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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



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FORM 10-Q

x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2003o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


Commission file number 333-106143

GXS CORPORATION(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
    
    7374
(Primary Standard Industrial
Classification Code Number)
    
    35-2181508
(I.R.S. Employer
Identification No.)




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100 Edison Park Drive
Gaithersburg, MD 20878
(301) 340-4000(Address, including zip code, and telephone number, including area code,
of registrants principal executive offices)

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  o   No  x

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

As of November 14, 2003, the Registrant had 100 shares outstanding
of common stock, all of which is held by an affiliate of the Registrant.



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INDEX TO QUARTERLY REPORT

Page No.Part I. Financial InformationItem 1. Financial StatementsUnaudited Condensed Consolidated Financial Statements of GXS CorporationCondensed Consolidated Balance Sheets as of December 31, 2002 and
September 30, 2003
    
    
    3Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2002 and 2003
    
    
    4Condensed Consolidated Statements of Comprehensive Income (Loss)
for the three and nine months ended September 30, 2002 and 2003
    
    
    5Condensed Consolidated Statement of Stockholders Equity for the
nine months ended September 30, 2003
    
    
    6Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2002 and 2003
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Unaudited Condensed Consolidated Financial Statements of Global eXchange
Services Limited (*)Consolidated Profit and Loss Account for the nine months ended
September 30, 2002 and 2003
    
    
    28Consolidated Balance Sheet as of December 31, 2002
September 30, 2003
    
    
    29Notes to Consolidated Financial Statements
    
    
    30Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    37Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    52Item 4. Controls and Procedures
    
    
    54Part II. Other InformationItem 6. Exhibits and Reports on Form 8-K
    
    
    55Signatures
    
    
    56




|* |  | The unaudited condensed consolidated financial statements of Global eXchange
Services Limited have been included pursuant to Rule 3-16 of Regulation S-X.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------





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GXS CORPORATION AND SUBSIDIARIES
(Note 1)
Condensed Consolidated Balance Sheets
(In thousands of dollars, except per share amounts)

December 31,
    
    September 30,2002 (1)
    
    2003(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    37,333
    
    
    $
    55,228Receivables:Trade (note 3)
    
    
    63,506
    
    
    
    52,464Other
    
    
    5,735
    
    
    
    5,045General Electric Company (note 3)
    
    
    3,625
    
    
    
    4,280Deferred income taxes (note 1)
    
    
    16,151
    
    
    
    16,051Prepaid expenses and other assets
    
    
    9,927
    
    
    
    8,972Total current assets
    
    
    136,277
    
    
    
    142,040Investment in affiliates
    
    
    3,485
    
    
    
    2,723Property and equipment, net
    
    
    156,900
    
    
    
    139,105Deferred income taxes (note 1)
    
    
    249,053
    
    
    
    250,143Deferred financing costs
    
    
    11,645
    
    
    
    16,357Other assets
    
    
    3,836
    
    
    
    4,019Goodwill
    
    
    11,481
    
    
    
    11,515Total Assets
    
    $
    572,677
    
    
    $
    565,902Liabilities, Minority Interest and Stockholders EquityCurrent liabilities:Trade payables (note 4)
    
    $
    22,007
    
    
    $
    16,744Deferred income
    
    
    10,545
    
    
    
    12,423Accrued expenses and other liabilities (note 4)
    
    
    62,550
    
    
    
    64,070Total current liabilities
    
    
    95,102
    
    
    
    93,237Long-term debt (note 5)
    
    
    409,562
    
    
    
    405,271Other liabilities
    
    
    8,700
    
    
    
    12,482Total liabilities
    
    
    513,364
    
    
    
    510,990Minority interest
    
    
    1,317
    
    
    
    708Stockholders equity:Common stock $1.00 par value, authorized, issued and
outstanding 100 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    242,349
    
    
    
    255,842Retained earnings (deficit)
    
    
    (174,339
    )
    
    
    (191,935
    )Foreign currency translation
    
    
    (10,014
    )
    
    
    (9,703
    )Total stockholders equity
    
    
    57,996
    
    
    
    54,204Total Liabilities, Minority Interest and Stockholders Equity
    
    $
    572,677
    
    
    $
    565,902


|(1) |  | Amounts are derived from December 31, 2002 audited consolidated financial
statements
|--- |  | ------------------------------------------------------------------------------------

See accompanying notes to condensed consolidated financial statements

3



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##### 



GXS CORPORATION AND SUBSIDIARIES
(Note 1)
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)

Three months ended September 30,
    
    Nine months ended September 30,2002
    
    2003
    
    2002
    
    2003Revenues (note 3)
    
    $
    99,443
    
    
    $
    91,716
    
    
    $
    309,112
    
    
    $
    274,095Costs and operating expenses:Cost of revenues
    
    
    65,013
    
    
    
    53,712
    
    
    
    188,751
    
    
    
    159,491Sales and marketing
    
    
    16,583
    
    
    
    19,238
    
    
    
    54,055
    
    
    
    54,852General and administrative
    
    
    9,889
    
    
    
    9,555
    
    
    
    30,041
    
    
    
    31,158Gain on sale of assets (note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (700
    )Restructuring and related charges (note 7)
    
    
    7,347
    
    
    
    1,331
    
    
    
    16,311
    
    
    
    4,464Asset impairment charge (note 10)
    
    
    5,425
    
    
    
    6,500
    
    
    
    5,425
    
    
    
    6,500Corporate charges from General Electric
Company (note 4)
    
    
    2,444
    
    
    
    
    
    
    
    7,331
    
    
    
    Operating income (loss)
    
    
    (7,258
    )
    
    
    1,380
    
    
    
    7,198
    
    
    
    18,330Other income (expense):Proportionate share of losses in investee
Companies and investment write-downs
    
    
    (4,205
    )
    
    
    (112
    )
    
    
    (4,221
    )
    
    
    (872
    )Professional fees related to recapitalization
    
    
    (30,085
    )
    
    
    
    
    
    
    (30,085
    )
    
    
    Write-off of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,548
    )Interest income (note 4)
    
    
    1,505
    
    
    
    219
    
    
    
    2,333
    
    
    
    711Interest expense (note 4)
    
    
    (256
    )
    
    
    (12,856
    )
    
    
    (1,930
    )
    
    
    (36,449
    )Other income (expense), net
    
    
    703
    
    
    
    536
    
    
    
    1,219
    
    
    
    1,160Loss before income taxes
    
    
    (39,596
    )
    
    
    (10,833
    )
    
    
    (25,486
    )
    
    
    (22,668
    )Provision (benefit) for income taxes
    
    
    (4,592
    )
    
    
    (3,318
    )
    
    
    3,856
    
    
    
    (5,072
    )Net loss
    
    $
    (35,004
    )
    
    $
    (7,515
    )
    
    $
    (29,342
    )
    
    $
    (17,596
    )


See accompanying notes to condensed consolidated financial statements

4



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GXS CORPORATION AND SUBSIDIARIES
(Note 1)
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)

Three months ended September 30,
    
    Nine months ended September 30,2002
    
    2003
    
    2002
    
    2003Net loss
    
    $
    (35,004
    )
    
    $
    (7,515
    )
    
    $
    (29,342
    )
    
    $
    (17,596
    )Foreign currency translation adjustments
    
    
    4,555
    
    
    
    389
    
    
    
    5,624
    
    
    
    311Comprehensive loss
    
    $
    (30,449
    )
    
    $
    (7,126
    )
    
    $
    (23,718
    )
    
    $
    (17,285
    )


See accompanying notes to condensed consolidated financial statements

5



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GXS CORPORATION AND SUBSIDIARIES
(Note 1)
Condensed Consolidated Statement of Stockholders Equity
(In thousands)
(Unaudited)

ForeignAdditional
    
    Retained
    
    currency
    
    TotalCommon
    
    paid-in
    
    earnings/
    
    translation
    

stockholdersstock
    
    capital
    
    (deficit)
    
    adjustments
    
    equityBalance at December 31, 2002
    
    $
    
    
    
    $
    242,349
    
    
    $
    (174,339
    )
    
    $
    (10,014
    )
    
    $
    57,996Net loss
    
    
    
    
    
    
    
    
    
    
    (17,596
    )
    
    
    
    
    
    
    (17,596
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311
    
    
    
    311Capital contribution by GXS Holdings
in connection with acquisition of Celarix (note 9)
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    600Contributions from General Electric
Company (note 1)
    
    
    
    
    
    
    12,893
    
    
    
    
    
    
    
    
    
    
    
    12,893Balance at September 30, 2003
    
    $
    
    
    
    $
    255,842
    
    
    $
    (191,935
    )
    
    $
    (9,703
    )
    
    $
    54,204


See accompanying notes to condensed
consolidated financial statements

6



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GXS CORPORATION AND SUBSIDIARIES
(Note 1)
Condensed Consolidated Statements of Cash Flows
(In thousands of dollars, except per share amounts)
(Unaudited)

Nine Months ended September 30,2002
    
    2003Cash flows from operating activities:Net loss
    
    $
    (29,342
    )
    
    $
    (17,596
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    34,753
    
    
    
    35,556Asset impairment charge
    
    
    5,425
    
    
    
    6,500Deferred income taxes
    
    
    (8,478
    )
    
    
    (990
    )Gain on sale of assets
    
    
    
    
    
    
    (700
    )Write-off of deferred financing costs
    
    
    
    
    
    
    5,548Amortization of deferred financing costs and debt discount
    
    
    
    
    
    
    2,392Minority interest
    
    
    (742
    )
    
    
    (609
    )Changes in operating assets and liabilities:Decrease in receivables
    
    
    17,772
    
    
    
    11,788Decrease in prepaid expense and other assets
    
    
    1,521
    
    
    
    772Decrease in accounts payable
    
    
    (11,562
    )
    
    
    (5,263
    )Increase in deferred income
    
    
    322
    
    
    
    447Increase (decrease) in accrued expenses and other liabilities
    
    
    (2,390
    )
    
    
    5,302Other
    
    
    5,532
    
    
    
    (1,567
    )Net cash provided by operating activities
    
    
    12,811
    
    
    
    41,580Cash flows for investing activities:Purchases of property and equipment
    
    
    (28,940
    )
    
    
    (22,841
    )Proceeds from sale of assets
    
    
    
    
    
    
    600Net cash used for investing activities
    
    
    (28,940
    )
    
    
    (22,241
    )Cash flows from financing activities:Distribution to General Electric Company in connection with the recapitalization
    
    
    (350,000
    )
    
    
    Net contributions from General Electric Company and affiliates
    
    
    47,826
    
    
    
    12,893Repayments of short-term borrowings, net
    
    
    (43,922
    )
    
    
    Payment of capital lease obligation
    
    
    (18,464
    )
    
    
    Repayment of long term debt
    
    
    
    
    
    
    (174,562
    )Proceeds from long term debt issuances
    
    
    410,000
    
    
    
    169,750Payment of financing costs
    
    
    (9,624
    )
    
    
    (12,131
    )Net cash provided by (used for) financing activities
    
    
    35,816
    
    
    
    (4,050
    )Effect of exchange rate changes on cash
    
    
    378
    
    
    
    2,606Increase in cash and cash equivalents
    
    
    20,065
    
    
    
    17,895Cash and cash equivalents, beginning of year
    
    
    14,633
    
    
    
    37,333Cash and cash equivalents, end of period
    
    $
    34,698
    
    
    $
    55,228


Supplemental disclosure of non-cash investing and financing activities:

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

See accompanying notes to condensed consolidated financial statements

7



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GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

(1)   Business and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information. Accordingly,
these financial statements do not include all the information and notes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, the
unaudited condensed consolidated financial statements include all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the financial position and results of operations.

