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EX-32.1 - EXHIBIT 32.1 - NEUSTAR INCexhibit321q22016.htm
EX-31.2 - EXHIBIT 31.2 - NEUSTAR INCexhibit312q22016.htm
EX-31.1 - EXHIBIT 31.1 - NEUSTAR INCexhibit311q22016.htm
EX-10.49 - EXHIBIT 10.49 - NEUSTAR INCexhibit1049pvrsu2016.htm
EX-10.48 - EXHIBIT 10.48 - NEUSTAR INCexhibit1048rsu2016.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-32548
 
NeuStar, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
52-2141938
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
21575 Ridgetop Circle
Sterling, Virginia 20166
(Address of principal executive offices) (zip code)
(571) 434-5400
(Registrant’s telephone number, including area code)
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
There were 54,511,660 shares of Class A common stock, $0.001 par value, and 1,864 shares of Class B common stock, $0.001 par value, outstanding at July 25, 2016.



NEUSTAR, INC.
INDEX
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
EX – 31.1
 
 
EX – 31.2
 
 
EX – 32.1
 
 
EX – 101 INSTANCE DOCUMENT
 
EX – 101 SCHEMA DOCUMENT
 
EX – 101 CALCULATION LINKBASE DOCUMENT
 
EX – 101 DEFINITION LINBASE DOCUMENT
 
EX – 101 LABELS LINKBASE DOCUMENT
 
EX – 101 PRESENTATION LINKBASE DOCUMENT
 



PART IFINANCIAL INFORMATION
Item 1.
Financial Statements
NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
December 31,
2015
 
June 30,
2016
 
 
 
(unaudited)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
89,097

 
$
50,657

Restricted cash
2,363

 
2,290

Accounts receivable, net of allowance for doubtful accounts of $4,512 and $5,528, respectively
167,593

 
175,701

Unbilled receivables
17,712

 
14,700

Prepaid expenses and other current assets
30,216

 
37,848

Deferred costs
6,676

 
8,707

Income taxes receivable
5,883

 

Total current assets
319,540

 
289,903

Property and equipment, net
147,764

 
138,329

Goodwill
1,186,983

 
1,187,995

Intangible assets, net
529,279

 
481,687

Other assets, long-term
18,681

 
18,098

Total assets
$
2,202,247

 
$
2,116,012

See accompanying notes.


3


NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
December 31,
2015
 
June 30,
2016
 
 
 
(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY



Current liabilities:



Accounts payable
$
28,392


$
19,731

Accrued expenses
134,632


94,421

Deferred revenue
91,006


89,507

Notes payable
131,272


129,491

Capital lease obligations
4,791


3,621

Income taxes payable

 
5,297

Other liabilities
10,875


10,688

Total current liabilities
400,968


352,756

Deferred revenue, long-term
22,998


22,495

Notes payable, long-term
957,509


841,449

Capital lease obligations, long-term
1,831


235

Deferred income tax liabilities, long-term
38,701


40,929

Other liabilities, long-term
56,741


56,386

Total liabilities
1,478,748


1,314,250

Commitments and contingencies



Stockholders’ equity:



Preferred stock, $0.001 par value; 100,000,000 shares authorized; no shares issued and outstanding as of December 31, 2015 and June 30, 2016



Class A common stock, par value $0.001; 200,000,000 shares authorized; 80,233,896 and 81,716,259 shares issued; and 53,516,287 and 54,508,259 shares outstanding at December 31, 2015 and June 30, 2016, respectively
80


82

Class B common stock, par value $0.001; 100,000,000 shares authorized; 2,270 and 1,864 shares issued and outstanding at December 31, 2015 and June 30, 2016, respectively



Additional paid-in capital
729,273


748,467

Treasury stock, 26,717,609 and 27,208,000 shares at December 31, 2015 and June 30, 2016, respectively, at cost
(920,439
)

(932,250
)
Accumulated other comprehensive loss
(1,904
)

(522
)
Retained earnings
916,489


985,985

Total stockholders’ equity
723,499


801,762

Total liabilities and stockholders’ equity
$
2,202,247


$
2,116,012

See accompanying notes.

4


NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2016
 
2015
 
2016
Revenue
$
256,767

 
$
297,565

 
$
508,155

 
$
584,863

Operating expense:
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization shown separately below)
67,551

 
90,237

 
131,709

 
181,588

Sales and marketing
50,942

 
54,288

 
97,676

 
109,611

Research and development
5,997

 
5,260

 
12,451

 
12,809

General and administrative
24,729

 
27,238

 
49,386

 
54,756

Depreciation and amortization
29,438

 
38,829

 
59,362

 
77,311

Restructuring charges

 
6,129

 

 
8,793

Separation costs

 
4,218

 

 
4,218

 
178,657

 
226,199

 
350,584

 
449,086

Income from operations
78,110

 
71,366

 
157,571

 
135,777

Other (expense) income:
 
 
 
 
 
 
 
Interest and other expense
(6,481
)
 
(15,691
)
 
(13,203
)
 
(32,802
)
Interest income
69

 
67

 
295

 
241

Income before income taxes
71,698

 
55,742

 
144,663

 
103,216

Provision for income taxes
26,640

 
17,621

 
53,391

 
33,720

Net income
$
45,058

 
$
38,121

 
$
91,272

 
$
69,496

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.81

 
$
0.70

 
$
1.64

 
$
1.28

Diluted
$
0.80

 
$
0.69

 
$
1.61

 
$
1.26

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
55,377

 
54,458

 
55,676

 
54,205

Diluted
56,238

 
55,082

 
56,563

 
54,980

See accompanying notes.

