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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|    |  |                                                                                            
|--- |  | -------------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001
OR

|     |  |                                                                                             
|---- |  | --------------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from ___ to ___
COMMISSION FILE NUMBER 0-27555

ILLUMINET HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware
36-4042177
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

4501 Intelco Loop, Lacey, Washington
98503
(Address of principal executive office)
(Zip code)

(360) 493-6000
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X]    No [  ]

At October 31, 2001, 32,822,139 shares of Common Stock, $0.01 par value per share were outstanding.





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TABLE OF CONTENTS



|                             |                                                                                               |                                                      |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1: Condensed Financial Statements                                                       
|                             |                                                                                               | CONSOLIDATED BALANCE SHEETS                         
|                             |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME                   
|                             |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS               
|                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                             | ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II OTHER INFORMATION   
|                             | ITEM 1: LEGAL PROCEEDINGS                                                                    
|                             | ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                             | ITEM 3: DEFAULTS UPON SENIOR SECURITIES                                                      
|                             | ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                             | ITEM 5: OTHER INFORMATION                                                                    
|                             | ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                  
|EXHIBIT INDEX               
|EXHIBIT 4.1                 



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Table of Contents

ILLUMINET HOLDINGS, INC.
FORM 10-Q
INDEX

|              |  |                                                                                                          |     |     
|------------- |  | -------------------------------------------------------------------------------------------------------- | --- | ----
|              |  |                                                                                                          |     | Page
|ITEM 1:       |  | Condensed Financial Statements                                                                           |     |     
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|              |  | Consolidated Balance Sheets as of September 30, 2001 and December
31, 2000                               |     | 1   
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|              |  | Consolidated Statements of Income for the three months and nine
months ended September 30, 2001 and 2000 |     | 2   
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|              |  | Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000              |     | 3   
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|              |  | Notes to Condensed Consolidated Financial Statements  September
30, 2001                                |     | 4   
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|ITEM 2:       |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                    |     | 7   
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|ITEM 3:       |  | Quantitative and Qualitative Disclosures about Market Risk                                               |     | 16  
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|PART II:      |  | OTHER INFORMATION                                                                                        |     |     
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|ITEM 1:       |  | Legal Proceedings                                                                                        |     | 16  
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|ITEM 2:       |  | Changes in Securities and Use of Proceeds                                                                |     | 16  
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|ITEM 3:       |  | Defaults Upon Senior Securities                                                                          |     | 16  
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|ITEM 4:       |  | Submission of Matters to a Vote of Security Holders                                                      |     | 17  
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|ITEM 5:       |  | Other Information                                                                                        |     | 17  
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|ITEM 6:       |  | Exhibits and Reports on Form 8-K                                                                         |     | 17  
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|SIGNATURES    |  |                                                                                                          | 18 
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|Exhibit Index |  |                                                                                                          | E-1





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PART I

FINANCIAL INFORMATION




ITEM 1: Condensed Financial Statements




ILLUMINET HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |              |         |  |  | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ------- | ------------- | ------ | ------------ | ------- |  |  | 
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         | SEPTEMBER 30, |        | DECEMBER 31,
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         | 2001          |        | 2000        
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       |                                                                                                                                                                                       |                                            |                                      | ASSETS  |         |               |        |              |         |  |  | 
|Current assets:                                        |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       | Cash and cash equivalents                                                                                                                                                             |                                            | $                                    | 53,395  |         |               | $      | 32,358       |        
|                                                       | Available-for-sale securities                                                                                                                                                         |                                            |                                      | 48,391  |         |               |        | 84,531       |        
|                                                       | Accounts receivable, less allowance for doubtful accounts
of $3,677 ($2,313 in 2000)                                                                                                  |                                            |                                      | 59,771  |         |               |        | 42,891       |        
|                                                       | Deferred income taxes                                                                                                                                                                 |                                            |                                      | 1,498   |         |               |        | 939          |        
|                                                       | Income taxes receivable                                                                                                                                                               |                                            |                                      |        |         |               |        | 752          |        
|                                                       | Prepaid expenses and other                                                                                                                                                            |                                            |                                      | 3,628   |         |               |        | 3,148        |        
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       |                                                                                                                                                                                       | Total current assets                       |                                      |         | 166,683 |               |        |              | 164,619 | 
|Property and equipment, net                            |                                                                                                                                                                                       |                                            | 85,787                               |         |         |               | 65,279 |             
|Other assets                                           |                                                                                                                                                                                       |                                            | 21,390                               |         |         |               | 1,463  |             
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       |                                                                                                                                                                                       | Total assets                               |                                      | $       | 273,860 |               |        | $            | 231,361 | 
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       |                                                                                                                                                                                       |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |         |         |               |        |              |         |  | 
|Current liabilities:                                   |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       | Trade accounts payable                                                                                                                                                                |                                            | $                                    | 15,537  |         |               | $      | 15,071       |        
|                                                       | Accrued expenses                                                                                                                                                                      |                                            |                                      | 7,141   |         |               |        | 8,354        |        
|                                                       | Due to customers                                                                                                                                                                      |                                            |                                      | 17,571  |         |               |        | 13,520       |        
|                                                       | Income taxes payable                                                                                                                                                                  |                                            |                                      | 3,998   |         |               |        |             |        
|                                                       | Current portion of obligations under capital leases                                                                                                                                   |                                            |                                      | 2,530   |         |               |        | 2,693        |        
|                                                       | Current portion of long-term debt                                                                                                                                                     |                                            |                                      | 330     |         |               |        | 675          |        
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       |                                                                                                                                                                                       | Total current liabilities                  |                                      |         | 47,107  |               |        |              | 40,313  | 
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|Deferred income taxes                                  |                                                                                                                                                                                       |                                            | 5,430                                |         |         |               | 5,819  |             
|Obligations under capital leases, less current portion |                                                                                                                                                                                       |                                            | 705                                  |         |         |               | 2,402  |             
|Long-term debt, less current portion                   |                                                                                                                                                                                       |                                            | 5,902                                |         |         |               | 6,153  |             
|Stockholders equity:                                  |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       | Preferred Stock, par value $.01 per share, authorized
100,000 shares, 4,416 shares designated as Series A, none
outstanding and 7,000 shares designated as Series B, none
outstanding |                                            |                                      |        |         |               |        |             |        
|                                                       | Common Stock, par value $.01 per share, authorized
150,000,000 shares, issued 32,677,354 and outstanding
32,672,354 (issued and outstanding 32,108,297 in 2000)                       |                                            |                                      | 327     |         |               |        | 321          |        
|                                                       | Additional paid-in capital                                                                                                                                                            |                                            |                                      | 124,367 |         |               |        | 117,056      |        
|                                                       | Deferred stock-based compensation                                                                                                                                                     |                                            |                                      | (1,927  | )       |               |        | (2,758       | )      
|                                                       | Retained earnings                                                                                                                                                                     |                                            |                                      | 91,949  |         |               |        | 62,055       |        
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       |                                                                                                                                                                                       | Total stockholders equity                 |                                      |         | 214,716 |               |        |              | 176,674 | 
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             
|                                                       |                                                                                                                                                                                       | Total liabilities and stockholders equity |                                      | $       | 273,860 |               |        | $            | 231,361 | 
|                                                       |                                                                                                                                                                                       |                                            |                                      |         |         |               |        |             





