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EX-10.4 - EXHIBIT 10.4 - GXS Worldwide, Inc.dp19848_ex1004.htm
EX-10.3 - EXHIBIT 10.3 - GXS Worldwide, Inc.dp19848_ex1003.htm
EX-10.2 - EXHIBIT 10.2 - GXS Worldwide, Inc.dp19848_ex1002.htm
EX-10.1 - EXHIBIT 10.1 - GXS Worldwide, Inc.dp19848_ex1001.htm
EX-31.2 - EXHIBIT 31.2 - GXS Worldwide, Inc.dp19848_ex3102.htm
EX-31.1 - EXHIBIT 31.1 - GXS Worldwide, Inc.dp19848_ex3101.htm
EX-32.1 - EXHIBIT 32.1 - GXS Worldwide, Inc.dp19848_ex3201.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

   
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2010
 
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: 333-167650

GXS Worldwide, Inc.
(Exact name of registrant as specified in its charter)
Delaware
35-2181508
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

9711 Washingtonian Boulevard, Gaithersburg, MD
20878
(Address of principal executive offices)
(Zip Code)

301-340-4000
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

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 R  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 £  No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer £ Accelerated filer £  Non-accelerated filer R Smaller Reporting company £
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

As of September 30, 2010, the registrant had 1,000 outstanding shares of common stock, all of which was held by an affiliate of the registrant.



 
 
 
 
 
GXS WORLDWIDE, INC.
 
QUARTERLY REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 2010
 
 

PART I. FINANCIAL INFORMATION
   
       
Item 1.
Financial Statements
   
       
   
4
       
   
5
     
 
   
6
     
 
   
7
     
 
   
8
     
 
   
9
       
Item 2.
 
27
       
Item 3.
 
34
       
Item 4.
 
35
       
PART II. OTHER INFORMATION
   
       
Item 1.
 
36
       
Item 1A.    
Risk Factors    
       
Item 2.
 
36
       
Item 3.
 
36
       
Item 4.
 
36
       
Item 5.
 
36
       
Item 6.
 
36
 
In this Quarterly Report, all references to “our,” “us,” “we,” “the Company” and “GXS” refer to GXS Worldwide, Inc. and its subsidiaries as a consolidated entity, unless the context otherwise requires or where otherwise indicated.

The common stock of GXS, Inc., GXS Worldwide, Inc.’s only subsidiary, is collateral for the Company’s 9.75% Senior Secured Notes due 2015. Securities and Exchange Commission Rule 3-16 of Regulation S-X (“Rule 3-16”) requires financial statements for each of the registrant’s affiliates whose securities constitute a
 
 
substantial portion of the collateral for registered securities. The common stock of GXS, Inc. is considered to constitute a substantial portion of the collateral for the registered notes. Accordingly, the financials statements of GXS, Inc. would be required by Rule 3-16. Management does not believe the GXS, Inc. financial statements would add meaningful disclosure and has not included those financial statements herein, because they are substantially identical to the GXS Worldwide, Inc. financial statements and the total assets, revenues, operating income, net income (loss) and cash flows of GXS, Inc. are expected to continue to constitute substantially all of the corresponding amounts for GXS Worldwide, Inc. and its subsidiaries.


PART I. FINANCIAL INFORMATION

GXS WORLDWIDE, INC. AND SUBSIDIARIES
(In thousands, except share and per share amounts)
 
 
   
December 31,
2009
   
September 30,
2010
 
         
(unaudited)
 
Assets
           
Current:
           
Cash and cash equivalents
  $ 25,549     $ 30,797  
Receivables, net
    90,028       96,854  
Prepaid expenses and other current assets
    12,760       17,224  
Total current assets
    128,337       144,875  
                 
Restricted cash
    227,580       ––  
Property and equipment, net
    91,208       96,185  
Goodwill
    75,856       250,542  
Other intangible assets, net
    9,254       173,097  
Deferred financing costs
    22,622       20,284  
Other assets
    19,165       22,973  
                 
Total Assets
  $ 574,022     $ 707,956  
                 
Liabilities and Stockholder's Deficit
               
Current:
               
Trade payables
  $ 10,995     $ 8,769  
Deferred income
    23,127       38,444  
Accrued expenses and other current liabilities
    60,232       95,951  
Total current liabilities
    94,354       143,164  
                 
Long-term debt
    766,450       768,428  
Deferred tax liabilities
    1,330       7,952  
Other liabilities
    50,650       42,298  
Total liabilities
    912,784       961,842  
                 
GXS Worldwide, Inc. stockholder's deficit:
               
Common stock $1.00 par value, 1,000 shares authorized, issued and outstanding
    1       1  
Additional paid-in capital
    357,851       427,701  
Accumulated deficit
    (690,147 )     (675,726 )
Accumulated other comprehensive loss
    (6,707 )     (6,045 )
Total GXS Worldwide, Inc. stockholder's deficit
    (339,002 )     (254,069 )
Non-controlling interest
    240       183  
Total deficit
    (338,762 )     (253,886 )
                 
Total Liabilities and Stockholder's Deficit
  $ 574,022     $ 707,956  


See accompanying notes to condensed consolidated financial statements.
 

GXS WORLDWIDE, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
 
 
   
Three Months ended September 30,
   
Nine Months ended September 30,
 
   
2009
   
2010
   
2009
   
2010
 
Revenues
  $ 88,729     $ 114,138     $ 259,439     $ 296,473  
                                 
Costs and operating expenses:
                               
Cost of revenues
    49,480       63,567       147,392       158,030  
Sales and marketing
    10,574       14,658       31,759       39,206  
General and administrative
    10,400       15,445       35,792       41,248  
Restructuring charges
    697       1,824       7,298       2,891  
Merger and acquisition fees
    ––       (512 )     ––       8,492  
Operating income
    17,578       19,156       37,198       46,606  
                                 
Other income (expense):
                               
Loss on disposition of assets
    ––       ––       ––       (1,724 )
Interest income
    66       28       204       157  
Interest expense
    (19,362 )     (21,907 )     (46,444 )     (64,845 )
Other income (expense), net
    1,979       1,395       2,600       (17 )
Income (loss) before income taxes
    261       (1,328 )     (6,442 )     (19,823 )
                                 
Income tax expense (benefit)
    1,479       1,674       1,982       (34,187 )
Net income (loss)
    (1,218 )     (3,002 )     (8,424 )     14,364  
Less: Net income (loss) attributable to non-controlling interest
    31       (7 )     32       (57 )
Net income (loss) attributable to GXS Worldwide, Inc.
  $ (1,249 )   $ (2,995 )   $ (8,456 )   $ 14,421  
 
 
See accompanying notes to condensed consolidated financial statements.
 