Interim results for the three and nine-month periods ended September 30, 2003
are not necessarily indicative of the results that may be expected for a full
fiscal year. For further information, refer to the consolidated financial
statements and notes thereto for the year ended December 31, 2002, not included
herein.

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 5). 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. Following the Recapitalization, the
Company entered into an agreement with Francisco Partners to provide certain
management services for an annual fee of $2,000 plus expenses.

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

8



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GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

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 nine months ended September 30, 2003 GE has
reimbursed the Company approximately $12,900 of these costs. These costs
include approximately $800 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 interest subsidy payment,
$2,300 for certain taxes and $1,600 representing certain employee bonus
payments made following the closing of the Recapitalization. This contribution
included $1,500 for certain costs to be incurred by the Company in the future.
These amounts 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 Recapitalization. Reimbursements during the
nine months ended September 30, 2003 of approximately $1,750 were credited to
cost of revenues. As the Company is transitioning its telecommunications
infrastructure to new providers, the network management arrangement with the
current provider is being terminated. Accordingly, the managed network fee and
the related GE reimbursement was 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 $239,309. 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

9



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GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

and such loss is considered to be an other than temporary decline, the Company
records an impairment charge.

(b)   Revenue Recognition

The Company generates revenues from three principal sources:

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, as amended. 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.

(c)   Recently Issued Accounting Standards

In January 2003, the Financial Accounting Standards Board, or FASB, issued
Financial Interpretation Number 46 (FIN 46), Consolidation of Variable
Interest Entities. FIN 46 deals with Off-Balance Sheet Assets, Liabilities,
and Obligations and gives guidance for determining which entities should
consolidate the respective assets and liabilities associated with the
obligations. FIN 46, as amended, is effective for periods ending after
December 15, 2003. Immediate adoption is required for entities newly created
after January 31, 2003. The Company is currently evaluating the impact, if
any, FIN 46 will have on the consolidated financial statements.

10



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##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

In May 2003, the Financial Accounting Standards Board issued Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. The Statement requires issuers to classify as
liabilities (or assets in some circumstance) three classes of freestanding
financial instruments that embody obligations for the issuer. The
Statement, as amended, was effective immediately for financial
instruments entered into or modified after May 31, 2003 and was
adopted by the Company during the third quarter. The adoption of this
statement did not have a
material impact on the consolidated financial statements.

(d)   Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the condensed consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods to prepare these condensed consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America. Actual results could differ from those estimates.

(e)   Reclassification of certain costs

Certain costs for the three and nine months ended September 30, 2002 have been
reclassified from sales and marketing expense and general and
administrative expense to cost of revenues to conform to the presentation shown for the three and nine months
ended September 30, 2003.

(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 $8,804 and $9,809 for the three-month periods ended
September 30, 2002 and 2003, respectively, and $22,211 and
$23,560 for the
nine-month period ended September 30, 2002 and 2003, respectively. Trade
receivables as of September 30, 2003 resulting from normal trade activity with
GE were $3,406. 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
quarter periods 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.

The allowance for doubtful accounts and sales allowances at December 31, 2002
was $9,565 and at September 30, 2003 was $8,620.

(4)   Other Related Party Transactions

Trade payables as of December 31, 2002 and September 30, 2003 resulting from
normal activity with GE were $1,605 and $1,516. 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 $1,249
and $403 for the three and nine-month periods ended

11



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##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

September 30, 2002, respectively, which related principally to treasury
activities with GE. 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 $9,975 and $3,691 for the three-month periods ended
September 30, 2002 and 2003, respectively, and $29,803 and $10,689 for the
nine-month periods ended September 30 2002 and 2003, respectively. As part of
the Recapitalization, GE will continue to provide certain of these services on an as
needed basis for up to two years. 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 fourth quarter of 2003. 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.

In 2002, 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 $2,444 and $7,331 for the three and nine-month periods ended
September 30, 2002 and ended at the time of 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 $1,500 for the three and nine-month periods ended
September 30, 2003, respectively. The Company reimbursed Francisco Partners
for additional expenses of $476, which were incurred during the nine months
ended September 30, 2003. As of December 31, 2002 and September 30, 2003, the
Company owed Francisco Partners $500 and $2,036, respectively.

(5)   Long-Term Debt

Long-term debt consists of the following at September 30, 2003:

2003Term loan facility
    
    $
    70,000Senior secured floating rate notes,
net of debt discount of $4,729
    
    
    100,271Senior subordinated reset notes
    
    
    235,000Long-term debt
    
    $
    405,271


12



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##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

Credit Facility:

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 the existing $175,000 Bank Credit
Facility, which the Company entered into as part of the Recapitalization
effected in September 2002. In connection with the refinancing, the Company
wrote off $5,548 of deferred financing costs that the Company had incurred in
establishing the Bank Credit Facility.

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
September 30, 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 September 30, 2003, the Company had
outstanding letters of credit of $17,867 and available borrowings of $12,133
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.

If the Company were to repay the borrowings under the New Credit Facility prior
to the maturity date, the Company will 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

13



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##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

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. These proceeds and the borrowings
under the New Term Loan Facility were used to repay the Companys then existing
$175,000 senior term loan, which the Company entered into as part of the
Recapitalization effected in September 2002. 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 September 30, 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 September
30, 2003 was $521. 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 principal 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 will
not, and will 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
periods of
the Company.

Senior Subordinated Reset Notes:

The Companys Senior Subordinated Reset Notes (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 GE Capital Corporation (GECC) and the then current market
conditions for similar securities. The Company

14



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##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

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%, 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.
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.
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 principal 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.

The Company paid interest of $22,448 for the nine months ending September 30,
2003.

(6)   Contingencies

In prior periods, the Company had a dispute with WorldCom Technologies, Inc.
(WorldCom) 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, GE has agreed to indemnify the Company against
losses, damages, costs, expenses, liabilities, and obligations resulting from
this matter. The Company entered into a settlement agreement with WorldCom and
GE dated September 29, 2003 that resolved all claims pertaining to the Company
and WorldCom through December 31, 2002 and established pricing that would apply
for WorldCom services provided to the Company in 2003. Before becoming
effective, this settlement agreement must be approved in accordance with
WorldComs bankruptcy proceeding. The Company has also entered into a

15



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##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

separate settlement agreement with GE. The settlement agreements will not have
a material impact on the Companys consolidated financial statements.

The Company has received a decision from the State of Tennessees Department of
Revenue upholding a sales tax audit assessment totaling approximately $4,600,
including interest and penalties, for the period from May 1, 1994 to December
31, 2000. GE, on behalf of the Company, has filed a complaint in the Tennessee
Chancery Court challenging the decision. In addition, the Department of Revenue
issued an assessment of $1,100, including interest and penalties, to GE for the
period December 1, 1992 to April 30, 1994, when the Company was a division of
GE. GE, on behalf of the Company, has filed a complaint in the Tennessee
Chancery Court challenging this assessment. The Company does not believe that
the resolution of these matters will have a material effect on the financial
position or results of operations of the Company. Pursuant to the Tax Matters
Agreement that was entered into in connection with the Recapitalization
Agreement, GE has agreed to indemnify the Company against losses associated
with this and other tax matters relating to the periods prior to the
Recapitalization.

The Company is subject to various other legal proceedings and claims, which
arise in the ordinary course of its business none of which management believes
is likely to result in any material losses to the Company.

(7)   Restructuring

During 2002 and 2003, a series of restructuring activities took place in
response to lower than expected market demand, with the Company taking actions
to reduce the size of its back office activities, professional services and
sales organizations. The 2002 activities resulted in the termination of
approximately 300 people resulting in a restructuring and related charge of
$18,406, 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. Of the change in 2002, $7,347
and $16,311 were recorded during the three and nine-month periods ended
September 30, 2002, respectively.

During the three and nine months ended September 30, 2003, the Company incurred
approximately $1,331 and $4,464, respectively, in restructuring costs related
to facility and equipment lease buy-outs, facility exit costs, and headcount
reductions primarily in the Companys data center, engineering, and services
organizations.

(8)   Gain on Sale of Assets

During the nine months ended September 30, 2003, certain software and other
assets relating to the I400 software product were sold for cash of $600 and a
note receivable of $250. A gain of $700 was recognized on the sale and
is included in the gain on sale of assets in the consolidated statements of
operations.

(9)   Acquisition of Celarix

On June 3, 2003, pursuant to a contract with GXS Holdings, Global eXchange
Services, Inc. acquired substantially all of the assets of Celarix related to
its logistics integration and visibility solutions business. Celarixs
logistics integration and visibility solutions help organizations to connect to
logistics trading partners and retrieve, use and share shipment status
information through their supply chains. The acquisition

16



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

was completed to add a product offering to the Companys existing suite of
services. In consideration of the acquired assets, GXS Holdings issued 5,819
shares of preferred stock and 145,464 shares of common stock and the Company
assumed liabilities related to existing customer contracts of Celarix. The
issued shares will be held in escrow pending resolution of items described in
the asset purchase agreement. The Company estimated the value of the GXS
Holdings preferred stock and common stock issued to be approximately $600 and
the value of the assumed liabilities to be approximately $1,300. The aggregate
purchase price including the fair value of assumed liabilities was assigned to
the assets acquired as follows:

Current assets
    
    $
    461Non-current assets
    
    
    1,439$
    1,900


Such allocation is preliminary and subject to change. Changes, if any, are not
expected to be material.

On a pro forma basis, assuming the acquisition had been consummated on January
1, 2002, the Companys revenue and net loss for the nine-month period ended
September 30, 2003 and the three and nine-month periods ended 2002 would have
been as follows:

Nine months ended
    
    Three months ended
    
    Nine months endedSeptember 30, 2003
    
    September 30, 2002
    
    September 30, 2002Revenue
    
    $
    277,734
    
    
    $
    102,481
    
    
    $
    312,150Net loss
    
    $
    (14,936
    )
    
    $
    (39,635
    )
    
    $
    (33,973
    )


The unaudited pro forma condensed consolidated financial information does not
purport to be indicative of the results of operations that would have been
reported had the acquisition of Celarix assets actually been effected on the
dates indicated. Management does not believe that the unaudited pro forma
information is indicative of future results relating to the Celarix acquisition
as the Company acquired only 20 employees from Celarix and a reduced revenue
base and corresponding cost structure.

(10)   Asset Impairment

During the nine months ended September 30, 2003, the Company recorded an
impairment charge of $6,500 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 nine months ended September 30,
2002, the Company recorded an impairment charge of $5,425 primarily related to
certain software under development for which the plans to deploy were
curtailed.