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ILLUMINET HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |        |        | 
|---------------------------------------- | ----------------------------------- | -------------- | ---------- | ------------------ | ------ | ----------------- | ---------- | ------ | ------ | ---- | ---------- | ------ | ------- | - | ---------- | ------ | ------ | 
|                                         |                                     |                |            | THREE MONTHS ENDED |        | NINE MONTHS ENDED
|                                         |                                     |                |            | SEPTEMBER 30,      |        | SEPTEMBER 30,    
|                                         |                                     |                |            |                    |        |                  
|                                         |                                     |                |            | 2001               |        | 2000              |            | 2001   |        | 2000
|                                         |                                     |                |            |                    |        |                   |            |        |        |     
|Revenues                                 |                                     | $              | 52,339     |                    |        | $                 | 41,593     |        |        | $    | 144,043    |        |         | $ | 112,379    |       
|Expenses:                                |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|                                         | Carrier costs                       |                |            | 8,716              |        |                   |            | 6,798  |        |      |            | 25,068 |         |   |            | 20,123 |       
|                                         | Operating                           |                |            | 13,407             |        |                   |            | 10,713 |        |      |            | 37,318 |         |   |            | 29,489 |       
|                                         | Selling, general and administrative |                |            | 8,062              |        |                   |            | 5,716  |        |      |            | 22,212 |         |   |            | 15,666 |       
|                                         | Depreciation and amortization       |                |            | 4,964              |        |                   |            | 4,057  |        |      |            | 14,844 |         |   |            | 11,505 |       
|                                         | Merger costs                        |                |            | 1,456              |        |                   |            |       |        |      |            | 1,456  |         |   |            | 3,353  |       
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|                                         |                                     | Total expenses |            |                    | 36,605 |                   |            |        | 27,284 |      |            |        | 100,898 |   |            |        | 80,136 | 
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|Operating income                         |                                     |                | 15,734     |                    |        |                   | 14,309     |        |        |      | 43,145     |        |         |   | 32,243     |       
|Interest income                          |                                     |                | 1,589      |                    |        |                   | 1,882      |        |        |      | 5,174      |        |         |   | 5,553      |       
|Interest expense                         |                                     |                | (192       | )                  |        |                   | (259       | )      |        |      | (614       | )      |         |   | (1,015     | )     
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|Income before income taxes               |                                     |                | 17,131     |                    |        |                   | 15,932     |        |        |      | 47,705     |        |         |   | 36,781     |       
|Income tax provision                     |                                     |                | 6,188      |                    |        |                   | 5,986      |        |        |      | 17,811     |        |         |   | 15,305     |       
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|Net income                               |                                     | $              | 10,943     |                    |        | $                 | 9,946      |        |        | $    | 29,894     |        |         | $ | 21,476     |       
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|Earnings per share  basic               |                                     | $              | 0.34       |                    |        | $                 | 0.31       |        |        | $    | 0.92       |        |         | $ | 0.67       |       
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|Earnings per share  diluted             |                                     | $              | 0.32       |                    |        | $                 | 0.30       |        |        | $    | 0.88       |        |         | $ | 0.63       |       
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|Weighted-average common shares  basic   |                                     |                | 32,615,277 |                    |        |                   | 31,873,701 |        |        |      | 32,450,169 |        |         |   | 31,394,289 |       
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       
|Weighted-average common shares  diluted |                                     |                | 34,070,129 |                    |        |                   | 33,677,898 |        |        |      | 33,896,081 |        |         |   | 33,543,619 |       
|                                         |                                     |                |            |                    |        |                   |            |        |        |      |            |        |         |   |            |       





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ILLUMINET HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

|                                          |                                                                                   |                                       |        |                   |         |      |       |         |         |  
|----------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------- | ------ | ----------------- | ------- | ---- | ----- | ------- | ------- | -
|                                          |                                                                                   |                                       |        | NINE MONTHS ENDED
|                                          |                                                                                   |                                       |        | SEPTEMBER 30,    
|                                          |                                                                                   |                                       |        |                  
|                                          |                                                                                   |                                       |        | 2001              |         | 2000
|                                          |                                                                                   |                                       |        |                   |         |     
|Operating activities:                     |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Net income                                                                        |                                       | $      | 29,894            |         |      | $     | 21,476  |        
|                                          | Adjustments to reconcile net income to net cash provided by operating
activities: |                                       |        |                   |         |      |       |         |        
|                                          | Depreciation and amortization                                                     |                                       |        | 14,844            |         |      |       | 11,505  |        
|                                          | Stock-based compensation expense                                                  |                                       |        | 831               |         |      |       | 848     |        
|                                          | Deferred income taxes                                                             |                                       |        | (948              | )       |      |       | (50     | )      
|                                          | Change in:                                                                        |                                       |        |                   |         |      |       |         |        
|                                          |                                                                                   | Accounts receivable                   |        |                   | (15,472 | )    |       |         | (3,467  | )
|                                          |                                                                                   | Trade accounts payable                |        |                   | (302    | )    |       |         | 2,518   |  
|                                          |                                                                                   | Accrued expenses                      |        |                   | (1,213  | )    |       |         | (797    | )
|                                          |                                                                                   | Due to customers                      |        |                   | 4,051   |      |       |         | 477     |  
|                                          |                                                                                   | Taxes payable                         |        |                   | 9,667   |      |       |         | 1,218   |  
|                                          |                                                                                   | Other                                 |        |                   | 427     |      |       |         | (644    | )
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Net cash provided by operating activities                                         |                                       |        | 41,779            |         |      |       | 33,084  |        
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|Investing activities:                     |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Sales (purchases) of investments                                                  |                                       |        | 36,140            |         |      |       | (3,469  | )      
|                                          | Acquisition of BSI-WS                                                             |                                       |        | (25,122           | )       |      |       |        |        
|                                          | Capital purchases and other                                                       |                                       |        | (31,570           | )       |      |       | (19,141 | )      
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|                                          |                                                                                   | Net cash used in investing activities |        |                   | (20,552 | )    |       |         | (22,610 | )
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|Financing activities:                     |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Proceeds from issuance of Common Stock                                            |                                       |        | 2,507             |         |      |       | 1,689   |        
|                                          | Proceeds from issuance of notes payable and long-term debt                        |                                       |        |                  |         |      |       | 4,103   |        
|                                          | Principal payments on notes payable, long-term debt and capital
leases            |                                       |        | (2,590            | )       |      |       | (11,939 | )      
|                                          | Stock repurchase                                                                  |                                       |        | (107              | )       |      |       |        |        
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|                                          |                                                                                   | Net cash used in financing activities |        |                   | (190    | )    |       |         | (6,147  | )
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|Net increase in cash and cash equivalents |                                                                                   |                                       | 21,037 |                   |         |      | 4,327 |        
|Cash and cash equivalents at:             |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Beginning of period                                                               |                                       |        | 32,358            |         |      |       | 24,223  |        
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | End of period                                                                     |                                       | $      | 53,395            |         |      | $     | 28,550  |        
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|Supplemental cash flow disclosure:        |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Income taxes paid                                                                 |                                       | $      | 9,092             |         |      | $     | 13,798  |        
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Interest paid                                                                     |                                       | $      | 610               |         |      | $     | 1,069   |        
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Capital acquisitions financed through capital leases                              |                                       | $      | 165               |         |      | $     |        |        
|                                          |                                                                                   |                                       |        |                   |         |      |       |        
|                                          | Dividends and accretion on Convertible Redeemable
Preferred Stock                 |                                       | $      |                  |         |      | $     | 404     |        
|                                          |                                                                                   |                                       |        |                   |         |      |       |        





