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EX-32.1 - EXHIBIT 32.1 - NEUSTAR INCexhibit321q22017.htm
EX-31.2 - EXHIBIT 31.2 - NEUSTAR INCexhibit312q22017.htm
EX-31.1 - EXHIBIT 31.1 - NEUSTAR INCexhibit311q22017.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, 2017
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth 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
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.          ¨
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 55,965,415 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 August 7, 2017.



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 LINKBASE 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,
2016
 
June 30,
2017
 
 
 
(unaudited)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
45,773

 
$
94,823

Restricted cash
2,283

 
2,139

Accounts receivable, net of allowance for doubtful accounts of $6,572 and $7,823, respectively
207,595

 
186,869

Unbilled receivables
19,795

 
15,865

Prepaid expenses and other current assets
41,680

 
36,718

Deferred costs
11,469

 
10,500

Income taxes receivable
13,586

 

Total current assets
342,181

 
346,914

Property and equipment, net
145,821

 
151,810

Goodwill
1,168,982

 
1,173,203

Intangible assets, net
423,957

 
384,931

Other assets, long-term
17,771

 
16,881

Total assets
$
2,098,712

 
$
2,073,739

See accompanying notes.


4


NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
December 31,
2016
 
June 30,
2017
 
 
 
(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY



Current liabilities:



Accounts payable
$
21,095


$
22,185

Accrued expenses
134,545


104,200

Deferred revenue
91,188


100,583

Notes payable
103,725


74,555

Capital lease obligations
1,457


121

Income taxes payable

 
22,621

Other liabilities
11,632


14,116

Total current liabilities
363,642


338,381

Deferred revenue, long-term
22,437


23,582

Notes payable, long-term
702,946


597,196

Deferred income tax liabilities, long-term
35,088


34,554

Other liabilities, long-term
53,298


51,694

Total liabilities
1,177,411


1,045,407

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, 2016 and June 30, 2017



Class A common stock, par value $0.001; 200,000,000 shares authorized; 82,136,230 and 83,664,353 shares issued; and 54,896,659 and 55,956,914 shares outstanding at December 31, 2016 and June 30, 2017, respectively
82


84

Class B common stock, par value $0.001; 100,000,000 shares authorized; 1,864 and 1,864 shares issued and outstanding at December 31, 2016 and June 30, 2017, respectively



Additional paid-in capital
771,450


800,784

Treasury stock, 27,239,571 and 27,707,439 shares at December 31, 2016 and June 30, 2017, respectively, at cost
(933,581
)

(949,232
)
Accumulated other comprehensive (loss) income
(1,785
)

1,199

Retained earnings
1,085,135


1,175,497

Total stockholders’ equity
921,301


1,028,332

Total liabilities and stockholders’ equity
$
2,098,712


$
2,073,739

See accompanying notes.

5


NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2017
 
2016
 
2017
Revenue
$
297,565

 
$
297,938

 
$
584,863

 
$
591,124

Operating expense:
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization shown separately below)
90,237

 
87,322

 
181,588

 
175,238

Sales and marketing
54,288

 
53,971

 
109,611

 
110,528

Research and development
5,260

 
7,604

 
12,809

 
14,276

General and administrative
27,238

 
27,111

 
54,756

 
55,471

Depreciation and amortization
38,829

 
35,452

 
77,311

 
70,379

Restructuring charges
6,129

 
8,012

 
8,793

 
8,039

Separation costs
4,218

 

 
4,218

 
1,789

 
226,199

 
219,472

 
449,086

 
435,720

Income from operations
71,366

 
78,466

 
135,777

 
155,404

Other (expense) income:
 
 
 
 
 
 
 
Interest and other expense
(15,691
)
 
(10,630
)
 
(32,802
)
 
(22,901
)
Interest income
67

 
74

 
241

 
146

Income before income taxes
55,742

 
67,910

 
103,216

 
132,649

Provision for income taxes
17,621

 
22,991

 
33,720

 
42,287

Net income
$
38,121

 
$
44,919

 
$
69,496

 
$
90,362

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.70

 
$
0.80

 
$
1.28

 
$
1.63

Diluted
$
0.69

 
$
0.79

 
$
1.26

 
$
1.58

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
54,458

 
55,865

 
54,205

 
55,589

Diluted
55,082

 
57,029

 
54,980

 
57,019

See accompanying notes.