GXS WORLDWIDE, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
 
 
   
Three Months ended September 30,
   
Nine Months ended September 30,
 
   
2009
   
2010
   
2009
   
2010
 
                         
Net income (loss)
  $ (1,218 )   $ (3,002 )   $ (8,424 )   $ 14,364  
Unrealized gain on interest rate swap
    1,426       ––       932       ––  
Foreign currency translation adjustments
    (270 )     1,694       2,774       662  
Comprehensive income (loss)
    (62 )     (1,308 )     (4,718 )     15,026  
Less: Comprehensive income (loss) attributable to non-controlling interest
    31       (7 )     32       (57 )
Comprehensive income (loss) attributable to
                               
GXS Worldwide, Inc.
  $ (93 )   $ (1,301 )   $ (4,750 )   $ 15,083  
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
 
 
   
Common stock
   
Additional paid-in capital
   
Accumulated deficit
   
Accumulated other comprehensive loss
   
Non- controlling interest
   
Total Stockholder's deficit
 
Balance at December 31, 2009
  $ 1     $ 357,851     $ (690,147 )   $ (6,707 )   $ 240     $ (338,762 )
Net income (loss)
    ––       ––       14,421       ––       (57 )     14,364  
Stock compensation expense
    ––       212       ––       ––       ––       212  
Management fees waived by Francisco Partners
    ––       833       ––       ––       ––       833  
Contribution from GXS Holdings
    ––       68,805       ––       ––       ––       68,805  
Foreign currency translation adjustments
    ––       ––       ––       662       ––       662  
Balance at September 30, 2010
  $ 1     $ 427,701     $ (675,726 )   $ (6,045 )   $ 183     $ (253,886 )
 
 
See accompanying notes to condensed consolidated financial statements.
 

GXS WORLDWIDE, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
 
 
   
Nine Months ended September 30,
 
   
2009
   
2010
 
Cash flows from operations:
           
Net income (loss)
  $ (8,424 )   $ 14,364  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization
    44,207       33,581  
Deferred income taxes
    (1,239 )     736  
Change in deferred tax asset valuation allowance resulting from business acquisition
    ––       (36,821 )
Loss on disposition of assets
    ––       1,724  
Amortization of deferred financing costs and debt discount
    2,771       5,727  
Unrealized (gain) loss on interest rate swap
    1,655       (5,041 )
Stock compensation expense
    120       212  
Accretion of interest on obligations of GXS Holdings
    3,368       ––  
Changes in operating assets and liabilities, net of effect of business acquisition:
               
Decrease in receivables
    5,914       9,065  
Increase in prepaid expenses and other assets
    (8,039 )     (2,654 )
Decrease in trade payables
    (3,955 )     (15,171 )
Decrease in deferred income
    (1,667 )     (2,312 )
Increase in accrued expenses and other liabilities
    8,111       21,891  
Other
    (183 )     (419 )
Net cash provided by operating activities
    42,639       24,882  
                 
Cash flows from investing activities:
               
Purchases of property and equipment
    (21,790 )     (26,907 )
Proceeds from sale of assets
    ––       400  
Business acquisition, net of cash acquired of $14,440
    ––       (220,005 )
Decrease in restricted cash
    ––       227,580  
Net cash used in investing activities
    (21,790 )     (18,932 )
                 
Cash flows from financing activities:
               
Repayment of long-term debt
    (45,138 )     ––  
Borrowings under revolving credit facility
    30,000       23,000  
Repayments of borrowings under revolving credit facility
    (30,000 )     (23,000 )
Payment of financing costs
    (2,621 )     (831 )
Net cash used in financing activities
    (47,759 )     (831 )
                 
Effect of exchange rate changes on cash
    1,666       129  
                 
Increase (decrease) in cash and cash equivalents
    (25,244 )     5,248  
Cash and cash equivalents, beginning of year
    47,863       25,549  
Cash and cash equivalents, end of period
  $ 22,619     $ 30,797  
                 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
  $ 36,579     $ 44,065  
Cash paid for income taxes
  $ 1,449     $ 2,466  
                 
Noncash investing and financing activities:
               
Management fees waived by Francisco Partners
  $ 1,500     $ 833  
Fair value of equity securities issued in business acquisition
  $     $ 68,805  
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
(Dollars in thousands, unless otherwise indicated)
 
(1)  Business and Basis of Presentation
 
GXS Worldwide, Inc. and its subsidiaries (GXS Worldwide or the Company) are primarily engaged in the business of providing transaction management infrastructure products and services that enable companies to electronically exchange essential business documents. The Company’s services and solutions enable customers to manage mission critical supply chain functions and financial transactions related to the exchange of goods and services. Customers and their trading partners do business together via GXS Trading Grid®, a globally-accessible, cloud-computing platform specifically designed for B2B e-commerce. The Company is a wholly owned subsidiary of GXS Group, Inc. (GXS Group).
 
On June 2, 2010, GXS Holdings, Inc. (GXS Holdings), a Delaware corporation and our direct parent company, which directly owned 100% of the Company’s issued and outstanding common stock, acquired Inovis International, Inc. (Inovis), a provider of integrated B2B services and solutions that manage the flow of e-commerce information for global trading communities (the Merger). Following the Merger, Inovis was merged with GXS, Inc. (GXSI), an indirect wholly-owned subsidiary, and became an indirect wholly-owned subsidiary of GXS Group, Inc. (previously known as Griris Holding Company, Inc.). Certain foreign subsidiaries of Inovis became wholly owned subsidiaries of GXSI.
 
The Merger was accounted for using the purchase method of accounting prescribed in Financial Accounting Standard Codification 805 – Business Combinations. Under this standard, the excess of the purchase price over net assets acquired and liabilities assumed is recorded as goodwill. Purchase price allocated to property and equipment, trade names, customer contracts and relationships or other identifiable intangible assets will result in additional depreciation and amortization expense after the Merger. The amount of depreciation and amortization will be based upon the amount allocated and the estimated useful lives of the respective assets.  Revenue and operating income in the twelve months following the Merger will be affected by a write-down of deferred revenue to reflect estimated fair value.
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information.  Accordingly, these financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary for a fair presentation of the financial position and results of operations.
 