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ILLUMINET HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Illuminet Holdings, Inc. and its wholly-owned subsidiaries Illuminet, Inc.
(Illuminet) and National Telemanagement Corporation (NTC) (collectively
referred
to as the Company) are engaged in the business of developing, managing and
marketing
a Signaling System 7 (SS7) network and related products and services based on
SS7
technology to the entire telecommunications marketplace. SS7 is a
telecommunications
industry-standard system of protocols and procedures that is used to control
telephone
communications and provide routing information in association with vertical
calling
features, such as calling card validation, advanced intelligent network
services,
local number portability, wireless services, toll-free number database access,
and
caller identification. Additionally, Illuminet provides advanced database
services,
billing-and-collection services, calling card services, and network usage
software
applications to a range of telephone companies as well as interexchange
carriers,
operator service providers and other telecommunications companies and providers
of
telecommunications services.

The Company has its corporate headquarters and a portion of its operations
located in Lacey, Washington; a portion of its operations located in Dallas,
Texas; a network control center and related operations located in Overland
Park, Kansas; and additional SS7 Signal Transfer Points located in Rock Hill,
South Carolina; Mattoon, Illinois; Las Vegas, Nevada; Akron, Pennsylvania;
Waynesboro, Virginia; San Bernardino, California; San Francisco, California;
Warwick, New York; and Chatham, New York.

On September 28, 2001, the Company acquired BellSouth International
Wireless
Services, Inc. (BSI-WS), a wholly-owned subsidiary of BellSouth prior to the
acquisition, which provides domestic wireless clearinghouse services and also
operates a roaming network that connects wireless carriers in South, Central, and North
America.
BSI-WS has operations located in Atlanta, Georgia and Tampa, Florida. The
BSI-WS name will change almost immediately to reflect its separation from
BellSouth as full integration of the new business proceeds.

BASIS OF FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company as of September 30,
2001 and
for the three months and nine months ended September 30, 2001 and 2000
presented in
this Form 10-Q are unaudited, and in the opinion of management, reflect all
adjustments (consisting only of normal recurring adjustments) necessary for the
fair
presentation of the Companys financial position, results of its operations and
its cash flows for each period presented. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. The Company believes that the disclosures made are adequate to make
the information presented not misleading. The results of the interim periods
are not necessarily indicative of future results. These consolidated financial
statements and notes thereto should be read in conjunction with the Companys
Annual Report on Form 10-K, filed with the Securities and Exchange Commission
on March 9, 2001.

The consolidated financial statements include the financial statements of
Illuminet Holdings, Inc. and its subsidiaries. All significant intercompany
balances
and transactions have been eliminated in consolidation.





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ACCOUNTS RECEIVABLE

Included in accounts receivable are the following balances:

|                                |  |                  |        |              |  |   |        | 
|------------------------------- |  | ---------------- | ------ | ------------ |  | - | ------ | 
|                                |  | SEPTEMBER 30,    |        | DECEMBER 31,
|                                |  | 2001             |        | 2000        
|                                |  |                  |        |             
|                                |  | ($ IN THOUSANDS)
|Non-revenue billings receivable |  | $                | 32,300 |              |  | $ | 21,409 | 
|Trade accounts receivable       |  |                  | 31,148 |              |  |   | 23,795 | 
|                                |  |                  |        |              |  |   |        | 
|Gross accounts receivable       |  |                  | 63,448 |              |  |   | 45,204 | 
|Less: allowance for bad debts   |  |                  | 3,677  |              |  |   | 2,313  | 
|                                |  |                  |        |              |  |   |        | 
|Net accounts receivable         |  | $                | 59,771 |              |  | $ | 42,891 | 
|                                |  |                  |        |              |  |   |        | 

Non-revenue billings include network access charges and clearinghouse
amounts invoiced but not recognized as revenue. This amount has been estimated
by management.

OTHER ASSETS

Included in other assets are the following balances:

|               |  |                  |        |              |  |   |       | 
|-------------- |  | ---------------- | ------ | ------------ |  | - | ----- | 
|               |  | SEPTEMBER 30,    |        | DECEMBER 31,
|               |  | 2001             |        | 2000        
|               |  |                  |        |             
|               |  | ($ IN THOUSANDS)
|Intangibles    |  | $                | 11,100 |              |  | $ |      | 
|Goodwill (net) |  |                  | 9,582  |              |  |   |      | 
|Other          |  |                  | 708    |              |  |   | 1,463 | 
|               |  |                  |        |              |  |   |       | 
|Other assets   |  | $                | 21,390 |              |  | $ | 1,463 | 
|               |  |                  |        |              |  |   |       | 

EARNINGS PER SHARE

The computation of earnings per share-basic is based on net income
available to
common shareholders and the weighted-average number of outstanding common
shares,
including Class A Common Stock. The computation of earnings per share-diluted
includes
the dilutive effect, if any, of outstanding Convertible
Redeemable Preferred Stock calculated using the as if converted method, and
Common
Stock options, Class A Common Stock options and Common Stock Warrants
calculated using
the treasury stock method. Effective with Illuminets initial public offering
on
October 7, 1999, all existing common stock available to common shareholders of
Illuminet outstanding immediately prior to the initial public offering was
renamed to
Class A Common Stock. Each share of Class A Common Stock automatically
converted into
four shares of Common Stock on April 5, 2000.

NOTE 2. ACQUISITION

The Company acquired all of the outstanding stock of BSI-WS on September
28, 2001 for $25.1 million in cash plus insignificant acquisition costs that
were expensed. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values. Certain intangible
assets have been identified and capitalized.





