##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from               to
  NeuStar, Inc.
  Delaware
    
    52-2141938(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 46000 Center Oak Plaza
Sterling, Virginia 20166
 (571) 434-5400
 þ o
  o o þ
 o þ




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##### 



NeuStar, Inc.
Index
 PART I FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of December 31, 2005 and March 31, 2006 (unaudited)
    
    
    3Unaudited Consolidated Statements of Operations for the three months ended March 31, 2005
and 2006
    
    
    5Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2005
and 2006
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3.
    
    Defaults upon Senior Securities
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34Item 5.
    
    Other Information
    
    
    35Item 6.
    
    Exhibits
    
    
    35Signatures
    
    
    36
 2




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##### 



PART I FINANCIAL INFORMATION
 Item 1. Financial Statements
 NEUSTAR, INC.
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    March 31,2005
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,529
    
    
    $
    16,002Restricted cash
    
    
    374
    
    
    
    378Short-term investments
    
    
    75,946
    
    
    
    97,472Accounts receivable, net of allowance for doubtful accounts of $494 and
$594, respectively
    
    
    30,982
    
    
    
    44,444Unbilled receivables
    
    
    6,394
    
    
    
    7,702Securitized notes receivable
    
    
    1,074
    
    
    
    434Prepaid expenses and other current assets
    
    
    8,054
    
    
    
    5,866Deferred costs
    
    
    4,819
    
    
    
    5,277Income tax receivable
    
    
    14,595
    
    
    
    34,096Deferred tax asset
    
    
    12,216
    
    
    
    6,455Total current assets
    
    
    181,983
    
    
    
    218,126Property and equipment, net
    
    
    39,627
    
    
    
    38,358Goodwill
    
    
    51,495
    
    
    
    53,135Intangible assets, net
    
    
    2,655
    
    
    
    6,449Deferred costs, long-term
    
    
    5,454
    
    
    
    5,115Other assets
    
    
    557
    
    
    
    416Total assets
    
    $
    281,771
    
    
    $
    321,599
 See accompanying notes.
 3




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##### 



NEUSTAR, INC.
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    March 31,2005
    
    
    2006(unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,119
    
    
    $
    2,149Accrued expenses
    
    
    36,880
    
    
    
    23,754Deferred revenue
    
    
    20,006
    
    
    
    21,413Notes payable
    
    
    1,232
    
    
    
    1,040Capital lease obligations
    
    
    5,540
    
    
    
    5,375Accrued restructuring reserve
    
    
    536
    
    
    
    441Total current liabilities
    
    
    68,313
    
    
    
    54,172Deferred revenue, long-term
    
    
    18,463
    
    
    
    19,033Notes payable, long-term
    
    
    1,019
    
    
    
    718Capital lease obligations, long-term
    
    
    3,440
    
    
    
    2,093Accrued restructuring reserve, long-term
    
    
    2,572
    
    
    
    2,482Other liabilities
    
    
    500
    
    
    
    500Deferred tax liability
    
    
    1,197
    
    
    
    1,116Total liabilities
    
    
    95,504
    
    
    
    80,114Minority interest
    
    
    104
    
    
    
    Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.001 par value;
100,000,000 shares authorized; No shares
issued or outstanding as of December 31,
2005 and March 31, 2006
    
    
    
    
    
    
    Class A common stock, par value $0.001;
200,000,000 shares authorized; 68,150,690
and 71,467,364 shares issued and
outstanding at December 31, 2005 and
March 31, 2006, respectively
    
    
    68
    
    
    
    71Class B common stock, par value $0.001;
100,000,000 shares authorized; 199,152
and 27,284 shares issued and outstanding
at December 31, 2005 and March 31, 2006,
respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    163,741
    
    
    
    199,329Deferred stock compensation
    
    
    (1,446
    )
    
    
    Retained earnings
    
    
    23,800
    
    
    
    42,085Total stockholders equity
    
    
    186,163
    
    
    
    241,485Total liabilities and stockholders equity
    
    $
    281,771
    
    
    $
    321,599
 See accompanying notes.
 4




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##### 



NEUSTAR, INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Three Months EndedMarch 31,2005
    