Interim results for the three and nine month periods ended September 30, 2010 are not necessarily indicative of the results that may be expected for a full fiscal year.  For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2009, which are included in the Company’s registration statement on Form S-4 filed under the Securities Act with the Securities and Exchange Commission (SEC) on July 27, 2010.
 
Certain reclassifications have been made to the condensed consolidated financial statements as of December 31, 2009 and for the three and nine months ended September 30, 2009 to conform to the presentation at September 30, 2010 and for the three and nine months then ended.
 
(2)  Summary of Significant Accounting Policies
 
(a)  Consolidation
 
The condensed consolidated financial statements represent the consolidation of all companies in which the Company directly or indirectly has a majority ownership interest and controls the operations. All significant intercompany transactions and balances have been eliminated in consolidation. Investments in companies in which the Company has an ownership interest of 50% or less but can exercise significant influence over the investee’s operations and policies are accounted for under the equity method of accounting. The Company uses the cost method to account for investments where it holds less than a 20% ownership interest and where it cannot exercise significant influence over the investee’s operations and policies. At the end of each reporting period, the Company assesses the fair value of its investments to determine if any impairment has occurred. To the extent the Company’s carrying value exceeds the estimated fair value and the loss is considered to be other than a temporary decline, the Company records an impairment charge.

(b)  Foreign Currency
 
The financial statements of most subsidiaries located outside of the United States are measured using the local currency as the functional currency. Assets, including goodwill, and liabilities are translated at the rates of exchange at the balance sheet date. Income
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
and expense items are translated at average monthly rates of exchange. The resulting translation gains and losses are included as a separate component of other comprehensive income (loss). Gains and losses from transactions in foreign currency are included in the condensed consolidated statements of operations within other income (expense), net.
 
(c)  Cash and Cash Equivalents
 
The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash equivalents consist primarily of overnight interest bearing deposits.
 
(d)  Revenue Recognition
 
The Company generates revenues from three principal sources:
 
Transaction Processing — The Company earns recurring transaction processing revenue from facilitating the exchange of business documents among its customers’ computer systems and those of their trading partners. Such revenues are generally based on a per transaction fee or monthly minimum charge and are recognized in the period in which the related transactions are processed. Revenue on contracts with monthly, quarterly or annual minimum transaction levels is recognized based on the greater of actual transactions or the specified contract minimum amounts.
 
Software Licensing and Maintenance — The Company earns revenue from the licensing of software applications that facilitate and automate the exchange of information among disparate business systems and applications. Such revenue is recognized when the license agreement is signed, the license fee is fixed and determinable, delivery has occurred, and collection is considered probable. Revenue from licensing software that requires significant customization and modification or where services are otherwise considered essential to the functionality of the software are recognized using the percentage of completion method, based on the costs incurred in relation to the total estimated costs of the contract. Revenue from hosted software applications are recognized ratably over the hosting period unless the customer has the contractual right to take possession of the software without significant penalty and it is feasible for the customer to use the software with its own hardware or contract with another party unrelated to the Company to host the software. Software maintenance revenue is deferred and recognized on a straight-line basis over the life of the related maintenance period, which is typically one year.
 
Professional Services — Professional services are generally conducted under time and material contracts and revenue is recognized as the related services are provided.
 
For arrangements with more than one element of revenue, the Company allocates revenue to each component based on vendor specific objective evidence (VSOE) of fair value. VSOE for software maintenance is based on contractual renewal rates. Professional services are separately priced and are based on standard hourly rates determined by the nature of the service and the experience of the professional performing the service.
 
The Company defers direct costs associated with implementation of certain of its long-term customer contracts to the extent such costs can be recovered through guaranteed contract revenues.  The unamortized balance of those costs as of December 31, 2009 and September 30, 2010 was $14,403 and $17,652, respectively, and are included in other non-current assets in the condensed consolidated balance sheets.

(e)  Comprehensive Loss
 
Comprehensive loss consists of net loss adjusted for increases and decreases affecting accumulated other comprehensive loss in stockholder’s deficit that are excluded from the determination of net loss.
 
Accumulated other comprehensive loss consisted of the following:
 
   
December 31,
2009
   
September 30,
2010
 
Additional minimum pension liability
  $ (963 )   $ (963 )
Foreign currency translation adjustments
    (5,744 )     (5,082 )
Accumulated other comprehensive loss
  $ (6,707 )   $ (6,045 )
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
(f)  Income Taxes
 
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income tax liabilities are recorded for the impact of positions taken on income tax returns which management believes are not likely to be sustained on tax audit. Interest expense accrued on such unrecognized tax benefits and income tax penalties are recognized through income tax expense.
 
The expected effective income tax rate for the three and nine months ended September 30, 2009 and 2010 differs from the federal statutory rate of 35% principally as a result of state income taxes, differing rates in foreign jurisdictions, the effect of losses in the United States and foreign jurisdictions for which no income tax benefit has been recognized and the decrease in the Company’s deferred tax asset valuation allowance as a result of net deferred tax liabilities assumed and recognized in purchase accounting. Such reduction was recognized as an income tax benefit in the condensed consolidated statement of operations.
 
(g)  Derivative Instruments
 
Derivative instruments are recognized on the condensed consolidated balance sheets at their fair value and changes in the fair value are recognized in income, unless the derivatives qualify as hedges of future cash flows. For derivatives qualifying as hedges of future cash flows, the effective portion of any changes in fair value is recorded temporarily in equity, and then recognized in income along with the related effects of the hedged items. Any ineffective portion of hedges is reported in income as it occurs.
 
The Company determined the fair value of its interest rate swap using pricing models developed based on the LIBOR swap rate and other observable inputs, adjusted to reflect non performance risk of both the counterparty and the Company.  The Company considers the interest rate swap to be included within Level 2 of the fair value hierarchy established by U.S. GAAP, as its fair value is measured primarily utilizing observable market based inputs.
 
(h)  Fair Value of Financial Instruments
 
The Company’s financial instruments consist principally of cash and cash equivalents, receivables, an interest rate swap and long-term debt. Generally, the carrying amounts of current assets and liabilities approximate fair value because of the short-term maturity of these instruments. As of September 30, 2010, the Company’s long-term debt was trading close to the issue price so the Company considers the fair value to approximate the book value. The fair value of the Company’s interest rate swap is discussed further in Note 8.
 