5


NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2016
 
2015
 
2016
Net income
$
45,058

 
$
38,121

 
$
91,272

 
$
69,496

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Available for sale investments, net of tax:
 
 
 
 
 
 
 
Change in net unrealized gains, net of tax
(17
)
 
76

 
(31
)
 
19

Reclassification for gains included in net income, net of tax

 

 
(23
)
 

Net change in unrealized gains on investments, net of tax
(17
)
 
76

 
(54
)
 
19

Foreign currency translation adjustment, net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustment, net of tax
(194
)
 
(1,435
)
 
(1,067
)
 
1,363

Reclassification adjustment included in net income, net of tax
175

 

 
414

 

Foreign currency translation adjustment, net of tax
(19
)
 
(1,435
)
 
(653
)
 
1,363

Other comprehensive (loss) income, net of tax
(36
)
 
(1,359
)
 
(707
)
 
1,382

Comprehensive income
$
45,022

 
$
36,762

 
$
90,565

 
$
70,878

See accompanying notes.

6


NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended 
 June 30,
 
2015
 
2016
Operating activities:
 
 
 
Net income
$
91,272

 
$
69,496

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
59,362

 
77,311

Stock-based compensation
17,697

 
20,474

Amortization of deferred financing costs and original issue discount on debt
1,696

 
8,890

Tax benefit from equity awards
(48
)
 
(260
)
Deferred income taxes
4,618

 
1,237

Provision for doubtful accounts
3,900

 
3,600

Gain on disposal of assets
(626
)
 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(12,237
)
 
(12,459
)
Unbilled receivables
(414
)
 
3,012

Prepaid expenses and other current assets
(5,384
)
 
(7,630
)
Deferred costs
(736
)
 
(3,018
)
Income taxes
11,994

 
8,526

Other assets
(2,281
)
 
3,051

Other liabilities
7,018

 
(842
)
Accounts payable and accrued expenses
(6,259
)
 
(44,538
)
Deferred revenue
(4,477
)
 
(2,545
)
Net cash provided by operating activities
165,095

 
124,305

Investing activities:
 
 
 
Purchases of property and equipment
(13,395
)
 
(23,366
)
Businesses acquired, net of cash acquired

 
12

Net cash used in investing activities
(13,395
)
 
(23,354
)
Financing activities:
 
 
 
(Increase) decrease in restricted cash
(340
)
 
73

Payments under notes payable obligations
(4,062
)
 
(126,731
)
Principal repayments on capital lease obligations
(1,862
)
 
(2,774
)
Proceeds from issuance of stock
5,373

 
432

Tax benefit from equity awards
48

 
260

Repurchase of restricted stock awards and common stock
(64,932
)
 
(10,762
)
Net cash used in financing activities
(65,775
)
 
(139,502
)
Effect of foreign exchange rates on cash and cash equivalents
(527
)
 
111

Net increase (decrease) in cash and cash equivalents
85,398

 
(38,440
)
Cash and cash equivalents at beginning of period
326,577

 
89,097

Cash and cash equivalents at end of period
$
411,975

 
$
50,657

See accompanying notes.

7

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016



1.
DESCRIPTION OF BUSINESS AND ORGANIZATION
NeuStar, Inc. (the Company or Neustar) offers authoritative, hard-to-replicate data sets and proprietary analytics that provide insights to help clients promote and protect their businesses. The Company’s proprietary, cloud-based platforms and differentiated data sets offer informative, real-time analytics, which enable clients to make actionable, data-driven decisions. The Company provides chief marketing officers a comprehensive suite of services to plan their media spend, identify and locate desired customers, invest effectively in marketing campaigns, deliver relevant offers and measure the performance of these activities. Security professionals use the Company’s solutions to maximize web performance and protect against malicious attacks. The Company enables the exchange of essential operating information across multiple carriers to provision and manage services, assisting clients with fast and accurate order processing and immediate routing of customer inquiries. The Company provides communications service providers in the United States critical infrastructure that enables the dynamic routing of calls and text messages.
On June 21, 2016, the Company announced its intention to separate into two independent and publicly traded companies. One company will consist of the majority of the Company's Information Services, while the other will focus on providing Order Management and Numbering Services. Information Services includes Marketing Services, Security Services and Data Services. Order Management and Numbering Services will provide Local Number Portability Administration, number administration and ancillary numbering services as well as order and inventory management solutions. The Company intends to accomplish the separation through a tax-free spin-off, which the Company expects to occur over the next twelve months. The separation is subject to final approval by the Company's Board of Directors, as well as a number of market and regulatory conditions, including, among others, effectiveness of the Form 10 to be filed with the Securities and Exchange Commission.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the full fiscal year. The consolidated balance sheet as of December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by U.S. GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting periods. Significant estimates and assumptions are inherent in the analysis and the measurement of deferred tax assets; identification and valuation of acquired intangible assets; and recoverability of goodwill. The Company bases its estimates on historical experience and assumptions that it believes are reasonable. Actual results could differ from those estimates.
Separation Costs
In the second quarter of 2016 the Company announced its intention to separate into two independent and publicly traded companies. Separation costs are expensed as incurred and include professional fees for outside advisory services including legal, finance, accounting and related services.