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##### Table of Contents



The following summarizes the accounting for the acquisition ($ in
thousands):

|                             |  |   |        |  
|---------------------------- |  | - | ------ | -
|Current and long-term assets |  | $ | 5,674  |  
|Intangibles                  |  |   | 11,100 |  
|Goodwill                     |  |   | 8,942  |  
|Liabilities assumed          |  |   | (594   | )
|                             |  |   |        |  
|Purchase price               |  | $ | 25,122 |  
|                             |  |   |        |  

Intangibles will be amortized over a weighted-average amortization period
of 7.5 years, and goodwill is expected to be fully deductible for tax purposes.

BSI-WS revenues were $4.2 million and $4.7 million for the periods January
1, to September 28, 2000 and 2001, respectively, and $1.4 million and $1.5
million for the period July 1, to September 28, 2000 and 2001, respectively.
Pro forma results from operations, pro forma net income and pro forma earnings
per share amounts that give effect to the acquisition as if it had occurred at
the beginning of the earliest period presented are not presented because
separate costs and expenses for BSI-WS were not prepared for those periods.

NOTE 3. EARNINGS PER SHARE

The following table sets forth the computation of earnings per
share-basic and diluted (in thousands, except share and per share amounts):

|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |            |           | 
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | -------------------------------- | ------ | ------------------ | --------- | ----------------- | ----- | ---------- | --------- | ---- | ------ | ---------- | --------- | - | ------ | ---------- | --------- | 
|                                                                                 |                                                                                                       |                                  |        | THREE MONTHS ENDED |           | NINE MONTHS ENDED
|                                                                                 |                                                                                                       |                                  |        | SEPTEMBER 30,      |           | SEPTEMBER 30,    
|                                                                                 |                                                                                                       |                                  |        |                    |           |                  
|                                                                                 |                                                                                                       |                                  |        | 2001               |           | 2000              |       | 2001       |           | 2000
|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |     
|Numerator:                                                                       |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           
|                                                                                 | Net income                                                                                            |                                  | $      | 10,943             |           |                   | $     | 9,946      |           |      | $      | 29,894     |           |   | $      | 21,476     |          
|                                                                                 | Accretion of redemption value and
cumulative dividends of Convertible
Redeemable Preferred Stock      |                                  |        |                   |           |                   |       |           |           |      |        |           |           |   |        | (404       | )        
|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           
|Numerator for earnings per share-basic 
Income available to common stockholders |                                                                                                       |                                  | 10,943 |                    |           | $                 | 9,946 |            |           |      | 29,894 |            |           | $ | 21,072 |           
|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           
|Denominator:                                                                     |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           
|                                                                                 | Denominator for earnings per share-basic 
weighted-average shares                                    |                                  |        | 32,615,277         |           |                   |       | 31,873,701 |           |      |        | 32,450,169 |           |   |        | 31,394,289 |          
|                                                                                 | Weighted-average effect of dilutive securities:                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |            |          
|                                                                                 |                                                                                                       | Stock options                    |        |                    | 1,454,852 |                   |       |            | 1,804,197 |      |        |            | 1,445,912 |   |        |            | 1,874,274 | 
|                                                                                 |                                                                                                       | Stock warrants                   |        |                    |          |                   |       |            |          |      |        |            |          |   |        |            | 275,056   | 
|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           
|                                                                                 |                                                                                                       | Dilutive potential common shares |        |                    | 1,454,852 |                   |       |            | 1,804,197 |      |        |            | 1,445,912 |   |        |            | 2,149,330 | 
|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           
|                                                                                 | Denominator for earnings per share-diluted
 adjusted weighted-average shares and
assumed conversions |                                  |        | 34,070,129         |           |                   |       | 33,677,898 |           |      |        | 33,896,081 |           |   |        | 33,543,619 |          
|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           
|Earnings per share  basic                                                       |                                                                                                       | $                                | 0.34   |                    |           | $                 | 0.31  |            |           | $    | 0.92   |            |           | $ | 0.67   |           
|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           
|Earnings per share  diluted                                                     |                                                                                                       | $                                | 0.32   |                    |           | $                 | 0.30  |            |           | $    | 0.88   |            |           | $ | 0.63   |           
|                                                                                 |                                                                                                       |                                  |        |                    |           |                   |       |            |           |      |        |            |           |   |        |           





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NOTE 4. MERGER BY VERISIGN

On September 24, 2001, the Company announced that it would be acquired by
VeriSign, Inc. Under the terms of the agreement, VeriSign will exchange 0.93
shares
or options of VeriSign stock for each outstanding share and option of the
Company.
Additionally, VeriSign required the Company to enter into a stock option
agreement
that grants VeriSign the right to buy shares of the Companys common stock
equal to 19.9% of shares of the Companys common stock outstanding on the date
of exercise at an exercise price of $35.62 per share. The option becomes
exercisable only upon the
occurrence of specified events. The amount of profit that VeriSign may realize
under
the option as a condition together with the termination fee is subject to a
profit
cap of $65.0 million.

The completion of the transaction is subject to Company shareholder and
regulatory approvals. The Company anticipates expensing significant costs for
investment banking, legal and accounting services in order to complete this
transaction. The Company anticipates completing the transaction by the end of
December 2001.




ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We operate the largest unaffiliated SS7 network in the United States and
are a
leading provider of complementary intelligent network and SS7 services to
telecommunications carriers. Connection to our network gives carriers access to
the
system of signaling networks of nearly the entire U.S. public-switched
telecommunications infrastructure through a single source.

SS7 is the industry standard used by almost every switched telephone
network
operator in the United States and Canada to identify available network routes
and
designate the circuits to be used for each individual telephone call. SS7
networks
also provide access to intelligent network services, such as caller
identification,
calling card validation, local number portability and other specialized
database
access functions, all of which are performed in the seconds it takes to
complete a
call. SS7 networks are specialized packet-switched data networks that provide
these
control functions and services in parallel with separate voice networks. Our
SS7
network is composed of specialized SS7 switches, sophisticated computers and
databases
strategically located across the country. These elements interconnect our
customers
and all of the largest U.S. telecommunications carriers through leased lines.
Our SS7
network serves incumbent local exchange carriers, competitive local exchange
carriers,
long distance companies, wireless telecommunications providers and Internet
service
providers. Overall, we provide services, including intelligent network services
and
wireless account management services to over 800 customers.

RECENT DEVELOPMENTS

We acquired BellSouth International Wireless Services, Inc. (BSI-WS) on
September 28, 2001 for $25.1 million in cash. BSI-WS is a domestic wireless
clearinghouse provider and also operates a roaming network that connects
wireless carriers in South, Central, and North America. The BSI-WS name will
change almost immediately to reflect its separation from BellSouth as full
integration of the new business proceeds.

On September 24, 2001, we announced that we would be acquired by
VeriSign, Inc. Under the terms of the agreement, VeriSign will exchange 0.93
shares
or options of VeriSign stock for each outstanding share and option of
the Company.
Additionally, VeriSign required us to enter into a stock option agreement





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##### Table of Contents



that grants VeriSign the right to buy shares of our common stock equal to 19.9%
of shares of our common stock outstanding on the date of exercise at an
exercise price of $35.62 per share. The option becomes exercisable only upon
the
occurrence of specified events. The amount of profit that VeriSign may realize
under
the option as a condition together with the termination fee is subject to a
profit
cap of $65.0 million. The completion of the transaction is subject to our
shareholder and regulatory approvals. We anticipate completing this transaction
by the end of December 2001, and expect to expense significant costs for
investment banking, legal and accounting services.

