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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K
                            ------------------------

(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

                         COMMISSION FILE NUMBER 0-27555
                            ------------------------

                            ILLUMINET HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      36-4042177
         (STATE OR OTHER JURISDICTION                         (I.R.S. EMPLOYER
      OF INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)

     4501 INTELCO LOOP, LACEY, WASHINGTON                          98503
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                       (ZIP CODE)
</TABLE>

                                 (360) 493-6000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

      Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                         COMMON STOCK, $0.01 PAR VALUE
                                (TITLE OF CLASS)

     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 preceding 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 [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     Based on the closing price on January 31, 2000 of $50.38 per share, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was $225,294,322 for Common Stock and an aggregate of $1,097,165,564
when giving effect to the April 5, 2000 conversion of Class A Common Stock.

     At January 31, 2000, 4,485,000 shares of Common Stock, $0.01 par value per
share, and 6,344,134 shares of Class A Common Stock, $0.01 par value per share
were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     PART III, Items 10, 11, 12 and 13 are incorporated by reference from the
Illuminet Holdings, Inc. Proxy Statement related to the Annual Meeting of
Stockholders to be held on May 5, 2000.

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                            ILLUMINET HOLDINGS, INC.

                                   FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1999

                                     INDEX

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                                    PART I
Item 1.    Business....................................................    3
Item 2.    Properties..................................................   17
Item 3.    Legal Proceedings...........................................   17
Item 4.    Submission of Matters to a Vote of Security Holders.........   17

                                    PART II
Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters.........................................   18
Item 6.    Selected Consolidated Financial Data........................   19
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................   21
Item 7A.   Quantitative and Qualitative Disclosures About Market
           Risk........................................................   27
Item 8.    Financial Statements and Supplementary Data.................   27
Item 9.    Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure....................................   27

                                   PART III
Item 10.   Directors and Executive Officers of the Registrant..........   28
Item 11.   Executive Compensation......................................   28
Item 12.   Security Ownership of Certain Beneficial Owners and
           Management..................................................   28
Item 13.   Certain Relationships and Related Transactions..............   28

                                  PART IV
Item 14.   Exhibits, Financial Statement Schedules and Reports on Form
           8-K.........................................................   28
Signatures.............................................................   29
Index to Consolidated Financial Statements and Supplementary Data......  F-1
Exhibit Index..........................................................  E-1
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                                     PART I

ITEM 1:  BUSINESS

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 management's beliefs and assumptions
and on information currently available to our management. Forward-looking
statements include the information concerning our possible or assumed 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.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. We will not update forward-looking statements.

     You should understand that many important factors could cause our results
to differ materially from those expressed in forward-looking statements. These
factors include our competitive environment, economic and other conditions in
the markets in which we operate, changes in or developments under laws,
regulations, licensing requirements or telecommunications standards, and
cyclical and seasonal fluctuations in our operating results. All written and
oral forward-looking statements made in connection with this Form 10-K which are
attributable to Illuminet or persons acting on its behalf are expressly
qualified in their entirety by "Risks and Uncertainties" and other cautionary
statements and disclosures regarding our business included herein.

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. The provision of SS7
network services is our primary focus and we are not affiliated with any
telecommunications carrier.

     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 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.

     Through our SS7 network, we provide:

     - SS7 connectivity, switching and transport; and

     - intelligent network services, including local number portability and
       support for roaming between wireless carriers and various other
       specialized database services.

     Also, we serve the telecommunications industry with:

     - clearinghouse services to facilitate payment among telecommunications
       carriers; and

     - network usage software applications.

     Our 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 network serves more than 700 network
customers, including incumbent local exchange carriers, competitive local
exchange carriers, long distance companies, wireless telecommunications
providers and Internet service providers.

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     Our SS7 network today consists of 12 mated pairs of SS7 signal transfer
points, which are specialized switches that manage SS7 signaling, and into which
our customers connect via leased lines. We own four pairs and lease capacity on
eight pairs of SS7 signal transfer points from regional partners. The
combination of these regional partner signaling transfer points with our own
provides us with one of the most extensive inter-carrier SS7 networks in the
United States.

COMPETITIVE STRENGTHS

     Our competitive strengths include:

     - Cost-effective access to SS7 network and intelligent network services. We
       provide our customers cost-effective connectivity to the signaling
       networks of nearly the entire U.S. public-switched telecommunications
       infrastructure and an array of network-enabled services through a single
       source. We believe most of our customers choose not to build in-house SS7
       networks due to the significant capital and technical expertise required
       to install and manage necessary SS7 connections with the largest U.S.
       telecommunications carriers.

     - Established relationships with numerous telecommunications carriers. We
       have established relationships with AT&T, MCI WorldCom, Sprint, all of
       the regional Bell operating companies, most major competitive local
       exchange carriers and a significant number of wireless operators,
       independent telephone companies and interexchange carriers. These
       relationships provide us with the opportunity to sell additional services
       to a broad base of customers while limiting our dependence on any single
       customer. We believe that the need for such broad relationships poses a
       significant barrier to entry for other potential SS7 service providers.

     - Extensive experience in offering critical SS7 services. SS7 signaling is
       an advanced technology that is essential in providing telecommunications
       services and presents significant operating complexities. Unlike many of
       our competitors, we are primarily focused on providing SS7 network access
       and intelligent network services. We have extensive experience in
       providing these services and have been recognized through awards for our
       industry expertise. We believe that a broad array of high quality
       carriers use our services primarily due to our singular focus on
       providing SS7 connectivity and intelligent network services, as well as
       our recognized superior technical expertise. In addition, we believe that
       our customers would be reluctant to outsource this critical function to
       other less established SS7 service providers or to attempt to manage
       these functions in-house.

     - Independence and neutrality in the telecommunications marketplace. As the
       largest non-carrier affiliated SS7 network provider, we have fostered
       business relationships with existing and emerging carriers, both wireline
       and wireless, and do not compete with them in providing services to their
       residential and business customers. Our customers consider the subscriber
       information we manage for them to be sensitive and do not openly share it
       with competitors. We believe that our independence and neutrality
       significantly enhance our attractiveness to the entire industry as a
       provider of outsourced SS7 services.

     - Proven business model that generates profitable and recurring revenue
       streams. Our network provides us with a profitable base of recurring
       service revenue, while serving as an established platform for additional
       growth through the delivery of new and enhanced services. The investment
       we have made in our network provides a base from which to add additional
       customers. Additionally, we believe that the costs incurred by a carrier
       in moving to a competitor's SS7 network are relatively high, further
       strengthening the stability of our revenue base.

     - Positioned to be the SS7 service provider of choice to Internet
       protocol-based carriers. As one of the largest providers of outsourced
       SS7 and intelligent network services in the United States, we are
       strategically positioned to provide those services to emerging Internet
       protocol-based carriers who must access existing public-switched
       telecommunications networks to serve their rapidly growing customer
       bases. Emerging packet-based carriers need access to the signaling-based
       services that are used by traditional circuit-based telecommunications
       providers. By working with manufacturers, such as Cisco

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       and Lucent, to certify the operation of their equipment with our network,
       we have positioned ourselves to provide these signaling-based services to
       these new communications providers. Our SS7 expertise also allows us to
       offer services to Internet service providers who choose to use SS7-based
       signaling to offer more efficient and cost-effective service to their
       customers.

GROWTH STRATEGY

     Our growth strategy consists of the following key elements:

     - Broaden our customer base by targeting emerging carriers. We intend to
       continue to aggressively grow our customer base by targeting new
       telecommunications carriers as they enter the market. These carriers
       include competitive local exchange carriers, integrated communications
       providers, wireless carriers and Internet service providers. We expect
       continued growth in the number of telecommunications providers entering
       the market. We believe we will be the SS7 service provider of choice to
       these emerging entrants who are unlikely to risk outsourcing their
       critical SS7 services to one of their competitors.

     - Provide new services to help differentiate our customers from their
       competitors. The competitive nature of the telecommunications industry
       requires providers to offer enhanced services to maintain existing or
       attract new customers. Many of these enhanced services are implemented
       through the SS7-based intelligent network. In addition to our standard
       services, we intend to capitalize on the scalability of our network by
       developing new and enhanced services and applications that will enable
       our customers to broaden their service offerings and improve their market
       position.

     - Utilize our network usage measurement capabilities to generate additional
       revenue. We will seek to use our proprietary network usage software
       applications and related expertise to develop services to monitor usage
       of customers' networks and capture usage pattern data. The hardware and
       software investments we have made to capture data elements contained in
       SS7 signaling messages give us the ability to gather valuable information
       about telephone calls facilitated by our network. In many cases, we can
       obtain more information about calling patterns and interactions with
       other networks from our network than any single carrier can on its own.
       We believe this data can be used to enhance the billing and network
       management capabilities of our customers, allowing them to gain
       additional revenue and more efficiently operate their networks. This data
       can also be used to help our customers develop targeted marketing plans.

     - Become the preferred provider of SS7-based services to emerging Internet
       protocol-based carriers. We believe that providing carrier-class
       intelligent network capabilities is one of the biggest challenges facing
       emerging Internet protocol-based carriers. We have worked with hardware
       providers, including Cisco and Lucent, to certify new SS7-related
       equipment for emerging Internet protocol-based carriers. Our core
       competencies of database management and signaling-based communications
       position us well to offer services similar to our existing offerings in
       an Internet protocol-based network. As one of our initial steps in
       developing services for these Internet protocol-based network providers,
       we offer signaling capabilities to Internet service providers that help
       them to improve service quality by reducing congestion on their networks
       while lowering their costs. We intend to continue positioning ourselves
       to provide intelligent network capabilities using emerging Internet
       protocol-based technologies.

     - Strengthen our market presence through select acquisitions. We will
       actively seek to acquire companies that possess complementary service
       offerings. Companies that have developed signaling-based services or
       services that can be improved through the use of SS7-based signaling can
       provide us incremental revenues and net income. Additionally, we may seek
       to acquire companies that have developed telecommunication-related
       services that will enable our customers to expand their service and
       product offerings and to differentiate themselves from their competitors.
       Through select acquisitions, we believe we can combine new, complementary
       services with our existing product line and extensive network. This will
       increase our market reach and allow us to quickly broaden our service
       portfolio.
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ANATOMY OF THE SS7 NETWORK

     A telephone call involves two types of information: the call content
(voice, computer data or video) and the signaling information about the call
(such as the party initiating the call and the number being called). This
signaling information is required to connect, manage and bill for the call.
Therefore, modern telecommunication networks not only must convey information
between points, but also must identify the best routes for connections, control
the allocation of resources used to transfer the information and keep
transaction records for billing and measurement purposes.

     The call transmission portion of the U.S. public-switched
telecommunications network starts with switches located in the offices of local
and long distance service providers. These switches gather traffic from homes
and businesses over local loops and direct it over trunks through the mesh of
different carriers' networks across the country and around the world. Finally,
the traffic is passed onto a local loop for termination at the distant end.

     The SS7 network directs calls through carriers' networks and provides
advanced functions such as completing toll-free calls, identifying calling party
name and tracking telephone numbers transferred between local telephone
companies. SS7 is a standardized set of protocols and architecture that has been
implemented by telecommunications carriers worldwide beginning in the mid-1980s.
SS7 uses packet-switching technology and transmits signaling messages on data
circuits that are independent of the call circuits it controls. Because SS7
messages travel on discrete circuits, SS7 is often referred to as "out-of-band"
signaling. SS7 networks are designed to be reliable, flexible and scalable and
have high capacity, enabling telecommunications carriers to provide new services
quickly and to optimize the network bandwidth used for trunk connections.

     Whenever a call originates in a phone network with intelligent network
services, a message signal unit is generated by the originating switch and sent
to the proper destination switch over the SS7 network. All signaling used for
establishing a call, disconnecting a call, database query and response and SS7
network management is carried by these message signal units. As the message
signal unit is routed by the signaling system, the appropriate switches in the
local and, if necessary, long distance telephone networks reserve the circuits
needed to complete the telephone call. Finally, the message signal unit reaches
the destination switch and the destination switch processes the dialed number
stored in the message signal unit to connect the call to the dialed party.

     The SS7 network consists of three basic network and software components:

     Service Switching Points: "SS7-enabled voice switches." Service switching
points are carriers' voice switches (for example, a Lucent 5ESS switch) that use
SS7 technology. In addition to originating, terminating and switching calls,
service switching points exchange messages with other service switching points,
signal transfer points and service control points throughout the network.

     Signal Transfer Points: "data switches for SS7 traffic." Signal transfer
points are packet switches that provide access to the SS7 network and route SS7
messages among service switching points and service control points. These are
the traffic controllers of the SS7 network. Signal transfer points typically
consist of highly reliable computers running special software.

     Service Control Points: "intelligent SS7 databases." Service control points
are computers that house databases containing customer and network information.
This information is used by the SS7 network for call routing, billing and
intelligent network database services.

PRODUCTS AND SERVICES

     The majority of our products and services is directly related to our SS7
network, as either part of the connectivity, switching and transport function of
the SS7 network or as intelligent network services delivered over our SS7
network. In addition, we provide clearinghouse services and license specially
designed software for measuring network usage.

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NETWORK SERVICES -- CONNECTIVITY, SWITCHING AND TRANSPORT

     Our network services provide carriers with:

     - connectivity to SS7 networks throughout the United States via access to
       our network at any of twelve signal transfer point mated pairs located
       throughout the country;

     - the ability to deliver a full range of services, via SS7 connectivity, to
       the incumbent local exchange carriers who serve 230 of the 237 local
       access and transport areas and major independent local exchange carrier
       regions in the United States; and

     - the opportunity to save time and resources on establishing and
       maintaining SS7 links. We provide complete engineering, installation,
       testing and activation of all links to our network and work closely with
       carriers to ensure configurations meet their specific requirements.

     SS7 Connectivity, Switching and Transport. These are all component parts of
our basic SS7 trunk signaling service. Trunk signaling reduces post-dial delay,
allowing call connection almost as soon as dialing is completed. This enables
carriers to deploy a full range of intelligent network services more quickly and
cost effectively. By using our trunk signaling service, carriers simplify SS7
link provisioning by outsourcing this to us and can:

     - increase trunk efficiency through faster call completion and disconnect;

     - reach all local, interexchange and wireless carriers' networks through
       our access to hundreds of carriers;

     - maximize network reliability by having us monitor the performance of
       their SS7 connections 24 hours a day, seven days a week;

     - facilitate custom local area signaling services, such as caller
       identification; and

     - lower access costs for local delivery of interexchange and wireless
       calls.

     Database Access Messaging. We provide the SS7 functions that enable
carriers to find and interact with network databases and conduct the database
queries that are essential for many advanced services. Combined with
connectivity to our SS7 network, we provide access to the database information
that enables carriers to deliver a full range of custom local area signaling
services to their customers.