(11)   Supplemental Condensed Consolidated Financial Information

The Senior Subordinated Reset Notes and the Senior Secured Floating Rate Notes
issued by the Company are guaranteed by each of the Companys U.S subsidiaries
(the Subsidiary Guarantors). The Senior Subordinated Reset Notes and the
Floating Notes are not, however, guaranteed by the Companys foreign
subsidiaries. The

17



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2002 and 2003
(Unaudited)
(In thousands of dollars)

guarantees are full, unconditional and joint and several. The Subsidiary Guarantors are each wholly owned by the Company.
The ability of the Companys subsidiaries to make cash distributions and loans to the Company and Subsidiary Guarantors
is not expected to be significantly restricted. The following supplemental financial information sets forth, on a
consolidating basis, balance sheets, statements of operations and comprehensive income (loss), and statements of cash
flows for the Company, Subsidiary Guarantors and the Companys nonguarantor subsidiaries.

18



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidating Balance Sheet
December 31, 2002
(In thousands)

Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    21,940
    
    
    $
    15,393
    
    
    $
    
    
    
    $
    37,333Receivables
    
    
    64
    
    
    
    44,829
    
    
    
    27,973
    
    
    
    
    
    
    
    72,866Other current assets
    
    
    10,997
    
    
    
    11,996
    
    
    
    3,085
    
    
    
    
    
    
    
    26,078Advances to subsidiaries
    
    
    19,044
    
    
    
    1,746
    
    
    
    16,436
    
    
    
    (37,226
    )
    
    
    Total current assets
    
    
    30,105
    
    
    
    80,511
    
    
    
    62,887
    
    
    
    (37,226
    )
    
    
    136,277Investments in affiliates
    
    
    
    
    
    
    2,956
    
    
    
    529
    
    
    
    
    
    
    
    3,485Investments in subsidiaries
    
    
    186,624
    
    
    
    37,006
    
    
    
    
    
    
    
    (223,630
    )
    
    
    Property and equipment, net
    
    
    144
    
    
    
    151,044
    
    
    
    5,712
    
    
    
    
    
    
    
    156,900Goodwill, net
    
    
    
    
    
    
    6,953
    
    
    
    4,528
    
    
    
    
    
    
    
    11,481Deferred income taxes
    
    
    251,295
    
    
    
    
    
    
    
    13,621
    
    
    
    (15,863
    )
    
    
    249,053Other noncurrent assets
    
    
    
    
    
    
    14,712
    
    
    
    769
    
    
    
    
    
    
    
    15,481$
    468,168
    
    
    $
    293,182
    
    
    $
    88,046
    
    
    $
    (276,719
    )
    
    $
    572,677Liabilities, Minority Interest,
and Stockholders EquityCurrent liabilities:Trade payables
    
    $
    
    
    
    $
    17,084
    
    
    $
    4,923
    
    
    $
    
    
    
    $
    22,007Other current liabilities
    
    
    610
    
    
    
    47,941
    
    
    
    24,544
    
    
    
    
    
    
    
    73,095Advances from affiliates
    
    
    
    
    
    
    16,970
    
    
    
    20,256
    
    
    
    (37,226
    )
    
    
    Total current liabilities
    
    
    610
    
    
    
    81,995
    
    
    
    49,723
    
    
    
    (37,226
    )
    
    
    95,102Long-term debt
    
    
    409,562
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    409,562Other liabilities
    
    
    
    
    
    
    8,700
    
    
    
    
    
    
    
    
    
    
    
    8,700Deferred income taxes
    
    
    
    
    
    
    15,863
    
    
    
    
    
    
    
    (15,863
    )
    
    
    Total liabilities
    
    
    410,172
    
    
    
    106,558
    
    
    
    49,723
    
    
    
    (53,089
    )
    
    
    513,364Minority interest
    
    
    
    
    
    
    
    
    
    
    1,317
    
    
    
    
    
    
    
    1,317Stockholders equity
    
    
    57,996
    
    
    
    186,624
    
    
    
    37,006
    
    
    
    (223,630
    )
    
    
    57,996$
    468,168
    
    
    $
    293,182
    
    
    $
    88,046
    
    
    $
    (276,719
    )
    
    $
    572,677


19



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidating Balance Sheet
September 30, 2003
(Unaudited)
(In thousands)

Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    
    26,100
    
    
    $
    29,128
    
    
    $
    
    
    
    $
    55,228Receivables
    
    
    4
    
    
    
    34,354
    
    
    
    27,431
    
    
    
    
    
    
    
    61,789Other current assets
    
    
    24
    
    
    
    23,346
    
    
    
    1,653
    
    
    
    
    
    
    
    25,023Advances to subsidiaries
    
    
    
    
    
    
    29,589
    
    
    
    25,363
    
    
    
    (54,952
    )
    
    
    Total current assets
    
    
    28
    
    
    
    113,389
    
    
    
    83,575
    
    
    
    (54,952
    )
    
    
    142,040Investments in affiliates
    
    
    
    
    
    
    2,197
    
    
    
    526
    
    
    
    
    
    
    
    2,723Investments in subsidiaries
    
    
    219,359
    
    
    
    25,380
    
    
    
    
    
    
    
    (244,739
    )
    
    
    Property and equipment, net
    
    
    227
    
    
    
    134,333
    
    
    
    4,545
    
    
    
    
    
    
    
    139,105Goodwill, net
    
    
    
    
    
    
    6,953
    
    
    
    4,562
    
    
    
    
    
    
    
    11,515Deferred income taxes
    
    
    258,080
    
    
    
    
    
    
    
    2,484
    
    
    
    (10,421
    )
    
    
    250,143Other noncurrent assets
    
    
    
    
    
    
    1,642
    
    
    
    2,377
    
    
    
    
    
    
    
    4,019Deferred financing costs
    
    
    16,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,357$
    494,051
    
    
    $
    283,894
    
    
    $
    98,069
    
    
    $
    (310,112
    )
    
    $
    565,902Liabilities, Minority Interest,
and Stockholders EquityCurrent liabilities:Trade payables
    
    $
    1,311
    
    
    $
    11,152
    
    
    $
    4,281
    
    
    $
    
    
    
    $
    16,744Other current liabilities
    
    
    18,632
    
    
    
    38,335
    
    
    
    19,526
    
    
    
    
    
    
    
    76,493Advances from affiliates
    
    
    14,633
    
    
    
    
    
    
    
    40,319
    
    
    
    (54,952
    )
    
    
    Total current liabilities
    
    
    34,576
    
    
    
    49,487
    
    
    
    64,126
    
    
    
    (54,952
    )
    
    
    93,237Long-term debt
    
    
    405,271
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405,271Other liabilities
    
    
    
    
    
    
    4,627
    
    
    
    7,855
    
    
    
    
    
    
    
    12,482Deferred
income taxes
    
    
    
    
    
    
    10,421
    
    
    
    
    
    
    
    (10,421
    )
    
    
    Total liabilities
    
    
    439,847
    
    
    
    64,535
    
    
    
    71,981
    
    
    
    (65,373
    )
    
    
    510,990Minority interest
    
    
    
    
    
    
    
    
    
    
    708
    
    
    
    
    
    
    
    708Stockholders equity
    
    
    54,204
    
    
    
    219,359
    
    
    
    25,380
    
    
    
    (244,739
    )
    
    
    54,204$
    494,051
    
    
    $
    283,894
    
    
    $
    98,069
    
    
    $
    (310,112
    )
    
    $
    565,902


20



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidating Statement of Loss and Comprehensive Loss
Three months ended September 30, 2002
(Unaudited)
(In thousands)

Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    86,885
    
    
    $
    29,654
    
    
    $
    (17,096
    )
    
    $
    99,443Costs and operating expenses
    
    
    493
    
    
    
    78,895
    
    
    
    29,193
    
    
    
    (17,096
    )
    
    
    91,485Restructuring and related
charges
    
    
    (168
    )
    
    
    3,413
    
    
    
    4,102
    
    
    
    
    
    
    
    7,347Asset impairment charge
    
    
    
    
    
    
    5,425
    
    
    
    
    
    
    
    
    
    
    
    5,425Corporate charges from General
Electric Company
    
    
    
    
    
    
    2,444
    
    
    
    
    
    
    
    
    
    
    
    2,444Operating loss
    
    
    (325
    )
    
    
    (3,292
    )
    
    
    (3,641
    )
    
    
    
    
    
    
    (7,258
    )Other
income (expense), net
    
    
    (27,249
    )
    
    
    4,529
    
    
    
    (9,618
    )
    
    
    
    
    
    
    (32,338
    )Income (loss)
before income
taxes
    
    
    (27,574
    )
    
    
    1,237
    
    
    
    (13,259
    )
    
    
    
    
    
    
    (39,596
    )Provision
(benefit) for income taxes
    
    
    (10,756
    )
    
    
    11,269
    
    
    
    (5,105
    )
    
    
    
    
    
    
    (4,592
    )Loss
before equity in loss
of subsidiaries
    
    
    (16,818
    )
    
    
    (10,032
    )
    
    
    (8,154
    )
    
    
    
    
    
    
    (35,004
    )Equity in loss of
subsidiaries
    
    
    (18,186
    )
    
    
    (8,154
    )
    
    
    
    
    
    
    26,340
    
    
    
    Net loss
    
    
    (35,004
    )
    
    
    (18,186
    )
    
    
    (8,154
    )
    
    
    26,340
    
    
    
    (35,004
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    4,555
    
    
    
    
    
    
    
    4,555Comprehensive
loss
    
    $
    (35,004
    )
    
    $
    (18,186
    )
    
    $
    (3,599
    )
    
    $
    26,340
    
    
    $
    (30,449
    )


21



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidating Statement of Loss and Comprehensive Income (Loss)
Nine months ended September 30, 2002
(Unaudited)
(In thousands)

Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    274,071
    
    
    $
    93,414
    
    
    $
    (58,373
    )
    
    $
    309,112Costs and operating expenses
    
    
    1,056
    
    
    
    239,372
    
    
    
    90,792
    
    
    
    (58,373
    )
    
    
    272,847Restructuring and related
charges
    
    
    
    
    
    
    9,168
    
    
    
    7,143
    
    
    
    
    
    
    
    16,311Asset impairment charge
    
    
    
    
    
    
    5,425
    
    
    
    
    
    
    
    
    
    
    
    5,425Corporate charges from General
Electric Company
    
    
    
    
    
    
    7,331
    
    
    
    
    
    
    
    
    
    
    
    7,331Operating
income (loss)
    
    
    (1,056
    )
    
    
    12,775
    
    
    
    (4,521
    )
    
    
    
    
    
    
    7,198Other
(expense), net
    
    
    (27,249
    )
    
    
    (4,781
    )
    
    
    (654
    )
    
    
    
    
    
    
    (32,684
    )Income (loss)
before income
taxes
    
    
    (28,305
    )
    
    
    7,994
    
    
    
    (5,175
    )
    
    
    
    
    
    
    (25,486
    )Provision
(benefit) for income taxes
    
    
    (10,756
    )
    
    
    16,997
    
    
    
    (2,385
    )
    
    
    
    
    
    
    3,856Loss
before equity in
loss
of subsidiaries
    
    
    (17,549
    )
    