8

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


Reclassifications
Within the consolidated statement of cash flows for the six months ended June 30, 2015, the Company reclassified $8.9 million from cash provided by operating activities to cash used in financing activities related to the exercise of equity awards and presentation of tax benefits to conform with current period presentation.
Fair Value of Financial Instruments
Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurements and Disclosure Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1. Observable inputs, such as quoted prices in active markets;
Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level at which to classify them for each reporting period. Due to their short-term nature, the carrying amounts reported in the accompanying unaudited consolidated financial statements approximate the fair value for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The Company determines the fair value of its $325 million senior secured term loan facility (2013 Term Facility) and $350 million incremental term loan facility (2015 Incremental Term Facility) using pricing service quotations as quoted by Bloomberg (Level 2) (see Note 5). The Company believes the carrying value of its revolving credit facility (2013 Revolving Facility) approximates the fair value of the debt as the term and interest rate approximates the market rate (Level 2) (see Note 5). The Company determines the fair value of its $300 million aggregate principal amount of 4.50% senior notes due 2023 (Senior Notes) using a secondary market price on the last trading day in each period as quoted by Bloomberg (Level 2) (see Note 5).
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
 
December 31, 2015
 
June 30, 2016
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
2013 Term Facility (including current portion, net of discount)
300,328

 
296,013

 
223,370

 
222,949

2013 Revolving Facility
175,000

 
175,000

 
175,000

 
175,000

2015 Incremental Term Facility (including current portion, net of discount)
337,947

 
341,326

 
292,364

 
291,050

Senior Notes (including current portion)
300,000

 
249,000

 
300,000

 
264,750

Restricted Cash
As of December 31, 2015 and June 30, 2016, cash of $2.4 million and $2.3 million, respectively, was restricted as collateral for certain of the Company’s outstanding letters of credit and for deposits on leased facilities.
Recent Accounting Pronouncements - Effective
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (Topic 805): Business Combinations, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The standard is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the standard, with earlier application permitted for financial statements that have not been issued. The Company’s adoption of this ASU did not impact its consolidated financial statements.

9

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


Recent Accounting Pronouncements - Not Yet Effective
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The Company currently intends to adopt this standard on January 1, 2017 and is currently evaluating the impact of adoption on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that long-term lease arrangements be recognized on the balance sheet. The standard is effective for interim and annual periods beginning after December 31, 2018, and early adoption is permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under this standard, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB decided to defer by one year the effective dates of the standard. As a result, the standard will be effective for annual and interim periods beginning after December 15, 2017. Companies may adopt the standard as early as the original effective date (i.e. annual reporting periods beginning after December 15, 2016). Early adoption prior to that date is not permitted. The standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or a modified retrospective adoption, meaning the standard is applied only to the most current period presented. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
3.
ACQUISITIONS
Bombora Acquisition
On July 30, 2015, the Company acquired Bombora Technologies Pty Ltd (Bombora) and expanded the Company’s registry services. As of June 30, 2016, the estimated preliminary purchase price was $87.7 million, which is subject to the finalization of the acquisition date fair value of acquired deferred income tax assets and assumed income and non-income based tax liabilities. Pro forma financial information for this acquisition has not been presented because the financial impact is not material.
MarketShare Acquisition
On December 9, 2015, the Company completed its acquisition of MarketShare Partners, LLC (MarketShare), a marketing analytics technology provider to major brands. The acquisition of MarketShare expanded the Company’s marketing services by creating a complete data-driven solution for Chief Marking Officers as they plan, optimize and allocate their entire marketing budget and resources across all channels. 
The transaction was accounted for under the acquisition method of accounting in accordance with the Business Combination Topic of the FASB ASC. The total preliminary purchase price was $442.4 million, consisting of cash consideration of $429.1 million and non-cash consideration of $13.3 million paid in shares of NeuStar Class A Common Stock, which shares are subject to certain transfer restrictions. During the six months ended June 30, 2016, the Company recorded working capital and escrow adjustments of $1.3 million, reducing the preliminary purchase price to $441.1 million. In addition, the Company adjusted its preliminary valuation of acquired assets and assumed liabilities based upon new information that was received pertaining to acquisition date fair values.

10

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


The allocation of the preliminary purchase price is pending the finalization of the fair value of acquired deferred income tax assets and assumed income and non-income based tax liabilities. The following table summarizes the current preliminary purchase price allocation based on the estimated fair value of the acquired assets and assumed liabilities and reflects the measurement period adjustments recorded during the six months ended June 30, 2016 (in thousands):
Cash and cash equivalents
$
7,504

Accounts receivable
8,954

Prepaids and other assets
6,344

Accounts payable and accrued expenses
(8,857
)
Deferred revenue
(2,062
)
Deferred tax liability
(10,862
)
Net tangible assets acquired
1,021

Customer relationships
30,000

Acquired identified technology
100,000

Goodwill
310,065

Total preliminary purchase price allocation
$
441,086

As of June 30, 2016, of the total goodwill balance of $310.1 million, approximately $200.2 million is expected to be deductible for tax purposes.
Pro Forma Financial Information for the MarketShare Acquisition
The following unaudited pro forma financial information summarizes the Company’s results of operations for the period indicated as if the Company’s acquisition of MarketShare had been completed as of the beginning of the earliest period presented. These pro forma amounts (unaudited and in thousands) are not indicative of the results that would have actually been obtained if the acquisition occurred as of the beginning of the periods presented and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity. The pro forma financial information for all periods presented also includes the effect of the related 2015 acquisition financing, amortization expense from the acquired intangible assets, adjustments to interest expense and related tax effects.
 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
 
