UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 2003

Commission file number 333-106143

GXS CORPORATION

100 Edison Park Drive
Gaithersburg, MD 20878
(address of principal executive offices, including zip code)
(301) 340-4000(Registrant’ Telephone Number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

     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 [   ] No [X ]

     Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  [   ]

     Indicate by a check mark whether the registrant is an accelerated filer (as determined in Exchange Act Rule 12b-2). Yes [   ] No [X ]

As of March 30, 2004, the Registrant had 100 outstanding shares of common stock, significantly all of which was held by affiliates of the Registrant.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

The following annual report contains information about GXS Corporation. You should read this entire report, including the information set forth in the “Factors That Could Affect Future Results” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 14. In this report, “we,” “our” and “us” refers to GXS Corporation and its subsidiaries, unless the context otherwise requires.

While most of the information provided in this annual report is historical, some of the comments made are forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate, along with management’s beliefs and assumptions. They are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are typically identified by words such as “believe,” “anticipate,” “expect,” “plan,” intend,” “estimate,” “may,” “will” and similar expressions. As you read and consider the information in this report, you should understand that these statements may differ materially from actual outcomes and results. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors that Could Affect Future Results – Special Note Regarding Forward-Looking Statements.”

Item 1. Business

Overview

We provide software-based products and services which enable businesses to electronically exchange documents and automate related processes. Our offerings are categorized into three lines of business: EDI Services, Other Business to Business Solutions, and Custom Messaging and Network Solutions. EDI Services are our principal offerings; they enable our customers to exchange business documents in an automated and secure environment. With our EDI offerings we typically provide value added services such as non-repudiation, document translation, enhanced security, format conversions and support various communication protocols. Other Business to Business Solutions includes our hosted applications and integration software; these solutions facilitate integration of internal information and collaboration between trading partners. Custom Messaging and Network Solutions primarily includes legacy offerings which include custom applications for individual customers. We have been a leading provider of these products and services, based upon transactions processed, for the past 20 years.

We process more than one billion transactions annually among more than 100,000 trading partners. For the year ended December 31, 2003, we generated revenues of $363.5 million; our EDI services contributed $238.4 million, or 65.6%, of those revenues. For the year ended December 31, 2003, we derived approximately 71.9% of our total revenues from recurring transaction processing fees generated by our EDI Services and Other Business to Business Solutions. We estimate that these transactions represent over $500 billion in goods and services exchanged. Our customers include over 60% of the Fortune 500 companies, including industry leaders such as FedEx, Procter & Gamble, Best Buy, JC Penney, Kodak, Albertson’s, and General Electric.

GXS Corporation was incorporated as a Delaware corporation in 2002 in connection with our recapitalization.

Recapitalization

In September 2002, we effected a recapitalization of our company, which resulted in the ownership by Francisco Partners L.P. and co-investors, through an indirect subsidiary, of 90%, and the ownership by

General Electric, through an indirect subsidiary, of 10%, of the capital stock of our parent company, GXS Holdings. As a result of this transaction, we are no longer an indirect wholly owned subsidiary of General Electric. We believe that our continued relationship with Francisco Partners will be beneficial to our business and do not expect our separation from General Electric to have any material impact on our operations or profitability. In conjunction with the recapitalization, we incurred debt consisting of borrowings under a $175.0 million senior credit facility and $235.0 million of senior subordinated notes. In addition, we established a $35.0 million revolving credit facility. In March 2003, we completed a refinancing of our senior credit facility whereby we entered into a new $30.0 million revolving credit facility, a $70.0 million term loan facility and issued $105.0 million of senior secured floating rate notes. The March 2003 refinancing activities are further described in the “Liquidity and Capital Resources” section of this report.

Our Industry

We operate in the transaction management infrastructure industry. Transaction management infrastructure describes the systems used for the communication of information related to the exchange of goods and services among trading partners. Trading partners include suppliers, customers, transportation carriers and financial institutions. Examples of commercial information and business transaction documents exchanged among trading partners include invoices, purchase orders, shipping notices and remittance information. Prior to advances in computer and communications technologies, transaction management infrastructure systems were primarily paper-based and information was transmitted via postal carriers or facsimile, as well as in person or by telephone.

Developments in communications and computer technologies offer trading partners the opportunity to communicate transaction-related information electronically with minimal human involvement. The opportunity to automate these interactions electronically is particularly attractive to groups of companies that regularly trade high volumes of goods and services with each other and therefore generate significant repetitive business transactions and related documents. For example, a large manufacturer may need to exchange hundreds or thousands of documents, such as purchase orders and advance ship notices, with its supplier base on a daily basis. Further, as companies move to just-in-time manufacturing and delivery models that require a large amount of information to be communicated and processed quickly and accurately, the ability to automate the exchange of transaction-related information becomes even more important. The disparate and frequently incompatible computing platforms, applications and communications protocols and document standards used by different trading partners, however, can often make the electronic communication of business documents challenging.

EDI originated in the 1980s as a solution to address these issues and permits the electronic exchange of documents across disparate computing platforms, applications and data and communications protocols. EDI has since become a cornerstone of transaction management infrastructure enabling the electronic, machine-to-machine communication of commercial information and business transaction documents among trading partners. EDI systems can offer trading partners a number of opportunities to improve operations and reduce costs by:

•		eliminating labor intensive, and often error-prone, manual activities;
•		reducing administrative workload, including reducing or eliminating paper work;
•		reducing inventory levels, thereby improving inventory turns and reducing working capital needs;
•		improving product time-to-market; and

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improving customer service levels.

The basic components of EDI transactions are:

•		Document Generation. A trading partner (the sending partner) generates from its internal software applications the business data to be used to generate one or more business documents such as purchase orders, invoices, shipping notices, remittance advice and other related documents and messages.
•		Translation. A translation software program on the sending partner’s computer translates the data into one or more standard EDI documents. An EDI document is character-based and includes pieces of information encoded at pre-specified locations. Examples of encoded information include pricing information, product specification and shipping addresses. The EDI document also contains routing information, which is used to send, receive and audit documents. There are more than 350 basic EDI document types and more than 4,000 industry-specific documents.
•		Transmission. Each EDI document is transmitted electronically, typically through an intermediary service provider or directly to the computer of the intended receiving trading partner.
•		Access. The receiving trading partner is able to electronically access and download the EDI document.
•		Retranslation. A software program on the receiving trading partner’s computer translates the EDI document into the format required by the receiving trading partner’s internal applications. These applications in turn initiate internal business processes, such as fulfillment requests, which often generate additional EDI traffic with other trading partners or responses to the sending partner.

EDI services are commonly facilitated by a value added network, or VAN. The VAN is the EDI service provider’s communications and data processing infrastructure and enables the EDI service provider to send and receive documents between trading partners and offer additional critical services. These services typically include:

•		Network translation. A VAN can enable the translation of data into and out of EDI formats to be performed on the service provider’s network rather than on the customer’s computer systems.
•		Authentication. The VAN authenticates the identity of trading partners and verifies the authority of trading partners to interact with one another.
•		Security. Trading partners are often reluctant to expose their internal computer systems to outside partners. A VAN can act as a protective buffer between the computer systems of trading partners by consolidating interactions among trading partners, thereby minimizing and controlling the points of contact between the trading partners’ internal computer systems.
•		Non-repudiation and audit tracking. A VAN can provide neutral, third-party audit trail information to enable trading partners to settle disputes.
•		Storage and queuing. Trading partners are able to control when information enters and leaves a VAN. A VAN can facilitate this control by storing documents so that trading partners can decide when, and in what order, documents are accessed and downloaded from the VAN.

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Transport. There are several commonly used data communications protocols. A VAN allows each trading partner to use the data communications protocol of its choice without affecting its ability to easily exchange information with trading partners who may be using different communications protocols.

By utilizing a VAN, EDI service providers take advantage of economies of scale to make these critical business services available on a cost-effective and resource-efficient basis to a large number of trading partners.

Adoption of EDI across communities of trading partners has generally followed a “hub and spoke"' model, with larger companies leading the initiatives:

•		Hubs. Companies in this category tend to be global, multi-divisional, decentralized organizations with complex computing environments and sophisticated enterprise applications software. These large companies often recommend or require that their trading partners implement EDI as the primary method of communicating commercial information and business documents. Often, these EDI initiatives coincide with a variety of extended enterprise and industry-specific initiatives to automate electronic trading of partner communications, including quick response, just-in-time manufacturing, vendor-managed inventory and efficient consumer response. Hub companies, as part of their EDI initiatives, will typically recommend a specific EDI service provider and software to their trading partners or require that their trading partners use a specific EDI service provider and software. Hub companies also typically rely on the EDI service provider to implement EDI with the hub’s trading partners, creating an opportunity for the EDI service provider to establish customer relationships with the hub companies’ trading partners. An example of a hub company would be a large apparel retailer that utilizes EDI to communicate with hundreds of apparel manufacturers.
•		Spokes. Companies in this category tend to be small to medium-size organizations that often seek to implement EDI in order to conduct business with one or more large trading partners. These customers generally do not have a significant investment in technology, sometimes as little as a personal computer with a dial-up connection. Spoke companies typically seek to implement EDI quickly with minimal effort and expense. An example of a spoke company would be a small consumer products manufacturer that is required to communicate through EDI by a retailer selling the manufacturer’s products. After implementing EDI at the request of a hub, some spokes become hubs by utilizing EDI to communicate with their community of trading partners.

Under our business model, a trading partner is a mailbox on our network infrastructure used to facilitate transactions with other mailboxes on our network or with mailboxes on other interconnected networks. One trading partner does not necessarily equal one customer, as a single customer may have multiple mailboxes. A trading community is a collection of trading partners communicating via their respective mailboxes around a sponsor account. A sponsor account is a client that has created a large number of relationships in which to trade electronic business information. For example, a sponsor account could be a large retailer that created a trading community of its suppliers as trading partners.

Customers

We serve a community of more than 100,000 trading partners in a broad range of industries, including manufacturing, retail, trade and transportation, telecommunications and utilities, and healthcare. This broad base ensures that we are not reliant on any individual customer or industry for a significant portion of our revenues. No one customer represented more than 10% of our revenues in 2002 and 2003. General Electric and its affiliates accounted for approximately 9.0% of our total revenues for 2003. We have operations in

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approximately twenty-five countries. A discussion of revenues derived from foreign operations is contained in Note 3 to our audited consolidated financial statements included in this report.

Our customers include over 60% of the Fortune 500 companies. Our top 50 customers, based on revenues for the year ended December 31, 2003, include industry leaders such as Agilent Technologies, Hewlett Packard, NEC, Cargill and FedEx.

Our Products and Services

Our EDI Services contribute the majority of our revenues. Revenue from EDI Services was 53.2%, 62.6% and 65.6% of our total revenue for the years ended December 31, 2001, 2002 and 2003, respectively. In addition to our EDI Services, we also offer Other Business to Business Solutions, including integration software and marketplace solutions, as well as Custom Messaging and Network Solutions. We also provide a variety of professional services, including migration services that assist our customers with upgrades to existing software, consulting services, implementation services and training.

EDI Services

Our EDI Services allow our customers to reduce costs and improve efficiency by enabling the electronic exchange of business documents among our customers’ computer systems and those of their trading partners. EDI supplements or replaces traditional document transport media, including postal, fax, telephone and email systems. As part of our EDI Services, we have a value added network, or VAN, which allows a trading partner to use the communications protocol of its choice and which we use to provide security, authentication, audit and other transaction processing services. Our VAN processes both traditional EDI documents and documents developed using newer technologies such as the extensible mark-up language, or XML. By using our EDI Services, our customers are able to reduce the costs associated with managing business and technology variables associated with the exchange of data among a large number of trading partners that use disparate applications and communications protocols. Our principal EDI Services are:

•		EDI*Express, Tradanet and Interchange Services, which are brand names for our primary EDI service. These services provide value added services such as security, authentication, audit tracking, data storage, and protocol independence.
•		EC Service Center, which enables our customers to outsource the management, execution and operation activities associated with EDI. EC Service Center enables our customers to minimize the investment in software, hardware and other resources necessary to automate their information-exchange processes through EDI.
•		Global Product Catalogue, which enables our customers to automate the distribution of and access to product information for their trading partners through an electronic catalogue. By including product information in this catalogue, such as product descriptions and specifications, a customer’s trading partners can download information from a central source without the customer having to provide and update information separately to each trading partner. Because the catalogue is accessible to numerous parties within an electronic trading community, transport, document selection, non-repudiation, audit trail and security are all dramatically simplified.
•		GXS Tradeweb, which enables spokes to manually input information into a Web browser for translation into an EDI document. This product is designed for spokes that have low transaction volumes and minimal internal computer systems, but that have access to the Internet, and allows

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them to create and view business documents online.

Revenues derived from our EDI Services are primarily generated through recurring transaction processing fees. For most transactions, we charge a transaction processing fee to both the sending and the receiving party. As is customary in the industry, our typical contract for EDI services is month-to-month, although we are moving towards longer contract terms. Our average monthly renewal rate for EDI customers was approximately 99.2% for the year ended December 31, 2003, and many of our larger customers, particularly customers of our EC Service Center, are committed to multi-year contracts.

Our EDI Services customers represent a wide cross-section of vertical markets and include industry leaders such as FedEx, Procter & Gamble, JC Penney, DaimlerChrysler, Cargill and Best Buy.

Other Business to Business Solutions

In addition to our EDI Services, we also offer Other Business to Business Solutions, including integration software and marketplace solutions. Our integration software enables customers to self-manage the exchange of information among disparate business systems and applications within and among enterprises by integrating internal applications, translating data to an EDI format and transporting that data through our VAN or directly to the receiving trading partner. Our integration software products include:

•		Enterprise System, which is software that is installed on a customer’s computer systems to enable access to business data that resides in those systems. Enterprise System extracts the data, translates the data into a standard EDI format and enables the secure transport of the data through our VAN or directly to the receiving trading partner. The product keeps a list of every trading partner, the documents to be used with each trading partner and an audit trail of all transaction activity. Application Integrator, which is described below, is typically licensed with Enterprise System.
•		Application Integrator, which is a software product designed to perform data transformation. Application Integrator enables our customers to keep track of the different documents each trading partner uses and the rules for converting internal data formats into and out of the standard data documents that can be transported over our VAN.

Our integration software products are licensed to our customers for perpetual use or for a fixed term. Our license agreements generally restrict the use of the underlying products to designated sites or computer processors. In connection with the licensing of our integration software products, we provide software maintenance services and typically charge between 15% and 20% of the license fee on an annual basis. Maintenance services allow customers to receive updated or enhanced versions of our software products as they become available and allow telephone or e-mail access to our technical support personnel. Most of our integration software customers are also users of our EDI Services and/or our Other Business to Business Solutions. Our integration software customers also represent a wide cross-section of vertical markets and include industry leaders such as FedEx, Verizon, Liz Clairborne, and Woolworths.

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Our marketplace solutions help automate collaborative business processes that traditionally have been conducted manually. Customers of our marketplace solutions typically contract with us to provide private Web-based portals to facilitate interactions with existing or potential trading partners. Customers of our marketplace solutions include industry leaders such as Subway, 3M and General Electric.

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Custom Messaging and Network Solutions

Our Custom Messaging and Network Solutions principally consist of applications and products developed for specific customers for use on our computing platforms and telecommunications network. For example, we created a customized application for cash management systems used by banks that runs on our proprietary Mark III® platform. The application was originally written in the 1980s and continues to be used today. In addition to these customized applications and products, our managed network solutions enable customers to outsource the management and operations of network communications. Our managed network solutions include telecommunications management, monitoring and problem resolution, as well as the provision and installation of modems, routers and software that enable us to manage the customer’s infrastructure remotely. We expect revenues from our Custom Messaging and Network Solutions to continue to decline as a percentage of our total revenues as we continue to emphasize our EDI Services and Other Business to Business Solutions. We currently have approximately 4,300 customers for our Custom Messaging and Network Solutions, many of which also use our other products and services. Some of these customers include DaimlerChrysler, Verizon and General Electric.

Marketing and Sales

We market our products and services through our global sales force. Our sales efforts are generally aimed at senior purchasing executives, chief information officers and other primary decision makers within a potential customer organization. Our global sales force is organized along three lines: industry, geography and major account coverage. Our direct sales teams concentrate on developing new hub customers within a particular industry and region, as well as increasing the utilization and penetration of existing trading communities. Our telephone sales professionals focus primarily on signing up new spoke customers around a particular hub customer. Our sales teams are supported by a team of technical sales and marketing support personnel who assist in the sales process as needed.

Our direct sales cycle for hubs typically takes approximately six to nine months from initial contact to contract signing. Approvals by decision makers from various branches of a potential customer’s organization are often required before a purchase can be completed. The sales cycle for telephone sales varies from several days to approximately three months. We believe the ability of our telephone sales team to address a large number of spokes in a short time period differentiates us in the hub sales process.

Our marketing activities are designed to enhance our brand name and the market awareness of our products through advertising, press releases and other media. We have product managers dedicated to each of our product lines who, together with our marketing communications group, focus on increasing awareness of specific products and services that we offer.