     Seamless Roaming. We are a nationwide provider of seamless roaming support
using the IS-41 signaling protocol. IS-41 allows carriers to provide support for
roamers visiting their service area, and for their customers when they roam
outside their service area. It enables number validation inside and outside
carriers' service areas by accessing our SS7 network. All U.S. wireless carriers
providing subscribers with automatic call delivery and autonomous registration
while roaming use IS-41 or the recently introduced GSM-MAP protocol, which we
also support.

NETWORK SERVICES -- INTELLIGENT NETWORK SERVICES

     Intelligent network services encompass a number of database query
functions, the most significant of which are local number portability, line
information database access and transport, toll-free database access and
transport and caller identification or calling name delivery access and
transport. Each of these services uses our SS7 network to access our databases
and others maintained by third parties.

     Local Number Portability. In 1996, the FCC mandated that incumbent local
exchange carriers implement wireline number portability in all major U.S.
markets beginning in 1999. Local number portability allows a telephone
subscriber to switch local service providers while keeping the same telephone
number. It substantially complicates the process of completing an ordinary
telephone call, since the destination telephone number in an area where local
number portability has been implemented no longer bears any direct relationship
to its actual physical location on the network. In order to complete a call to a
telephone number in an area where local number portability has been implemented,
a carrier must conduct a simultaneous database query to route the call
correctly. We manage interactions with number portability databases and provide

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database queries on a call-by-call basis, thereby allowing carriers to deploy
local number portability without the high cost of building their own
infrastructure. Wireless carriers have not been mandated to port telephone
numbers between carriers until November 2002. Today they are responsible for
routing ported telephone numbers when completing calls to ported areas. Our
local number portability solution provides wireless carriers with this routing
information today.

     Our local number portability services include:

     - service order administration, which gives carriers online access to
       manage portability information, send that information to the appropriate
       national Number Portability Administration Center and retrieve
       information about what actions other service providers may have taken;

     - a local service management system that is the hardware and software
       database platform necessary to manage customer call routing information;

     - data access to the appropriate local number portability service control
       point for the information necessary to complete a call; and

     - wireless number portability.

     We believe our local number portability services are highly competitive
because we provide integrated, turnkey management of sophisticated and
time-consuming local number portability databases, a single interface to all of
the seven Number Portability Administration Centers in the United States and 24
hour a day, seven day a week technical support.

     Line Information Database Access and Transport. Line information databases
are developed and maintained by telecommunications carriers to store information
about their subscribers necessary to provide enhanced services such as
validating telephone numbers and billing information. For example, when a caller
tries to bill a call with a calling card, the local carrier where the call is
initiated sends a query over the SS7 network. The SS7 network then determines
the appropriate database to validate the card number, routes the information to
the switch that analyzes the response and determines how to treat the call.

     Through our SS7 network, we offer high-speed access to all of the line
information databases in the United States for seamless, nationwide access to
subscriber information. We also manage and operate our own database containing
over 21 million line information records. Our SS7 network and database access
allow carriers to deliver, in fractions of a second, seamless access to
subscriber information through our access agreements with all databases in the
country, for purposes such as validating calling card, collect and third party
billed calls.

     Key features of our line information database services include:

     - fraud protection features, such as usage monitoring, auto-deactivation,
       lost and stolen card service and domestic restrictions to fight
       international calling card fraud; and

     - high capacity and reliability, fully meeting industry standards for call
       processing throughput, storage volume capacity, fault tolerance and
       redundancy.

     Toll-Free Database Access and Transport. Our SS7 network provides access to
all toll-free numbers in the country for call routing. When a caller dials a
toll-free number from one of our customers' areas, our customer launches a query
over our SS7 network. Our network routes the query to a national toll-free
database, retrieves information and identifies the appropriate carrier and other
routing information as necessary. Our network returns the response to our
customer for call routing.

     Calling Name Delivery Access and Transport. Caller identification or
calling name delivery service has become an increasingly popular value-added
offering for telephone subscribers. Most local exchange carriers provide a
caller identification service that displays a caller's telephone number. The
originating caller's telephone number is part of the SS7 signaling message that
sets up a telephone call; however, providing the caller's name requires the
ability to obtain the name that matches that telephone number from a line
information database. We develop and offer calling name database access,
allowing carriers to query many

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regional Bell operating companies and major independent telephone carriers and
reduce the "name not available" messages that customers receive. We also manage
and operate a database for storage of incumbent local exchange carrier,
competitive local exchange carrier and wireless calling name records.

     Key components and features of our calling name database include:

     - a high capacity calling name database that consistently meets applicable
       industry standards for queries per second and data storage volumes;

     - a city/state database in addition to our main calling name database. If a
       caller's name is not accessible, a carrier can deliver the caller's city
       and state location, giving subscribers a better indication of who is
       calling and reducing "name not available" messages; and

     - automatic dual updating of our calling name database and our line
       information database.

     Other Services. We also provide other intelligent network services to our
customers. For example, in addition to network access, we provide a centralized
database of IS-41 messages that enables a wireless carrier to manage and monitor
its roamer activities more efficiently while also providing protection against
cloning fraud.

CLEARINGHOUSE SERVICES

     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 carrier that provides long distance services detailing the long
distance calls made by the customers of another carrier. We prepare statements
to each billing carrier of the customers' usage, which the billing carrier then
uses to bill its customers. The billing carrier remits the payments received
from its customers to us. We aggregate these payments and remit them to the
carrier providing the long distance service, net of our servicing fee.

     With our clearinghouse services, carriers can:

     - bill and collect messages in a simple consolidated invoice that other
       providers may otherwise bill separately to the local carrier's customers;

     - bill and collect operator-assisted and calling card calls made through
       MCI WorldCom, Sprint and other interexchange carriers; and

     - bill and collect direct dialed long distance calls for selected
       interexchange carriers.

NETWORK USAGE SOFTWARE APPLICATIONS

     Our network usage software was developed as a commercial derivative of
software originally developed to measure and monitor the usage of our own SS7
network. Using our AMAT7 software, in conjunction with equipment provided by
Agilent Technologies, Inc. (f/k/a Hewlett-Packard), SS7 network operators can
measure network usage to allow them to bill other carriers for the use of their
SS7 network. Our CDR7 software captures call record detail directly from SS7
signaling links and provides this information in a format that allows for
billing to, and verification of invoices received from, other carriers.

OUR NETWORK

     Our network consists of 12 mated pairs of signal transfer points
strategically located across the United States. We own four pairs of signal
transfer points and currently lease capacity on eight pairs of signal transfer
points owned by our regional partners.

     Our leases generally have renewable two year terms. If a signal transfer
point lease is terminated, we may continue to use the capacity for up to one
year until we are able to move our affected customers to another signal transfer
point. For example, we are in the process of moving six customers from the
signal transfer point

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of a regional partner that, as a result of having recently been acquired, has
terminated its lease with us. The lease will remain in effect on a
month-to-month basis until we relocate all of our customers.

     Our network is connected to 230 of the nation's 237 local access and
transport areas and major independent local exchange carrier regions, either
through a direct connection to the local access and transport areas or through a
gateway switch belonging to the regional Bell operating company. We have over
400 dedicated connections to local access and transport areas. As of December
31, 1999, we provided signaling for approximately 18,400 trunk groups providing
customers with local access and transport area access.

     We connect our customers to our nationwide SS7 network through links to our
signal transfer points. As of December 31, 1999, we had approximately 1,900
access links in service.

     In addition to signal transfer points and associated equipment, we maintain
a network operations center in Overland Park, Kansas. We also maintain our
databases, related computers and storage devices in our headquarters building in
Lacey, Washington and in our regional signal transfer point offices in Mattoon,
Illinois and Rock Hill, South Carolina.

SALES AND MARKETING

     Our sales force is made up of 15 direct salespeople and two telemarketers.
Eleven of these salespeople are located in our Overland Park office, with four
regional account managers located strategically throughout the United States. In
addition to our direct sales force, we maintain a customer care center with 12
customer service representatives in our Lacey office to handle customer requests
and updates.

     Our marketing and sales division identifies customer needs for network
services and promotes our large, reliable network, our competitively priced
services and our neutrality in dealing with carriers. The number and complexity
of our products and services increase the required training and specialization
of our sales force and support staff.

     We believe strong account management is our key to a successful sales
effort. We use a consultative sales approach, working with carriers to establish
and maintain relationships that identify and serve customer needs proactively.
We also pursue opportunities to develop custom solutions to meet large customer
requirements.

     We provide incentives for our direct sales staff to further develop their
consultative relationship with our customers by offering bonuses in addition to
salary and commissions. These bonuses are based on a number of factors,
including customer satisfaction, customer retention and new business
development.

     We retain an independent consulting company annually to gauge our customer
satisfaction. This consulting company, in conjunction with our review team,
identifies recent successes and plans improvements for the next year. The
results of these surveys show a high level of customer satisfaction.

CUSTOMERS

     Our customer base is diversified across the many different types of
facility-based and reseller carriers in the United States. Our top ten customers
accounted for approximately 46% of our revenues for the year ended December 31,
1999, and no customer represented more than 8% of our revenues in that year. As
of December 31, 1999, in addition to 320 independent telephone companies, our
customer base includes 82 wireless carriers, 204 competitive local exchange
carriers and 90 interexchange carriers. Each of our products and services serves
multiple customer types as described below:

     - Network Services -- Connectivity, Switching and Transport: The customer
       focus for these services includes long distance carriers, operator
       service providers, independent telephone companies, competitive local
       exchange carriers, Internet protocol-based carriers, and wireless
       carriers. Our signaling services customers include AT&T, MCI WorldCom,
       BellAtlantic Mobile, U.S. Cellular and Winstar.

     - Network Services -- Intelligent Network Services: The customer focus for
       these products includes long distance carriers, operator service
       providers, regional Bell operating companies, independent telephone
       companies, competitive local exchange carriers, Internet protocol-based
       carriers, and

                                       10
<PAGE>   11

       wireless carriers. Our intelligent network services customers include
       Frontier (a Global Crossing company), Alltel, BellSouth, AT&T and MCI
       WorldCom.

     - Clearinghouse Services: The customer focus for these services includes
       long distance carriers, operator service providers, regional Bell
       operating companies, independent telephone companies and competitive
       local exchange carriers. Our clearinghouse services customers include
       AT&T, MCI WorldCom and ZeroPlus Dialing, Inc.

     - Network Usage Software Applications: The user focus for these products
       includes regional Bell operating companies and other large carriers.
       Users of our network usage software applications include SBC, US West,
       and BellSouth.

COMPETITION

     The market for SS7 network access and related services is competitive. It
is subject to rapid technological change, evolving industry standards and
regulatory developments. We expect competition to increase in the future. We
compete with a number of U.S. and international companies that vary in size and
in the scope and breadth of the products and services they offer. Our
competitors for SS7 network access and intelligent network services include
subsidiaries of AT&T, MCI WorldCom, Southern New England Telephone, Sprint, GTE
and regional Bell operating companies, as well as other companies. Many of our
competitors are small business units of very large companies, that currently do
not actively market their SS7 networks or services. It is possible that new
competitors or alliances among competitors could emerge and rapidly acquire
significant market share. As a result, those competitors may be able to more
quickly develop or adapt to new or emerging technologies and changes in customer
requirements, or devote greater resources to the development, promotion and sale
of their products. Increased competition could result in price reductions,
reduced margins and loss of market share. We currently compete with only one
other significant company, National Exchange Carrier Association -- Independent
NECA Services, with respect to our clearinghouse services. INET, Inc. is our
main competitor for network usage software applications.

     We believe that our ability to compete successfully depends on numerous
factors, both within and outside our control, including:

     - our responsiveness to telecommunications service providers' needs;

     - our ability to support existing and new industry standards;

     - the development of technical innovations;

     - our ability to attract and retain qualified personnel;

     - our response to regulatory changes; and

     - the quality, reliability and security of our products and services.

     We cannot assure you that we will be able to compete successfully against
current or future competitors or that competitive pressures that we face will
not materially adversely affect our business, financial condition and operating
results.

REGULATION

     We are not subject to the direct regulation of the FCC or any state utility
regulatory commission. Some of our customers, however, may be subject to federal
or state regulation that could have an indirect effect on our business. Because
we do not provide voice-grade or data services that are deemed to be common
carrier telecommunications services, we do not anticipate that our services will
be subject to regulation by the FCC or state public utility commissions.
However, future regulation of lines of business we may enter could directly
affect our business or indirectly affect our business through its impact on our
customers. Alternatively, any future change in laws or regulations could subject
us to direct regulation by the FCC or any other federal or state agency.

                                       11
<PAGE>   12

EMPLOYEES

     As of December 31, 1999, we had 317 employees, of whom 207 were engaged in
operations, 61 were engaged in sales and marketing, and 49 were engaged in
administrative and other business support functions. We believe our relationship
with our employees is good. We have no collective bargaining agreements and no
unionized employees.

     Our success depends, in part, upon our ability to continue to attract,
motivate and retain additional highly qualified employees, particularly
employees with SS7 knowledge and experience. The process of locating employees
with the skills and attributes necessary to implement our strategy is lengthy.
The loss of any existing key employees or the inability to attract, motivate and
retain additional qualified employees could affect our ability to expand our
network and enhance our products and services.

RISKS AND UNCERTAINTIES

     The risks described below are not the only ones facing our company.
Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also impair our business operations. If
any of the following risks occurs, our business, financial condition or
operating results could be materially adversely affected. In such case, the
trading price of our Common Stock could decline and you may lose all or part of
your investment.

     SYSTEM FAILURES, DELAYS AND OTHER PROBLEMS COULD HARM OUR REPUTATION AND
BUSINESS, CAUSE US TO LOSE CUSTOMERS AND EXPOSE US TO CUSTOMER LIABILITY.

     Our success depends on our ability to provide reliable services. Our
operations could be interrupted by any damage to or failure of:

     - our network;

     - our connections to third parties; and

     - our computer hardware or software or our customers' or suppliers'
       computer hardware or software.

     Our systems and operations are also vulnerable to damage or interruption
from:

     - power loss, transmission cable cuts and other telecommunications
       failures;

     - fires, earthquakes, floods and other natural disasters;

     - computer viruses or software defects;

     - physical or electronic break-ins, sabotage, intentional acts of vandalism
       and similar events; and

     - errors by our employees or third-party service providers.

     Any such damage or failure or the occurrence of any of these events could
disrupt the operation of our network and the provision of our services and
result in the loss of current and potential customers.

     For example, on two occasions, once in 1997 and once in 1998, flaws in
third-party software caused network outages that disrupted the ability of our
customers to connect through our network to other parts of the U.S.
telecommunications system. As a result of these outages, some of our customers
reduced their usage of our network.

     Our contracts with customers generally contain provisions designed to limit
our exposure to potential product liability claims. These provisions include
disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. In addition, our agreements generally
limit the amounts recoverable for damages to the amounts paid by the customer to
us for the product or service giving rise to the damages. However, a court or
arbitrator may not enforce these contractual limitations on liability, and we
may be subject to claims based on errors in our software or mistakes in
performing our services. Any of those claims, including any relating to damages
to our customers' internal systems, whether or not successful, could harm our
business by increasing our costs and distracting our management.

