VeriSign (VRSN)

Cost of revenues

Cost of revenues consist primarily of costs related to providing digital certificate enrollment and issuance services, billing services, operational costs associated with the delivery of our services, customer support and training, consulting and development services, labor costs to provide security, costs of facilities and computer equipment used in these activities and allocations of indirect costs such as corporate overhead. All allocations of indirect costs are included in continuing operations.

A comparison of cost of revenues is presented below:

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Cost of revenues increased $0.8 million primarily due to increases in registry fees paid to ICANN to maintain domain name registrations and outside consulting costs associated with our Naming Services and telecommunication expenses, partially offset by a decrease in salary and employee benefits expenses. Registry fees paid to ICANN increased $1.4 million due to an increase in the number of .com and .net domain names registered coupled with an increase in the cost of registry fees effected in the latter half of fiscal 2008 per the ICANN agreement. Outside consulting costs associated with our Naming Services increased $1.4 million primarily resulting from an increase in revenues from our Naming Services. Telecommunication expenses increased $1.7 million primarily due to increased spending on capacity for global constellation sites that support our .com and .net registries and an increase in expenses to support our new data centers that became operational in the second half of 2008. Salary and employee benefits expenses, which include stock-based compensation expenses, decreased $3.4 million primarily due to a reduction in average headcount resulting from the 2008 restructuring plan.

Cost of Revenues

Cost of revenues consist primarily of costs related to providing digital certificate enrollment and issuance services, billing services, operational costs associated with the delivery of our services, customer support and training, consulting and development services, labor costs to provide security, costs of facilities and computer equipment used in these activities and allocations of indirect costs such as corporate overheads. All allocations of indirect costs are included in continuing operations.

A comparison of cost of revenues is presented below:

2008 compared to 2007:    Cost of revenues decreased $13.6 million primarily due to decreases in direct cost of revenues, salary and employee benefits expenses, contract and professional services expenses, and allocated overhead expenses, partially offset by increases in telecommunication expenses, facility expenses and depreciation expenses. Direct cost of revenues decreased $5.7 million primarily due to the divestiture of our majority ownership interest in Jamba in the first quarter of 2007, partially offset by an increase in outside consulting costs for our Naming Services business. Salary and employee benefits expenses, which include stock-based compensation benefits expenses, decreased $6.4 million primarily due to a decrease in headcount as a result of our 2008 restructuring plan. Contract and professional services expenses decreased $5.7 million primarily due to the divestiture of our majority ownership interest in Jamba, and a reduction in spending on consulting services as a result of management’s realignment initiatives relating to the 2008 restructuring plan. Allocated overhead expenses decreased $6.0 million primarily due to a reduction in headcount and general corporate overhead expenses. Telecommunication expenses increased $6.0 million primarily due to increased spending on capacity for global constellation sites that support our .com and .net registries. Depreciation expense increased $2.6 million primarily due an increase in capitalized projects placed into service during 2008. Facilities expenses increased $2.1 million primarily due to an increase in operational and maintenance expense related to our new data center that was placed into service in July 2008.

2007 compared to 2006:    Cost of revenues decreased $46.3 million primarily due to decreases in direct cost of revenues, salary and employee benefits expenses, contract and professional services expenses, and depreciation expense, partially offset by increases in telecommunication expenses and expense related to the realignment of our business divisions. Direct cost of revenues decreased $35.7 million primarily due to the divestiture of our majority ownership interest in Jamba in the first quarter of 2007, a reduction in revenues from our legacy and Pre-pay businesses as well as discontinuance of product lines, partially offset by an increase from our Naming Services business due to an increase in registry fees. Contract and professional services expenses decreased $16.7 million primarily due to decrease in services as a result of the divestiture of our majority ownership interest in Jamba and a reduction in third party costs related to our Pre-pay business, partially offset by an increase in external services related to our Naming Services and SSL Certificate Services businesses. Salary and employee benefits expenses, which includes stock-based compensation expenses, decreased $5.8 million, primarily due to the divestiture of our majority ownership interest in Jamba and a reduction in headcount as a result of our 2007 restructuring plan. The decrease in salary and employee benefits expenses was partially offset by an increase in salary expenses due to the acquisition of GeoTrust during the latter half of 2006, and an increase in stock-based compensation expenses due to an increase in the issuances of restricted stock to employees and a modification expense as a result of an amendment of our employee stock purchase plan to allow employees to increase their contribution withholding percentages in 2007. Depreciation expense decreased $6.6 million primarily due to an impairment of equipment related to our Pre-pay business during the second quarter of 2007 and the divestiture of our majority ownership interest in Jamba. Telecommunication expenses increased $5.8 million primarily due to increased spending on capacity for global constellation sites that support our .com and .net registries. Allocated overhead expenses increased $14.9 million primarily due to the redeployment of