    
    2006Revenue:Addressing
    
    $
    19,721
    
    
    $
    23,414Interoperability
    
    
    13,087
    
    
    
    14,117Infrastructure and other
    
    
    24,984
    
    
    
    38,632Total revenue
    
    
    57,792
    
    
    
    76,163Operating expense:Cost of revenue (excluding depreciation and amortization shown
separately below)
    
    
    13,263
    
    
    
    20,875Sales and marketing
    
    
    7,018
    
    
    
    9,143Research and development
    
    
    2,570
    
    
    
    4,141General and administrative
    
    
    7,590
    
    
    
    7,281Depreciation and amortization
    
    
    3,582
    
    
    
    4,448Restructuring recoveries
    
    
    (706
    )
    
    
    3⁄433,317
    
    
    
    45,888Income from operations
    
    
    24,475
    
    
    
    30,275Other (expense) income:Interest expense
    
    
    (626
    )
    
    
    (347
    )Interest income
    
    
    475
    
    
    
    669Income before minority interest and income taxes
    
    
    24,324
    
    
    
    30,597Minority interest
    
    
    
    
    
    
    (95
    )Income before income taxes
    
    
    24,324
    
    
    
    30,502Provision for income taxes
    
    
    9,693
    
    
    
    12,217Net income
    
    
    14,631
    
    
    
    18,285Dividends on and accretion of preferred stock
    
    
    (2,143
    )
    
    
    3⁄4Net income attributable to common stockholders
    
    $
    12,488
    
    
    $
    18,285Net income attributable to common stockholders per common share:Basic
    
    $
    2.08
    
    
    $
    0.26Diluted
    
    $
    0.19
    
    
    $
    0.24Weighted average common shares outstanding:Basic
    
    
    6,002
    
    
    
    70,339Diluted
    
    
    75,712
    
    
    
    77,657
 See accompanying notes.
 5




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##### 



NEUSTAR, INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Three Months EndedMarch 31,2005
    
    
    2006Operating activities:Net income
    
    $
    14,631
    
    
    $
    18,285Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    3,582
    
    
    
    4,448Stock-based compensation
    
    
    2,322
    
    
    
    2,399Amortization of deferred financing costs
    
    
    22
    
    
    
    5Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    (27,085
    )Deferred income taxes
    
    
    3,411
    
    
    
    4,041Noncash restructuring recoveries
    
    
    (706
    )
    
    
    Provision for doubtful accounts
    
    
    300
    
    
    
    225Minority interest
    
    
    
    
    
    
    95Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (6,153
    )
    
    
    (13,936
    )Unbilled receivables
    
    
    (958
    )
    
    
    (1,308
    )Notes receivable
    
    
    1,294
    
    
    
    640Prepaid expenses and other current assets
    
    
    (366
    )
    
    
    2,188Deferred costs
    
    
    (2,987
    )
    
    
    (120
    )Income tax receivable
    
    
    
    
    
    
    7,584Other assets
    
    
    169
    
    
    
    136Accounts payable and accrued expenses
    
    
    (3,128
    )
    
    
    (14,524
    )Income taxes payable
    
    
    6,103
    
    
    
    Accrued restructuring reserve
    
    
    (465
    )
    
    
    (185
    )Customer credits
    
    
    (3,968
    )
    
    
    Deferred revenue
    
    
    5,575
    
    
    
    1,976Net cash provided by (used in) operating activities
    
    
    18,678
    
    
    
    (15,136
    )Investing activities:Purchases of property and equipment
    
    
    (3,398
    )
    
    
    (3,193
    )Purchases of investments, net
    
    
    (7,300
    )
    
    
    (21,525
    )Business acquired, net of cash
    
    
    (2,164
    )
    
    
    (4,300
    )Net cash used in investing activities
    
    
    (12,862
    )
    
    
    (29,018
    )Financing activities:Release (disbursement) of restricted cash
    
    
    1,643
    
    
    
    (4
    )Principal repayments on notes payable
    
    
    (1,629
    )
    
    
    (494
    )Principal repayments on capital lease obligations
    
    
    (1,558
    )
    
    
    (1,512
    )Proceeds from exercise of common stock options
    
    
    90
    
    
    
    7,552Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    27,085Net cash (used in) provided by financing activities
    