Pro forma revenue
$
270,652

 
$
532,465

 
Pro forma income from operations
$
68,415

 
$
135,464

 
Pro forma net income
$
31,847

 
$
61,949

 
Caller Authentication Assets Acquisition
On December 18, 2015, the Company acquired caller authentication assets from Transaction Network Services, Inc., enhancing its position in the caller authentication market that includes subscriber data storage, database management, caller identification and verification services. As of June 30, 2016, the estimated preliminary purchase price was $220.0 million, of which $22.0 million was deposited into escrow to satisfy post-closing indemnification claims. The preliminary purchase price is subject to the finalization of the acquisition date fair value of acquired deferred income tax assets and assumed non-income based tax liabilities. Pro forma financial information for this acquisition has not been presented because the financial impact is not material.

11

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


4.
GOODWILL
Goodwill
The Company’s goodwill as of December 31, 2015 and June 30, 2016 is as follows (in thousands):
 
December 31,
2015
 
Acquisitions
 
Adjustments (1)
 
Foreign Currency Translation
 
June 30,
2016
Gross goodwill
$
1,280,585

 
$

 
$
(565
)
 
$
1,577

 
$
1,281,597

Accumulated impairments
(93,602
)
 

 

 

 
(93,602
)
Net goodwill
$
1,186,983

 
$

 
$
(565
)

$
1,577

 
$
1,187,995

(1) During the six months ended June 30, 2016, the Company adjusted the preliminary purchase price paid based on adjustments to its preliminary valuation of assets acquired and liabilities assumed in the 2015 acquisitions (see Note 3).
5.
NOTES PAYABLE
Notes payable consist of the following (in thousands):
 
December 31,
2015
 
June 30,
2016
2013 Term Facility (net of discount)
$
300,328

 
$
223,370

2013 Term Facility deferred financing fees
(1,683
)
 
(1,283
)
2013 Revolving Facility
175,000

 
175,000

2013 Revolving Facility deferred financing fees
(2,162
)
 
(1,639
)
Senior Notes
300,000

 
300,000

Senior Notes deferred financing fees
(11,637
)
 
(10,937
)
2015 Incremental Term Facility (net of discount)
337,947

 
292,364

2015 Incremental Term Facility deferred financing fees
(9,012
)
 
(5,935
)
Total
1,088,781

 
970,940

Less: current portion, net of discount
(131,272
)
 
(129,491
)
Long-term portion
$
957,509

 
$
841,449

Credit Facilities and Senior Notes
On January 22, 2013, the Company entered into a credit facility that provided for a $325 million senior secured term loan facility (2013 Term Facility) and a $200 million senior secured revolving credit facility (2013 Revolving Facility, and together with the 2013 Term Facility, the 2013 Credit Facilities). In addition, the Company closed an offering of $300 million aggregate principal amount of senior notes (Senior Notes).
On December 9, 2015, the Company amended its 2013 Credit Facilities to provide for (i) the permissibility of an incremental term facility under the 2013 Credit Agreement (the 2013 Credit Agreement), (ii) the addition of a senior secured leverage financial measurement covenant; (iii) streamlined conditions for the incurrence of an incremental term facility to be used for a permitted acquisition; (iv) a required escrow and prepayment (such prepayment to be for the benefit of the incremental facility lenders) by the Company under certain specified circumstances; and (v) certain tax related changes favorable to the Company to the terms of the 2013 Credit Agreement and related security agreement.
On December 9, 2015, the Company borrowed $350 million under its incremental term facility (the 2015 Incremental Term Facility, and together with the 2013 Term Facility and the 2013 Revolving Facility, the Amended 2013 Credit Facilities). The proceeds of the 2015 Incremental Term Facility were used to consummate the acquisition of MarketShare and to pay related fees and expenses.
The Company may voluntarily prepay the borrowings under the Amended 2013 Credit Facilities at any time in minimum amounts of $1 million or an integral multiple of $500,000 in excess thereof. The Amended 2013 Credit Facilities provide for