(i)  Use of Estimates
 
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. Significant estimates used in preparing the condensed consolidated financial statements include recovery of long-lived assets, valuation of receivables and valuation of deferred tax assets. In addition, estimates are required to recognize revenue for software arrangements with multiple deliverables and to assess the stage at which software development costs should be capitalized.
 
(j)  Recently Released Accounting Standards
 
In September 2009, the FASB issued Accounting Standards Update (ASU) 2009-13 (previously Emerging Issues Task Force (EITF) Issue No. 08-1, Revenue Arrangements with Multiple Deliverables). ASU 2009-13 supersedes EITF No. 00-21 and addresses criteria for separating the consideration in multiple-element arrangements. ASU 2009-13 will require companies to allocate the overall consideration to each deliverable by using a best estimate of the selling price of individual deliverables in the arrangement in the absence of vendor-specific objective evidence or other third-party evidence of the selling price. ASU 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and early adoption will be permitted. Management is currently evaluating the potential impact, if any, of the adoption of ASU 2009-13 on the Company’s consolidated results of operations and financial condition.
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
(3)  Acquisition of Inovis
 
On June 2, 2010, GXS Holdings acquired all the capital stock of Inovis International, Inc. for total consideration of $303,250, including cash of $129,782 paid to retire the outstanding debt of Inovis and cash of $104,663 paid to the Inovis stockholders. The Inovis stockholders also received common and preferred stock, with a preliminary estimated fair value of $68,805, in a newly formed holding company, GXS Group, Inc., which owns all of the capital stock of GXS Holdings, resulting in Inovis stockholders having an approximate 28.1% ownership interest in the combined company following consummation of the Merger. Concurrent with the Merger, through a series of transactions, the capital stock of Inovis was contributed to GXS, Inc., a wholly-owned subsidiary of the Company and Inovis International, Inc. and certain of its U.S. subsidiaries became wholly-owned subsidiaries of GXS, Inc.

The Company used cash held in escrow of $227,580 obtained from the senior secured notes issuance in December 2009 to retire the Inovis indebtedness and to fund a portion of the cash consideration paid to the Inovis stockholders. Of the $104,663 cash paid to the Inovis stockholders, $10,800 is held in escrow until the indemnification obligations of the Inovis stockholders expire on June 2, 2011.

Inovis was a provider of integrated B2B services and solutions that manage the flow of e-commerce information for global trading communities. The Merger will expand the Company’s customer base in the U.S., Canada and the U.K., broaden its product offerings and increase the functionality of its managed services offering.

The Merger was accounted for using the purchase method of accounting prescribed in Financial Accounting Standard Codification 805 – Business Combinations. Under this standard, the excess of the purchase price over the fair value of net assets acquired and liabilities assumed is recorded as goodwill. The application of purchase accounting for the transaction resulted in a preliminary value of $303,250.  On that basis, the table below shows the preliminary value of the consideration paid in connection with the Merger:
 
Debt of Inovis retired at closing
  $ 129,782  
Cash paid to stockholders of Inovis
    104,663  
Preliminary estimated fair value of equity securities issued to stockholders of Inovis
    68,805  
Total consideration
  $ 303,250  

All expenditures incurred in connection with the Merger were expensed and are included in operating expenses. Transaction costs incurred in connection with the Merger were $8,492 during the nine months ended September 30, 2010, including $3,000 paid to Francisco Partners in June 2010. The results of operations for Inovis have been included in the condensed consolidated results of operations for the period June 2, 2010 through September 30, 2010.
 
The Company has preliminarily allocated the purchase price based on current estimates of the fair values of assets acquired and liabilities assumed in connection with the Inovis acquisition. The table below summarizes the preliminary estimates of fair value of the Inovis assets acquired, liabilities assumed and related deferred income taxes as of the acquisition date. The Company expects to obtain additional information to assist in determining the fair value of the net assets acquired at the acquisition date. Therefore, these preliminary estimates may be revised in future periods during the applicable measurement period and the revisions may materially affect the presentation of our consolidated financial results. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill. The Company expects to finalize the purchase accounting for the acquisition of Inovis, including determining the final valuations for assets and liabilities, by the time it files its Annual Report on Form 10-K for the year ending December 31, 2010.
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
   
Preliminary Allocation
June 2, 2010
 
Acquired assets:
     
Current assets
  $ 35,517  
Property and equipment
    5,802  
Other non-current assets
    555  
Goodwill
    174,177  
Amortized intangible assets
    171,380  
Total assets
    387,431  
         
Assumed liabilities:
       
Current liabilities
    (38,780 )
Deferred tax liabilties
    (42,836 )
Other non-current liabilities
    (2,565 )
Total liabilities
    (84,181 )
Total consideration
  $ 303,250  

Amortized intangible assets and the related estimated useful lives consist of the following:
 
 
 
Preliminary Estimated Useful Lives
 
Preliminary Estimated Value
June 2, 2010
 
Customer relationships
15-20 years
  $ 149,100  
Product technology
5-10 years
    17,780  
Trademarks
5 years
    4,500  
      $ 171,380  

In connection with the Merger, the Company reduced its deferred tax asset valuation allowance by $36,821 as the result of net deferred tax liabilities assumed and recognized in purchase accounting. Such reduction was recognized as an income tax benefit in the condensed consolidated statements of operations for the three months ended June 30, 2010 and the nine months ended September 30, 2010.

The following schedule presents unaudited consolidated pro forma results of operations data as if the Merger had occurred on January 1, 2009. This information does not purport to be indicative of the actual results that would have occurred if the Merger had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company:

   
Three Months ended
   
Nine Months ended September 30,
 
   
September 30, 2009
   
2009
   
2010
 
Revenues
  $ 124,864     $ 362,125     $ 350,784  
Net income (loss)
    809       (18,256 )     (9,818 )

The Merger was subject to regulatory review.  In connection with the review by the Antitrust Division of the U.S. Department of Justice, the Company divested its catalog service offering.  On May 28, 2010, the Company sold customer contracts and intellectual property rights related to its catalog service offering and recorded a loss on sale of $1,724.
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
(4)  Accounts Receivable
 
Accounts receivable, net were comprised of the following:
 
   
December 31,
2009
   
September 30,
2010
 
Trade accounts receivable
  $ 79,763     $ 87,433  
Unbilled receivables
    2,200       2,374  
Other receivables
    22,414       19,982  
      104,377       109,789  
Less: allowance for doubtful accounts
    (14,349 )     (12,935 )
Total
  $ 90,028     $ 96,854  