    
    (9,003
    )
    
    
    (2,790
    )
    
    
    
    
    
    
    (29,342
    )Equity in loss of
subsidiaries
    
    
    (11,793
    )
    
    
    (2,790
    )
    
    
    
    
    
    
    14,583
    
    
    
    Net loss
    
    
    (29,342
    )
    
    
    (11,793
    )
    
    
    (2,790
    )
    
    
    14,583
    
    
    
    (29,342
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    5,624
    
    
    
    
    
    
    
    5,624Comprehensive
income (loss)
    
    $
    (29,342
    )
    
    $
    (11,793
    )
    
    $
    2,834
    
    
    $
    14,583
    
    
    $
    (23,718
    )


22



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidating Statement of Income (Loss) and Comprehensive Income (Loss)
Three months ended September 30, 2003
(Unaudited)
(In thousands)

Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    70,548
    
    
    $
    36,898
    
    
    $
    (15,730
    )
    
    $
    91,716Costs and operating expenses
    
    
    
    
    
    
    68,439
    
    
    
    29,796
    
    
    
    (15,730
    )
    
    
    82,505Gains on sales of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring and related
charges
    
    
    
    
    
    
    1,331
    
    
    
    
    
    
    
    
    
    
    
    1,331Asset impairment charge
    
    
    
    
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    6,500Operating
income (loss)
    
    
    
    
    
    
    (5,722
    )
    
    
    7,102
    
    
    
    
    
    
    
    1,380Other
(expense), net
    
    
    (7,810
    )
    
    
    (3,586
    )
    
    
    (817
    )
    
    
    
    
    
    
    (12,213
    )Income (loss)
before income
taxes
    
    
    (7,810
    )
    
    
    (9,308
    )
    
    
    6,285
    
    
    
    
    
    
    
    (10,833
    )Provision
(benefit) for income taxes
    
    
    
    
    
    
    (5,403
    )
    
    
    2,085
    
    
    
    
    
    
    
    (3,318
    )Income (loss)
before equity in income of subsidiaries
    
    
    (7,810
    )
    
    
    (3,905
    )
    
    
    4,200
    
    
    
    
    
    
    
    (7,515
    )Equity in income of
subsidiaries
    
    
    295
    
    
    
    4,200
    
    
    
    
    
    
    
    (4,495
    )
    
    
    Net income (loss)
    
    
    (7,515
    )
    
    
    295
    
    
    
    4,200
    
    
    
    (4,495
    )
    
    
    (7,515
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    389
    
    
    
    
    
    
    
    389Comprehensive
income (loss)
    
    $
    (7,515
    )
    
    $
    295
    
    
    $
    4,589
    
    
    $
    (4,495
    )
    
    $
    (7,126
    )


23



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidating Statement of Income (Loss) and Comprehensive Income (Loss)
Nine months ended September 30, 2003
(Unaudited)
(In thousands)

Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    216,711
    
    
    $
    104,872
    
    
    $
    (47,488
    )
    
    $
    274,095Costs and operating expenses
    
    
    192
    
    
    
    207,136
    
    
    
    85,661
    
    
    
    (47,488
    )
    
    
    245,501Gains on sales of assets
    
    
    
    
    
    
    (700
    )
    
    
    
    
    
    
    
    
    
    
    (700
    )Restructuring and related
charges
    
    
    
    
    
    
    4,464
    
    
    
    
    
    
    
    
    
    
    
    4,464Asset impairment charge
    
    
    
    
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    6,500Operating
income, (loss)
    
    
    (192
    )
    
    
    (689
    )
    
    
    19,211
    
    
    
    
    
    
    
    18,330Other
income (expense), net
    
    
    (45,995
    )
    
    
    4,285
    
    
    
    712
    
    
    
    
    
    
    
    (40,998
    )Income (loss)
before income taxes
    
    
    (46,187
    )
    
    
    3,596
    
    
    
    19,923
    
    
    
    
    
    
    
    (22,668
    )Provision
(benefit) for income taxes
    
    
    
    
    
    
    (12,670
    )
    
    
    7,598
    
    
    
    
    
    
    
    (5,072
    )Income (loss)
before equity in
income of subsidiaries
    
    
    (46,187
    )
    
    
    16,266
    
    
    
    12,325
    
    
    
    
    
    
    
    (17,596
    )Equity in income of
subsidiaries
    
    
    28,591
    
    
    
    12,325
    
    
    
    
    
    
    
    (40,916
    )
    
    
    Net income (loss)
    
    
    (17,596
    )
    
    
    28,591
    
    
    
    12,325
    
    
    
    (40,916
    )
    
    
    (17,596
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    311
    
    
    
    
    
    
    
    311Comprehensive
income (loss)
    
    $
    (17,596
    )
    
    $
    28,591
    
    
    $
    12,636
    
    
    $
    (40,916
    )
    
    $
    (17,285
    )


24



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidating Statement of Cash Flows
Nine months ended September 30, 2002
(Unaudited)
(In thousands)

Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (29,342
    )
    
    $
    (11,793
    )
    
    $
    (2,790
    )
    
    $
    14,583
    
    
    $
    (29,342
    )Adjustments to reconcile net loss
to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    33,343
    
    
    
    1,410
    
    
    
    
    
    
    
    34,753Asset impairment charge
    
    
    
    
    
    
    5,425
    
    
    
    
    
    
    
    
    
    
    
    5,425Deferred income taxes
    
    
    
    
    
    
    (1,092
    )
    
    
    (7,386
    )
    
    
    
    
    
    
    (8,478
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (742
    )
    
    
    
    
    
    
    (742
    )Equity in net income of
subsidiaries
    
    
    11,793
    
    
    
    2,790
    
    
    
    
    
    
    
    (14,583
    )
    
    
    Changes in operating assets and
liabilities, net
    
    
    (9,074
    )
    
    
    18,044
    
    
    
    2,225
    
    
    
    
    
    
    
    11,195Net cash provided by (used in)
operating activities
    
    
    (26,623
    )
    
    
    46,717
    
    
    
    (7,283
    )
    
    
    
    
    
    
    12,811Cash flows used for investing activities  purchases
of property and equipment
    
    
    
    
    
    
    (27,656
    )
    
    
    (1,284
    )
    
    
    
    
    
    
    (28,940
    )Cash flows from financing activities:Distribution to General Electric related to
recapitalization
    
    
    (350,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (350,000
    )Net payments from General Electric
Company and affiliates
    
    
    (3,513
    )
    
    
    (27
    )
    
    
    51,366
    
    
    
    
    
    
    
    47,826Advance (to) from subsidiaries
    
    
    (20,240
    )
    
    
    20,240
    
    
    
    
    
    
    
    
    
    
    
    Repayment of short-term borrowings, net
    
    
    
    
    
    
    
    
    
    
    (43,922
    )
    
    
    
    
    
    
    (43,922
    )Proceeds from issue of long-term debt
    
    
    410,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410,000Payment of capital lease obligation
    
    
    
    
    
    
    (18,464
    )
    
    
    
    
    
    
    
    
    
    
    (18,464
    )Payment of financing costs
    
    
    (9,624
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,624
    )Net cash provided by
financing activities
    
    
    26,623
    
    
    
    1,749
    
    
    
    7,444
    
    
    
    
    
    
    
    35,816Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    378
    
    
    
    
    
    
    
    378Increase (decrease) in cash
and cash equivalents
    
    
    
    
    
    
    20,810
    
    
    
    (745
    )
    
    
    
    
    
    
    20,065Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    5,093
    
    
    
    9,540
    
    
    
    
    
    
    
    14,633Cash
and cash equivalents, end of period
    
    $
    
    
    
    $
    25,903
    
    
    $
    8,795
    
    
    $
    
    
    
    $
    34,698


25



---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidating Statement of Cash Flows
Nine months ended September 30, 2003
(Unaudited)
(In thousands)

Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (17,596
    )
    
    $
    28,591
    
    
    $
    12,636
    
    
    $
    (41,227
    )
    
    $
    (17,596
    )Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    
    
    
    
    33,200
    
    
    
    2,356
    
    
    
    
    
    
    
    35,556Asset impairment charge
    
    
    
    
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    6,500Deferred income taxes
    
    
    (6,785
    )
    
    
    (5,342
    )
    
    
    11,137
    
    
    
    
    
    
    
    (990
    )Gain on sale of assets
    
    
    
    
    
    
    (700
    )
    
    
    
    
    
    
    
    
    
    
    (700
    )Write-off of deferred financing costs
    
    
    5,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,548Amortization of deferred financing costs and
debt discount
    
    
    2,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,392Minority interest
    
    
    
    
    
    
    
    
    
    
    (609
    )
    
    
    
    
    
    
    (609
    )Equity in net income of
subsidiaries
    
    
    (28,591
    )
    
    
    (12,636
    )
    
    
    
    
    
    
    41,227
    
    
    
    Changes in operating assets and
liabilities, net
    
    
    49,165
    
    
    
    (24,484
    )
    
    
    (13,202
    )
    
    
    
    
    
    
    11,479Net cash provided by
operating activities
    
    
    4,133
    
    
    
    25,129
    
    
    
    12,318
    
    
    
    
    
    
    
    41,580Cash flows for investing activities:Purchases of property and equipment
    
    
    (83
    )
    
    
    (21,569
    )
    
    
    (1,189
    )
    
    
    
    
    
    
    (22,841
    )Proceeds from sale of assets
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    600Net cash used for
investing activities
    
    
    (83
    )
    
    
    (20,969
    )
    
    
    (1,189
    )
    
    
    
    
    
    
    (22,241
    )Cash flows from financing activities:Net contributions from General Electric
Company and affiliates
    
    
    
    
    
    
    12,893
    
    
    
    
    
    
    
    
    
    
    
    12,893Advance (to) from subsidiaries
    
    
    12,893
    
    
    
    (12,893
    )
    
    
    
    
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    (174,562
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174,562
    )Proceeds from issue of long-term debt
    
    
    169,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,750Payment of capital lease obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payment of financing costs
    
    
    (12,131
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,131
    )Net cash used for
financing activities
    
    
    (4,050
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,050
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    2,606
    
    
    
    
    
    
    
    2,606Increase in cash
and cash equivalents
    
    
    
    
    
    
    4,160
    
    
    
    13,735
    
    
    
    
    
    
    
    17,895Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    21,940
    
    
    
    15,393
    
    
    
    
    
    
    
    37,333Cash
and cash equivalents, end of period
    
    $
    
    
    
    $
    26,100
    
    
    $
    29,128
    
    
    $
    
    
    
    $
    55,228


26



---



##### 



The following unaudited condensed
consolidated financial statements of Global eXchange Services
Limited have been included pursuant to Rule 3-16 of Regulation
S-X.