                                       12
<PAGE>   13

     OUR RELIANCE ON THIRD PARTY COMMUNICATIONS INFRASTRUCTURE, HARDWARE AND
SOFTWARE EXPOSES US TO A VARIETY OF RISKS WE CANNOT CONTROL.

     Our success will depend on our network infrastructure, including the
capacity leased from telecommunications suppliers. In particular, we rely on
AT&T, MCI WorldCom, Sprint and other telecommunications providers for leased
long-haul and local loop transmission capacity. These companies provide the
dedicated links that connect our network components to each other and to our
customers.

     Our business also depends upon the capacity, reliability and security of
the infrastructure owned by third parties that is used to connect telephone
calls. Specifically, we currently lease capacity from regional partners on eight
of the twelve mated pairs of SS7 signal transfer points that comprise our
network. We have no control over the operation, quality or maintenance of a
significant portion of that infrastructure and whether or not those third
parties will upgrade or improve their equipment.

     We depend on these companies to maintain the operational integrity of our
connections. If one or more of these companies is unable or unwilling to supply
or expand its levels of service to us in the future, our operations could be
severely interrupted. In addition, rapid changes in the telecommunications
industry have led to the merging of many companies. These mergers may cause the
availability, pricing and quality of the services we use to vary and could cause
the length of time it takes to deliver the services that we use to increase
significantly. For example, one of our regional partners was recently acquired
by another company and has terminated its lease to us of capacity on a pair of
signal transfer points.

     We rely on links, equipment and software provided to us from our vendors,
the most important of which are gateway equipment and software from Tekelec and
Agilent Technologies, Inc. (f/k/a Hewlett-Packard). We cannot assure you that we
will be able to continue to purchase equipment from these vendors on acceptable
terms, if at all. If we are unable to maintain current purchasing terms or
ensure product availability with these vendors, we may lose customers and
experience an increase in costs in seeking alternative suppliers of products and
services.

     THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING COMPLEMENTARY
BUSINESSES AND TECHNOLOGIES COULD IMPEDE OUR FUTURE GROWTH AND ADVERSELY AFFECT
OUR COMPETITIVENESS.

     We may make investments in complementary companies, technologies or other
assets, exposing us to several risks, including:

     - greater than expected costs and management time and effort involved in
       identifying, completing and integrating acquisitions;

     - potential disruption of our ongoing business and difficulty in
       maintaining our standards, controls, information systems and procedures;

     - entering into markets and acquiring technologies in areas in which we
       have little experience;

     - the inability to successfully integrate the services, products and
       personnel of any acquisition into our operations;

     - a need to incur debt, which may reduce our cash available for operations
       and other uses, or issue equity securities, which may dilute the
       ownership interests of existing stockholders; and

     - realizing little, if any, return on our investment.

     OUR BUSINESS DEPENDS ON THE ACCEPTANCE OF OUR SS7 NETWORK AND THE
TELECOMMUNICATIONS MARKET'S CONTINUING USE OF SS7 TECHNOLOGY.

     Our future growth depends on the commercial success and reliability of our
SS7 network. Our SS7 network is a vital component of our intelligent network
services, which have been an increasing source of revenue for us. Our business
will suffer if our target customers do not use our SS7 network. Our future
financial performance will also depend on the successful development,
introduction and customer acceptance of new and enhanced SS7-based products and
services. We are not certain that our target customers will

                                       13
<PAGE>   14

choose our particular SS7 network solution or continue to use our SS7 network.
In the future, we may not be successful in marketing our SS7 network or any new
or enhanced products or services.

     WE MAY HAVE DIFFICULTY ATTRACTING AND RETAINING EMPLOYEES WITH THE
REQUISITE SKILLS TO EXECUTE OUR GROWTH PLANS.

     Our success depends, in part, on the continued service of our existing
management and technical personnel. If a significant number of those individuals
are unable or unwilling to continue in their present positions, we will have
difficulty in maintaining and enhancing our networks and services. This may
adversely affect our operating results and growth prospects.

     In addition, we have experienced, and we expect to continue to experience,
some difficulty in hiring and retaining highly skilled employees. Specifically,
we centralize a large portion of our technical operations in geographic areas in
which competition for technical talent is intense, due to the existence of
competing employers seeking employees with similar sets of skills. Our continued
success depends on our ability to attract, retain and motivate highly skilled
employees, particularly engineering and technical personnel. Failure to do so
may adversely affect our ability to expand our network and enhance our products
and services.

     IF WE DO NOT ADAPT TO RAPID TECHNOLOGICAL CHANGE IN THE TELECOMMUNICATIONS
INDUSTRY, WE COULD LOSE CUSTOMERS OR MARKET SHARE.

     Our industry is characterized by rapid technological change and frequent
new product and service announcements. Significant technological changes could
make our technology obsolete. We must adapt to our rapidly changing market by
continually improving the responsiveness, reliability and features of our
network and by developing new network features, services and applications to
meet changing customer needs. We cannot assure you that we will be able to adapt
to these challenges or respond successfully or in a cost-effective way to
adequately meet them. Our failure to do so would adversely affect our ability to
compete and retain customers or market share.

     We sell our products and services primarily to traditional
telecommunications companies. Emerging companies are providing convergent
Internet protocol-based telecommunications services. Our future revenues and
profits, if any, could depend upon our ability to provide products and services
to these Internet protocol-based telephony providers.

     THE MARKET FOR SS7 NETWORK SERVICES AND RELATED PRODUCTS IS COMPETITIVE AND
MANY OF OUR COMPETITORS HAVE SIGNIFICANT ADVANTAGES THAT COULD ADVERSELY AFFECT
OUR BUSINESS.

     We compete in markets that are competitive and rapidly changing. Increased
competition could result in fewer customer orders, reduced gross margins and
loss of market share, any of which could harm our business. We face competition
from large, well-funded regional providers of SS7 network services and related
products, such as regional Bell operating companies, GTE and Southern New
England Telephone. We are aware of major Internet service providers, software
developers and smaller entrepreneurial companies that are focusing significant
resources on developing and marketing products and services that will compete
with us. We anticipate continued growth of competition in the telecommunications
industry and the entrance of new competitors into our business. We expect that
competition will increase in the near term and that our primary long-term
competitors may not yet have entered the market. Many of our current and
potential competitors have significantly more employees and greater financial,
technical, marketing and other resources than we do. Our competitors may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements than we can. Also, many of our current and potential competitors
have greater name recognition and more extensive customer bases that they can
use to their advantage.

     OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING
LEVELS COULD IMPACT OUR ABILITY TO MAINTAIN PROFITABILITY OR POSITIVE CASH FLOW.

     Competition and industry consolidation could result in significant pricing
pressure. This pricing pressure could cause large reductions in the selling
price of our services. For example, our competitors may provide customers with
reduced communications costs for Internet access or private network services,
reducing the overall cost of solutions and significantly increasing pricing
pressures on us. We may not be able to offset the

                                       14
<PAGE>   15

effects of any price reductions by increasing the number of our customers,
generating higher revenues from enhanced services or reducing our costs. We
believe that the business of providing network connectivity and related network
services will likely see increased consolidation in the future. Consolidation
could decrease selling prices and increase competition in these industries,
which could erode our market share, revenues and operating margins.

     THE INABILITY OF OUR CUSTOMERS TO SUCCESSFULLY IMPLEMENT OUR SERVICES WITH
THEIR EXISTING SYSTEMS COULD ADVERSELY AFFECT OUR BUSINESS.

     Significant technical challenges exist in our business because many of our
customers:

     - purchase and implement SS7 network services in phases;

     - deploy SS7 connectivity across a variety of telecommunication switches
       and routes; and

     - integrate our SS7 network with a number of legacy systems, third-party
       software applications and engineering tools.

     Customer implementation currently requires participation by our order
management and our engineering and operations groups, each of which has limited
resources. Some customers may also require us to develop costly customized
features or capabilities, which increase our costs and consume our limited
customer service and support resources. Also, we typically charge one-time flat
rate fees for initially connecting a customer to our SS7 network and a monthly
recurring flat rate fee after the connection is established. If new or existing
customers have difficulty deploying our products or require significant amounts
of our engineering service support, we may experience reduced operating margins.
Our customers' ability to deploy our network services to their own customers and
integrate them successfully within their systems depends on our customers'
capabilities and the complexity involved. Difficulty in deploying those services
could reduce our operating margins due to increased customer support and could
cause potential delays in recognizing revenue until the services are
implemented.

     CAPACITY LIMITS ON OUR TECHNOLOGY AND NETWORK HARDWARE AND SOFTWARE MAY BE
DIFFICULT TO PROJECT AND WE MAY NOT BE ABLE TO EXPAND AND UPGRADE OUR SYSTEMS TO
MEET INCREASED USE.

     As traffic from our customers through our network increases, we will need
to expand and upgrade our technology and network hardware and software. We may
not be able to accurately project the rate of increase in usage on our network.
In addition, we may not be able to expand and upgrade, in a timely manner, our
systems and network hardware and software capabilities to accommodate increased
traffic on our network. If we do not appropriately expand and upgrade our
systems and network hardware and software, we may lose customers and revenues.

     WE USE A STRATEGIC RELATIONSHIP TO IMPLEMENT AND SELL OUR NETWORK USAGE
SOFTWARE APPLICATIONS. WE COULD LOSE REVENUES OR INCUR SIGNIFICANT COSTS TO
RETAIN REVENUES IF THIS RELATIONSHIP IS TERMINATED.

     We have a non-exclusive agreement with Agilent Technologies, Inc. (f/k/a
Hewlett-Packard) to sell our network usage software applications. The agreement
may be terminated with limited notice by either party without cause or penalty.
In the past, we have received significant revenues under this agreement. There
is no guarantee that Agilent will continue to market our network usage software
applications. If this relationship is terminated or materially changes, we would
be required to devote substantial new resources to the distribution, sales and
marketing, implementation and support of our network usage software applications
and our efforts may not be as effective as those of Agilent.

     THERE IS A LIMITED MARKET FOR OUR EXISTING NETWORK USAGE SOFTWARE
APPLICATIONS.

     We derive only a small portion of our revenues from sales and maintenance
of our network usage software applications. Current users of these software
products include most of the regional Bell operating companies, as well as other
large telecommunications carriers. With initial market sales essentially
completed, our ability to derive continued revenue from our network usage
software applications is limited, unless we can develop new derivative products.

                                       15
<PAGE>   16

     WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.

     We may require more capital in the future to:

     - fund our operations;

     - finance investments in equipment and corporate infrastructure needed to
       maintain and expand our network;

     - enhance and expand the range of services we offer; and

     - respond to competitive pressures and potential opportunities, such as
       investments, acquisitions and international expansion.

     We cannot assure you that additional financing will be available on terms
favorable to us, or at all. The terms of available financing may place limits on
our financial and operating flexibility. If adequate funds are not available on
acceptable terms, we may be forced to reduce our operations or abandon expansion
opportunities. Moreover, even if we are able to continue our operations, the
failure to obtain additional financing could reduce our competitiveness as our
competitors may provide better maintained networks or offer an expanded range of
services.

     REGULATIONS AFFECTING OUR CUSTOMERS AND FUTURE REGULATIONS TO WHICH WE MAY
BE SUBJECT MAY ADVERSELY AFFECT OUR BUSINESS.

     Although we are not subject to telecommunications industry regulations, the
business of our customers is subject to regulation that indirectly affects our
business. The U.S. telecommunications industry has been subject to continuing
deregulation since 1984, when AT&T was required to divest ownership of the Bell
telephone system. We cannot predict when, or upon what terms and conditions,
further regulation or deregulation might occur or the effect of regulation or
deregulation on our business. Several services that we offer may be indirectly
affected by regulations imposed upon potential users of those services, which
may increase our costs of operations. In addition, future services we may
provide could be subject to direct regulation.

     FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY NEGATIVELY IMPACT AND
CAUSE VOLATILITY IN OUR STOCK PRICE.

     Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors. In future quarters, our operating results
may be below the expectations of analysts and investors and, as a result, the
price of our Common Stock may fall or become volatile. Factors that could cause
quarterly fluctuations include:

     - seasonal fluctuations in consumer use of telecommunications services;

     - varying rates at which telecommunications companies, telephony resellers
       and Internet service providers use our services;

     - loss of customers through industry consolidation, or customer decisions
       to deploy in-house technology;

     - the timing and execution of individual contracts, particularly large
       contracts;

     - significant lead times before a product or service begins generating
       revenues;

     - volatile economic conditions specific to the telecommunications industry;
       and

     - an inability to collect our accounts receivable.

                                       16
<PAGE>   17

     OUR COMMON STOCK PRICE MAY BE VOLATILE.

     In recent years, the market for stock in technology, telecommunications and
computer companies has been highly volatile. The Common Stock price may be
volatile and may fluctuate due to factors such as:

     - actual or anticipated fluctuations in quarterly and annual results;

     - announcements of technological innovations;

     - introduction of new services;

     - mergers and strategic alliances in the telecommunications industry; and

     - changes in government regulation.

     FUTURE SALES BY EXISTING STOCKHOLDERS COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE.

     Sales of a large number of shares of our Common Stock in the public market
could adversely affect the market price for our Common Stock or impair our
ability to raise capital through an offering of equity securities. The number of
shares of Common Stock available for sale in the public market is limited by
legal and contractual restrictions until April 5, 2000. The holders of 3,952,995
shares of Class A Common Stock (15,811,980 shares on an as if converted basis)
have agreed not to sell their shares until April 5, 2000 (when each share of
Class A Common Stock converts into four shares of Common Stock) without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters in our initial public offering. The remaining 2,391,139 shares of
our Class A Common Stock (9,564,556 shares on an as if converted basis) will not
be tradable in the public market until April 5, 2000 when each share of Class A
Common Stock automatically converts into four shares of Common Stock. We
currently have 4,485,000 shares of Common Stock outstanding and 6,344,134 shares
of Class A Common Stock outstanding which will convert into 25,376,536 shares of
Common Stock on April 5, 2000. Common Stock shares issued on the conversion of
Class A Common Stock will be freely transferable without restriction under the
Securities Act, unless they are held by persons that have control relationships
with us. We will also have reserved an additional 3,804,941 shares of Common
Stock for issuance under our stock option plan. The shares reserved for issuance
under our stock option plan are also available to be sold in the public market.

ITEM 2: PROPERTIES

     Our headquarters and a portion of our operations center are located in
Lacey, Washington, where we own our facility. The building, approximately 13.5
acres of land on which the building is constructed, and some of our computer
hardware and software are financed by Rural Telephone Finance Cooperative
("RTFC"). RTFC has a first priority lien on substantially all of our assets,
revenues and property, excluding cash collected and held on behalf of others in
the normal course of providing our services.

     We also lease office space, constructed to suit our specifications, in
Overland Park, Kansas, where, in addition to sales and administrative functions,
we have our network surveillance and control center that operates 24 hours a
day, seven days a week. The lease expires January 1, 2006, subject to an option
in 2004 to extend the lease for an additional five years. We sublease space for
our signal transfer point facilities at Mattoon, Illinois. The sublease expires
on July 31, 2001. We lease space for our signal transfer point facilities at
Rock Hill, South Carolina. The lease expires April 30, 2001.