 
(5)  Property and Equipment
 
Property and equipment, net were comprised of the following:
 
   
December 31,
2009
   
September 30,
2010
 
Computer equipment and furniture
  $ 249,125     $ 200,865  
Computer software
    287,216       297,705  
Leasehold improvements
    18,673       17,232  
      555,014       515,802  
Less: accumulated depreciation and amortization
    (463,806 )     (419,617 )
Total
  $ 91,208     $ 96,185  

(6)  Goodwill and Other Acquired Intangible Assets
 
The following represents a summary of changes in goodwill for the nine months ended September 30, 2010:
 
Beginning of year
  $ 75,856  
Merger-related additions
    174,177  
Foreign currency translation
    509  
End of period
  $ 250,542  

 
On June 2, 2010, the Company acquired Inovis for total consideration of $303,250, as more fully discussed in Note 3.  The preliminary aggregate purchase price exceeded the preliminary estimated fair value of the net tangible assets and identified intangible assets by $174,177, which was allocated to goodwill.
 
Other acquired intangible assets were comprised of the following:
 
   
September 30, 2010
 
   
Gross Carrying Amount
   
Accumulated Amortization
   
Net
 
Amortized intangible assets:
                 
Customer relationships
  $ 247,054     $ (98,510 )   $ 148,544  
Product technology
    17,780       (665 )     17,115  
Trade names and trademarks
    4,500       (300 )     4,200  
Other acquired intangible assets
    3,882       (2,820 )     1,062  
Total
  $ 273,216     $ (102,295 )   $ 170,921  
                         
Unamortized intangible assets:
                       
Trade names and trademarks
  $ 2,176                  
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
   
December 31, 2009
 
   
Gross Carrying Amount
   
Accumulated Amortization
   
Net
 
Amortized intangible assets:
                 
Customer relationships
  $ 97,875     $ (92,046 )   $ 5,829  
Other acquired intangible assets
    3,865       (2,585 )     1,280  
Total
  $ 101,740     $ (94,631 )   $ 7,109  
                         
Unamortized intangible assets:
                       
Trade names and trademarks
  $ 2,145                  

 
Intangible assets, except for those with an indefinite life, are amortized over their estimated useful lives using a method that reflects the pattern in which the economic benefits of the intangible assets are expected to be consumed or on a straight-line basis. Amortization expense related to intangible assets was $5,062 and $15,318 for the three and nine months ended September 30, 2009, respectively, and $5,846 and $7,664 for the three and nine months ended September 30, 2010. Estimated aggregate amortization expense of intangible assets for the period from October 1, 2010 through December 31, 2010 and for each of the following five years ending December 31 is approximately: $5,125 remaining in 2010, $19,598  in 2011, $18,276 in 2012, $17,118 in 2013, $14,251 in 2014, $12,519 in 2015 and $84,033 thereafter.
 
The gross carrying amounts of certain intangible assets are impacted by certain balances being denominated in foreign currencies.  These balances are translated into U.S. dollars at the exchange rate in effect at the balance sheet date.
 
(7)  Long-Term Debt
 
The carrying values of our notes payable were as follows:

   
December 31,
2009
   
September 30,
2010
 
Senior secured notes
  $ 785,000     $ 785,000  
Less: unamortized original issue discount
    (18,550 )     (16,572 )
Long-term debt
  $ 766,450     $ 768,428  

 
The fair values of the senior secured notes approximate their respective book values at December 31, 2009 and September 30, 2010.
 
Senior Secured Notes
 
On December 23, 2009, the Company issued $785,000 of senior secured notes (the Senior Secured Notes) with an original issue discount of $18,608. Net proceeds from issuance were used to retire all of the outstanding debt under the 2007 Credit Facility (described later in this Note) and $35,000 of GXS Holdings outstanding subordinated notes, pay debt issuance costs and for other general corporate purposes. Under the terms of the indenture, the Company placed $227,580 in an escrow account to fund the Merger. On June 2, 2010, the Company withdrew the funds from the escrow account to fund the Merger as more fully described in Note 3.
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
On July 27, 2010, the Company filed a registration statement with the SEC as required by the Senior Secured Notes indenture.  On August 11, 2010, the Company filed a prospectus pursuant to Rule 424(b) of the Securities Act with the SEC to offer a public exchange of these notes.  The Company completed the exchange offer and issued $684,555 aggregate principal amount of new registered notes in exchange for like aggregate principal amount of the Senior Secured Notes on September 16, 2010.
 
The Senior Secured Notes bear interest at an annual rate of 9.75%, with interest payable on June 15 and December 15 each year. The Senior Secured Notes mature on June 15, 2015 and are guaranteed on a senior secured basis by all of the Company’s existing and future wholly-owned domestic subsidiaries and all other domestic subsidiaries that guarantee the Company’s other indebtedness; and in certain circumstances are secured by an interest granted on substantially all of the Company’s properties and assets. The Senior Secured Notes contain covenants that, among other things, restrict the Company’s ability to pay dividends, redeem stock, make certain distributions, payments or investments, incur indebtedness, create liens on the collateral, merge, consolidate or sell assets, and enter into transactions with affiliates.
 
Revolving Credit Facility

On December 23, 2009, the Company entered into a Credit and Guaranty Agreement which provides the Company with a $50,000 revolving credit facility. The interest rate for the revolving credit facility is a predetermined amount above the London Interbank Offered Rate (LIBOR), subject to a floor of 2.0%, or at a predetermined amount above the administrative agent’s “base rate”, subject to a floor of 3.0%, at the Company’s option. The revolving credit facility is guaranteed by the guarantors that guarantee the Senior Secured Notes and secured by collateral that secure the Senior Secured Notes. The revolving credit facility is used by the Company, among other things, to fund its working capital needs, support letters of credit and for general corporate purposes. The Company’s ability to borrow additional monies in the future under the revolving credit facility is subject to certain conditions, including compliance with certain covenants. As of September 30, 2010, the Company had outstanding letters of credit of $11,661 and additional available borrowings of $38,339 under the revolving credit facility. Following the December 23, 2009 debt refinancing, the Company’s principal sources of liquidity have been and are expected to be cash, cash flow from operations and borrowings under the revolving credit facility. Any outstanding borrowings under the revolving credit facility shall be repaid in full on December 23, 2012 and the commitments shall terminate on that date.
 