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certain employees from the general and administrative function to the cost of revenues function resulting from the 2007 restructuring plan realignment initiatives.

Cost of revenues

Cost of revenues consist primarily of costs related to providing digital certificate enrollment and issuance services, billing services, operational costs associated with the delivery of our services, customer support and training, consulting and development services, labor costs to provide security and costs of facilities and computer equipment used in these activities.

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A comparison of cost of revenues is presented below:

Cost of revenues decreased $4.6 million and $17.0 million during the three and nine months ended September 30, 2008, respectively, as compared to the same periods last year. Direct cost of revenues decreased $11.2 million during the nine months ended September 30, 2008, as compared to the same period last year, primarily due to the divestiture of our majority ownership interest in Jamba during the first quarter of 2007. Salary and employee benefits expenses, which include stock-based compensation expenses, decreased $3.1 million and $2.5 million during the three and nine months ended September 30, 2008, respectively, as compared to the same periods last year. The decrease is primarily due to a decrease in headcount related to the 2008 restructuring plan to divest or wind down our non-core businesses. Contract and professional services expenses decreased $0.9 million and $5.4 million during the three and nine months ended September 30, 2008, respectively, as compared to the same periods last year, primarily due to a reduction in spending on consulting services as a result of management’s realignment initiatives relating to the 2008 restructuring plan. Allocated overhead expenses decreased $2.7 million and $4.2 million during the three and nine months ended September 30, 2008, respectively, as compared to the same periods last year, primarily due to a reduction in headcount and general corporate overhead expenses. Telecommunication expenses increased $1.4 million and $4.4 million during the three and nine months ended September 30, 2008, respectively, as compared to the same periods last year, primarily due to increased spending on capacity for global constellation sites that support our .com and .net registries.

Cost of revenues

Cost of revenues consist primarily of content licensing costs, costs related to providing digital certificate enrollment and issuance services, billing services, operational costs for the domain name registration business, customer support and training, consulting and development services, labor costs to provide security and costs of facilities and computer equipment used in these activities.

A comparison of cost of revenues is presented below:

Cost of revenues increased $3.4 million and $8.1 million during the three and six months ended June 30, 2008, respectively, as compared to the same periods last year. Salary and employee benefits expenses, which include stock-based compensation expenses, increased $5.8 million and $13.1 million during the three and six months ended June 30, 2008, respectively, as compared to the same periods last year. The increase is primarily due to an increase in the issuances of restricted stock to employees and greater participation pertaining to our employee stock purchase plan that allowed employees to increase their contribution withholding percentages beginning in the latter half of 2007. The increase in salary and employee benefits expenses is partially offset by a decrease in headcount related to the 2008 restructuring plan to divest or wind down our non-core businesses. Depreciation expense increased $2.5 million and $4.9 million during the three months and six months ended June 30, 2008, respectively, as compared to the same periods last year, due to an increase in capitalized projects placed into service during the latter half of 2007. Contract and professional service expenses decreased $2.3 million and $2.9 million during the three and six months ended June 30, 2008, respectively, as compared to the same periods last year, primarily due to a reduction in spending on consulting services as a result of management’s realignment initiatives relating to the 2008 restructuring plan. Telecommunication expenses increased $0.7 million and $3.1 million during the three and six months ended June 30, 2008, respectively, as compared to the same periods last year, primarily due to increased spending on capacity for global constellation sites that support our .com and .net registries. Direct cost of revenues decreased $2.6 million during the three months ended June 30, 2008, as compared to the same period last year, primarily due to lower costs incurred for our registry fees and lower consumer authentication costs. Direct cost of revenues decreased $10.2 million during the six months ended June 30, 2008, as compared to the same period last year, primarily due to the divestiture of our majority ownership interest in Jamba during the first quarter of 2007, partially offset by the increases during the second quarter of 2008.