6


NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2017
 
2016
 
2017
Net income
$
38,121

 
$
44,919

 
$
69,496

 
$
90,362

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

 
42

 
19

 
97

Reclassification for gains included in net income, net of tax

 

 

 
(13
)
Net change in unrealized gains on investments, net of tax
76

 
42

 
19

 
84

Foreign currency translation adjustment, net of tax
(1,435
)
 
33

 
1,363

 
2,900

Other comprehensive (loss) income, net of tax
(1,359
)
 
75

 
1,382

 
2,984

Comprehensive income
$
36,762

 
$
44,994

 
$
70,878

 
$
93,346

See accompanying notes.

7


NEUSTAR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended 
 June 30,
 
2016
 
2017
Operating activities:
 
 
 
Net income
$
69,496

 
$
90,362

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
77,311

 
70,379

Stock-based compensation
20,474

 
20,063

Amortization of deferred financing costs and original issue discount on debt
8,890

 
5,640

Tax benefit from equity awards
(260
)
 

Deferred income taxes
1,237

 
(2,993
)
Provision for doubtful accounts
3,600

 
3,600

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(12,459
)
 
16,882

Unbilled receivables
3,012

 
3,945

Prepaid expenses and other current assets
(7,630
)
 
7,378

Deferred costs
(3,018
)
 
1,684

Income taxes
8,526

 
36,207

Other assets
3,051

 
222

Other liabilities
(842
)
 
469

Accounts payable and accrued expenses
(44,538
)
 
(27,448
)
Deferred revenue
(2,545
)
 
(407
)
Net cash provided by operating activities
124,305

 
225,983

Investing activities:
 
 
 
Purchases of property and equipment
(23,366
)
 
(29,092
)
Businesses acquired, net of cash acquired
12

 

Net cash used in investing activities
(23,354
)
 
(29,092
)
Financing activities:
 
 
 
Decrease in restricted cash
73

 
144

Payments under notes payable obligations
(126,731
)
 
(139,878
)
Principal repayments on capital lease obligations
(2,774
)
 
(1,336
)
Proceeds from issuance of stock
432

 
6,161

Tax benefit from equity awards
260

 

Repurchase of restricted stock awards and common stock
(10,762
)
 
(12,539
)
Net cash used in financing activities
(139,502
)
 
(147,448
)
Effect of foreign exchange rates on cash and cash equivalents
111

 
(393
)
Net (decrease) increase in cash and cash equivalents
(38,440
)
 
49,050

Cash and cash equivalents at beginning of period
89,097

 
45,773

Cash and cash equivalents at end of period
$
50,657

 
$
94,823

See accompanying notes.

8

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017



1.
DESCRIPTION OF BUSINESS AND ORGANIZATION
NeuStar, Inc. (the Company or Neustar) helps clients grow and guard their business with the most complete understanding of how to connect people, places, and things using its authoritative OneIDTM system. As the leader in connection science, the Company uses its expertise in real-time addressing, authentication, and analytics to provide marketing, risk security, registry, and communications solutions to over 11,000 clients. The Company’s 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 December 14, 2016, the Company entered into an Agreement and Plan of Merger (the Merger Agreement), with Aerial Topco, L.P. (the Parent), and Aerial Merger Sub, Inc., a subsidiary of Parent (Merger Sub), pursuant to which, subject to the satisfaction or waiver of the conditions therein, Merger Sub will merge with and into Neustar. As a result of the merger, the Company will become a wholly-owned subsidiary of Parent. Parent and Merger Sub were formed by Golden Gate Private Equity, Inc. and GIC Special Investments Pte Ltd. On March 14, 2017, the Company’s stockholders voted in favor of the adoption of the Merger Agreement. On August 8, 2017, Merger Sub merged with and into the Company pursuant to the Merger Agreement and the Company became a wholly-owned subsidiary of Parent (the Closing).  As a result of the Closing, Company stockholders are entitled to receive $33.50 per share in cash as merger consideration. 
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, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year. The consolidated balance sheet as of December 31, 2016 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, 2016 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; the identification and quantification of income tax liabilities due to uncertain tax positions; 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.
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

9

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


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 term loan facilities, the 2013 Term Facility (as defined in Note 4) and the Amended 2013 Term Facility (as defined in Note 4), using pricing service quotations as quoted by Bloomberg (Level 2). The Company believes the carrying value of its Amended 2013 Revolving Facility (as defined in Note 4) approximates the fair value of the debt as the term and interest rate approximates the market rate (Level 2). The Company determines the fair value of its Senior Notes using a secondary market price on the last trading day in each period as quoted by Bloomberg (Level 2).
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
 