    
    (1,454
    )
    
    
    32,627Net increase
(decrease) in cash and cash equivalents
    
    
    4,362
    
    
    
    (11,527
    )Cash and cash equivalents at beginning of period
    
    
    19,019
    
    
    
    27,529Cash and cash equivalents at end of period
    
    $
    23,381
    
    
    $
    16,002
 See accompanying notes.
 6




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2006
 1. DESCRIPTION OF BUSINESS AND ORGANIZATION
   
    
    Addressing.The Company enables CSPs to use critical, shared
addressing resources, such as telephone numbers, Internet domain
names, and U.S. Common Short Codes.
    
    Interoperability.The Company enables CSPs to exchange and share
critical operating data so that communications originating on one
providers network can be delivered and received on the network of
another CSP. The Company also facilitates order management and work
flow processing among CSPs.
    
    Infrastructure and Other.The Company enables CSPs to more efficiently
manage changes in their own networks by centrally managing certain
critical data they use to route communications over their own
networks.
    7




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Unaudited Interim Financial Information
   Use of Estimates
  Reclassifications
  Goodwill
 Goodwill and Other Intangible Assets
  Identifiable Intangible Assets
 Accounting for Impairment or Disposal of Long-Lived Assets
  Years
    
    MethodAcquired technologies
    
    
    4
    
    
    Straight-lineCustomer lists
    
    
    3 to 5
    
    
    Various
  8




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Impairment of Long-Lived Assets
  Revenue Recognition
 Revenue Recognition.
  Addressing
   Interoperability
  Infrastructure and Other
  9




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Significant Contracts
   Cost of Revenue and Deferred Costs
   10




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
 Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards
 Basic and Diluted Net Income Attributable to Common Stockholders per Common Share
  Income Taxes
 Accounting for Income
Taxes .
 Comprehensive Income
  11




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 3. ACQUISITION
 NeuLevel, Inc.
  4. GOODWILL AND INTANGIBLE ASSETS
  December 31,
    
    
    March 31,2005
    
    
    2006(unaudited)Goodwill
    
    $
    51,495
    
    
    $
    53,135
  Weighted-AverageDecember 31,
    
    
    March 31,
    
    
    Amortization Period2005
    
    
    2006
    
    
    (In Years)(unaudited)Intangible assets:Customer lists
    
    $
    3,566
    
    
    $
    7,667
    
    
    
    4.7Accumulated amortization
    
    
    (1,441
    )
    
    
    (1,668
    )Customer lists, net
    
    
    2,125
    
    
    
    5,999Acquired technology
    
    
    2,208
    
    
    
    2,208
    
    
    
    4.0Accumulated amortization
    
    
    (1,678
    )
    
    
    (1,758
    )Acquired technology, net
    
    
    530
    
    
    
    450Intangible assets, net
    
    $
    2,655
    
    
    $
    6,449
  5. STOCKHOLDERS EQUITY
 Stock-Based Compensation
  12




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
       13




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Three MonthsEndedMarch 31,2005(in thousands,exceptper share data)Pro forma basic net income attributable to common stockholders:Basic net income attributable to common stockholders, as reported
    
    $
    12,488Add: stock-based compensation expense included in reported netincome attributable to common stockholders
    
    
    1,402Deduct: total stock-based compensation expense determined underfair value-based method for all awards
    
    
    (2,953
    )Pro forma basic net income attributable to common stockholders
    
    $
    10,937Pro forma diluted net income attributable to common stockholders:Basic net income attributable to common stockholders, as reported
    
    $
    12,488Dividends on and accretion of convertible preferred stock
    
    
    2,143Diluted net income attributable to common stockholders
    
    
    14,631Add: stock-based compensation expense included in reported netincome attributable to common stockholders
    
    
    1,402Deduct: total stock-based compensation expense determined underfair value-based method for all awards
    
    
    (2,953
    )Pro forma diluted net income attributable to common stockholders
    
    $
    13,080Net income attributable to common stockholders per common share:Basic  as reported
    