12

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


mandatory prepayments with the net cash proceeds of certain debt issuances, insurance receipts, and dispositions. The Amended 2013 Credit Facilities also contain certain events of default, upon the occurrence of which, and so long as such event of default is continuing, the amounts outstanding may, at the option of the required lenders, accrue interest at an increased rate and payments of such outstanding amounts could be accelerated, or other remedies undertaken.
As of June 30, 2016, outstanding borrowings under the 2013 Revolving Facility were $175.0 million and available borrowings under the same facility were $7.9 million, exclusive of outstanding letters of credit totaling $17.1 million.
Senior Notes
On January 22, 2013, the Company closed an offering of $300 million aggregate principal amount of 4.50% senior notes due 2023. The Senior Notes are the general unsecured senior obligations of the Company and are guaranteed on a senior unsecured basis by certain of its domestic subsidiaries, or the Subsidiary Guarantors. Interest is payable on the Senior Notes semi-annually in arrears at an annual rate of 4.50%, on January 15 and July 15 of each year, beginning on July 15, 2013.
If the Company experiences certain changes of control together with a ratings downgrade, it will be required to offer to purchase all of the Senior Notes then outstanding at a purchase price equal to 101.00% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. If the Company sells certain assets and does not repay certain debt or reinvest the proceeds of such sales within certain time periods, it will be required to offer to repurchase the Senior Notes with such proceeds at 100.00% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
The Senior Notes contain customary events of default, including among other things, payment default, failure to provide certain notices and defaults related to bankruptcy events. The Senior Notes also contain customary negative covenants.
6.
STOCKHOLDERS’ EQUITY
As of June 30, 2016, a total of 2,682,711 shares were available for grant or award under the Company’s stock incentive plans and a total of 176,474 shares were available to be issued under the Company’s Employee Stock Purchase Plan (ESPP). On June 15, 2016, at the Company’s annual meeting of stockholders, the Company’s stockholders approved a proposal to make an additional 3,000,000 shares available for grant under the Company’s stock incentive plans.
Stock-based compensation expense recognized for the three months ended June 30, 2015 and 2016 was $9.5 million and $10.6 million, respectively, and $17.7 million and $20.5 million for the six months ended June 30, 2015 and 2016, respectively. As of June 30, 2016, total unrecognized compensation expense was estimated at $61.4 million, which the Company expects to recognize over a weighted average period of approximately 1.5 years. Total unrecognized compensation expense as of June 30, 2016 is estimated based on outstanding non-vested stock options, non-vested restricted stock units and non-vested performance vested restricted stock units (PVRSUs). Stock-based compensation expense may increase or decrease in future periods for subsequent grants or forfeitures.
Stock Options
The Company utilizes the Black-Scholes option pricing model to estimate the fair value of stock options granted. The following table summarizes the Company’s stock option activity:
 
Shares
 
Weighted-
Average
Exercise
Price
 
Aggregate
Intrinsic
Value
(in millions)
 
Weighted-
Average
Remaining
Contractual
Life
(in years)
Outstanding at December 31, 2015
1,356,904

 
$
24.70

 
 
 
 
Granted

 

 
 
 
 
Exercised
(126,356
)
 
16.20

 
 
 
 
Forfeited
(116,209
)
 
26.50

 
 
 
 
Outstanding at June 30, 2016
1,114,339

 
$
25.48

 
$
0.6

 
2.5
Exercisable at June 30, 2016
901,669

 
$
25.26

 
$
0.6

 
1.9
The aggregate intrinsic value of options exercised for the six months ended June 30, 2016 was $0.9 million.

13

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


Performance Vested Restricted Stock Units
The fair value of a PVRSU is measured by reference to the closing market price of the Company’s common stock on the date of the grant. The Company recognizes the estimated fair value of PVRSUs, net of estimated forfeitures, as stock-based compensation expense over the vesting period, which considers each performance period or tranche separately, based upon the Company’s determination of the level of achievement of the performance target.
During the three months ended June 30, 2016, the Company revised its estimate of the level of achievement of the performance target for the 2016 performance year to below target, resulting in a decrease in stock-based compensation expense. The Company’s consolidated net income for the three and six months ended June 30, 2016 was $38.1 million and $69.5 million, respectively, and diluted net income per common share was $0.69 and $1.26 per share, respectively. If the Company had continued to use the previous estimate of achievement for each respective period, the as adjusted net income for the three and six months ended June 30, 2016 would have been approximately $37.3 million and $68.7 million, respectively, and the as adjusted diluted net income per common share would have been approximately $0.68 and $1.25 per share, respectively.
The following table summarizes the Company’s non-vested PVRSU activity for the six months ended June 30, 2016:
 
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Aggregate
Intrinsic
Value
(in millions)
Non-vested at December 31, 2015
1,366,572

 
$
26.78

 
 
Granted
1,107,221

 
24.08

 
 
Vested
(882,243
)
 
28.29

 
 
Forfeited
(159,263
)
 
27.35

 
 
Non-vested at June 30, 2016
1,432,287

 
$
23.70

 
$
33.7

The aggregate intrinsic value of PVRSUs vested during the six months ended June 30, 2016 was approximately $21.8 million. The Company repurchased 339,783 shares of common stock for an aggregate purchase price of $8.4 million pursuant to the participants’ rights under the Company’s stock incentive plans to elect to use common stock to satisfy their minimum tax withholding obligations.
Restricted Stock Units
The following table summarizes the Company’s restricted stock units activity for the six months ended June 30, 2016:
 
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding at December 31, 2015
2,074,120

 
$
30.42

 
 
Granted
1,081,824

 
23.97

 
 
Vested
(473,358
)
 
33.12

 
 
Forfeited
(172,034
)
 
29.26

 
 
Outstanding at June 30, 2016
2,510,552

 
$
27.21

 
$
59.0

The aggregate intrinsic value of restricted stock units vested during the six months ended June 30, 2016 was approximately $11.5 million. The Company repurchased 183,840 shares of common stock for an aggregate purchase price of $4.5 million pursuant to the participants’ rights under the Company’s stock incentive plans to elect to use common stock to satisfy their minimum tax withholding obligations.

