TNS INC

On September 8, 2010, the Company entered into the Agreement and Plan of Merger (the Merger Agreement) which provided for the merger of Cequint, Inc. (Cequint) with and into Thunder Acquisition Corp., a wholly owned subsidiary of the Company formed for the purpose of the acquisition. Cequint provides carrier grade caller ID products and enhanced services to U.S. mobile operators and has been integrated into the Company’s telecommunication services division. On October 1, 2010, the Company completed the merger in accordance with the terms and conditions of the Merger Agreement. The initial purchase price for the acquisition was $50.0 million consisting of $46.9 million in cash and $3.1 million in Company stock issued to certain management shareholders of Cequint. The stock consideration consisted of 178,823 shares at a fair value of $17.11 per share, which included restrictions on transfer that expire as follows: one third of total shares issued on the first anniversary of the date of acquisition; one third of total shares issued on the second anniversary of the date of acquisition; and one third of total shares issued on the third anniversary of the date of acquisition. The purchase price may be adjusted in the future by an additional $52.5 million in cash based upon the achievement of four specific profit-related milestones, during the period which commenced on June 1, 2011, and not to extend beyond May 31, 2014 (the Earn-Out Period), for a potential total purchase price of $102.5 million. In addition to the contingent consideration of up to $52.5 million, there are additional performance payments which may be payable to certain key personnel, based on the achievement of the same four profit-related milestones of up to $10.0 million. To the extent the additional $10.0 million is payable, it will be recorded as compensation expense as described below.

On August 24, 2012, the Company acquired certain assets from Transydian, LLC for a purchase price of approximately $4.0 million. The initial purchase price is subject to a post-closing working capital adjustment.  The assets acquired primarily include an assembled workforce of software development personnel from Transydian as well as intangible assets. The intangible assets include non-compete agreements, developed technology, and customer relationships. The Company purchased these assets to assist with the development and maintenance of cost platforms that will help lower technology costs while maintaining or improving our service levels. The acquisition will be accounted for as a business combination under FASB ASC 805, Business Combinations, since the assets acquired comprise an integrated set of inputs and processes. The purchase price allocation below is preliminary as the Company is awaiting final valuations of the acquired intangible assets:

The above severance and benefits charges are based on estimates that are subject to change.  The remaining cash expenditures relating to workforce reductions are expected to be paid through 2015. As of September 30, 2012, $1.7 million of the total $2.5 million accrual for workforce reductions was classified as accounts payable, accrued expenses and other liabilities and the remaining $0.8 million was classified as other liabilities in the accompanying consolidated balance sheet.

In August 2012, we implemented a plan to reduce our cost structure and improve operating efficiencies by reducing our workforce and implementing productivity improvement initiatives and expense reduction measures (2012 Restructuring Plan). In connection with the 2012 Restructuring Plan, we incurred approximately $2.8 million associated with our workforce reduction, of which $2.0 million is included in selling, general and administrative expense and $0.8 million is included in engineering and development expense in the accompanying consolidated statement of comprehensive income for the three and nine months ended September 30, 2012. In addition, we anticipate recording additional charges related to workforce reductions during the fourth quarter.

Cost of network services. Cost of network services decreased $1.0 million, or 1.4%, to $69.8 million for the three months ended September 30, 2012, from $70.7 million for the three months ended September 30, 2011. On a constant dollar basis, cost of network services would have decreased $0.3 million to $70.4 million. The decrease was due to the following:  a reduction of telecommunications services division costs of $0.9 million due primarily to lower volumes and to a lesser extent from cost savings initiatives partially offset by increased compensation paid to providers of calling name and line information database records; a reduction of payments division costs of $0.2 million primarily from lower dial-up transaction volumes partially offset by increased costs related to growth in IP-based network services; an increase of $0.3 million in our financial services division due primarily to increased connectivity costs in North America and to a lesser extent increases to support revenue growth in Europe and Asia Pacific; and an increase of $0.5 million in shared network, payroll and overhead expense primarily to support our IP network services, roaming and clearing and payment gateway platforms.