assets
     32




---



##### 



Impairment of Long-Lived Assets
 Accounting for the Impairment
or Disposal of Long-Lived Assets
  Investments
  33




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##### 



The Fair Value Option
for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115, Accounting for Certain Investments in Debt and
Equity Securities
  Income Taxes
   34




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##### 



Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 i.e.
  Stock-Based Compensation
 Share-Based Payments, Share-Based Payment,
   35




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##### 



36




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##### 



Consolidated Results of Operations
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2009
  Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2009
    
    
    2008 vs. 2009$
    
    
    $
    
    
    $ Change
    
    
    % Change(unaudited)(in thousands, except per share data)Revenue:Addressing
    
    $
    30,161
    
    
    $
    32,491
    
    
    $
    2,330
    
    
    
    7.7
    %Interoperability
    
    
    16,440
    
    
    
    14,307
    
    
    
    (2,133
    )
    
    
    (13.0
    )Infrastructure and other
    
    
    70,812
    
    
    
    66,390
    
    
    
    (4,422
    )
    
    
    (6.2
    )Total revenue
    
    
    117,413
    
    
    
    113,188
    
    
    
    (4,225
    )
    
    
    (3.6
    )Operating expense:Cost of revenue (excluding
depreciation and amortization
shown separately below)
    
    
    24,489
    
    
    
    27,843
    
    
    
    3,354
    
    
    
    13.7Sales and marketing
    
    
    18,724
    
    
    
    19,507
    
    
    
    783
    
    
    
    4.2Research and development
    
    
    7,548
    
    
    
    4,313
    
    
    
    (3,235
    )
    
    
    (42.9
    )General and administrative
    
    
    16,482
    
    
    
    13,501
    
    
    
    (2,981
    )
    
    
    (18.1
    )Depreciation and amortization
    
    
    10,120
    
    
    
    9,245
    
    
    
    (875
    )
    
    
    (8.6
    )Impairment of goodwill
    
    
    29,021
    
    
    
    
    
    
    
    (29,021
    )
    
    
    (100.0
    )106,384
    
    
    
    74,409
    
    
    
    (31,975
    )
    
    
    (30.1
    )Income from operations
    
    
    11,029
    
    
    
    38,779
    
    
    
    27,750
    
    
    
    251.6Other (expense) income:Interest and other expense
    
    
    (458
    )
    
    
    (1,224
    )
    
    
    (766
    )
    
    
    (167.2
    )Interest and other income
    
    
    1,608
    
    
    
    2,459
    
    
    
    851
    
    
    
    52.9Income before income taxes
    
    
    12,179
    
    
    
    40,014
    
    
    
    27,835
    
    
    
    228.5Provision for income taxes
    
    
    16,639
    
    
    
    15,661
    
    
    
    (978
    )
    
    
    (5.9
    )Net (loss) income
    
    $
    (4,460
    )
    
    $
    24,353
    
    
    $
    28,813
    
    
    
    646.0Net (loss) income per common share:Basic
    
    $
    (0.06
    )
    
    $
    0.33Diluted
    
    $
    (0.06
    )
    
    $
    0.32Weighted average common shares
outstanding:Basic
    
    
    76,247
    
    
    
    73,862Diluted
    
    
    76,247
    
    
    
    75,085
 37




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##### 



Revenue
 Total revenue.
 Addressing.
 Interoperability.
 Infrastructure and other.
 Expense
 Cost of revenue.
 Sales and marketing.
 Research and development.
 38




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##### 



General and administrative.
 Depreciation and amortization.
 Impairment of goodwill.
 Interest and other expense
 Interest and other income
 Provision for income taxes
 39




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##### 



Liquidity and Capital Resources
       Discussion of Cash Flows
 Cash flows from operations
  40




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##### 



Cash flows from investing
  Cash flows from financing
  Recent Accounting Pronouncements
 Recognition and Presentation of Other-Than-Temporary
Impairments,
 Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly,
 Interim
Disclosures about Fair Value of Financial Instruments,
 Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies,
 41




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##### 



Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
    42




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##### 



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 March 31, 2009:
 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
    
    ProgramsJanuary 1 through January 31, 2009
    
    
    3,052
    
    
    $
    18.98
    
    
    
    
    
    
    $
    February 1 through February 28, 2009
    
    
    4,195
    
    
    
    15.83
    
    
    
    
    
    
    
    March 1 through March 31, 2009
    
    
    29
    
    
    
    16.64
    
    
    
    
    
    
    
    Total
    
    
    7,276
    
    
    $
    17.16
    
    
    
    
    
    
    $
    
 
 (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
  43




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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 (File No. 001-32548).10.1.2
    
    Amendment to the contractor services agreement by and between
NeuStar, Inc. and North American Portability Management LLC,
as amended, incorporated herein by reference to Exhibit 99.1
to NeuStars Current Report on Form 8-K, filed January 28, 2009 (File
No. 001-32548).10.3.2
    
    Amendment to 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.10.53
    
    Employment Agreement, made as of January 15, 2009, by and
between NeuStar, Inc. and Paul Lalljie, incorporated herein
by reference to Exhibit 99.2 to NeuStars Current Report on Form 8-K,
filed January 15, 2009 (File No. 001-32548).10.54
    
    NeuStar, Inc. 2009 Performance Achievement Reward Plan,
incorporated herein by reference to Exhibit 99.1 to NeuStars
Current Report on Form 8-K, filed February 27, 2009 (File No.
001-32548).10.55
    
    Form of Performance Award Agreement under the NeuStar, Inc.
2005 Stock Incentive Plan, incorporated herein by reference to
Exhibit 99.2 to NeuStars Current Report on Form 8-K, filed February
27, 2009 (File No. 001-32548).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.
 
 
    
    Compensatory arrangement. 44




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##### 



SIGNATURES
  NeuStar, Inc.Date:  May 11, 2009
    By:
    /s/ Paul S. LalljiePaul S. LalljieInterim Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer) 45




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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 (File No. 001-32548).10.1.2
    
    Amendment to the contractor services agreement by and between
NeuStar, Inc. and North American Portability Management LLC,
as amended, incorporated herein by reference to Exhibit 99.1
to NeuStars Current Report on Form 8-K, filed January 28, 2009 (File
No. 001-32548).10.3.2
    
    Amendment to 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.10.53
    
    Employment Agreement, made as of January 15, 2009, by and
between NeuStar, Inc. and Paul Lalljie, incorporated herein
by reference to Exhibit 99.2 to NeuStars Current Report on Form 8-K,
filed January 15, 2009 (File No. 001-32548).10.54
    
    NeuStar, Inc. 2009 Performance Achievement Reward Plan,
incorporated herein by reference to Exhibit 99.1 to NeuStars
Current Report on Form 8-K, filed February 27, 2009 (File No.
001-32548).10.55
    
    Form of Performance Award Agreement under the NeuStar, Inc.
2005 Stock Incentive Plan, incorporated herein by reference to
Exhibit 99.2 to NeuStars Current Report on Form 8-K, filed February
27, 2009 (File No. 001-32548).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.
 
 
    
    Compensatory arrangement.