14

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


7.
BASIC AND DILUTED NET INCOME PER COMMON SHARE
The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net income per common share (in thousands, except per share data):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2016
 
2015
 
2016
Computation of basic net income per common share:
 
 
 
 
 
 
 
Net income
$
45,058

 
$
38,121

 
$
91,272

 
$
69,496

Weighted average common shares and participating securities outstanding – basic
55,377

 
54,458

 
55,676

 
54,205

Basic net income per common share
$
0.81

 
$
0.70

 
$
1.64

 
$
1.28

Computation of diluted net income per common share:
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
55,377

 
54,458

 
55,676

 
54,205

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock-based awards
861

 
624

 
887

 
775

Weighted average common shares outstanding – diluted
56,238

 
55,082

 
56,563

 
54,980

Diluted net income per common share
$
0.80

 
$
0.69

 
$
1.61

 
$
1.26

Diluted net income per common share reflects the potential dilution of common stock equivalents such as options and warrants, to the extent the impact is dilutive. Common stock options to purchase an aggregate of 751,702 and 2,002,992 shares were excluded from the calculation of the denominator for diluted net income per common share due to their anti-dilutive effect for the three months ended June 30, 2015 and 2016, respectively. Common stock options to purchase an aggregate of 1,066,636 and 1,877,467 shares were excluded from the calculation of the denominator for diluted net income per common share due to their anti-dilutive effect for the six months ended June 30, 2015 and 2016, respectively.
8.
RESTRUCTURING CHARGES
2016 Restructuring
During the three and six months ended June 30, 2016, the Company recorded restructuring charges of $6.1 million and $8.8 million, respectively, related to estimated severance and severance-related costs.
9.
INTEREST AND OTHER EXPENSE
Interest and other expense consists of the following (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2016
 
2015
 
2016
Interest and other expense:
 
 
 
 
 
 
 
Interest expense
$
6,386

 
$
15,961

 
$
12,846

 
$
32,527

(Gain) loss on asset disposals
(85
)
 
8

 
(254
)
 
8

Foreign currency transaction loss (gain)
180

 
(278
)
 
611

 
267

Total interest and other expense
$
6,481

 
$
15,691

 
$
13,203

 
$
32,802

10.
INCOME TAXES
The Company’s effective tax rate, including discrete tax benefits of $2.0 million, decreased to 32.7% for the six months ended June 30, 2016 from 36.9% for the six months ended June 30, 2015, primarily due to the Company’s federal research and development credit which was not available in the first half of 2015 and the reversal of certain of the Company's unrecognized tax benefits in the first half of 2016 upon the completion of an Internal Revenue Service (IRS) audit of Neustar Information

15

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


Services, Inc. (formerly TARGUSInformation Corporation), a subsidiary of the Company, for the year ended December 31, 2010 and the expiration of certain statutes of limitations.
As of December 31, 2015 and June 30, 2016, the Company had unrecognized tax benefits of $7.5 million and $6.7 million, respectively, of which $6.9 million and $6.1 million, respectively, would affect the Company’s effective tax rate if recognized.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the three and six months ended June 30, 2015 and 2016, potential interest and penalties were insignificant. Interest and penalties are primarily due to uncertain tax positions assumed in acquisitions. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.
The Company files income tax returns in the United States federal jurisdiction and in many state and foreign jurisdictions. The tax years 2009 through 2014 remain open to examination by the major taxing jurisdictions to which the Company is subject. During the first quarter of 2016, the IRS completed an examination of the 2010 federal income tax return of Neustar Information Services, Inc. No adjustments were made as a result of the audit.
The Company anticipates that the amount of reasonably possible unrecognized tax benefits that could decrease over the next 12 months due to the expiration of certain statutes of limitations and settlement of tax audits is not material to the Company's consolidated financial statements.
11.
SEGMENT INFORMATION
The Company engages in business activities as a single entity and the chief operating decision maker reviews consolidated operating results and allocates resources based on consolidated reports. The Company has a single operating segment.
Enterprise-Wide Disclosures
Revenue by geographical areas is based on the billing address of the Company’s clients. Geographic area revenue and service revenue from external clients for the three and six months ended June 30, 2015 and 2016, and geographic area property and equipment as of December 31, 2015 and June 30, 2016 are as follows (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2016
 
2015
 
2016
Revenue by geographical areas:
 
 
 
 
 
 
 
United States
$
237,490

 
$
271,752

 
$
473,044

 
$
536,444

International
19,277

 
25,813

 
35,111

 
48,419

Total revenue
$
256,767

 
$
297,565

 
$
508,155

 
$
584,863

 
 
 
 
 
 
 
 
Revenue by service:
 
 
 
 
 
 
 
Marketing Services
$
40,889

 
$
63,923

 
$
78,116

 
$
121,594

Security Services
40,451

 
49,323

 
80,093

 
97,970

Data Services
49,236

 
55,808

 
97,394

 
108,964

NPAC Services
126,191

 
128,511

 
252,552

 
256,335

Total revenue
$
256,767

 
$
297,565

 
$
508,155

 
$
584,863


16

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


 
December 31,
2015
 
June 30,
2016
Property and equipment, net
 
 
 
United States
$
145,077

 
$
136,257

Australia
2,171

 
1,550

Other
516

 
522

Total property and equipment, net
$
147,764

 
$
138,329

12.
SUPPLEMENTAL GUARANTOR INFORMATION
The following schedules present condensed consolidating financial information of the Company as of December 31, 2015 and June 30, 2016 and for the three and six months ended June 30, 2015 and 2016 for (a) Neustar, Inc., the parent company; (b) certain of the Company’s 100% owned domestic subsidiaries (collectively, the Subsidiary Guarantors); and (c) certain wholly-owned domestic and foreign subsidiaries of the Company (collectively, the Non-Guarantor Subsidiaries). Investments in subsidiaries are accounted for using the equity method; accordingly, entries necessary to consolidate the parent company and all of the guarantor and non-guarantor subsidiaries are reflected in the eliminations column. Intercompany amounts that will not be settled between entities are treated as contributions or distributions for purposes of these condensed consolidated financial statements. The guarantees are full and unconditional and joint and several. A Subsidiary Guarantor will be released from its obligations under the Senior Notes when: (a) the Subsidiary Guarantor is sold or sells substantially all of its assets; (b) the Subsidiary Guarantor is designated as an unrestricted subsidiary as defined by the Senior Notes; (c) the Subsidiary Guarantor’s guarantee of indebtedness under the Senior Notes is released (other than discharge through repayment); or (d) the requirements for legal or covenant defeasance or discharge of the indenture have been satisfied.