    $
    2.08Basic  pro forma
    
    $
    1.82Diluted  as reported
    
    $
    0.19Diluted  pro forma
    
    $
    0.17
  Dividend yield
    
    
    0.0
    %Expected volatility
    
    
    39.33
    %Risk-free interest rate
    
    
    4.54
    %Expected life of options
    
    
    4.59
   14




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Share-Based
Payment
   Weighted-AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    12,621,553
    
    
    $
    4.81Options granted
    
    
    1,067,300
    
    
    
    30.20Options exercised
    
    
    (3,093,316
    )
    
    
    2.42Options forfeited
    
    
    (140,292
    )
    
    
    7.68Outstanding at March 31, 2006
    
    
    10,455,245
    
    
    
    8.07Exercisable at March 31, 2006
    
    
    6,044,524
    
    
    
    2.80
  15




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Weighted-AverageGrant DateShares
    
    
    Fair ValueNon-vested December 31, 2005
    
    
    5,000
    
    
    
    31.95Granted
    
    
    51,490
    
    
    
    30.20Vested
    
    
    3⁄4
    
    
    
    3⁄4Forfeited
    
    
    3⁄4
    
    
    
    3⁄4Non-vested March 31, 2006
    
    
    56,490
    
    
    
    30.35
  6. BASIC AND DILUTED NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON SHARE
  Three months EndedMarch 31,2005
    
    
    2006Basic net income attributable to common stockholders:Net income
    
    $
    14,631
    
    
    $
    18,285Dividends on and accretion of convertible preferred stock
    
    
    (2,143
    )
    
    
    Basic net income attributable to common stockholders
    
    $
    12,488
    
    
    $
    18,285Basic net income attributable to common stockholders per common share
    
    $
    2.08
    
    
    $
    0.26Diluted net income attributable to common stockholders:Basic net income attributable to common stockholders
    
    $
    12,488
    
    
    $
    18,285Dividends on and accretion of convertible preferred stock
    
    
    2,143
    
    
    
    Diluted net income attributable to common stockholders
    
    $
    14,631
    
    
    $
    18,285Diluted net income attributable to common stockholders per common share
    
    $
    0.19
    
    
    $
    0.24Weighted average common shares outstanding  basic
    
    
    6,002
    
    
    
    70,339Dilutive effect of:Stock options for the purchase of common stock
    
    
    9,144
    
    
    
    7,318Conversion of preferred stock and accrued dividends payable into
common stock
    
    
    54,244
    
    
    
    Warrants for the purchase of common stock
    
    
    6,322
    
    
    
    Weighted average common shares outstanding  diluted
    
    
    75,712
    
    
    
    77,657
 16




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##### 



7. SUBSEQUENT EVENT
  17




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Overview
     Critical Accounting Policies and Estimates
  18




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##### 



Stock-Based
Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows
    19




---



##### 



Share-Based Payment
 20




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##### 



Consolidated Results of Operations
 Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2006
  Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2006
    
    
    2005 vs. 2006$
    
    
    $
    
    
    $ Change
    
    
    % Change(in thousands, except per share data)Revenue:Addressing
    
    $
    19,721
    
    
    $
    23,414
    
    
    $
    3,693
    
    
    
    18.7
    %Interoperability
    
    
    13,087
    
    
    
    14,117
    
    
    
    1,030
    
    
    
    7.9Infrastructure and other
    
    
    24,984
    
    
    
    38,632
    
    
    
    13,648
    
    
    
    54.6Total revenue
    
    
    57,792
    
    
    
    76,163
    
    
    
    18,371
    
    
    
    31.8Operating expense:Cost of revenue (excluding depreciation and
amortization shown separately below)
    
    
    13,263
    
    
    
    20,875
    
    
    
    7,612
    
    
    
    57.4Sales and marketing
    
    
    7,018
    
    
    
    9,143
    
    
    
    2,125
    
    
    
    30.3Research and development
    
    
    2,570
    
    
    
    4,141
    
    
    
    1,571
    
    
    
    61.1General and administrative
    
    
    7,590
    
    
    
    7,281
    
    
    
    (309
    )
    
    
    (4.1
    )Depreciation and amortization
    
    
    3,582
    
    
    
    4,448
    
    
    
    866
    
    
    
    24.2Restructuring recoveries
    
    
    (706
    )
    
    
    
    
    