PRODUCTS AND SERVICES

Our products and services include:



| |  |  | network services, which includes (1) SS7 connectivity,
switching and the transport of messages used to route calls and query
databases, (2) intelligent network services, such as database access,
including local number portability and support for roaming between
carriers, and (3) wireless services, such as IS-41 signaling, prepaid
wireless account management and unregistered wireless roaming
services;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | clearinghouse services that facilitate payments among
telecommunications carriers; and                                                                                                                                                                                                                                                                                                                             
|
| |  |  | network usage software applications.                                                                                                                                                                                                                                                                                                                                                                               

Our SS7 network connectivity, switching and transport services provide
telecommunications carriers access to the signaling networks of nearly the
entire U.S.
public-switched telecommunications infrastructure through a single source. Once
connected, customers use our SS7 network to route and complete voice and data
transmissions and access related and complementary services and applications
available
from us or from third-party vendors. Once a customer is connected to our SS7
network,
we continue to provide support services to maintain and upgrade its connection
on a 24
hours a day, seven day a week basis.

Intelligent network services encompass a number of database query
functions,
including caller identification, toll-free calling, calling card validation,
local
number portability and seamless wireless roaming. Each of these services uses
our SS7
network to access databases, some maintained by us and others maintained by
third
parties.

Wireless services support domestic seamless wireless roaming using IS-41
signaling protocol. Prepaid wireless account management and unregistered
wireless roaming services include providing a prepaid wireless billing service
that charges and replenishes the customers personal prepaid account and
services that provide access to roaming for unregistered users which allows
such users to debit their personal prepaid account while roaming or use an
alternative payment method such as a credit card for calls without live
operator intervention. With the recent acquisition of BSI-WS, we will be
offering wireless operators seamless roaming throughout the Americas by
connecting 23 countries in South, Central and North America, as well as the
Caribbean, and we also provide wireless fraud management, SS7 monitoring, and
roamer clearinghouse services that allow for the settlement of charges between
carriers.

Our clearinghouse services include serving as a distribution and
collection point
for billing information and payment collection for services provided by one
carrier to
customers billed by another. For example, we receive a monthly report from a
long
distance carrier detailing the long distance calls made by the customers of
another
carrier. We prepare statements to each billing carrier of its customers usage,
which
the billing carrier then uses to bill its customers. The billing carrier remits
the





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##### Table of Contents



payments received from its customers to us. We aggregate these payments and
remit them
to the long distance carrier, net of our servicing fee. With the recent
acquisition of BSI-WS, we will be offering domestic and international wireless
carriers a clearing service that collects and aggregates billing data for
roaming services provided by a carrier to wireless subscribers of another
carrier. The carriers net financial position is forwarded to a third-party
financial settlement service provider who is responsible for collecting and
paying amounts due between the respective carriers.

Network usage software applications are commercial applications derived
primarily
from software we developed to create billing data for the use of our SS7
network and
services. This software is licensed to carriers and allows them to create
billing data
to bill another carrier for use of their signaling network or their underlying
public-switched telecommunications network.

REVENUES

Our revenues primarily come from the sale of network services, including
SS7
connectivity, switching and transport, the provision of intelligent network
services,
and the provision of prepaid wireless account management and unregistered
roaming
services. To a much lesser extent, we derive revenues from our clearinghouse
services
and network usage software applications.

Customers generally are charged for connections to our SS7 network on a
monthly
per link basis. If we provision the network facilities that provide their
connections to our network, they pay us for establishing the initial
connections that
link them to our network and pay a separate monthly fee to maintain those
links. We
generally price these connectivity links on a cost-plus basis based on our
facility
lease costs. In addition, customers are charged on a monthly recurring flat-fee
basis
for network signaling route sets based on the number of switches to which they
signal.

Our intelligent network services are delivered through our SS7 network and
a
substantial majority of our customers purchase both SS7 network connections and
intelligent network services. Our intelligent network services fall into two
general
categories: database administration and database query services. In addition to
paying
monthly fees for SS7 connectivity, our customers pay a per-use or per-query fee
for
database services. For example, we price local number portability service order
administration on a per-ported number basis, and obtain volume-based revenue
for
accessing the local number portability database on a per-query basis.

Our wireless roaming services are delivered domestically through our SS7
network, and internationally through the Americas via the recently acquired
BSI-WS network. Our revenues are earned from initial set-up fees, flat monthly
charges and monthly transaction based usage fees that are subject to
contractual minimum charges.

Our prepaid wireless account management services revenues are based on
either a
per minute basis, where we make a percentage of every minute paid for and used,
or on
a percentage of monthly access fees regardless of usage. The unregistered
wireless
roaming service revenue is based on the number of completed calls times a rate
per
call plus a per minute rate for call duration, net of carrier charges.

Clearinghouse services are provided on a per message billed basis. Our
revenues
vary based on the number of messages provided to us by telecommunications
companies
and other message providers for aggregation and distribution by us to the
carrier who
will bill to and collect from its customers. Clearinghouse services are
relatively
mature, are showing a decline in the number of messages processed, and are
experiencing competitive pricing pressures. Our recently acquired wireless
clearing services are provided on a per message processed basis and are
expected to increase over the historical levels experienced by BSI-WS with the
addition of a 4 1/2 year,





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##### Table of Contents



contract with Cingular Wireless that was signed shortly before our acquisition
of BSI-WS.

Revenues from network usage software applications are derived from
licenses of
our software products and continuing software maintenance fees. These products
have a
long sales cycle, with each individual license normally contributing
significant
revenue to the product line. Therefore, these revenues may change significantly
from
period to period. However, new sales opportunities for these products in their
current
form are limited, as many of the customers in the top tier market, consisting
primarily of regional Bell operating companies, have already licensed our
product.