December 31, 2016
 
June 30, 2017
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
2013 Amended Term Facility (including current portion, net of discount)
$
437,815

 
$
439,480

 
$
384,768

 
$
385,741

Amended 2013 Revolving Facility
85,000

 
85,000

 

 

Senior Notes (including current portion)
300,000

 
305,733

 
300,000

 
308,364

Restricted Cash
As of December 31, 2016 and June 30, 2017, cash of $2.3 million and $2.1 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 - Adopted
In March 2016, the FASB issued Accounting Standards Update (ASU) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. 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 Company adopted the standard on January 1, 2017. On a prospective basis, the Company began recognizing excess tax benefits on stock compensation as income tax benefits on its consolidated statements of operations and within operating activities on the consolidated statements of cash flows. During the three and six months ended June 30, 2017, the Company recognized excess tax benefits of $0.3 million and $3.1 million, respectively. The Company elected to continue to estimate the number of awards expected to be forfeited. Payments to satisfy income tax withholding obligations continue to be reported as a financing activity on the consolidated statements of cash flows. The Company’s adoption of this standard did not have a material impact on its consolidated financial statements.
Recent Accounting Pronouncements - Not Yet Effective
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 deferred the effective dates of the standard by one year. 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). 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.

10

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


In preparation for the adoption of the new accounting standard on January 1, 2018, the Company reviewed a representative sample of its client contracts and is evaluating the provisions contained therein in light of the five-step model specified by the new guidance. That five-step model includes: (1) determination of whether a contract exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company is also evaluating the impact of the new standard on its current practices, such as accounting for sales commissions.  Under this new guidance, sales commission expenditures may be recorded as an asset and recognized as an operating expense over the period that the Company expects to recover the costs. Currently, the Company expenses sales commissions as incurred. The Company has not yet quantified the potential impact of this or other potential impacts of the new guidance.  The Company is also continuing to evaluate the approach that it will use when transitioning to this new guidance. 
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 August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard clarifies how certain cash receipts and cash payments should be classified on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. The Company currently intends to adopt this standard on January 1, 2018 and is currently evaluating the impact of adoption on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard simplifies the accounting for goodwill impairment by requiring impairment charges to be based on the first step in the current two-step impairment test under ASC 350. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
3.
GOODWILL
The change in the carrying amount of the Company’s goodwill from December 31, 2016 to June 30, 2017 is as follows (in thousands):
 
December 31,
2016
 
Foreign Currency Translation
 
June 30,
2017
Gross goodwill
$
1,262,584

 
$
4,221

 
$
1,266,805

Accumulated impairments
(93,602
)
 

 
(93,602
)
Net goodwill
$
1,168,982

 
$
4,221

 
$
1,173,203


11

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


4.
NOTES PAYABLE
Notes payable consist of the following (in thousands):
 
December 31,
2016
 
June 30,
2017
Amended 2013 Term Facility (net of discount)
$
437,815

 
$
384,768

Amended 2013 Term Facility deferred financing fees
(5,016
)
 
(3,535
)
Amended 2013 Revolving Facility
85,000

 

Amended 2013 Revolving Facility deferred financing fees
(916
)
 

Senior Notes
300,000

 
300,000

Senior Notes deferred financing fees
(10,212
)
 
(9,482
)
Total
806,671

 
671,751

Less: current portion, net of discount
(103,725
)
 
(74,555
)
Long-term portion
$
702,946

 
$
597,196

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 the 2013 Credit Facilities to provide for (i) the permissibility of an incremental term facility, (ii) the addition of a senior secured leverage financial maintenance 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 Credit Agreement and related security agreement.
On September 28, 2016, the Company entered into the third amendment to the 2013 Credit Facilities to (i) extend the maturity date of the 2013 Revolving Facility (the Amended 2013 Revolving Facility) to January 22, 2019, (ii) consolidate the remaining principal balance outstanding under the 2013 Term Facility and the 2015 Incremental Term Facility into a single term loan facility of $499 million and extend the maturity date of the consolidated term loans to January 22, 2019 (the Amended 2013 Term Facility, and together with the Amended 2013 Revolving Facility, the Amended 2013 Credit Facilities), (iii) set the annual amortization percentage of the Amended 2013 Term Facility at 22% through December 31, 2017 and 10% thereafter and (iv) lower the eurodollar rate margin and base rate margin for the Amended 2013 Term Facility to (a) if the Consolidated Leverage Ratio (as defined in the Credit Agreement) is less than 2 to 1 after March 1, 2017, 3% and 2%, respectively, and (b) if the Consolidated Leverage Ratio is 2 to 1 or greater, 3.25% and 2.25%, respectively.
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 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, 2017, there were no outstanding borrowings under the Amended 2013 Revolving Facility. Available borrowings under the same facility were $182.0 million, exclusive of outstanding letters of credit totaling $18.0 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.