The revolving credit facility requires the Company to maintain certain financial and nonfinancial covenants. Noncompliance with any covenant specified in the Credit and Guaranty Agreement would qualify as an event of default whereby the lenders would have rights to call all outstanding borrowings due and payable. At September 30, 2010, the Company was in compliance with all financial and non-financial covenants.
 
2007 Credit Facility
 
On October 5, 2007, the Company entered into a first lien credit agreement (the First Lien Agreement) and a second lien credit agreement (the Second Lien Agreement and together with the First Lien Agreement, the 2007 Credit Facility). The First Lien Agreement consisted of a $335,000 term credit facility and a $50,000 revolving credit facility. The Second Lien Agreement consisted of a $175,000 term credit facility. Interest expense for the 2007 Credit Facility was $12,884 and $33,941 for the three months and nine months ended September 30, 2009, respectively.
 
All amounts outstanding under the 2007 Credit Facility were retired upon issuance of the Senior Secured Notes on December 23, 2009, and the 2007 Credit Facility was terminated.
 
Obligations of GXS Holdings
 
On October 5, 2007, GXS Holdings issued $55,000 of subordinated notes due September 30, 2017. The notes bear interest at 14.2%, all payable in additional debt securities with the same terms and conditions as the subordinated notes or in cash at the Company’s option. The Company has not guaranteed or pledged any of its assets to secure the notes. The entire proceeds from these subordinated notes were used to fund a capital contribution to the Company which was used, in part, to repay the debt which was refinanced in connection with the closing of the 2007 Credit Facility.
 
The Company repaid $35,000 of the outstanding subordinated notes in December 2009 with a portion of the proceeds from the issuance of the Senior Secured Notes. In the three and nine months ended September 30, 2009, interest expense incurred related to the GXS Holdings debt and included in the Company’s condensed consolidated statements of operations was $1,162 and $3,368, respectively.
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
Other Information
 
The Company expects that cash flows from foreign operations will be required to meet its domestic debt service requirements. However, there is no assurance that the foreign subsidiaries will generate sufficient cash flow or that the laws in foreign jurisdictions will not change to limit the Company’s ability to repatriate these cash flows or increase the tax burden on the collections.
 
(8)  Financial Instruments
 
The Company has an interest rate swap agreement with a commercial bank with a notional amount of $255,000. The provisions of the agreement provide that the Company will pay the counterparty a fixed rate of 3.86%. The counterparty will pay the Company a variable rate equal to three-month LIBOR, which was 0.51% at September 30, 2010. The fair value of the interest rate swap was $11,848 and $6,807 as of December 31, 2009 and September 30, 2010, respectively. The interest rate swap was recorded in other liabilities in the condensed consolidated balance sheet at December 31, 2009 and accrued expenses and other current liabilities in the condensed consolidated balance sheet at September 30, 2010.  The interest rate swap agreement expires on April 26, 2011.
 
The interest rate swap had previously been designated as a cash flow hedge, and was utilized to manage the Company’s exposure related to changes in the three-month LIBOR rate associated with its variable-rate 2007 Credit Facility. As the hedged future forecasted transactions (variable interest payments on the 2007 Credit Facility) were no longer probable of occurring upon the repayment and extinguishment of the 2007 Credit Facility in December 2009, the effective portion of the hedge was reclassified out of accumulated other comprehensive loss into interest expense in December 2009. In addition, changes in the fair value of the interest rate swap are now recorded through interest expense. The changes in fair value of the interest rate swap of $1,709 and $5,042 were recorded as a reduction to interest expense in the three and nine months ended September 30, 2010.
 
(9)  Contingencies
 
The Company is subject to various legal proceedings and claims, which arise in the ordinary course of its business, none of which management believes are likely to have a material adverse effect on the Company’s financial position or results of operations.
 
In 2006, Inovis became aware of patent infringement allegations by a third party against certain customers of one of Inovis’ software technology products. In July 2007, Inovis filed a complaint for declaratory judgment against the third party in the United States District Court of Delaware, seeking a judgment and declaration that neither Inovis nor any of its customers have infringed on the patent at issue.  Inovis filed a Request for Reexamination of such patent with the U.S. Patent and Trademark Office (the “USPTO”) which was accepted in May 2008, resulting in the amendment and/or cancellation of certain of the patent claims.  In September 2009, the USPTO granted a second Request for Reexamination of the patent filed by Inovis, finding a substantial new question of patentability with respect to all claims.  In March 2010, the USPTO issued an initial ruling rejecting all of the claims in the patent.  The litigation is currently stayed pending the outcome of the second reexamination proceeding.  Although the Company believes that the third party’s patent infringement allegations are without merit, there can be no assurance that the Company will prevail in the litigation.
 
(10)  Restructuring Charges
 
During the past several years, the Company has undertaken a series of restructuring activities, which included closing or consolidating certain office facilities and terminating employees, in order to reduce expenses in response to changing business requirements. The restructuring charges reflect the total estimated net costs of these activities and current period adjustments of revised estimates associated with these restructuring plans.
 
During the three months and nine months ended September 30, 2010, the Company recorded restructuring charges of $1,824 and $2,891, respectively, which principally included charges associated with the consolidation of office space at the former Inovis headquarters and termination of employees associated with the integration of the Inovis business. The Company expects to take further restructuring charges in 2010 and beyond related to exit activities associated with the continued integration of the Inovis business.

The changes in the restructuring accrual for the nine months ended September 30, 2010 are as follows:

   
Severance
   
Facilities
   
Total
 
Balance as of  December 31, 2009
  $ 149     $ 12,480     $ 12,629  
Restructuring charges
    1,922       969       2,891  
Restructuring obligations assumed
in the Merger
    1,345       ––       1,345  
Payments and other adjustments
    (1,691 )     (3,690 )     (5,381 )
Balance as of September 30, 2010
  $ 1,725     $ 9,759     $ 11,484  
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, unless otherwise indicated)
 
In connection with the Merger, the Company assumed obligations for restructuring activities related to the termination of certain Inovis employees of $1,345.

Amounts that are estimated to be payable in the next twelve months totaled $4,553 and $5,271 at December 31, 2009 and September 30, 2010, respectively and are included in accrued expenses and other current liabilities in the condensed consolidated balance sheets.