EXPENSES

Our costs and expenses, which we do not attribute directly to individual
product
lines, consist generally of the following:



| |  |  | Carrier costs for our SS7 and IP-based networks, which include
recurring payments to telecommunications carriers for leased lines and
signal transfer point ports. These lines and ports provide connections
(1) between our customers and our network, (2) among our own network
locations and (3) between our network and nearly all other SS7 networks
in the United States. Cost of links and ports to our customers is
variable, relating directly to the number of links and ports we provide
to our customers. Cost of links and ports among our own network
locations and to other SS7 networks is primarily fixed. We generally
lease lines and ports under tariffs with volume discounts;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Operating expenses, which include the cost of providing network
services, clearinghouse services and network usage software
applications. Such costs primarily include personnel costs and hardware
and software maintenance costs to monitor and maintain our network 24
hours a day, seven days a week, maintain and operate our databases,
process our clearinghouse messages, and develop and maintain our network
usage software applications;                                                                                                                                                                                                                                                
|
| |  |  | Selling, general and administrative, which consist primarily of
executive, sales and marketing and administrative personnel and
professional services expense; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | Depreciation and amortization, which relate primarily to our
installed network equipment, our computer hardware and software, our
corporate facilities and our network usage software applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

RESULTS OF OPERATIONS

The table below indicates the results of our operations expressed as a
percentage of total revenues. The historical results are not necessarily
indicative of
results to be expected for any future period.

|          |                                     |                |  |                    |     |                   |  |      |     |      |  |    |     |  |  |    |     | 
|--------- | ----------------------------------- | -------------- |  | ------------------ | --- | ----------------- |  | ---- | --- | ---- |  | -- | --- |  |  | -- | --- | 
|          |                                     |                |  | THREE MONTHS ENDED |     | NINE MONTHS ENDED
|          |                                     |                |  | SEPTEMBER 30,      |     | SEPTEMBER 30,    
|          |                                     |                |  |                    |     |                  
|          |                                     |                |  | 2001               |     | 2000              |  | 2001 |     | 2000
|          |                                     |                |  |                    |     |                   |  |      |     |     
|Revenues: |                                     |                |  |                    |     |                   |  |      |     |      |  |    |     |  |  |   
|          | Network services                    |                |  | 97                 | %   |                   |  | 89   | %   |      |  | 97 | %   |  |  | 93 | %  
|          | Clearinghouse services              |                |  | 2                  |     |                   |  | 4    |     |      |  | 3  |     |  |  | 4  |    
|          | Network usage software applications |                |  | 1                  |     |                   |  | 7    |     |      |  |   |     |  |  | 3  |    
|          |                                     |                |  |                    |     |                   |  |      |     |      |  |    |     |  |  |   
|          |                                     | Total revenues |  |                    | 100 |                   |  |      | 100 |      |  |    | 100 |  |  |    | 100 | 
|Expenses: |                                     |                |  |                    |     |                   |  |      |     |      |  |    |     |  |  |   
|          | Carrier costs                       |                |  | 17                 |     |                   |  | 16   |     |      |  | 17 |     |  |  | 18 |    
|          | Operating                           |                |  | 26                 |     |                   |  | 26   |     |      |  | 26 |     |  |  | 26 |    





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##### Table of Contents



|                           |                                     |                |    |                    |    |                   |    |      |    |      |    |    |    |  |    |    |    | 
|-------------------------- | ----------------------------------- | -------------- | -- | ------------------ | -- | ----------------- | -- | ---- | -- | ---- | -- | -- | -- |  | -- | -- | -- | 
|                           |                                     |                |    | THREE MONTHS ENDED |    | NINE MONTHS ENDED
|                           |                                     |                |    | SEPTEMBER 30,      |    | SEPTEMBER 30,    
|                           |                                     |                |    |                    |    |                  
|                           |                                     |                |    | 2001               |    | 2000              |    | 2001 |    | 2000
|                           |                                     |                |    |                    |    |                   |    |      |    |     
|                           | Selling, general and administrative |                |    | 15                 |    |                   |    | 14   |    |      |    | 16 |    |  |    | 14 |   
|                           | Depreciation and amortization       |                |    | 9                  |    |                   |    | 10   |    |      |    | 10 |    |  |    | 10 |   
|                           | Merger costs                        |                |    | 3                  |    |                   |    |     |    |      |    | 1  |    |  |    | 3  |   
|                           |                                     |                |    |                    |    |                   |    |      |    |      |    |    |    |  |    |   
|                           |                                     | Total expenses |    |                    | 70 |                   |    |      | 66 |      |    |    | 70 |  |    |    | 71 | 
|                           |                                     |                |    |                    |    |                   |    |      |    |      |    |    |    |  |    |   
|Operating income           |                                     |                | 30 |                    |    |                   | 34 |      |    |      | 30 |    |    |  | 29 |   
|Interest income            |                                     |                | 3  |                    |    |                   | 5  |      |    |      | 4  |    |    |  | 5  |   
|Interest expense           |                                     |                |   |                    |    |                   | (1 | )    |    |      | (1 | )  |    |  | (1 | ) 
|                           |                                     |                |    |                    |    |                   |    |      |    |      |    |    |    |  |    |   
|Income before income taxes |                                     |                | 33 |                    |    |                   | 38 |      |    |      | 33 |    |    |  | 33 |   
|Income tax provision       |                                     |                | 12 |                    |    |                   | 14 |      |    |      | 12 |    |    |  | 14 |   
|                           |                                     |                |    |                    |    |                   |    |      |    |      |    |    |    |  |    |   
|Net income                 |                                     |                | 21 | %                  |    |                   | 24 | %    |    |      | 21 | %  |    |  | 19 | % 
|                           |                                     |                |    |                    |    |                   |    |      |    |      |    |    |    |  |    |   





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THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE
MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000

REVENUES

Network services. Network services revenues, comprised of revenues from
network
connectivity which includes message switching and transport, intelligent
network
services, and wireless services, increased by $13.6 million, or 37%, to $50.7
million
for the three months ended September 30, 2001 from $37.1 million for the same
period
in 2000, and by $35.0 million, or 34%, to $139.3 million for the nine months
ended
September 30, 2001 from $104.3 million for the same period in 2000. These
increases
were due to increased customer connections and signaling across our network,
substantial growth in queries processed in the caller identification or calling
name
delivery and toll-free databases, and the continued nationwide rollout of local
number
portability.

Network connectivity revenues increased by $4.5 million, or 37%, to $16.5
million
for the three months ended September 30, 2001 from $12.0 million for the same
period
in 2000, and by $10.3 million, or 28%, to $46.6 million for the nine months
ended
September 30, 2001 from $36.3 million for the same period in 2000. Intelligent
network
services revenues increased by $7.6 million, or 45%, to $24.6 million for the
three
months ended September 30, 2001 from $17.0 million for the same period in 2000,
and by
$19.6 million, or 44%, to $64.3 million for the nine months ended September 30,
2001
from $44.7 million for the same period in 2000. These increases reflect the
overall
growth in our customer base and higher caller information services volume as we
obtained access to additional caller information maintained in third-party
databases.
The remainder of these increases was due to continued growth in local number
portability. Wireless services revenues increased by $1.6 million, or 19%, to
$9.6
million for the three months ended September 30, 2001 from $8.0 million for the
same
period in 2000, and by $5.1 million, or 22%, to $28.4 million for the nine
months
ended September 30, 2001 from $23.3 million for the same period in 2000 due to
growth
in IS-41 messaging.

Clearinghouse services. Clearinghouse services revenues decreased by $0.2
million, or 11%, to $1.3 million for the three months ended September 30, 2001
from
$1.5 million for the same period in 2000, and by $0.4 million, or 9%, to $3.8
million
for the nine months ended September 30, 2001 from $4.2 million for the same
period in
2000.