27



---



##### 



Global eXchange Services Limited
Consolidated profit and loss accountfor the nine months ended 30 September

Note
    
    
    2003
    
    
    2002£000
    
    
    £000(unaudited
    )
    
    (unaudited
    )Turnover
    
    
    3
    
    
    
    23,513
    
    
    
    24,172Cost of sales
    
    
    
    
    
    
    (6,385
    )
    
    
    (8,111
    )Gross profit
    
    
    
    
    
    
    17,128
    
    
    
    16,061Distribution costs
    
    
    
    
    
    
    (4,186
    )
    
    
    (4,733
    )Administrative expenses
    
    
    
    
    
    
    (4,548
    )
    
    
    (5,642
    )Other operating income
    
    
    
    
    
    
    228
    
    
    
    438Operating profit
    
    
    
    
    
    
    8,622
    
    
    
    6,124Exceptional charge
    
    
    5
    
    
    
    (751
    )
    
    
    Interest receivable and similar income
    
    
    
    
    
    
    1,027
    
    
    
    767Interest payable and similar charges
    
    
    
    
    
    
    (147
    )
    
    
    (254
    )Profit on ordinary activities before
taxation
    
    
    4
    
    
    
    8,751
    
    
    
    6,637Tax on profit on ordinary activities
    
    
    
    
    
    
    (2,976
    )
    
    
    (2,325
    )Profit on ordinary activities after taxation
    
    
    
    
    
    
    5,775
    
    
    
    4,312Dividends paid and proposed on preferred
shares
    
    
    6
    
    
    
    (926
    )
    
    
    (247
    )Retained profit for the nine months
    
    
    
    
    
    
    4,849
    
    
    
    4,065Retained profit brought forward (restated
for 2002)
    
    
    
    
    
    
    15,675
    
    
    
    6,089Retained profit carried forward
    
    
    
    
    
    
    20,524
    
    
    
    10,154


The notes on pages 30 to 36 form part of these unaudited consolidated financial
statements.

28



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##### 



Global eXchange Services Limited
Consolidated balance sheetat 30 September and 31 December

Note
    
    
    2003
    
    
    2003
    
    
    2002
    
    
    2002£000
    
    
    £000
    
    
    £000
    
    
    £000(unaudited)
    
    (unaudited)Fixed assetsIntangible assets
    
    
    
    
    
    
    
    
    
    
    665
    
    
    
    
    
    
    
    1,967Tangible assets
    
    
    
    
    
    
    
    
    
    
    754
    
    
    
    
    
    
    
    8921,419
    
    
    
    
    
    
    
    2,859Current assetsDebtors: amounts falling due within
one year
    
    
    7
    
    
    
    14,217
    
    
    
    
    
    
    
    14,696Debtors: amounts falling due after
more than one year
    
    
    7
    
    
    
    29,703
    
    
    
    
    
    
    
    24,615Cash at bank and in hand
    
    
    
    
    
    
    4,562
    
    
    
    
    
    
    
    67548,482
    
    
    
    
    
    
    
    39,986Creditors:amounts falling due within
one year
    
    
    8
    
    
    
    (7,747
    )
    
    
    
    
    
    
    (5,697
    )Net current assets
    
    
    
    
    
    
    
    
    
    
    40,735
    
    
    
    
    
    
    
    34,289Total assets less current liabilities
    
    
    
    
    
    
    
    
    
    
    42,154
    
    
    
    
    
    
    
    37,148Provisions for liabilities and charges
    
    
    
    
    
    
    
    
    
    
    (630
    )
    
    
    
    
    
    
    (473
    )Net assets
    
    
    
    
    
    
    
    
    
    
    41,524
    
    
    
    
    
    
    
    36,675Capital and reservesCalled up share capital
    
    
    9
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    21,000Profit and loss account
    
    
    9
    
    
    
    
    
    
    
    20,524
    
    
    
    
    
    
    
    15,675Shareholders fundsEquity
    
    
    9
    
    
    
    
    
    
    
    22,524
    
    
    
    
    
    
    
    17,675Non-equity
    
    
    9
    
    
    
    
    
    
    
    19,000
    
    
    
    
    
    
    
    19,00041,524
    
    
    
    
    
    
    
    36,675


The notes on pages 30 to 36 form part of these unaudited consolidated financial
statements.

29



---



##### 



Global eXchange Services Limited
Notes (unaudited)
(forming part of the financial statements)

1.   Basis of preparation

These financial statements are unaudited; however, in the opinion of the
management of the Company, all adjustments necessary for a fair presentation
have been made. Operating results for the nine month period ended 30 September
2003 are not necessarily indicative of the results expected for the full year.

The unaudited financial statement have been prepared in accordance with the
basis of preparation of the Companys financial statements for the year ended
31 December 2002.

Certain amounts have been reclassified to conform with current periods
presentation.

2.   Accounting policies

The accounting policies adopted by the Company have not changed since the
Companys financial statements for the year ended 31 December 2002.

3.   Analysis of turnover on ordinary activities before taxation

2003
    
    2002£000
    
    £000By geographical marketUnited Kingdom  to third parties
    
    
    23,007
    
    
    
    23,360United Kingdom  to group undertakings
    
    
    
    
    
    
    Rest of Europe  to third parties
    
    
    408
    
    
    
    456Other  to third parties
    
    
    98
    
    
    
    356Other  to group undertakings
    
    
    
    
    
    
    23,513
    
    
    
    24,172


4.   Profit on ordinary activities before taxation

2003
    
    2002£000
    
    £000Profit on ordinary activities before taxation is
stated after charging/(crediting):Auditors remuneration:- audit
    
    
    42
    
    
    
    92- other services
    
    
    175
    
    
    
    10Depreciation and amounts written off:- owned tangible fixed assets
    
    
    225
    
    
    
    180- goodwill
    
    
    1,113
    
    
    
    1,113- other intangible assets
    
    
    189
    
    
    
    161Loss on sale of tangible fixed assets
    
    
    
    
    
    
    2Foreign exchange losses/(gains)
    
    
    229
    
    
    
    384Operating lease rentals:- plant and machinery
    
    
    61
    
    
    
    73- land and buildings
    
    
    382
    
    
    
    631


30



---



##### 



Global eXchange Services Limited
Notes (unaudited)
(forming part of the financial statements)

5.   Exceptional Charges

2003
    
    
    2002£000
    
    
    £000Pensions Charge (refer to Note 10 Contingent Liabilities)
    
    
    751
    
    
    
    


6.   Dividends and other appropriations

2003
    
    
    2002£000
    
    
    £000Non-equity shares:Interim dividend proposed
    
    
    926
    
    
    
    247926
    
    
    
    247


The aggregate amount of proposed dividends is £926,000 (2002: £247,000).

7.   Debtors

30 September
    
    
    31 December2003
    
    
    2002£000
    
    
    £000Amounts due within one year:Trade debtors
    
    
    5,795
    
    
    
    7,436Amounts owed by group undertakings
    
    
    6,970
    
    
    
    5,893Other debtors
    
    
    100
    
    
    
    63ACT Recoverable
    
    
    791
    
    
    
    791Prepayments and accrued income
    
    
    561
    
    
    
    51314,217
    
    
    
    14,696Amounts due after more than one year:Deferred tax asset
    
    
    653
    
    
    
    615Amounts owed by group undertakings
    
    
    29,050
    
    
    
    24,00029,703
    
    
    
    24,615


31



---



##### 



Global eXchange Services Limited
Notes (unaudited)
(forming part of the financial statements)

8.   Creditors: amounts falling due within one year

30 September
    
    31 December£000
    
    £000Trade creditors
    
    
    329
    
    
    
    466Amounts owed to group undertakings
    
    
    1,289
    
    
    
    362Corporation tax
    
    
    2,189
    
    
    
    299Other taxes and social security
    
    
    
    
    
    
    41Accruals and deferred income
    
    
    3,635
    
    
    
    4,251Other creditors
    
    
    305
    
    
    
    2787,747
    
    
    
    5,697


9.   Reconciliation of movements in shareholders funds

Called-up share
    
    Profit and loss
    
    Shareholders'capital
    
    account
    
    funds£000
    
    £000
    
    £0001 January 2003
    
    
    21,000
    
    
    
    15,675
    
    
    
    36,675Retained profit for the nine months
    
    
    
    
    
    
    4,849
    
    
    
    4,84930 September 2003
    
    
    21,000
    
    
    
    20,524
    
    
    
    41,524


Shareholders funds are apportioned as follows:

2003Equity
    
    Non-equity
    
    Total£000
    
    £000
    
    £000Ordinary shares of £1 each
    
    
    22,524
    
    
    
    
    
    
    
    22,524Preferred shares of
£28.50 each
    
    
    
    
    
    
    19,000
    
    
    
    19,00022,524
    
    
    
    19,000
    
    
    
    41,524


32



---



##### 



Global eXchange Services Limited
Notes (unaudited)
(forming part of the financial statements)

10.   Contingent liabilities

Employee pension claim

Twenty-one employees initiated a claim over the change in the company pension
scheme. When Global eXchange Services Limited was part of the GE
group, the employees were part of the GE Pension Plan, under which they were
entitled to a final salary pension scheme. As a result of the sale of Global
eXchange Services Limited, employees will no longer be able to participate in
the GE Pension Plan, and will be part of a defined contribution scheme.

The settlement made by Global eXchange Services Limited and GE is that all
employees aged 50 or older will be entitled to retire at 60 as if they were
full members of the GE Pension Plan. Global eXchange Services Limited made a
payment into the GE Supplementary Pension Scheme of £20,500 and the IGE (USA)
Pension Trustees Limited of £730,000 as full and final settlement of the claims
of employees aged 50 or older. Global eXchange Services Limited entered into
separate settlements and releases with all but two of the other employees in
the group.

An identical contribution was made by GE into the
  GE Supplementary Pension Scheme of £20,500 and the IGE (USA) Pension Trustees
  Limited of £730,000. This contribution was made due to a signed agreement
  between GE and Global eXchange Services Limited that they would equally pay
  to settle the employee pension claim.

Potential arbitration claim

Global eXchange Services Limited was served with proceedings for arbitration by
a software licensee. The customer was claiming £252,000 plus legal fees and
costs. On 29 October 2003 the software licensee offered to withdraw their
claim with both parties paying their respective legal costs and splitting the
administrative expenses and arbitrators fees. The parties are currently
seeking to finalize this proposed settlement.

11.   Significant differences between United Kingdom and United States generally
accepted accounting principles

The Companys consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United Kingdom (UK GAAP),
which differ in certain material respects from those applicable in the United
States (US GAAP). The significant differences and adjustments considered
necessary to restate retained profit for the financial period (Net Income)
and shareholders funds (Shareholders Equity) as at 30 September 2003 in
accordance with US GAAP are set out below;

a)   Goodwill

SFAS No 142 Goodwill and other intangible assetswas issued in June 2001 and
supersedes APB Opinion No 17 and its related interpretations. The statement
provides new guidance regarding the subsequent accounting for goodwill, after
its initial recognition. Goodwill arising from business combinations is not
amortised but rather is subject to impairment testing at least annually and
more frequently if circumstances warrant. An impairment loss is recognised to
the extent that the carrying value of goodwill exceeds the implied fair value
of goodwill. SFAS No 142 was effective for Global eXchange Services Ltd from
the fiscal year ended 31 December 2002. No impairment loss has been recognised
as a result of applying SFAS No 142.

In the UK GAAP financial statements, goodwill recognised on the acquisition of
International Network Services Ltd has been capitalised and is being amortised
on a straight-line basis over 10 years.