17

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2015
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
48,061

 
$
27,092

 
$
13,944

 
$

 
$
89,097

Restricted cash
1,260

 
1,103

 

 

 
2,363

Accounts receivable, net
91,899

 
71,062

 
4,632

 

 
167,593

Unbilled receivables
2,357

 
14,694

 
661

 

 
17,712

Prepaid expenses and other current assets
23,080

 
8,551

 
1,868

 
(3,283
)
 
30,216

Deferred costs
1,119

 
2,876

 
2,681

 

 
6,676

Income taxes receivable
10,661

 

 

 
(4,778
)
 
5,883

Intercompany receivable
26,030

 

 

 
(26,030
)
 

Total current assets
204,467

 
125,378

 
23,786

 
(34,091
)
 
319,540

Property and equipment, net
135,445

 
9,302

 
3,017

 

 
147,764

Goodwill
94,153

 
984,017

 
108,813

 

 
1,186,983

Intangible assets, net
13,751

 
462,848

 
52,680

 

 
529,279

Net investments in subsidiaries
1,545,227

 

 

 
(1,545,227
)
 

Other assets, long-term
16,071

 
1,283

 
2,635

 
(1,308
)
 
18,681

Total assets
$
2,009,114

 
$
1,582,828

 
$
190,931

 
$
(1,580,626
)
 
$
2,202,247

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
18,945

 
$
7,522

 
$
1,925

 
$

 
$
28,392

Accrued expenses
98,761

 
29,262

 
6,609

 

 
134,632

Income taxes payable

 
3,068

 
1,496

 
(4,564
)
 

Deferred revenue
24,929

 
46,153

 
19,924

 

 
91,006

Notes payable
131,272

 

 
3,283

 
(3,283
)
 
131,272

Capital lease obligations
3,927

 

 
864

 

 
4,791

Other liabilities
9,937

 
279

 
659

 

 
10,875

Intercompany payable

 
18,199

 
7,831

 
(26,030
)
 

Total current liabilities
287,771

 
104,483

 
42,591

 
(33,877
)
 
400,968

Deferred revenue, long-term
8,239

 
9,734

 
5,025

 

 
22,998

Notes payable, long-term
957,509

 

 

 

 
957,509

Capital lease obligations, long-term
1,825

 

 
6

 

 
1,831

Deferred income tax liabilities, long-term

 
42,865

 
7,658

 
(11,822
)
 
38,701

Other liabilities, long-term
41,978

 
8,652

 
6,111

 

 
56,741

Total liabilities
1,297,322

 
165,734

 
61,391

 
(45,699
)
 
1,478,748

Total stockholders’ equity
711,792

 
1,417,094

 
129,540

 
(1,534,927
)
 
723,499

Total liabilities and stockholders’ equity
$
2,009,114

 
$
1,582,828

 
$
190,931

 
$
(1,580,626
)
 
$
2,202,247


18

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2016
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
38,584

 
$
5,747

 
$
6,326

 
$

 
$
50,657

Restricted cash
1,260

 
1,030

 

 

 
2,290

Accounts receivable, net
90,181

 
80,007

 
5,513

 

 
175,701

Unbilled receivables
2,395

 
11,841

 
464

 

 
14,700

Prepaid expenses and other current assets
30,130

 
5,736

 
1,982

 

 
37,848

Deferred costs
1,455

 
4,158

 
3,094

 

 
8,707

Income taxes receivable

 

 
236

 
(236
)
 

Intercompany receivable
13,361

 

 

 
(13,361
)
 

Total current assets
177,366

 
108,519

 
17,615

 
(13,597
)
 
289,903

Property and equipment, net
126,775

 
9,261

 
2,293

 

 
138,329

Goodwill
94,153

 
983,554

 
110,288

 

 
1,187,995

Intangible assets, net
12,214

 
419,556

 
49,917

 

 
481,687

Net investments in subsidiaries
1,509,153

 

 

 
(1,509,153
)
 

Other assets, long-term
13,166

 
1,977

 
2,955

 

 
18,098

Total assets
$
1,932,827

 
$
1,522,867

 
$
183,068

 
$
(1,522,750
)
 
$
2,116,012

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
10,184

 
$
9,345

 
$
202

 
$

 
$
19,731

Accrued expenses
63,502

 
24,486

 
6,433

 

 
94,421

Deferred revenue
23,943

 
46,900

 
18,664

 

 
89,507

Notes payable
129,491

 

 

 

 
129,491

Capital lease obligations
3,399

 

 
222

 

 
3,621

Income taxes payable
5,387

 
146

 

 
(236
)
 
5,297

Other liabilities
7,403

 
2,482

 
803

 