(11)  Related Party Transactions

Prior to the Merger, the Company had an agreement with Francisco Partners, the controlling shareholder of GXS Holdings, under which the Company had agreed to pay Francisco Partners an annual fee of $2,000 plus expenses for financial advisory and consulting services (the Monitoring Agreement). The expense related to the fees payable under the Monitoring Agreement was $500 and $1,008 for the three months ended September 30, 2009 and 2010, respectively, and $1,500 and $2,159 for the nine months ended September 30, 2009 and 2010, respectively. Francisco Partners waived the payment of $2,000 of fees earned during the year ended December 31, 2009 and $833 of fees earned through June 2, 2010. Such amounts were recorded as contributions to additional paid-in capital in the condensed consolidated statements of changes in stockholder’s deficit.  The Company paid Francisco Partners a merger advisory fee of $3,000 prior to the closing of the Merger.
 
On June 2, 2010, the Company terminated the Monitoring Agreement and entered into a new management agreement pursuant to which the Company agreed to pay in the aggregate an annual fee of $4,000 to Francisco Partners and certain former shareholders of Inovis, Golden Gate Capital and Cerebus Partners, in exchange for financial advisory and consulting services (the Management Agreement). The Management Agreement has a term of ten years. The expense related to the management fee was $1,326 for the period from June 2, 2010 through September 30, 2010 and will be payable in full on December 31, 2010 along with the management fees that will accrue during the remainder of 2010.
 
One of our executives is an investor in Mentora Group, Inc., who provides technology-related consulting and hosting management services for the Company. During the nine months ended September 30, 2010, the Company incurred fees payable to Mentora of $948 for services provided during that period under various service agreements.
 
(12)  Subsequent Events

Management evaluated all events and transactions that occurred after September 30, 2010 and through the date of this report, and determined the Company did not have any material subsequent events that require adjustment to or disclosure in the condensed consolidated financial statements during this period.

(13)  Supplemental Condensed Consolidated Financial Information

The Senior Secured Notes are guaranteed by each of the Company’s United States subsidiaries (the Subsidiary Guarantors). The guarantees are full, unconditional and joint and several. The Subsidiary Guarantors are each wholly-owned by the Company. The ability of the Company’s subsidiaries to make cash distributions and loans to the Company and Subsidiary Guarantors is not expected to be significantly restricted. The following supplemental financial information sets forth, on a condensed consolidating basis, balance sheets, statements of operations and comprehensive income (loss), and statements of cash flows for the Company, Subsidiary Guarantors and the Company’s non-guarantor subsidiaries.
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
December 31, 2009
(In thousands)
(unaudited)
 
 
   
Parent
   
Guarantors
   
Non-Guarantors
   
Eliminations
   
Consolidated
 
Assets
                             
Current:
                             
Cash and cash equivalents
  $ ––     $ 12,983     $ 12,566     $ ––     $ 25,549  
Receivables, net
    ––       33,946       56,082       ––       90,028  
Prepaid expenses and other assets
    ––       2,459       10,301       ––       12,760  
Advances to subsidiaries
    ––       504,773       198,220       (702,993 )     ––  
Total current assets
    ––       554,161       277,169       (702,993 )     128,337  
Restricted cash
    ––       227,580       ––       ––       227,580  
Investments in subsidiaries
    421,238       4,284       ––       (425,522 )     ––  
Property and equipment, net
    ––       84,196       7,012       ––       91,208  
Goodwill
    ––       58,087       17,769       ––       75,856  
Other intangible assets, net
    ––       700       8,554       ––       9,254  
Deferred financing costs
    22,622       ––       ––       ––       22,622  
Other assets
    ––       12,225       6,940       ––       19,165  
Total Assets
  $ 443,860     $ 941,233     $ 317,444     $ (1,128,515 )   $ 574,022  
                                         
Liabilities and Equity (Deficit)
                                       
Current:
                                       
Trade payables
  $ 950     $ 6,548     $ 3,497     $ ––     $ 10,995  
Other current liabilities
    3,614       31,784       47,961       ––       83,359  
Advances from affiliates
    ––       465,977       237,016       (702,993 )     ––  
Total current liabilities
    4,564       504,309       288,474       (702,993 )     94,354  
Long-term debt
    766,450       ––       ––       ––       766,450  
Other liabilities
    11,848       15,686       24,446       ––       51,980  
Total liabilities
    782,862       519,995       312,920       (702,993 )     912,784  
Equity (Deficit):
                                       
Stockholder’s equity (deficit) GXS Worldwide, Inc.
    (339,002 )     421,238       4,284       (425,522 )     (339,002 )
Non-controlling interest
    ––       ––       240       ––       240  
Total equity (deficit)
    (339,002 )     421,238       4,524       (425,522 )     (338,762 )
Total Liabilities and Equity (Deficit)
  $ 443,860     $ 941,233     $ 317,444     $ (1,128,515 )   $ 574,022  


GXS WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
September 30, 2010
(In thousands)
(Unaudited)
 
 
   
Parent
   
Guarantors
   
Non-Guarantors
   
Eliminations
   
Consolidated
 
Assets
                             
Current:
                             
Cash and cash equivalents
  $ ––     $ 13,190     $ 17,607     $ ––     $ 30,797  
Receivables, net
    ––       42,339       54,515       ––       96,854  
Prepaid expenses and other assets
    ––       5,313       11,911       ––       17,224  
Advances to subsidiaries
    ––       750,048       201,141       (951,189 )     ––  
Total current assets
    ––       810,890       285,174       (951,189 )     144,875  
Investments in subsidiaries
    525,532       24,392       ––       (549,924 )     ––  
Property and equipment, net
    ––       89,320       6,865       ––       96,185  
Goodwill
    ––       217,741       32,801       ––       250,542  
Other intangible assets, net
    ––       165,722       7,375       ––       173,097  
Deferred financing costs
    20,284       ––       ––       ––       20,284  
Other assets
    ––       14,877       8,096       ––       22,973  
Total Assets
  $ 545,816     $ 1,322,942     $ 340,311     $ (1,501,113 )   $ 707,956  
                                         
Liabilities and Equity (Deficit)
                                       
Current:
                                       
Trade payables
  $ 236     $ 4,305     $ 4,228     $ ––     $ 8,769  
Other current liabilities
    31,221       49,547       53,627       ––       134,395  
Advances from affiliates
    ––       707,034       244,155       (951,189 )     ––  
Total current liabilities
    31,457       760,886       302,010       (951,189 )     143,164  
Long-term debt
    768,428       ––       ––       ––       768,428  
Other liabilities
    ––       36,524       13,726       ––       50,250  
Total liabilities
    799,885       797,410       315,736       (951,189 )     961,842  
Equity (Deficit)
                                       