ITEM 3: 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 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted to a vote of security holders during the fourth
quarter of 1999.

                                       17
<PAGE>   18

                                    PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     At December 31, 1999, Illuminet had outstanding 4,485,000 shares of Common
Stock and 6,344,134 shares of Class A Common Stock. The Class A Common Stock is
not publicly traded. On April 5, 2000, each share of Class A Common Stock will
automatically be converted into four shares of Common Stock, (25,376,536 total
shares) and will be freely transferable unless they are held by persons that
have a control relationship with Illuminet.

     Illuminet's Common Stock trades on The Nasdaq Stock Market ("NASDAQ") under
the symbol "ILUM". The following table reflects the range of the high and low
closing prices for the period from October 7, 1999 (the closing of Illuminet's
initial public offering at $19 per share) to year end, as reported by NASDAQ.
This table reflects inter-dealer prices, without retail mark-up, mark-down or
commission.

<TABLE>
<CAPTION>
            FISCAL YEAR ENDED DECEMBER 31, 1999               HIGH      LOW
            -----------------------------------              ------    ------
<S>                                                          <C>       <C>
October 7, 1999 to December 31, 1999.......................  $57.25    $28.50
</TABLE>

STOCKHOLDERS

     As of January 31, 2000, there were 11 stockholders of record of Illuminet
Common Stock and 287 stockholders of record of Illuminet's Class A Common Stock,
excluding shares held in street name by various brokerage firms. Illuminet
estimates that there are approximately 7,200 beneficial owners of Illuminet
Common Stock.

DIVIDEND POLICY

     To date, no dividends have been declared. Illuminet currently intends to
retain its earnings for future growth and, therefore, does not anticipate paying
any cash dividends in the foreseeable future.

     When authorized by the Illuminet Holdings, Inc. Board of Directors,
payments of dividends require approval by RTFC, under long-term debt
arrangements with RTFC, unless Illuminet's ratio of equity to total assets
exceeds 40%.

USE OF PROCEEDS

     Illuminet expects to use the net offering proceeds from its 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 its network and for general corporate purposes. To date,
none of the net proceeds from the initial public offering has been disbursed.

                                       18
<PAGE>   19

ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA

     We derived the following selected consolidated financial data as of and for
the years ended December 31, 1995, 1996, 1997, 1998 and 1999 from our
consolidated financial statements. You should read this summary information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and our consolidated financial statements for the
years ended December 31, 1997, 1998 and 1999 and the notes to those financial
statements included in this report. Other data are unaudited.

     You should read the following information with the data in the table on the
next page:

     - In February 1996, we merged with Independent Telecommunications Network,
       Inc. We accounted for the merger as a purchase business combination.
       Accordingly, the operating results of Independent Telecommunications
       Network, Inc., including carrier costs, are only included in our
       operating results since the merger.

     - The 1996 income tax provision and the 1997 income tax benefit reflect the
       benefits of using net operating loss carryforwards of $1.0 million and
       $2.4 million, respectively. In addition, the 1997 income tax benefit
       includes a benefit of $0.9 million attributable to the reversal of
       substantially all of the remaining previously recorded deferred tax
       valuation allowance due to improved operating results.

     - Long-term obligations, less current portion includes (1) obligations
       under capital leases, less current portion, and (2) long-term debt, less
       current portion.

     - Earnings (loss) per share-basic is based on net income divided by the
       weighted-average number of common shares outstanding. Earnings (loss) per
       share-diluted includes the dilutive effect of outstanding Series A
       Preferred Stock, convertible debentures using the as if converted method,
       and Common Stock options and Class A Common Stock options calculated
       using the treasury stock method. Effective with Illuminet's initial
       public offering on October 7, 1999, all existing common stock immediately
       prior to the initial public offering was renamed to Class A Common Stock.
       Each share of Class A Common Stock will automatically convert into four
       shares of Common Stock on April 5, 2000. All share and per share amounts
       for the periods presented reflect amounts that would have been reported
       had the conversion of the Class A Common Stock into Common Stock occurred
       on January 1, 1995.

     - Capital expenditures includes purchases and capital leases of property
       and equipment.

     - Customers is the number of entities that received a bill from us,
       including, in some cases, subsidiaries of consolidated groups and
       individual locations of a single company. Information prior to 1996 is
       not available.

     - Signaling points represents the number of connections to our network.
       These points may be either individual switches or connections to other
       companies' signaling transfer points with networks attached to them.
       Information prior to 1996 is not available.

                                       19
<PAGE>   20

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                  -------------------------------------------------------------------
                                     1995          1996          1997          1998          1999
                                  -----------   -----------   -----------   -----------   -----------
                                        (IN THOUSANDS, EXCEPT SHARE, PER SHARE AND OTHER DATA)
<S>                               <C>           <C>           <C>           <C>           <C>
STATEMENT OF INCOME DATA:
Revenues:
  Network services..............  $     8,438   $    29,434   $    44,117   $    60,274   $    93,211
  Clearinghouse services........        7,049         7,896         6,723         6,232         5,851
  Network usage software
     applications...............        1,123           558         3,468         5,406         1,532
  Other.........................          494            --            --            --            --
                                  -----------   -----------   -----------   -----------   -----------
          Total revenues........       17,104        37,888        54,308        71,912       100,594
Expenses:
  Carrier costs.................           --         9,358        15,313        22,983        26,091
  Operating.....................        9,547        11,139        14,979        19,768        28,868
  Selling, general and
     administrative.............        6,764         7,774         8,873        10,287        13,492
  Depreciation and
     amortization...............        2,846         5,714         7,354         9,372        11,966
                                  -----------   -----------   -----------   -----------   -----------
          Total expenses........       19,157        33,985        46,519        62,410        80,417
                                  -----------   -----------   -----------   -----------   -----------
Operating income (loss).........       (2,053)        3,903         7,789         9,502        20,177
Interest income.................          271           475           732           834         2,105
Interest expense................         (440)       (1,313)       (1,540)       (1,580)       (1,611)
                                  -----------   -----------   -----------   -----------   -----------
Income (loss) before income
  taxes.........................       (2,222)        3,065         6,981         8,756        20,671
Income tax provision
  (benefit).....................         (707)          112          (676)        3,463         7,666
                                  -----------   -----------   -----------   -----------   -----------
Net income (loss)...............  $    (1,515)  $     2,953   $     7,657   $     5,293   $    13,005
                                  ===========   ===========   ===========   ===========   ===========
PER SHARE DATA:
Earnings (loss) per
  share -- basic................  $     (0.10)  $      0.15   $      0.36   $      0.25   $      0.56
Earnings (loss) per
  share -- diluted..............  $     (0.10)  $      0.14   $      0.32   $      0.22   $      0.48
Weighted-average common
  shares -- basic...............   14,916,060    19,980,368    21,182,036    21,425,540    23,377,396
Weighted-average common
  shares -- diluted.............   14,916,060    23,889,136    25,586,660    25,989,440    27,456,760

OTHER FINANCIAL DATA:
Capital expenditures............  $     1,579   $     6,727   $    10,121   $    17,870   $    12,771

OTHER DATA:
Customers.......................                        311           417           544           735
Signaling points................                        388           533           686           765

BALANCE SHEET DATA (AT END OF
  PERIOD):
Cash and cash equivalents.......  $     6,992   $    12,515   $    11,167   $    11,967   $    22,903
Property and equipment, net.....       12,794        31,377        34,715        43,747        45,129
Total assets....................       39,398        70,822        78,026        89,450       183,657
Long-term obligations, less
  current portion...............        7,638        21,060        18,014        20,742        11,025
Stockholders' equity............  $    12,419   $    21,760   $    30,226   $    36,192   $   136,966
</TABLE>

                                       20
<PAGE>   21

ITEM 7: 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 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 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. As of December 31, 1999, our network served more
than 700 network customers, including incumbent local exchange carriers,
competitive local exchange carriers, long distance companies, wireless
telecommunications providers and Internet service providers.

     Our products and services can be grouped into three general categories:

     - network services, which includes SS7 connectivity, switching and the
       transport of messages used to route calls and query databases, and
       intelligent network services, such as database access, including local
       number portability and support for roaming between carriers;

     - 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 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 network, we continue to provide support services to maintain
and upgrade its connection on a 24 hour 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.

     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 payments received from its customers
to us. We aggregate these payments and remit them to the long distance carrier,
net of our servicing fee.

     Network usage software applications are commercial applications derived
primarily from software we developed to create billing data for the use of our
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.

                                       21
<PAGE>   22

REVENUES

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

     Customers generally are charged for connectivity to our SS7 network on a
monthly "per link" basis. If we provision the network facilities that provide
their connection 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 for
network switching (the transmission of signaling traffic throughout the network)
based on the number of switches to which they signal.

     Our intelligent network services are delivered through our network and a
substantial majority of our customers purchase both SS7 network connectivity 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.

     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 and are experiencing
competitive pricing pressures.

     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. 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. Therefore, revenues may change
significantly from period to period, depending on the mix of license and
maintenance fees in any given period.

     The table below indicates the portion of our revenues attributable to
network services, clearinghouse services and network usage software applications
in the years ended December 31, 1999, 1998, and 1997, together with the
percentage change in revenues.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                             ----------------------------------------------------------
                                               1999      1998         % CHANGE        1997     % CHANGE
                                             --------   -------   ----------------   -------   --------
                                                                  ($ IN THOUSANDS)
<S>                                          <C>        <C>       <C>                <C>       <C>
Network services...........................  $ 93,211   $60,274          55%         $44,117      37%
Clearinghouse services.....................     5,851     6,232          (6)           6,723      (7)
Network usage software applications........     1,532     5,406         (72)           3,468      56
                                             --------   -------                      -------
                                             $100,594   $71,912          40%         $54,308      32%
                                             ========   =======                      =======
</TABLE>

EXPENSES

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

     - Carrier costs, 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;

                                       22
<PAGE>   23

     - 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 on a 24 hour a day,
       seven day a week basis, 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.

     The table below indicates our expenses in the years ended December 31,
1999, 1998, and 1997, together with the percentage change in expenses.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                      -------------------------------------------------------------
                                       1999       1998          % CHANGE         1997      % CHANGE
                                      -------    -------    ----------------    -------    --------
                                                            ($ IN THOUSANDS)
<S>                                   <C>        <C>        <C>                 <C>        <C>
Carrier costs.......................  $26,091    $22,983           14%          $15,313       50%
Operating...........................   28,868     19,768           46            14,979       32
Selling, general and
  administrative....................   13,492     10,287           31             8,873       16
Depreciation and amortization.......   11,966      9,372           28             7,354       27
                                      -------    -------                        -------
                                      $80,417    $62,410           29%          $46,519       34%
                                      =======    =======                        =======
</TABLE>

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.

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                          --------------------
                                                          1999    1998    1997
                                                          ----    ----    ----
<S>                                                       <C>     <C>     <C>
Revenues:
  Network services......................................   93%     84%     81%
  Clearinghouse services................................    6       9      13
  Network usage software applications...................    1       7       6
                                                          ---     ---     ---
          Total revenues................................  100     100     100
Expenses:
  Carrier costs.........................................   26      32      28
  Operating.............................................   29      28      28
  Selling, general and administrative...................   13      14      16
  Depreciation and amortization.........................   12      13      14
                                                          ---     ---     ---
          Total expenses................................   80      87      86
                                                          ---     ---     ---
Operating income........................................   20      13      14
Interest income.........................................    2       1       1
Interest expense........................................   (1)     (2)     (2)
                                                          ---     ---     ---
Income before income taxes..............................   21      12      13
Income tax provision (benefit)..........................    8       5      (1)
                                                          ---     ---     ---
Net income..............................................   13%      7%     14%
                                                          ===     ===     ===
</TABLE>

                                       23
<PAGE>   24

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

REVENUES

     Network services. Network services, comprised of network connectivity,
which includes message switch and transport, and intelligent network services,
revenues increased by $32.9 million, or 55%, to $93.2 million for the year ended
December 31, 1999 ("1999") from $60.3 million for the year ended December 31,
1998 ("1998"), and by $16.2 million, or 37%, to $60.3 million in 1998 from $44.1
million for the year ended December 31, 1997 ("1997"). These increases were due
to increased customer connections and signaling across our network, substantial
growth in queries processed in the line information, caller identification or
calling name delivery and toll-free databases, and the rollout of local number
portability.

     Network connectivity revenues increased by $14.4 million, or 41%, to $49.8
million in 1999 from $35.4 million in 1998, and by $9.8 million, or 38%, to
$35.4 million in 1998 from $25.6 million in 1997. Intelligent network services
revenues increased by $18.5 million, or 74%, to $43.4 million in 1999 from $24.9
million in 1998, and by $6.4 million, or 35%, to $24.9 in 1998 from $18.5
million in 1997. The 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 the increase was due to continued growth in local number portability, which
is expected to slow in 2000, due to competitive pricing pressures for database
access.

     Clearinghouse services. Clearinghouse services revenues decreased by $0.3
million, or 6%, to $5.9 million in 1999 from $6.2 million in 1998, and by $0.5
million, or 7%, to $6.2 million in 1998 from $6.7 million in 1997. The decrease
over the three periods was caused by a continued decline in messages processed.

     Network usage software applications. Network usage software applications
revenues decreased by $3.9 million, or 72%, to $1.5 million in 1999 from $5.4
million in 1998, and increased by $1.9 million, or 56%, to $5.4 million in 1998
from $3.5 million in 1997. Software maintenance revenues were $1.0 million, $0.8
million, and $0 in 1999, 1998, and 1997, respectively. The remainder of the
variance was caused by software licensing fees. 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. Therefore, revenues may vary significantly
from period to period, depending on the mix of license and maintenance fees in
any given period.

EXPENSES

     Carrier costs. Carrier costs increased by $3.1 million, or 14%, to $26.1
million in 1999 from $23.0 million in 1998, and by $7.7 million, or 50%, to
$23.0 million in 1998 from $15.3 million in 1997. These increases were due to
the growth in leased network connectivity and link and local access and
transport area access charges incurred to support increased customer use of our
network. Local access and transport area access charges increased significantly
through the end of 1998 due to our decision to build links directly into local
access and transport areas instead of relying on third-party intermediaries.
While the cost of building direct links exceeds that of our prior arrangements,
the reliability of our network is enhanced as we gain increased link control and
monitoring capabilities. Over the reported periods, carrier costs have decreased
as a percentage of revenue as network capacity has been leveraged to support
increasing revenues, and network growth has allowed for the realization of
volume discounts.