12

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


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.
Future Principal Payments
Future principal payments under the Amended 2013 Credit Facilities and the Senior Notes as of June 30, 2017, are as follows (in thousands):
2017
$
54,878

2018
49,889

2019
284,370

2020

2021

Thereafter
300,000

Total future principal payments
$
689,137

5.
STOCKHOLDERS’ EQUITY
As of June 30, 2017, a total of 6,519,366 shares were available for grant or award under the Company’s stock incentive plans.
Stock-based compensation expense recognized for the three months ended June 30, 2016 and 2017 was $10.6 million and $12.0 million, respectively, and $20.5 million and $21.5 million for the six months ended June 30, 2016 and 2017, respectively. As of June 30, 2017, total unrecognized compensation expense was estimated at $37.2 million, which the Company expects to recognize over a weighted average period of approximately 1.1 years. Total unrecognized compensation expense as of June 30, 2017 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 for the six months ended June 30, 2017:
 
Shares
 
Weighted-
Average
Exercise
Price
 
Aggregate
Intrinsic
Value
(in millions)
 
Weighted-
Average
Remaining
Contractual
Life
(in years)
Outstanding at December 31, 2016
987,984

 
$
25.55

 
 
 
 
Granted

 

 
 
 
 
Exercised
(429,511
)
 
24.51

 
 
 
 
Forfeited

 

 
 
 
 
Outstanding at June 30, 2017
558,473

 
$
26.35

 
$
1.1

 
2.0
Exercisable at June 30, 2017
452,133

 
$
26.34

 
$
0.7

 
1.5
The aggregate intrinsic value of options exercised for the six months ended June 30, 2017 was $3.8 million.

13

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


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.
The following table summarizes the Company’s non-vested PVRSU activity for the six months ended June 30, 2017:
 
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Aggregate
Intrinsic
Value
(in millions)
Non-vested at December 31, 2016
1,166,939

 
$
23.25

 
 
Granted
512,569

 
33.25

 
 
Vested
(451,700
)
 
23.85

 
 
Forfeited
(318,977
)
 
24.21

 
 
Non-vested at June 30, 2017
908,831

 
$
28.26

 
$
30.3

The aggregate intrinsic value of PVRSUs vested during the six months ended June 30, 2017 was approximately $15.1 million. The Company repurchased 175,314 shares of common stock for an aggregate purchase price of $5.8 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, 2017:
 
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding at December 31, 2016
2,226,948

 
$
27.13

 
 
Granted
45,750

 
33.15

 
 
Vested
(646,912
)
 
29.10

 
 
Forfeited
(81,950
)
 
25.34

 
 
Outstanding at June 30, 2017
1,543,836

 
$
26.58

 
$
51.5

The aggregate intrinsic value of restricted stock units vested during the six months ended June 30, 2017 was approximately $21.5 million. The Company repurchased 249,762 shares of common stock for an aggregate purchase price of $8.3 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, 2016 AND 2017


6.
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,
 
2016
 
2017
 
2016
 
2017
Computation of basic net income per common share:
 
 
 
 
 
 
 
Net income
$
38,121

 
$
44,919

 
$
69,496

 
$
90,362

Weighted average common shares and participating securities outstanding – basic
54,458

 
55,865

 
54,205

 
55,589

Basic net income per common share
$
0.70

 
$
0.80

 
$
1.28

 
$
1.63

Computation of diluted net income per common share:
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
54,458