Customer Service

We view our relationships with customers as long-term partnerships in which customer satisfaction is crucial. For this reason, we apply an integrated approach to our sales, marketing and customer service functions. Through our customer relationships, we are able to achieve an in-depth understanding of a customer’s evolving transaction management infrastructure requirements and levels of service satisfaction. We believe that we provide superior customer service in terms of timely and accurate responsiveness. Based on these relationships, we are also able to pursue new revenue generating opportunities and provide product and service improvements for both new customers and customers previously overlooked or not adequately addressed.

We maintain a customer service center at our headquarters in Gaithersburg, Maryland and customer service centers and/or customer service representatives in various locations in Europe and Asia to support

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customers on a regional basis and to provide local technical support as necessary. Our customer service center in Gaithersburg also provides support to our other customer service centers and customer service representatives. Our customer service representatives, in the United States and elsewhere, include both call analysts, who are trained to identify and analyze customer problems, as well as skilled technical support teams trained to resolve complex technical problems.

Competition

We compete with numerous companies both nationally and internationally. Our competitors include large companies with substantially greater resources than us that compete in many market areas and small specialized companies that compete in a particular market niche. We also compete with the internal programming and information technology staffs of some major companies.

Our ability to compete successfully depends on multiple factors, both within and outside of our control. The principal factors are:

•		quality of service, including the reliability and quality of the products and services we offer;
•		technical functionality, including delivery of innovative solutions and our speed in developing and bringing to market the next generation of products and services;
•		price; and
•		customer service, including our responsiveness, availability and flexibility.

We believe that our solutions are generally competitive as to all of these factors.

Competition for our EDI Services and Other Business to Business Solutions ranges from large corporations to integration suites offered by software vendors and smaller technology consulting firms. We compete with paper-based communications, direct leased-line communications, fax-based solutions, public exchanges and other EDI service providers, such as IBM, Inovis, Sterling Commerce, QRS and other, smaller companies. We also compete with providers of products and services based on alternative technologies to EDI such as IBM, webMethods and Cyclone Commerce.

Our software products also compete with the products of Sterling Commerce, Inovis, Ascential Software, webMethods, SeeBeyond and Vitria.

Data Processing Infrastructure

We operate three data centers, located in Ohio, Hong Kong and The Netherlands. These data centers service customers on a regional basis and house our data processing infrastructure. Our computing infrastructure primarily operates on one of three systems: IBM z Series OS, UNIX or Mark III®. Mark III® is a legacy operating system we developed that runs on mainframe computers manufactured by Bull, S.A. We are in the process of migrating our EDI operations that currently run on Mark III® to other, more modern platforms, such as UNIX. We believe that our data processing infrastructure is sufficient to cost-effectively meet demand for the foreseeable future and to increase capacity as needed.

Our telecommunications infrastructure is a high-speed digital network that connects us to our customers and facilitates the transport of multiple protocols via private lines and the Internet. In the United States, our primary provider is AT&T with Equant serving as a backup provider. In Europe, Equant is our primary provider with AT&T serving as a secondary provider. We also engage additional providers in other

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jurisdictions, mainly in Asia. Our network providers provide us with diversity and enable us to further enhance the reliability and quality of our services for our customers.

In operating our data processing facilities, we have developed both capacity-planning and disaster recovery policies and practices. Our capacity planning operation monitors usage and trends and projects the capital resources needed to satisfy future needs. It performs this role for both our data processing and network communications infrastructure. We are party to disaster recovery agreements that provide alternative off-site computer systems for our UNIX, NT and IBM-based processing operations in the event of such a disaster. For our Mark III®-based processing operations, we have a separate disaster recovery site as well as contingency plans which provide for the shifting of our processing operations among different segments of our Ohio data center and our data center in The Netherlands, if necessary. We have also taken precautions to protect ourselves and our customers from events that could interrupt delivery of our transaction processing services. These precautions include, among others, backup power generation equipment, fire protection and physical security systems and an early warning detection and fire extinguishing system.

Product Development

Our product development cycle is driven by technological evolution of new standards for electronic exchange of information and compatibility with third-party software. To remain competitive, we are required to incorporate advances in technology and standards into our products continually. In addition, we must ensure that our solutions are able to function with the latest versions of the third-party software that may be used by some of our customers. We schedule development for all of our products and services on a six to twelve-month cycle from inception to rollout. We have dedicated product development teams for each major product line. However, a common development process, focused on the quality of our products and services, is deployed across all development efforts. Our process focuses on the reduction of defects, application reliability and on-time delivery. All new solutions are developed on the UNIX platform with development tools using Java and C++ programming languages. A separate, dedicated team of engineers focuses on the study and introduction of new transaction technologies such as XML, and new types of Internet communications protocols, such as SOAP and AS2.

In 2001, 2002 and 2003, we recorded expenditures of approximately $31.1 million, $15.2 million and $9.1 million, respectively, for research and development activities. In addition, we spent $33.3 million, $26.8 million and $19.5 million during 2001, 2002 and 2003 on the development of internal use software which we capitalized. Although most of our products are developed internally, from time to time we have in the past, and may in the future, acquire software from or invest in companies or businesses that offer products or services that are complementary to our offerings.

Recent Acquisitions

Celarix. On June 3, 2003, we acquired substantially all of the assets of Celarix, Inc. related to its logistics integration and visibility solutions business. We estimate the value of the preferred and common stock issued as consideration for the Celarix assets to be approximately $0.6 million and the value of the assumed liabilities to be approximately $1.3 million. The logistics integration and visibility solutions acquired from Celarix help organizations to connect to logistics trading partners and retrieve, use and share shipment status information throughout their supply chains.

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HAHT Commerce. On February 13, 2004, our wholly owned subsidiary, Global eXchange Services, Inc. completed the acquisition of HAHT Commerce, Inc. Global eXchange Services acquired all of the capital stock of HAHT Commerce through a merger of a wholly owned subsidiary of Global eXchange Services into HAHT Commerce for consideration of $15.0 million in cash plus common and preferred shares of GXS Holdings, Inc. valued at approximately $15.0 million, subject to adjustment. HAHT Commerce is a provider of demand chain management applications that automate, integrate and optimize order management, product information management, channel management, business intelligence and customer services between manufacturers, their channel partners and business customers.

We intend to continue to selectively pursue acquisitions of companies with complementary products and technologies to enhance our ability to provide comprehensive solutions to our customers and to expand our business.

Alliances and Joint Ventures

Through our Global Alliance Program, we have established relationships with third-party software and consulting companies to more easily enable our customers to employ and utilize our transaction management infrastructure solutions. Our Global Alliance Program consists of two primary types of third-party vendors:

•		Software Partners. Our customers typically employ numerous software applications from third-party software vendors. We have established alliances with a number of industry-leading software providers to enable our solutions to be implemented more easily and to work more effectively with the software of these vendors.
•		Consulting Partners. We maintain close relationships with several major consulting firms worldwide to extend our implementation and delivery capabilities.

In addition to our Global Alliance Program, we have also partnered with various entities to form joint ventures outside of the United States to assist with the marketing and implementation of our products and services in a particular geographic region. For example, we have a joint venture with ABN AMRO Capital Investment Asia Limited to provide our products and local EDI Services in China.

Intellectual Property

To protect our intellectual property rights, we rely primarily on a combination of copyright, patent and trademark laws, trade secret protection and contractual provisions. We also routinely enter into nondisclosure and confidentiality agreements with our employees, contractors, consultants, vendors and customers to protect our proprietary rights. We have various rights to patents, trademarks, copyrights, trade secrets and other intellectual property directly related to and important to our business. We currently hold three United States Patents, including United States Patent No. 5,627,972 entitled “A system for selectively converting a plurality of source data structures without intermediary structure into a plurality of selected target structures.” The invention relates to a data interchange system and, more particularly, to a computer application that is adapted to communicate and translate data between various computer systems involving dissimilar data formats or structures. This patented technology is used in our Application Integrator software product. The invention covered by United States Patent No. 6,671,728, entitled “Abstract Initiator,” relates to a method for decoupling a transfer protocol from a central file transfer system. Finally, the invention contained in United States Patent No. 6,678,682, entitled “Method, System and Software for Enterprise Access Management Controls,” provides for a centralized access management service that allows multiple applications to define and register a standard access control schema. As part of our recent effort to expand our patent portfolio, we have filed 25 patent applications that improve upon our

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technology. In addition, as part of our acquisition of HAHT Commerce, in February 2004, we acquired three U.S. patent applications, which are not of material importance to our business and are being allowed to lapse. We hold registrations on trademarks and service marks on 23 separate marks that have been registered in a number of jurisdictions. All of these registered marks are related to legacy or discontinued products and services, and as such, are not of material importance to our business. We acquired as part of our acquisition of HAHT, 17 separate marks that have been registered in a number of jurisdictions, none of which are of material importance to our business. We also acquired the rights to one additional Canadian and two U.S. registered trademarks as part of our acquisition of the Celarix assets in June 2003, none of which are of material importance to our business. Our policy is to apply for patents with respect to our technology and seek trademark registration of our marks from time to time when management determines that it is competitively advantageous and cost effective to do so. We have also been granted licenses for a number of third-party software products for our own use and for remarketing to our customers. Further, we believe that our unpatented research, development and engineering skills also make an important contribution to our business. We do not believe that any one single patent, patent application or license is material to the success of our business as a whole. However, in the aggregate these patents applications and licenses are material to our business.

In connection with the recapitalization, General Electric assigned, licensed or sublicensed, as the case may be, to us all intellectual property rights owned by General Electric that were used by us to operate our business. We also entered into a separate agreement under which General Electric granted us a license to use the GE monogram trademark on a non-exclusive, royalty-free basis. This license terminates on September 27, 2004. Since we are not using the trademark covered by the license, we do not expect the termination of the license to have any effect on our business.

Employees

As of March 15, 2004, we had approximately 1,600 full-time employees worldwide, including approximately 1,000 technical personnel engaged in maintaining or developing our products or performing related services, approximately 275 marketing, sales and sales support personnel and approximately 225 administrative, finance and management personnel. We also have approximately 100 call analysts and customer service support technicians worldwide. To attract and retain desired personnel, we offer competitive compensation and benefits packages and strive to maintain excellent employee relations. None of our U.S. employees are represented by a labor union. We have not experienced any work stoppages and consider our employee relations to be good.

Available Information

GXS’s Web site address is www.gxs.com. Interested persons may obtain, free of charge, copies of filings (including GXS’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports) that GXS has made with the Securities and Exchange Commission (as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission) by requesting a copy from GXS’s Senior Vice President, General Counsel and Secretary, Bruce E. Hunter.

Item 2. Properties

We lease approximately 342,000 square feet of office space for our corporate headquarters located in Gaithersburg, Maryland. This lease expires in April 2014. We have the option to renew this lease for an additional 10 years, through April 2024, followed by two five-year renewal options. General Electric has guaranteed all of our obligations under this lease. In connection with the recapitalization, Global

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Acquisition Company is required to either replace General Electric as the guarantor or to indemnify General Electric for any obligations it may have under its guarantee; which we have done by providing a letter of credit for General Electric’s benefit, in the amount of $7.5 million. As of December 31, 2003, approximately 30% of the office space is vacant and available for sublease.

Our main data center is a 104,000 square-foot facility located in Cleveland, Ohio. We also operate a 54,000 square-foot data center in Amsterdam, The Netherlands, and a 12,000 square-foot data center in Hong Kong, China. Other than our Ohio data center, which we own, our data centers are leased. These leases expire at various times between 2007 and 2013.

In addition, as of December 31, 2003, we had nine sales offices in the United States and 13 sales offices in 10 foreign countries. We also maintain a customer service center at our headquarters in Gaithersburg, Maryland to support our customers in the Americas, and customer service centers and/or customer service representatives in various locations in Europe and Asia to support customers on a regional basis.

Item 3. Legal and Other Proceedings

Other than litigation and claims for which we have obtained an indemnity from General Electric, there are no material claims or litigation pending against us. In prior periods, we had a dispute with WorldCom Technologies, Inc. relating to its Telecommunications Network Services Agreement (TNSA). On July 21, 2002, WorldCom and 200 of its subsidiaries filed for Chapter 11 Bankruptcy protection with the United States Bankruptcy Court for the Southern District of New York (Chapter 11 Case No. 02-13533). Pursuant to the Recapitalization Agreement, General Electric had agreed to indemnify us against losses, damages, costs, expenses, liabilities, and obligations resulting from this matter. We entered into a settlement agreement with WorldCom and General Electric dated September 29, 2003 that resolved all claims pertaining to us and WorldCom through December 31, 2002 and established pricing that applied for WorldCom services provided to us in 2003. The settlement agreement was approved in accordance with WorldCom’s bankruptcy proceeding and became effective on December 16, 2003. We also entered into a separate settlement agreement with General Electric. The settlement agreements did not have a material impact on our consolidated financial statements.

We are and may from time to time in the future become subject to certain legal proceedings and claims which arise in the normal course of our business. These routine litigation matters are usually settled or defended, depending on the circumstances of each claim. While any legal proceeding has elements of uncertainty, we do not believe, based on historical experience, that the amount of any liability incurred in connection with these types of claims would have a material effect on our financial condition or on the results of our operations.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Not applicable.

Item 6. Selected Consolidated Financial Data

The following table presents our selected historical consolidated financial information. The historical consolidated financial information as of December 31, 2002 and 2003 and for each of the fiscal years ended December 31, 2001, 2002 and 2003 has been derived from, and should be read together with, our audited consolidated financial statements and the accompanying notes included elsewhere in this annual report. The selected financial data as of December 31, 2000 and 2001 and for the year ended December 31, 2001 have been derived from our audited consolidated financial statements, not included in this annual report. The selected financial data set forth below as of December 31, 1999 has been derived from our unaudited consolidated financial statements not included in this annual report. The financial data set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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(1) Earnings used in computing the ratio of earnings to fixed charges consist of income before income taxes plus fixed charges. Fixed charges consist of interest on indebtedness, amortization of debt issue costs and that portion of lease expense representative of interest expense. Earnings were insufficient to cover fixed charges for the years ended December 31, 2002 and 2003 by $25.5 million and $43.5 million, respectively. Results for the year ended December 31, 2002 include $30.1 million of non-recurring fees related to the recapitalization and depreciation and amortization of $47.8 million. Results for the year ended December 31, 2003 included depreciation and amortization of $47.3 million.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes, which are included elsewhere in this document.

The following discussion and analysis may contain forward-looking statements, which reflect the expectations, beliefs, plans and objectives of management about future financial performance and/or assumptions underlying our judgments concerning matters discussed below. These statements, accordingly, involve estimates, assumptions, judgments and uncertainties. In particular, this pertains to management’s comments on financial resources, capital spending and the outlook for our business. Actual results or outcomes may differ materially from those in such forward-looking statements. See “– Factors That Could Affect Future Results – Special Note Regarding Forward-Looking Statements.”

Overview

We provide software-based products and services which enable businesses to electronically exchange documents and automate related processes. Our offerings are categorized into three lines of business: EDI Services, Other Business to Business Solutions, and Custom Messaging and Network Solutions. EDI Services are our principal offerings; they enable our customers to exchange business documents in an automated and secure environment. With our EDI offerings we typically provide value added services such as non-repudiation, document translation, enhanced security, format conversions and support various communication protocols. Other Business to Business Solutions includes our hosted applications and integration software; these solutions facilitate integration of internal information and collaboration between trading partners. Custom Messaging and Network Solutions primarily includes legacy offerings which include custom applications for individual customers. We have been a leading provider of these products and services, based upon transactions processed, for the past 20 years.

We process more than one billion transactions annually among more than 100,000 trading partners. For the year ended December 31, 2003, we generated revenues of $363.5 million; our EDI Services contributed $238.4 million, or 65.6%, of those revenues. For the year ended December 31, 2003, we derived approximately 71.9% of our total revenues from recurring transaction processing fees generated by our EDI Services and Other Business to Business Solutions. We estimate that these transactions represent over $500 billion in goods and services exchanged. Our customers include over 60% of the Fortune 500 companies, including industry leaders such as FedEx, Procter & Gamble, Best Buy, JC Penney, Kodak, Albertson’s, and General Electric.

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In general, we derive our revenue from:

•		recurring transaction processing fees;
•		software licensing;
•		software maintenance; and
•		provision of professional services in connection with our products.

In 2001, 2002 and 2003, we derived approximately 63.5%, 68.2% and 71.9% of our revenues from recurring transaction processing fees generated by our EDI Services and Other Business to Business Solutions. For most transactions, we charge a transaction-processing fee to both the sending and the receiving party. Because the transactions we process, such as the exchange of invoices and purchase orders, are routine and essential to the day-to-day operations of our customers, the revenues generated from these fees tend to be highly recurring in nature. While many of our larger customers are committed to multi-year contracts, our typical contract for EDI services automatically renews every month. However, we are moving towards longer term contracts. Transaction processing revenues are recognized on a per transaction basis in the period the related transaction is processed. Revenues on contracts with monthly or quarterly minimum transaction levels are recognized based on the greater of actual transactions processed or the specified contract minimums.