Network usage software applications. Network usage software applications
revenues
decreased by $2.8 million, or 90%, to $0.3 million for the three months ended
September 30, 2001 from $3.1 million for the same period in 2000, and by $3.0
million,
or 78%, to $0.9 million for the nine months ended September 30, 2001 from $3.9
million
for the same period in 2000. Revenues for the three months ended September 30,
2001 were primarily made up of recurring maintenance revenue while revenues for
the three months ended September 30, 2000 included approximately $2.8 million
of licensing revenues.

EXPENSES

Carrier costs. Carrier costs increased by $1.9 million, or 28%, to $8.7
million
for the three months ended September 30, 2001 from $6.8 million for the same
period in
2000, and by $5.0 million, or 25%, to $25.1 million for the nine months ended
September 30, 2001 from $20.1 million for the same period in 2000. Carrier
costs
increased due to increased customer connections to our network and are related
to our
growth in network connectivity revenue.

Operating. Operating expenses increased by $2.7 million, or 25%, to $13.4
million
for the three months ended September 30, 2001 from $10.7 million for the same period





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in 2000, and by $7.8 million, or 27%, to $37.3 million for the nine months
ended
September 30, 2001 from $29.5 million for the same period in 2000. These
increases
resulted mainly from product development and deployment expenses and expenses
related
to an upgrade of our internal computer network.

Selling, general and administrative. Selling, general and administrative
expenses
increased by $2.4 million, or 41%, to $8.1 million for the three months ended
September 30, 2001 from $5.7 million for the same period in 2000, and by $6.5
million,
or 42%, to $22.2 million for the nine months ended September 30, 2001 from
$15.7
million for the same period in 2000. These increases were primarily due to bad
debt
reserves of $1.9 million in the third quarter of 2001, in addition to reserves
of $2.1
million recorded for the six months ended June 30, 2001.

Depreciation and amortization. Depreciation and amortization expenses
increased
by $0.9 million, or 22%, to $5.0 million for the three months ended September
30, 2001
from $4.1 million for the same period in 2000, and by $3.3 million, or 29%, to
$14.8
million for the nine months ended September 30, 2001 from $11.5 million for the
same
period in 2000. These increases reflect the significant investment made in the
last
two years for network monitoring and data collection hardware and software,
intelligent network services, and signal transfer point switches.

Merger costs. Merger costs were $1.5 million for the three and nine months
ended September 30, 2001, representing a decrease of $1.9 million, or 57%, from
$3.4 million for the same nine-month period in 2000. Expenses recorded for the
three months and nine months ended September 30, 2001 primarily reflect
VeriSign transaction costs while costs recorded in 2000 reflect the direct
expenses associated with the NTC transaction.

Interest income. Interest income decreased by $0.3 million, to $1.6
million for
the three months ended September 30, 2001 from $1.9 million for the same period
in
2000, and by $0.4 million, to $5.2 million for the nine months ended September
30,
2001 from $5.6 million for the same period in 2000. The decrease reflects the
recent
decline in interest rates.

Interest expense. Interest expense decreased by $0.1 million, to $0.2
million for
the three months ended September 30, 2001 from $0.3 million for the same period
in
2000, and by $0.4 million, to $0.6 million for the nine months ended September
30,
2001 from $1.0 million for the same period in 2000. The decrease primarily
reflects lower interest rates on our floating-rate debt and the extinguishment
of debt related to the NTC transaction in June 2000.

Income taxes. Income tax expense increased by $0.2 million, to $6.2
million, an
effective tax rate of 36%, for the three months ended September 30, 2001 from
$6.0
million, an effective tax rate of 38%, for the same period in 2000, and by $2.5
million, to $17.8 million, an effective tax rate of 37%, for the nine months
ended
September 30, 2001 from $15.3 million, an effective tax rate of 42%, for the
same
period in 2000. These increases were driven by our increase in income. For the
three
months and nine months ended September 30, 2000, our effective tax rate was
higher
than expected due to the non-deductibility of certain expenses related to the
NTC
transaction. During the three months ended September 30, 2001 a detailed study
determined that a greater portion of the NTC acquisition expenses were
deductible based on recent case law and were recorded as a reduction in tax
expense
during the three months ended September 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

We rely on a combination of cash generated from operations, commercial
borrowings, vendor financing and the issuance of equity securities to fund our
operations and capital needs. Currently, our operating activities generate
positive





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and increasing cash flows reflecting our overall growth in revenue combined
with the
leveraging of our network and cost infrastructure. We anticipate continued high
levels
of investment in our infrastructure over the next several years to manage
increased
network volumes, to enhance customer support systems and to continue to improve
network and service reliability. Additionally, we anticipate continued
investments in
the development and acquisition of new services and products related to our
network,
database and clearinghouse services in order to address changing markets and
customer
needs.

Our working capital (current assets in excess of current liabilities) was
$119.6
million at September 30, 2001. The decrease in working capital of $4.7 million
from
$124.3 million at December 31, 2000, reflects the purchase of BSI-WS for $25.1
million
offset by our positive net operating cash flows and overall business growth.

Our property and
equipment acquisitions were $30.6 million for the nine
months
ended September 30, 2001. Expenditures for property and equipment were
primarily for
network equipment to expand capacity and enhance reliability, including network
monitoring equipment, assets to support expansion of existing products and new
products under development, and corporate infrastructure.

Effective June 1, 2000, we entered into an agreement with Bank of America
to
provide a $10.0 million unsecured line of credit and a $15.0 million unsecured
capital
expenditure facility. The line of credit has a two-year term, with a one-year
extension available at the end of the second year. The capital expenditure
facility
has a five-year term. No draws were taken on the unsecured line and $0.8
million was
outstanding on the capital expenditure facility at September 30, 2001. The line
of
credit and capital expenditure facilities replaced unused loan facilities from
the
Rural Telephone Finance Cooperative (RTFC). RTFC released its lien on all
assets
except for a first trust deed on our building and land located in Lacey,
Washington.
Long-term secured notes to RTFC were $5.4 million at September 30, 2001 with
various
maturity dates including September 2010 and March 2015.

We believe that our existing cash balances, funds generated from our
operations,
and borrowings available under our existing credit agreements will be
sufficient to
meet our anticipated capital expenditure and working capital needs for the
foreseeable
future. However, acquisitions of complementary businesses or technologies may
require
significant capital beyond our current expectations, which would require us to
issue
additional equity securities and/or incur additional long-term debt.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board (FASB) issued two
new
pronouncements: Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets.
SFAS 141 prohibits the use of the pooling-of-interest method for business
combinations
initiated after June 30, 2001 and also applies to all business combinations
accounted
for by the purchase method that are completed after June 30, 2001. There are
also
transition provisions that apply to business combinations completed before July
1,
2001, that were accounted for by the purchase method. SFAS 142 is effective for
fiscal
years beginning after December 15, 2001 for all goodwill and other intangible
assets
recognized in an entitys statement of financial position at that date,
regardless of
when those assets were initially recognized.