     Operating. Operating expenses increased $9.1 million, or 46%, to $28.9
million in 1999 from $19.8 million in 1998, and by $4.8 million, or 32%, to
$19.8 million in 1998 from $15.0 million in 1997. These increases resulted
mainly from higher personnel expenses related to an expansion of the customer
support, operations and engineering functions and increased maintenance costs
for new network and systems hardware and software. Additionally, we recorded
losses of $2.9 million and $1.0 million in 1999 and 1998, respectively, for a
loss on a clearinghouse services contract. We have entered into a new contract
with this customer and recently completed an agreement to settle items in
dispute under the prior contract. No further losses are expected under the prior
contract. Also in 1999, we recorded a $1.5 million impairment loss of the full
amount of a 1995 preferred stock equity investment in a start-up company that
was previously recorded at cost. The recognition

                                       24
<PAGE>   25

of this loss was coincident with significant liquidity concerns of the investee,
and the investee's decision to discontinue its historical primary operations and
related uncertainties resulting from a change in the investee's business
strategy and direction.

     Selling, general and administrative. Selling, general and administrative
expenses increased by $3.2 million, or 31%, to $13.5 million in 1999 from $10.3
million in 1998, and by $1.4 million, or 16%, to $10.3 million in 1998 from $8.9
million in 1997. These increases were primarily due to the addition of personnel
necessary to support the overall growth of our business, especially in the areas
of customer care and sales.

     Depreciation and amortization. Depreciation and amortization expenses
increased by $2.6 million, or 28%, to $12.0 million in 1999 from $9.4 million in
1998, and by $2.0 million, or 27%, to $9.4 million in 1998 from $7.4 million in
1997. These increases reflect the significant investment made in the last two
years for network monitoring and data collection hardware and software, database
applications, and signal transfer point switches. Included in depreciation and
amortization are asset write downs totaling $0.7 million in both 1999 and 1998.
The 1999 write down related to asset obsolescence, and the 1998 write down
related to our early retirement and replacement of two signal transfer points as
part of our network reliability upgrade.

     Interest income. Interest income increased by $1.3 million, or 153%, to
$2.1 million in 1999 from $0.8 million in 1998, and by $0.1 million, or 14%, to
$0.8 million in 1998 from $0.7 million in 1997. The 1999 change reflects
increased interest income generated by the investment of $78.3 million of net
proceeds from our mid-October 1999 initial public offering and earnings from
higher cash balances generated from operations beginning in mid-1999.

     Interest expense. Interest expense was comparable in 1999, 1998, and 1997.
The components of interest expense changed during the years and reflect
increased interest expense from capital leases completed in late 1998 and
mid-1999, offset by the reduction in interest expense from the conversion of the
redeemable subordinated debentures in October 1999.

     Income taxes. Income tax expense increased by $4.2 million, or 121%, to
$7.7 million, an effective tax rate of 37.1%, in 1999 from $3.5 million, an
effective tax rate of 39.6%, in 1998, and by $4.2 million, to $3.5 million in
1998 from a tax benefit of $0.7 million in 1997, an effective tax benefit rate
of (9.6)%. In 1999, the increases were caused by our increase in income, an
increased deferred tax asset valuation reserve of $0.6 million, offset by
one-time credits of $0.8 million. The 1997 provision reflects benefits of $3.2
million comprised primarily of $2.4 million due to the utilization of net
operating loss carryforwards and $0.9 million due to the reversal of
substantially all of a previously recorded deferred tax valuation allowance as a
result of improved operating results. The 1997 provision also reflects federal
alternative minimum taxes that could not be completely offset by tax loss
carryforwards.

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 cash flows. 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
$105.7 million at December 31, 1999. Our cash and cash equivalent balances
included $4.9 million required as working capital to service our clearinghouse
services customers. Clearinghouse funds are received and disbursed on a monthly
basis. The growth in working capital of $92.8 million from $12.9 million at
December 31, 1998, reflects the October 14, 1999 receipt of approximately $78.3
million in cash, net of underwriter discounts, commissions and other offering
costs from our initial public offering. Our initial public offering resulted in
the issuance of 4,485,000 shares of Common Stock. In conjunction with the
offering, all existing common stock immediately prior to the offering was
renamed Class A Common Stock, and all outstanding Series A Preferred Stock
automatically

                                       25
<PAGE>   26

converted into 204,941 shares of Class A Common Stock. On April 5, 2000, each
outstanding share of Class A Common Stock will convert to four shares of Common
Stock. If all Class A Common Stock were converted at December 31, 1999, an
additional 25,376,536 shares of Common Stock would have been outstanding.

     On October 4, 1999, we called for redemption all outstanding 7.5%
debentures with approximately $8.4 million in principal amount and accrued
interest. An additional 760,838 shares of Class A Common Stock were issued to
debentureholders who elected to convert their debentures and $0.1 million was
paid for redemption of the principal amount and accrued interest for debentures
that were not converted.

     Our property and equipment acquisitions were $12.8 million in 1999.
Expenditures for property and equipment were primarily for network equipment to
expand capacity and enhance reliability, including network monitoring equipment
and local number portability service-related assets. We anticipate capital
expenditures of approximately $25.3 million in 2000.

     At December 31, 1999, we had a secured line of credit expiring August 15,
2001 with Rural Telephone Finance Cooperative ("RTFC") that permits us, subject
to certain conditions, to borrow up to $7.3 million, not to exceed 80% of
accounts receivable. There were no borrowings against this line of credit at
that date. Additionally, at December 31, 1999, we had $3.8 million of unused
loan facilities established or committed with RTFC, expiring in the years 2000
and 2001. Long-term secured notes payable to RTFC were $7.5 million at December
31, 1999, with various maturity dates ranging from August 2000 to March 2015.
Also, during 1999, we obtained vendor financing for capital leases related to a
purchase of $2.5 million of new network equipment and applications to enhance
monitoring, data collection and troubleshooting capabilities.

     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. We currently do not have any agreements,
and are not involved in any negotiations, with respect to any acquisition.

IMPACT OF YEAR 2000

     We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
ongoing business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
financial closings at month, quarter or year end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively impacted if our customers or suppliers are adversely affected by the
Year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.

     As of December 31, 1999, we spent approximately $1.0 million to remedy the
Year 2000 issue by upgrading and replacing certain systems and at this time, do
not expect to incur further significant expenditures. Approximately 90% of these
systems costs were capitalized, and those costs related to Year 2000
modifications, which were only an incremental part of overall software and
hardware upgrades, were expensed.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires capitalization of certain costs incurred in
connection with developing or obtaining internal use software. In April 1998,
the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities." SOP
98-5 requires that all start-up costs related to new operations must be expensed
as incurred. The provisions of SOP 98-1 and SOP 98-5 were adopted in 1999 and

                                       26
<PAGE>   27

are generally consistent with our past accounting policies and, therefore, there
has been no material impact on our financial condition or operating results. In
June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition, measurement, and reporting of
derivatives and hedging activities and is effective for Illuminet's year ending
December 31, 2000. Illuminet anticipates that the adoption of this new
accounting standard will not have a material impact on Illuminet's consolidated
financial statements, but continues to evaluate the impact.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     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 had average borrowings of $9.1 million
during 1999 and was $7.5 million at the end of 1999, had a variable interest
rate, which exposed 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 variable rate revolving line of credit for up to $7.3 million
that has not been used. The interest rate on this line of credit is based on the
prevailing bank prime rate plus a margin of one and one-half percent per year.
The lender may, at its discretion, fix a lower rate from time to time. If market
interest rates were to increase immediately and uniformly by 10% from levels at
December 31, 1999, 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. 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. Our average balance in
those securities was approximately $15.9 million over the past year. Earnings
from these cash equivalents totaled $0.6 million in 1999. Additionally, we have
available-for-sale securities of $79.7 million as of December 31, 1999, which
represent the investment of our initial public offering net proceeds.
Available-for-sale securities are primarily comprised of commercial paper, and
have provided earnings of $1.0 million in 1999, or approximately $4.0 million on
an annualized basis.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Index to Consolidated Financial Statements and Supplementary Data on
page F-1.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not applicable.

                                       27
<PAGE>   28

                                    PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information called for by this Item is incorporated by reference to the
Registrant's Proxy Statement related to the Annual Meeting of Stockholders to be
held on May 5, 2000 (the "Proxy Statements").

ITEM 11: EXECUTIVE COMPENSATION

     Information called for by this Item is incorporated by reference to the
Registrant's Proxy Statements.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information called for by this Item is incorporated by reference to the
Registrant's Proxy Statements.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information called for by this Item is incorporated by reference to the
Registrant's Proxy Statements.

                                    PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     The following documents are filed as part of this Annual Report on Form
10-K:

     (a) 1. Financial Statements.

         The consolidated financial statements are listed in the accompanying
         Index to Consolidated Financial Statements and Supplementary Data on
         page F-1.

         2. Financial Statement Schedules.

         The financial statement schedule is listed in the accompanying Index to
         Consolidated Financial Statements and Supplementary Data on page F-1.

         3. Exhibits.

         The Exhibits listed in the Exhibit Index on page E-1 are filed as part
         of this Annual Report on Form 10-K.

     (b) Reports on Form 8-K

         None.

     (c) Exhibits

         The Exhibits listed in the Exhibit Index on page E-1 are filed as part
         of this Annual Report on Form 10-K.

                                       28
<PAGE>   29

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lacey, State of Washington, on the 3rd of March, 2000.

                                          ILLUMINET HOLDINGS, INC.

                                          By: /s/ ROGER H. MOORE
                                            ------------------------------------
                                            Name: Roger H. Moore
                                            Title:  President and Chief
                                              Executive Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signatures
appears below hereby constitutes and appoints Roger H. Moore, and Daniel E.
Weiss, and each of them, acting individually, as his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, or him, in any and all capacities, to sign any and all
amendments to this report and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and with full power
of each to act alone, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection therewith, as
fully for all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or his or
their substitute or substitutes, may lawfully do, or cause to be done by virtue
hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
           SIGNATURE                                     TITLE                               DATE
           ---------                                     -----                               ----
<S>                              <C>                                                    <C>
     /s/ THEODORE D. BERNS                             Director                          March 6, 2000
-------------------------------
       Theodore D. Berns

      /s/ EUGENE L. COLE                               Director                          March 3, 2000
-------------------------------
        Eugene L. Cole

      /s/ AUBREY E. JUDY                               Director                          March 6, 2000
-------------------------------
        Aubrey E. Judy

      /s/ KENNETH L. LEIN                              Director                          March 3, 2000
-------------------------------
        Kenneth L. Lein

    /s/ RICHARD A. LUMPKIN                             Director                          March 3, 2000
-------------------------------
      Richard A. Lumpkin

    /s/ JAMES S. QUARFORTH                             Director                          March 9, 2000
-------------------------------
      James S. Quarforth

        /s/ G. I. ROSS                                 Director                          March 6, 2000
-------------------------------
          G. I. Ross

      /s/ JAMES W. STRAND                              Director                          March 6, 2000
-------------------------------
        James W. Strand
</TABLE>

                                       29
<PAGE>   30

<TABLE>
<CAPTION>
           SIGNATURE                                     TITLE                               DATE
           ---------                                     -----                               ----
<S>                              <C>                                                    <C>
   /s/ GREGORY J. WILKINSON                            Director                         March 13, 2000
-------------------------------
     Gregory J. Wilkinson

      /s/ ROGER H. MOORE            Director, President and Chief Executive Officer      March 3, 2000
-------------------------------              (Principal Executive Officer)
        Roger H. Moore

      /s/ DANIEL E. WEISS          Chief Financial Officer, Secretary and Treasurer      March 3, 2000
-------------------------------      (Principal Financial and Accounting Officer)
        Daniel E. Weiss
</TABLE>

                                       30
<PAGE>   31

                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            ILLUMINET HOLDINGS, INC.

       INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  F-2
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................  F-3
Consolidated Statements of Income for the years ended
  December 31, 1999, 1998 and 1997..........................  F-4
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1999, 1998 and 1997..............  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1999, 1998 and 1997..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
Report of Ernst & Young LLP, Independent Auditors, on
  Financial Statement Schedule..............................  F-20
Schedule II -- Valuation and Qualifying Accounts............  F-21
</TABLE>

                                       F-1
<PAGE>   32

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Stockholders
Illuminet Holdings, Inc.

     We have audited the accompanying consolidated balance sheets of Illuminet
Holdings, Inc. ("Illuminet") as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of Illuminet's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Illuminet as of
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States.

                                          ERNST & YOUNG LLP

Seattle, Washington
January 20, 2000

                                       F-2
<PAGE>   33

                            ILLUMINET HOLDINGS, INC.

                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
Current assets:
  Cash and cash equivalents.................................    $ 22,903        $11,967
  Available-for-sale securities.............................      79,738             --
  Accounts receivable, less allowance for doubtful accounts
     of $1,944 ($1,133 in 1998).............................      30,916         27,155
  Deferred income taxes.....................................       1,485          2,101
  Prepaid expenses and other................................       1,458            784
                                                                --------        -------
          Total current assets..............................     136,500         42,007
Property and equipment, net.................................      45,129         43,747
Computer software product costs, less accumulated
  amortization of $2,345 ($1,784 in 1998)...................         513          1,075
Other assets................................................       1,515          2,621
                                                                --------        -------
          Total assets......................................    $183,657        $89,450
                                                                ========        =======

                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Trade accounts payable and accrued expenses...............    $ 10,822        $ 7,301
  Due to customers..........................................      16,133         16,622
  Current portion of obligations under capital leases.......       2,428          1,706
  Current portion of long-term debt.........................       1,430          3,458
                                                                --------        -------
          Total current liabilities.........................      30,813         29,087
                                                                --------        -------
Deferred income taxes.......................................       4,853          3,429
Obligations under capital leases, less current portion......       4,997          5,146
Long-term debt, less current portion........................       6,028         15,596
Stockholders' equity:
  Preferred Stock, par value $.01 per share, authorized
     100,000 shares, 4,416 shares designated as Series A,
     none outstanding (2,408 in 1998) and 7,000 shares
     designated as Series B, none outstanding...............          --             --
  Common Stock, par value $.01 per share, authorized
     150,000,000 shares, issued and outstanding 4,485,000
     (none in 1998).........................................          45             --
  Class A Common Stock, par value $.01 per share, authorized
     7,200,000 shares, issued and outstanding 6,344,134
     (5,365,605 in 1998)....................................          63             54
  Additional paid-in capital................................     103,865         12,712
  Deferred stock-based compensation.........................      (3,828)          (394)
  Retained earnings.........................................      36,821         23,820
                                                                --------        -------
          Total stockholders' equity........................     136,966         36,192
                                                                --------        -------
          Total liabilities and stockholders' equity........    $183,657        $89,450
                                                                ========        =======
</TABLE>

                                       F-3
<PAGE>   34

                            ILLUMINET HOLDINGS, INC.