We also license our software either for perpetual use or for a fixed term. Licensing revenues are generally recognized when the license agreement is signed, the license fee is fixed and determinable, delivery has occurred and collection is probable. In connection with the licensing of our software products, we provide software maintenance services that also generate recurring revenues. We typically charge between 15% and 20% of the initial license fee on an annual basis for these maintenance services. We recognize software maintenance revenues over the life of the related maintenance contracts, which is typically one year. We currently have more than 4,800 software maintenance contracts. In 2001, 2002 and 2003, we derived approximately $14.4 million, $12.9 million and $12.6 million in revenues from fees relating to these contracts.

We provide professional services in connection with our entire range of products and services. These services are typically provided under time and material contracts and revenue is recognized as the related services are provided.

Most of our costs are relatively fixed and primarily consist of salary compensation and related benefits, as well as expenses for infrastructure equipment, such as hardware and software, and costs associated with the procurement of our telecommunications network.

Recent Trends and Cost-Reduction Initiatives

A number of major trends over the past several years have caused us to re-evaluate our strategic focus, our mix of products and services and our corporate cost structure. For most of the 1990’s, we focused on providing customized information technology solutions to our customers, while also providing standard EDI Services and a variety of other business to business solutions. In 2000, 32.4% of our revenues were

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generated by our Custom Messaging and Network Solutions, 39.3% were generated by EDI Services and 28.3% were generated by Other Business to Business Solutions.

Along with general economic conditions, the proliferation of the Internet and other technological advances in computing and telecommunications continues to transform the transaction management industry. Our business has been impacted in several ways including a decline in revenue in each of our three categories of products and services. Our Custom Messaging and Network Solutions declined rapidly as customers moved to less customized, open systems based solutions. This decline was exacerbated by the loss of a key customer and migration by some of our customers to more standardized year 2000 compliant systems during this time period. From 2000 to 2003, revenues from our Custom Messaging and Network Solutions declined from $183.7 million to $62.6 million.

From 2000 to 2002, revenues generated by our EDI Services grew from $222.0 million to $256.1 million as more companies implemented our systems to enhance their productivity. In 2003, revenue from EDI Services declined to $238.4 million. Revenue generated by our Other Business to Business Solutions, which are largely driven by discretionary corporate information technology spending, peaked in 2000, at $159.9 million, or 28.3% of our total revenues and declined to $62.5 million, approximately 17.2% of our total revenues, in 2003.

During 2000 in response to the expected rapid growth in demand for EDI Services and Other Business to Business Solutions, such as our online marketplaces, we added substantial resources and personnel, significantly increasing our cost structure. As the economy began to slow and the growth we expected for our EDI Services and Other Business to Business Solutions did not materialize, our expanded cost structure had a significant impact on our profitability.

We responded to the weakening general economic conditions and corresponding effect on demand for our products and services, by:

•		reducing our cost structure through the removal of excess capacity in our sales force, our professional services organization and our computing and network infrastructure;
•		cancelling and consolidating various marketing and development programs related to products and services that were not generating sufficient revenues to support the continued investment; and
•		reducing back-office personnel.

Throughout 2002, the general economic weakness continued, resulting in slower growth in our EDI Services than experienced in prior years as well as continued declines in demand for our Other Business to Business Solutions. Custom Messaging and Network Solutions also continued to decline, although at a slower pace than in previous years. In addition, continued general economic weakness during early 2003, as well as competitive price dynamics throughout 2003 resulted in a decline in EDI Services in 2003. We expect that the competitive pricing dynamics we are seeing across the industry will continue to put pressure on the revenue of the EDI Services business. During the fourth quarter of 2003, we entered into a restructuring plan to terminate approximately 80 employees and ceased to use approximately 30% of our Gaithersburg facility, which we intend to sublease. We continue to focus on maintaining a cost structure that is appropriate for our existing revenue base and revenue expectations.

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Recapitalization

In September 2002, we effected a recapitalization of our company, which resulted in the ownership by Francisco Partners L.P. and co-investors, through an indirect subsidiary, of 90%, and the ownership by General Electric, through an indirect subsidiary, of 10%, of the capital stock of our parent company, GXS Holdings. As a result of this transaction, we are no longer an indirect wholly owned subsidiary of General Electric. We believe that our continued relationship with Francisco Partners L.P. will be beneficial to our business and do not expect our separation from General Electric to have any material impact on our operations or profitability. In conjunction with the recapitalization, we incurred debt consisting of borrowings under a $175.0 million senior credit facility and $235.0 million of senior subordinated reset notes. In addition, we established a $35.0 million revolving credit facility. In March 2003, we completed a refinancing of our senior credit facility whereby we entered into a new $30.0 million revolving credit facility, a $70.0 million term loan facility and issued $105.0 million of senior secured floating rate notes. The March 2003 refinancing activities are further described in the “Liquidity and Capital Resources” section of this report.

The Company has made two recent acquisitions, see “Business - Recent Acquisitions”.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States. Some accounting policies require us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any differences may be material to the financial statements. A description of all of our significant accounting policies used is described in Note 2 to our audited consolidated financial statements, included herein. Some of these policies involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our financial statements. These critical accounting policies, in management’s judgment, are those described below. If different assumptions or conditions were to prevail or if our estimates and assumptions prove to be incorrect, actual results could be materially different from those reported.

Revenue Recognition. Most of our revenue is recognized in the month in which service is performed, but in many cases, our recognition of revenue from the licensing of our software products requires judgment. When our software requires significant customization and modification, we estimate the total cost of the contract and recognize revenue based on actual costs incurred in relation to the total estimated cost. If we made different judgments or utilized different estimates of the total amount of work we expect to be required to customize or modify the software, the timing of our revenue recognition and our margins from period to period may have differed materially from that reported. In situations where we host software, we estimate the feasibility of the customer either running the software on its own systems or contracting with another party to host the software. If neither is feasible, license revenue is recognized over the term of the hosting contract. If either is feasible, license revenue is recognized when the software is delivered, and hosting revenue is recognized over the life of the hosting contract. If our assessment of this feasibility, including any penalties under the customer contracts, were different, the timing of our revenue recognition could differ materially.

In many cases, we deliver multiple products and services to the same customer. In these cases, we allocate revenue to each component of the arrangement using the residual value method. This means that we defer revenue from the total fees associated with the arrangement in an amount equal to the fair value of the elements of the arrangements that have not been delivered. The fair value of any undelivered element is

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established by using historical evidence specific to us. If we were to allocate the respective fair values of the elements differently, the timing of our revenue recognition could differ materially.

Valuation of Accounts Receivable. We must make estimates of potential sales returns, allowances and bad debts in valuing our accounts receivable. We analyze historical returns, current economic trends and changes in customer demand and acceptance of our products and services when evaluating the adequacy of the provision for sales returns and allowances. We analyze historical bad debts, customer concentrations, customer credit-worthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. However, if the financial condition of our customers were to deteriorate, their ability to make required payments may become impaired, and increases in these allowances may be required. As of December 31, 2002 and 2003, we had allowances for doubtful accounts and sales allowances of $9.6 million and $11.3 million, respectively.

Capitalization of Software. We capitalize software development costs in accordance with AICPA Statement Of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. We begin to capitalize costs for software to be used internally when we enter the application development stage. This occurs when we have completed the preliminary project stage, our management authorizes and commits to funding the project and we believe it is feasible that the project will be completed and the software will perform the intended function. We stop capitalizing costs related to a software project when we believe we have entered the post implementation and operation stage. We capitalized approximately $26.9 million in software development costs during 2002 and $19.5 million during 2003. If we were to make different determinations with respect to the state of development that a software project had achieved, then the amount we capitalize and the amount we charge to expense for that project could differ materially.

The costs we capitalize during the application development stage consists of payroll and related costs for our employees who are directly associated with and who devote time directly to a project to develop software for internal use. We also capitalize the direct costs of materials and services, which generally includes outside contractors. We do not capitalize any general and administrative overhead costs or costs incurred during the application development stage related to training or data conversion costs. We also capitalize costs related to upgrades and enhancements to internal-use software if those upgrades and enhancements result in additional functionality. If upgrades and enhancements do not result in additional functionality we expense those costs as incurred. If we were to make different determinations with respect to whether upgrades or enhancements to software projects would result in additional functionality, then the amount we capitalize and the amount we charge to expense for that project could differ materially.

We begin to amortize capitalized costs with respect to development projects for software for internal use when the software is ready for use. We generally amortize the capitalized software development costs using the straight-line method over a five-year period. In determining and reassessing the estimated useful life over which the cost incurred for the software should be amortized, we consider the effects of obsolescence, technology, competition and other economic factors. Amortization expense related to software for internal use was $18.4 million during 2002 and $17.2 million during 2003. If we were to make different determinations with respect to the estimated useful lives of the software, then the amount of amortization we charge in a particular period could differ materially.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed we expense as incurred costs associated with software developed for license to customers because we apply the working model method and, as such, the costs incurred from the date of working model to commercial release to customers have not been material.

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Valuation of Long-lived Assets. Long-lived assets, which consist primarily of property and equipment, including capitalized costs for software developed for internal use, and goodwill totaled $168.4 million as of December 31, 2002 and $145.8 million as of December 31, 2003. We periodically evaluate the estimated useful life of property and equipment and, when appropriate, adjust the useful life thereby increasing or decreasing the depreciation expense recorded in the current and in future reporting periods. We also assess the impairment of long-lived assets on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

•		significant underperformance relative to historical or projected future operating results;
•		significant changes in technology or in the manner of our use of the assets or the strategy for our overall business; and
•		significant negative industry or economic trends.

When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our business. This process is inherently subjective, as it requires management to make estimates and assumptions about future cash flows. During the year ended December 31, 2003, the Company recorded an impairment charge of $6.5 million related to certain internally developed software for which management has estimated that future cash flows were less than the carrying value of the software. During the year ended December 31, 2002, the Company recorded an impairment charge of $5.4 million primarily related to certain software under development for which the plans to deploy were curtailed.

Deferred Tax Assets. As of December 31, 2002 and 2003, we had net deferred tax assets of approximately $265.2 million and $4.8 million, respectively. In connection with the recapitalization, we made a tax election in the United States that allowed us to revalue our assets and liabilities for U.S. federal income taxes purposes. We have estimated the tax benefit of this revaluation to be approximately $242.0 million. We consider the scheduled reversal of deferred tax liabilities, projected future income and tax planning strategies in assessing the realizability of deferred tax assets. Management believes the Company will achieve profitable operations in future years that will enable the Company to recover the benefit of its deferred tax asset. However, the Company presently does not have sufficient objective evidence to support management’s belief and, accordingly, has established a full valuation allowance in the current year for its U.S. and selected foreign net deferred tax assets as required by generally accepted accounting principles. Recording this valuation allowance does not impact the Company’s ability to realize the benefit of this asset.

Contingencies. We periodically record the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called contingencies and our accounting for these events is prescribed by SFAS No. 5, Accounting for Contingencies. SFAS No. 5 defines a contingency as “an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.” Contingent losses must be accrued if:

•		information is available that indicates it is probable that the loss has been incurred, given the likelihood of the uncertain future events; and
•		that the amount of the loss can be reasonably estimated.

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The accrual of a contingency involves considerable judgment on the part of management. Legal proceedings have elements of uncertainty, and in order to determine the amount of reserves required, if any, we assess the likelihood of any adverse judgments or outcomes to pending and threatened legal matters, as well as potential ranges of probable losses. We use internal expertise and outside experts, as necessary, to help estimate the probability that a loss has been incurred and the amount or range of the loss. A determination of the amount of reserves required for these contingencies is made after analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy. In the event that we incur a loss in the future with respect to a contingency for which General Electric has indemnified us, the resulting loss will be recorded in our net income for that period along with a corresponding capital contribution from General Electric.

Results of Operations

A summary of our revenue by line of business follows:

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues. Revenues decreased by $46.0 million, or 11.2%, to $363.5 million for the year ended December 31, 2003 from $409.5 million for the year ended December 31, 2002.

EDI Services. Revenues from EDI Services decreased by $17.7 million, or 6.9%, to $238.4 million for the year ended December 31, 2003 from $256.1 for the year ended December 31, 2002. The decrease in EDI Services revenue was comprised of a $30.0 million revenue decline in the Americas resulting from lower EDI*Express volume and pricing and, a decline in professional services revenue of $4.7 million due to the conclusion of a significant project in 2002, offset by increases in revenue resulting from the favorable impact of foreign currency exchange of $9.9 million, Celarix revenue of $1.5 million, customer surcharges of $3.0 million and core revenue growth in Europe of $3.4 million. The impact on revenues of mailbox cancellations during the year ended December 31, 2003 was somewhat offset by price increases implemented in the fourth quarter of 2002.

Key factors contributing to the lower EDI*Express volume include cyclical economic pressure on our clients, volume impact of two clients, Kmart Corporation, who filed for bankruptcy during the first quarter of 2002 and Fleming Cos. Inc, who filed for bankruptcy during the second quarter of 2003 and a significant client whose volumes with us were negatively impacted by the consolidation of ordering activity from individual stores to regional distribution centers.

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Other Business to Business Solutions. Revenues from Other Business to Business Solutions decreased by $26.0 million, or 29.4%, to $62.5 million for the year ended December 31, 2003 from $88.5 million for the year ended December 31, 2002. The $26.0 million revenue decrease is primarily driven by the termination of three customer contracts in 2002 offset by a favorable impact of foreign currency exchange of $1.0 million. We expect this segment to increase in 2004 as a result of our acquisition of HAHT Commerce.

Custom Messaging and Network Solutions. Revenues from Custom Messaging and Network Solutions decreased $2.2 million, or 3.4%, to $62.6 million for the year ended December 31, 2003 from $64.8 million for the year ended December 31, 2002. The decrease in revenue is in line with expectations as customers continue to migrate away from legacy applications to open systems based solutions. Decreased business volume was offset by a favorable impact of foreign currency exchange of $2.8 million.

On a percentage of revenue basis, for the year ended December 31, 2002 compared to the year ended December 31, 2003, EDI Services increased from 62.6% to 65.6%, Other Business to Business Solutions decreased from 21.6% to 17.2% and Custom Messaging and Network Solutions increased from 15.8% to 17.2%.

Cost of revenues. Cost of revenues decreased by $39.3 million, or 16.0%, to $206.0 million for the year ended December 31, 2003 from $245.3 million for the year ended December 31, 2002. The decrease in cost of revenues is driven by the impact of restructuring actions taken during 2002 as well as actions taken in 2003 to align our cost structure with our revenue. As demand for our Other Business to Business Solutions and Custom Messaging and Network Solutions slowed, we curtailed a number of product development programs. The impact of the actions contributed to a decline of $23.9 million in network equipment expense and a $21.8 million decline in compensation, contractors and related expenses for the year ended December 31, 2003.

Sales and marketing. Sales and marketing expense increased by $0.3 million, or 0.4%, to $73.6 million for the year ended December 31, 2003 from $73.3 million for the year ended December 31, 2002. The year over year increase is primarily due to expenses related to the upgrade of our sales force, offset by the consolidation of marketing and development programs and our efforts to reduce our cost structure by reorganizing our sales force more broadly across all product lines and closing various sales offices. These actions resulted in an increase of $3.6 million in compensation, contractors and related costs, and a decrease of $3.1 million related to the closing and consolidation of various facilities. The increase in compensation cost will recur in 2004.

General and administrative. General and administrative expenses decreased by $1.3 million, or 3.2%, to $39.9 million for the year ended December 31, 2003 from $41.2 million for the year ended December 31, 2002. The decrease for the year ended December 31, 2003 was primarily driven by a decrease in compensation and benefits as a result of actions taken to align our cost structure with our revenue.

Our reduction in operating costs were somewhat mitigated by the weakening dollar which caused cost of revenues, sales and marketing and general and administrative expenses to be approximately $10.0 million higher in 2003 compared to 2002.

Restructuring and related charges. Restructuring and related charges increased by $8.3 million, or 45.1%, to $26.7 million for the year ended December 31, 2003 from $18.4 million for the year ended December 31, 2002. The 2003 charges related to facility and equipment lease buy-outs, facility exit costs including a restoration obligation, and severance for approximately 80 personnel primarily in our factory, engineering, and services organizations. The 2002 activities resulted in the termination of approximately 300 people resulting in a restructuring and related charge of $18.4 million, principally related to severance and related termination costs, costs associated with the closings of sales, services and engineering facilities and buy-out of certain equipment operating leases. A portion of these costs were reimbursed by General

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Electric as part of the September 2002 recapitalization agreement. The reimbursements are reflected as contributions to additional paid-in capital.

Asset impairment charges. For the year ended December 31, 2003, we recorded an impairment charge of $6.5 million related to internally developed software providing specific customer functionality. Future cash flows were estimated by management to be less than the current net book value of the software and, as a result, an impairment charge was recorded. For the year ended December 31, 2002, we recorded an impairment charge of $5.4 million primarily related to certain software under development for which the plans to deploy were curtailed.