 
10,688

Intercompany payable

 
7,835

 
5,526

 
(13,361
)
 

Total current liabilities
243,309

 
91,194

 
31,850

 
(13,597
)
 
352,756

Deferred revenue, long-term
8,286

 
8,170

 
6,039

 

 
22,495

Notes payable, long-term
841,449

 

 

 

 
841,449

Capital lease obligations, long-term
235

 

 

 

 
235

Deferred income tax liabilities, long-term
10,216

 
33,872

 
7,141

 
(10,300
)
 
40,929

Other liabilities, long-term
44,323

 
5,629

 
6,434

 

 
56,386

Total liabilities
1,147,818

 
138,865

 
51,464

 
(23,897
)
 
1,314,250

Total stockholders’ equity
785,009

 
1,384,002

 
131,604

 
(1,498,853
)
 
801,762

Total liabilities and stockholders’ equity
$
1,932,827

 
$
1,522,867

 
$
183,068

 
$
(1,522,750
)
 
$
2,116,012



19

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2015
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$
176,205

 
$
85,798

 
$
3,610

 
$
(8,846
)
 
$
256,767

Operating expense:
 
 
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization shown separately below)
43,875

 
28,701

 
2,682

 
(7,707
)
 
67,551

Sales and marketing
38,844

 
12,988

 
156

 
(1,046
)
 
50,942

Research and development
4,951

 
1,039

 
7

 

 
5,997

General and administrative
21,996

 
2,710

 
116

 
(93
)
 
24,729

Depreciation and amortization
12,954

 
16,200

 
284

 

 
29,438

 
122,620

 
61,638

 
3,245

 
(8,846
)
 
178,657

Income from operations
53,585

 
24,160

 
365

 

 
78,110

Other (expense) income:
 
 
 
 
 
 
 
 
 
Interest and other expense
(6,487
)
 
8

 
(2
)
 

 
(6,481
)
Interest income
63

 
6

 

 

 
69

Income before income taxes and equity income in consolidated subsidiaries
47,161

 
24,174

 
363

 

 
71,698

Provision for income taxes
11,158

 
15,310

 
172

 

 
26,640

Income before equity income in consolidated subsidiaries
36,003

 
8,864

 
191

 

 
45,058

Equity income in consolidated subsidiaries
9,055

 
487

 

 
(9,542
)
 

Net income
$
45,058

 
$
9,351

 
$
191

 
$
(9,542
)
 
$
45,058

Comprehensive income
$
45,179

 
$
9,231

 
$
154

 
$
(9,542
)
 
$
45,022




20

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2016
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$
168,591

 
$
123,831

 
$
16,192

 
$
(11,049
)
 
$
297,565

Operating expense:
 
 
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization shown separately below)
41,795

 
52,161

 
6,171

 
(9,890
)
 
90,237

Sales and marketing
30,899

 
21,336

 
3,139

 
(1,086
)
 
54,288

Research and development
5,103

 
(231
)
 
388

 

 
5,260

General and administrative
22,672

 
3,665

 
974

 
(73
)
 
27,238

Depreciation and amortization
13,615

 
22,798

 
2,416

 

 
38,829

Restructuring charges
3,705

 
1,968

 
456

 

 
6,129

Separation costs
4,218

 

 

 

 
4,218

 
122,007


101,697


13,544


(11,049
)

226,199

Income from operations
46,584

 
22,134

 
2,648

 

 
71,366

Other (expense) income:
 
 
 
 
 
 
 
 
 
Interest and other expense
(16,025
)
 
(816
)
 
1,150

 

 
(15,691
)
Interest income
982

 
100

 
(1,015
)
 

 
67

Income before income taxes and equity income in consolidated subsidiaries
31,541


21,418


2,783




55,742

Provision for income taxes
11,011

 
6,334

 
276

 

 
17,621

Income before equity income in consolidated subsidiaries
20,530


15,084


2,507




38,121

Equity income in consolidated subsidiaries
17,591

 
164

 

 
(17,755
)
 

Net income
$
38,121


$
15,248


$
2,507


$
(17,755
)

$
38,121

Comprehensive income
$
39,199

 
$
15,237

 
$
81

 
$
(17,755
)
 
$
36,762



21

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2016


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2015
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$
351,586

 
$
166,479

 
$
7,520

 
$
(17,430
)
 
$
508,155

Operating expense:
 
 
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization shown separately below)
88,255

 
53,154

 
5,401

 
(15,101
)
 
131,709

Sales and marketing
72,846

 
27,040

 
(25
)
 
(2,185
)
 
97,676

Research and development
10,497

 
1,944

 
10

 

 
12,451

General and administrative
44,030

 
5,200

 
300

 
(144
)
 
49,386

Depreciation and amortization
26,201

 
32,594

 
567

 

 
59,362

 
241,829

 
119,932

 
6,253

 
(17,430
)
 
350,584

Income from operations
109,757


46,547


1,267




157,571

Other (expense) income:
 
 
 
 
 
 
 
 

Interest and other expense
(13,285
)
 
30

 
52

 

 
(13,203
)
Interest income
283

 
10

 
2

 

 
295

Income before income taxes and equity income in consolidated subsidiaries
96,755


46,587


1,321




144,663

Provision for income taxes
25,599

 
27,221

 
571

 

 
53,391

Income before equity income in consolidated subsidiaries
71,156

 
19,366


750

 

 
91,272

Equity income in consolidated subsidiaries
20,116

 
967