In October 2001, FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, that replaces SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS No. 144 requires that long-lived assets be measured at the lower of
carrying amount or fair-value less cost to sell, whether reported in continuing
operations or as discontinued operations, to include all components of an
entity with operations that





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can be distinguished from the rest of the entity and that will be eliminated
from the ongoing operations of the entity in a disposal transaction. The
provisions of SFAS 144 are effective for financial statements issued for fiscal
years beginning after December 15, 2001.

The Company does not expect the adoption of these standards to have a
material
effect on its consolidated financial statements.

FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this document, including the
section
entitled Managements Discussion and Analysis of Financial Condition and
Results of
Operations, based on our beliefs and assumptions and on information currently
available to management. Forward-looking statements include the information
concerning
our possible or expected future results of operations, business strategies,
financing
plans, competitive position, potential growth opportunities and the effects of
competition. Forward-looking statements include all statements that are not
historical
facts and can be identified by the use of forward-looking terms such as the
words
believes, expects, anticipates, intends, plans, estimates or
similar
expressions.

Forward-looking statements involve risks, uncertainties and assumptions.
You
should understand that there are certain important factors that could cause
actual
results to differ materially from those anticipated by the forward-looking
statements,
including but not limited to the following:



| |  |  | Our ability to provide reliable services;                                                                                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Continued acceptance of new services in the industry;                                                                                                                       
|
| |  |  | Changes in trends of subscribers acceptance and use of our
services that are offered through our carrier customers;                                                        
|
| |  |  | The impact of any network outages;                                                                                                                                          
|
| |  |  | The ability of third party communications infrastructure
suppliers to maintain operational integrity of our connections and to
continue to provide and expand service to us;
|
| |  |  | Our ability to effectively and cost efficiently acquire and
integrate complimentary businesses and technologies;                                                            
|
| |  |  | Continued acceptance of our SS7 network and the
telecommunications markets continuing use of SS7 technology;                                                               
|
| |  |  | Our ability to attract and retain employees with requisite
skills to execute our growth plans; and                                                                          
|
| |  |  | Intense competition in the market for SS7 services and pricing
pressures caused by competition and industry consolidation.                                                  

For additional discussion of the principal factors that may cause actual
results
to be different, please refer to our Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 9, 2001. You should not put undue
reliance
on any forward-looking statements. We will not update forward-looking
statements.




ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





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Our market risks relate primarily to changes in interest rates. We are
exposed to
this risk in two specific ways. First, we have debt outstanding. Our secured
notes
payable to RTFC, which were $5.4 million at September 30, 2001 and $6.0 million
at
December 31, 2000, have a variable interest rate, which exposes our income
statement
and cash flows to changes in interest rates. The rate of these secured notes is
based
on the lenders cost of funds. We also have a $10.0 million unsecured line of
credit
and a $15.0 million unsecured capital expenditure facility with Bank of America
with a
variable interest rate based on LIBOR. At September 30, 2001 and December 31,
2000,
$0.8 million was outstanding on the unsecured capital expenditure facility. If
market
interest rates were to increase immediately and uniformly by 10% from levels at
September 30, 2001, our net income and cash flows would decrease by an
immaterial
amount.

The second component of interest rate risk involves the short-term
investment of
excess cash and available-for-sale securities. Such risk affects fair values,
earnings
and cash flows. Excess cash is primarily invested in overnight repurchase
agreements
backed by U.S. government securities. These are considered to be cash
equivalents and
are shown that way on our balance sheet. Earnings from the overnight investment
of
idle cash totaled $1.1 million for the nine months ended September 30, 2001
(2001)
and $1.6 million for the year ended December 31, 2000 (2000). Additionally,
we have
investments in commercial paper providing total earnings of $3.3 million in
2001 and
$5.2 million in 2000. Some of these commercial paper investments are considered
to be
cash equivalents with the remainder classified as available-for-sale
securities,
depending on investment maturity dates. If market interest rates were to
decrease
immediately and uniformly by 10% from levels at September 30, 2001, our net
income and
cash flows would decrease by an immaterial amount.




PART II
OTHER INFORMATION




ITEM 1: LEGAL PROCEEDINGS

We are a party to various legal proceedings arising in the ordinary course
of
business. We do not believe that those claims, individually or combined, will
have a
material adverse effect on our business, financial condition or operating
results.




ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS



| | (a) |  | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (c) |  | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (d) |  | We expect to use the net offering proceeds from our October 1999
initial
public offering, Registration Statement No. 333-85779, effective October
7,
1999, to fund potential acquisitions, to develop new and improved
services,
to maintain and expand our network and for general corporate purposes. To
date, we have used net proceeds from the initial public offering to
purchase
$20.9 million of network equipment to expand and improve our SS7 network,
$13.1 million to develop new services,$4.9 million to retire NTC debt in
connection with the NTC transaction, and $25.1 million to acquire BSI-WS.




ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.




ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





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No matter was submitted to a vote of security holders during the third
quarter of 2001.




ITEM 5: OTHER INFORMATION

None.




ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K
|--- |  | -----------------------------------------------------------

4.1 Certificate and Amendment to Rights Agreement

10.1 Agreement and Plan of Merger by and among VeriSign, Inc., Illinois
Acquisition Corporation and the registrant dated September 23, 2001
(incorporated by reference from Annex A to the registrants definitive proxy
statement filed October 30, 2001).



|(b) |  | REPORTS ON FORM 8-K
|--- |  | -------------------

On September 24, 2001, we filed a report on Form 8-K to announce that we
would
be acquired by VeriSign, Inc.

On August 28, 2001, we filed a report on Form 8-K to announce a definitive
agreement to acquire BellSouth International Wireless Services, Inc., a
subsidiary of BellSouth Corporation, Inc.

On July 19, 2001 we filed a report on Form 8-K (with respect to Item 5
information only) reporting second quarter results.





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                        |                                                                                                  |                    
|----------------------- | ------------------------------------------------------------------------------------------------ | -------------------
|                        | ILLUMINET HOLDINGS, INC.                                                                        
|                       
|Date: November 14, 2001 | By:                                                                                              | /s/ Daniel E. Weiss
|                        |                                                                                                 
|                        | Daniel E. Weiss,
Chief Financial Officer, Secretary
(Principal Financial and Accounting Officer)





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ILLUMINET HOLDINGS, INC.




EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                       
|NUMBER  |  | DOCUMENT DESCRIPTION                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                       
|4.1     |  | Certificate and Amendment to Rights Agreement                                                                                                                                                                                                         
|10.1    |  | Agreement and Plan of Merger by and among VeriSign, Inc.,
Illinois Acquisition Corporation and the registrant dated
September 23, 2001
(incorporated by reference from Annex A to the registrants
definitive proxy statement filed October 30, 2001).

E-1