Corporate charges from General Electric. The corporate charges from General Electric were $7.3 million for the year ended December 31, 2002. Each year, General Electric charged us a fixed percentage of our budgeted total costs for that year as a corporate charge, which covered various centralized services that General Electric provided to us as needed, such as compensation and benefit plan design, tax planning, marketing support, treasury, auditing, public company reporting and various other corporate expenses. Following the recapitalization, we no longer pay a corporate charge to General Electric. As a stand-alone entity, the replacement costs of these General Electric services are now recognized in the respective functions where incurred.

Proportionate share of losses in investee companies and investment write-downs. During year ended December 31, 2003, we recorded our proportionate share of the losses of our equity method investments of $0.7 million. During the year ended December 31, 2002, we recognized losses on our various cost and equity method investments of $4.7 million. Of this amount $1.3 million related to our proportionate share of losses of one equity method investment and $3.4 million related to write-down of several cost method investments where we determined the decline in value was other than temporary. As of December 31, 2003 and 2002, we held four cost method investments and one equity method investment where the carrying value of the investment had not been completely written-off.

Write-off of deferred financing costs. Deferred financing costs of $5.5 million were written off during the year ended December 31, 2003. The write-off was related to the refinancing of our original senior term loan.

Interest expense. Interest expense of $51.0 million for the year ended December 31, 2003, and $14.5 million for the year ended December 31, 2002, was primarily driven by interest on our long-term debt issued in connection with the recapitalization.

Provision for income taxes. Income tax expense was $259.6 million for the year ended December 31, 2003 compared to $9.9 million for the year ended December 31, 2002. Our income tax provision for 2003 includes the impact of a $273.4 million valuation allowance against the net U.S. deferred tax assets. Our income tax provision for 2002 includes $8.3 million of income taxes we incurred upon the repatriation of foreign earnings, which previously had not been taxable in the United States, and a $0.9 million charge to reflect changes in our net deferred tax assets resulting from the change in control effected by the recapitalization. Our tax rates for both periods differed from the federal statutory rate of 35% principally as result of state income taxes, the effect of losses in foreign jurisdictions for which no income tax benefits have been recognized and valuation allowances recorded on deferred tax assets.

Net income (loss). Net loss increased by $263.8 million to a net loss of $303.3 million for the year ended December 31, 2003 compared to a net loss of $39.5 million for the year ended December 31, 2002. The increase of $263.8 million was primarily driven by a valuation allowance of $273.4 million recorded against the net U.S. deferred tax assets during the quarter ended December 31, 2003.

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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenues. Revenues decreased by $54.7 million or 11.8%, to $409.5 million for the year ended December 31, 2002 from $464.2 million for the year ended December 31, 2001 primarily as a result of a $46.8 million, or 34.6%, decline in revenues from our Other Business to Business Solutions and a $17.0 million, or 20.8%, decline in revenues from our Custom Messaging and Network Solutions. The decline in revenues from our Other Business to Business Solutions is attributable primarily to a $16.7 million decline in revenues from professional services and a $12.1 million decline in revenues from network-based services due, in part, to unfavorable economic conditions and reduced capital spending by our customers. Revenues from our Custom Messaging and Network Solutions declined as a percentage of our total revenues from 17.6% to 15.8% year over year.

The decline in total revenues from our Custom Messaging and Network Solutions and Other Business to Business Solutions was partially offset by an increase in revenues from our EDI Services of $9.1 million, or 3.7%, to $256.1 million for the year ended December 31, 2002 from $247.0 million for the year ended December 31, 2001 principally as a result of an increase in the volume of transactions we processed as a result of adding new customers and an increase in activity among existing customers. Revenues from EDI Services also increased as a percentage of total revenues from 53.2% to 62.6% year over year.

Cost of revenues. Cost of revenues decreased by $47.4 million, or 16.2%, to $245.3 million for the year ended December 31, 2002 from $292.7 million for the year ended December 31, 2001 primarily as a result of our cost reduction initiatives over the preceding year. The decline in costs was principally related to a $27.8 million decline in compensation and related costs, a $13.9 million decline in direct materials costs, which are costs directly associated with products and services procured for specific customers such as dedicated network circuits and professional consultants and generally vary with our level of revenues, and a $6.1 million decline in telecommunications and facility costs partially offset by a $4.3 increase in network equipment costs. As demand for our Other Business to Business Solutions and Custom Messaging and Network Solutions slowed, we reduced headcount and curtailed a number of product development programs.

Sales and marketing. Sales and marketing expenses decreased by $46.1 million, or 38.6%, to $73.3 million for the year ended December 31, 2002 from $119.4 million for the year ended December 31, 2001 primarily as a result of the global reorganization of our sales force and the consolidation of our marketing and development programs. Prior to the reorganization, our sales force was organized both on a regional basis and by product or service. As part of our efforts to reduce our cost structure we reorganized our sales force more broadly across all product lines, reduced headcount and closed various sales offices, which resulted in a decrease of $32.3 million in compensation, contractors and related costs and a decrease of $0.5 million related to the closing and consolidation of various facilities. In addition to the cost savings from the reorganization, we reduced advertising and sales promotions by $4.0 million and all other costs including bad debts by $9.3 million across all sales regions.

General and administrative. General and administrative expenses decreased by $4.1 million, or 9.1%, to $41.2 million for the year ended December 31, 2002 from $45.3 million for the year ended December 31, 2001 as a result of our initiative to reduce back-office operations. This decrease was primarily attributable to a decrease in compensation, contractors and related costs as a result of fewer administrative and headquarters personnel.

Gains on sales of assets. In 2001, we sold internally developed software and other assets for approximately $11.2 million in two transactions. We recognized a total gain of $8.6 million in 2001 on the sales.

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Restructuring and related charges. Restructuring and related charges increased by $9.0 million, or 95.4%, to $18.4 million for the year ended December 31, 2002 from $9.4 million for the year ended December 31, 2001 driven primarily by actions taken in response to lower than expected market demand for our EDI Services and Other Business to Business Solutions. The restructuring plan resulted in the termination of approximately 257 employees in 2002 and resulted in restructuring expenses of approximately $18.4 million during the year ended December 31, 2002. These expenses consisted primarily of $11.0 million of severance and related termination costs and $7.4 million of costs associated with the closings of sales, services and engineering facilities and buy-out of under-utilized equipment leases. Of these amounts, approximately $2.9 million were non-cash charges. For the year ended December 31, 2001, we incurred restructuring expenses of approximately $9.4 million primarily for severance and related termination costs associated with headcount reductions mainly in the U.S., all of which were cash expenditures.

Asset impairment charges. For the year ended December 31, 2002, we recorded an impairment charge of $5.4 million primarily related to certain software under development for which the plans to deploy were curtailed. For the year ended December 31, 2001, we recorded a goodwill impairment charge of $4.3 million related to the abandonment of certain Irish operations.

Corporate charge from General Electric. The corporate charge from General Electric decreased by $5.6 million, or 43.3%, to $7.3 million for the year ended December 31, 2002 from $12.9 million for the year ended December 31, 2001 as our budgeted costs for the year ended December 31, 2002 were lower than in 2001 and also, as a result of the separation from General Electric we only incurred nine months of charges in 2002. Each year, General Electric charged us a fixed percentage of our budgeted total costs for that year as a corporate charge, which covered various centralized services that General Electric provided to us as needed, such as compensation and benefit plan design, tax planning, marketing support, treasury, auditing and public company reporting. Following the recapitalization, we no longer pay a corporate charge to General Electric.

Gains on sales of investments. In 2001, we recorded gains of approximately $144.6 million on the sale of our remaining 19% interest in our Japanese joint venture in a series of transactions. There were no gains on sales of investments in 2002.

Proportionate share of losses in investee companies and investment write-downs. In the year ended December 31, 2002, we recognized losses on our various cost and equity method investments of $4.7 million. Of this amount, $1.3 million related to our proportionate share of losses of one equity method investment and $3.4 million related to write-downs of several cost method investments where we determined the decline in value was other than temporary. In the year ended December 31, 2001, we recognized $23.4 million of impairment losses on various equity and cost method investments. Of this amount, approximately $10.2 million related to our 50% share of losses incurred by our catalog management joint venture in the three months of 2001 before we began consolidating the results of operations of that entity following our buyout of our partner in April 2001. In the year ended December 31, 2001, we also recognized impairment losses of $13.2 million for several of our investments where we concluded that the decline in the fair value of our investment was other than temporary.

Fees related to recapitalization. As part of the recapitalization, we incurred $30.1 million of transaction related fees that are non-recurring in nature. This amount includes $21.7 million of fees and expense reimbursements paid to Francisco Partners.

Interest income. Interest income was $1.3 million for the year ended December 31, 2002 compared to interest income of $6.6 million for the year ended December 31, 2001. Prior to the recapitalization, we participated in pooled treasury operations with General Electric. As part of this pooled activity, interest was earned on balances on deposit with General Electric.

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Interest expense. Interest expense totaled $14.5 million for the year ended December 31, 2002 compared to interest expense of $5.3 million for the year ended December 31, 2001. Interest expense for the year ended December 31, 2002 consisted primarily of interest on our long-term debt. Prior to the recapitalization, we participated in pooled treasury operations with General Electric. We paid interest when local operations borrowed money from the pool. Interest expense for the year ended December 31, 2001 includes expense associated with cash borrowed from General Electric.

Other income, net. Other income, net is driven primarily by $1.1 million of losses on foreign currency transactions partially offset by $0.5 million of minority interest income for the year ended December 31, 2002 and $6.3 million of income received from General Electric Capital Corporation, or GECC, $0.4 million of gains on foreign currency transactions partially offset by losses of $0.3 million of minority interest income for the year ended December 31, 2001. In 2000, we entered into an agreement with GECC under which, if we agreed to use a vendor of products and services in which GECC had made an equity investment, GECC would, in exchange, grant us the right to share in any gains on the sale of that equity investment. We will not receive any further payments from GECC under this agreement.

Provision for income taxes. Income taxes totaled $9.9 million for the year ended December 31, 2002 compared to $49.3 million for the year ended December 31, 2001. Our income tax provision for 2002 includes $8.3 million of income taxes we incurred upon the repatriation of foreign earnings, which previously had not been taxable in the United States, and a $0.9 million charge to reflect changes in our net deferred tax assets resulting from the change in control effected by the recapitalization. Our tax rates for both periods differed from the federal statutory rate of 35% principally as result of state income taxes and the effect of losses in foreign jurisdictions for which no income tax benefits have been recognized.

Net income (loss). Net income decreased by $108.1 million to a net loss of $39.5 million for the year ended December 31, 2002 from net income of $68.6 million for the year ended December 31, 2001 primarily as a result of the one-time gain on the sale of our remaining 19% interest in our Japanese joint venture in the first half of 2001 and $30.1 million of non-recurring professional fees related to the recapitalization in 2002. These changes more than offset our improvement in operating income of $29.8 million, and lower losses on our investments of $18.7 million.

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Liquidity and Capital Resources

Sources and Uses of Cash

The following table is a summary of our sources and uses of cash during the years ended December 31, 2001, 2002 and 2003:

2003 Compared to 2002:

Net cash provided by operating activities was $38.8 million in 2003 compared to $9.2 million in 2002. The increase in net cash provided by operating activities from 2002 to 2003 of $29.6 million was mainly attributable to changes in operating assets and liabilities including $26.7 million in restructuring charges relating to severance and related termination costs and costs associated with the closing of facility space, which will be funded in future years.

Net cash used in investing activities was $28.8 million in 2003 compared to $43.8 million in 2002. Net cash used in investing activities in 2003 included capital expenditures of $29.4 million for property, software and equipment, offset by proceeds of $0.6 million from the sale of software and assets related to our I400 software product. Net cash used in investing activities in 2002 consisted primarily of capital expenditures for property, software and equipment of approximately $37.8 million and acquisitions of minority interests in affiliates of approximately $6.0 million. Capital expenditures for 2002 and 2003 include $26.9 million and $19.5 million, respectively, of costs capitalized for the development of software for internal use. The lower capital expenditures in 2003 resulted from our efforts to invest in line with lower revenue expectations for certain products and services.

Net cash used for financing activities was $4.9 million in 2003 compared to net cash provided by financing activities of $56.5 million for 2002. The usage for 2003 was driven by $12.6 million of professional and underwriting fees related to our debt refinancing, and cash of $174.6 million used to retire borrowings under our previous term loan, offset by $169.8 million from the refinancing and a $12.5 million reimbursement by General Electric pursuant to the recapitalization agreement. Cash provided by financing activities for 2002 consisted primarily of repayments by our foreign subsidiaries of borrowings under third-party lines of credit, partially offset by repayments of loans we had made to General Electric and its affiliates in connection with tax planning and cash management. Cash provided by financing activities during 2002 also reflects the impact of the recapitalization which resulted in the borrowing of $410.0 million, the payment of financing costs of $11.6 million and the cash distribution to General Electric of

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$350.0 million. In connection with the recapitalization, all intercompany balances that existed between us and General Electric and its affiliates, including any remaining balances on intercompany loans, were eliminated.

2002 Compared to 2001:

Net cash provided by operating activities was $9.2 million in 2002 compared to net cash used in operating activities of $14.5 million in 2001. The increase in net cash provided by operating activities from 2001 to 2002 was mainly attributable to the improvement in operating income offset by the $30.1 million in professional fees incurred in the recapitalization, which includes $21.7 million of fees and expense reimbursements paid to Francisco Partners.

Net cash used in investing activities was $43.8 million in 2002 compared to net cash provided by investing activities of $83.0 million in 2001. Net cash provided by investing activities in 2001 included proceeds of $154.4 million as a result of the sale of our remaining 19% interest in a joint venture, offset in part by the $7.8 million investment we made in our catalog management joint venture as well as investments we made in other unconsolidated affiliates. Net cash used in investing activities in 2002 consisted primarily of capital expenditures for property, software and equipment, as stated above. Capital expenditures in 2001 include $33.3 million of costs capitalized for the development of software for internal use.

Net cash provided by financing activities was $56.5 million for 2002, as detailed above, compared to net cash used for financing activities of $82.1 million in 2001. Net cash used for financing activities in 2001 consisted primarily of distributions and intercompany loans to General Electric and its affiliates for tax planning and cash management purposes, partially offset by borrowings by our foreign subsidiaries under third-party lines of credit.

Our principal sources of liquidity have been available cash, cash flows from operations, and borrowings available under our new $30.0 million revolving credit facility. We expect our principal uses of liquidity to be working capital, the financing of capital expenditures and debt service. As of December 31, 2003, we had outstanding debt of approximately $405.5 million, which consisted of $235.0 million of outstanding senior subordinated reset notes, $100.5 million of outstanding senior secured floating rate notes and a $70.0 million senior term loan. The senior secured floating rate notes are net of a debt discount of $4.5 million.

Borrowings under the new revolving credit facility bear interest, at our option, at either a floating base rate plus 2.00% per annum or floating LIBOR plus 4.25% per annum. Borrowings under the new senior term loans bear interest, at our option, at either the base rate plus 4.00% per annum or LIBOR plus 6.00% per annum. The base rate and LIBOR rate used to calculate the applicable interest rates on revolving credit loans and senior term loans may not be less than 4.25% and 2.25%, respectively. Interest is payable monthly in arrears for base rate loans and on the last day of selected interest periods, but no later than every three months for LIBOR rate loans. The maturity date of the new revolving credit facility and the new senior term loan are March 21, 2007, at which time all principal is due and payable.

At December 31, 2003, we had $70.0 million outstanding under the term loan facility. Borrowings outstanding under the facility at December 31, 2003 bear interest at a base rate plus 6.0% or 8.25%. In addition, as of the date of this report, we have approximately $8.9 million of letters of credit outstanding under our revolving credit facility. The amount that can be borrowed under the revolving credit facility is limited to a percentage of EDI revenues as defined in the agreement governing the credit facility, and is subject to our compliance with amended financial covenants and other customary conditions, including that no event of default under the facility have occurred and be continuing. Available borrowings under our revolving credit facility were $21.1 million at December 31, 2003.

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Our obligations under our credit facility are guaranteed by all of our existing and future U.S. subsidiaries and are also secured by first-priority liens on substantially all of our and the guarantors’ assets and property, including a pledge of 100% of the capital stock or other equity interests of our existing and future U.S. subsidiaries and 66% of the capital stock or other equity interests of our material first-tier foreign subsidiaries. We are also subject to a negative pledge on all of our assets and the assets of our subsidiaries.