 
55,865

 
54,205

 
55,589

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock-based awards
624

 
1,164

 
775

 
1,430

Weighted average common shares outstanding – diluted
55,082

 
57,029

 
54,980

 
57,019

Diluted net income per common share
$
0.69

 
$
0.79

 
$
1.26

 
$
1.58

Diluted net income per common share reflects the potential dilution of common stock equivalents such as options, to the extent the impact is dilutive. An aggregate of 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, 2016. There were no shares with an anti-dilutive effect for the three months ended June 30, 2017. An aggregate of 1,877,467 and 84,276 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, 2016 and 2017, respectively.
7.
INTEREST AND OTHER EXPENSE
Interest and other expense consists of the following (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2017
 
2016
 
2017
Interest and other expense:
 
 
 
 
 
 
 
Interest expense
$
15,961

 
$
10,433

 
$
32,527

 
$
22,079

Loss on asset disposals
8

 
274

 
8

 
260

Foreign currency transaction (gain) loss
(278
)
 
(77
)
 
267

 
562

Total interest and other expense
$
15,691

 
$
10,630

 
$
32,802

 
$
22,901

8.
INCOME TAXES
The Company’s effective tax rate, including discrete tax benefits of $3.9 million, decreased to 31.9% for the six months ended June 30, 2017 from 32.7% for the six months ended June 30, 2016, primarily due to the adoption of ASU 2016-09 in the first quarter of 2017. As a result of the adoption of this standard, the Company recognizes excess tax benefits on stock compensation as a discrete item within income tax benefits on its consolidated statements of operations. Prior to the adoption of this standard, excess tax benefits were recognized in additional paid-in capital on the Company’s consolidated balance sheet.
As of December 31, 2016 and June 30, 2017, the Company had unrecognized tax benefits of $7.5 million and $7.9 million, respectively, of which $6.9 million and $7.3 million, respectively, would affect the Company’s effective tax rate if recognized.

15

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the three and six months ended June 30, 2016 and 2017, 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 2010 through 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Virginia Department of Taxation initiated an examination of the 2014 and 2015 corporate income tax returns for Neustar, Inc. and Subsidiaries.  Management does not currently believe that the outcome will have a material adverse effect on the Company’s financial position, result of operations or cash flows.  During 2017, the IRS completed an examination of the 2012 federal income tax return of Neustar, Inc. and its subsidiaries. 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.
9.
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 addresses of the Company’s clients. Geographic area revenue and service revenue from external clients for the three and six months ended June 30, 2016 and 2017, and geographic area property and equipment as of December 31, 2016 and June 30, 2017 are as follows (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2017
 
2016
 
2017
Revenue by geographical areas:
 
 
 
 
 
 
 
United States
$
271,752

 
$
274,156

 
$
536,444

 
$
543,942

International
25,813

 
23,782

 
48,419

 
47,182

Total revenue
$
297,565

 
$
297,938

 
$
584,863

 
$
591,124

 
 
 
 
 
 
 
 
Revenue by service:
 
 
 
 
 
 
 
Marketing Services
$
63,923

 
$
67,796

 
$
121,594

 
$
132,835

Security Services
49,323

 
47,455

 
97,970

 
94,330

Data Services
55,808

 
54,761

 
108,964

 
107,766

NPAC Services
128,511

 
127,926

 
256,335

 
256,193

Total revenue
$
297,565

 
$
297,938

 
$
584,863

 
$
591,124

 
December 31,
2016
 
June 30,
2017
Property and equipment, net
 
 
 
United States
$
143,560

 
$
149,900

Australia
1,378

 
926

Other
883

 
984

Total property and equipment, net
$
145,821

 
$
151,810


16

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


10.
SUPPLEMENTAL GUARANTOR INFORMATION
The following schedules present condensed consolidating financial information of the Company as of December 31, 2016 and June 30, 2017 and for the three and six months ended June 30, 2016 and 2017 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 consolidated financial statements. The guarantees, as outlined in Note 4, 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, 2016 AND 2017


CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2016
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
21,871

 
$
15,037

 
$
8,865

 
$

 
$
45,773

Restricted cash
1,260

 
1,023

 

 

 
2,283

Accounts receivable, net
100,686

 
102,565

 
4,344

 

 
207,595

Unbilled receivables
3,829

 
14,652

 
1,314

 

 
19,795

Prepaid expenses and other current assets
32,799

 
7,039

 
1,842

 

 
41,680

Deferred costs
2,232

 
5,964

 
3,273

 

 
11,469

Income taxes receivable
17,481

 

 
1,007

 
(4,902
)
 
13,586

Intercompany receivable
9,990

 
1,365

 