    
    706
    
    
    
    (100.0
    )33,317
    
    
    
    45,888
    
    
    
    12,571
    
    
    
    37.7Income from operations
    
    
    24,475
    
    
    
    30,275
    
    
    
    5,800
    
    
    
    23.7Other (expense) income:Interest expense
    
    
    (626
    )
    
    
    (347
    )
    
    
    279
    
    
    
    (44.6
    )Interest income
    
    
    475
    
    
    
    669
    
    
    
    194
    
    
    
    40.8Income before minority interest and income taxes
    
    
    24,324
    
    
    
    30,597
    
    
    
    6,273
    
    
    
    25.8Minority interest
    
    
    
    
    
    
    (95
    )
    
    
    (95
    )
    
    
    Income before income taxes
    
    
    24,324
    
    
    
    30,502
    
    
    
    6,178
    
    
    
    25.4Provision for income taxes
    
    
    9,693
    
    
    
    12,217
    
    
    
    2,524
    
    
    
    26.0Net income
    
    
    14,631
    
    
    
    18,285
    
    
    
    3,654
    
    
    
    25.0Dividends on and accretion of preferred stock
    
    
    (2,143
    )
    
    
    
    
    
    
    2,143
    
    
    
    (100.0
    )Net income attributable to common stockholders
    
    $
    12,488
    
    
    $
    18,285
    
    
    
    5,797
    
    
    
    46.4
    %Net income attributable to common stockholders
per common share:Basic
    
    $
    2.08
    
    
    $
    0.26Diluted
    
    $
    0.19
    
    
    $
    0.24Weighted average common shares outstanding:Basic
    
    
    6,002
    
    
    
    70,339Diluted
    
    
    75,712
    
    
    
    77,657
 21




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##### 



Revenue
 Total revenue
 Addressing
 Interoperability
 Infrastructure and other
 Expense
 Cost of revenue
 Sales and marketing
 Research and development
 22




---



##### 



General and administrative.
 Depreciation and amortization
 Restructuring recoveries
 Interest expense
 Interest income
 Provision for income taxes
 Liquidity and Capital Resources
     Off-Balance Sheet Arrangements
  23




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Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  Item 4.
    
    Controls and Procedures
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PART II  OTHER INFORMATION
 Item 1.
    
    Legal Proceedings
  Item 1A.
    
    Risk Factors
  Risks Related to Our Business
 Failures or interruptions of our clearinghouse could materially harm our revenue and impair our
ability to conduct our operations.
  
    
    damage to, or failure of, our computer software or hardware or our connections and
outsourced service arrangements with third parties;
    
    errors in the processing of data by our system;
    
    computer viruses or software defects;
    
    physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events;
    
    increased capacity demands or changes in systems requirements of our customers; or
    
    errors by our employees or third-party service providers.
  
    
    we may experience damage to our reputation, which may adversely affect our ability
to attract or retain customers for our existing services, and may also make it more
difficult for us to market our services;
    
    we may be subject to significant damages claims, under our contracts or otherwise,
including the requirement to pay substantial penalties related to service level
requirements in our contracts;
    
    our operating expenses or capital expenditures may increase as a result of
corrective efforts that we must perform;
    
    our customers may postpone or cancel subsequently scheduled work or reduce their use
of our services; or
    
    one or more of our significant contracts may be terminated early, or may not be
renewed.
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Security breaches could result in an interruption of service or reduced quality of service,
which could increase our costs or result in a reduction in the use of our services by our
customers.
  The loss of, or damage to, a data center could interrupt our operations and materially harm our
revenue and growth.
  The failure of the third-party software and equipment used by our customers or that we use in our
clearinghouse could cause interruptions or failures of our systems.
  Our seven contracts with North American Portability Management LLC represent in the aggregate a
substantial portion of our revenue, are not exclusive and could be terminated or modified in ways
unfavorable to us, and we may be unable to renew these contracts at the end of their term.
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Our contracts with North American Portability Management LLC contain provisions that may restrict
our ability to use data that we administer in our clearinghouse, which may limit our ability to
offer services that we currently, or intend to, offer.
  Certain of our other contracts may be terminated or we may be unable to renew these contracts,
which may reduce the number of services we can offer and damage our reputation.
  