The agreements governing our outstanding debt impose limitations on our ability to, among other things, incur additional indebtedness including capital leases, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, issue preferred stock, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. The indentures governing our notes contain similar limitations. In addition, the indenture governing our senior secured floating rate notes limits our ability to maintain secured indebtedness in excess of certain limits related to our EDI services revenue. Our credit facility, as amended, also requires that we meet and maintain certain financial ratios and tests, including a capital expenditures maximum, a minimum consolidated EBITDA and a maximum consolidated leverage ratio (total senior debt to EBITDA). Our ability to comply with these covenants and to meet and maintain such financial ratios and tests is material to the success of our business and may be affected by events beyond our control. Our failure to comply with these covenants could create a default under the credit facility, the indenture governing the floating notes, and the indenture governing the reset notes. Under our credit facility, EBITDA is calculated each quarter for the latest twelve-month period and is adjusted to exclude specific costs and expenses. The excluded costs and expenses include fees related to the recapitalization, non cash charges, restructuring charges, costs reimbursed by General Electric, and other adjustments. As defined under our credit facility, EBITDA for the year ended December 31, 2003 is equal to $97.6 million. The senior credit facility requires that we maintain EBITDA, as defined, of at least $95.0 million for the twelve-month period ending each quarter. The credit facility also requires that we maintain a maximum consolidated leverage ratio (total senior debt to EBITDA) of 2.0 to 1.0 for the twelve-month period ending each quarter. For the twelve-month period ended December 31, 2003, our consolidated leverage ratio was equal to 1.9 to 1.0, based on senior debt of $183.9 million and EBITDA of $97.6 million. In March 2004, we negotiated amended covenants for 2004 and 2005. The amended EBITDA covenant has a requirement of $62.3 million and $85.0 million and a minimum consolidated leverage ratio requirement of 3.30 to 1.0 and 2.40 to 1.0, for 2004 and 2005, respectively. Our ability to comply with each of the EBITDA and consolidated leverage ratio covenants will primarily depend on the performance of our business in future periods and, specifically, our ability to generate revenues and control operating costs. EBITDA is not a presentation made in accordance with accounting principles generally accepted in the United States. Accordingly, EBITDA is not intended to be used as an alternative to net income or any other measure of performance in accordance with accounting principles generally accepted in the United States, and EBITDA is not necessarily an indication of whether we will be able to fund our cash requirements. The credit facility also requires that we limit our capital expenditures to $42.5 million during each fiscal year. For the year ended December 31, 2003, our capital expenditures totaled $29.4 million. We expect that we will be able to comply with this covenant in future periods.

The senior secured floating rate notes will mature on July 15, 2008 and bear interest at a floating rate based on six-month LIBOR plus 9%, but never less than 12%. The interest rate at December 31, 2003 was 12%. The senior secured floating rate notes are secured by second-priority security interests in substantially all of our assets and our domestic subsidiaries’ and 66% of the stock of our material foreign subsidiaries. In addition, the senior secured floating rate notes are guaranteed fully and unconditionally by our domestic subsidiaries. Interest is payable semi-annually in arrears on January 15 and July 15 of each year commencing on July 15, 2003.

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The senior secured floating rate notes are redeemable at our option any time after October 1, 2004, in whole or in part, at a redemption price equal to par plus accrued and unpaid interest, plus a redemption premium. The premium is 3% for the twelve months ending October 1, 2005 and 1.5% for the twelve months ending October 1, 2006. After October 1, 2006, the senior secured floating rate notes can be redeemed at par plus accrued and unpaid interest. Upon the occurrence of a change of control, as defined in the indenture governing the senior secured floating rate notes, each holder of the senior secured floating rate notes will have the right to require us to repurchase such holder’s notes at an offer price in cash equal to 101% of the aggregate principle amount thereof plus accrued and unpaid interest and liquidated damages, if any, thereon to the date of purchase.

Our senior subordinated reset notes mature on September 27, 2009 and bore interest at 12% per annum until September 27, 2003. After September 27, 2003, the senior subordinated reset notes will bear interest at a reset rate between 8% and 17%. The reset rate will be determined by negotiations between GECC and us that began in July 2003 and are continuing. The parties have not reached an agreement on the reset rate and have each engaged investment bankers to determine the reset rate. For the period from September 27, 2003 to December 31, 2003, the Company accrued interest at a rate of 15%, the rate which management believes to be the best estimate of where the negotiations will conclude. To the extent the reset rate exceeds 15%, we will have the option to pay cash interest of 15% and add the additional interest to the balance of the reset notes. Interest is payable semi-annually on April 15 and October 15 of each year commencing April 15, 2003. The senior subordinated reset notes are general unsecured obligations and are guaranteed by all of our domestic subsidiaries. Because the reset notes were not refinanced by September 27, 2003, we paid GECC a fee equal to 1% of the outstanding balance as required by the terms of the facility.

The senior subordinated reset notes are redeemable at our option, in whole or in part, at any time on or after September 27, 2006 at a redemption price equal to par plus accrued and unpaid interest, plus a declining redemption premium. In addition, prior to September 27, 2005, we may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the senior subordinate reset notes with the net cash proceeds of one or more equity offerings at a redemption price of 100% of the principal amount plus a premium equal to the reset rate and accrued and unpaid interest, provided that the redemption occurs within 90 days of the date of the closing of such equity offering and at least 65% of the senior subordinated reset notes issued remain outstanding immediately after the occurrence of such redemption. Upon the occurrence of a change of control, as defined in the Indenture governing the senior subordinated reset notes, each holder of the senior subordinated reset notes will have the right to require us to repurchase such holder’s notes at an offer price in cash equal to 101% of the aggregate principle amount thereof plus accrued and unpaid interest and liquidated damages, if any, thereon to the date of purchase.

Our debt service requirements consist primarily of interest expense on the term loan portion of our credit facility, the senior secured floating notes and the senior subordinated reset notes and on any future borrowings under the revolving credit portion of our credit facility. Our short-term cash requirements are expected to consist mainly of cash to fund our operations, interest payments on our debt and cash payments under various operating leases and debt repayments.

Although we do not have an extensive history of acquisitions, we intend to continue to pursue acquisition opportunities. We expect to finance any future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. However, the restrictions imposed on us by the agreements governing our debt outstanding at the time may affect this strategy. In addition, to fully implement our growth strategy and meet the resulting capital requirements, we may be required to request increases in amounts available under our revolving credit facility, enter into new credit facilities, issue new debt securities or raise additional capital through equity financing. We may not be able to obtain an increase in the amounts available under our credit facility, if requested, on satisfactory terms and we may not be able to successfully complete any future bank financing or other debt or equity financing on satisfactory terms, if at all. As a result, our ability to make future acquisitions is uncertain. As discussed in “Business – Recent Acquisitions,” we have recently completed the acquisitions of Celarix and HAHT Commerce.

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Based upon our current operations and historical results, we believe that our cash flow from operations, together with available cash and borrowings under our revolving credit facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures, lease payments and scheduled interest payments for the next 12 months. To the extent additional funding is required, we expect to seek additional financing in the public or private debt or equity capital markets. We cannot be certain that we will be successful in obtaining additional financing, if needed, or that, if available, any additional financing will be on terms favorable to us. In addition, prior to the recapitalization, we were part of the General Electric group of companies and received financing from General Electric and its affiliates. Neither Francisco Partners nor General Electric is obligated to provide financing to us as General Electric and its affiliates have in the past. If we are unable to obtain the capital we require to implement our business strategy, or to obtain the capital we will require on acceptable terms or in a timely manner, we would attempt to take appropriate responsive actions to tailor our activities to our available financing, including revising our business strategy and future growth plans to accommodate the amount of financing available to us.

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Contractual Obligations and Other Commitments

Our principal contractual obligations and commercial commitments include our existing senior term loan and revolving credit facility, the senior subordinated reset notes, the senior secured floating rate notes, operating leases and other commitments principally relating to multi-year software maintenance agreements. The following tables summarize these obligations at December 31, 2003 and their expected effect on our liquidity and cash flows in future periods.

Minority shareholders in one of our consolidated subsidiaries have rights, in certain circumstances, to require us to purchase some or all of their interests in this subsidiary at a specified price. Management estimates that this price generally equates to the fair market value of the holders’ interests and that the potential obligation as of December 31, 2003 was approximately $1.6 million in the aggregate.

Off-Balance Sheet Arrangements

We did not enter into any off-balance sheet arrangements during 2001, 2002 or 2003, nor did we have any off-balance sheet arrangements outstanding at December 31, 2002 or 2003.

Recent Accounting Pronouncements

See footnote 2(q) to our audited consolidated financial statements for a discussion of the impact of Recent Accounting Pronouncements.

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Factors That Could Affect Future Results

We have been operating as an independent company since September 2002, and we may be unable to implement sufficient operating systems and business functions to allow us to operate effectively as an independent company.

Prior to the recapitalization in September 2002, our business was conducted as a group of indirect, wholly owned subsidiaries of General Electric. General Electric performed various corporate functions for us, including:

•		public and investor relations;
•		treasury administration;
•		selected human resources and payroll functions;
•		insurance administration;
•		corporate advertising and promotion;
•		internal audit;
•		selected internal information technology services;
•		telecommunications unrelated to commercial services;
•		federal, state and foreign corporate income tax, sales and use tax, and value added tax administration; and
•		selected legal functions.

Following the recapitalization, General Electric is no longer obligated to provide services to us, other than the transitional services that are described under “Certain Relationships and Related Transactions.” If we are not successful in implementing our own systems and business functions or entering into agreements with other providers of these services after our transitional services arrangements with General Electric expire, or if we are not successful in transferring data from General Electric’s systems to our systems, we may not be able to operate our business effectively. In addition, if General Electric does not perform the transitional services that it has agreed to provide for us at the same level that it did when we were its subsidiary, these services may not be sufficient to meet our needs. As a result, we may not be able to operate our business effectively.

Prior to the recapitalization, we also took advantage of General Electric’s size and purchasing power in procuring certain goods, services and technology, such as computer software licenses, computer hardware and insurance and health care benefits. As a separate, independent company, we may be unable to obtain these goods, services and technology at prices and on terms as favorable to us as those that we obtained prior to the recapitalization. We also depended substantially on General Electric for advertising and promotion of our services. Following the recapitalization, our brand identity and business could be negatively affected if our advertising and promotion activities are not as effective as they were when we were part of the General Electric group of companies.

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The historical financial information presented in this report prior to the date of the recapitalization may not be representative of what our historical results would have been as an independent company; therefore, our historical financial information may not be reliable as an indicator of our future results.

Our historical consolidated financial information included in this report for periods prior to the recapitalization may not reflect what our results of operations, financial position and cash flows would have been on an historical basis had we operated our business as an independent company during the periods presented or what our results of operations, financial position and cash flows will be in the future. These historical consolidated financial statements include allocations for services provided or procured by General Electric, which we may not be able to procure or provide ourselves on the same basis. Therefore, our historical consolidated financial statements may not be indicative of our future performance as an independent company. In addition, we have not made adjustments to our historical consolidated financial statements to reflect other changes that have occurred or will occur in our cost structure, financing and operations as a result of the recapitalization. These changes could include potentially increased costs associated with reduced economies of scale and a higher cost of capital. We may also change the way we fund our operations, conduct research and development and pursue our strategic objectives.

We depend on General Electric and its affiliates as customers.

General Electric, together with its affiliates, historically has been among our top five customers and is currently our top customer. For the year ended December 31, 2003, General Electric and its affiliates generated approximately 9.0% of our total revenues. In addition, General Electric and its affiliates have also acted as trial customers for some of our new products and services. As a result of the recapitalization, General Electric retained only 10.0% of the common stock of our parent, GXS Holdings, Inc., and an equivalent interest in GXS Holdings’ preferred stock. Because we are no longer a wholly owned subsidiary of General Electric, we may not be able to benefit from our relationship with them as we have in the past. We cannot provide any assurances that General Electric and its affiliates will continue their customer relationships with us in the future. In addition, our profitability could be adversely affected if General Electric and its affiliates were to purchase lower margin products and services than they have historically purchased. If General Electric or any of its affiliates were to terminate or materially alter their customer relationships with us, our business, financial position and results of operations could be adversely affected.

Because much of our operations are conducted, and most of our assets are held, by our subsidiaries, we will depend on our subsidiaries for cash and to service our debt.

Substantially all of our operations are conducted through subsidiaries. Consequently, our cash flow and ability to service our debt obligations are dependent upon the earnings of our operating subsidiaries and the distribution of those earnings to us, or upon loans, advances or other payments made by our subsidiaries to us. The ability of our subsidiaries to pay dividends or make other payments or advances to us will depend upon their operating results and will be subject to applicable laws and contractual restrictions contained in the instruments governing their debt, including our credit facility and the indentures governing our senior secured floating rate notes and our senior subordinated reset notes. Although the indenture governing the senior subordinated reset notes limits the ability of these subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments to us, and the indenture that governs the senior secured floating rate notes and our credit facility contains similar limitations, these limitations are subject to a number of significant qualifications. We cannot assure that the earnings of our operating subsidiaries will be adequate for us to service our debt obligations or meet our other obligations as they become due.

We engage in significant transactions with our affiliates.

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Historically, we have engaged in a variety of transactions with our affiliates, including significant business with General Electric and its affiliates. In addition, in connection with the recapitalization, we have entered into a number of agreements with General Electric, its affiliates and Francisco Partners. Although we believe that our agreements with General Electric, its affiliates and Francisco Partners are and will be fair to us in all material respects, the terms of the agreements are not necessarily the same terms that we would have received in arms’ length transactions with third parties. We expect that, in the future, we will continue to enter into a variety of transactions with our affiliates, some of which may be significant. Although the indenture requires that these types of transactions, other than affiliate transactions existing on the date of the indenture, be on terms no less favorable to us or the applicable subsidiary than those which could be obtained on an arms’ length basis from third parties, this limitation is subject to a number of important qualifications and exceptions and we cannot be certain that these types of transactions will not adversely affect our business, financial condition or results of operations. The indenture governing our senior subordinated reset notes contains similar limitations.

In addition, conflicts of interest may arise with General Electric or Francisco Partners in a number of areas relating to our past and ongoing relationships, including potential competitive business activities, tax and employee benefit matters, and indemnity arrangements related to the recapitalization.

Francisco Partners indirectly controls approximately 90% of our capital stock, and there may be situations in which the interests of Francisco Partners and the interests of the holders of our senior secured floating rate notes and senior subordinated reset notes will not be aligned.

Francisco Partners indirectly controls approximately 90% of our capital stock. As a result, Francisco Partners is able to:

•		elect all of our directors and, as a result, control matters requiring board approval;
•		control matters submitted to a stockholder vote, including mergers, acquisitions and consolidations with third parties and the sale of all or substantially all of our assets; and
•		otherwise control or influence our business direction and policies.

As a result, circumstances may occur in which the interests of Francisco Partners could be in conflict with the interests of the holders of our senior secured floating rate notes and senior subordinated reset notes. In addition, Francisco Partners may have interests in pursuing acquisitions, divestitures or other transactions that, in their judgment could enhance their equity investment, even though the transactions might involve risks to the holders of our senior secured floating rate notes and senior subordinated reset notes.

A significant portion of our services is delivered using a proprietary operating system and loss or disruption of this operating system could adversely affect our ability to service customers.

We utilize a proprietary operating system, known as Mark III®, on mainframe computers manufactured by Bull, S.A. to deliver approximately 44% of our EDI Services and Other Business to Business Solutions and almost all of our Custom Messaging and Network Solutions for the twelve months ended December 31, 2003. Revenues derived from products and services using this operating system represented approximately 37% of our total revenues for the twelve months ended December 31, 2003. We currently employ ten engineers who are qualified to maintain this operating system. We believe this number of engineers is adequate to maintain the Mark III® systems we currently use. We are, however, in the process of migrating all EDI services currently provided using this operating system to processors utilizing newer technologies. We expect this migration to take several years. While we are completing the migration, there is a risk that

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the unavailability of these engineering personnel could disrupt the delivery to our customers of services utilizing the Mark III® operating system.

Our inability to adapt to rapid technological change could impair our ability to remain competitive.

The industry in which we compete is characterized by rapid technological change, frequent new product and service introductions and evolving industry standards. Our future success will depend in significant part on our ability to anticipate industry standards and to continue to enhance existing products and services and introduce and acquire new products and services on a timely basis to keep pace with technological developments. We expect that we will continue to incur significant expenses in the design, development and marketing of new products and services. Our competitors may implement new technologies before we are able to implement them, allowing our competitors to provide more effective products and services at lower prices.

We cannot assure that we will be successful in developing, acquiring or marketing new or enhanced products or services that respond to technological change or evolving industry standards, that we will not experience difficulties that could delay or prevent the successful development, acquisition or marketing of such products or services or that our new or enhanced products and services will adequately meet the requirements of the marketplace and achieve market acceptance. Any delay or failure in the introduction of new or enhanced products or services, or the failure of such products or services to achieve market acceptance, could have a material adverse effect on our business, results of operations and financial condition.

Short product life cycles make it difficult to recover the cost of development and force us to continually qualify new products with our customers.

Over the last several years, the rate at which new technological developments have been introduced into the market has grown at a much more rapid pace than it had previously. Continually updated standards for the electronic exchange of information, such as those issued by the American National Standards Institute have required us to produce successive generations of our EDI services and related integration software with additional functionality. Because we are required to implement these frequently issued standards, the life cycles of our products have shortened. We typically release new versions of our products every six to twelve months. Short product cycles make it more difficult for us to recover the costs associated with product development because those costs must be recovered over increasingly shorter periods of time. We expect this trend to continue, and it may even accelerate. As a result, we may not be able to recover all of our product development costs, which could affect our profitability. For our products to be competitive, we must be among the first to market with next-generation products. Any failure or delay in the product development or quality assurance process can result in our losing sales until we are able to introduce the new product.