 
(11,355
)
 

Total current assets
190,148

 
147,645

 
20,645

 
(16,257
)
 
342,181

Property and equipment, net
133,759

 
9,636

 
2,426

 

 
145,821

Goodwill
94,153

 
968,116

 
106,713

 

 
1,168,982

Intangible assets, net
10,967

 
368,068

 
44,922

 

 
423,957

Net investments in subsidiaries
1,490,889

 

 

 
(1,490,889
)
 

Other assets, long-term
11,686

 
3,206

 
2,879

 

 
17,771

Total assets
$
1,931,602

 
$
1,496,671

 
$
177,585

 
$
(1,507,146
)
 
$
2,098,712

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
10,733

 
$
9,578

 
$
784

 
$

 
$
21,095

Accrued expenses
84,782

 
41,458

 
8,305

 

 
134,545

Income taxes payable

 
4,902

 

 
(4,902
)
 

Deferred revenue
24,503

 
48,753

 
17,932

 

 
91,188

Notes payable
103,725

 
6,849

 
3,141

 
(9,990
)
 
103,725

Capital lease obligations
1,457

 

 

 

 
1,457

Other liabilities
6,564

 
4,936

 
132

 

 
11,632

Intercompany payable
938

 

 
427

 
(1,365
)
 

Total current liabilities
232,702

 
116,476

 
30,721

 
(16,257
)
 
363,642

Deferred revenue, long-term
8,426

 
8,360

 
5,651

 

 
22,437

Notes payable, long-term
702,946

 

 

 

 
702,946

Deferred income tax liabilities, long-term
9,493

 
19,616

 
5,979

 

 
35,088

Other liabilities, long-term
41,411

 
5,313

 
6,574

 

 
53,298

Total liabilities
994,978

 
149,765

 
48,925

 
(16,257
)
 
1,177,411

Total stockholders’ equity
936,624

 
1,346,906

 
128,660

 
(1,490,889
)
 
921,301

Total liabilities and stockholders’ equity
$
1,931,602

 
$
1,496,671

 
$
177,585

 
$
(1,507,146
)
 
$
2,098,712


18

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2017
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
78,860

 
$
6,483

 
$
9,480

 
$

 
$
94,823

Restricted cash
1,260

 
879

 

 

 
2,139

Accounts receivable, net
98,408

 
82,740

 
5,721

 

 
186,869

Unbilled receivables
1,284

 
12,818

 
1,763

 

 
15,865

Prepaid expenses and other current assets
30,023

 
4,861

 
1,834

 

 
36,718

Deferred costs
1,979

 
4,728

 
3,793

 

 
10,500

Income taxes receivable

 
410

 
1,187

 
(1,597
)
 

Intercompany receivable
9,796

 
448

 
5,919

 
(16,163
)
 

Total current assets
221,610

 
113,367

 
29,697

 
(17,760
)
 
346,914

Property and equipment, net
141,413

 
8,423

 
1,974

 

 
151,810

Goodwill
94,153

 
968,116

 
110,934

 

 
1,173,203

Intangible assets, net
9,721

 
331,738

 
43,472

 

 
384,931

Net investments in subsidiaries
1,440,432

 

 

 
(1,440,432
)
 

Other assets, long-term
11,147

 
2,641

 
3,093

 

 
16,881

Total assets
$
1,918,476

 
$
1,424,285

 
$
189,170

 
$
(1,458,192
)
 
$
2,073,739

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
13,457

 
$
8,020

 
$
708

 
$

 
$
22,185

Accrued expenses
73,798

 
24,970

 
5,432

 

 
104,200

Deferred revenue
26,966

 
51,722

 
21,895

 

 
100,583

Notes payable
74,555

 
6,612

 
3,184

 
(9,796
)
 
74,555

Capital lease obligations
121

 

 

 

 
121

Income taxes payable
24,218

 

 

 
(1,597
)
 
22,621

Other liabilities
10,797

 
3,103

 
216

 

 
14,116

Intercompany payable
6,367

 

 

 
(6,367
)
 

Total current liabilities
230,279

 
94,427

 
31,435

 
(17,760
)
 
338,381

Deferred revenue, long-term
8,119

 
9,195

 
6,268

 

 
23,582

Notes payable, long-term
597,196

 

 

 

 
597,196

Deferred income tax liabilities, long-term
14,951

 
11,033

 
5,561

 
3,009

 
34,554

Other liabilities, long-term
40,598

 
4,399

 
6,697

 