    
    North American Numbering Plan Administrator, under which we maintain the
authoritative database of telephone numbering resources in North America;
    
    National Pooling Administrator, under which we perform the administrative functions
associated with the administration and management of telephone number inventory and
allocation of pooled blocks of unassigned telephone numbers;
    
    provider of number portability services in Canada;
    
    operator of the .us registry;
    
    operator of the .biz registry; and
    
    operator of the registry of U.S. Common Short Codes.
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Failure to comply with neutrality requirements could result in loss of significant contracts.
  Regulatory and statutory changes that affect us or the communications industry in general may
increase our costs or impair our growth.
  
    
    increase regulatory oversight over the services we provide;
    
    adopt or modify statutes, regulations, policies, procedures or programs that are
disadvantageous to the services we provide, or that are inconsistent with our current
or future plans, or that require modification of the terms of our existing contracts,
including the manner in which we charge for certain of our services. For example, in
November 2005, BellSouth Corporation filed a petition with the FCC seeking changes in
the way our customers are billed for services provided by us under our contracts with
North American Portability Management LLC;
    
    prohibit us from entering into new contracts or extending existing contracts to
provide services to the communications industry based on actual or suspected violations
of our neutrality requirements, business performance concerns, or other reasons;
    
    adopt or modify statutes, regulations, policies, procedures or programs in a way
that could cause changes to our operations or costs or the operations of our customers;
    
    appoint, or cause others to appoint, substitute or add additional parties to perform
the services that we currently provide; and
    
    prohibit or restrict the provision or export of new or expanded services under our
contracts, or prevent the introduction of other services not under the contracts based
upon restrictions within the contracts or in FCC policies.
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If we do not adapt to rapid technological change in the communications industry, we could lose
customers or market share.
  The market for certain of our addressing, interoperability, and infrastructure services is
competitive, which could result in fewer customer orders, reduced revenue or margins or loss of
market share.
  Our failure to achieve or sustain market acceptance at desired pricing levels could impact our
ability to maintain profitability or positive cash flow.
  
    
    competitors offering our customers services at reduced prices, or bundling and
pricing services in a manner that makes it difficult for us to compete. For example, a
competing provider of interoperability services might offer its services at lower rates
than we do, or a competing domain name registry provider may reduce its prices for
domain name registration;
    
    customers with a significant volume of transactions may have enhanced leverage in
pricing negotiations with us; and
    
    if our prices are too high, potential customers may find it economically
advantageous to handle certain functions internally instead of using us.
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A decline in the volume of transactions we handle could have a material adverse effect on our
results of operations.
  If we are unable to manage our growth, our revenue and profits could be adversely affected.
  We may be unable to complete suitable acquisitions, or we may undertake acquisitions that could
increase our costs or liabilities or be disruptive to our business.*
  Our potential expansion into international markets may be subject to uncertainties that could
increase our costs to comply with regulatory requirements in foreign jurisdictions, disrupt our
operations, and require increased focus from our management.
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Our senior management is important to our customer relationships, and the loss of one or more of
our senior managers could have a negative impact on our business.
  We must recruit and retain skilled employees to succeed in our business, and our failure to
recruit and retain qualified employees could harm our ability to maintain and grow our business.
  We will continue to incur increased costs as a public company as a result of recently enacted and
proposed changes in laws and regulations.
  We may need additional capital in the future and it may not be available on acceptable terms.
  
    
    not be able to continue to meet customer demand for service quality, availability
and competitive pricing;
    
    be forced to reduce our operations;
    
    not be able to expand or acquire complementary businesses; and
    
    not be able to develop new services or otherwise respond to changing business
conditions or competitive pressures.
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Risks Related to Our Common Stock
 Our common stock price may be volatile.
  