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

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         1999           1998           1997
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Revenues:
  Network services..................................  $    93,211    $    60,274    $    44,117
  Clearinghouse services............................        5,851          6,232          6,723
  Network usage software applications...............        1,532          5,406          3,468
                                                      -----------    -----------    -----------
          Total revenues............................      100,594         71,912         54,308
Expenses:
  Carrier costs.....................................       26,091         22,983         15,313
  Operating.........................................       28,868         19,768         14,979
  Selling, general and administrative...............       13,492         10,287          8,873
  Depreciation and amortization.....................       11,966          9,372          7,354
                                                      -----------    -----------    -----------
          Total expenses............................       80,417         62,410         46,519
                                                      -----------    -----------    -----------
Operating income....................................       20,177          9,502          7,789
Interest income.....................................        2,105            834            732
Interest expense....................................       (1,611)        (1,580)        (1,540)
                                                      -----------    -----------    -----------
Income before income taxes..........................       20,671          8,756          6,981
Income tax provision (benefit)......................        7,666          3,463           (676)
                                                      -----------    -----------    -----------
Net income..........................................  $    13,005    $     5,293    $     7,657
                                                      ===========    ===========    ===========
Earnings per share -- basic.........................  $      0.56    $      0.25    $      0.36
                                                      ===========    ===========    ===========
Earnings per share -- diluted.......................  $      0.48    $      0.22    $      0.32
                                                      ===========    ===========    ===========
Weighted-average common shares -- basic.............   23,377,396     21,425,540     21,182,036
                                                      ===========    ===========    ===========
Weighted-average common shares -- diluted...........   27,456,760     25,989,440     25,586,660
                                                      ===========    ===========    ===========
</TABLE>

                                       F-4
<PAGE>   35

                            ILLUMINET HOLDINGS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                             SERIES A
                                                      COMMON           CLASS A COMMON        PREFERRED      ADDITIONAL
                                                ------------------   ------------------   ---------------    PAID-IN
                                                 SHARES     AMOUNT    SHARES     AMOUNT   SHARES   AMOUNT    CAPITAL
                                                ---------   ------   ---------   ------   ------   ------   ----------
<S>                                             <C>         <C>      <C>         <C>      <C>      <C>      <C>
Balance at January 1, 1997....................         --    $--     5,262,354    $53      2,637    $--      $ 10,701
Conversion of Series A Preferred Stock........         --     --        15,832     --       (186)    --            --
Conversion of convertible redeemable
  subordinated debentures.....................         --     --        66,194     --         --     --           735
Common stock issued under former stock
  incentive plan..............................         --     --        14,240     --         --     --            41
Common stock repurchases......................         --     --       (11,539)    --         --     --            --
Deferred stock-based compensation.............         --     --            --     --         --     --           509
Stock-based compensation expense..............         --     --            --     --         --     --            --
Net income....................................         --     --            --     --         --     --            --
                                                ---------    ---     ---------    ---     ------    ---      --------
Balance at December 31, 1997..................         --     --     5,347,081     53      2,451     --        11,986
Conversion of Series A Preferred Stock........         --     --         3,660     --        (43)    --            --
Conversion of convertible redeemable
  subordinated debentures.....................         --     --        14,764      1         --     --           164
Deferred stock-based compensation.............         --     --            --     --         --     --           561
Stock-based compensation expense..............         --     --            --     --         --     --            --
Stock options exercised.......................         --     --           100     --         --     --             1
Net income....................................         --     --            --     --         --     --            --
                                                ---------    ---     ---------    ---     ------    ---      --------
Balance at December 31, 1998..................         --     --     5,365,605     54      2,408     --        12,712
Conversion of Series A Preferred Stock........         --     --       204,941      2     (2,408)    --            --
Conversion of convertible redeemable
  subordinated debentures.....................         --     --       760,838      7         --     --         8,347
Deferred stock-based compensation.............         --     --            --     --         --     --         4,123
Stock-based compensation expense..............         --     --            --     --         --     --            --
Stock options exercised.......................         --     --        12,750     --         --     --           394
Issuance of common stock......................  4,485,000     45            --     --         --     --        78,289
Net income....................................         --     --            --     --         --     --            --
                                                ---------    ---     ---------    ---     ------    ---      --------
Balance at December 31, 1999..................  4,485,000    $45     6,344,134    $63         --    $--      $103,865
                                                =========    ===     =========    ===     ======    ===      ========

<CAPTION>

                                                  DEFERRED                    TOTAL
                                                STOCK-BASED    RETAINED   STOCKHOLDERS'
                                                COMPENSATION   EARNINGS      EQUITY
                                                ------------   --------   -------------
<S>                                             <C>            <C>        <C>
Balance at January 1, 1997....................    $    --      $11,006      $ 21,760
Conversion of Series A Preferred Stock........         --           --            --
Conversion of convertible redeemable
  subordinated debentures.....................         --           --           735
Common stock issued under former stock
  incentive plan..............................         --           --            41
Common stock repurchases......................         --         (136)         (136)
Deferred stock-based compensation.............       (509)          --            --
Stock-based compensation expense..............        169           --           169
Net income....................................         --        7,657         7,657
                                                  -------      -------      --------
Balance at December 31, 1997..................       (340)      18,527        30,226
Conversion of Series A Preferred Stock........         --           --            --
Conversion of convertible redeemable
  subordinated debentures.....................         --           --           165
Deferred stock-based compensation.............       (561)          --            --
Stock-based compensation expense..............        507           --           507
Stock options exercised.......................         --           --             1
Net income....................................         --        5,293         5,293
                                                  -------      -------      --------
Balance at December 31, 1998..................       (394)      23,820        36,192
Conversion of Series A Preferred Stock........         --           (2)           --
Conversion of convertible redeemable
  subordinated debentures.....................         --           (2)        8,352
Deferred stock-based compensation.............     (4,123)          --            --
Stock-based compensation expense..............        689           --           689
Stock options exercised.......................         --           --           394
Issuance of common stock......................         --           --        78,334
Net income....................................         --       13,005        13,005
                                                  -------      -------      --------
Balance at December 31, 1999..................    $(3,828)     $36,821      $136,966
                                                  =======      =======      ========
</TABLE>

                                       F-5
<PAGE>   36

                            ILLUMINET HOLDINGS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Operating activities:
  Net income...............................................  $ 13,005    $  5,293    $  7,657
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation and amortization.........................    11,966       9,372       7,354
     Impairment on investment..............................     1,461          --          --
     Stock-based compensation expense......................       689         507         169
     Deferred income taxes.................................     2,040       2,198        (870)
  Change in:
     Accounts receivable...................................    (3,761)     (3,337)     (2,238)
     Trade accounts payable................................     3,663        (501)      1,212
     Due to customers......................................      (489)       (309)     (2,306)
     Other.................................................    (1,145)        (42)       (234)
                                                             --------    --------    --------
          Net cash provided by operating activities........    27,429      13,181      10,744
                                                             --------    --------    --------
Investing activities:
  Purchases of investments.................................   (79,738)         --          --
  Capital purchases........................................   (10,241)    (10,380)    (10,121)
                                                             --------    --------    --------
          Net cash used in investing activities............   (89,979)    (10,380)    (10,121)
                                                             --------    --------    --------
Financing activities:
  Purchase of subordinated capital certificates related to
     notes payable.........................................        --         (68)         --
  Proceeds from issuance of notes payable..................        --       1,368          --
  Proceeds from issuance of Class A Common Stock...........       394           1          --
  Proceeds from issuance of Common Stock...................    78,334          --          --
  Principal payments on notes payable and capital leases...    (5,238)     (3,302)     (1,835)
  Class A Common Stock repurchases.........................        (4)         --        (136)
                                                             --------    --------    --------
          Net cash provided by (used in) financing
            activities.....................................    73,486      (2,001)     (1,971)
                                                             --------    --------    --------
Net increase (decrease) in cash and cash equivalents.......    10,936         800      (1,348)
Cash and cash equivalents at:
  Beginning of year........................................    11,967      11,167      12,515
                                                             --------    --------    --------
  End of year..............................................  $ 22,903    $ 11,967    $ 11,167
                                                             ========    ========    ========
Supplemental cash flow disclosure:
  Income taxes paid........................................  $  4,676    $    342    $    226
                                                             ========    ========    ========
  Interest paid............................................  $  1,860    $  1,859    $  1,944
                                                             ========    ========    ========
  Capital acquisitions financed through capital leases.....  $  2,530    $  7,490    $     --
                                                             ========    ========    ========
  Debentures and Series A Convertible Preferred Stock
     converted into Class A Common Stock...................  $  8,356    $    165    $    735
                                                             ========    ========    ========
</TABLE>

                                       F-6
<PAGE>   37

                            ILLUMINET HOLDINGS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

     Illuminet Holdings, Inc. and its wholly-owned subsidiary Illuminet, Inc.
(collectively referred to as "Illuminet") 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.

     Illuminet has its corporate headquarters and a portion of its operations
located in Lacey, Washington; 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, and Waynesboro, Virginia.

     Illuminet Holdings, Inc. (formerly USTN Holdings, Inc. through May 1997)
and Illuminet, Inc. (formerly USTN Services, Inc. through May 1997) were
incorporated in the State of Delaware on August 2, 1995.

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

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

CASH EQUIVALENTS

     Illuminet considers all highly liquid investments of operating cash,
defined as funds generated from ongoing business operations, with original
maturities of three months or less at purchase to be cash equivalents. Cash
equivalents consist of money market funds and commercial paper that are stated
at cost, which approximates fair value. At December 31, 1999 and 1998, such
investments included $19.8 million, and $10.0 million, respectively, invested in
a money market fund consisting of direct obligations of the U.S. Treasury and
repurchase agreements collateralized by such obligations of the U.S. Treasury.
At December 31, 1999, investments in a fund collateralized by commercial paper
investments totaled $3.1 million. At December 31, 1998, direct commercial paper
investments totaled $2.0 million.

AVAILABLE-FOR-SALE SECURITIES

     Illuminet considers the investment of the proceeds and related interest
earnings from its initial public offering to be available-for-sale securities.
Investments classified as available-for-sale securities are reported at fair
value with unrealized gains and losses excluded from earnings and recorded net
of deferred taxes directly to stockholders' equity as accumulated other
comprehensive income. At December 31, 1999, such investments included, at market
value, $69.7 million invested in commercial paper with an average of 59 days to
maturity and $10.0 million invested in demand notes. There were not any gross
unrealized holding gains or losses at December 31, 1999 and 1998.

                                       F-7
<PAGE>   38
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ACCOUNTS RECEIVABLE

     One of Illuminet's services involves providing a clearinghouse function for
toll collected by telephone companies on behalf of other telecommunications
service providers. At December 31, 1999 and 1998, accounts receivable included
$9.0 million and $11.5 million, respectively, of such toll amounts due from
telephone companies. Related amounts due to customers included $11.8 million and
$12.4 million, respectively, for amounts owed to such service providers.
Accounts receivable from these companies are uncollateralized; however,
uncollected amounts may be offset against amounts otherwise due to service
providers.

     Concentration of credit risk with respect to trade receivables is limited
due to the diversity of the customer base and geographic dispersion, and is
evidenced by a history of minimal customer account write-offs.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives for property and equipment are as follows:

<TABLE>
<S>                                                           <C>
Corporate headquarters building.............................     31.5 years
Network assets..............................................  5 to 10 years
Office equipment and systems................................  5 to 20 years
Furniture and fixtures......................................  5 to 15 years
Computer equipment and software.............................   3 to 5 years
Leasehold improvements......................................        5 years
</TABLE>

     Property and equipment and liabilities under capital leases are recorded at
the lower of the present value of the minimum lease payments or the fair value
of the asset. Interest rates on capitalized leases are imputed based on the
lower of Illuminet's incremental borrowing rate at the inception of each lease
or the lessor's implicit rate of return. Depreciation on the leased assets are
included in depreciation expense, and is provided using the straight-line method
over the estimated useful lives of the assets.

CAPITALIZED SOFTWARE

     Computer software product costs represent capitalized costs incurred for
development of software products after the technological feasibility of the
product is established. Costs incurred prior to that date are expensed. The
annual amortization, which was $0.6 million for each of the years ended December
31, 1999, 1998, and 1997, is determined on a product-by-product basis as the
greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues
for that product, or (b) the straight-line method over the remaining estimated
economic life of the product. Amortization starts when the product is available
for general release to customers.

IMPAIRMENT OF LONG-LIVED ASSETS

     Long-lived assets consist of intangible assets and certain capital assets.
The carrying value of these assets is regularly reviewed to verify that they are
valued properly. If changes in facts and circumstances suggest that the value
has been impaired, an assessment is made of future cash flows and the carrying
value of the related assets will be reduced appropriately based on their
estimated discounted future cash flows.

REVENUE RECOGNITION

     Illuminet's revenues are recognized when earned, and are recorded net of
amounts passed through to service providers. Revenues on sales of software are
recognized when an arrangement exists, the price is fixed and determinable, the
related amounts are collectible, and the software has been delivered.

                                       F-8
<PAGE>   39
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     In 1999, Illuminet earned approximately 13% of its revenues from AT&T and
its affiliates with no single affiliate contributing more than 8% of total
revenue.

STOCK-BASED COMPENSATION

     Illuminet has elected to apply the disclosure-only provisions of the
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Accordingly, Illuminet accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Compensation expense for
stock options is measured as the excess, if any, of the fair value of Common
Stock and Class A Common Stock at the measurement date over the stock option
exercise price. Statement 123 requires companies that continue to follow APB 25
to provide pro forma disclosure of the impact of applying the fair value method
of Statement 123 (refer to Note 6).

INCOME TAXES

     Illuminet provides for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

EARNINGS PER SHARE

     The computation of earnings per share-basic is based on net income 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 of outstanding preferred stock, convertible debentures calculated using
the as if converted method, and Common Stock options and Class A Common Stock
options calculated using the treasury stock method. Effective with Illuminet's
initial public offering on October 7, 1999, all existing common stock
outstanding immediately prior to the initial public offering was renamed to
Class A Common Stock. Each share of Class A Common Stock will automatically
convert into four shares of Common Stock on April 5, 2000. All share and per
share amounts have been restated to reflect the conversion of the Class A Common
Stock into Common Stock at the beginning of each period presented.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

RECLASSIFICATIONS

     Certain reclassifications to the 1998 and 1997 financial statements have
been made to conform to the 1999 presentation.

SEGMENT INFORMATION

     In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information"
("Statement 131"), effective for financial statements for fiscal years beginning
after December 15, 1997. Statement 131 establishes standards for the reporting
by public business enterprises of financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued to shareholders. Illuminet primarily provides services
to companies in the telecommunications industry that are located throughout the
United States and

                                       F-9
<PAGE>   40
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

considers all of its operations as one segment because expenses support multiple
products and services. Revenues are reported separately for network services,
clearinghouse services and network usage software applications. No segment
information is provided to the chief operating decision maker for expenses,
operating income, total assets, depreciation, or capital purchases.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". The SOP, which was adopted in 1999, requires
capitalization of certain costs incurred in connection with developing or
obtaining internal use software. The provisions of the SOP are consistent with
Illuminet's current and past accounting policy and practice.