Stockholder’s equity (deficit) GXS Worldwide, Inc.
    (254,069 )     525,532       24,392       (549,924 )     (254,069 )
Non-controlling interest
    ––       ––       183       ––       183  
Total equity (deficit)
    (254,069 )     525,532       24,575       (549,924 )     (253,886 )
Total Liabilities and Equity (Deficit)
  $ 545,816     $ 1,322,942     $ 340,311     $ (1,501,113 )   $ 707,956  

 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three Months ended September 30, 2009
(In thousands)
(Unaudited)
 
 
   
Parent
   
Guarantors
   
Non-Guarantors
   
Eliminations
   
Consolidated
 
Revenues
  $ ––     $ 72,241     $ 51,115     $ (34,627 )   $ 88,729  
Costs and operating expenses
    ––       55,421       49,660       (34,627 )     70,454  
Restructuring and related charges
    ––       (317 )     1,014       ––       697  
                                         
Operating income
    ––       17,137       441       ––       17,578  
Other income (expense), net
    (19,366 )     7,904       (5,855 )     ––       (17,317 )
                                         
Income (loss) before income taxes
    (19,366 )     25,041       (5,414 )     ––       261  
Income tax expense
    ––       620       859       ––       1,479  
                                         
                                         
Income (loss) before equity in income (loss) of subsidiaries
    (19,366 )     24,421       (6,273 )     ––       (1,218 )
Equity in income (loss) of subsidiaries
    18,148       (6,273 )     ––       (11,875 )     ––  
                                         
Net income (loss)
    (1,218 )     18,148       (6,273 )     (11,875 )     (1,218 )
Unrealized gain on interest rate swap
    1,426       ––       ––       ––       1,426  
Foreign currency translation adjustments
    ––       ––       (270 )     ––       (270 )
Dividends from subsidiaries
    ––       5,443       ––       (5,443 )     ––  
                                         
Comprehensive income (loss)
    208       23,591       (6,543 )     (17,318 )     (62 )
Less: Comprehensive income attributable to noncontrolling interest
    ––       ––       31       ––       31  
Comprehensive income (loss) attributable to GXS Worldwide, Inc.
  $ 208     $ 23,591     $ (6,574 )   $ (17,318 )   $ (93 )
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Nine Months ended September 30, 2009
(In thousands)
(Unaudited)
 
 
   
Parent
   
Guarantors
   
Non-Guarantors
   
Eliminations
   
Consolidated
 
Revenues
  $ ––     $ 217,305     $ 145,510     $ (103,376 )   $ 259,439  
Costs and operating expenses
    ––       166,384       151,935       (103,376 )     214,943  
Restructuring and related charges
    ––       4,912       2,386       ––       7,298  
                                         
Operating income (loss)
    ––       46,009       (8,811 )     ––       37,198  
Other income (expense), net
    (46,452 )     13,538       (10,726 )     ––       (43,640 )
                                         
Income (loss) before income taxes
    (46,452 )     59,547       (19,537 )     ––       (6,442 )
Income tax expense
    ––       1,193       789       ––       1,982  
                                         
                                         
Income (loss) before equity in income (loss) of subsidiaries
    (46,452 )     58,354       (20,326 )     ––       (8,424 )
Equity in income (loss) of subsidiaries
    38,028       (20,326 )     ––       (17,702 )     ––  
                                         
Net income (loss)
    (8,424 )     38,028       (20,326 )     (17,702 )     (8,424 )
Unrealized gain on interest rate swap
    932       ––       ––       ––       932  
Foreign currency translation adjustments
    ––       ––       2,774       ––       2,774  
Dividends from subsidiaries
    ––       5,865       ––       (5,865 )     ––  
                                         
Comprehensive income (loss)
    (7,492 )     43,893       (17,552 )     (23,567 )     (4,718 )
Less: Comprehensive income attributable to noncontrolling interest
    ––       ––       32       ––       32  
Comprehensive income (loss) attributable to GXS Worldwide, Inc.
  $ (7,492 )   $ 43,893     $ (17,584 )   $ (23,567 )   $ (4,750 )


 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three Months ended September 30, 2010
(In thousands)
(Unaudited)
 
 
   
Parent
   
Guarantors
   
Non-Guarantors
   
Eliminations
   
Consolidated
 
Revenues
  $ ––     $ 96,799     $ 52,295     $ (34,956 )   $ 114,138  
Costs and operating expenses
    ––       77,418       51,208       (34,956 )     93,670  
Restructuring and related charges
    ––       1,532       292       ––       1,824  
Merger and acquisition fees
    (512 )     ––       ––       ––       (512 )
                                         
Operating income (loss)
    512       17,849       795       ––       19,156  
Other income (expense), net
    (21,848 )     698       666       ––       (20,484 )
                                         
Income (loss) before income taxes
    (21,336 )     18,547       1,461       ––       (1,328 )
Income tax expense
    ––       361       1,313       ––       1,674  
                                         
Income (loss) before equity in income (loss) of subsidiaries
    (21,336 )     18,186       148       ––       (3,002 )
Equity in income (loss) of subsidiaries
    18,334       148       ––       (18,482 )     ––  
                                         
Net income (loss)
    (3,002 )     18,334       148       (18,482 )     (3,002 )
Foreign currency translation adjustments
    ––       ––       1,694       ––       1,694  
                                         
Comprehensive income (loss)
    (3,002 )     18,334       1,842       (18,482 )     (1,308 )
Less: Comprehensive loss attributable to noncontrolling interest
    ––       ––       (7 )     ––       (7 )
Comprehensive income (loss) attributable to GXS Worldwide, Inc.
  $ (3,002 )   $ 18,334     $ 1,849     $ (18,482 )   $ (1,301 )
 
 
GXS WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Nine Months ended September 30, 2010
(In thousands)
(Unaudited)
 

   
Parent
   
Guarantors
   
Non-Guarantors
   
Eliminations
   
Consolidated
 
Revenues
  $ ––     $ 243,386     $ 154,277     $ (101,190 )   $ 296,473  
Costs and operating expenses
    ––       192,163       147,511       (101,190 )     238,484  
Restructuring and related charges
    ––       2,346       545       ––       2,891  
Merger and acquisition fees
    8,492       ––       ––       ––       8,492