Cost of revenues

Cost of revenues consist primarily of content licensing costs, carrier costs for our Signaling System 7 (“SS7”) and Internet Protocol (“IP”)-based networks, costs related to providing digital certificate enrollment and issuance services, billing services, operational costs for the domain name registration business, customer support and training, consulting and development services, operational costs related to the management and monitoring of our clients’ network security infrastructures, labor costs to provide security and costs of facilities and computer equipment used in these activities.

A comparison of cost of revenues is presented below:

Cost of revenues increased approximately $7.8 million during the three months ended March 31, 2008, as compared to the same period last year. Salary and employee benefits increased $5.2 million during the three months ended March 31, 2008, as compared to the same period last year, primarily due to the redeployment of certain employees from the research and development function to the cost of revenues function during the second quarter of 2007, as a result of management’s realignment initiatives related to the 2007 restructuring plan. Salary and employee benefits also increased in part due to the redeployment of certain employees from the sales and

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marketing function to the cost of revenues function during the first quarter of 2008, as a result of management’s realignment initiatives relating to the 2008 restructuring plan. Stock-based compensation expense increased $1.9 million during the three months ended March 31, 2008, as compared to the same period last year, primarily due to an increase in the issuances of restricted stock to employees and greater participation pertaining to our employee stock purchase plan that allowed employees to increase their contribution withholding percentages beginning in the latter half of 2007. Depreciation expense increased $2.2 million during the three months ended March 31, 2008, as compared to the same period last year, due to an increase in capitalized projects placed into service during the latter half of 2007. Telecommunication expenses increased $2.8 million during three months ended March 31, 2008, as compared to the same period last year, primarily due to increased spending on capacity for global constellation sites that support our .com and .net registries. Direct cost of revenues decreased $4.8 million during the three months ended March 31, 2008, as compared to the same period last year, primarily due to the divestiture of our majority ownership interest in Jamba during the first quarter of 2007, partially offset by an increase in direct costs associated with our former CSG segment.

Cost of Revenues

Cost of revenues consist primarily of content licensing costs, carrier costs for our SS7 and IP-based networks, costs related to providing digital certificate enrollment and issuance services, billing services, operational costs for the domain name registration business, customer support and training, consulting and development services, operational costs related to the management and monitoring of our clients’ network security infrastructures, labor costs to provide security and communications consulting, and costs of facilities and computer equipment used in these activities.

A comparison of cost of revenues is presented below:

2007 compared to 2006:    Cost of revenues increased approximately $21.8 million primarily due to recognizing a full year of expenses for the acquisition of inCode in November 2006, partially offset by a reduction of expenses due to the divestiture of our majority ownership interest of our Jamba business unit in January 2007. Salary and employee benefits increased by $20.2 million, primarily due to company-wide merit pay increases in base pay and recognizing a full year of salary expenses that was a result of the acquisition of inCode, GeoTrust and m-Qube during the latter half of 2006. Stock-based compensation expense increased approximately $5.0 million primarily due to an increase in the issuances of restricted stock to employees and a modification expense pertaining to our employee stock purchase plan that allowed employees to increase their contribution withholding percentages in 2007. Depreciation expense increased approximately $8.1 million primarily due to an increase in capitalized projects placed into service and telecommunication expenses increased by $10.7 million primarily due to additional bandwidth costs needed to support our 2006 acquisitions. Expenses related primarily to redeployed employees of $11.5 million were included in cost of revenues from the general and administrative expenses category due to the realignment of business divisions as a result of the 2007 restructuring plan. Direct cost of revenues decreased by $23.0 million primarily due to a discontinuance of product lines and a reduction in spending that was a result of management’s strategy to reduce costs. Contract and professional services decreased by approximately $13.3 million primarily due to reduction in third party costs associated with our acquisitions.