We may experience product failures or other problems with existing or new products, all of which could adversely impact our business.

Software products as complex as those we offer may contain undetected errors or failures when first introduced or when new versions are released. If software errors are discovered after introduction, we could experience delays or lost revenues during the period required to correct the errors. We cannot be certain that errors will not be found in new products or services after commencement of commercial operations, resulting in loss of, or delay in, market acceptance, which could have a material adverse effect on our business, results of operations and financial condition.

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Our operations are dependent on our ability to protect our data centers against damage.

Our operations are dependent upon our ability to protect our computer equipment and the information stored in our data centers against damage that may be caused by fire, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, natural disasters and other similar events. We cannot assure that a fire or other natural disaster, including national, regional or local telecommunications disruptions, would not result in a prolonged disruption of our network services or permanently impair some of our operations. A prolonged service disruption or other impairment of operations could damage our reputation with customers, expose us to liability, cause us to lose existing customers or increase our difficulty in attracting new ones. We may also incur significant costs for using alternative off-site equipment or taking other actions in preparation for, or in reaction to events that damage our data centers.

We maintain business interruption insurance. However, even if we recovered under such an insurance policy, the lost revenues or increased costs that we experience during the disruption of our network services business, and longer term revenue losses, which may not be recoverable under the policy, could result from possible losses of customers. If this were to occur, our business, results of operations and financial condition could be materially adversely affected.

Security breaches could harm our business.

A significant component of electronic data interchange and marketplaces is the secure transmission of confidential information over telecommunications networks. In facilitating data exchange between our customers and their trading partners, we rely on encryption and authentication technology licensed from third parties and intrusion detection technologies to protect the confidentiality of our customers’ information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the technology used by us to protect customer transaction data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. Our security measures may not prevent security breaches. Our failure to prevent security breaches could harm our business, damage our reputation and expose us to a risk of loss or litigation and possible liability.

Risks associated with the Internet, changing standards, alternate technologies and competition may adversely impact our business.

The use of the Internet as a vehicle for electronic data interchange and marketplaces raises numerous issues, including reliability, data security, data integrity and rapidly evolving standards. We cannot be certain that any products and services that we introduce will adequately meet the requirements of the marketplace or achieve market acceptance. Moreover, new competitors, which may include media, software vendors and telecommunications companies, offer services that utilize the Internet in competition with our products and services. Although we believe that the Internet will provide opportunities to expand the use of our products and services, we cannot ensure that our efforts to exploit these opportunities will be successful or that increased usage of the Internet for transaction management infrastructure products and services or increased competition will not adversely affect our business, results of operations and financial condition.

A failure to attract or retain qualified personnel or highly skilled employees could adversely affect our business.

Given the complex nature of the technology on which our business is based and the speed with which such technology advances, our future success is dependent, in large part, upon our ability to attract and retain highly qualified managerial, technical and sales personnel. Competition for talented personnel is intense,

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and we cannot be certain that we can retain our managerial, technical and sales personnel or that we can attract, assimilate or retain such personnel in the future. Our inability to attract and retain such personnel could have a material adverse effect on our business, results of operations and financial condition.

We rely on intellectual property and proprietary rights to maintain our competitive position and, therefore, our failure to protect adequately our intellectual property and proprietary rights could adversely affect our business.

We believe that proprietary products and technology are essential to establishing and maintaining our technology leadership position. We seek to protect our intellectual property through patents, trademarks, service marks, domain names, trade secrets, copyrights, confidentiality, non-compete and nondisclosure agreements and other measures, some of which afford only limited protection. We currently have three United States patents; however, as a part of our recent effort to expand our patent portfolio, we have filed 25 patent applications that improve upon our technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary through reverse engineering or otherwise. We cannot assure that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar or superior technology or design around our intellectual property. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States. Our failure to protect adequately our intellectual property and proprietary rights could have a material adverse effect on our business, financial condition, and results of operations. Intellectual property protections may also be unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to capture market share.

We use, and intend to use in the future, new technology in our products and services. While we do not believe that any of our products or services infringe the valid proprietary rights of third parties in any material respect, we cannot be certain that our products do not and will not be alleged to infringe upon issued patents or other intellectual property rights of others. Any claims from third parties, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available, if at all, on terms acceptable to us and will likely be an increase in our product costs in the way of additional royalty payments or other fees, which could have a material adverse effect on our business, results of operations and financial condition. In addition, to the extent that we indemnify our customers for infringement claims brought as a result of their use of our products, we could incur significant expenses in defending such claims and for any resulting judgments.

We may make investments in entities that we do not control.

We currently have established joint ventures with several entities to provide increased customer service and enhance our marketing presence in non-U.S. markets. These joint ventures have been entered into to distribute our products and services in the local country, to provide a domestic EDI service in the country using software licensed by us to the joint venture, or to develop new products or services. These existing investments are not individually or collectively material to our business.

We anticipate continuing these strategic relationships and entering into future joint ventures with other entities, including third-party software vendors, consulting companies, systems integrators, Internet service providers and other information technology companies. We have in the past made, and may in the future make, investments in joint ventures without controlling their operations. Our current and any future investments in joint ventures may involve risks such as:

•

difficulties inherent in assessing the value, strengths and weaknesses of investment opportunities;

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•		difficulties in integrating and managing newly acquired operations and improving their operating efficiency; or
•		potential disruption of our ongoing business and diversion of our resources and management time.

Our inability to control entities in which we invest may have consequences for our ability to receive distributions from those entities or to implement our business plan. Debt or other agreements, if entered into by an entity not under our control, may restrict or prohibit that entity from paying distributions to us. Applicable state or local law may also limit the amount that a non-controlled entity is permitted to pay as a distribution on its equity interest, and we may not be able to influence the payment of dividends even if the payment was not otherwise restricted. If any of the other investors in a non-controlled entity fail to observe their commitments, that entity may not be able to operate according to its business plan or we may be required to increase our level of commitment.

We may selectively seek acquisitions in the future, which could expose us to significant business risks.

We may expand our operations through future acquisitions of companies with complementary products and technologies. Our ability to consummate and to integrate effectively any future acquisitions on terms that are favorable to us may be limited by the number of attractive acquisition targets, internal demands on our resources and our ability to obtain financing on satisfactory terms, if at all. In addition, acquisitions may expose us to certain risks including:

•		we may pay more than the acquired company is worth;
•		we may be entering markets in which we have little or no direct prior experience; and
•		our ongoing business may be disrupted and resources and management time diverted.

In addition, future acquisitions could result in the incurrence of additional debt, costs, contingent liabilities and amortization expenses related to intangible assets, all of which could have a material adverse effect on our business, financial condition or results of operations. We may also incur costs and divert management attention for acquisitions which are never consummated. Integration of acquired operations may also take longer, or be more costly or disruptive to our management and business, than originally anticipated. It is also possible that expected synergies from future acquisitions may not materialize. Our ability to implement and realize the benefits of our strategy may also be affected by a number of factors beyond our control, such as operating difficulties, increased operating costs, regulatory developments, general economic conditions, increased competition or the inability to obtain adequate financing for our operations on suitable terms. Our failure to effectively address any of these issues could adversely affect our results of operations, financial condition and ability to service debt.

Although we anticipate that we would perform a due diligence investigation of each business that we acquire, there may be liabilities of the acquired companies that we fail or are unable to discover during our due diligence investigation and for which we, as a successor owner, may be responsible. In connection with acquisitions, we anticipate that we would seek to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, the financial resources of the indemnitor or warrantor or other reasons.

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Delays and inaccuracies in our billing and information systems may have an adverse effect on our operations.

Sophisticated information and billing systems are vital to our growth and ability to monitor costs, bill customers, provide services to customers and achieve operating efficiencies. As we begin to offer new products and services, we may be required to install new billing systems or upgrade existing ones. Delays or inaccuracies in billing, our inability to implement solutions in a timely manner or our failure to implement and maintain sophisticated information and billing systems may have an adverse effect on our business and results of operations.

The markets in which we compete are highly competitive.

The markets for our products and services are increasingly competitive and global. As a result, we encounter intense competition in all parts of our business. Moreover, we have seen a trend among many of our customers to reduce their ongoing investments in expensive software systems. We expect competition to increase in the future both from existing competitors and new companies that may enter our markets. To remain competitive, we will need to invest continuously in product development, marketing, customer service and support and service delivery infrastructure. However, we cannot assure that new or established competitors will not offer products and services that are superior to or lower in price than ours. We may not have sufficient resources to continue the investments in all areas of product development and marketing needed to maintain our competitive position. In addition, most of our agreements with our customers are short-term.

We may require additional capital in the future, and additional funds may not be available on terms acceptable to us.

It is possible that we may need to raise additional capital to fund our future activities, to maintain spending on new product development in order to stay competitive in our markets or to acquire other businesses, products or technologies. Subject to the restrictions contained in our credit facility and the indentures governing our senior secured floating rate notes and our senior subordinated reset notes, we may be able to raise these funds by selling securities to the public or selected investors or by borrowing money. However, we may not be able to obtain these additional funds on favorable terms, or at all. None of Francisco Partners, its co-investors or General Electric is obligated to provide additional funding. If adequate funds are not available, we may be required to curtail our operations significantly, reduce planned capital expenditures and research and development, make selective dispositions of our assets or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to technologies or potential markets, or otherwise impair our ability to remain competitive.

We are exposed to general economic conditions, which could have a material adverse impact on our business, operating results and financial condition.

The United States and other world markets appear to be emerging from a severe economic downturn. Many of our markets have been affected by this downturn, resulting in negative impacts on our financial performance. Lagging impacts from this downturn could cause additional adverse impacts on our financial performance. In addition, uncertainty relating to recent events in the Middle East, including the potential for continued armed conflict, could further increase the financial and economic instability we have been facing. While the precise effects of such instability on our industry and our business are difficult to determine, they may have an adverse impact on our business, profitability and financial condition.

As a result of unfavorable general economic conditions and reduced capital spending by customers, our revenues have continued to decline in recent quarters. However, if the economic conditions in the United States and the other markets we serve continue or worsen, we may experience a material adverse impact on our business, operating results and financial condition.

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We may experience fluctuations in our quarterly operating results because of factors over which we have little or no control.

Our future quarterly operating results may vary, and we may experience reduced levels of earnings or losses in one or more quarters. Fluctuations in our quarterly operating results could be the product of a variety of factors, including:

•		changes in the level of revenues derived from our products and services;
•		the timing of new product and service announcements by us or our competitors;
•		changes in pricing policies by us or our competitors;
•		market acceptance of new and enhanced versions of our products and services or the products and services of our competitors;
•		the size and timing of significant orders;
•		changes in operating expenses;
•		changes in our strategy;
•		the introduction of alternative technologies;
•		the effect of acquisitions we might make; and
•		industry and general economic factors.

We operate with no material product order backlog because our products and services generally are delivered shortly after orders are received. As a result, licensing revenues in any quarter are substantially dependent on the quantity of such products licensed in that quarter. Our expense levels are based, in part, on our expectations as to future revenues. A large portion of our cost structure, however, is relatively fixed in nature and cannot be adjusted immediately in response to market conditions. If revenue levels are below expectations, our operating results are likely to be adversely affected unless we are willing and able to reduce our expenses proportionally. As a result of the foregoing factors, comparisons of results of operations between particular periods are not necessarily meaningful and historical results of operations are not necessarily indicative of future performance.

We operate internationally, which exposes us to risks that are difficult to quantify.

Historically, sales of our products and services outside the United States have been significant. For the year ended December 31, 2003, we derived approximately 40.3% of our total revenues from customers outside of the United States. Our ability to operate our business internationally in the future will depend upon, among other things, our ability to attract and retain talented and qualified managerial, technical and sales personnel and network services customers outside of the United States and our ability to continue to manage our international operations.

International operations are subject to the risks of doing business abroad, including:

•

unexpected changes in regulatory requirements and tariffs;

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•		longer payment cycles;
•		increased difficulties in collecting accounts receivable;
•		potentially adverse tax consequences from operating in multiple jurisdictions;
•		currency exchange rate fluctuations;
•		difficulties in repatriating earnings;
•		political and economic instability;
•		global and regional economic slowdowns;
•		power supply stoppages and shutdowns;
•		difficulties in staffing and managing foreign operations and other labor problems;
•		seasonal reductions in business activity in the summer months in Europe and other regions;
•		the credit risk of local customers and distributors; and
•		potential difficulties in protecting intellectual property.

Increased United States or foreign government regulation of our industry could restrict our business operations, and compliance with this regulation may be costly.

The United States does not generally regulate providers of electronic transaction processing products and services at this time. However, the governments of some foreign countries do regulate electronic commerce in their countries. The instability and restructuring of the telecommunications industry in some foreign countries may result in a complicated international regulatory framework that may require additional licensing or action on our part to remain in compliance with local laws and could materially affect our ability to do business in those countries. Other than these foreign government regulations and certain regulations requiring the protection of certain information about our customers, there are no regulations pertaining to the price determinations, geographic distribution, quality control or service capabilities of our products. We cannot be certain, however, that we will continue to comply as the rapidly changing laws in the Internet and telecommunications fields continue to be shaped in the United States and abroad. New laws or regulations could impose significant restrictions on our business operations, and compliance with these laws and regulations may be costly.

Factors Relating to Our Indebtedness

The significant amount of debt that we have could adversely affect our financial health and prevent us from fulfilling our obligations under our credit facility, our senior secured floating rate notes and our senior subordinated notes.

As of December 31, 2003, we had $405.5 million of indebtedness. Our interest expense for the year ended December 31, 2003 was approximately $51.0 million and our earnings for the year ended December 31, 2003 were insufficient to cover our fixed charges by $43.5 million.

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Our level of indebtedness could have important consequences. For example, it could:

•		make it more difficult for us to satisfy our obligations with respect to our indebtedness;
•		increase our vulnerability to general adverse economic and industry conditions;
•		require us to dedicate a substantial portion of our cash flow from operations to servicing debt, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
•		limit our flexibility in planning for, or reacting to, changes in our business and industry; and
•		limit our ability to borrow additional funds.

We may incur more debt, which could exacerbate the risks described above.

We and our subsidiaries are able to incur additional indebtedness in the future subject to the limitations contained in our credit facility and the indentures governing our senior secured floating rate notes and our senior subordinated reset notes. Although these agreements will restrict us and our restricted subsidiaries from incurring additional indebtedness, these restrictions are and will be subject to important exceptions and qualifications. If we or our subsidiaries incur additional debt, the risks that we and they now face as a result of our high leverage could intensify.

Restrictions contained in our credit facility and the indentures governing our senior secured floating rate notes and our senior subordinated reset notes could limit our operating activities.

Our credit facility and the indentures governing our senior secured floating rate notes and our senior subordinated reset notes contain covenants that restrict our ability, and the ability of our restricted subsidiaries, to:

•		incur or guarantee additional indebtedness, or maintain secured indebtedness in excess of certain limits related to our EDI services revenues;
•		pay dividends or distributions on, or redeem or repurchase, capital stock;
•		make investments;
•		issue or sell capital stock of restricted subsidiaries;
•		engage in transactions with affiliates;
•		grant or assume liens; and
•		consolidate, merge or transfer all or substantially all of our assets.

Our credit facility also contains other and more restrictive covenants, including financial covenants that require us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to meet these covenants and requirements may be affected by events beyond our control and we may have to curtail some of our operations and growth plans to maintain compliance. Further, because of the restrictions on our ability to grant or assume liens, we may have difficulty securing additional debt financing were we to need additional capital in the future.

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Our failure to comply with the covenants contained in the agreements governing our debt, including as a result of events beyond our control, could result in an event of default which could materially and adversely affect our operating results and our financial condition.

If we are not able to comply with the covenants and requirements contained in the agreements governing our debt, an event of default under the relevant debt instrument could occur. If an event of default does occur, it could trigger a default under our other debt instruments, we could be prohibited from accessing additional borrowings and the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be declared to be immediately due and payable. We cannot be certain that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments or that we would be able to refinance or restructure the payments on those debt securities. Even if we were able to secure additional financing, it may not be available on favorable terms.

We may not be able to generate sufficient cash flow to meet our debt service obligations.

Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, including interest payments and the payment of principal at maturity on our senior secured floating rate notes or our senior subordinated reset notes and under our credit facility, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot assure that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse effect on our business, financial condition and results of operations, as well as on our ability to satisfy our obligations on our senior secured floating rate notes and senior subordinated reset notes and pursuant to our credit facility.

Special Note Regarding Forward-Looking Statements

Forward Looking Statements — Our forward looking statements are subject to a variety of factors that could cause actual results to differ materially from current beliefs.