     In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5, which was adopted in 1999, requires that all
start-up costs related to new operations must be expensed as incurred. Adoption
of SOP 98-5 did not have a material impact on our financial position or results
of operations.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition, measurement, and reporting of
derivatives and hedging activities and is effective for Illuminet's year ending
December 31, 2000. Illuminet anticipates that the adoption of this new
accounting standard will not have a material impact on Illuminet's consolidated
financial statements, but continues to evaluate that impact.

NOTE 2. PROPERTY AND EQUIPMENT

     Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Land.....................................................  $   912    $   912
Building and leasehold improvements......................    7,543      7,156
Equipment and furniture..................................    4,040      3,435
Network assets...........................................   59,972     51,799
Computer hardware and software...........................   24,839     21,231
                                                           -------    -------
                                                            97,306     84,533
Less: accumulated depreciation...........................   52,177     40,786
                                                           -------    -------
          Property and equipment, net....................  $45,129    $43,747
                                                           =======    =======
</TABLE>

NOTE 3. LEASES

     In 1999 and 1998, Illuminet entered into various capital lease obligations
expiring in 2002 and 2003 for network assets. The lease agreements allow
Illuminet to purchase, for a nominal value, the assets at the end of the lease
term. Property and equipment held under capital leases follows (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1999       1998
                                                            -------    ------
<S>                                                         <C>        <C>
Network assets............................................  $10,020    $7,490
Less: accumulated amortization............................    2,465       645
                                                            -------    ------
          Total property and equipment held under capital
            leases........................................  $ 7,555    $6,845
                                                            =======    ======
</TABLE>

                                      F-10
<PAGE>   41
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Illuminet has entered into non-cancelable operating leases for its various
facilities, other than its Lacey headquarters site. The most significant lease
covers its Overland Park facility. Illuminet entered into a five-year lease,
beginning August 1998 for a new Overland Park facility that was constructed to
suit Illuminet's specifications. Effective January 1, 1999, the lease was
amended to a seven-year term with an option at five years to extend the term for
an additional five years. Prior to August 1998, Illuminet was located in a
different Overland Park facility under a lease that expired in August 1998.
During 1999, 1998 and 1997, rent expense was $0.6 million, $0.5 million and $0.4
million, respectively.

     Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments for the years ending
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                           CAPITAL    OPERATING
                                                           LEASES      LEASES
                                                           -------    ---------
<S>                                                        <C>        <C>
2000.....................................................  $2,942      $  604
2001.....................................................   2,942         545
2002.....................................................   2,072         465
2003.....................................................     402         440
2004.....................................................      --         440
Thereafter...............................................      --         440
                                                           ------      ------
          Total minimum lease payments...................   8,358      $2,934
                                                                       ======
Less: amount representing interest (at 8.12%)............     933
                                                           ------
Present value of net minimum lease payments..............   7,425
Less: current installments of obligations under capital
  leases.................................................   2,428
                                                           ------
Obligations under capital leases, less current portion...  $4,997
                                                           ======
</TABLE>

NOTE 4. LONG-TERM DEBT

     Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1999      1998
                                                            ------    -------
<S>                                                         <C>       <C>
Various secured notes payable to Rural Telephone Finance
  Cooperative ("RTFC") with variable interest rates, 7.00%
  at December 31, 1999 (6.15% at December 31, 1998)
  payable in quarterly installments, including interest,
  each maturing at various dates ranging from August 2000
  to March 2015...........................................  $7,458    $10,591
Convertible redeemable subordinated debentures
  ("Debentures") converted and repaid in 1999.............      --      7,474
Debentures, deferred interest payable.....................      --        989
                                                            ------    -------
                                                             7,458     19,054
Less: current portion.....................................   1,430      3,458
                                                            ------    -------
          Total long-term debt............................  $6,028    $15,596
                                                            ======    =======
</TABLE>

     In connection with a call for redemption, Illuminet converted, on October
4, 1999, almost all outstanding Debentures with approximately $8.4 million in
principal and accrued interest and issued 760,838 shares of Class A Common Stock
to debentureholders who elected to convert. A remaining amount of $0.1 million
was paid for redemption of the principal and accrued interest that was not
converted to Class A Common Stock.

     Additional borrowings available under the various note agreements with RTFC
aggregated $3.8 million at December 31, 1999 and 1998. All of the RTFC notes
have variable interest rates that are based on RTFC's short-term funding costs.
In accordance with the terms of the loan agreements, Illuminet purchased lender-

                                      F-11
<PAGE>   42
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

issued, non-interest-bearing subordinated capital certificates based on a
percentage of the gross loan amount. Such certificates are amortized against the
loan principal balance over the terms of the respective loans. Certificates
purchased, net of amortization, totaled $1.0 million and $1.1 million at
December 31, 1999 and 1998, respectively, are carried at cost, and are included
in prepaid expenses and in other long-term assets. The loan agreements contain
certain covenants, the most restrictive of which requires Illuminet to maintain
certain cash flow-to-debt service ratios.

     All RTFC loans are currently secured by a first-priority lien in the case
of the dissolution of Illuminet on substantially all of Illuminet's assets,
revenues and property, excluding cash collected and held on behalf of others in
the normal course of providing Illuminet's services. Cash and cash equivalents
not subject to the lien were $4.9 million and $3.3 million at December 31, 1999,
and 1998, respectively.

     Illuminet entered into a secured line of credit agreement with RTFC that
permits Illuminet to borrow up to $7.3 million, not to exceed 80% of eligible
accounts receivable, for a term of five years. The line of credit bears interest
at the lesser of the prime rate plus 1.5% or RTFC's monthly borrowing rate
(7.70% at December 31, 1999), and contains certain covenants, the most
restrictive of which requires Illuminet to maintain a zero balance in the line
of credit for at least five consecutive business days every 360 days after the
initial advance. There were no borrowings outstanding against the line of credit
at December 31, 1999 and 1998.

     The terms of the secured loan facilities restrict the ability to declare
and pay dividends without the consent of RTFC, unless Illuminet meets minimum
net worth and cash margin tests.

     The carrying value of Illuminet's long-term debt approximates fair value.

     Maturities of the long-term debt for the years ending December 31 are
scheduled as follows (in thousands):

<TABLE>
<S>                                   <C>
2000................................  $1,430
2001................................     675
2002................................     372
2003................................     408
2004................................     448
2005 - 2009.........................   2,983
2010 - 2014.........................   1,142
                                      ------
                                      $7,458
                                      ======
</TABLE>

NOTE 5. STOCKHOLDERS' EQUITY

     Effective October 7, 1999, Illuminet Holdings, Inc. is authorized to issue
up to 157,300,000 shares of capital stock consisting of (i) 150,000,000 shares
of Common Stock, par value $.01 per share, (ii) 7,200,000 shares of Class A
Common Stock, par value $.01 per share, and (iii) 100,000 shares of Illuminet
Holdings, Inc. Preferred Stock, par value $.01 per share. Each share of Common
Stock is entitled to one vote. Prior to the pending April 5, 2000 conversion,
each share of Class A Common Stock is entitled to four votes. The accompanying
financial statements have been retroactively adjusted to reflect the changes to
amounts of authorized shares.

INITIAL PUBLIC OFFERING

     On October 14, 1999, Illuminet completed an initial public offering of
4,485,000 shares of its Common Stock and received approximately $78.3 million in
cash, net of underwriter discounts, commissions and other offering costs.

                                      F-12
<PAGE>   43
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CLASS A COMMON STOCK

     Immediately prior to the initial public offering, all existing common stock
was renamed to Class A Common Stock. Each share of Class A Common Stock will
automatically convert into four shares of Common Stock on April 5, 2000. If the
Class A Common Stock were converted at December 31, 1999, an additional
25,376,536 shares of Common Stock would have been outstanding. Other than the
conversion feature and voting rights, terms of Class A Common Stock are
identical to those of the Common Stock on an as if converted basis.

SERIES A PREFERRED STOCK

     As approved by stockholders on June 21, 1999, all outstanding Series A
Preferred Stock automatically converted into an aggregate total of 204,941
shares of Class A Common Stock at the time of the initial public offering.

SERIES B PARTICIPATING CUMULATIVE PREFERENCE STOCK

     Series B Participating Cumulative Preference Stock ("Series B Stock") is
entitled to one vote per each one one-thousandth (" 1/1000") share, and votes
together as a class with Common Stock and Class A Common Stock on matters on
which holders of Common Stock and Class A Common Stock are generally entitled to
vote. Although the Series B Stock ranks superior to Common Stock and Class A
Common Stock, upon liquidation, dissolution or winding up of Illuminet, whether
voluntary or involuntary, other than requiring payment of accrued and unpaid
dividends before the payout to holders of Common Stock and Class A Common Stock,
the only liquidation right of the Series B Stock is that each 1/1000 of a share
of Series B Stock is entitled to receive an amount equivalent to the amount to
be distributed per whole share of Common Stock and Class A Common Stock. Series
B Stock was authorized in connection with the establishment of Illuminet's
Shareholder Rights Plan. No such shares were outstanding at December 31, 1999.

DIVIDENDS

     Payments of dividends are restricted under Illuminet's long-term debt
arrangements with approval of RTFC required unless Illuminet's ratio of equity
to total assets exceeds 40%. Dividends on Series B Stock are payable as follows:
(1) should Illuminet declare and pay a dividend on Common Stock or Class A
Common Stock, each 1/1000 share of Series B Stock is entitled to receive the
same dividend amount paid on one whole share of Class A Common Stock, (2) $0.01
per whole share of Series B Stock offset by any payments made as a result of a
Class A Common Stock dividend. No dividends have been declared to date.

SHAREHOLDER RIGHTS PLAN

     On November 19, 1998, Illuminet's Board of Directors adopted a Shareholder
Rights Plan and declared a dividend, issued on November 20, 1998, of one right
for each outstanding share of Common Stock ("Right"). Each Right represents the
right to purchase shares of our Series B Stock. The Rights become exercisable if
a person or group acquires more than 20% of the outstanding shares of Common
Stock or makes a tender offer for more than 20% of the outstanding shares of
Common Stock. Upon the occurrence of such an event, each Right entitles the
holder (other than the acquiror) to purchase for $150 the economic equivalent of
shares of Common Stock, or in certain circumstances, stock of the acquiring
entity, worth twice as much. The Rights expire on December 20, 2008 unless
earlier redeemed by Illuminet, and are redeemable prior to becoming exercisable
at $0.01 per Right.

                                      F-13
<PAGE>   44
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS

STOCK OPTION PLAN

     Illuminet established the 1997 Equity Incentive Plan under which 13% of
outstanding shares of Common Stock are reserved from time to time (3,804,941 at
December 31, 1999) for issuance pursuant to non-qualified and incentive stock
options and stock appreciation rights that may be granted. Only non-qualified
stock options have been granted under the plan. Employee non-qualified stock
options, primarily granted to key employees, are generally exercisable ratably
over four years and expire ten years from the date of grant except that options
expire 60 days after termination of employment. Outside Director non-qualified
stock options are generally exercisable on grant, or within twelve months of
grant, and expire ten years from the date of grant. Prior to the initial public
offering, the Board of Directors determined the estimated fair value of Class A
Common Stock as the stock was not publicly traded and a readily ascertainable
market value was not available.

     Additional information regarding options granted and outstanding is
summarized as follows. This information includes the effect of Class A Common
Stock options on an as if converted basis:

<TABLE>
<CAPTION>
                                                   NUMBER OF    WEIGHTED-AVERAGE
                                                    OPTIONS      EXERCISE PRICE
                                                   ---------    ----------------
<S>                                                <C>          <C>
Outstanding January 1, 1997......................         --         $   --
  Granted at exercise price less than fair value
     of Common Stock on grant date...............    926,016           2.20
                                                   ---------
  Outstanding December 31, 1997 (280,016
     exercisable at $2.20 weighted-average
     exercise price).............................    926,016           2.20
  Granted at exercise price less than fair value
     of Common Stock on grant date...............  1,170,044           2.34
  Granted at exercise price equal to fair value
     of Common Stock on grant date...............    474,000           4.18
  Exercised......................................       (400)          2.20
  Forfeited......................................    (57,500)          2.20
                                                   ---------
Outstanding December 31, 1998 (1,188,660
  exercisable at $2.28 weighted-average exercise
  price).........................................  2,512,160           2.63
  Granted at exercise price less than fair value
     of Common Stock on grant date...............    686,060           7.55
  Granted at exercise price equal to fair value
     of Common Stock on grant date...............     87,123          17.41
  Exercised......................................    (51,000)          2.20
                                                   ---------
Outstanding December 31, 1999 (1,699,243
  exercisable at $4.08 weighted-average exercise
  price).........................................  3,234,343         $ 4.08
                                                   =========         ======
</TABLE>

     Outstanding and exercisable stock options by price range as of December 31,
1999 is as follows:

<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                  -----------------------------------------------   ----------------------------
                                   WEIGHTED-
                                    AVERAGE          WEIGHTED-                      WEIGHTED-
   RANGE OF         NUMBER         REMAINING          AVERAGE         NUMBER         AVERAGE
EXERCISE PRICE    OUTSTANDING   CONTRACTUAL LIFE   EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
---------------   -----------   ----------------   --------------   -----------   --------------
<S>               <C>           <C>                <C>              <C>           <C>
$ 2.20 - $ 2.36..  1,999,160          7.90             $ 2.28        1,494,160        $ 2.29
$ 4.18 - $ 4.55..    551,260          8.15             $ 4.24          204,760        $ 4.30
$ 8.00 - $13.05..    620,800          9.64             $ 8.20                0            --
$19.00 - $48.44..     63,123          9.77             $19.07              323        $33.38
                   ---------                                         ---------
$ 2.20 - $48.44..  3,234,343          8.31             $ 4.08        1,699,243        $ 2.54
                   =========          ====             ======        =========        ======
</TABLE>

                                      F-14
<PAGE>   45
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     For the years ended December 31, 1999, 1998 and 1997, deferred stock-based
compensation for the stock options granted was $4.1 million, $0.6 million and
$0.5 million, respectively, and $0.7 million, $0.5 million and $0.2 million,
respectively, was recognized as stock-based compensation expense.

EMPLOYEE STOCK PURCHASE PLAN

     Effective October 7, 1999, Illuminet adopted an Employee Stock Purchase
Plan ("ESPP") for which the last purchase date is October 6, 2001. Eligible
employees may contribute up to 15% of cash compensation toward the semi-annual
purchase of Common Stock. Under the terms of the plan, 700,000 shares of
authorized Common Stock were reserved for purchase at 85% of the fair market
value price at the beginning of the six-month offering period at which an
eligible employee enrolled, or the end of each six-month offering period,
whichever is lower. In no case, can the fair market value price at the beginning
of any six-month offering period be less than $16.15. Through December 31, 1999,
no stock was purchased under this plan, and eligible employees have contributed
$0.2 million toward the first purchase on April 6, 2000.

     Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if Illuminet had accounted
for its stock options under the fair value method of that Statement and includes
the effect of Class A Common Stock options on an as if converted basis. The
weighted-average grant date fair value of these options was estimated at the
date of grant using the Minimum Value Option Pricing Model for all options
granted before the initial public offering and the Black-Scholes Option Pricing
Model for all options granted after the initial public offering with the
following weighted-average assumptions:

<TABLE>
<CAPTION>
                                              OCTOBER 7,     JANUARY 1,
                                               1999 TO        1999 TO      YEAR ENDED DECEMBER 31,
                                             DECEMBER 31,    OCTOBER 6,    ------------------------
                                                 1999           1999          1998          1997
                                             ------------    ----------    ----------    ----------
<S>                                          <C>             <C>           <C>           <C>
Risk-free interest rate....................     6.1%            5.7%          5.4%          5.9%
Dividend yield.............................      0%              0%            0%            0%
Expected volatility........................      70%             0%            0%            0%
Estimated option life......................  6.99 years      9.07 years    8.47 years    8.54 years
Weighted-average grant date value for
  options granted at exercise price less
  than fair value of Common Stock on grant
  date.....................................      --            $9.10         $2.04         $1.40
Weighted-average grant date value for
  options granted at exercise price equal
  to fair value of Common Stock on grant
  date.....................................    $13.63          $5.40         $1.54           --
</TABLE>

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period; accordingly,
the pro forma impact of stock options granted may not be indicative of the pro
forma impact in future years. Illuminet's pro forma information for the years
ended December 31 are summarized as follows (in thousands, except per share
amounts) and includes the effect of Class A Common Stock options on an as if
converted basis.

<TABLE>
<CAPTION>
                                                   1999       1998      1997
                                                  -------    ------    ------
<S>                                               <C>        <C>       <C>
Net income -- as reported.......................  $13,005    $5,293    $7,657
                                                  =======    ======    ======
Net income -- pro forma.........................  $12,002    $4,796    $7,485
                                                  =======    ======    ======
Earnings per share -- diluted -- as reported....  $  0.48    $ 0.22    $ 0.32
                                                  =======    ======    ======
Earnings per share -- diluted -- pro forma......  $  0.44    $ 0.20    $ 0.31
                                                  =======    ======    ======
</TABLE>

                                      F-15
<PAGE>   46
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7. EMPLOYEE BENEFIT PLANS

     Illuminet has qualified profit sharing/401(k) trust retirement plans
covering all employees subject to certain eligibility requirements. Illuminet
provides matching contributions to the plans' trusts on a portion of employee
contributions to the plans, and also may, at the discretion of the Board of
Directors, provide a discretionary contribution. For 1999, 1998 and 1997,
contribution expense was approximately $2.0 million, $1.1 million and $1.2
million, respectively.

NOTE 8. INCOME TAXES

     Components of the income tax provision (benefit) for the years ended
December 31 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                     1999      1998     1997
                                                    ------    ------    -----
<S>                                                 <C>       <C>       <C>
Current:
  Federal.........................................  $5,535    $1,077    $ 193
  State...........................................      91       188       --
Deferred:
  Federal.........................................   2,170     2,076     (821)
  State...........................................    (130)      122      (48)
                                                    ------    ------    -----
Total income tax provision (benefit)..............  $7,666    $3,463    $(676)
                                                    ======    ======    =====
</TABLE>

     Illuminet provides for deferred taxes based on the differences between the
bases of assets and liabilities for financial reporting purposes and income tax
purposes, calculated using enacted tax rates that will be in effect when the
differences are expected to reverse. At December 31, 1999 and 1998, such
differences primarily related to the use of accelerated depreciation and
amortization for tax purposes, accruals for certain expenses that are not
currently deductible for tax purposes until paid, the tax basis of certain
investments that have been written off for financial statement purposes and
software development costs that were capitalized for financial statement
purposes. December 31, 1998 also included net operating loss carryforwards and
tax credit carryforwards that were fully utilized in 1999.

     During 1999, Illuminet recorded an additional valuation allowance related
to the write down of a preferred stock equity investment based on a change in
the investee's business strategy and direction and fully utilized all federal
net operating loss carryforwards and tax credit carryforwards. At December 31,
1998, Illuminet had a valuation allowance related to tax benefits associated
with capital losses recorded for financial statement purposes but not yet
realized for tax purposes, and tax credit carryforwards of $1.4 million. During
the year ended December 31, 1997, the valuation allowance decreased $3.1 million
primarily through utilization of net operating loss carryforwards and the
reversal of substantially all of the previously recorded deferred tax valuation
allowance due to improved anticipated operating results.

                                      F-16
<PAGE>   47
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The reconciliations of the income tax provision (benefit) calculated using
the U.S. federal statutory rates to the recorded income tax provision (benefit)
for the years ended December 31 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                   1999      1998      1997
                                                  ------    ------    -------
<S>                                               <C>       <C>       <C>
Tax at U.S. federal statutory rate..............  $7,316    $2,977    $ 2,373
State income taxes, net of federal tax
  benefit.......................................     (26)      205         --
Utilization of net operating loss
  carryforward..................................      --        --     (2,373)
Alternative minimum tax.........................      --        --        193
Additional (reversal of) valuation allowance....     565        --       (869)
Other...........................................    (189)      281         --
                                                  ------    ------    -------
Income tax provision (benefit)..................  $7,666    $3,463    $  (676)
                                                  ======    ======    =======
</TABLE>

     The components of the deferred tax assets as of December 31 are summarized
as follows (in thousands):

<TABLE>
<CAPTION>
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards.......................  $   251    $ 1,454
  Tax credit carryforwards...............................       --      1,368
  Allowance for doubtful accounts........................      739        408
  Contract loss provision................................      760        151
  Deferred stock-based compensation......................      508        227
  Loss on impairment.....................................      555         --
  Other non-deductible accruals..........................      824      1,059
  Valuation allowance....................................     (745)      (180)
                                                           -------    -------
          Net deferred tax assets........................    2,892      4,487
                                                           -------    -------
Deferred tax liabilities:
  Excess tax over book depreciation and amortization.....   (6,246)    (5,801)
  Other..................................................      (14)       (14)
                                                           -------    -------
          Total deferred tax liabilities.................   (6,260)    (5,815)
                                                           -------    -------
Deferred tax liability, net..............................  $(3,368)   $(1,328)
                                                           =======    =======
</TABLE>

                                      F-17
<PAGE>   48
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. 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) and includes the
effect of Class A Common Stock on an as if converted basis:

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                      -----------------------------------------
                                         1999           1998           1997
                                      -----------    -----------    -----------
<S>                                   <C>            <C>            <C>
Numerator:
  Numerator for earnings per share-
     basic -- net income............  $    13,005    $     5,293    $     7,657
  Effect of dilutive securities --
     Debenture interest, net of
     tax............................          291            427            498
                                      -----------    -----------    -----------
  Numerator for earnings per share-
     diluted -- net income after
     assumed conversions............  $    13,296    $     5,720    $     8,155
                                      ===========    ===========    ===========
Denominator:
  Denominator for earnings per
     share-
     basic -- weighted-average
     shares.........................   23,377,396     21,425,540     21,182,036
  Weighted-average effect of
     dilutive securities:
     Stock options..................    1,134,656        549,308             --
     Debentures.....................    2,331,484      3,187,456      3,528,292
     Series A Stock.................      613,224        827,136        876,332
                                      -----------    -----------    -----------
     Dilutive potential common
       shares.......................    4,079,364      4,563,900      4,404,624
                                      -----------    -----------    -----------
  Denominator for earnings per
     share-diluted -- adjusted
     weighted-average shares and
     assumed conversions............   27,456,760     25,989,440     25,586,660
                                      ===========    ===========    ===========
Earnings per share -- basic.........  $      0.56    $      0.25    $      0.36
                                      ===========    ===========    ===========
Earnings per share -- diluted.......  $      0.48    $      0.22    $      0.32
                                      ===========    ===========    ===========
</TABLE>

     See notes 4, 5 and 6 for additional information regarding the Debentures,
Series A Stock and stock options.

     Stock options to purchase 70,802 and 1,072 weighted-average shares of
Common Stock were outstanding during 1997 and 1998, respectively, but were not
included in the computation of diluted earnings per share because of their
anti-dilutive effect.

NOTE 10. LEGAL PROCEEDINGS

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

NOTE 11. RELATED PARTY TRANSACTIONS

     Illuminet is party to a contract with the subsidiary of one of its
corporate stockholders that supplies Illuminet with transmission facilities in
the form of private leased lines. Such lines are leased from the corporate
stockholder at rates comparable to third-party service providers. Payments
pursuant to this contract totaled $2.1 million, $1.7 million and $1.6 million
for the years ended December 31, 1999, 1998, and 1997, respectively.

                                      F-18
<PAGE>   49
                            ILLUMINET HOLDINGS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Included in accounts receivable at December 31, 1998 is $0.2 million (none
in 1999), due for services and reimbursable expenses from a customer in which
Illuminet has a preferred stock equity investment currently representing 13% of
the voting rights of the customer. Revenues earned from the customer were $0.4
million, $0.8 million, and $0.5 million for the years ended December 31, 1999,
1998, and 1997, respectively. Included in 1999 operating expenses is a $1.5
million impairment loss of the full amount of a 1995 investment in this start-up
company that was previously recorded at cost. The recognition of this loss was
coincident with significant liquidity concerns of the investee, and the
investee's decision to discontinue its historical primary operations and related
uncertainties resulting from a change in the investee's business strategy and
direction.

NOTE 12. QUARTERLY RESULTS (UNAUDITED)

     The following quarterly financial data has been prepared from Illuminet's
financial records without audit, and in the opinion of management, reflect all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly Illuminet's results of operations for those periods when
considered in conjunction with our audited consolidated financial statements and
the notes to those financial statements included in this report. Earnings per
share-basic and earnings-per share diluted include the effect of Class A Common
Stock on an as if converted basis. Quarterly information may not total the
annual amounts in some instances because of rounding.
<TABLE>
<CAPTION>
                                                 QUARTER ENDED
                            --------------------------------------------------------
                             MARCH 31,     JUNE 30,     SEPTEMBER 30,   DECEMBER 31,
                               1998          1998           1998            1998
                            -----------   -----------   -------------   ------------
                                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                         <C>           <C>           <C>             <C>
Revenues..................  $    15,073   $    16,513    $    18,735    $    21,591
Operating income..........        1,699         2,264          2,409          3,130
Income before income
  taxes...................        1,636         2,103          2,142          2,875
Net income................  $     1,047   $     1,304    $     1,295    $     1,647
Earnings per
  share -- basic..........  $      0.05   $      0.06    $      0.06    $      0.08
Earnings per
  share -- diluted........  $      0.05   $      0.05    $      0.05    $      0.07
Weighted-average common
  shares -- basic.........   21,388,324    21,388,324     21,462,020     21,462,284
Weighted-average common
  shares -- diluted.......   25,637,212    25,997,580     25,982,984     25,935,444

<CAPTION>
                                                 QUARTER ENDED
                            --------------------------------------------------------
                             MARCH 31,     JUNE 30,     SEPTEMBER 30,   DECEMBER 31,
                               1999          1999           1999            1999
                            -----------   -----------   -------------   ------------
                                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                         <C>           <C>           <C>             <C>
Revenues..................  $    21,603   $    23,513    $    26,769    $    28,709
Operating income..........        3,949         3,637          5,875          6,716
Income before income
  taxes...................        3,759         3,435          5,674          7,803
Net income................  $     2,331   $     2,129    $     3,518    $     5,027
Earnings per
  share -- basic..........  $      0.10   $      0.10    $      0.16    $      0.17
Earnings per
  share -- diluted........  $      0.09   $      0.09    $      0.14    $      0.16
Weighted-average common
  shares -- basic.........   21,463,972    21,466,920     21,473,440     29,042,896
Weighted-average common
  shares -- diluted.......   26,097,456    26,143,140     26,606,200     30,973,828
</TABLE>

                                      F-19
<PAGE>   50

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS,
                        ON FINANCIAL STATEMENT SCHEDULE

     We have audited the consolidated financial statements of Illuminet
Holdings, Inc. as of December 31, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999, and have issued our report thereon dated
January 20, 2000 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedule listed in Item 14(a) of this Form
10-K. This schedule is the responsibility of Illuminet's management. Our
responsibility is to express an opinion based on our audits.

     In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

                                          ERNST & YOUNG LLP

Seattle, Washington
January 20, 2000

                                      F-20
<PAGE>   51

                            ILLUMINET HOLDINGS, INC.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                COL. A                     COL. B                    COL. C                     COL. D          COL. E
--------------------------------------  ------------   -----------------------------------   -------------   -------------
       ILLUMINET HOLDINGS, INC.                                     ADDITIONS
--------------------------------------                 -----------------------------------
                                         BALANCE AT                       CHARGED TO OTHER
                                        BEGINNING OF   CHARGED TO COSTS     ACCOUNTS --      DEDUCTIONS --    BALANCE AT
             DESCRIPTION                   PERIOD        AND EXPENSES         DESCRIBE         DESCRIBE      END OF PERIOD
             -----------                ------------   ----------------   ----------------   -------------   -------------
                                                                          (IN THOUSANDS)
<S>                                     <C>            <C>                <C>                <C>             <C>
Year Ended December 31, 1999
  Allowance for doubtful accounts.....     $1,133           $1,316              $--              $(505)         $1,944
Year Ended December 31, 1998
  Allowance for doubtful accounts.....      1,282              300               --               (449)          1,133
Year Ended December 31, 1997
  Allowance for doubtful accounts.....     $1,021           $  300              $--              $ (39)         $1,282
</TABLE>

                                      F-21
<PAGE>   52

                            ILLUMINET HOLDINGS, INC.

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                        DOCUMENT DESCRIPTION
-------                       --------------------
<C>       <S>
  3.1     Certificate of Incorporation of Illuminet Holdings, Inc. as
          amended
  3.2     Amendment to Certificate of Incorporation dated October 7,
          1999
  3.3     Bylaws of Illuminet Holdings, Inc. as amended on August 20,
          1999
  4.1     Rights Agreement dated as of November 20, 1998, by and
          between Illuminet Holdings, Inc. and UMB Bank, N.A., as
          Rights Agent, as amended on August 2, 1999
  4.2     Amendment No. 2 to Rights Agreement
 10.1     Illuminet Holdings, Inc. 1997 Equity Incentive Plan as
          amended
 10.2     Loan Agreement dated as of August 14, 1996, by and between
          Illuminet, Inc. and Rural Telephone Finance Cooperative
 10.3     Secured Revolving Line of Credit Application and Agreement
          dated as of August 14, 1996, by and between Illuminet, Inc.
          and Rural Telephone Finance Cooperative
 10.4     Secured Intermediate-Term Equipment Financing Loan
          Substitute Agreement dated as of August 14, 1996, by and
          between Illuminet, Inc. and Rural Telephone Finance
          Cooperative
 10.5     Employment Agreements with Messrs. Moore, Kremian, Johnson
          and Nicol
 21.1     Subsidiaries of Illuminet Holdings, Inc.
 23.1     Consent of Ernst & Young LLP, Independent Auditors
 27.1     Financial Data Schedule
</TABLE>

                                       E-1