2006 compared to 2005:    Cost of revenues increased approximately $66.3 million primarily due to the business acquisitions completed during 2006 and a full year of expenses for the business acquisitions completed in 2005. Salary and employee benefit costs increased approximately $38.4 million primarily due to a 30% increase in headcount primarily related to completed business acquisitions in 2006, merit increases and increase in bonus payments. Stock compensation expense increased $13.8 million primarily as a result of the adoption of SFAS 123R in 2006. Contract and professional services increased approximately $13.9 million in 2006, primarily due to increased third-party customer care services, an increase in the use of contractors to support new product initiatives and the addition of acquisitions.

Cost of revenues

Cost of revenues consist primarily of content licensing costs, carrier costs for our SS7 and IP-based networks, costs related to providing digital certificate enrollment and issuance services, billing services, operational costs for the domain name registration business, customer support and training, consulting and development services, operational costs related to the management and monitoring of our clients’ network security infrastructures, labor costs to provide security and communications consulting, and costs of facilities and computer equipment used in these activities.

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A comparison of cost of revenues is presented below:

Cost of revenues increased approximately $6.6 million and $22.4 million for the three and nine months ended September 30, 2007, respectively, as compared to the same periods last year. Salary and employee benefits increased $6.8 million and $19.8 million for the three and nine months ended September 30, 2007, respectively, as compared to the same periods last year primarily due to an increase in headcount resulting from our business acquisitions in late 2006 offset by a reduction in headcount due to the 2007 restructuring plan, and an increase in stock-based compensation expense. Telecommunication expenses increased $3.1 million and $7.6 million for the three and nine months ended September 30, 2007, respectively, as compared to the same periods last year primarily due to increased spending on capacity for global constellation sites that support our .com and .net registries. Expenses related primarily to redeployed employees of $3.5 million and $10.1 million were included in cost of revenues from the general and administrative expense category during the three and nine months ended September 30, 2007, respectively, due to the realignment of business divisions as a result of the 2007 restructuring plan. Direct cost of revenues decreased $6.7 million and $14.0 million for the three and nine months ended September 30, 2007, respectively, as compared to the same periods last year primarily due to a decrease in third-party expenses as a result of the divestiture of our majority stake in Jamba.

Cost of revenues

Cost of revenues consist primarily of content licensing costs, carrier costs for our SS7 and IP-based networks, costs related to providing digital certificate enrollment and issuance services, billing services, operational costs for the domain name registration business, customer support and training, consulting and development services, operational costs related to the management and monitoring of our clients’ network security infrastructures, labor costs to provide security and communications consulting, and costs of facilities and computer equipment used in these activities.

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A comparison of cost of revenues is presented below:

Cost of revenues increased approximately $2.1 million and $15.8 million for the three and six months ended June 30, 2007, respectively, as compared to the same periods last year. Salary and employee benefits increased $4.3 million and $13.1 million for the three and six months ended June 30, 2007, respectively, as compared to the same periods last year primarily due to an increase in headcount resulting from our business acquisitions in late 2006 offset by a reduction in headcount due to the 2007 restructuring plan. Telecommunication expenses increased $3.1 million and $4.5 million for the three and six months ended June 30, 2007, respectively, as compared to the same periods last year primarily due to increased spending on capacity for global constellation sites that support our .com and .net registries. Expenses related primarily to redeployed employees of $3.3 million and $6.5 million were included in cost of revenues from the general and administrative expense category during the three and six months ended June 30, 2007, respectively, due to the realignment of business divisions as a result of the 2007 restructuring plan. Direct cost of revenues decreased $7.9 million and $7.2 million for the three and six months ended June 30, 2007, respectively, as compared to the same periods last year primarily due to a decrease in third-party expenses as a result of the divestiture of a majority stake in Jamba.

Cost of revenues

Cost of revenues consists primarily of content licensing costs, carrier costs for our SS7 and IP-based networks, costs related to providing digital certificate enrollment and issuance services, billing services, operational costs for the domain name registration business, customer support and training, consulting and development services, operational costs related to the management and monitoring of our clients’ network security infrastructures, and costs of facilities and computer equipment used in these activities.