This report contains forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate, as well as management’s beliefs and assumptions. They are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Forward-looking statements include information concerning possible or assumed future results of operations, capital expenditures, the outcome of pending legal proceedings and claims, the terms of our new revolving credit facility, goals and objectives for future operations, including descriptions of our business strategies and purchase commitments from customers, among other things. These statements are typically identified by words such as “believe,” “anticipate,” “expect,” “plan,” “intend,” “estimate,” “may,” “will” and similar expressions. We base these statements on particular assumptions that we have made in light of our industry experience, as well as our perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read and consider the information in this report, you should understand that these statements may differ materially from actual outcomes and results.

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These forward-looking statements are affected by risks, uncertainties and assumptions that we make and actual results or outcomes may differ materially from those expressed in the forward-looking statements. These risks, uncertainties and assumptions include, among other things, the factors identified elsewhere in the foregoing “Risk Factors” section and:

•		the potential for continued or increased armed conflicts in the Middle East;
•		rapid technological developments and changes and our ability to introduce competitive new products and services on a timely, cost-effective basis;
•		our ability to attract and retain talent in key technological areas;
•		our ability to operate without our prior relationship to General Electric;
•		the continued availability of financing in the amounts, at the times and on the terms required to support our future operations and our levels of indebtedness;
•		our ability to implement effectively our growth strategy;
•		future investments;
•		growth rates and general domestic and international economic conditions, including currency exchange rate fluctuations;
•		our mix of products and services;
•		customer demand for our products and services;
•		our ability to market our products and services effectively;
•		the length of life cycles for the products and services we offer;
•		increasing price and product and services competition by U.S. and foreign competitors, including new entrants;
•		our ability to protect our intellectual property rights;
•		our ability to protect against security breaches and to protect our data centers from damage;
•		our ability to negotiate acquisitions and dispositions and to integrate acquired companies successfully;
•		changes in United States and foreign governmental regulations; and
•		the outcome of future litigation.

In addition, new risks and uncertainties could arise from time to time that could cause actual results or outcomes to differ from those expressed in the forward-looking statements, and it is impossible to predict these events or how they may affect us.

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Item 7a. Quantitative and Qualitative Disclosures Regarding Market Risk

We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in interest rates and foreign currency exchange rates that could impact our financial condition, results of operations and cash flows. Prior to the recapitalization, General Electric managed these types of risks on our behalf as part of its company-wide management of market risks. Since the recapitalization, we have managed our exposure to these and other market risks through regular operating and financing activities. We may use derivative financial instruments on a limited basis as additional risk management tools and not for speculative investment purposes.

Interest Rate Risk. We are exposed to interest rate risk as a result of our outstanding debt obligations. Our interest rate risk profile changed substantially as a result of changes in the nature and amount of our indebtedness incurred in connection with the recapitalization. We plan to manage this risk through the use of a combination of fixed and variable rate debt. As of December 31, 2003, $405.5 million of our debt bears interest at variable rates. The interest rate on our $235.0 million reset notes was to be reset on September 27, 2003 for the balance of their six-year term. We are currently in discussions with GECC, the holder of the reset notes, concerning the interest rate on the reset notes. The maximum rate to which the interest rate may be reset is 17%, with amounts above 15% payable in kind at our option. Because the interest rate on the reset notes will reset to a market rate, we believe that the carrying value of the reset notes will approximate fair value. A one-point change in the interest rates on our variable-rate long-term debt would affect interest expense by approximately $4.0 million on an annual basis. We believe the interest rates on our variable-rate long-term debt reflect market rates and, therefore, we believe the carrying value of our variable-rate long-term debt approximates fair value.

Foreign Currency Risk. We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through our normal operating activities and, where appropriate, through foreign currency forward contracts. For the year ended December 31, 2003, approximately 40.3% of our total revenues were derived from customers outside of the United States, with approximately 37% of our total revenues denominated in currencies other than the United States dollar. We estimate that revenue and expenses for the year ended December 31, 2003 were higher by $15.0 million and $10.0 million, respectively, as a result of changes in exchange rates as compared to the year ended December 31, 2002. At December 31, 2003 we had $40.7 million of working capital (current assets minus current liabilities) denominated in foreign currencies. At December 31, 2003, we had no outstanding foreign currency forward contracts. The following table shows the approximate split of these foreign currency exposures by principal currency:

     A hypothetical 10% strengthening of the dollar during 2003 versus the foreign currencies in which we have exposure would have reduced revenue by approximately $13.5 million and reduced operating expenses by

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approximately $9.0 million, resulting in operating income of $4.5 million less than actually reported. Working capital at December 31, 2003 would have been approximately $4.1 million lower than actually reported if we had used this hypothetical stronger dollar. These numbers were estimated using the different hypothetical rate for the entire year and applying it evenly to all non United States dollar transactions.

Inflation. We believe that inflation has not had a material impact on our results of operations for the year ended December 31, 2003. However, we cannot assure you that future inflation would not have an adverse impact on our operating results and financial condition.

Item 8. Financial Statements and Supplementary Data

The report of independent auditors and financial statements are set forth below (see Item 15(a) for list of financial statements and financial statement schedules):

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Independent Auditors’ Report

The Board of Directors
GXS Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of GXS Corporation and Subsidiaries (the Company) as of December 31, 2002 and 2003, and the related consolidated statements of operations, comprehensive loss, stockholder’s equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2003. In connection with our audits of the consolidated financial statements we have also audited the related financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in note 1 to the consolidated financial statements, on September 27, 2002, the Company consummated a recapitalization whereby Francisco Partners, L.P. acquired a 90% ownership interest in the Company from General Electric Company. In connection with the recapitalization, General Electric Company agreed to indemnify the Company against certain liabilities.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GXS Corporation and subsidiaries as of December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, on January 1, 2002.

/s/ KPMG LLP

Baltimore, Maryland
March 26, 2004

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GXS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2003
(In thousands of dollars, except per share amounts)

See accompanying notes to consolidated financial statements

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GXS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2001, 2002 and 2003
(In thousands)

See accompanying notes to consolidated financial statements

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GXS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
Years ended December 31, 2001, 2002 and 2003
(In thousands)

See accompanying notes to consolidated financial statements

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GXS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholder’s Equity (Deficit)
Years ended December 31, 2001, 2002 and 2003
(In thousands)

See accompanying notes to consolidated financial statement

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GXS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2002 and 2003
(In thousands)

Supplemental disclosure of non-cash investing and financing activities:

In connection with the acquisition of Celarix, GXS Holdings issued common and preferred stock with an estimated fair value of $600. Such amount has been reflected as an increase to additional paid-in capital with a corresponding amount allocated to the fair value of assets purchased and liabilities assumed.

See accompanying notes to consolidated financial statements

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GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

(1) Business and Basis of Presentation

GXS Holdings, Inc. (GXS Holdings) (formerly RMS Electronic Commerce Systems, Inc.) and GE Information Services, Inc. (GEIS) prior to September 27, 2002 were wholly owned subsidiaries of GE Investments, Inc. (GE Investments), which is a wholly owned subsidiary of General Electric Company (GE). On September 9, 2002, GXS Holdings formed GXS Corporation (GXS) and GXS Holdings contributed all of its assets to GXS in exchange for all of the common stock of GXS. In addition, GE Investments transferred 100% of the common stock that it held in GEIS to GXS and GEIS became a wholly owned subsidiary of GXS. For financial reporting purposes, this transaction was accounted for as a combination of companies under common control. The consolidated financial statements have been prepared as if the assets, liabilities and results of operations of GXS Holdings were consolidated with those of GEIS for all periods presented. GXS Corporation and subsidiaries (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.

On June 21, 2002, GE, GE Investments and Global Acquisition Company, a wholly owned subsidiary of Francisco Partners, L.P., (Francisco Partners) signed a definitive agreement to effect a recapitalization (the Recapitalization Agreement) of the Company. The recapitalization was consummated on September 27, 2002 (the Recapitalization) and resulted in the Company issuing $175,000 of debt under a senior term loan agreement and $235,000 of debt under a senior subordinated reset note agreement (see note 8). Proceeds, in the amount of $350,000, were distributed by the Company to GE pursuant to terms of the Recapitalization Agreement. In addition, Francisco Partners and its co-investors, through a direct or indirect subsidiary, acquired 90% of the outstanding common stock of GXS Holdings for $407,773. The Company incurred $30,085 of fees to consummate the Recapitalization including $20,000 for services rendered by Francisco Partners.

The Recapitalization was accounted for as a leveraged recapitalization since greater than 5% of the voting common stock of GXS Holdings was retained by GE. Under leveraged recapitalization accounting, the transfer of a controlling interest in GXS Holdings to Francisco Partners does not result in a change in the accounting basis in the assets and liabilities of GXS Holdings or its subsidiaries including GXS Corporation. Accordingly, the assets and liabilities of GXS Corporation have been recorded at their historical cost basis in the accompanying consolidated financial statements. Additionally, the costs incurred to effect the Recapitalization have been expensed as incurred.

The Recapitalization Agreement, together with a number of ancillary agreements, govern the Company’s relationship with GE following the recapitalization and provide for the allocation of intellectual property, employee benefits, tax and other liabilities and obligations relating to periods prior to the Recapitalization and include an employee lease agreement that terminated on December 31, 2002. In addition, GE has agreed to reimburse the Company for certain defined operating and restructuring costs following the Recapitalization. During the years ended December 31, 2002 and 2003, GE has reimbursed the Company approximately $ 3,000 and $9,600 of these costs, respectively. These costs include approximately $1,200 of costs and expenses incurred with closing a data center in Rockville, Maryland, $2,700 of costs incurred in connection with a services agreement with WorldCom, $2,200 for notice pay and severance in connection with a reduction in force, $1,500 for costs and expenses incurred for rebranding products and implementing an internal computer infrastructure, $1,200 representing payments made on behalf of certain employees in the United Kingdom covered under the GE pension plan, $600 for an interest subsidy payment, $600 for certain taxes and $2,600 representing certain employee compensation payments made following the closing of the Recapitalization. In addition, GE paid the Company $2,900 as a post closing adjustment related to the Recapitalization. These amounts have been expensed in the accompanying consolidated statements of operations and the reimbursements are reflected as contributions to additional paid-in capital.

Additionally, in connection with the Recapitalization, GE agreed to reimburse the Company for the managed network fee related to the portion of the network being used by them following the

53

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

Recapitalization. Reimbursements during the years ended December 31, 2002 and 2003 of approximately $1,750 each were credited to cost of revenues. During 2003, the Company transitioned its telecommunications infrastructure to new providers and, the network management arrangement with the former primary provider was terminated. Accordingly, the managed network fee and the related GE reimbursement were eliminated during 2003.

In connection with the Recapitalization, the Company’s acquiror and the acquirors common parent have made an election under US Income Tax Regulations that allows the Company to revalue its assets and liabilities for income tax purposes. The tax benefit of the revaluation was approximately $242,000. Such benefit was reflected as a contribution to additional paid-in capital.

(2) Summary of Significant Accounting Policies

(a) Consolidation

The consolidated financial statements represent the consolidation of all companies in which the Company directly or indirectly has a majority ownership and controls the operations. All significant intercompany transactions and balances have been eliminated in the consolidation. Investments in companies in which the Company has a 50% or less ownership interest 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 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 such loss is considered to be an other than temporary decline, the Company records an impairment charge.

(b) Foreign Currency

The financial statements of 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 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 included in stockholder’s equity. Gains and losses from transactions in foreign currency are included in the determination of net income (loss). Aggregate gains on foreign currency transactions for the years ended December 31, 2001 and 2002 were $196 and $1,062, respectively. Aggregate losses on foreign currency transactions for the year ended December 31, 2003 was $533. These amounts are included in other income (expense) in the consolidated statements of income (loss).

(c) Cash and Cash Equivalents

For purposes of the consolidated statement of cash flows, 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:

54

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

Transaction Processing — The Company earns recurring transaction processing fees from facilitating the exchange of business documents among its customers’ computer systems and those of their trading partners. Such revenues are based on a per transaction fee and are recognized in the period in which the related transactions are processed. Revenue on contracts with monthly or quarterly minimum transaction levels is recognized based on the greater of actual transactions or the specified contract minimum amounts.

Software Licensing — 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 revenues are 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.

Professional Services and Software Maintenance — Professional services are generally conducted under time and material contracts and revenue is recognized as the related services are provided. Software maintenance revenue is deferred and recognized on a straight-line basis over the life of the related contract, which is typically one year.

For arrangements with more than one element of revenue, the Company allocates revenue to each component based on vendor specific objective evidence (VSOE), in accordance with the criteria established in AICPA Statement of Position 97-2, Software Revenue Recognition, as amended, or Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, as appropriate. 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.

(e) Property and Equipment

Property and equipment are stated at cost. Depreciation on property and equipment is calculated on accelerated methods over the estimated useful lives of the assets over lives of three to forty years. Software and leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Property and equipment includes costs related to the development of internal use software pursuant to the guidance in AICPA Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. During the years ended December 31, 2001, 2002 and 2003, the Company capitalized costs related to the development of internal use software of $33,340, $26,860 and $19,519, respectively.

(f) Goodwill

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. As of December 31, 2003, the Company has unamortized goodwill in the amount of $11,929. During 2003, the Company completed impairment testing and determined that no impairment charge was necessary.

Had the Company adopted SFAS No. 142 on January 1, 2001, net income would have been $72,793 for the year ended December 31, 2001.

55

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

(g) Capitalized Software Costs

Costs incurred in the development of software sold externally are charged to expense until technological feasibility, as defined by Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed has been established. The Company uses the working model method to establish technological feasibility. Accordingly, the Company does not capitalize costs as there is generally a short period of time between the date technological feasibility is achieved and the date when the product is available for general release.

(h) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

As of January 1, 2002, the Company adopted the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets to account for the impairment of its long-lived assets. Prior to January 1, 2002 the Company accounted for the impairment of long-lived assets under SFAS No. 121. These Statements require that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

(i) Research and Development

Research and development costs are expensed as incurred. Research and development costs amounted to $31,137, $15,246 and $9,058 for the years ended December 31, 2001, 2002 and 2003, respectively.

(j) Employee Benefits

Prior to the Recapitalization, employees and retirees of the Company and its affiliates participated in a number of employee benefit plans maintained by GE and its affiliates. Following the Recapitalization, GE retained all liabilities under these benefit plans. The principal benefit plans are discussed below, other plans are not significant individually or in the aggregate.

Retirement Benefits – The principal pension plan benefits were provided under the GE Pension Plan, a defined benefit plan, which provided benefits to certain U.S. employees of the Company based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Eligible employees also participated in the GE Savings and Security Program, a defined contribution plan. Under this plan, eligible employees could invest a portion of their earnings (generally up to 7% with GE matching 50% of the first 7% contributed, and an additional 10% without any employer matching) in various program funds.

Health and Life Benefits – The principal health and life plan benefits were covered under the GE Life, Disability and Medical plan, a health and welfare plan, which provided benefits to pay medical expenses, flexible spending accounts for otherwise unreimbursed expenses, short-term disability benefits and life and accidental death and dismemberment insurance benefits. Retirees shared in the cost of healthcare benefits.

The cost of employee benefits billed by GE to the Company was $23,932, $19,545 and $0 for the years ended December 31, 2001, 2002, and 2003, respectively.

56

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

Following the Recapitalization, the Company and its subsidiaries sponsor a number of employee benefit programs. At December 31, 2003, the Company was the sponsor of defined benefit pension plans in Germany and the Netherlands and was still participating in a GE sponsored plan in the Philippines.

(k) 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.

The results of the Company’s operations in the United States through the date of the Recapitalization were included in GE’s consolidated U.S. Federal tax return and certain combined state income tax returns. Current tax liabilities and receivables relating to the Company’s operations prior to the Recapitalization have been transferred to GE. Non-U.S. operations record income tax assets and liabilities generally on a stand-alone basis. The Company’s results following the Recapitalization are no longer included in GE’s consolidated U.S. Federal tax return.

(l) Derivative Instruments

The Company applies the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under SFAS No. 133, all derivative instruments (including certain derivative instrument embedded in other contracts) are recognized in the balance sheet at their fair value and changes in the fair value are recognized immediately in income, unless the derivatives qualify as hedges of cash flows. For derivatives qualifying as hedges of future cash flows, the effective portion of the changes in the 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. During the years ended December 31, 2001, 2002 and 2003, the Company did not hold any derivative instruments.

(m) Stock Option Plan

The Company applies the intrinsic-value based method of accounting prescribed by Accounting Principles Board (ABP) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of the grant only if current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting. As discussed in note 13, GXS Holdings has issued certain options to employees of the Company. If the Company adopted SFAS No. 123, the Company would have valued options using the minimum value method. Had the Company recorded the cost of options under this method, the Company’s net loss for the years ended December 31, 2002 and 2003 would not have been materially different.

(n) Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash and cash equivalents, receivables, trade payables, accrued expenses, other liabilities and long-term debt. Generally, their carrying amounts approximate fair value because of the short-term maturity of these instruments. The fair value of the Company’s long-term debt is discussed further in note 8.

57

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

(o) 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. Significant estimates used in preparing the 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 arrangements with multiple deliverables and to assess the stage at which software development costs should be capitalized.

(p) Reclassifications

Certain amounts in the 2001 and 2002 consolidated financial statements have been reclassified to conform to the current year presentation.