The application of US GAAP with respect to the accounting for goodwill results
in an increase to Net Income in the nine months ended 30 September 2003 and
2002 of £1,113,000 in both periods and an increase to Shareholders Equity of
£2,598,000 as at 30 September 2003, representing the amortisation charge
recognised in the UK GAAP financial statements but reversed for the purpose of
the US GAAP financial statements.

b)   Preference shares and dividends

In the UK GAAP financial statements, preference shares are included in
shareholders funds.

The application of US GAAP results in the presentation of these redeemable
preference share dividends in a separate classification between debt and
shareholders equity, known as the mezzanine level. This results in a
decrease to Shareholders Equity of £19,000,000 as at 30 September 2003.

33



---



##### 



Global eXchange Services Limited
Notes (unaudited)
(forming part of the financial statements)

In the UK GAAP financial statements, preference share dividends are deducted
from profit on ordinary activities after taxation at the bottom of the profit
and loss account.

Under US GAAP preference share dividends are charged against retained earnings
(i.e. it is not included in the profit and loss account). This results in an
increase to Net Income under US GAAP for the nine months ended 30 September
2003 and 2002 of £926,000 and £247,000, respectively.

c) Additional capital
contribution

Under UK GAAP, the additional employee pension contribution made by GE is not reflected in the companys
financial statements since it was not deemed to be an expense of the Company.

However, under US GAAP the £750,500 payment made by GE for the settlement of the employee pension claim
(Note 10) was accounted for as a capital contribution and expense to the Company. This is due to the fact that the
settlement payment was made by GE, a shareholder of the Company and such payment directly benefited the
employees of and was made on behalf of Global eXchange Services Limited. Furthermore, this settlement related to
a claim arising out of the recapitalisation transaction, which occurred on 27 September 2002.

Reconciliation

The following table summarises the effect on Net Income of differences between
UK GAAP and US GAAP for the nine months ended 30 September 2003 and 2002.

Net Income

Nine months ended 30 SeptemberReferencein note
11
    
    2003
    
    
    2002£000
    
    
    £000(unaudited)
    
    
    (unaudited)Net Income as reported under UK GAAP
    
    
    
    
    
    
    4,849
    
    
    
    4,065Significant US GAAP adjustments- Amortisation of goodwill
    
    
    a
    
    
    
    1,113
    
    
    
    1,113- Preference share dividends
    
    
    b
    
    
    
    926
    
    
    
    247-
Additional capital contribution
    
    
    c
    
    
    
    (751
    )
    
    
    Net Income under US GAAP
    
    
    
    
    
    
    6,137
    
    
    
    5,425


The following table summarizes the effect on Shareholders Equity of
differences between UK GAAP and US GAAP as at 30 September 2003.

Shareholders Equity

As at 30 SeptemberReferencein note 11
      
      
      
      
      
      2003£000(unaudited)Shareholders
          Equity as reported under UK GAAP
      
      
      
      
      
      
      
      
      
      
      41,524Significant
          US GAAP adjustments- Amortisation
          of goodwill
      
      
      a
      
      
      
      
      
      
      
      2,598- Preference
          shares
      
      
      b
      
      
      
      
      
      
      
      (19,000
      )Shareholders
          Equity under US GAAP
      
      
      
      
      
      
      
      
      
      
      25,122


34



---



##### 



Global eXchange Services Limited
Notes (unaudited)
(forming part of the financial statements)

d) SFAS No 95 Statement of cash flowsUnder UK GAAP the Company complies with Financial Reporting Standard No
  1 Cash flow statements (Revised) (FRS 1). Under FRS
  1 the Company is exempt from the requirement to prepare a cash flow statement.

Exemption is on the grounds that it is a wholly owned subsidiary undertaking
and its cash flows appear in a consolidated cash flow statement in its ultimate
parent companys financial statements which are available to the public.

US GAAP cash flow information for the Company is included below for the 9
months ended 30 September 2003 and 2002.

Cash flow statement  US GAAP

Nine months ended 30 September2003
    
    2002£000
    
    £000(unaudited)
    
    (unaudited)Cash flows from operating activities
    
    
    10,130
    
    
    
    10,842Cash flows from investing activities:Capital expenditure
    
    
    (86
    )
    
    
    (224
    )Loans to group undertakings
    
    
    (6,157
    )
    
    
    (8,904
    )Cash flows from financing activitiesDividends paid

    
    
    
    
    
    
    (2,661
    )Net increase/(decrease) in cash and cash
equivalents under US GAAP
    
    
    3,887
    
    
    
    (947
    )Cash and cash equivalents under US GAAP at
the beginning of the period
    
    
    675
    
    
    
    2,043Cash and
          cash equivalents under US GAAP at the end of the period
    
    
    4,562
    
    
    
    1,096


Supplemental disclosures of cash flow information

2003
    
   2002£000
    
    £000Cash received during the period for:Interest
    
    
    668
    
    
    
    767Income taxes
    
    
    399
    
    
    
    3,459Cash paid during the period for:Income taxes
    
    
    1,634
    
    
    
    1,865


Supplemental schedule of non-cash investing and financing activities

There were no non-cash investing and financing activities in the period in 2003
or 2002.

35



---



##### 



Global eXchange Services Limited
Notes (unaudited)
(forming part of the financial statements)

Disclosure of accounting policy

For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.

(e)   Debtors falling
  due after more than one year

Under UK GAAP, debtors falling due after more than one year are included within
current assets in accordance with UK Companies Act 1985 Schedule 4 and have
been separately disclosed on the balance sheet in accordance with UITF Abstract
4 Presentation of long-term debtors in current assets.

Under US GAAP, debtors falling due after more than one year are excluded from
current assets and included within non current assets. As at 30 September 2003
and 31 December 2002, there were debtors falling due after more than one year
of £29,703,000 and £24,615,000 respectively.

Debtors falling due after more than one year includes two 20 year loans of
£4,485,000 and £564,000 respectively to Acquisition UK Limited, drawn down in
March 2003 and April 2003 respectively. The interest rate per annum on these
loans is the sum of LIBOR plus 1%.

f)   Income tax

Under SFAS No 109 Accounting for Income Taxes,deferred taxes are required to
be identified as current or non current based on the underlying balance sheet
classification of the asset or liability which gives rise to the deferred tax
asset. The non current element of the deferred tax asset as at 30 September
2003 and 31 December 2002 is £462,000 and £497,000 respectively relating to
fixed assets.

SFAS No 109 also requires the disclosure of whether income before tax and the
tax expense is domestic or foreign. All income before tax and tax expense for
the nine months ended 30 September 2003 and 2002 is domestic.

g)   Exceptional charge

Under UK GAAP, the pension charge of £751,000 for the nine months ended 30
September 2003 has been excluded from operating profit and has been separately
identified as an exceptional charge in the consolidated profit and loss
account. Under US GAAP, items are segregated from operating profit and
described as extraordinary only if they are both unusual in nature and occur
infrequently. Under US GAAP, the exceptional pension charge would be
included in determining operating profit and would not be classified as
extraordinary in the profit and loss account.

36



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##### 



Item 2.    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 unaudited
condensed 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.

Overview

We are a leading provider by transactions processed of transaction management
infrastructure products and services that enable companies to electronically
exchange essential business documents. We process more than one billion
transactions annually. Our EDI services, which contribute the majority of our
revenues, 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 e-mail systems. In addition to our EDI services, we also offer other
transaction management solutions, including integration software and
marketplace solutions. Our integration software enables customers to manage the
exchange of information among disparate business systems and applications
within and among enterprises. Our marketplace solutions help automate
collaborative business processes and interactions among trading partners
through private, Web-based portals and allow trading partners, through the use
of a standard Web browser, to offer and participate in business processes such
as electronic auctions and requests for proposals. We were founded in the late
1960s and have been a leading provider of EDI services for 18 years.

In addition to our EDI services and other transaction management solutions, we
offer custom messaging and network solutions, which consist of applications and
products developed for specific customers for use on our proprietary operating
system and managed network solutions that enable customers to outsource the
management and operations of network communications.

In 2000, 2001 and 2002, we derived approximately 48.2%, 63.5% and 68.2% of our
revenues from recurring transaction processing fees generated by our EDI
services and other transaction management 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. Our typical contract for EDI services has a 30-day term,
as is customary in the industry. In addition, many of our larger customers are
committed to multi-year contracts. We process more than one billion
transactions annually among more than 100,000 trading partners. We estimate
that these transactions represent over $500 billion in goods and services
exchanged. 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.

37



---



##### 



We also generate revenues from the licensing of our software. These licenses
are either for perpetual use or for a fixed term. Licensing revenues are
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 4,000 software maintenance contracts. In 2000, 2001 and 2002, we
derived approximately $11.9 million, $14.4 million and $13.6 million in
revenues from fees relating to these contracts.

We also generate revenues by providing professional services in connection with
our 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 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 services.

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 transaction management
solutions. In 2000, 32.4% of our revenues were generated by our custom
messaging and network solutions, 39.3% were generated by EDI services and 28.3%
were generated by other transaction management solutions.

The proliferation of the Internet and other technological advances in computing
and telecommunications transformed the transaction management industry between
2000 and 2002. Our business was impacted in several ways. First, 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
2002, revenues from our custom messaging and network solutions declined from
$183.7 million to $64.8 million.

At the same time, the Internet and related technologies improved the growth
profiles of our EDI services and other transaction management solutions, as
more companies implemented our systems to enhance their productivity. From 2000
to 2002, revenues generated by our EDI services grew from $222.0 million to
$256.1 million. Revenue generated by our other transaction management
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.

In response to the rapidly growing demand for EDI services and other
transaction management solutions, such as our online marketplaces, we dedicated
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 transaction management solutions did not materialize, our
expanded cost structure had a significant impact on our profitability.

In response to the weakening general economic conditions and corresponding
effect on demand for some of our products and services, we reduced our cost
structure through the removal of excess capacity in our sales force, our
professional services organization and our computing and network
infrastructure; the cancellation and consolidation of various marketing and
development programs related to products and

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services that were not generating sufficient revenues to support the continued
investment and reductions in back-office personnel. These efforts enabled us
to reduce our operating costs, and improve our margins, despite continued
declines in demand for our other transaction management solutions and custom
messaging and network solutions.

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 transaction management solutions. Custom
messaging and network solutions also continued to decline, although at a slower
pace than in previous years. Continued general economic weakness during early
2003, as well as competitive price dynamics throughout 2003 have resulted in a
decline in EDI services in the first nine months of 2003. We expect that the
competitive pricing dynamics we are seeing across the industry will continue to
put pressure on the growth of the EDI services business. We continue to focus
on maintaining a cost structure that is appropriate for our existing revenue
base and revenue expectations.

Recapitalization

In September 2002, we effected a recapitalization of our company, which
resulted in the ownership by Francisco Partners and co-investors, through an
indirect subsidiary, of 90%, and the ownership by GE, 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 GE. We believe that our continued relationship with Francisco
Partners will be beneficial to our business and do not expect our separation
from GE to have any material impact on our operations or profitability. In
conjunction with the recapitalization, we entered into outstanding debt
consisting of borrowings under a $175.0 million senior credit facility and
$235.0 million of senior subordinated reset notes. In addition, a $35.0
million undrawn revolving credit facility was available. Subsequently, 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.

Celarix Acquisition

On June 3, 2003 we acquired substantially all of the assets of Celarix 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. We do not expect the acquisition
of the Celarix assets to have a material impact on our future financial
condition or results of operations.

Based in Cambridge, Massachusetts, Celarix is a provider of logistics and
integration and visibility solutions. Celarixs logistics integration and
visibility solutions help organizations to connect to logistics trading
partners and retrieve, use and share shipment status information throughout
their supply chains. For the twelve months ended March 31, 2003, Celarix had
net sales of $6.4 million related to integration and visibility solutions.

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.

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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 in our registration statement dated October 10,
2003. 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.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 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
September 30, 2003, we had allowances for doubtful accounts and sales
allowances of $9.6 million and $8.6 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 software development 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 $15.7 million for the nine months
ended September 30, 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.

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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 $12.8 million for the nine months ended September
30, 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.

We expense as incurred, 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, research and development 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 are not material.

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
$150.6 million as of September 30, 2003. We periodically evaluate the
appropriateness of 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. In 2002 and 2003, we recognized asset impairment charges of $5.4
million and $6.5 million, respectively

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Deferred Tax Assets.As of December 31, 2002 and September 30, 2003, we had a
net deferred tax asset of approximately $265.2 million and $266.2 million,
respectively. We consider the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in assessing the
realizability of deferred tax assets. 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. This election
will provide us with future tax deductions in excess of amounts reflected in
our consolidated financial statements, principally related to depreciation and
amortization expense. We have estimated the tax benefit of this revaluation to
be approximately $239.3 million, and have recognized this amount on our
consolidated balance sheet as of December 31, 2002 based upon our belief that
the amount of the difference will be recoverable through future taxable income.
If our future taxable income is not sufficient to allow recovery, we may be
required to record valuation allowances for this deferred tax asset in future
periods, the amounts of which could be material.

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 Statement of Financial Accounting Standards (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.
|- |  | --------------------------------------------------------

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 GE has indemnified us, the resulting loss
will be recorded in our net income for that period along with a corresponding
capital contribution from GE.

Employment

Employment was 1,466 and 1,516 as of December 31, 2002 and September 30, 2003,
respectively. The majority of this increase is attributable to the acquisition
of Celarix and the upgrade of our sales force. These actions resulted in an
increase of 39 employees out of the total increase of 50 employees during the
nine months ended September 30, 2003.

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Results of Operations

Three and Nine Months Ended September 30, 2003 Compared to Three and Nine Months Ended September 30, 2002

Three Months Ended September 30
    
    Nine Months Ended September 30,2002
    
    2003
    
    2002
    
    2003(in thousands of dollars)
    
    (in thousands of dollars)$
    
    %
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %Revenues:EDI Services
    
    
    63,040
    
    
    
    63.4
    %
    
    
    60,377
    
    
    
    65.9
    %
    
    
    191,662
    
    
    
    62.0
    %
    
    
    180,045
    
    
    
    65.7
    %Other transaction management solutions
    
    
    19,984
    
    
    
    20.1
    %
    
    
    16,081
    
    
    
    17.5
    %
    
    
    68,886
    
    
    
    22.3
    %
    
    
    47,214
    
    
    
    17.2
    %Custom messaging and network solutions
    
    
    16,419
    
    
    
    16.5
    %
    
    
    15,258
    
    
    
    16.6
    %
    
    
    48,564
    
    
    
    15.7
    %
    
    
    46,836
    
    
    
    17.1
    %Total revenues
    
    
    99,443
    
    
    
    100.0
    %
    
    
    91,716
    
    
    
    100.0
    %
    
    
    309,112
    
    
    
    100.0
    %
    
    
    274,095
    
    
    
    100.0
    %


Revenues. Revenues decreased by $7.7 million, or 7.7%, to $91.7 million for
the quarter ended September 30, 2003 from $99.4 million for the quarter ended
September 30, 2002. Revenues decreased by $35.0 million, or 11.3%, to $274.1
million for the nine months ended September 30, 2003 from $309.1 million for
the nine months ended September 30, 2002.

EDI services.Revenues from EDI services decreased by $2.6 million, or 4.1%, to
$60.4 million for the quarter ended September 30, 2003 from $63.0 for the
quarter ended September 30, 2002. The $2.6 million decline in EDI services
revenue was comprised of a revenue decline of $6.2 million resulting from
competitive price dynamics and lower EDI*Express volume offset by increases in
revenue resulting from a favorable foreign currency exchange impact of $2.8
million and $0.8 million of sales due to the Celarix acquisition.

Revenues from EDI services decreased by $11.7 million, or 6.1%, to $180.0
million for the nine months ended September 30, 2003 from $191.7 million for
the nine months ended September 30, 2002. The $11.7 million revenue decrease
in EDI services revenue was comprised of a revenue decline of $20.5 million in
the Americas resulting from lower EDI*Express volume and pricing, a decline in
professional services revenue of $4.3 million due to the conclusion of a
significant project, offset by increases in revenue resulting from a foreign
currency exchange impact of $7.9 million, $1.1 million of Celarix revenue and
customer surcharges of $3.8 million due to certain customers not migrating from
our Mark III platform. An increased overall level of mailbox cancellations
during the nine months ended September 30, 2003 was offset by price increases
implemented in the fourth quarter of 2002.

Key factors contributing to the lower volume include: cyclical economic
pressure on our clients in the retail, automotive, and high tech industries;
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.

Other transaction management solutions.Revenues from other transaction
management solutions decreased by $3.9 million, or 19.5%, to $16.1 million for
the quarter ended September 30, 2003 from $20.0 million for the quarter ended
September 30, 2002. The $3.9 million revenue decrease is primarily

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driven by the termination of two customer contracts in 2002 offset by a
favorable foreign currency exchange impact of $0.3 million.

Revenues from other transaction management solutions decreased by $21.7
million, or 31.5% to $47.2 million for the nine months ended September 30, 2003
from $68.9 million for the nine months ended September 30, 2002. The decrease
in revenue for the nine-month period is attributable to the same factors as
described above for the third quarter decrease.

Custom messaging and network solutions.Revenues from custom messaging and
network solutions decreased $1.1 million, or 6.7%, to $15.3 million for the
three months ended September 30, 2003 from $16.4 million for the three months
ended September 30, 2002. The decrease in revenue is primarily due to
customers continued migration away from legacy applications to open systems
based solutions offset by a favorable foreign currency exchange impact of $0.6
million.

Revenues from custom messaging and network solutions decreased $1.8 million, or
3.7%, to $46.8 million for the nine months ended September 30, 2003 from $48.6
million for the nine months ended September 30, 2002. The decrease in revenue
is in line with expectations as customers continue to migrate away from legacy
applications to open systems based solutions offset by a favorable foreign
currency exchange impact of $1.8 million.

On a percentage of revenue basis, for the three and nine months ended September
30, 2002 compared to the three and nine months ended September 30, 2003, EDI
services increased from 63.4% and 62.0% to 65.9% and 65.7%, respectively, other
transaction management solutions decreased from 20.1% and 22.3% to 17.5% and
17.2%, respectively, and custom messaging and network solutions increased from
16.5% and 15.7% to 16.6% and 17.1%, respectively.

Cost of revenues. Cost of revenues decreased by $11.3 million, or 17.4%, to
$53.7 million for the three months ended September 30, 2003 from $65.0 million
for the three months ended September 30, 2002. For the nine months ended
September 30, 2003, cost of revenues decreased by $29.3 million, or 15.5%, to
$159.5 million from $188.8 million for the nine months ended September 30,
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 transaction
management solutions and custom messaging and network services slowed, we
curtailed a number of product development programs. The impact of the actions
contributed to a $8.4 million and $18.1 million decline in network equipment
expense and a $4.8 million and $17.7 million decline in compensation,
contractors and related expenses for the three and nine months ended September
30, 2003, respectively.

Sales and marketing.Sales and marketing expense increased by $2.6 million, or
15.7%, to $19.2 million for the three months ended September 30, 2003 from
$16.6 million for the three months ended September 30, 2002. The increase in
expense for the quarter is primarily due to a $1.6 million increase in expenses
related to the Celarix business, which we acquired in June 2003, and costs
associated with the upgrade of our sales force.

Sales and marketing expense increased by $0.8 million, or 1.5%, to $54.9
million for the nine months ended September 30, 2003 from $54.1 million for the
nine months ended September 30, 2002. The year to date increase in expense is
primarily due to $2.2 million in expenses related to the Celarix business and
costs associated with the upgrade of our sales force, offset by the global
reorganization of our sales force and the consolidation of 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

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and closed various sales offices, which resulted in a decrease of $0.6 million
in compensation and related costs, and a $1.0 million decrease related
to the closing and consolidation of various facilities.

General and administrative.General and administrative expenses decreased $0.3
million, or 3.0%, to $9.6 million for the three months ended September 30, 2003
from $9.9 million for the three months ended September 30, 2002. General and
administrative expenses increased by $1.2 million, or 4.0%, to $31.2 million
for the nine months ended September 30, 2003 from $30.0 million for the nine
months ended September 30, 2002. The decrease for the three months ended
September 30, 2003 was primarily driven by a decrease in compensation and
benefits. The increase in the nine months ended September 30, 2003 includes
non-recurring information technology transition activities tied to our
separation from GE together with the costs of replacing certain services
previously provided by GE.

Gain on sale of assets.During the nine months ended September 30, 2003
certain software and other assets relating to our I400 software product were
sold for cash of $0.6 million and notes receivable of $0.3 million. A gain of
$0.7 million was recognized on the sale.

Restructuring and related charges.Restructuring and related charges decreased
by $6.0 million, or 82.2%, to $1.3 million for the three months ended September
30, 2003 from $7.3 million for the three months ended September 30, 2002.
Restructuring and related charges decreased by $11.8 million, or 72.4%, to $4.5
million for the nine months ended September 30, 2003 from $16.3 million for the
nine months ended September 30, 2002. The 2003 charges related to facility and
equipment lease buy-outs, facility exit costs including a restoration
obligation, and headcount reductions primarily in our factory, engineering, and
services organizations. Substantially all of these costs were reimbursed by GE
as part of the Recapitalization. The reimbursements
are reflected as contributions to additional paid-in capital.

Asset impairment charge.For the nine months ended September 30, 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 nine
months ended September 30, 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 GE were
$2.4 million and $7.3 million for the three and nine months ended September 30,
2002, respectively. Each year, GE charged us a fixed percentage of our budgeted
total costs for that year as a corporate charge, which covers various
centralized services that GE 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 GE. As a new
stand-alone entity, the replacement costs of these GE services are now
recognized in the respective functions where incurred.

Proportionate share of losses in investee companies and investment write-downs.
During the three and nine months ended September 30, 2003, we recorded our
proportionate share of the losses of our equity method investments and
write-off of an investment whose decline in value was deemed other than
temporary resulting in a non-cash charge of $0.1 million and $0.9 million,
respectively. During the three and nine months ended September 30, 2002, we
recognized losses on our various cost and equity method investments of $4.2
million. Of this amount $0.8 million related to our proportionate share of
losses of our equity method investment and $3.4 million related to write-down
of cost method investments where we determined the decline in value was other
than temporary.

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Write-off of deferred financing costs.Deferred financing costs of $5.5 million
were written off during the nine months ended September 30, 2003. The
write-off was related to the refinancing of our previous senior term loan.

Interest income.Interest income was $0.2 million and $0.7 million for the
three and nine months ended September 30, 2003, respectively, compared to
interest income of $1.5 million and $2.3 million for the three and nine months
ended September 30, 2002, respectively. Interest income consists of income on
our cash balances.

Interest expense.Interest expense of $12.9 million and $36.5 million for the
three and nine months ended September 30, 2003, respectively, was primarily
driven by interest on our long term debt issued in connection with the
Recapitalization. Interest expense of $0.3 million and $1.9 million was
incurred during the three and nine months ended September 30, 2002,
respectively, when we were part of GE.

Other income (expense), net. Other income was $0.5 million and $1.2 million
for the three months and nine months ended September 30, 2003, respectively,
compared to other income of $0.7 million and $1.2 million for the three and
nine months ended September 30, 2003. Other income for the nine months ended
September 30, 2003 included $0.6 million of minority interest income.

Provision for income taxes.Income tax benefit was $3.3 million for the three
months ended September 30, 2003 compared to income tax benefit of $4.6 million
for the three months ended September 30, 2002. Income tax benefit was $5.1
million for the nine months ended September 30, 2003 compared to income tax
expense of $3.9 million for the nine months ended September 30, 2002. 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 loss decreased by $27.5 million to a net loss of $7.5
million for the three months ended September 30, 2003 compared a net loss of
$35.0 million for the three months ended September 30, 2002. The decrease of
$27.5 million was driven by $30.1 million of costs that were incurred during
the quarter ended September 30, 2002 to consummate the Recapitalization. Net
loss decreased by $11.7 million to a net loss of $17.6 million for the nine
months ended September 30, 2003 compared to a net loss of $29.3 million for the
nine months ended September 30, 2002. The decrease in year to date net loss is
attributable to the same factors as described above for the third quarter
increase.

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Liquidity and Capital Resources

Net cash provided by operating activities was $41.6 million for the nine months
ended September 30, 2003, compared to net cash provided by operating activities
of $12.8 million for the nine months ended September 30, 2002. The increase in
net cash provided by operating activities was mainly attributable to the
reduction in the Companys net loss together with changes in working capital.

Net cash used in investing activities was $22.2 million for the nine months
ended September 30, 2003 compared to $28.9 million for the nine months ended
September 30, 2002. For the nine months ended September 30, 2003 net cash
used in investing activities included capital expenditures of $22.8 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. For the nine
months ended September 30, 2002 net cash used in investing activities related
to purchases of capital expenditures for property, software and equipment.
Capital expenditures for the nine months ended September 30, 2003 and 2002
include $15.7 million and $22.6 million, respectively, of costs capitalized for
the development of software for internal use. The lower capital expenditures
in 2003 resulted primarily from our efforts to invest in line with lower
revenue.

Net cash used for financing activities was $4.1 million for the nine months
ended September 30, 2003 compared to net cash provided by financing activities
of $35.8 million for the nine months ended September 30, 2002. The usage for
the nine months ended September 30, 2003 was driven by $12.1 million of
professional and underwriting fees related to the refinancing, cash of $174.6
million used to retire borrowings under our previous term loan offset by
proceeds of $169.8 million from the refinancing and a $12.9 million
reimbursement by GE as per the recapitalization agreement. Cash provided by
financing activities for the nine months ended September 30, 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 the nine months ended
September 30, 2002 also reflects the impact of the Recapitalization which
resulted in the borrowing of $410.0 million, the payment of financing costs of
$9.6 million and the cash distribution to GE of $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.

Our principal source of liquidity has been available cash and cash flows from
operations. In addition, borrowings available under our new $30.0 million
revolving credit facility are an additional source of liquidity. We expect our
principal uses of liquidity to be working capital, the financing of capital
expenditures and debt service. As of December 31, 2002, we had outstanding
debt of approximately $409.6 million, all of which consisted of borrowings
under our then existing $175.0 million senior term loan and our $235.0 million
outstanding reset notes. As of September 30, 2003, we had outstanding debt of
approximately $405.3 million, which consisted of $235.0 million of outstanding
reset notes, $100.3 million of outstanding floating rate notes and $70.0
million senior term loans. The floating notes are net of a debt discount of
$4.7 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 loan bear interest,
at our option, at either the floating base rate plus 4.00% per annum or
floating 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
dates for the new credit facility and the term loan are March 21, 2007,
at which time all principal is due and payable.

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At September 30, 2003, we had $70.0 million outstanding under the term loan
facility. Borrowings under the term loan bear interest at a base rate plus
6.0% or 8.25% at September 30, 2003. In addition, as of the date of this
report, we have approximately $18.0 million of letters of credit outstanding
under our new revolving credit facility. The amount that can be borrowed under
our new revolving credit facility is subject to our compliance with 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 $12.0 million at September 30, 2003.

Our obligations under our new credit facility are guaranteed by all of our
existing and future U.S. subsidiaries. Our obligations under our new credit
facility 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 new credit
facility 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 new
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, restructuring
charges, costs reimbursed by GE, and other adjustments. As defined under our
new credit facility for the three and twelve-month periods ended September 30,
2003, EBITDA is equal to $23.1 million and $100.9 million, respectively, as
compared to $13.9 million and $71.2 million for the three and twelve-month
periods ended September 30, 2003, respectively. The new senior credit facility
requires that we maintain EBITDA, as defined in the senior credit facility, of
at least $95.0 million for the twelve-month period ending each quarter. The
new senior 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. Senior debt is defined to include the senior secured floating rate notes and obligations under the new credit facility. For the twelve-month period ended
September 30, 2003, our consolidated leverage ratio was equal to 1.9 to 1.0,
based on senior debt of $192.9 million and EBITDA of $100.9 million. 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 new senior credit
facility requires that we limit our capital expenditures to $42.5 million
during each fiscal year. For the year ended December 31, 2002, our capital
expenditures were equal to $37.8 million. We expect that we will be able to
comply with this covenant in future periods by limiting capital expenditures to
acceptable levels as this limit was set taking into account anticipated capital
requirements of the business.

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The senior secured floating 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 September 30, 2003 was 12%. The senior secured
floating 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 first-tier foreign subsidiaries. In addition, the senior
secured floating 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.

The senior secured floating 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 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 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 principal 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 bear
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 based on current market conditions for similar
securities. 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
will be required to pay GECC a fee equal to 1% of the outstanding balance.

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 principal 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 new 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.

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Although we do not have an extensive history of acquisitions, we may make
acquisitions in the future. 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.

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 GE group of companies and received
financing from GE and its affiliates. Neither Francisco Partners nor GE is
obligated to provide financing to us as GE 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 reset notes, the
floating notes, operating leases and other commitments principally relating to
multi-year software maintenance agreements. The following tables summarize
these obligations at September 30, 2003 and its expected effect on our
liquidity and cash flows in future periods.

Payments due by Calendar Period2003
    
    2006to
    
    and
    
    AfterTotal
    
    2005
    
    2007
    
    2007Contractual Obligations:Long-term debt
    
    $
    410,000
    
    
    $
    
    
    
    $
    70,000
    
    
    $
    340,000Operating leases
    
    
    85,476
    
    
    
    19,781
    
    
    
    20,237
    
    
    
    45,458Other commitments
    
    
    2,184
    
    
    
    2,184
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    497,660
    
    
    $
    21,965
    
    
    $
    90,237
    
    
    $
    385,458


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 September 30, 2003 was approximately $1.6
million in the aggregate.

Recent Accounting Pronouncements

See footnote 2 (c) to the unaudited
condensed consolidated financial statements for a discussion of the
impact of recent accounting pronouncements.

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Item 3. 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, GE 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 intend to 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. We are also currently evaluating the use of derivative instruments to
manage our interest rate risk in the future. As of September 30, 2003, $405.3
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 three months ended September 30, 2003, approximately 39% 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. For the nine months ended September 30, 2003
approximately 38% of our total revenues were derived from customers outside of
the United States, with approximately 36% of our total revenue denominated in
currencies other than the United States dollar. We estimate that revenue and
expenses for the three months ended September 30, 2003 were higher by $3.7
million and $2.8 million, respectively, as compared to the three months ended September
30, 2002 as a result of changes in exchange rates. For the nine months ended
September 30, 2003 revenue and expenses were higher by $10.5 million and $7.4
million, respectively, compared to the nine months ended
September 30, 2002.
At September 30, 2003 we had $34.6 million of working capital (current assets
minus current liabilities) denominated in foreign currencies. At September 30,
2003, we had no outstanding foreign currency forward contracts. The following
table shows the approximate split of these foreign currency exposures by
principal currency:

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Foreign Currency Exposureat September 30, 2003UK
    
    Canadian
    
    
    
    
    
    TotalEuro
    
    Pound
    
    Dollar
    
    Other
    
    ExposureRevenues (nine months ended)
    
    
    37
    %
    
    
    38
    %
    
    
    10
    %
    
    
    15
    %
    
    
    100
    %Expenses (nine months ended)
    
    
    45
    %
    
    
    26
    %
    
    
    5
    %
    
    
    24
    %
    
    
    100
    %Working Capital
    
    
    35
    %
    
    
    21
    %
    
    
    18
    %
    
    
    26
    %
    
    
    100
    %


A hypothetical 10% strengthening of the dollar during the first nine months of
2003 versus the foreign currencies in which we have exposure would have reduced
revenue by approximately $8.9 million and reduced operating expenses by
approximately $6.2 million, resulting in operating income of $2.7 million less
than actually reported. Working capital at September 30, 2003 would have been
approximately $3.1 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 three and nine-month period ended September 30,
2003. However, we cannot assure you that future inflation would not have an
adverse impact on our operating results and financial condition.

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Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report, the Companys
management, including the Chief Executive Officer and Chief Financial Officer,
has conducted an evaluation of the effectiveness of the Companys disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities and Exchange Act of 1934). Based on that evaluation, the Companys
management has concluded that its disclosure controls and procedures are
effective in ensuring that information required to be disclosed by the Company
in the reports it files or furnishes pursuant to the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods
specified in the Commissions rules and forms, and that such information is
accumulated and communicated to the management of the Company as appropriate to
allow timely decisions regarding required disclosure.

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PART II. OTHER INFORMATION

Item 6. Exhibits and Current Reports



| | A. |  | Exhibits
| | -- |  | --------

Exhibit Number
    
    Description31.1
    
    Form of Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Form of Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certification




| | B. |  | Reports on Form 8-K
| | -- |  | -------------------



| | None
| | ----

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

GXS CORPORATIONBy:
    
    /s/ John SoenksenName:
    
    John SoenksenTitle:
    
    Senior Vice President,
Chief Financial Officer and Treasurer
November 14, 2003By:
    
    /s/ John DuvallName:
    
    John DuvallTitle:
    
    Controller and Chief Accounting Officer
November 14, 2003


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