A comparison of cost of revenues is presented below:

Cost of revenues increased approximately $13.7 million for the three months ended March 31, 2007 as compared to the same period last year. Salary and employee benefits increased $8.8 million for the three months ended March 31, 2007 primarily as a result of an increase in headcount due to our business acquisitions during 2006 offset by a reduction in headcount due to the 2007 restructuring plan. Travel expenses increased $2.7 million during the three months ended March 31, 2007 primarily due to professional services businesses acquired in 2006. Telecommunication expenses increased $1.4 million primarily due to increased spending on capacity for global constellation sites. Expenses related primarily to redeployed employees of $3.2 million were included in cost of revenues from the general and administrative expense category during the three months ended March 31, 2007, primarily due to the realignment of business divisions as a result of the 2007 restructuring plan.

As a percentage of revenues, cost of revenues increased for the three months ended March 31, 2007 compared to the same period last year primarily as a result of increased expenses due to new business acquisitions and a decline in revenue from our content services business units.

Cost of revenues

Cost of revenues consists primarily of content licensing costs, carrier costs for our SS7 and IP-based networks, costs related to providing digital certificate enrollment and issuance services, billing services, operational costs for the domain name registration business, customer support and training, consulting and development services, operational costs related to the management and monitoring of our clients’ network security infrastructures, and costs of facilities and computer equipment used in these activities.

A comparison of cost of revenues for the three and nine months ended September 30, 2006 and 2005 is presented below:

Cost of revenues increased approximately $17.6 million and $47.0 million for the three and nine months ended September 30, 2006, respectively, as compared to the same periods last year. Salary and employee benefits increased $12.1 million and $39.8 million, for the three and nine months ended September 30, 2006, respectively, primarily as a result of an increase in headcount, primarily due to new business acquisitions, and an increase in stock-based compensation expense due to the adoption of SFAS 123R. Contract and professional services expenses increased $2.9 million and $14.8 million during the three and nine months ended September 30, 2006, respectively, primarily due to an increased use of outside services associated with new business acquisitions and internal projects. Equipment and software related expenses decreased $0.3 million and increased $2.4 million during the three and nine months ended September 30, 2006, respectively, mostly due to an increase in hardware maintenance costs and depreciation expense. The increase for the nine months ended September 30, 2006 was mostly offset by a decrease in direct cost of revenues of approximately $23.6 due to a decrease in our content services business revenues.

As a percentage of revenues, cost of revenues increased for the three and nine months ended September 30, 2006 compared to the same periods last year primarily as a result of increased expenses as a result of new

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business acquisitions, stock-based compensation expense and a decline in revenue from our content services business units.

Cost of revenues

Cost of revenues consists primarily of content licensing costs, carrier costs for our SS7 and IP-based networks, costs related to providing digital certificate enrollment and issuance services, billing services, operational costs for the domain name registration business, customer support and training, consulting and development services, operational costs related to the management and monitoring of our clients’ network security infrastructures, and costs of facilities and computer equipment used in these activities.

A comparison of cost of revenues for the three and six months ended June 30, 2006 and 2005 is presented below:

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Cost of revenues increased approximately $12.7 million and $29.4 million for the three and six months ended June 30, 2006, respectively, as compared to the same periods last year. Salary and employee benefits increased approximately $14.5 million and $27.7 million for the three and six months ended June 30, 2006, respectively, as compared to the same periods last year, primarily as a result of an increase in headcount, primarily due to new business acquisitions, and an increase in stock-based compensation expense due to the adoption of SFAS 123R. Contract and professional services expenses increased $3.9 million and $11.8 million for the three and six months ended June 30, 2006, respectively, as compared to the same periods last year, primarily due to increased use of our third party customer support services and increased use of outside services to support new product initiatives. Equipment and software related expenses increased $1.5 million and $2.7 million for the three and six months ended June 30, 2006, respectively, as compared to the same periods last year, primarily due to an increase in hardware maintenance costs and depreciation expense. Travel expenses increased approximately $1.5 million and $2.4 million for the three and six months ended June 30, 2006, respectively, as compared to the same periods last year, primarily due to the increase in headcount associated with our acquisitions. These increases in expense were partially offset by a decrease in direct cost of revenues of approximately $12.8 million and $24.4 million for the three and six months ended June 30, 2006, respectively, as compared to the same periods last year, primarily due to a decrease in our content services business revenues.

As a percentage of revenues, cost of revenues increased for the three and six months ended June 30, 2006 compared to the same periods last year primarily as a result of increase in headcount due to our business acquisitions, an increase in stock-based compensation expenses and a decline in revenue from our content services business units.