 
51,694

Total liabilities
891,143

 
119,054

 
49,961

 
(14,751
)
 
1,045,407

Total stockholders’ equity
1,027,333

 
1,305,231

 
139,209

 
(1,443,441
)
 
1,028,332

Total liabilities and stockholders’ equity
$
1,918,476

 
$
1,424,285

 
$
189,170

 
$
(1,458,192
)
 
$
2,073,739



19

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


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




20

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2017
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$
171,466

 
$
126,053

 
$
14,968

 
$
(14,549
)
 
$
297,938

Operating expense:
 
 
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization shown separately below)
43,126

 
50,371

 
5,465

 
(11,640
)
 
87,322

Sales and marketing
35,078

 
20,212

 
1,370

 
(2,689
)
 
53,971

Research and development
5,778

 
1,925

 
(99
)
 

 
7,604

General and administrative
24,058

 
3,292

 
(19
)
 
(220
)
 
27,111

Depreciation and amortization
14,110

 
19,121

 
2,221

 

 
35,452

Restructuring charges
5,518

 
1,963

 
531

 

 
8,012

 
127,668

 
96,884

 
9,469

 
(14,549
)

219,472

Income from operations
43,798

 
29,169

 
5,499

 

 
78,466

Other (expense) income:
 
 
 
 
 
 
 
 
 
Interest and other expense
(10,733
)
 
(98
)
 
201

 

 
(10,630
)
Interest income
58

 
127

 
(111
)
 

 
74

Income before income taxes and equity income in consolidated subsidiaries
33,123

 
29,198

 
5,589

 


67,910

Provision (benefit) for income taxes
7,641

 
15,448

 
(98
)
 

 
22,991

Income before equity income in consolidated subsidiaries
25,482

 
13,750

 
5,687

 


44,919

Equity income in consolidated subsidiaries
19,437

 
649

 

 
(20,086
)
 

Net income
$
44,919


$
14,399


$
5,687


$
(20,086
)

$
44,919

Comprehensive income (loss)
$
44,756

 
$
24,689

 
$
(4,365
)
 
$
(20,086
)
 
$
44,994





















21

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2016
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$
335,530

 
$
242,238

 
$
28,752

 
$
(21,657
)
 
$
584,863

Operating expense:
 
 
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization shown separately below)
83,471

 
103,088

 
13,448

 
(18,419
)
 
181,588

Sales and marketing
61,712

 
43,871

 
6,318

 
(2,290
)
 
109,611

Research and development
10,574

 
1,392

 
843

 

 
12,809

General and administrative
45,006

 
9,537

 
1,161

 
(948
)
 
54,756

Depreciation and amortization
26,939

 
45,594

 
4,778

 

 
77,311

Restructuring charges
6,369

 
1,968

 
456

 

 
8,793

Separation costs
4,218

 

 

 

 
4,218

 
238,289

 
205,450

 
27,004

 
(21,657
)
 
449,086

Income from operations
97,241

 
36,788

 
1,748

 

 
135,777

Other (expense) income:
 
 
 
 
 
 
 
 
 
Interest and other expense
(32,305
)
 
(970
)
 
473

 

 
(32,802
)
Interest income
1,095

 
170

 
(1,024
)
 

 
241

Income before income taxes and equity income in consolidated subsidiaries
66,031

 
35,988

 
1,197

 

 
103,216

Provision (benefit) for income taxes
22,622

 
11,546

 
(448
)
 

 
33,720

Income before equity income in consolidated subsidiaries
43,409

 
24,442

 
1,645

 

 
69,496

Equity income in consolidated subsidiaries
26,087

 
311

 

 
(26,398
)
 

Net income
$
69,496

 
$
24,753

 
$
1,645

 
$
(26,398
)
 
$
69,496

Comprehensive income
$
68,716

 
$
24,732

 
$
3,828

 
$
(26,398
)
 
$
70,878





















22

NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2017


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2017
(in thousands)
 
NeuStar, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$
342,089

 
$
247,739

 
$
29,114

 
$
(27,818
)
 
$
591,124

Operating expense:
 
 
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization shown separately below)
86,037

 
101,154

 
10,879

 
(22,832
)
 
175,238

Sales and marketing
70,474

 
41,929

 
2,803

 
(4,678
)
 
110,528

Research and development
10,211