    
    our perceived prospects and the prospects of the telephone and Internet industries
in general;
    
    differences between our actual financial and operating results and those expected by
investors and analysts;
    
    changes in analysts recommendations or projections;
    
    changes in general valuations for communications companies;
    
    adoption or modification of regulations, policies, procedures or programs applicable
to our business;
    
    sales of our Class A common stock by our officers, directors or principal
stockholders;
    
    sales of significant amounts of our Class A common stock in the public market, or
the perception that such sales may occur;
    
    sales of our Class A common stock due to a required divestiture under the terms of
our certificate of incorporation; and
    
    changes in general economic or market conditions and broad market fluctuations.
  Delaware law and provisions in our certificate of incorporation and bylaws could make a
merger, tender offer or proxy contest difficult, and the market price of our Class A common stock
may be lower as a result.
  
    
    authorize the issuance of blank check preferred stock that could be issued by our
board of directors to thwart a takeover attempt;
    
    prohibit cumulative voting in the election of directors, which would otherwise
enable holders of less than a majority of our voting securities to elect some of our
directors;
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
    
    establish a classified board of directors, as a result of which the successors to
the directors whose terms have expired will be elected to serve from the time of
election and qualification until the third annual meeting following election;
    
    require that directors only be removed from office for cause;
    
    provide that vacancies on the board of directors, including newly-created
directorships, may be filled only by a majority vote of directors then in office;
    
    disqualify any individual from serving on our board if such individuals service as
a director would cause us to violate our neutrality requirements;
    
    limit who may call special meetings of stockholders;
    
    prohibit stockholder action by written consent, requiring all actions to be taken at
a meeting of the stockholders; and
    
    establish advance notice requirements for nominating candidates for election to the
board of directors or for proposing matters that can be acted upon by stockholders at
stockholder meetings.
 In order to comply with our neutrality requirements, our certificate of incorporation contains
ownership and transfer restrictions relating to telecommunications service providers and their
affiliates, which may inhibit potential acquisition bids that our stockholders may consider
favorable, and the market price of our Class A common stock may be lower as a result.
  
    
    if one of our stockholders experiences a change in status or other event that
results in the stockholder violating this restriction, or if any transfer of our stock
occurs that, if effective, would violate the 5% restriction, we may elect to purchase
the excess shares (i.e., the shares that cause the violation of the restriction) or
require that the excess shares be sold to a third party whose ownership will not
violate the restriction;
    
    pending a required divestiture of these excess shares, the holder whose beneficial
ownership violates the 5% restriction may not vote the shares in excess of the 5%
threshold; and
    
    if our board of directors, or its permitted designee, determines that a transfer,
attempted transfer or other event violating this restriction has taken place, we must
take whatever action we deem advisable to prevent or refuse to give effect to the
transfer, including refusal to register the transfer, disregard of
any vote of the shares by the prohibited owner, or the institution of proceedings to enjoin the
transfer.
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
    
    discourage industry participants that might have otherwise been interested in
acquiring us from making a tender offer or proposing some other form of transaction
that could involve a premium price for our shares or otherwise be in the best interests
of our stockholders; and
    
    discourage investment in us by other investors who are telecommunications service
providers or who may be deemed to be affiliates of a telecommunications service
provider.
  
    
    owns 10% or more of the total outstanding equity of the other party;
    
    has the power to vote 10% or more of the securities having ordinary voting power for
the election of the directors or management of the other party; or
    
    has the power to direct or cause the direction of the management and policies of the
other party.
  Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3.
    
    Defaults upon Senior Securities
  Item 4.
    
    Submission of Matters to a Vote of Security Holders
  34




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Item 5.
    
    Other Information
  Item 6.
    
    Exhibits
 Exhibit No.
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of April 19, 2006, by
and among NeuStar, Inc., UDNS Merger Sub, Inc., UltraDNS
Corporation, and Ron Lachman as the Holder Representative.#3.1
    
    Restated Certificate of Incorporation.*3.2
    
    Amended and Restated Bylaws.*31.1
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.^31.2
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.^32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.^^
    
    Filed or furnished herewith.#
    
    Incorporated by reference to NeuStar, Inc.s report on Form 8-K, filed on April 25, 2006.*
    
    Incorporated by reference to NeuStar, Inc.s registration statement on Form S-1 (File
No. 333-123635).
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SIGNATURES
  NeuStar, Inc.Date: May 15, 2006
    
    By:
    
    /s/ Jeffrey A. Babka

Jeffrey A. BabkaChief Financial Officer(Principal Financial and Accounting Officerand Duly Authorized Officer)
 36