(q) Recently Adopted Accounting Standards

In June 2001, the Financial Accounting Standards Board, or FASB issued Statement No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The Company also would record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation would be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company was required to adopt SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 had no material effect on the Company’s financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that a liability for a cost associated with the exit of disposal activity be recognized when incurred at fair value. SFAS No. 146 eliminates the definition and requirements of EITF Issue 94-3. SFAS No. 146 was effective for exit or disposal activities that were initiated after December 31, 2002. The Company followed the guidance in SFAS No. 146 to account for restructuring activities that occurred in 2003.

In December 2003, the FASB, issued Financial Interpretation Number 46 Revised (FIN 46R), Consolidation of Variable Interest Entities. FIN 46R addresses how a business should evaluate whether it has a controlling financial interest in an entity other than voting rights and, accordingly, should consolidate the entity. FIN 46R was effective for the Company as of December 31, 2003. Management has evaluated the provisions of FIN 46R and does not believe the Company is a participant in any entity requiring consolidation by the interpretation.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“ SFAS No. 150"). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a freestanding financial instrument that is within its scope as a liability (or as an asset in some circumstances). Many of these instruments were previously classified as equity. Some of the provisions are consistent with the current definition of liabilities in FASB Concepts Statements No. 6, Elements of Financial Statements. SFAS No. 150 became effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 did not have an impact on the Company's consolidated financial statements.

58

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

(3) Revenues and Receivables

The Company provides e-commerce and network services to various GE businesses in the normal course of business. Sales to GE businesses and affiliates amounted to approximately $30,564, $28,901 and $32,612 for years ended December 31, 2001, 2002 and 2003, respectively. Trade receivables as of December 31, 2002 and 2003 resulting from normal trade activity with GE were $549 and $5,081, respectively. Pursuant to the terms of the Recapitalization Agreement, GE is required for the two-year period ending September 27, 2004, to maintain its affiliates’ respective business arrangements with the Company on terms and conditions substantially similar to those in effect at the time of the completion of the Recapitalization and to continue to purchase products and services from the Company totaling $30,600 in each of the four calendar quarters ending September 2003 and September 2004. For the twelve-month period ending September 30, 2003, the Company considered GE to have met the obligation based on sales plus orders placed during the quarter. In order to meet its obligations, GE will need to purchase products and services of approximately $22,500 during the nine months ending September 30, 2004.

After September 30, 2004, GE will have no further obligation to purchase products and services from the Company, except for multi-year contracts in effect at that date. After September 30, 2004, there can be no assurance that GE will continue to purchase products and services in the same amounts as in 2002 and 2003.

The allowance for doubtful accounts and sales allowances were $9,565 and $11,345 at December 31, 2002 and 2003, respectively.

No customer represented more than 10% of revenues in 2002 or 2003. Sales to one non-related customer were 11% of revenues in 2001.

As of December 31, 2003, the Company had operations in approximately twenty-five foreign countries. Receivables from customers in foreign countries were $27,560 and $24,704 at December 31, 2002 and 2003, respectively. Revenues generated by the Company’s foreign subsidiaries were $130,730, $128,851 and $139,230 for years ended December 31, 2001, 2002 and 2003, respectively. Of such amount the United Kingdom generated revenues of $46,100, $48,134 and $51,679 for years ended December 31, 2001, 2002 and 2003, respectively. No other country generated more than 10% of the Company’s revenues.

(4) Other Related Party Transactions

Trade payables as of December 31, 2002 and December 31, 2003 resulting from normal activity with GE were $1,605 and $1,177. The Company participated, until the Recapitalization, in pooled treasury operations with GE in most countries in which it has activity. As part of this pooled activity, the Company earned interest on balances on deposit with GE and paid interest when local operations borrowed money from the pool. The Company had net interest income of $1,236 in 2001, virtually all of which was related to GE. During 2002, the Company earned net interest income from GE of $1,285. Effective with the Recapitalization, the Company conducts its own treasury operations.

GE has provided a variety of services to the Company. These services have included administering certain employee benefit plans and paying related claims, provision of voice telecommunication services, outsourcing of certain functions, centralized financial and administrative activities involved with transaction processing, centralized purchasing of desk top software and other corporate services. Such services have been charged to the Company as utilized by the Company. Billings for these services, which are included in operating expenses, amounted to $57,038, $58,841 and $13,044 for the years ended December 31, 2001, 2002 and 2003, respectively. As part of the Recapitalization, GE will continue to provide these services on an as needed basis until September 2004. The Company has migrated most of these services to alternative providers, or brought some of the services in-house. The remaining services will be migrated to alternative providers or brought in-house during the first half of 2004. Management believes that the amounts paid to GE approximate the cost at which these services could be obtained from a third party. In addition, management believes that the methods used by GE to allocate expenses incurred by them on the Company’s behalf, prior to the Recapitalization were reasonable.

59

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

The Company entered into an agreement with GE Capital Corporation (GECC) in 2000 in which the Company agreed to select a vendor for certain products and services in which GECC had an investments, in exchange for the right to share in any gains on the sale of the investment. GECC made payments to the Company of $6,250 for the year ended December 31, 2001 under the agreement. The amount is included in other income (expense) in the consolidated statements of operations. No future payments to the Company will be made under this agreement.

Prior to the Recapitalization, GE also provided certain centralized services, such as compensation and benefit plan design, tax planning, marketing support, treasury, auditing, public company reporting, and various other corporate expenses which the Company paid for with an annually agreed corporate charge. This corporate charge amounted to $12,940 for the year ended December 31, 2001 and $7,331 for the nine months ended September 30, 2002 . No amounts have been paid to GE for these services subsequent to the Recapitalization.

In connection with the Recapitalization, the Company entered into an agreement with Francisco Partners under which the Company has agreed to pay to Francisco Partners a fee of $2,000 annually plus expenses for financial advisory and consulting services. Francisco Partners has informed the Company of its intent to defer receipt of the fee. The expense related to the management fee amounted to $500 and $2,000 for the years ended December 31, 2002 and 2003, respectively. The Company reimbursed Francisco Partners for additional expenses of $346, which were incurred during 2003. As of December 31, 2002 and 2003, the Company owed Francisco Partners $500 and $3,071, respectively, which are included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

(5) Investments

The Company has made a number of investments in distributors, value added resellers and companies engaged in providing transaction management infrastructure and related products and services. Investments consist of the following at December 31:

Revenues, results of operations and net assets of the investee companies were not significant for the years ended December 31, 2001 and 2002. Revenues earned from sales to these affiliates were $4,714, $2,176 and $551 for the years ended December 31, 2001, 2002 and 2003, respectively.

During 2001, the Company disposed of its interest in a Japanese joint venture. The Company received proceeds from the sales of $154,372 and recorded a gain of $144,638. Such gain is included in gain on sales of investments in the consolidated statements of operations.

(6) Property and Equipment

Property and equipment consist of the following as of December 31:

60

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

Property and equipment held outside the United States at December 31, 2002 and 2003 was $20,617 and $14,652, respectively.

During 2001, the Company sold for $11,245, in two separate transactions, internally developed software and certain other assets and recognized gains of $8,576 in the aggregate. During 2003 the Company sold certain software and other assets relating to its I400 software product and recognized a gain of $700. These amounts are included in gains on sale of assets in the consolidated statements of operations.

(7) Goodwill

The following represents a summary of changes in goodwill for the years ended December 31:

In March 1999, the Company acquired an Irish operation which developed and marketed e-commerce software products for sale to small businesses for $9,365. The aggregate purchase, including transaction costs, exceeded the estimated fair value of the net tangible assets and identifiable intangible assets acquired by $8,781. This amount was allocated to goodwill and was being amortized over a five-year period. In 2001, the Company abandoned these operations and wrote-off the remaining goodwill of $4,287.

(8) Long-Term Debt

Long-term debt consists of the following at December 31:

61

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

Credit Facility:

The Company entered into a Credit Facility on September 27, 2002 which consisted of a $175,000 term loan facility (Term Loan Facility) and a $35,000 revolving credit facility (Revolving Credit Facility). To consummate the Recapitalization, the Company borrowed $175,000 under the Term Loan Facility and $235,000 under the Senior Subordinated Reset Notes (Reset Notes).

The Company entered into a New Credit Facility on March 21, 2003 consisting of a $70,000 term loan (the New Term Loan Facility) and a $30,000 revolving credit facility (the New Revolving Credit Facility). On March 21, 2003, the Company also issued $105,000 of Senior Secured Floating Rate Notes (Floating Notes) for proceeds of $99,750. These proceeds, cash on hand and the borrowings under the New Term Loan Facility were used to repay borrowings outstanding under the Term Loan Facility. In connection with the refinancing, the Company wrote off $5,548 of deferred financing costs that the Company had incurred in establishing the Term Loan and Revolving Credit Facilities.

The ability to borrow under the New Credit Facility is subject to a borrowing base, calculated monthly, at an amount equal to 90.0% of EDI Services Revenue for the immediately preceding six consecutive completed months. The New Term Loan Facility bears interest, at the Company’s option, at either a floating base rate plus 4.0% per annum or floating LIBOR plus 6.0% per annum. The New Revolving Credit Facility bears interest, at the Company’s option, at either a floating base rate plus 2.0% per annum or floating LIBOR plus 4.25% per annum. The base rate and LIBOR rate used to calculate the applicable interest rate on the New Term Loan Facility and the New Revolving Credit Facility may not be less than 4.25% and 2.25%, respectively. Outstanding borrowings under the New Term Loan Facility as of December 31, 2003 bear interest at a base rate of 4.25% plus 4.0%. Interest is payable monthly in arrears for base rate loans and on the last day of selected interest periods, but no later than every three months, for LIBOR rate loans. Borrowings outstanding under the New Term Loan Facility and the New Revolving Credit Facility mature on March 21, 2007.

The New Revolving Credit Facility enables the Company to obtain revolving credit loans and to issue letters of credit for working capital, acquisitions and general corporate purposes. At December 31, 2003, the Company had outstanding letters of credit of $8,900 and available borrowings of $21,100 under the New Revolving Credit Facility. The outstanding letters of credit relate to performance obligations of the Company. The Company pays 0.75% per annum on the unused portion of the New Revolving Credit Facility.

The obligations of the Company under the New Credit Facility are guaranteed by all of the Company’s existing and future domestic subsidiaries. The obligations of the Company under the New Credit Facility are secured by first-priority liens on substantially all of the Company’s and the Guarantors’ existing and after-acquired property, both tangible and intangible. The obligations of the Company and the Guarantors are secured by a pledge of all of the Company’s capital stock or other equity interests of the Company’s existing and future domestic subsidiaries and a pledge of 66.0% of the capital stock of the Company’s material first-tier foreign subsidiaries.

62

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

If the Company were to repay the borrowings under the New Credit Facility prior to the maturity date, the Company would be required to pay a prepayment premium equal to 1.00% of the maximum facility amount for each full or partial year remaining until the maturity date. If the New Credit Facility is repaid with the proceeds of a private placement of subordinated debt or equity, an initial public offering of equity or a sale of substantially all of the Company’s assets or stock, the prepayment premium would be reduced by half.

In addition, the New Credit Facility contains various covenants that restrict the Company from taking various actions and require the Company to achieve and maintain certain financial ratios.

Senior Secured Floating Rate Notes:

On March 21, 2003, the Company issued $105,000 of Senior Secured Floating Notes (Floating Notes) for proceeds of $99,750. The Floating Notes mature on July 15, 2008 and bear interest at a floating rate based on six-month LIBOR plus 9%, but never less than 12%. The interest rate at December 31, 2003 was 12%. The Floating Notes are secured by second-priority security interests in substantially all of the assets of GXS Corporation and its domestic subsidiaries and 66% of the stock of the Company’s material first-tier foreign subsidiaries. In addition, the Floating Notes are guaranteed fully and unconditionally by the Company’s domestic subsidiaries. The debt discount of $5,250 is being amortized over the life of the Floating Notes using the interest method. Amortization for the period from issuance through December 31, 2003 was $770. Interest is payable semi-annually in arrears on January 15 and July 15 of each year commencing on July 15, 2003.

The Floating Notes are redeemable at the option of the Company any time after October 1, 2004, in whole or in part, at a redemption price equal to par plus accrued and unpaid interest, plus a redemption premium. The premium is 3% for the twelve months ending October 1, 2005 reducing to 1.5% for the twelve months ending October 1, 2006. After October 1, 2006, the Floating Notes can be redeemed at par plus accrued and unpaid interest. Upon the occurrence of a change of control, as defined in the Indenture governing the Floating Notes, each holder of the Notes will have the right to require the Company to repurchase such holder’s notes at an offer price in cash equal to 101% of the aggregate principle amount thereof plus accrued and unpaid interest and liquidated damages, if any, thereon to the date of purchase.

In certain situations, the Company must offer to redeem outstanding Floating Notes with Excess Cash Flows as defined in the Indenture.

In addition to the restrictions on incurrence of indebtedness, the Company may not, and may not permit any of its subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or allow to exist or otherwise directly or indirectly become liable, contingently or otherwise, for any indebtedness secured by any of the assets of the Company or any subsidiary of the Company in an aggregate principal amount, at any time, in excess of two times EDI Services Revenues, as defined, for the most recently ended two fiscal quarter period of the Company.

Senior Subordinated Reset Notes:

On September 27, 2002, the Company issued $235,000 of Reset Notes. The Reset Notes, which mature on September 27, 2009, bear interest at a rate of 12% until September 27, 2003. From and after September 27, 2003, interest on the notes will be reset, with such reset to be based on a variety of factors including the portion of the notes owned by GECC and the then current market conditions for similar securities. The Company is currently in discussions with GECC concerning the interest rate on the Reset Notes. If the interest rate on the Reset Notes is increased to the maximum rate of 17% from 12%, the Company’s annual interest expense would increase by $11.8 million, $7.1 million of which the Company would be required to pay in cash. For the period from September 27, 2003 to December 31, 2003, the Company accrued interest at a rate of 15%, the rate which management believes to be the best estimate of where the negotiations will conclude. Interest is payable semi-annually on April 15 and October 15 of each year commencing April 15, 2003. The Reset Notes are general unsecured obligations of the Company and are guaranteed by all of the Company’s domestic subsidiaries.

63

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

The Reset Notes were redeemable at the option of the Company anytime prior to September 27, 2003 at par plus accrued and unpaid interest. The Reset Notes are redeemable at the option of the Company, in whole or in part, at any time on or after September 27, 2006 at a redemption price equal to par plus accrued and unpaid interest, plus a declining redemption premium. In addition, at any time after September 27, 2003 and prior to September 27, 2005, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the Reset Notes at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, at the redemption date plus a premium, if any, as defined in the agreement, with the net cash proceeds of one or more equity offerings, provided that the redemption occurs within 90 days of the date of the closing of such equity offering. Upon the occurrence of a change of control, as defined in the Indenture governing the Reset Notes, each holder of the Reset Notes will have the right to require the Company to repurchase such holder’s notes at an offer price in cash equal to 101% of the aggregate principle amount thereof plus accrued and unpaid interest and liquidated damages, if any, thereon to the date of purchase.

The Indentures governing the Floating Notes and the Reset Notes contain certain covenants that limit, among other things, the ability of the Company to (i) pay dividends, redeem capital stock or make certain other restricted payments, (ii) incur additional indebtedness or issue certain preferred equity interests, (iii) merge into or consolidate with certain other entities or sell all or significant portions of its assets, (iv) create liens on assets and (v) enter into certain transactions with affiliates or related persons.

The Company expects that cash flows from foreign operations will be required to meet its domestic debt service requirements. Such cash flows are expected to be generated from the sale of network and processing resources, software licenses and software maintenance contracts to the foreign operations. 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 collections on these sales or increase the tax burden on the collections.

Interest expense for the years ended December 31, 2002 and 2003 includes amortization of deferred financing costs of $2,326 and $2,788, respectively, and for the year ended December 31, 2003 includes amortization of the debt discount on the Floating Notes of $770. Interest paid for 2002 and 2003 was $1,909 and $40,645 respectively, including $30,550 paid to GE in 2003. During the year ended December 31, 2003 the Company capitalized interest costs of $1,000. The estimated fair value of the Company’s long-term debt at December 31, 2003 approximated its carrying value.

(9) Accrued Expenses and Other Liabilities

 The following represents a summary of other liabilities as of December 31:

64

GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts)

(10) Income Taxes

Prior to the Recapitalization, the results of the Company’s operations in the United States were included in GE’s consolidated U.S. federal tax return and certain combined state income tax returns. Current tax liabilities relating to the Company’s operations prior to the Recapitalization have been transferred to GE. Non-U.S. operations record income tax assets and liabilities generally on a stand-alone basis. Following the Recapitalization, the Company’s results are no longer being included in GE’s consolidated U.S. federal tax return.

The provisions for income taxes is shown below:

Income taxes paid, including amounts paid to GE, were $45,709, $25,538 and $5,126 for 2001, 2002, and 2003, respectively. A reconciliation of the effective rate of the provision for income taxes to the statutory rate is as follows: