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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
    FORM 10-K FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2003 [   ]
    
    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)
    
    35-2181508
(I.R.S. Employer
Identification No.)
    100 Edison Park Drive
Gaithersburg, MD 20878
(address of principal executive offices, including zip code)
(301) 340-4000(Registrant Telephone Number, including area code) Securities registered pursuant to Section 12(b) of the Act: None  Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [   ] No [X ] Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form
10-K  [   ] Indicate by a check mark whether the registrant is an
accelerated filer (as determined in Exchange Act Rule 12b-2). Yes [  
] No [X ] As of March 30, 2004, the Registrant had 100 outstanding shares of
common stock, significantly all of which was held by affiliates of
the Registrant. DOCUMENTS INCORPORATED BY REFERENCE None




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TABLE OF CONTENTS Page No.FORWARD-LOOKING
            STATEMENTSPART
            IITEM 1. BUSINESS
        
        
        
        1ITEM 2. PROPERTIES
        
        
        
        11ITEM 3. LEGAL
            AND OTHER PROCEEDINGS
        
        
        
        12ITEM 4. SUBMISSION
            OF MATTERS TO A VOTE OF SECURITY HOLDERS
        
        
        
        12PART
            IIITEM 5. MARKET
            FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
        
        
        
        13ITEM 6. SELECTED
            FINANCIAL DATA
        
        
        
        13ITEM 7. MANAGEMENTS
            DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        
        
        
        14ITEM 7A. QUANTITATIVE
            AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
        
        
        
        45ITEM 8. FINANCIAL
            STATEMENTS AND SUPPLEMENTARY DATA
        
        
        
        46ITEM 9. CHANGES
            IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
            DISCLOSURE
        
        
        
        101ITEM 9A. CONTROLS
            AND PROCEDURES
        
        
        
        101PART
            IIIITEM 10. DIRECTORS
            AND EXECUTIVE OFFICERS OF THE REGISTRANT
        
        
        
        102ITEM 11. EXECUTIVE
            COMPENSATION
        
        
        
        106ITEM 12. SECURITY
            OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
            STOCKHOLDER MATTERS
        
        
        
        111ITEM 13. CERTAIN
            RELATIONSHIPS AND RELATED TRANSACTIONS
        
        
        
        113ITEM 14. PRINCIPAL
            ACCOUNTANT FEES AND SERVICES
        
        
        
        119PART
            IVITEM 15. EXHIBITS,
            FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
        
        
        
        121SIGNATURES




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The following annual report contains information about GXS Corporation. You
should read this entire report, including the information set forth in the
Factors That Could Affect Future Results section of Managements Discussion
and Analysis of Financial Condition and Results of Operations beginning on
page 14. In this report, we, our and us refers to GXS Corporation and
its subsidiaries, unless the context otherwise requires. While most of the information provided in this annual report is historical,
some of the comments made are forward-looking statements. These statements are
based on current expectations, estimates, forecasts and projections about the
industry in which we operate, along with managements beliefs and assumptions.
They are not guarantees of future performance and involve risks, uncertainties
and assumptions that are difficult to predict. These statements are typically
identified by words such as believe, anticipate, expect, plan, intend,
estimate, may, will and similar expressions. As you read and consider
the information in this report, you should understand that these statements may
differ materially from actual outcomes and results. See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Factors that Could Affect Future Results  Special Note Regarding
Forward-Looking Statements. Item 1. Business Overview We provide software-based products and services which enable businesses to electronically exchange documents and automate related processes. Our offerings are categorized into three lines of business: EDI Services, Other Business to Business Solutions, and Custom Messaging and Network Solutions. EDI Services are our principal offerings; they enable our customers to exchange business documents in an automated and secure environment.
With our EDI offerings we typically provide value added services such as non-repudiation, document translation, enhanced security, format conversions and support various communication
protocols. Other Business to Business Solutions includes our hosted applications and integration software; these solutions facilitate integration of internal information and collaboration between
 trading partners. Custom Messaging and Network Solutions primarily includes legacy offerings which include custom applications for individual customers. We have been a leading provider of these products and services, based upon transactions processed, for the past 20 years. We process more than one billion transactions annually among more than 100,000
trading partners. For the year ended December 31, 2003, we generated revenues
of $363.5 million; our EDI services contributed $238.4 million, or 65.6%, of
those revenues. For the year ended December 31, 2003, we derived approximately
71.9% of our total revenues from recurring transaction processing fees generated
by our EDI Services and Other Business to Business Solutions. We estimate that
these transactions represent over $500 billion in goods and services exchanged.
Our customers include over 60% of the Fortune 500 companies, including industry
leaders such as FedEx, Procter & Gamble, Best Buy, JC Penney, Kodak,
Albertsons, and General Electric. GXS Corporation was incorporated as a Delaware corporation in 2002 in
connection with our recapitalization. Recapitalization In September 2002, we effected a recapitalization of our company, which
resulted in the ownership by Francisco Partners L.P. and co-investors, through
an indirect subsidiary, of 90%, and the ownership by




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General Electric, through
an indirect subsidiary, of 10%, of the capital stock of our parent company, GXS
Holdings. As a result of this transaction, we are no longer an indirect wholly
owned subsidiary of General Electric. We believe that our continued
relationship with Francisco Partners will be beneficial to our business and do
not expect our separation from General Electric to have any material impact on
our operations or profitability. In conjunction with the recapitalization, we
incurred debt consisting of borrowings under a $175.0 million
senior credit facility and $235.0 million of senior subordinated notes.
In addition, we established a $35.0 million revolving credit facility. In March
2003, we completed a refinancing of our senior credit facility whereby we
entered into a new $30.0 million revolving credit facility, a $70.0 million
term loan facility and issued $105.0 million of senior secured floating rate
notes. The March 2003 refinancing activities are further described in the
Liquidity and Capital Resources section of this report. Our Industry We operate in the transaction management infrastructure industry. Transaction
management infrastructure describes the systems used for the communication of
information related to the exchange of goods and services among trading
partners. Trading partners include suppliers, customers, transportation
carriers and financial institutions. Examples of commercial information and
business transaction documents exchanged among trading partners include
invoices, purchase orders, shipping notices and remittance information. Prior
to advances in computer and communications technologies, transaction
management infrastructure systems were primarily paper-based and information
was transmitted via postal carriers or facsimile, as well as in person or by
telephone. Developments in communications and computer technologies offer trading partners
the opportunity to communicate transaction-related information electronically
with minimal human involvement. The opportunity to automate these interactions
electronically is particularly attractive to groups of companies that regularly
trade high volumes of goods and services with each other and therefore generate
significant repetitive business transactions and related documents. For
example, a large manufacturer may need to exchange hundreds or thousands of
documents, such as purchase orders and advance ship notices, with its supplier
base on a daily basis. Further, as companies move to just-in-time manufacturing
and delivery models that require a large amount of information to be
communicated and processed quickly and accurately, the ability to automate the
exchange of transaction-related information becomes even more important. The
disparate and frequently incompatible computing platforms, applications and
communications protocols and document standards used by different trading
partners, however, can often make the electronic communication of business
documents challenging. EDI originated in the 1980s as a solution to address these issues and permits
the electronic exchange of documents across disparate computing platforms,
applications and data and communications protocols. EDI has since become a
cornerstone of transaction management infrastructure enabling the electronic,
machine-to-machine communication of commercial information and business
transaction documents among trading partners. EDI systems can offer trading
partners a number of opportunities to improve operations and reduce costs by:  
    
    eliminating labor intensive, and often error-prone, manual activities;
    
    reducing administrative workload, including reducing or eliminating paper work;
    
    reducing inventory levels, thereby improving inventory turns and
reducing working capital needs;
    
    improving product time-to-market; and 2




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
    
    improving customer service levels. The basic components of EDI transactions are:  
    
    Document Generation.A trading partner (the sending partner)
generates from its internal software applications the business data to
be used to generate one or more business documents such as purchase
orders, invoices, shipping notices, remittance advice and other related
documents and messages.
    
    Translation.A translation software program on the sending
partners computer translates the data into one or more standard EDI
documents. An EDI document is character-based and includes pieces of
information encoded at pre-specified locations. Examples of encoded
information include pricing information, product specification and
shipping addresses. The EDI document also contains routing information,
which is used to send, receive and audit documents. There are more than
350 basic EDI document types and more than 4,000 industry-specific
documents.
    
    Transmission.Each EDI document is transmitted electronically,
typically through an intermediary service provider or directly to the
computer of the intended receiving trading partner.
    
    Access.The receiving trading partner is able to electronically
access and download the EDI document.
    
    Retranslation.A software program on the receiving trading
partners computer translates the EDI document into the format required
by the receiving trading partners internal applications. These
applications in turn initiate internal business processes, such as
fulfillment requests, which often generate additional EDI traffic with
other trading partners or responses to the sending partner. EDI services are commonly facilitated by a value added network, or VAN. The VAN
is the EDI service providers communications and data processing infrastructure
and enables the EDI service provider to send and receive documents
between trading partners and offer additional critical services. These services typically
include:  
    
    Network translation.A VAN can enable the translation of data into
and out of EDI formats to be performed on the service providers network rather than on
the customers computer systems.
    
    Authentication.The VAN authenticates the identity of trading
partners and verifies the authority of trading partners to interact
with one another.
    
    Security.Trading partners are often reluctant to expose their
internal computer systems to outside partners. A VAN can act as a
protective buffer between the computer systems of trading partners by
consolidating interactions among trading partners, thereby minimizing
and controlling the points of contact between the trading partners
internal computer systems.
    
    Non-repudiation and audit tracking.A VAN can provide neutral,
third-party audit trail information to enable trading partners to
settle disputes.
    
    Storage and queuing.Trading partners are able to control when
information enters and leaves a VAN. A VAN can facilitate this control
by storing documents so that trading partners can decide when, and in
what order, documents are accessed and downloaded from the VAN. 3




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
    
    Transport.There are several commonly used data communications
protocols. A VAN allows each trading partner to use the data
communications protocol of its choice without affecting its ability to
easily exchange information with trading partners who may be using
different communications protocols. By utilizing a VAN, EDI service providers take advantage of economies of scale
to make these critical business services available on a cost-effective and
resource-efficient basis to a large number of trading partners. Adoption of EDI across communities of trading partners has generally followed a
hub and spoke"' model, with larger companies leading the initiatives:  
    
    Hubs.Companies in this category tend to be global,
multi-divisional, decentralized organizations
with complex computing environments and sophisticated enterprise
applications software. These large companies often recommend or require
that their trading partners implement EDI as the primary method of
communicating commercial information and business documents. Often, these
EDI initiatives coincide with a variety of extended enterprise and
industry-specific initiatives to automate electronic trading of partner
communications, including quick response, just-in-time manufacturing,
vendor-managed inventory and efficient consumer response. Hub companies,
as part of their EDI initiatives, will typically recommend a specific EDI
service provider and software to their trading partners or require that
their trading partners use a specific EDI service provider and software.
Hub companies also typically rely on the EDI service provider to
implement EDI with the hubs trading partners, creating an opportunity
for the EDI service provider to establish customer relationships with the
hub companies trading partners. An example of a hub company would be a
large apparel retailer that utilizes EDI to communicate with hundreds of
apparel manufacturers.
    
    Spokes.Companies in this category tend to be small to medium-size
organizations that often seek to implement EDI in order to conduct
business with one or more large trading partners. These customers
generally do not have a significant investment in technology, sometimes
as little as a personal computer with a dial-up connection. Spoke
companies typically seek to implement EDI quickly with minimal effort
and expense. An example of a spoke company would be a small consumer
products manufacturer that is required to communicate through EDI by a
retailer selling the manufacturers products. After implementing EDI at
the request of a hub, some spokes become hubs by utilizing EDI to
communicate with their community of trading partners. Under our business model, a trading partner is a mailbox on our network
infrastructure used to facilitate transactions with other mailboxes on our
network or with mailboxes on other interconnected networks. One
trading partner does not necessarily equal one customer, as a single customer
may have multiple mailboxes. A trading community is a collection of trading
partners communicating via their respective mailboxes around a sponsor account.
A sponsor account is a client that has created a large number of relationships
in which to trade electronic business information. For example, a sponsor
account could be a large retailer that created a trading community of its
suppliers as trading partners. Customers We serve a community of more than 100,000 trading partners in a broad range of
industries, including manufacturing, retail, trade and transportation,
telecommunications and utilities, and healthcare. This broad base ensures that
we are not reliant on any individual customer or industry for a significant
portion of our revenues. No one customer represented more than 10% of our
revenues in 2002 and 2003. General Electric and its affiliates accounted for
approximately 9.0% of our total revenues for 2003. We have operations in 4




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approximately twenty-five countries. A discussion of revenues derived from
foreign operations is contained in Note 3 to our audited consolidated financial
statements included in this report. Our customers include over 60% of the Fortune 500 companies. Our top 50
customers, based on revenues for the year ended December 31, 2003, include
industry leaders such as Agilent Technologies, Hewlett Packard, NEC, Cargill
and FedEx. Our Products and Services Our EDI Services contribute the majority of our revenues. Revenue from EDI
Services was 53.2%, 62.6% and 65.6% of our total revenue for the years ended
December 31, 2001, 2002 and 2003, respectively. In addition to our EDI
Services, we also offer Other Business to Business Solutions, including
integration software and marketplace solutions, as well as Custom Messaging and
Network Solutions. We also provide a variety of professional services,
including migration services that assist our customers with upgrades to
existing software, consulting services, implementation services and training. EDI Services Our EDI Services allow our customers to reduce costs and improve efficiency by
enabling the electronic exchange of business documents among our customers
computer systems and those of their trading partners. EDI supplements or
replaces traditional document transport media, including postal, fax, telephone
and email systems. As part of our EDI Services, we have a value added network,
or VAN, which allows a trading partner to use the communications protocol of
its choice and which we use to provide security, authentication, audit and
other transaction processing services. Our VAN processes both traditional EDI
documents and documents developed using newer technologies such as the
extensible mark-up language, or XML. By using our EDI Services, our customers
are able to reduce the costs associated with managing business and technology
variables associated with the exchange of data among a large number of trading
partners that use disparate applications and communications protocols. Our
principal EDI Services are:  
    
    EDI*Express, Tradanetand Interchange Services,which are brand
names for our primary EDI service. These services provide value added services such as security, authentication,
audit tracking, data storage, and protocol independence.
    
    EC Service Center,which enables our customers to outsource the
management, execution and operation activities associated with EDI. EC
Service Center enables our customers to minimize the investment in
software, hardware and other resources necessary to automate their
information-exchange processes through EDI.
    
    Global Product Catalogue,which enables our customers to automate
the distribution of and access to product information for their trading
partners through an electronic catalogue. By including product
information in this catalogue, such as product descriptions and
specifications, a customers trading partners can download information
from a central source without the customer having to provide and update
information separately to each trading partner. Because the catalogue
is accessible to numerous parties within an electronic trading
community, transport, document selection, non-repudiation, audit trail
and security are all dramatically simplified.
    
    GXS Tradeweb,which enables spokes to manually input information
into a Web browser for translation into an EDI document. This product
is designed for spokes that have low transaction volumes and minimal
internal computer systems, but that have access to the Internet, and
allows 5




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them to create and view business documents online. Revenues derived from our EDI Services are primarily generated through
recurring transaction processing fees. For most transactions, we charge a
transaction processing fee to both the sending and the receiving party. As is
customary in the industry, our typical contract for EDI services is
month-to-month, although we are moving towards longer contract terms. Our
average monthly renewal rate for EDI customers was approximately 99.2% for the
year ended December 31, 2003, and many of our larger customers, particularly
customers of our EC Service Center, are committed to multi-year contracts. Our EDI Services customers represent a wide cross-section of vertical markets
and include industry leaders such as FedEx, Procter & Gamble, JC Penney,
DaimlerChrysler, Cargill and Best Buy. Other Business to Business Solutions In addition to our EDI Services, we also offer Other Business to Business
Solutions, including integration software and marketplace solutions. Our
integration software enables customers to self-manage the exchange of
information among disparate business systems and applications within and among
enterprises by integrating internal applications, translating data to an EDI
format and transporting that data through our VAN or directly to the receiving
trading partner. Our integration software products include:  
    
    Enterprise System,which is software that is installed on a
customers computer systems to enable access to business data that
resides in those systems. Enterprise System extracts the data,
translates the data into a standard EDI format and enables the secure
transport of the data through our VAN or directly to the receiving trading
partner. The product keeps a list of every trading partner, the
documents to be used with each trading partner and an audit trail of
all transaction activity. Application Integrator, which is described
below, is typically licensed with Enterprise System.
    
    Application Integrator,which is a software product designed to
perform data transformation. Application Integrator enables our
customers to keep track of the different documents each trading partner
uses and the rules for converting internal data formats into and out of
the standard data documents that can be transported over our VAN. Our integration software products are licensed to our customers for perpetual
use or for a fixed term. Our license agreements generally restrict the use of
the underlying products to designated sites or computer processors. In
connection with the licensing of our integration software products, we provide
software maintenance services and typically charge between 15% and 20% of the
license fee on an annual basis. Maintenance services allow customers to receive
updated or enhanced versions of our software products as they become available
and allow telephone or e-mail access to our technical support personnel. Most
of our integration software customers are also users of our EDI Services and/or
our Other Business to Business Solutions. Our integration software customers
also represent a wide cross-section of vertical markets and include industry
leaders such as FedEx, Verizon, Liz Clairborne, and Woolworths.  
    
    Our marketplace solutions help automate collaborative business
processes that traditionally have been conducted manually. Customers of
our marketplace solutions typically contract with us to provide private
Web-based portals to facilitate interactions with existing or potential
trading partners. Customers of our marketplace solutions include industry leaders such as Subway,
3M and General Electric. 6




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Custom Messaging and Network Solutions Our Custom Messaging and Network Solutions principally consist of applications
and products developed for specific customers for use on our computing
platforms and telecommunications network. For example,
we created a customized application for cash management systems used by banks
that runs on our proprietary Mark III® platform. The application was originally
written in the 1980s and continues to be used today. In addition to these
customized applications and products, our managed network solutions enable
customers to outsource the management and operations of network communications.
Our managed network solutions include telecommunications management, monitoring
and problem resolution, as well as the provision and installation of modems,
routers and software that enable us to manage the customers infrastructure
remotely. We expect revenues from our Custom Messaging and Network Solutions to
continue to decline as a percentage of our total revenues as we continue to
emphasize our EDI Services and Other Business to Business Solutions. We
currently have approximately 4,300 customers for our Custom Messaging and
Network Solutions, many of which also use our other products and services. Some
of these customers include DaimlerChrysler, Verizon and General Electric. Marketing and Sales We market our products and services through our global sales force. Our sales
efforts are generally aimed at senior purchasing executives, chief information
officers and other primary decision makers within a potential customer
organization. Our global sales force is organized along three lines: industry,
geography and major account coverage. Our direct sales teams concentrate on
developing new hub customers within a particular industry and region, as well
as increasing the utilization and penetration of existing trading communities.
Our telephone sales professionals focus primarily on signing up new spoke
customers around a particular hub customer. Our sales teams are supported by a
team of technical sales and marketing support personnel who assist in the sales
process as needed. Our direct sales cycle for hubs typically takes approximately six to nine
months from initial contact to contract signing. Approvals by decision makers
from various branches of a potential customers organization are often required
before a purchase can be completed. The sales cycle for telephone sales varies
from several days to approximately three months. We believe the ability of our
telephone sales team to address a large number of spokes in a short time period
differentiates us in the hub sales process. Our marketing activities are designed to enhance our brand name and the market
awareness of our products through advertising, press releases and other media.
We have product managers dedicated to each of our product lines who, together
with our marketing communications group, focus on increasing awareness of
specific products and services that we offer. Customer Service We view our relationships with customers as long-term partnerships in which
customer satisfaction is crucial. For this reason, we apply an integrated
approach to our sales, marketing and customer service functions. Through our
customer relationships, we are able to achieve an in-depth understanding of a
customers evolving transaction management infrastructure requirements and
levels of service satisfaction. We believe that we provide superior customer
service in terms of timely and accurate responsiveness. Based on these
relationships, we are also able to pursue new revenue generating opportunities
and provide product and service improvements for both new customers and
customers previously overlooked or not adequately addressed. We maintain a customer service center at our headquarters in Gaithersburg,
Maryland and customer service centers and/or customer service representatives
in various locations in Europe and Asia to support 7




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customers on a regional
basis and to provide local technical support as necessary. Our customer service
center in Gaithersburg also provides support to our other customer service
centers and customer service representatives. Our customer service
representatives, in the United States and elsewhere, include both call
analysts, who are trained to identify and analyze customer problems, as well as
skilled technical support teams trained to resolve complex technical problems. Competition We compete with numerous companies both nationally and internationally. Our
competitors include large companies with substantially greater resources than
us that compete in many market areas and small specialized companies that
compete in a particular market niche. We also compete with the internal
programming and information technology staffs of some major companies. Our ability to compete successfully depends on multiple factors, both within
and outside of our control. The principal factors are:  
    
    quality of service,including the reliability and quality of the
products and services we offer;
    
    technical functionality,including delivery of innovative solutions
and our speed in developing and bringing to market the next generation
of products and services;
    
    price;and
    
    customer service,including our responsiveness, availability and flexibility. We believe that our solutions are generally competitive as to all of these
factors. Competition for our EDI Services and Other Business to Business Solutions
ranges from large corporations to integration suites offered by software
vendors and smaller technology consulting firms. We compete with paper-based
communications, direct leased-line communications, fax-based solutions, public
exchanges and other EDI service providers, such as IBM, Inovis, Sterling
Commerce, QRS and other, smaller companies. We also
compete with providers of products and services based on alternative
technologies to EDI such as IBM, webMethods and Cyclone Commerce. Our software products also compete with the products of Sterling Commerce,
Inovis, Ascential
Software, webMethods, SeeBeyond and Vitria. Data Processing Infrastructure We operate three data centers, located in Ohio, Hong Kong and The Netherlands.
These data centers service customers on a regional basis and house our data
processing infrastructure. Our computing infrastructure primarily operates on
one of three systems: IBM z Series OS, UNIX or Mark III®. Mark III® is a legacy
operating system we developed that runs on mainframe computers manufactured by
Bull, S.A. We are in the process of migrating our EDI operations that currently
run on Mark III® to other, more modern platforms, such as UNIX. We believe that
our data processing infrastructure is sufficient to cost-effectively meet
demand for the foreseeable future and to increase capacity as needed. Our telecommunications infrastructure is a high-speed digital network that
connects us to our customers and facilitates the transport of multiple
protocols via private lines and the Internet. In the United States, our
primary provider is AT&T with Equant serving as a backup provider. In Europe,
Equant is our primary provider with AT&T serving as a secondary provider. We
also engage additional providers in other 8




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jurisdictions, mainly in Asia. Our
network providers provide us with diversity and enable us to further enhance
the reliability and quality of our services for our customers. In operating our data processing facilities, we have developed both
capacity-planning and disaster recovery policies and practices. Our capacity
planning operation monitors usage and trends and projects the capital resources
needed to satisfy future needs. It performs this role for both our data
processing and network
communications infrastructure. We are party to disaster recovery agreements
that provide alternative off-site computer systems for our UNIX, NT and
IBM-based processing operations in the event of such a disaster. For our Mark
III®-based processing operations, we have a separate disaster recovery site as
well as contingency plans which provide for the shifting of our processing
operations among different segments of our Ohio data center and our data center
in The Netherlands, if necessary. We have also taken precautions to protect
ourselves and our customers from events that could interrupt delivery of our
transaction processing services. These precautions include, among others,
backup power generation equipment, fire protection and physical security
systems and an early warning detection and fire extinguishing system. Product Development Our product development cycle is driven by technological evolution of new
standards for electronic exchange of information and compatibility with
third-party software. To remain competitive, we are required to incorporate
advances in technology and standards into our products continually. In
addition, we must ensure that our solutions are able to function with the
latest versions of the third-party software that may be used by some of our
customers. We schedule development for all of our products and services on a
six to twelve-month cycle from inception to rollout. We have dedicated product
development teams for each major product line. However, a common development
process, focused on the quality of our products and services, is deployed
across all development efforts. Our process focuses on the reduction of
defects,
application reliability and on-time delivery. All new solutions are developed
on the UNIX platform with development tools using Java and C++ programming
languages. A separate, dedicated team of engineers focuses on the study and
introduction of new transaction technologies such as XML, and new types of
Internet communications protocols, such as SOAP and AS2. In 2001, 2002 and 2003, we recorded expenditures of approximately $31.1
million, $15.2 million and $9.1 million, respectively, for research and
development activities. In addition, we spent $33.3 million, $26.8 million and
$19.5 million during 2001, 2002 and 2003 on the development of internal use
software which we capitalized. Although most of our products are developed
internally, from time to time we have in the past, and may in the future,
acquire software from or invest in companies or businesses that offer products
or services that are complementary to our offerings. Recent Acquisitions Celarix. On June 3, 2003, we acquired substantially all of the assets of
Celarix, Inc. related to its logistics integration and visibility solutions
business. We estimate the value of the preferred and common stock issued as
consideration for the Celarix assets to be approximately $0.6 million and the
value of the assumed liabilities to be approximately $1.3 million. The
logistics integration and visibility solutions acquired from Celarix help
organizations to connect to logistics trading partners and retrieve, use and
share shipment status information throughout their supply chains. 9




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HAHT Commerce. On February 13, 2004, our wholly owned subsidiary, Global
eXchange Services, Inc. completed the acquisition of HAHT Commerce, Inc.
Global eXchange Services acquired all of the capital stock of HAHT Commerce
through a merger of a wholly owned subsidiary of Global eXchange
Services into
HAHT Commerce for consideration of $15.0 million in cash plus common and
preferred shares of GXS Holdings, Inc. valued at approximately $15.0 million,
subject to adjustment. HAHT Commerce is a provider of demand chain management
applications that automate, integrate and optimize order management, product
information management, channel management, business intelligence and customer
services between manufacturers, their channel partners and business customers. We intend to continue to selectively pursue acquisitions of companies with
complementary products and technologies to enhance our ability to provide
comprehensive solutions to our customers and to expand our business. Alliances and Joint Ventures Through our Global Alliance Program, we have established relationships with
third-party software and consulting companies to more easily enable our
customers to employ and utilize our transaction management infrastructure
solutions. Our Global Alliance Program consists of two primary types of
third-party vendors:  
    
    Software Partners.Our customers typically employ numerous software
applications from third-party software vendors. We have established
alliances with a number of industry-leading software providers to
enable our solutions to be implemented more easily and to work more
effectively with the software of these vendors.
    
    Consulting Partners.We maintain close relationships with several
major consulting firms worldwide to extend our implementation and
delivery capabilities. In addition to our Global Alliance Program, we have also partnered with various
entities to form joint ventures outside of the United States to assist with the
marketing and implementation of our products and services in a particular
geographic region. For example, we have a joint venture with ABN AMRO Capital
Investment Asia Limited to provide our products and local EDI Services in
China. Intellectual Property To protect our intellectual property rights, we rely primarily on a combination
of copyright, patent and trademark laws, trade secret protection and
contractual provisions. We also routinely enter into nondisclosure and
confidentiality agreements with our employees, contractors, consultants,
vendors and customers to protect our proprietary rights. We have various rights
to patents, trademarks, copyrights, trade secrets and other intellectual
property directly related to and important to our business. We currently hold
three United States Patents, including United States Patent No. 5,627,972
entitled A system for selectively converting a plurality of source data
structures without intermediary structure into a plurality of selected target
structures. The invention relates to a data interchange system and, more
particularly, to a computer application that is adapted to communicate and
translate data between various computer systems involving dissimilar data
formats or structures. This patented technology is used in our Application
Integrator software product. The invention covered by United States Patent No.
6,671,728, entitled Abstract Initiator, relates to a method for decoupling a
transfer protocol from a central file transfer system. Finally, the invention
contained in United States Patent No. 6,678,682, entitled Method, System and
Software for Enterprise Access Management Controls, provides for a centralized
access management service that allows multiple applications to define and
register a standard access control schema. As part of our recent effort to
expand our patent portfolio, we have filed 25 patent applications that improve
upon our 10




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technology. In addition, as part of our acquisition of HAHT Commerce,
in February 2004, we acquired three U.S. patent applications, which are not of
material importance to our business and are being allowed to lapse. We hold
registrations on trademarks and service marks on 23 separate marks that have
been registered in a number of jurisdictions. All of these registered marks are
related to legacy or discontinued products and services, and as such, are not
of material importance to our business. We acquired as part of our acquisition
of HAHT, 17 separate marks that have been registered in a number of
jurisdictions, none of which are of material importance to our business. We
also acquired the rights to one additional Canadian and two U.S. registered
trademarks as part of our acquisition of the Celarix assets in June 2003, none
of which are of material importance to our business. Our policy is to apply for
patents with respect to our
technology and seek trademark registration of our marks from time to time when
management determines that it is competitively advantageous and cost effective
to do so. We have also been granted licenses for a number of third-party
software products for our own use and for remarketing to our customers.
Further, we believe that our unpatented research, development and engineering
skills also make an important contribution to our business. We do not believe
that any one single patent, patent application or license is material to the
success of our business as a whole. However, in the aggregate these patents
applications and licenses are material to our business. In connection with the recapitalization, General Electric assigned, licensed or
sublicensed, as the case may be, to us all intellectual property rights owned
by General Electric that were used by us to operate our business. We also
entered into a separate agreement under which General Electric granted us a
license to use the GE monogram trademark on a non-exclusive, royalty-free
basis. This license terminates on September 27, 2004. Since we are not using
the trademark covered by the license, we do not expect the termination of the
license to have any effect on our business. Employees As of March 15, 2004, we had approximately 1,600 full-time employees worldwide,
including approximately 1,000 technical personnel engaged in maintaining or
developing our products or performing related services, approximately 275
marketing, sales and sales support personnel and approximately 225
administrative, finance and management personnel. We also have approximately
100 call analysts and customer service support technicians worldwide. To
attract and retain desired personnel, we offer competitive compensation and
benefits packages and strive to maintain excellent employee relations. None of
our U.S. employees are represented by a labor union. We have not experienced
any work stoppages and consider our employee relations to be good. Available Information GXSs Web site address
is www.gxs.com. Interested persons may obtain, free
of charge, copies of filings (including GXSs annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments
to those reports) that GXS has made with the Securities and Exchange Commission
(as soon as reasonably practicable after they are filed with, or furnished to,
the Securities and Exchange Commission) by requesting a copy from
GXSs Senior Vice President, General Counsel and Secretary, Bruce E. Hunter. Item 2. Properties We lease approximately 342,000 square feet of office space for our corporate
headquarters located in Gaithersburg, Maryland. This lease expires in April
2014. We have the option to renew this lease for an additional 10
years, through April 2024, followed by two five-year renewal options. General
Electric has guaranteed all of our obligations under this lease. In connection
with the recapitalization, Global 11




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Acquisition Company is required to either
replace General Electric as the guarantor or to indemnify General Electric for
any obligations it may have under its guarantee; which we have done by
providing a letter of credit for General Electrics benefit, in the amount of
$7.5 million. As of December 31, 2003, approximately 30% of the office space
is vacant and available for sublease. Our main data center is a 104,000 square-foot facility located in Cleveland,
Ohio. We also operate a 54,000 square-foot data center in Amsterdam, The
Netherlands, and a 12,000 square-foot data center in Hong Kong, China. Other
than our Ohio data center, which we own, our data centers are leased. These
leases expire at various times between 2007 and 2013. In addition, as of December 31, 2003, we had nine sales offices in the United
States and 13 sales offices in 10 foreign countries. We also maintain a
customer service center at our headquarters in Gaithersburg, Maryland to
support our customers in the Americas, and customer service centers and/or
customer service representatives in various locations in Europe and Asia to
support customers on a regional basis. Item 3. Legal and Other Proceedings Other than litigation and claims for which we have obtained an indemnity from
General Electric, there are no material claims or litigation pending against
us. In prior periods, we had a dispute with WorldCom Technologies, Inc.
relating to its Telecommunications Network Services Agreement (TNSA). On July
21, 2002, WorldCom and 200 of its subsidiaries filed for Chapter 11 Bankruptcy
protection with the United States Bankruptcy Court for the Southern District of
New York (Chapter 11 Case No. 02-13533). Pursuant to the Recapitalization
Agreement, General Electric had agreed to indemnify us against losses, damages,
costs, expenses, liabilities, and obligations resulting from this matter. We
entered into a settlement agreement with WorldCom and General Electric dated
September 29, 2003 that resolved all claims pertaining to us and WorldCom
through December 31, 2002 and established pricing that applied for WorldCom
services provided to us in 2003. The settlement agreement was approved in
accordance with WorldComs bankruptcy proceeding and became effective on
December 16, 2003. We also entered into a separate settlement agreement with
General Electric. The settlement agreements did not have a material impact on
our consolidated financial statements. We are and may from time to time in the future become subject to certain legal
proceedings and claims which arise in the normal course of our business. These
routine litigation matters are usually settled or defended, depending on the
circumstances of each claim. While any legal proceeding has elements of
uncertainty, we do not believe, based on historical experience, that the amount
of any liability incurred in connection with these types of claims would have a
material effect on our financial condition or on the results of our operations. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 12




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PART II Item 5. Market for Registrants Common Equity and Related Stockholder Matters Not applicable. Item 6. Selected Consolidated Financial Data The following table presents our selected historical consolidated financial
information. The historical consolidated financial information as of December
31, 2002 and 2003 and for each of the fiscal years ended December 31, 2001,
2002 and 2003 has been derived from, and should be read together with, our
audited consolidated financial statements and the accompanying notes included
elsewhere in this annual report. The selected financial data as of December 31,
2000 and 2001 and for the year ended December 31, 2001 have been derived from
our audited consolidated financial statements, not included in this annual
report. The selected financial data set forth below as of December 31, 1999 has
been derived from our unaudited consolidated financial statements not included
in this annual report.
The financial data set forth below should be read together with Managements
Discussion and
Analysis of Financial Condition and Results of Operations. Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003Operating Data:Revenues
    
    $
    663,934
    
    
    $
    565,655
    
    
    $
    464,179
    
    
    $
    409,454
    
    
    $
    363,469Costs and operating expenses:Cost of revenues
    
    
    376,974
    
    
    
    342,314
    
    
    
    292,654
    
    
    
    245,307
    
    
    
    205,959Sales and marketing
    
    
    142,548
    
    
    
    129,122
    
    
    
    119,448
    
    
    
    73,331
    
    
    
    73,611General and administrative
    
    
    54,879
    
    
    
    52,907
    
    
    
    45,295
    
    
    
    41,176
    
    
    
    39,919Gains on sales of assets
    
    
    
    
    
    
    
    
    
    
    (8,576
    )
    
    
    
    
    
    
    (700
    )Restructuring and related charges
    
    
    
    
    
    
    
    
    
    
    9,421
    
    
    
    18,406
    
    
    
    26,671Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    4,287
    
    
    
    5,425
    
    
    
    6,500Corporate charge from General Electric
    
    
    11,321
    
    
    
    11,249
    
    
    
    12,940
    
    
    
    7,331
    
    
    
    Operating income (loss)
    
    
    78,212
    
    
    
    30,063
    
    
    
    (11,290
    )
    
    
    18,478
    
    
    
    11,509Other income (expense):Gain on disposition of business
    
    
    
    
    
    
    50,745
    
    
    
    
    
    
    
    
    
    
    
    Gains on sales of investments
    
    
    12,373
    
    
    
    36,612
    
    
    
    144,638
    
    
    
    
    
    
    
    Proportionate share of losses in investee
companies and investment write-downs
    
    
    (7,906
    )
    
    
    (18,759
    )
    
    
    (23,417
    )
    
    
    (4,668
    )
    
    
    (679
    )Fees related to the recapitalization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,085
    )
    
    
    Write-off of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,548
    )Interest income
    
    
    613
    
    
    
    10,726
    
    
    
    6,570
    
    
    
    1,285
    
    
    
    750Interest expense
    
    
    (1,517
    )
    
    
    (12,007
    )
    
    
    (5,334
    )
    
    
    (14,526
    )
    
    
    (50,967
    )Other income (expense), net
    
    
    3,823
    
    
    
    13,232
    
    
    
    6,705
    
    
    
    (83
    )
    
    
    1,248Income (loss) before income taxes
    
    
    85,598
    
    
    
    110,612
    
    
    
    117,872
    
    
    
    (29,599
    )
    
    
    (43,687
    )Provision for income taxes
    
    
    30,868
    
    
    
    42,793
    
    
    
    49,278
    
    
    
    9,858
    
    
    
    259,590Net income (loss)
    
    $
    54,730
    
    
    $
    67,819
    
    
    $
    68,594
    
    
    $
    (39,457
    )
    
    $
    (303,277
    )
 13




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Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003Other Financial DataDepreciation and amortization
    
    $
    31,619
    
    
    $
    33,451
    
    
    $
    41,943
    
    
    $
    47,768
    
    
    $
    47,346Capital expenditures
    
    
    50,469
    
    
    
    83,037
    
    
    
    73,159
    
    
    
    37,815
    
    
    
    29,395Balance Sheet Data (at end of period):Total assets
    
    
    314,709
    
    
    
    531,952
    
    
    
    327,309
    
    
    
    572,677
    
    
    
    291,436Total debt
    
    
    4,200
    
    
    
    6,474
    
    
    
    43,922
    
    
    
    409,562
    
    
    
    405,520Stockholders
equity (deficit)
    
    
    170,315
    
    
    
    316,103
    
    
    
    127,494
    
    
    
    57,996
    
    
    
    (224,735
    )Financial Ratio (at end of period):Ratio of
earnings to fixed charge(1)
    
    
    4.27x
    
    
    
    5.25x
    
    
    
    8.67x
    
    
    
    
    
    
    
    
 (1) Earnings used in computing the ratio of earnings to fixed charges consist
of income before income taxes plus fixed charges. Fixed charges consist of
interest on indebtedness, amortization of debt issue costs and that portion of
lease expense representative of interest expense. Earnings were insufficient to
cover fixed charges for the years ended December 31, 2002 and
2003 by $25.5 million and
$43.5 million, respectively. Results for the year
ended December 31, 2002 include $30.1 million of non-recurring fees related to
the recapitalization and depreciation and amortization of $47.8 million.
Results for the year ended December 31, 2003 included depreciation and
amortization of $47.3 million. Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations The following discussion and analysis of our consolidated financial condition
and results of operations should be read in conjunction with our audited
consolidated financial statements and the accompanying notes, which are
included elsewhere in this document. The following discussion and analysis may contain forward-looking statements,
which reflect the expectations, beliefs, plans and objectives of management
about future financial performance and/or assumptions underlying our judgments
concerning matters discussed below. These statements, accordingly, involve
estimates, assumptions, judgments and uncertainties. In particular, this
pertains to managements comments on financial resources, capital spending and
the outlook for our business. Actual results or outcomes may differ materially
from those in such forward-looking statements. See  Factors That Could Affect
Future Results  Special Note Regarding Forward-Looking Statements. Overview We provide software-based products and services which enable businesses to electronically exchange documents and automate related processes. Our offerings are categorized into three lines of business: EDI Services, Other Business to Business Solutions, and Custom Messaging and Network Solutions. EDI Services are our principal offerings; they enable our customers to exchange business documents in an automated and secure environment.
With our EDI offerings we typically provide value added services such as non-repudiation, document translation, enhanced security, format conversions and support various communication
protocols. Other Business to Business Solutions includes our hosted applications and integration software; these solutions facilitate integration of internal information and collaboration between
 trading partners. Custom Messaging and Network Solutions primarily includes legacy offerings which include custom applications for individual customers. We have been a leading provider of these products and services, based upon transactions processed, for the past 20 years. We process more than one billion transactions annually among more than 100,000
trading partners. For the year ended December 31, 2003, we generated revenues
of $363.5 million; our EDI Services contributed $238.4 million, or 65.6%, of
those revenues. For the year ended December 31, 2003, we derived approximately
71.9% of our total revenues from recurring transaction processing fees generated
by our EDI Services and Other Business to Business Solutions. We estimate that
these transactions represent over $500 billion in goods and services exchanged.
Our customers include over 60% of the Fortune 500 companies, including industry
leaders such as FedEx, Procter & Gamble, Best Buy, JC Penney, Kodak,
Albertsons, and General Electric. 14




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In general, we derive our revenue from:  
    
    recurring transaction processing fees;
    
    software licensing;
    
    software maintenance; and
    
    provision of professional services in connection with our products. In 2001, 2002 and 2003, we derived approximately 63.5%, 68.2% and 71.9% of our
revenues from recurring transaction processing fees generated by our EDI
Services and Other Business to Business Solutions. For most transactions, we
charge a transaction-processing fee to both the sending and the receiving
party. Because the transactions we process, such as the exchange of invoices
and purchase orders, are routine and essential to the day-to-day operations of
our customers, the revenues generated from these fees tend to be highly
recurring in nature. While many of our larger customers are committed to
multi-year contracts, our typical contract for EDI services automatically
renews every month. However, we are moving towards longer term contracts.
Transaction processing revenues are recognized on a per transaction basis in
the period the related transaction is processed. Revenues on contracts with
monthly or quarterly minimum transaction levels are recognized based on the
greater of actual transactions processed or the specified contract minimums. We also license our software either for perpetual use or for a fixed term.
Licensing revenues are generally recognized when the license agreement is
signed, the license fee is fixed and determinable, delivery has occurred and
collection is probable. In connection with the licensing of our software
products, we provide software maintenance services that also generate recurring
revenues. We typically charge between 15% and 20% of the initial license fee on
an annual basis for these maintenance services. We recognize software
maintenance revenues over the life of the related maintenance contracts, which
is typically one year. We currently have more than 4,800 software maintenance
contracts. In 2001, 2002 and 2003, we derived approximately $14.4 million,
$12.9 million and $12.6 million in revenues from fees relating to these
contracts. We provide professional services in connection with our entire range of
products and services. These services are typically provided under time and
material contracts and revenue is recognized as the related services are
provided. Most of our costs are relatively fixed and primarily consist of salary
compensation and related benefits, as well as expenses for infrastructure
equipment, such as hardware and software, and costs associated with the
procurement of our telecommunications network. Recent Trends and Cost-Reduction Initiatives A number of major trends over the past several years have caused us to
re-evaluate our strategic focus, our mix of products and services and our
corporate cost structure. For most of the 1990s, we focused on providing
customized information technology solutions to our customers, while also
providing standard EDI Services and a variety of other business to business
solutions. In 2000, 32.4% of our revenues were 15




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generated by our Custom
Messaging and Network Solutions, 39.3% were generated by EDI Services and 28.3%
were generated by Other Business to Business Solutions. Along with general economic conditions, the proliferation of the Internet and
other technological advances in computing and telecommunications continues to
transform the transaction management industry. Our business has been impacted
in several ways including a decline in revenue in each of our three categories
of products and services. Our Custom Messaging and Network Solutions declined
rapidly as customers moved to less customized, open systems based solutions.
This decline was exacerbated by the loss of a key customer and migration by
some of our customers to more standardized year 2000 compliant systems during
this time period. From 2000 to 2003, revenues from our Custom Messaging and
Network Solutions declined from $183.7 million to $62.6 million. From 2000 to 2002, revenues generated by our EDI Services grew from $222.0
million to $256.1 million as more companies implemented our systems to enhance
their productivity. In 2003, revenue from EDI Services declined to $238.4
million. Revenue generated by our Other Business to Business Solutions, which
are largely driven by discretionary corporate information technology spending,
peaked in 2000, at $159.9 million, or 28.3% of our total revenues and declined
to $62.5 million, approximately 17.2% of our total revenues, in 2003. During 2000 in response to the expected rapid growth in demand for EDI Services
and Other Business to Business Solutions, such as our online marketplaces, we
added substantial resources and personnel, significantly increasing our cost
structure. As the economy began to slow and the growth we expected for our EDI
Services and Other Business to Business Solutions did not materialize, our
expanded cost structure had a significant impact on our profitability. We responded to the weakening general economic conditions and corresponding
effect on demand for our products and services, by:  
    
    reducing our cost structure through the removal of excess capacity
in our sales force, our professional services organization and our
computing and network infrastructure;
    
    cancelling and consolidating various marketing and development
programs related to products and services that were not generating
sufficient revenues to support the continued investment; and
    
    reducing back-office personnel. Throughout 2002, the general economic weakness continued, resulting in slower
growth in our EDI Services than experienced in prior years as well as continued
declines in demand for our Other Business to Business Solutions. Custom
Messaging and Network Solutions also continued to decline, although at a slower
pace than in previous years. In addition, continued general economic weakness
during early 2003, as well as competitive price dynamics throughout 2003 resulted in a decline in EDI Services in 2003. We expect that the competitive
pricing dynamics we are seeing across the industry will continue to put
pressure on the revenue of the EDI Services business. During the fourth
quarter of 2003, we entered into a restructuring plan to terminate
approximately 80 employees and ceased to use approximately 30% of our
Gaithersburg facility, which we intend to sublease. We continue to focus on
maintaining a cost structure that is appropriate for our existing revenue base
and revenue expectations. 16




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Recapitalization In September 2002, we effected a recapitalization of our company, which
resulted in the ownership by Francisco Partners L.P. and co-investors, through
an indirect subsidiary, of 90%, and the ownership by General Electric, through
an indirect subsidiary, of 10%, of the capital stock of our parent company, GXS
Holdings. As a result of this transaction, we are no longer an indirect wholly
owned subsidiary of General Electric. We believe that our continued
relationship with Francisco Partners L.P. will be beneficial to our
business and do not expect our separation from General Electric to have any
material impact on our operations or profitability. In conjunction with the
recapitalization, we incurred debt consisting of borrowings
under a $175.0 million senior credit facility and $235.0 million of senior
subordinated reset notes. In addition, we established a $35.0 million revolving credit
facility. In March 2003, we completed a refinancing of our
senior credit facility whereby we entered into a new $30.0 million revolving
credit facility, a $70.0 million term loan facility and issued $105.0 million
of senior secured floating rate notes. The March 2003 refinancing activities
are further described in the Liquidity and Capital Resources section of this
report. The Company has made two
recent acquisitions, see Business - Recent
Acquisitions. Critical Accounting Policies Managements discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which are
prepared in accordance with accounting principles generally accepted in the
United States. Some accounting policies require us to make estimates and
assumptions about future events that affect the amounts reported in our
financial statements and the accompanying notes. Future events and their
effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results
could differ from those estimates, and any differences may be material to the
financial statements. A description of all of our significant accounting
policies used is described in Note 2 to our audited consolidated financial
statements, included herein. Some of these policies involve a higher degree of
judgment and complexity in their application and represent the critical
accounting policies used in the preparation of our financial statements. These
critical accounting policies, in managements judgment, are those described
below. If different assumptions or conditions were to prevail or if our
estimates and assumptions prove to be incorrect, actual results could be
materially different from those reported. Revenue Recognition.Most of our revenue is recognized in the month in which service is
performed, but in many cases, our recognition of revenue from the licensing of
our software products requires judgment. When our software requires significant
customization and modification, we estimate the total cost of the contract and
recognize revenue based on actual costs incurred in relation to the total
estimated cost. If we made different judgments or utilized different estimates
of the total amount of work we expect to be required to customize or modify the
software, the timing of our revenue recognition and our margins from period to
period may have differed materially from that reported. In situations where we
host software, we estimate the feasibility of the customer either running the
software on its own systems or contracting with another party to host the
software. If neither is feasible, license revenue is recognized over the term
of the hosting contract. If either is feasible, license revenue is recognized
when the software is delivered, and hosting revenue is recognized over the life
of the hosting contract. If our assessment of this feasibility, including any
penalties under the customer contracts, were different, the timing of our
revenue recognition could differ materially. In many cases, we deliver multiple products and services to the same customer.
In these cases, we allocate revenue to each component of the arrangement using
the residual value method. This means that we defer revenue from the total
fees associated with the arrangement in an amount equal to the fair value of
the elements of the arrangements that have not been delivered. The fair value
of any undelivered element is 17




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established by using historical evidence specific
to us. If we were to allocate the respective fair values of the elements
differently, the timing of our revenue recognition could differ materially. Valuation of Accounts Receivable.We must make estimates of potential sales
returns, allowances and bad debts in valuing our accounts receivable. We
analyze historical returns, current economic trends and changes in customer
demand and acceptance of our products and services when evaluating the adequacy
of the provision for sales returns and allowances. We analyze historical bad
debts, customer concentrations,
customer credit-worthiness, and current economic trends when evaluating the
adequacy of the allowance for doubtful accounts. However, if the financial
condition of our customers were to deteriorate, their ability to make required
payments may become impaired, and increases in these allowances may be
required. As of December 31, 2002 and 2003, we had allowances for doubtful
accounts and sales allowances of $9.6 million and $11.3 million, respectively. Capitalization of Software.We capitalize software development costs in
accordance with AICPA Statement Of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.We begin to
capitalize costs for software to be used internally when we enter the
application development stage. This occurs when we have completed the
preliminary project stage, our management authorizes and commits to funding the
project and we believe it is feasible that the project will be completed and
the software will perform the intended function. We stop capitalizing costs
related to a software project when we believe we have entered the post
implementation and operation stage. We capitalized approximately $26.9 million
in software development costs during 2002 and $19.5 million during 2003. If we
were to make different determinations with respect to the state of development
that a software project had achieved, then the amount we capitalize and the
amount we charge to expense for that project could differ materially. The costs we capitalize during the application development stage consists of
payroll and related costs for our employees who are directly associated with
and who devote time directly to a project to develop software for internal use.
We also capitalize the direct costs of materials and services, which generally
includes outside contractors. We do not capitalize any general and
administrative overhead costs or costs incurred during the application
development stage related to training or data conversion costs. We also
capitalize costs related to upgrades and enhancements to internal-use software
if those upgrades and enhancements result in additional functionality. If
upgrades and enhancements do not result in additional functionality we expense
those costs as incurred. If we were to make different determinations with
respect to whether upgrades or enhancements to software projects would result
in additional functionality, then the amount we capitalize and the amount we
charge to expense for that project could differ materially. We begin to amortize capitalized costs with respect to development projects for
software for internal use when the software is ready for use. We generally
amortize the capitalized software development costs using the straight-line
method over a five-year period. In determining and reassessing the estimated
useful life over which the cost incurred for the software should be amortized,
we consider the effects of obsolescence, technology, competition and other
economic factors. Amortization expense related to software for internal use was
$18.4 million during 2002 and $17.2 million during 2003. If we were to make
different determinations with respect to the estimated useful lives of the
software, then the amount of amortization we charge in a particular period
could differ materially. In accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketedwe expense as incurred costs associated with software developed for
license to customers because we apply the working model method and, as such,
the costs incurred from the date of working model to commercial release to
customers have not been material. 18




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##### 



Valuation of Long-lived Assets.Long-lived assets, which consist primarily of
property and equipment, including capitalized costs for software developed for
internal use, and goodwill totaled $168.4 million as of December 31, 2002 and
$145.8 million as of December 31, 2003. We periodically evaluate the estimated
useful life of property and equipment and, when appropriate, adjust the useful
life thereby increasing or decreasing the depreciation expense recorded in the
current and in future reporting periods. We also assess the impairment of
long-lived assets on an annual basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important which could trigger an impairment review include the
following:  
    
    significant underperformance relative to historical or projected future operating results;
    
    significant changes in technology or in the manner of our use of the assets or the strategy for our overall business; and
    
    significant negative industry or economic trends. When we determine that the carrying value of long-lived assets may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, we measure any impairment based on a projected discounted cash flow
method using a discount rate determined by our management to be commensurate
with the risk inherent in our business. This process is inherently subjective,
as it requires management to make estimates and assumptions about future cash
flows. During the year ended December 31, 2003, the Company recorded an
impairment charge of $6.5 million related to certain internally developed
software for which management has estimated that future cash flows were less
than the carrying value of the software. During the year ended December 31,
2002, the Company recorded an impairment charge of $5.4 million primarily
related to certain software under development for which the plans to deploy
were curtailed. Deferred Tax Assets.As of December 31, 2002 and 2003, we had net deferred tax
assets of approximately $265.2 million and $4.8 million, respectively. In
connection with the recapitalization, we made a tax election in the United
States that allowed us to revalue our assets and liabilities for U.S. federal
income taxes purposes. We have estimated the tax benefit of this revaluation
to be approximately $242.0 million. We consider the scheduled reversal of
deferred tax liabilities, projected future income and tax planning strategies
in assessing the realizability of deferred tax assets. Management believes the
Company will achieve profitable operations in future years that will enable the
Company to recover the benefit of its deferred tax asset. However, the Company
presently does not have sufficient objective evidence to support managements
belief and, accordingly, has established a full valuation allowance in the
current year for its U.S. and selected foreign net deferred tax assets as
required by generally accepted accounting principles. Recording this valuation allowance does not impact the Companys ability to realize the benefit of this asset. Contingencies.We periodically record the estimated impacts of various
conditions, situations or circumstances involving uncertain outcomes. These
events are called contingencies and our accounting for these events is
prescribed by SFAS No. 5, Accounting for Contingencies.SFAS No. 5 defines a
contingency as an existing condition, situation, or set of circumstances
involving uncertainty as to possible gain or loss to an enterprise that will
ultimately be resolved when one or more future events occur or fail to occur.
Contingent losses must be accrued if:  
    
    information is available that indicates it is probable that the loss
has been incurred, given the likelihood of the uncertain future
events; and
    
    that the amount of the loss can be reasonably estimated. 19




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The accrual of a contingency involves considerable judgment on the part of
management. Legal proceedings have elements of uncertainty, and in order to
determine the amount of reserves required, if any, we assess the likelihood of
any adverse judgments or outcomes to pending and threatened legal matters, as
well as potential ranges of probable losses. We use internal expertise and
outside experts, as necessary, to help estimate the probability that a loss has
been incurred and the amount or range of the loss. A determination of the
amount of reserves required for these contingencies is made after analysis of
each individual issue. The required reserves may change in the future due to
new developments in each matter or changes in approach such as a change in
settlement strategy. In the event that we incur a loss in the future with
respect to a contingency for which General Electric has indemnified us, the
resulting loss will
be recorded in our net income for that period along with a corresponding
capital contribution from General Electric. Results of Operations A summary of our revenue by line of business follows: Year Ended December 31,2001
    
    2002
    
    2003(in thousands of dollars)$
    
    %
    
    $
    
    %
    
    $
    
    %Revenues:EDI Services
    
    
    246,991
    
    
    
    53.2
    %
    
    
    256,108
    
    
    
    62.6
    %
    
    
    238,410
    
    
    
    65.6
    %Other Business to Business Solutions
    
    
    135,385
    
    
    
    29.2
    %
    
    
    88,537
    
    
    
    21.6
    %
    
    
    62,465
    
    
    
    17.2
    %Custom Messaging and Network Solutions
    
    
    81,803
    
    
    
    17.6
    %
    
    
    64,809
    
    
    
    15.8
    %
    
    
    62,594
    
    
    
    17.2
    %Total revenues
    
    
    464,179
    
    
    
    100.0
    %
    
    
    409,454
    
    
    
    100.0
    %
    
    
    363,469
    
    
    
    100.0
    %
 Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Revenues. Revenues decreased by $46.0 million, or 11.2%, to $363.5 million for
the year ended December 31, 2003 from $409.5 million for the year ended
December 31, 2002. EDI Services.Revenues
from EDI Services decreased by $17.7 million, or 6.9%,
to $238.4 million for the year ended December 31, 2003 from $256.1 for the year
ended December 31, 2002. The decrease in EDI Services revenue was comprised of
a $30.0 million revenue decline in the Americas resulting from lower
EDI*Express volume and pricing and, a decline in professional services revenue
of $4.7 million due to the conclusion of a significant project in 2002, offset
by increases in revenue resulting from the favorable impact of foreign currency
exchange of $9.9 million, Celarix revenue of $1.5 million, customer surcharges
of $3.0 million and core revenue growth in Europe of $3.4 million. The impact
on revenues of mailbox cancellations during the year ended December 31, 2003
was somewhat offset by price increases implemented in the fourth quarter of
2002. Key factors contributing to the lower EDI*Express volume include cyclical
economic pressure on our clients, volume impact of two clients, Kmart
Corporation, who filed for bankruptcy during the first quarter of 2002 and
Fleming Cos. Inc, who filed for bankruptcy during the second quarter of 2003
and a significant client whose volumes with us were negatively impacted by the
consolidation of ordering activity from individual stores to regional
distribution centers. 20




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##### 



Other Business to Business Solutions.Revenues from Other Business to Business
Solutions decreased by $26.0 million, or 29.4%, to $62.5 million for the year
ended December 31, 2003 from $88.5 million for the year ended December 31,
2002. The $26.0 million revenue decrease is primarily driven by the
termination of three customer contracts in 2002 offset by a favorable impact of
foreign currency exchange of $1.0 million. We expect this segment to increase
in 2004 as a result of our acquisition of HAHT Commerce. Custom Messaging and Network Solutions.Revenues from Custom Messaging and
Network Solutions decreased $2.2 million, or 3.4%, to $62.6 million for the
year ended December 31, 2003 from $64.8 million for the year ended December 31,
2002. The decrease in revenue is in line with expectations as
customers continue to migrate away from legacy applications to open systems
based solutions. Decreased business volume was offset by a favorable impact of
foreign currency exchange of $2.8 million. On a percentage of revenue basis, for the year ended December 31, 2002 compared
to the year ended December 31, 2003, EDI Services increased from 62.6% to
65.6%, Other Business to Business Solutions decreased from 21.6% to 17.2% and
Custom Messaging and Network Solutions increased from 15.8% to 17.2%. Cost of revenues. Cost of revenues decreased by $39.3 million, or 16.0%, to
$206.0 million for the year ended December 31, 2003 from $245.3 million for the
year ended December 31, 2002. The decrease in cost of revenues is driven by
the impact of restructuring actions taken during 2002 as well as actions taken
in 2003 to align our cost structure with our revenue. As demand for our Other
Business to Business Solutions and Custom Messaging and Network Solutions
slowed, we curtailed a number of product development programs. The impact of
the actions contributed to a decline of $23.9 million in network equipment
expense and a $21.8 million decline in compensation, contractors and related
expenses for the year ended December 31, 2003. Sales and marketing.Sales and marketing expense increased by $0.3 million, or
0.4%, to $73.6 million for the year ended December 31, 2003 from $73.3 million
for the year ended December 31, 2002. The year over year increase is primarily
due to expenses related to the upgrade of our sales force, offset by the
consolidation of marketing and development programs and our efforts to reduce
our cost structure by reorganizing our sales force more broadly across all
product lines and closing various sales offices. These actions resulted in an
increase of $3.6 million in compensation, contractors and related costs, and a
decrease of $3.1 million related to the closing and consolidation of various
facilities. The increase in compensation cost will recur in 2004. General and administrative.General and administrative expenses decreased by
$1.3 million, or 3.2%, to $39.9 million for the year ended December 31, 2003
from $41.2 million for the year ended December 31, 2002. The decrease for the
year ended December 31, 2003 was primarily driven by a decrease in compensation
and benefits as a result of actions taken to align our cost structure with our revenue. Our reduction in operating
costs were somewhat mitigated by the weakening dollar which caused cost of revenues, sales and marketing and general
and administrative expenses to be approximately $10.0 million higher in 2003
compared to 2002. Restructuring and related charges.Restructuring and related charges increased
by $8.3 million, or 45.1%, to $26.7 million for the year ended December 31,
2003 from $18.4 million for the year ended December 31, 2002. The 2003 charges
related to facility and equipment lease buy-outs, facility exit costs including
a restoration obligation, and severance for approximately 80 personnel
primarily in our factory, engineering, and services organizations. The 2002
activities resulted in the termination of approximately 300 people resulting in
a restructuring and related charge of $18.4 million, principally related to
severance and related termination costs, costs associated with the closings of
sales, services and engineering facilities and buy-out of certain equipment
operating leases. A portion of these costs were reimbursed by General 21




---



##### 



Electric
as part of the September 2002 recapitalization agreement. The reimbursements
are reflected as contributions to additional paid-in capital. Asset impairment charges.For the year ended December 31, 2003, we recorded an
impairment charge of $6.5 million related to internally developed software
providing specific customer functionality. Future cash flows were estimated by
management to be less than the current net book value of the software and, as a
result, an impairment charge was recorded. For the year ended December 31,
2002, we recorded an impairment charge of $5.4 million primarily related to
certain software under development for which the plans to deploy were
curtailed. Corporate charges from General Electric.The corporate charges from General
Electric were $7.3 million for the year ended December 31, 2002. Each year,
General Electric charged us a fixed percentage of our budgeted total costs for
that year as a corporate charge, which covered various centralized services
that General Electric provided to us as needed, such as compensation and
benefit plan design, tax planning, marketing support, treasury, auditing,
public company reporting and various other corporate expenses. Following the
recapitalization, we no longer pay a corporate charge to General Electric. As
a stand-alone entity, the replacement costs of these General Electric services
are now recognized in the respective functions where incurred. Proportionate share of losses in investee companies and investment write-downs.
During year ended December 31, 2003, we recorded our proportionate share of
the losses of our equity method investments of $0.7 million. During the year
ended December 31, 2002, we recognized losses on our various cost and equity
method investments of $4.7 million. Of this amount $1.3 million related to our
proportionate share of losses of one equity method investment and $3.4 million
related to write-down of several cost method investments where we determined
the decline in value was other than temporary. As of December 31, 2003 and
2002, we held four cost method investments and one equity method investment
where the carrying value of the investment had not been completely written-off. Write-off of deferred financing costs.Deferred financing costs of $5.5 million
were written off during the year ended December 31, 2003. The write-off was
related to the refinancing of our original senior term loan. Interest expense.Interest expense of $51.0 million for the year ended
December 31, 2003, and $14.5 million for the year ended December 31, 2002, was
primarily driven by interest on our long-term debt issued in connection with
the recapitalization. Provision for income taxes.Income tax expense was $259.6 million for the year
ended December 31, 2003 compared to $9.9 million for the year ended December
31, 2002. Our income tax provision for 2003 includes the impact of a $273.4
million valuation allowance against the net U.S. deferred tax assets. Our
income tax provision for 2002 includes $8.3 million of income taxes we incurred
upon the repatriation of foreign earnings, which previously had not been
taxable in the United States, and a $0.9 million charge to reflect changes in
our net deferred tax assets resulting from the change in control effected by
the recapitalization. Our tax rates for both periods differed from the federal
statutory rate of 35% principally as result of state income taxes, the
effect of losses in foreign jurisdictions for which no income tax benefits have
been recognized and valuation allowances recorded on deferred tax assets. Net income (loss).Net loss increased by $263.8 million to a net loss of
$303.3 million for the year ended December 31, 2003 compared to a net loss of
$39.5 million for the year ended December 31, 2002. The increase of $263.8
million was primarily driven by a valuation allowance of $273.4 million
recorded against the net U.S. deferred tax assets during the quarter ended
December 31, 2003. 22




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##### 



Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Revenues.Revenues decreased by $54.7 million or 11.8%, to $409.5 million for
the year ended
December 31, 2002 from $464.2 million for the year ended December 31, 2001
primarily as a result of a $46.8 million, or 34.6%, decline in revenues from
our Other Business to Business Solutions and a $17.0 million, or 20.8%, decline
in revenues from our Custom Messaging and Network Solutions. The decline in
revenues from our Other Business to Business Solutions is attributable primarily
to a $16.7 million decline in revenues from professional services and a $12.1
million decline in revenues from network-based services due, in part, to
unfavorable economic conditions and reduced capital spending by our customers.
Revenues from our Custom Messaging and Network Solutions declined as a
percentage of our total revenues from 17.6% to 15.8% year over year. The decline in total revenues from our Custom Messaging and Network Solutions
and Other Business to Business Solutions was partially offset by an increase in
revenues from our EDI Services of $9.1 million, or 3.7%, to $256.1 million for
the year ended December 31, 2002 from $247.0 million for the year ended
December 31, 2001 principally as a result of an increase in the volume of
transactions we processed as a result of adding new customers and an increase
in activity among existing customers. Revenues from EDI Services also
increased as a percentage of total revenues from 53.2% to 62.6% year over year. Cost of revenues.Cost of revenues decreased by $47.4 million, or 16.2%, to
$245.3 million for the year ended December 31, 2002 from $292.7 million for the
year ended December 31, 2001 primarily as a result of our cost reduction
initiatives over the preceding year. The decline in costs was principally
related to a $27.8 million decline in compensation and related costs, a $13.9
million decline in direct materials costs, which are costs directly associated
with products and services procured for specific customers such as dedicated
network circuits and professional consultants and generally vary with our level
of revenues, and a $6.1 million decline in telecommunications and facility
costs partially offset by a $4.3 increase in network equipment costs. As demand
for our Other Business to Business Solutions and Custom Messaging and Network
Solutions slowed, we reduced headcount and curtailed a number of product
development programs. Sales and marketing.Sales and marketing expenses decreased by $46.1 million,
or 38.6%, to
$73.3 million for the year ended December 31, 2002 from $119.4 million for the
year ended December 31, 2001 primarily as a result of the global reorganization
of our sales force and the consolidation of our marketing and development
programs. Prior to the reorganization, our sales force was organized both on a
regional basis and by product or service. As part of our efforts to reduce our
cost structure we reorganized our sales force more broadly across all product
lines, reduced headcount and closed various sales offices, which resulted in a
decrease of $32.3 million in compensation, contractors and related costs and a
decrease of $0.5 million related to the closing and consolidation of various
facilities. In addition to the cost savings from the reorganization, we reduced
advertising and sales promotions by $4.0 million and all other costs including
bad debts by $9.3 million across all sales regions. General and administrative.General and administrative expenses decreased by
$4.1 million, or 9.1%, to $41.2 million for the year ended December 31, 2002
from $45.3 million for the year ended December 31, 2001 as a result of our
initiative to reduce back-office operations. This decrease was primarily
attributable to a decrease in compensation, contractors and related costs as a
result of fewer administrative and headquarters personnel. Gains on sales of assets.In 2001, we sold internally developed software and
other assets for approximately $11.2 million in two transactions. We recognized
a total gain of $8.6 million in 2001 on the sales. 23




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##### 



Restructuring and related charges.Restructuring and related charges increased
by $9.0 million, or 95.4%, to $18.4 million for the year ended December 31,
2002 from $9.4 million for the year ended December 31, 2001 driven primarily by
actions taken in response to lower than expected market demand for our EDI
Services and Other Business to Business Solutions. The restructuring plan
resulted in the termination of approximately 257 employees in 2002 and resulted
in restructuring expenses of approximately $18.4 million during the year ended
December 31, 2002. These expenses consisted primarily of $11.0 million of
severance and related termination costs and $7.4 million of costs associated
with the closings of sales, services and engineering facilities and buy-out of
under-utilized equipment leases. Of these amounts, approximately $2.9 million
were non-cash charges. For the year ended December 31, 2001, we incurred
restructuring expenses of approximately $9.4 million primarily for severance
and related termination costs associated with headcount reductions mainly in
the U.S., all of which were cash expenditures. Asset impairment charges. For the year ended December 31, 2002, we recorded an
impairment
charge of $5.4 million primarily related to certain software under development
for which the plans to deploy were curtailed. For the year ended December 31,
2001, we recorded a goodwill impairment charge of $4.3 million related to the
abandonment of certain Irish operations. Corporate charge from General Electric. The corporate charge from General
Electric decreased by $5.6 million, or 43.3%, to $7.3 million for the year
ended December 31, 2002 from $12.9 million for the year ended December 31, 2001
as our budgeted costs for the year ended December 31, 2002 were lower than in
2001 and also, as a result of the separation from General Electric we only
incurred nine months of charges in 2002. Each year, General Electric charged us
a fixed percentage of our budgeted total costs for that year as a corporate
charge, which covered various centralized services that General Electric
provided to us as needed, such as compensation and benefit plan design, tax
planning, marketing support, treasury, auditing and public company reporting.
Following the recapitalization, we no longer pay a corporate charge to General
Electric. Gains on sales of investments. In 2001, we recorded gains of approximately
$144.6 million on the
sale of our remaining 19% interest in our Japanese joint venture in a series of
transactions. There were no gains on sales of investments in 2002. Proportionate share of losses in investee companies and investment write-downs.
In the year ended December 31, 2002, we recognized losses on our various cost
and equity method investments of $4.7 million. Of this amount, $1.3 million
related to our proportionate share of losses of one equity method investment
and $3.4 million related to write-downs of several cost method investments
where we determined the decline in value was other than temporary. In the year
ended December 31, 2001, we recognized $23.4 million of impairment losses on
various equity and cost method investments. Of this amount, approximately $10.2
million related to our 50% share of losses incurred by our catalog management
joint venture in the three months of 2001 before we began consolidating the
results of operations of that entity following our buyout of our partner in
April 2001. In the year ended December 31, 2001, we also recognized impairment
losses of $13.2 million for several of our investments where we concluded that
the decline in the fair value of our investment was other than temporary. Fees related to recapitalization.As part of the recapitalization, we incurred
$30.1 million of
transaction related fees that are non-recurring in nature. This amount includes
$21.7 million of fees and expense reimbursements paid to Francisco Partners. Interest income. Interest income was $1.3 million for the year ended December
31, 2002 compared to interest income of $6.6 million for the year ended
December 31, 2001. Prior to the recapitalization, we participated in pooled
treasury operations with General Electric. As part of this pooled activity,
interest was earned on balances on deposit with General Electric. 24




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##### 



Interest expense. Interest expense totaled $14.5 million for the year ended
December 31, 2002 compared to interest expense of $5.3 million for the year
ended December 31, 2001. Interest expense for the year ended December 31, 2002
consisted primarily of interest on our long-term debt. Prior to the
recapitalization, we participated in pooled treasury operations with General
Electric. We paid interest when local operations borrowed money from the pool.
Interest expense for the year ended December 31, 2001 includes expense
associated with cash borrowed from General Electric. Other income, net. Other income, net is driven primarily by $1.1 million of
losses on foreign currency transactions partially offset by $0.5 million of
minority interest income for the year ended December 31, 2002 and $6.3 million
of income received from General Electric Capital Corporation, or GECC, $0.4
million of gains on foreign currency transactions partially offset by losses of
$0.3 million of minority interest income for the year ended December 31, 2001.
In 2000, we entered into an agreement with GECC under which, if we agreed to
use a vendor of products and services in which GECC had made an equity
investment, GECC would, in exchange, grant us the right to share in any gains
on the sale of that equity investment. We will not receive any further
payments from GECC under this agreement. Provision for income taxes. Income taxes totaled $9.9 million for the year
ended December 31, 2002 compared to $49.3 million for the year ended December
31, 2001. Our income tax provision for 2002 includes $8.3 million of income
taxes we incurred upon the repatriation of foreign earnings, which previously
had not been taxable in the United States, and a $0.9 million charge to reflect
changes in our net deferred tax assets resulting from the change in control
effected by the recapitalization. Our tax rates for both periods differed from
the federal statutory rate of 35% principally as result of state income taxes
and the effect of losses in foreign jurisdictions for which no income tax
benefits have been recognized. Net income (loss).Net income decreased by $108.1 million to a net loss of
$39.5 million for the year ended December 31, 2002 from net income of $68.6
million for the year ended December 31, 2001 primarily as a result of the
one-time gain on the sale of our remaining 19% interest in our Japanese joint
venture in the first half of 2001 and $30.1 million of non-recurring
professional fees related to the recapitalization in 2002. These changes more
than offset our improvement in operating income of $29.8 million, and lower
losses on our investments of $18.7 million. 25




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Liquidity and Capital Resources Sources and Uses of Cash The following table is a
summary of our sources and uses of cash during the years ended
December 31, 2001, 2002 and 2003: Year ended December 31,2001
    
    2002
    
    2003(in thousands of dollars)Cash flows from operating activities
    
    $
    (14,458
    )
    
    $
    9,168
    
    
    $
    38,762Cash flows
from investing activities
    
    
    82,959
    
    
    
    (43,815
    )
    
    
    (28,795
    )Cash flows from financing activities
    
    
    (82,066
    )
    
    
    56,534
    
    
    
    (4,933
    )Effect of exchange rate changes on cash
    
    
    (531
    )
    
    
    813
    
    
    
    4,363Net increase (decrease) in cash and cash equivalents
    
    $
    (14,096
    )
    
    $
    22,700
    
    
    $
    9,397Cash and cash equivalents, end of year
    
    $
    14,633
    
    
    $
    37,333
    
    
    $
    46,730
 2003 Compared to 2002: Net cash provided by
operating activities was $38.8 million in 2003 compared to
$9.2 million in 2002. The increase in net cash provided by operating
activities from 2002 to 2003 of $29.6 million was mainly
attributable to changes in operating assets and liabilities including $26.7 million in restructuring charges
relating to severance and related termination costs and costs associated with
the closing of facility space, which will be funded in future years. Net cash used in investing activities was $28.8 million in 2003 compared to
$43.8 million in 2002. Net cash used in investing activities in 2003 included
capital expenditures of $29.4 million for property, software and equipment,
offset by proceeds of $0.6 million from the sale of software and assets related
to our I400 software product. Net cash used in investing activities in 2002
consisted primarily of capital expenditures for property, software and
equipment of approximately $37.8 million and acquisitions of minority interests
in affiliates of approximately $6.0 million. Capital expenditures for 2002 and
2003 include $26.9 million and $19.5 million, respectively, of costs
capitalized for the development of software for internal use. The lower
capital expenditures in 2003 resulted from our efforts to invest in line with
lower revenue expectations for certain products and services. Net cash used for financing
activities was $4.9 million in 2003 compared to net
cash provided by financing activities of $56.5 million for 2002. The usage for
2003 was driven by $12.6 million of professional and underwriting fees related
to our debt refinancing, and cash of $174.6 million used to retire borrowings
under our previous term loan, offset by $169.8 million from the refinancing and
a $12.5 million reimbursement by General Electric pursuant to the
recapitalization agreement. Cash provided by financing activities for 2002
consisted primarily of repayments by our foreign subsidiaries of borrowings
under third-party lines of credit, partially offset by repayments of loans we
had made to General Electric and its affiliates in connection with tax planning
and cash management. Cash provided by financing activities during 2002 also
reflects the impact of the recapitalization which resulted in the borrowing of
$410.0 million, the payment of financing costs of $11.6 million and the cash
distribution to General Electric of 26




---



##### 



$350.0 million. In connection with the
recapitalization, all intercompany balances that existed between us
and General Electric and its affiliates, including any remaining balances on
intercompany loans, were eliminated. 2002 Compared to 2001: Net cash provided by operating activities was $9.2 million in 2002 compared to
net cash used in operating activities of $14.5 million in 2001. The increase
in net cash provided by operating activities from 2001 to 2002 was mainly
attributable to the improvement in operating income offset by the $30.1 million
in professional fees incurred in the recapitalization, which includes $21.7
million of fees and expense reimbursements paid to Francisco Partners. Net cash used in investing activities was $43.8 million in 2002 compared to net
cash provided by investing activities of $83.0 million in 2001. Net cash
provided by investing activities in 2001 included proceeds of $154.4 million as
a result of the sale of our remaining 19% interest in a joint venture, offset
in part by the $7.8 million investment we made in our catalog management joint
venture as well as investments we made in other unconsolidated affiliates. Net
cash used in investing activities in 2002 consisted primarily of capital
expenditures for property, software and equipment, as stated above. Capital
expenditures in 2001 include $33.3 million of costs capitalized for the
development of software for internal use. Net cash provided by financing activities was $56.5 million for 2002, as
detailed above, compared to net cash used for financing activities of $82.1
million in 2001. Net cash used for financing activities in 2001 consisted
primarily of distributions and intercompany loans to General Electric and its
affiliates for tax planning and cash management purposes, partially offset by
borrowings by our foreign subsidiaries under third-party lines of credit. Our principal sources of liquidity have been available cash, cash flows from
operations, and borrowings available under our new $30.0 million revolving
credit facility. We expect our principal uses of liquidity to be working
capital, the financing of capital expenditures and debt service. As of
December 31, 2003, we had outstanding debt of approximately $405.5 million,
which consisted of $235.0 million of outstanding senior subordinated reset
notes, $100.5 million of outstanding senior secured floating rate notes and a
$70.0 million senior term loan. The senior secured floating rate notes are net
of a debt discount of $4.5 million. Borrowings under the new revolving credit facility bear interest, at our
option, at either a floating base rate plus 2.00% per annum or floating LIBOR
plus 4.25% per annum. Borrowings under the new senior term loans bear
interest, at our option, at either the base rate plus 4.00% per annum or LIBOR
plus 6.00% per annum. The base rate and LIBOR rate used to calculate the
applicable interest rates on revolving credit loans and senior term loans may
not be less than 4.25% and 2.25%, respectively. Interest is payable monthly in
arrears for base rate loans and on the last day of selected interest periods,
but no later than every three months for LIBOR rate loans. The maturity date
of the new revolving credit facility and the new senior term loan are March 21, 2007, at which time
all principal is due and payable. At December 31, 2003, we had $70.0 million outstanding under the term loan
facility. Borrowings outstanding under the facility at December 31, 2003 bear
interest at a base rate plus 6.0% or 8.25%. In addition, as of the date of this
report, we have approximately $8.9 million of letters of credit outstanding
under our revolving credit facility. The amount that can be borrowed under the
revolving credit facility is limited to a percentage of EDI revenues as defined
in the agreement governing the credit facility, and is subject to our
compliance with amended financial covenants and other customary conditions,
including that no event of default under the facility have occurred and be
continuing. Available borrowings under our revolving credit facility were
$21.1 million at December 31, 2003. 27




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Our obligations under our credit facility are guaranteed by all of our existing
and future U.S. subsidiaries and are also secured by first-priority liens on
substantially all of our and the guarantors assets and property, including a
pledge of 100% of the capital stock or other equity interests of our existing
and future U.S. subsidiaries and 66% of the capital stock or other equity
interests of our material first-tier foreign subsidiaries. We are also subject
to a negative pledge on all of our assets and the assets of our subsidiaries. The agreements governing our outstanding debt impose limitations on our ability
to, among other things, incur additional indebtedness including capital leases,
incur liens, pay dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with
affiliates, issue preferred stock, merge or consolidate with any other person
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets. The indentures governing our notes contain
similar limitations. In addition, the indenture governing our senior secured
floating rate notes limits our ability to maintain secured indebtedness in
excess of certain limits related to our EDI services revenue. Our credit
facility, as amended, also requires that we meet and maintain certain financial ratios and
tests, including a capital expenditures maximum, a minimum consolidated EBITDA
and a maximum consolidated leverage ratio (total senior debt to EBITDA). Our
ability to comply with these covenants and to meet and maintain such financial
ratios and tests is material to the success of our business and may be affected
by events beyond our control. Our failure to comply with these covenants could
create a default under the credit facility, the indenture governing the
floating notes, and the indenture governing the reset notes. Under our credit
facility, EBITDA is calculated each quarter for the latest twelve-month period
and is adjusted to exclude specific costs and expenses. The excluded costs and
expenses include fees related to the recapitalization, non cash charges,
restructuring charges, costs reimbursed by General Electric, and other
adjustments. As defined under our credit facility, EBITDA for the year ended
December 31, 2003 is equal to $97.6 million. The senior credit facility
requires that we maintain EBITDA, as defined, of at least $95.0 million for the
twelve-month period ending each quarter. The credit facility also requires
that we maintain a maximum consolidated leverage ratio (total senior debt to
EBITDA) of 2.0 to 1.0 for the twelve-month period ending each quarter. For the
twelve-month period ended December 31, 2003, our consolidated leverage ratio
was equal to 1.9 to 1.0, based on senior debt of $183.9 million and EBITDA of
$97.6 million. In March 2004, we negotiated amended
covenants for 2004 and 2005. The amended EBITDA covenant has a
requirement of $62.3 million and $85.0 million and a minimum consolidated leverage ratio
requirement of 3.30 to 1.0 and 2.40 to 1.0, for 2004 and 2005, respectively. Our ability to comply with each
of the EBITDA and consolidated leverage ratio covenants will primarily depend
on the performance of our business in future periods and, specifically, our
ability to generate revenues and control operating costs. EBITDA is not a
presentation made in accordance with accounting principles generally accepted
in the United States. Accordingly, EBITDA is not intended to be used as an
alternative to net income or any other measure of performance in accordance
with accounting principles generally accepted in the United States, and EBITDA
is not necessarily an indication of whether we will be able to fund our cash
requirements. The credit facility also requires that we limit our capital
expenditures to $42.5 million during each fiscal year. For the year ended
December 31, 2003, our capital expenditures totaled $29.4 million. We expect
that we will be able to comply with this covenant in future periods. The senior secured floating rate notes will mature on July 15, 2008 and bear
interest at a floating rate based on six-month LIBOR plus 9%, but never less
than 12%. The interest rate at December 31, 2003 was 12%. The senior secured
floating rate notes are secured by second-priority security interests in
substantially all of our assets and our domestic subsidiaries and 66% of the
stock of our material foreign subsidiaries. In addition, the senior secured
floating rate notes are guaranteed fully and unconditionally by our domestic
subsidiaries. Interest is payable semi-annually in arrears on January 15 and
July 15 of each year commencing on July 15, 2003. 28




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The senior secured floating rate notes are redeemable at our option any time
after October 1, 2004, in whole or in part, at a redemption price equal to par
plus accrued and unpaid interest, plus a redemption premium. The premium is 3%
for the twelve months ending October 1, 2005 and 1.5% for the twelve months
ending October 1, 2006. After October 1, 2006, the senior secured floating rate
notes can be redeemed at par plus accrued and unpaid interest. Upon the
occurrence of a change of control, as defined in the indenture governing the
senior secured floating rate notes, each holder of the senior secured floating
rate notes will have the right to require us to repurchase such holders notes
at an offer price in cash equal to 101% of the aggregate principle amount
thereof plus accrued and unpaid interest and liquidated damages, if any,
thereon to the date of purchase. Our senior subordinated reset notes mature on September 27, 2009 and bore
interest at 12% per annum until September 27, 2003. After September 27, 2003,
the senior subordinated reset notes will bear interest at a reset rate between
8% and 17%. The reset rate will be determined by negotiations between GECC and
us that began in July 2003 and are continuing. The parties have not reached an
agreement on the reset rate and have each engaged investment bankers to
determine the reset rate. For the period from September 27, 2003 to
December 31, 2003, the Company accrued interest at a rate of 15%, the
rate which management believes to be the best estimate of where the
negotiations will conclude. To
the extent the reset rate exceeds 15%, we will have the option to pay cash
interest of 15% and add the additional interest to the balance of the reset
notes. Interest is payable semi-annually on April 15 and October 15 of each
year commencing April 15, 2003. The senior subordinated reset notes are general
unsecured obligations and are guaranteed by all of our domestic subsidiaries.
Because the reset notes were not refinanced by September 27, 2003, we paid GECC
a fee equal to 1% of the outstanding balance as required by the terms of the
facility. The senior subordinated reset notes are redeemable at our option, in whole or
in part, at any time on or after September 27, 2006 at a redemption price equal
to par plus accrued and unpaid interest, plus a declining redemption premium.
In addition, prior to September 27, 2005, we may, on any one or more occasions,
redeem up to 35% of the aggregate principal amount of the senior subordinate
reset notes with the net cash proceeds of one or more equity offerings at a
redemption price of 100% of the principal amount plus a premium equal to the
reset rate and accrued and unpaid interest, provided that the redemption occurs
within 90 days of the date of the closing of such equity offering and at least
65% of the senior subordinated reset notes issued remain outstanding
immediately after the occurrence of such redemption. Upon the occurrence of a
change of control, as defined in the Indenture governing the senior
subordinated reset notes, each holder of the senior subordinated reset notes
will have the right to require us to repurchase such holders notes at an offer
price in cash equal to 101% of the aggregate principle amount thereof plus
accrued and unpaid interest and liquidated damages, if any, thereon to the date
of purchase. Our debt service requirements consist primarily of interest expense on the term
loan portion of our credit facility, the senior secured floating notes and the
senior subordinated reset notes and on any future borrowings under the
revolving credit portion of our credit facility. Our short-term cash
requirements are expected to consist mainly of cash to fund our operations,
interest payments on our debt and cash payments under various operating leases
and debt repayments. Although we do not have an extensive history of acquisitions,
we intend to
continue to pursue acquisition opportunities. We expect to finance any future
acquisitions using cash, capital stock, notes and/or assumption of
indebtedness. However, the restrictions imposed on us by the agreements
governing our debt outstanding at the time may affect this strategy. In
addition, to fully implement our growth strategy and meet the resulting capital
requirements, we may be required to request increases in amounts available
under our revolving credit facility, enter into new credit facilities, issue
new debt securities or raise additional capital through equity financing. We
may not be able to obtain an increase in the amounts available under our credit
facility, if requested, on satisfactory terms and we may not be able to
successfully complete any future bank financing or other debt or equity
financing on satisfactory terms, if at all. As a result, our ability to make
future acquisitions is uncertain. As discussed in Business  Recent
Acquisitions, we have recently completed the acquisitions of Celarix and HAHT
Commerce. 29




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Based upon our current operations and historical results, we believe that our
cash flow from operations, together with available cash and borrowings under
our revolving credit facility, will be adequate to meet our anticipated
requirements for working capital, capital expenditures, lease payments and
scheduled interest payments for the next 12 months. To the extent additional
funding is required, we expect to seek additional financing in the public or
private debt or equity capital markets. We cannot be certain that we will be
successful in obtaining additional financing, if needed, or that, if available,
any additional financing will be on terms favorable to us. In addition, prior
to the recapitalization, we were part of the General Electric group of
companies and received financing from General Electric and its affiliates.
Neither Francisco Partners nor General Electric is obligated to provide
financing to us as General Electric and its affiliates have in the past. If we
are unable to obtain the capital we require to implement our business strategy,
or to obtain the capital we will require on acceptable terms or in a timely
manner, we would attempt to take appropriate responsive actions to tailor our
activities to our available financing, including revising our business strategy
and future growth plans to accommodate the amount of financing available to
us. 30




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Contractual Obligations and Other Commitments Our principal contractual obligations and commercial commitments include our
existing senior term loan and revolving credit facility, the senior
subordinated reset notes, the senior secured floating rate notes, operating
leases and other commitments principally relating to multi-year software
maintenance agreements. The following tables summarize these obligations at
December 31, 2003 and their expected effect on our liquidity and cash flows in
future periods. Payments Due by Calendar Period2005
    
    2007And
    
    to
    
    There-Total
    
    2004
    
    2006
    
    2008
    
    afterContractual Obligations:Long-term debt obligations
    
    $
    410,000
    
    
    $
    
    
    
    $
    
    
    
    $
    175,000
    
    
    $
    235,000Operating lease obligations
    
    
    107,603
    
    
    
    17,271
    
    
    
    26,345
    
    
    
    19,143
    
    
    
    44,844Other obligations
    
    
    2,184
    
    
    
    1,628
    
    
    
    556
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    519,787
    
    
    $
    18,899
    
    
    $
    26,901
    
    
    $
    194,143
    
    
    $
    279,844
 Minority shareholders in one of our consolidated subsidiaries have rights, in
certain circumstances, to require us to purchase some or all of their interests
in this subsidiary at a specified price. Management estimates that this price
generally equates to the fair market value of the holders interests and that
the potential obligation as of December 31, 2003 was approximately $1.6 million
in the aggregate. Off-Balance Sheet Arrangements We did not enter into any off-balance
sheet arrangements during 2001, 2002 or 2003,
nor did we have any off-balance sheet arrangements outstanding at December 31,
2002 or 2003. Recent Accounting Pronouncements See footnote 2(q) to our audited consolidated financial statements for a
discussion of the impact of Recent Accounting Pronouncements. 31




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Factors That Could Affect Future Results We have been operating as an independent company since September 2002, and we
may be unable to implement sufficient operating systems and business functions
to allow us to operate effectively as an independent company. Prior to the recapitalization in September 2002, our business was conducted as
a group of indirect, wholly owned subsidiaries of General Electric. General
Electric performed various corporate functions for us, including:  
    
    public and investor relations;
    
    treasury administration;
    
    selected human resources and payroll functions;
    
    insurance administration;
    
    corporate advertising and promotion;
    
    internal audit;
    
    selected internal information technology services;
    
    telecommunications unrelated to commercial services;
    
    federal, state and foreign corporate income tax, sales and use tax,
and value added tax administration; and
    
    selected legal functions. Following the recapitalization, General Electric is no longer obligated to
provide services to us, other than the transitional services that are described
under Certain Relationships and Related Transactions. If we are not
successful in implementing our own systems and business functions or entering
into agreements with other providers of these services after our transitional
services arrangements with General Electric expire, or if we are not successful
in transferring data from General Electrics systems to our systems, we may not
be able to operate our business effectively. In addition, if General Electric
does not perform the transitional services that it has agreed to provide for us
at the same level that it did when we were its subsidiary, these services may
not be sufficient to meet our needs. As a result, we may not be able to operate
our business effectively. Prior to the recapitalization, we also took advantage of General Electrics
size and purchasing power in procuring certain goods, services and technology,
such as computer software licenses, computer hardware and insurance and health
care benefits. As a separate, independent company, we may be unable to obtain
these goods, services and technology at prices and on terms as favorable to us
as those that we obtained prior to the recapitalization. We also depended
substantially on General Electric for advertising and promotion of our
services. Following the recapitalization, our brand identity and business could
be negatively affected if our advertising and promotion activities are not as
effective as they were when we were part of the General Electric group of
companies. 32




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The historical financial information presented in this report prior to the date
of the recapitalization may not be representative of what our historical
results would have been as an independent company; therefore, our historical
financial information may not be reliable as an indicator of our future
results. Our historical consolidated financial information included in this report for
periods prior to the recapitalization may not reflect what our results of
operations, financial position and cash flows would have been on an historical
basis had we operated our business as an independent company during the periods
presented or what our results of operations, financial position and cash flows
will be in the future. These historical consolidated financial statements
include allocations for services provided or procured by General Electric,
which we may not be able to procure or provide ourselves on the same basis.
Therefore, our historical consolidated financial statements may not be
indicative of our future performance as an independent company. In addition, we
have not made adjustments to our historical consolidated financial statements
to reflect other changes that have occurred or will occur in our cost
structure, financing and operations as a result of the recapitalization. These
changes could include potentially increased costs associated with reduced
economies of scale and a higher cost of capital. We may also change the way we
fund our operations, conduct research and development and pursue our strategic
objectives. We depend on General Electric and its affiliates as customers. General Electric, together with its affiliates, historically has been among our
top five customers and is currently our top customer. For the year ended
December 31, 2003, General Electric and its affiliates generated approximately
9.0% of our total revenues. In addition, General Electric and its affiliates
have also acted as trial customers for some of our new products and services.
As a result of the recapitalization, General Electric retained only 10.0% of
the common stock of our parent, GXS Holdings, Inc., and an equivalent interest
in GXS Holdings preferred stock. Because we are no longer a wholly owned
subsidiary of General Electric, we may not be able to benefit from our
relationship with them as we have in the past. We cannot provide any assurances
that General Electric and its affiliates will continue their customer
relationships with us in the future. In addition, our profitability could be
adversely affected if General Electric and its affiliates were to purchase
lower margin products and services than they have historically purchased. If
General Electric or any of its affiliates were to terminate or materially alter
their customer relationships with us, our business, financial position and
results of operations could be adversely affected. Because much of our operations are conducted, and most of our assets are held,
by our subsidiaries, we will depend on our subsidiaries for cash and to service
our debt. Substantially all of our operations are conducted through subsidiaries.
Consequently, our cash flow and ability to service our debt obligations are
dependent upon the earnings of our operating subsidiaries and the distribution
of those earnings to us, or upon loans, advances or other payments made by our
subsidiaries to us. The ability of our subsidiaries to pay dividends or make
other payments or advances to us will depend upon their operating results and
will be subject to applicable laws and contractual restrictions contained in
the instruments governing their debt, including our credit facility and the
indentures governing our senior secured floating rate notes and our senior
subordinated reset notes. Although the indenture governing the senior
subordinated reset notes limits the ability of these subsidiaries to enter into
consensual restrictions on their ability to pay dividends and make other
payments to us, and the indenture that governs the senior secured floating rate
notes and our credit facility contains similar limitations, these limitations
are subject to a number of significant qualifications. We cannot assure that
the earnings of our operating subsidiaries will be adequate for us to service
our debt obligations or meet our other obligations as they become due. We engage in significant transactions with our affiliates. 33




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Historically, we have engaged in a variety of transactions with our affiliates,
including significant business with General Electric and its affiliates. In
addition, in connection with the recapitalization, we have entered
into a number of agreements with General Electric, its affiliates and Francisco
Partners. Although we believe that our agreements with General Electric, its
affiliates and Francisco Partners are and will be fair to us in all material
respects, the terms of the agreements are not necessarily the same terms that
we would have received in arms length transactions with third parties. We
expect that, in the future, we will continue to enter into a variety of
transactions with our affiliates, some of which may be significant. Although
the indenture requires that these types of transactions, other than affiliate
transactions existing on the date of the indenture, be on terms no less
favorable to us or the applicable subsidiary than those which could be obtained
on an arms length basis from third parties, this limitation is subject to a
number of important qualifications and exceptions and we cannot be certain that
these types of transactions will not adversely affect our business, financial
condition or results of operations. The indenture governing our senior
subordinated reset notes contains similar limitations. In addition, conflicts of interest may arise with General Electric or Francisco
Partners in a number of areas relating to our past and ongoing relationships,
including potential competitive business activities, tax and employee benefit
matters, and indemnity arrangements related to the recapitalization. Francisco Partners indirectly controls approximately 90% of our capital stock,
and there may be situations in which the interests of Francisco Partners and
the interests of the holders of our senior secured floating rate notes and
senior subordinated reset notes will not be aligned. Francisco Partners indirectly controls approximately 90% of our capital stock.
As a result, Francisco Partners is able to:  
    
    elect all of our directors and, as a result, control matters
requiring board approval;
    
    control matters submitted to a stockholder vote, including mergers,
acquisitions and consolidations with third parties and the sale of all
or substantially all of our assets; and
    
    otherwise control or influence our business direction and policies. As a result, circumstances may occur in which the interests of Francisco
Partners could be in conflict with the interests of the holders of our senior
secured floating rate notes and senior subordinated reset notes. In addition,
Francisco Partners may have interests in pursuing acquisitions, divestitures or
other transactions that, in their judgment could enhance their equity
investment, even though the transactions might involve risks to the holders of
our senior secured floating rate notes and senior subordinated reset notes. A significant portion of our services is delivered using a proprietary
operating system and loss or disruption of this operating system could
adversely affect our ability to service customers. We utilize a proprietary operating system, known as Mark III®, on mainframe
computers manufactured by Bull, S.A. to deliver approximately 44% of our EDI
Services and Other Business to Business Solutions and almost all of our Custom
Messaging and Network Solutions for the twelve months ended December 31, 2003.
Revenues derived from products and services using this operating system
represented approximately 37% of our total revenues for the twelve months ended
December 31, 2003. We currently employ ten engineers who are qualified to
maintain this operating system. We believe this number of engineers is adequate
to maintain the Mark III® systems we currently use. We are, however, in the
process of migrating all EDI services currently provided using this operating
system to processors utilizing newer technologies. We expect this migration to
take several years. While we are completing the migration, there is a risk that 34




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the unavailability of these engineering personnel could disrupt the delivery to
our customers of services utilizing the Mark III® operating system. Our inability to adapt to rapid technological change could impair our ability
to remain competitive. The industry in which we compete is characterized by rapid technological
change, frequent new product and service introductions and evolving industry
standards. Our future success will depend in significant part on our ability to
anticipate industry standards and to continue to enhance existing products and
services and introduce and acquire new products and services on a timely basis
to keep pace with technological developments. We expect that we will continue
to incur significant expenses in the design, development and marketing of new
products and services. Our competitors may implement new technologies before we
are able to implement them, allowing our competitors to provide more effective
products and services at lower prices. We cannot assure that we will be successful in developing, acquiring or
marketing new or enhanced products or services that respond to technological
change or evolving industry standards, that we will not experience difficulties
that could delay or prevent the successful development, acquisition or
marketing of such products or services or that our new or enhanced products and
services will adequately meet the requirements of the marketplace and achieve
market acceptance. Any delay or failure in the introduction of new or enhanced
products or services, or the failure of such products or services to achieve
market acceptance, could have a material adverse effect on our business,
results of operations and financial condition. Short product life cycles make it difficult to recover the cost of development
and force us to continually qualify new products with our customers. Over the last several years, the rate at which new technological developments
have been introduced into the market has grown at a much more rapid pace than
it had previously. Continually updated standards for the electronic exchange of
information, such as those issued by the American National Standards Institute
have required us to produce successive generations of our EDI services and
related integration software with additional functionality. Because we are
required to implement these frequently issued standards, the life cycles of our
products have shortened. We typically release new versions of our products
every six to twelve months. Short product cycles make it more difficult for us
to recover the costs associated with product development because those costs
must be recovered over increasingly shorter periods of time. We expect this
trend to continue, and it may even accelerate. As a result, we may not be able
to recover all of our product development costs, which could affect our
profitability. For our products to be competitive, we must be among the first
to market with next-generation products. Any failure or delay in the product
development or quality assurance process can result in our losing sales until
we are able to introduce the new product. We may experience product failures or other problems with existing or new
products, all of which could adversely impact our business. Software products as complex as those we offer may contain undetected errors or
failures when first introduced or when new versions are released. If software
errors are discovered after introduction, we could experience delays or lost
revenues during the period required to correct the errors. We cannot be certain
that errors will not be found in new products or services after commencement of
commercial operations, resulting in loss of, or delay in, market acceptance,
which could have a material adverse effect on our business, results of
operations and financial condition. 35




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Our operations are dependent on our ability to protect our data centers against
damage. Our operations are dependent upon our ability to protect our computer equipment
and the information stored in our data centers against damage that may be
caused by fire, power loss, telecommunications failures, unauthorized
intrusion, computer viruses and disabling devices, natural disasters and other
similar events. We cannot assure that a fire or other natural disaster,
including national, regional or local
telecommunications disruptions, would not result in a prolonged disruption of
our network services or permanently impair some of our operations. A prolonged
service disruption or other impairment of operations could damage our
reputation with customers, expose us to liability, cause us to lose existing
customers or increase our difficulty in attracting new ones. We may also incur
significant costs for using alternative off-site equipment or taking other
actions in preparation for, or in reaction to events that damage our data
centers. We maintain business interruption insurance. However, even if we recovered
under such an insurance policy, the lost revenues or increased costs that we
experience during the disruption of our network services business, and longer
term revenue losses, which may not be recoverable under the policy, could
result from possible losses of customers. If this were to occur, our business,
results of operations and financial condition could be materially adversely
affected. Security breaches could harm our business. A significant component of electronic data interchange and marketplaces is the
secure transmission of confidential information over telecommunications
networks. In facilitating data exchange between our customers and their trading
partners, we rely on encryption and authentication technology licensed from
third parties and intrusion detection technologies to protect the
confidentiality of our customers information. Advances in computer
capabilities, new discoveries in the field of cryptography or other
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. A party who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations. Our security measures may not prevent security
breaches. Our failure to prevent security breaches could harm our business,
damage our reputation and expose us to a risk of loss or litigation and
possible liability. Risks associated with the Internet, changing standards, alternate technologies
and competition may adversely impact our business. The use of the Internet as a vehicle for electronic data interchange and
marketplaces raises numerous issues, including reliability, data security, data
integrity and rapidly evolving standards. We cannot be certain that any
products and services that we introduce will adequately meet the requirements
of the marketplace or achieve market acceptance. Moreover, new competitors,
which may include media, software vendors and telecommunications companies,
offer services that utilize the Internet in competition with our products and
services. Although we believe that the Internet will provide opportunities to
expand the use of our products and services, we cannot ensure that our efforts
to exploit these opportunities will be successful or that increased usage of
the Internet for transaction management infrastructure products and services or
increased competition will not adversely affect our business, results of
operations and financial condition. A failure to attract or retain qualified personnel or highly skilled employees
could adversely affect our business. Given the complex nature of the technology on which our business is based and
the speed with which such technology advances, our future success is dependent,
in large part, upon our ability to attract and retain highly qualified
managerial, technical and sales personnel. Competition for talented personnel
is intense, 36




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and we cannot be certain that we can retain our managerial,
technical and sales personnel or that we can attract, assimilate or retain such
personnel in the future. Our inability to attract and retain such personnel
could have a material adverse effect on our business, results of operations and
financial condition. We rely on intellectual property and proprietary rights to maintain our
competitive position and, therefore, our failure to protect adequately our
intellectual property and proprietary rights could adversely affect our
business. We believe that proprietary products and technology are essential to
establishing and maintaining our technology leadership position. We seek to
protect our intellectual property through patents, trademarks, service marks,
domain names, trade secrets, copyrights, confidentiality, non-compete and
nondisclosure agreements and other measures, some of which afford only limited
protection. We currently have three United States patents; however, as a part
of our recent effort to expand our patent portfolio, we have filed 25 patent
applications that improve upon our technology. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary through
reverse engineering or otherwise. We cannot assure that our means of protecting
our proprietary rights will be adequate or that our competitors will not
independently develop similar or superior technology or design around our
intellectual property. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as the laws of the United
States. Our failure to protect adequately our intellectual property and
proprietary rights could have a material adverse effect on our business,
financial condition, and results of operations. Intellectual property
protections may also be unavailable, limited or difficult to enforce in some
countries, which could make it easier for competitors to capture market share. We use, and intend to use in the future, new technology in our products and
services. While we do not believe that any of our products or services infringe
the valid proprietary rights of third parties in any material respect, we
cannot be certain that our products do not and will not be alleged to infringe
upon issued patents or other intellectual property rights of others. Any claims
from third parties, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements, if required,
may not be available, if at all, on terms acceptable to us and will likely be
an increase in our product costs in the way of additional royalty payments or
other fees, which could have a material adverse effect on our business, results
of operations and financial condition. In addition, to the extent that we
indemnify our customers for infringement claims brought as a result of their
use of our products, we could incur significant expenses in defending such
claims and for any resulting judgments. We may make investments in entities that we do not control. We currently have established joint ventures with several entities to provide
increased customer service and enhance our marketing presence in non-U.S.
markets. These joint ventures have been entered into to distribute our products
and services in the local country, to provide a domestic EDI service in the
country using software licensed by us to the joint venture, or to develop new
products or services. These existing investments are not individually or
collectively material to our business. We anticipate continuing these strategic relationships and entering into future
joint ventures with other entities, including third-party software vendors,
consulting companies, systems integrators, Internet service providers and other
information technology companies. We have in the past made, and may in the
future make, investments in joint ventures without controlling their
operations. Our current and any future investments in joint ventures may
involve risks such as:  
    
    difficulties inherent in assessing the value, strengths and
weaknesses of investment opportunities; 37




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
    
    difficulties in integrating and managing newly acquired operations
and improving their operating efficiency; or
    
    potential disruption of our ongoing business and diversion of our
resources and management time. Our inability to control entities in which we invest may have consequences for
our ability to receive distributions from those entities or to implement our
business plan. Debt or other agreements, if entered
into by an entity not under our control, may restrict or prohibit that entity
from paying distributions to us. Applicable state or local law may also limit
the amount that a non-controlled entity is permitted to pay as a distribution
on its equity interest, and we may not be able to influence the payment of
dividends even if the payment was not otherwise restricted. If any of the other
investors in a non-controlled entity fail to observe their commitments, that
entity may not be able to operate according to its business plan or we may be
required to increase our level of commitment. We may selectively seek acquisitions in the future, which could expose us to
significant business risks. We may expand our operations through future acquisitions of companies with
complementary products and technologies. Our ability to consummate and to
integrate effectively any future acquisitions on terms that are favorable to us
may be limited by the number of attractive acquisition targets, internal
demands on our resources and our ability to obtain financing on satisfactory
terms, if at all. In addition, acquisitions may expose us to certain risks
including:  
    
    we may pay more than the acquired company is worth;
    
    we may be entering markets in which we have little or no direct prior experience; and
    
    our ongoing business may be disrupted and resources and management time diverted. In addition, future acquisitions could result in the incurrence of additional
debt, costs, contingent liabilities and amortization expenses related to
intangible assets, all of which could have a material adverse effect on our
business, financial condition or results of operations. We may also incur costs
and divert management attention for acquisitions which are never consummated.
Integration of acquired operations may also take longer, or be more costly or
disruptive to our management and business, than originally anticipated. It is
also possible that expected synergies from future acquisitions may not
materialize. Our ability to implement and realize the benefits of our strategy
may also be affected by a number of factors beyond our control, such as
operating difficulties, increased operating costs, regulatory developments,
general economic conditions, increased competition or the inability to obtain
adequate financing for our operations on suitable terms. Our failure to
effectively address any of these issues could adversely affect our results of
operations, financial condition and ability to service debt. Although we anticipate that we would perform a due diligence investigation of
each business that we acquire, there may be liabilities of the acquired
companies that we fail or are unable to discover during our due diligence
investigation and for which we, as a successor owner, may be responsible. In
connection with acquisitions, we anticipate that we would seek to minimize the
impact of these types of potential liabilities by obtaining indemnities and
warranties from the seller, which may in some instances be supported by
deferring payment of a portion of the purchase price. However, these
indemnities and warranties, if obtained, may not fully cover the liabilities
because of their limited scope, amount or duration, the financial resources of
the indemnitor or warrantor or other reasons. 38




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Delays and inaccuracies in our billing and information systems may have an
adverse effect on our operations. Sophisticated information and billing systems are vital to our growth and
ability to monitor costs, bill customers, provide services to customers and
achieve operating efficiencies. As we begin to offer new products and services,
we may be required to install new billing systems or upgrade existing ones.
Delays
or inaccuracies in billing, our inability to implement solutions in a timely
manner or our failure to implement and maintain sophisticated information and
billing systems may have an adverse effect on our business and results of
operations. The markets in which we compete are highly competitive. The markets for our products and services are increasingly competitive and
global. As a result, we encounter intense competition in all parts of our
business. Moreover, we have seen a trend among many of our customers to reduce
their ongoing investments in expensive software systems. We expect competition
to increase in the future both from existing competitors and new companies that
may enter our markets. To remain competitive, we will need to invest
continuously in product development, marketing, customer service and support
and service delivery infrastructure. However, we cannot assure that new or
established competitors will not offer products and services that are superior
to or lower in price than ours. We may not have sufficient resources to
continue the investments in all areas of product development and marketing
needed to maintain our competitive position. In addition, most of our
agreements with our customers are short-term. We may require additional capital in the future, and additional funds may not
be available on terms acceptable to us. It is possible that we may need to raise additional capital to fund our future
activities, to maintain spending on new product development in order to stay
competitive in our markets or to acquire other businesses, products or
technologies. Subject to the restrictions contained in our credit facility and
the indentures governing our senior secured floating rate notes and our senior
subordinated reset notes, we may be able to raise these funds by selling
securities to the public or selected investors or by borrowing money. However,
we may not be able to obtain these additional funds on favorable terms, or at
all. None of Francisco Partners, its co-investors or General Electric is
obligated to provide additional funding. If adequate funds are not available,
we may be required to curtail our operations significantly, reduce planned
capital expenditures and research and development, make selective dispositions
of our assets or obtain funds through arrangements with strategic partners or
others that may require us to relinquish rights to technologies or potential
markets, or otherwise impair our ability to remain competitive. We are exposed to general economic conditions, which could have a material
adverse impact on our business, operating results and financial condition. The United States and other world markets appear to be emerging from a severe
economic downturn. Many of our markets have been affected by this downturn,
resulting in negative impacts on our financial performance. Lagging impacts
from this downturn could cause additional adverse impacts on our financial
performance. In addition, uncertainty relating to recent events in the Middle
East, including the potential for continued armed conflict, could further
increase the financial and economic instability we have been facing. While the
precise effects of such instability on our industry and our business are
difficult to determine, they may have an adverse impact on our business,
profitability and financial condition. As a result of unfavorable general economic conditions and reduced capital
spending by customers, our revenues have continued to decline in recent
quarters. However, if the economic conditions in the United States and the
other markets we serve continue or worsen, we may experience a material adverse
impact on our business, operating results and financial condition. 39




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We may experience fluctuations in our quarterly operating results because of
factors over which we have little or no control. Our future quarterly operating results may vary, and we may experience reduced
levels of earnings or losses in one or more quarters. Fluctuations in our
quarterly operating results could be the product of a variety of factors,
including:  
    
    changes in the level of revenues derived from our products and services;
    
    the timing of new product and service announcements by us or our competitors;
    
    changes in pricing policies by us or our competitors;
    
    market acceptance of new and enhanced versions of our products and
services or the products and services of our competitors;
    
    the size and timing of significant orders;
    
    changes in operating expenses;
    
    changes in our strategy;
    
    the introduction of alternative technologies;
    
    the effect of acquisitions we might make; and
    
    industry and general economic factors. We operate with no material product order backlog because our products and
services generally are delivered shortly after orders are received. As a
result, licensing revenues in any quarter are substantially dependent on the
quantity of such products licensed in that quarter. Our expense levels are
based, in part, on our expectations as to future revenues. A large portion of
our cost structure, however, is relatively fixed in nature and cannot be
adjusted immediately in response to market conditions. If revenue levels are
below expectations, our operating results are likely to be adversely affected
unless we are willing and able to reduce our expenses proportionally. As a
result of the foregoing factors, comparisons of results of operations between
particular periods are not necessarily meaningful and historical results of
operations are not necessarily indicative of future performance. We operate internationally, which exposes us to risks that are difficult to
quantify. Historically, sales of our products and services outside the United States have
been significant. For the year ended December 31, 2003, we derived
approximately 40.3% of our total revenues from customers outside of the United
States. Our ability to operate our business internationally in the future will
depend upon, among other things, our ability to attract and retain talented and
qualified managerial, technical and sales personnel and network services
customers outside of the United States and our ability to continue to manage
our international operations. International operations are subject to the risks of doing business abroad,
including:  
    
    unexpected changes in regulatory requirements and tariffs; 40




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
    
    longer payment cycles;
    
    increased difficulties in collecting accounts receivable;
    
    potentially adverse tax consequences from operating in multiple jurisdictions;
    
    currency exchange rate fluctuations;
    
    difficulties in repatriating earnings;
    
    political and economic instability;
    
    global and regional economic slowdowns;
    
    power supply stoppages and shutdowns;
    
    difficulties in staffing and managing foreign operations and other labor problems;
    
    seasonal reductions in business activity in the summer months in Europe and other regions;
    
    the credit risk of local customers and distributors; and
    
    potential difficulties in protecting intellectual property. Increased United States or foreign government regulation of our industry could
restrict our business operations, and compliance with this regulation may be
costly. The United States does not generally regulate providers of electronic
transaction processing products and services at this time. However, the
governments of some foreign countries do regulate electronic commerce in their
countries. The instability and restructuring of the telecommunications industry
in some foreign countries may result in a complicated international regulatory
framework that may require additional licensing or action on our part to remain
in compliance with local laws and could materially affect our ability to do
business in those countries. Other than these foreign government regulations
and certain regulations requiring the protection of certain information about
our customers, there are no regulations pertaining to the price determinations,
geographic distribution, quality control or service capabilities of our
products. We cannot be certain, however, that we will continue to comply as the
rapidly changing laws in the Internet and telecommunications fields continue to
be shaped in the United States and abroad. New laws or regulations could impose
significant restrictions on our business operations, and compliance with these
laws and regulations may be costly. Factors Relating to Our Indebtedness The significant amount of debt that we have could adversely affect our
financial health and prevent us from fulfilling our obligations under our
credit facility, our senior secured floating rate notes and our senior
subordinated notes. As of December 31, 2003, we had $405.5 million of indebtedness. Our interest expense
for the year ended December 31, 2003 was approximately $51.0 million and our
earnings for the year ended December 31, 2003 were insufficient to cover our
fixed charges by $43.5 million. 41




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Our level of indebtedness could have important consequences. For example, it
could:  
    
    make it more difficult for us to satisfy our obligations with respect to our indebtedness;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from
operations to servicing debt, reducing the availability of our cash
flow to fund working capital, capital expenditures, acquisitions and
other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and industry; and
    
    limit our ability to borrow additional funds. We may incur more debt, which could exacerbate the risks described above. We and our subsidiaries are able to incur additional indebtedness in the future
subject to the limitations contained in our credit facility and the indentures
governing our senior secured floating rate notes and our senior subordinated
reset notes. Although these agreements will restrict us and our restricted
subsidiaries from incurring additional indebtedness, these restrictions are and
will be subject to important exceptions and qualifications. If we or our
subsidiaries incur additional debt, the risks that we and they now face as a
result of our high leverage could intensify. Restrictions contained in our credit facility and the indentures governing our
senior secured floating rate notes and our senior subordinated reset notes
could limit our operating activities. Our credit facility and the indentures governing our senior secured floating
rate notes and our senior subordinated reset notes contain covenants that
restrict our ability, and the ability of our restricted subsidiaries, to:  
    
    incur or guarantee additional indebtedness, or maintain secured
indebtedness in excess of certain limits related to our EDI services
revenues;
    
    pay dividends or distributions on, or redeem or repurchase, capital stock;
    
    make investments;
    
    issue or sell capital stock of restricted subsidiaries;
    
    engage in transactions with affiliates;
    
    grant or assume liens; and
    
    consolidate, merge or transfer all or substantially all of our assets. Our credit facility also contains other and more restrictive covenants,
including financial covenants that require us to achieve certain financial and
operating results and maintain compliance with specified financial ratios. Our
ability to meet these covenants and requirements may be affected by events
beyond our control and we may have to curtail some of our operations and growth
plans to maintain compliance. Further, because of the restrictions on our
ability to grant or assume liens, we may have difficulty securing additional
debt financing were we to need additional capital in the future. 42




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Our failure to comply with the covenants contained in the agreements governing
our debt, including as a result of events beyond our control, could result in
an event of default which could materially and adversely affect our operating
results and our financial condition. If we are not able to comply with the covenants and requirements contained in
the agreements governing our debt, an event of default under the relevant debt
instrument could occur. If an event of default does occur, it could trigger a
default under our other debt instruments, we could be prohibited from accessing
additional borrowings and the holders of the defaulted debt could cause all
amounts outstanding with respect to that debt to be declared to be immediately
due and payable. We cannot be certain that our assets or cash flow would be
sufficient to fully repay borrowings under our outstanding debt instruments or
that we would be able to refinance or restructure the payments on those debt
securities. Even if we were able to secure additional financing, it may not be
available on favorable terms. We may not be able to generate sufficient cash flow to meet our debt service
obligations. Our ability to generate sufficient cash flow from operations to make scheduled
payments on our debt obligations will depend on our future financial
performance, which will be affected by a range of economic, competitive and
business factors, many of which are outside of our control. If we do not
generate sufficient cash flow from operations to satisfy our debt obligations,
including interest payments and the payment of principal at maturity on our
senior secured floating rate notes or our senior subordinated reset notes and
under our credit facility, we may have to undertake alternative financing
plans, such as refinancing or restructuring our debt, selling assets, reducing
or delaying capital investments or seeking to raise additional capital. We
cannot assure that any refinancing would be possible, that any assets could be
sold, or, if sold, of the timing of the sales and the amount of proceeds
realized from those sales, that additional financing could be obtained on
acceptable terms, if at all, or that additional financing would be permitted
under the terms of our various debt instruments then in effect. Our inability
to generate sufficient cash flow to satisfy our debt obligations, or to
refinance our obligations on commercially reasonable terms, would have an
adverse effect on our business, financial condition and results of operations,
as well as on our ability to satisfy our obligations on our senior secured
floating rate notes and senior subordinated reset notes and pursuant to our
credit facility. Special Note Regarding Forward-Looking Statements Forward Looking Statements  Our forward looking statements are subject to a
variety of factors that could cause actual results to differ materially from
current beliefs. This report contains forward-looking statements. These statements are based on
current expectations, estimates, forecasts and projections about the industry
in which we operate, as well as managements beliefs and assumptions. They are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions, which are difficult to predict. Forward-looking statements
include information concerning possible or assumed future results of
operations, capital expenditures, the outcome of pending legal proceedings and
claims, the terms of our new revolving credit facility, goals and objectives
for future operations, including descriptions of our business strategies and
purchase commitments from customers, among other things. These statements are
typically identified by words such as believe, anticipate, expect,
plan, intend, estimate, may, will and similar expressions. We base
these statements on particular assumptions that we have made in light of our
industry experience, as well as our perception of historical trends, current
conditions, expected future developments and other factors that we believe are
appropriate under the circumstances. As you read and consider the information
in this report, you should understand that these statements may differ
materially from actual outcomes and results. 43




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These forward-looking statements are affected by risks, uncertainties and
assumptions that we make and actual results or outcomes may differ materially
from those expressed in the forward-looking statements. These risks,
uncertainties and assumptions include, among other things, the factors
identified elsewhere in the foregoing Risk Factors section and:  
    
    the potential for continued or increased armed conflicts in the
Middle East;
    
    rapid technological developments and changes and our ability to
introduce competitive new products and services on a timely,
cost-effective basis;
    
    our ability to attract and retain talent in key technological areas;
    
    our ability to operate without our prior relationship to General Electric;
    
    the continued availability of financing in the amounts, at the
times and on the terms required to support our future operations and
our levels of indebtedness;
    
    our ability to implement effectively our growth strategy;
    
    future investments;
    
    growth rates and general domestic and international economic
conditions, including currency exchange rate fluctuations;
    
    our mix of products and services;
    
    customer demand for our products and services;
    
    our ability to market our products and services effectively;
    
    the length of life cycles for the products and services we offer;
    
    increasing price and product and services competition by U.S. and
foreign competitors, including new entrants;
    
    our ability to protect our intellectual property rights;
    
    our ability to protect against security breaches and to protect our data centers from damage;
    
    our ability to negotiate acquisitions and dispositions and to
integrate acquired companies successfully;
    
    changes in United States and foreign governmental regulations; and
    
    the outcome of future litigation. In addition, new risks and uncertainties could arise from time to time that
could cause actual results or outcomes to differ from those expressed in the
forward-looking statements, and it is impossible to predict these events or how
they may affect us. 44




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Item 7a. Quantitative and Qualitative Disclosures Regarding Market Risk We are exposed to certain market risks as part of our ongoing business
operations, including risks from changes in interest rates and foreign currency
exchange rates that could impact our financial condition, results of operations
and cash flows. Prior to the recapitalization, General Electric managed these
types of risks on our behalf as part of its company-wide management of market
risks. Since the recapitalization, we have managed our exposure to these and
other market risks through regular operating and financing activities. We may
use derivative financial instruments on a limited basis as additional risk
management tools and not for speculative investment purposes. Interest Rate Risk.We are exposed to interest rate risk as a result of our
outstanding debt obligations. Our interest rate risk profile changed
substantially as a result of changes in the nature and amount of our
indebtedness incurred in connection with the recapitalization. We plan to
manage this risk through the use of a combination of fixed and variable rate
debt. As of December 31, 2003, $405.5 million of our debt bears interest at
variable rates. The interest rate on our $235.0 million reset notes was to be
reset on September 27, 2003 for the balance of their six-year term. We are
currently in discussions with GECC, the holder of the reset notes, concerning
the interest rate on the reset notes. The maximum rate to which the interest
rate may be reset is 17%, with amounts above 15% payable in kind at our option.
Because the interest rate on the reset notes will reset to a market rate, we
believe that the carrying value of the reset notes will approximate fair value.
A one-point change in the interest rates on our variable-rate long-term debt
would affect interest expense by approximately $4.0 million on an annual basis.
We believe the interest rates on our variable-rate long-term debt reflect
market rates and, therefore, we believe the carrying value of our variable-rate
long-term debt approximates fair value. Foreign Currency Risk.We are exposed to foreign currency risks that arise from
normal business operations. These risks include the translation of local
currency balances of our foreign subsidiaries, intercompany loans with foreign
subsidiaries and transactions denominated in foreign currencies. Our objective
is to minimize our exposure to these risks through our normal operating
activities and, where appropriate, through foreign currency forward contracts.
For the year ended December 31, 2003, approximately 40.3% of our total revenues
were derived from customers outside of the United States, with approximately
37% of our total revenues denominated in currencies other than the United
States dollar. We estimate that revenue and expenses for the year ended
December 31, 2003 were higher by $15.0 million and $10.0 million, respectively,
as a result of changes in exchange rates as compared to the year ended December
31, 2002. At December 31, 2003 we had $40.7 million of working capital
(current assets minus current liabilities) denominated in foreign currencies.
At December 31, 2003, we had no outstanding foreign currency forward contracts.
The following table shows the approximate split of these foreign currency
exposures by principal currency: Foreign Currency Exposureat December 31, 2003UK
    
    Canadian
    
    
    
    
    
    TotalEuro
    
    Pound
    
    Dollar
    
    Other
    
    ExposureRevenues (twelve months ended)
    
    
    37
    %
    
    
    38
    %
    
    
    10
    %
    
    
    15
    %
    
    
    100
    %Expenses (twelve months ended)
    
    
    45
    %
    
    
    25
    %
    
    
    5
    %
    
    
    25
    %
    
    
    100
    %Working Capital
    
    
    40
    %
    
    
    28
    %
    
    
    10
    %
    
    
    22
    %
    
    
    100
    %
 A hypothetical 10% strengthening of the dollar during 2003 versus the foreign
currencies in which we have exposure would have reduced revenue by
approximately $13.5 million and reduced operating expenses by 45




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approximately
$9.0 million, resulting in operating income of $4.5 million less than actually
reported. Working capital at December 31, 2003 would have been approximately $4.1 million
lower than actually reported if we had used this hypothetical stronger dollar.
These numbers were estimated using the different hypothetical rate for the
entire year and applying it evenly to all non United States dollar
transactions. Inflation.We believe that inflation has not had a material impact on our
results of operations for the year ended December 31, 2003. However, we cannot
assure you that future inflation would not have an adverse impact on our
operating results and financial condition. Item 8. Financial Statements and Supplementary Data The report of independent auditors and financial statements are set forth below
(see Item 15(a) for list of financial statements and financial statement
schedules): 46




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##### 



Independent Auditors Report The Board of Directors
GXS Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of GXS Corporation and Subsidiaries
(the Company) as of December 31, 2002 and 2003, and the related consolidated
statements of operations, comprehensive loss, stockholders
equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2003. In
connection with our audits of the consolidated financial statements we have
also audited the related financial statement schedule. These consolidated
financial statements and financial statement schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. As discussed in note 1 to the consolidated financial statements, on September
27, 2002, the Company consummated a recapitalization whereby Francisco
Partners, L.P. acquired a 90% ownership interest in the Company from General
Electric Company. In connection with the recapitalization, General Electric
Company agreed to indemnify the Company against certain liabilities. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GXS Corporation and
subsidiaries as of December 31, 2002 and 2003, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein. As discussed in note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, on January 1, 2002. /s/ KPMG LLP Baltimore, Maryland
March 26, 2004 47




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GXS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2003
(In thousands of dollars, except per share amounts) 2002
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    37,333
    
    
    $
    46,730Receivables:Trade (note 3)
    
    
    63,506
    
    
    
    53,069Other
    
    
    5,735
    
    
    
    4,178General Electric Company (note 3)
    
    
    3,625
    
    
    
    5,081Deferred income taxes (notes 1 and 10)
    
    
    16,151
    
    
    
    1,729Prepaid expenses and other assets
    
    
    9,927
    
    
    
    8,660Total current assets
    
    
    136,277
    
    
    
    119,447Investment in affiliates (note 5)
    
    
    3,485
    
    
    
    2,929Property and equipment, net (note 6)
    
    
    156,900
    
    
    
    133,869Goodwill (note 7)
    
    
    11,481
    
    
    
    11,929Deferred income taxes (notes 1 and 10)
    
    
    249,053
    
    
    
    3,034Deferred financing costs
    
    
    11,645
    
    
    
    15,886Other assets
    
    
    3,836
    
    
    
    4,342Total Assets
    
    $
    572,677
    
    
    $
    291,436Liabilities,
Minority Interest and Stockholders Equity (Deficit)Current liabilities:Trade payables (note 4)
    
    $
    22,007
    
    
    $
    12,139Deferred income
    
    
    10,545
    
    
    
    10,368Accrued expenses and other liabilities (note 9)
    
    
    62,550
    
    
    
    63,405Total current liabilities
    
    
    95,102
    
    
    
    85,912Long-term debt (note 8)
    
    
    409,562
    
    
    
    405,520Other liabilities
    
    
    8,700
    
    
    
    23,929Total liabilities
    
    
    513,364
    
    
    
    515,361Minority interest
    
    
    1,317
    
    
    
    810Commitments and contingencies (notes 11, 12, 14 and 15)Stockholders
equity (deficit):Common stock $1.00 par value, authorized, issued and
outstanding 100 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    242,349
    
    
    
    258,386Accumulated deficit
    
    
    (174,339
    )
    
    
    (477,616
    )Foreign currency translation
    
    
    (10,014
    )
    
    
    (5,505
    )Total stockholders
equity (deficit)
    
    
    57,996
    
    
    
    (224,735
    )Total Liabilities,
Minority Interest and Stockholders Equity (Deficit)
    
    $
    572,677
    
    
    $
    291,436
 See accompanying notes to consolidated financial statements 48




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##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2001, 2002 and 2003
(In thousands) 2001
    
    2002
    
    2003Revenues (note 3)
    
    $
    464,179
    
    
    $
    409,454
    
    
    $
    363,469Costs and
operating expenses:Cost of revenues
    
    
    292,654
    
    
    
    245,307
    
    
    
    205,959Sales and marketing
    
    
    119,448
    
    
    
    73,331
    
    
    
    73,611General and administrative
    
    
    45,295
    
    
    
    41,176
    
    
    
    39,919Gain on sales of assets (note 6)
    
    
    (8,576
    )
    
    
    
    
    
    
    (700
    )Restructuring and related charges (note 15)
    
    
    9,421
    
    
    
    18,406
    
    
    
    26,671Asset impairment charges (note 16)
    
    
    4,287
    
    
    
    5,425
    
    
    
    6,500Corporate charges from General Electric
Company (note 4)
    
    
    12,940
    
    
    
    7,331
    
    
    
    Operating income (loss)
    
    
    (11,290
    )
    
    
    18,478
    
    
    
    11,509Other income (expense):Gain on sale of investments (note 5)
    
    
    144,638
    
    
    
    
    
    
    
    Proportional
share of losses in investee companies
and investment write-downs
    
    
    (23,417
    )
    
    
    (4,668
    )
    
    
    (679
    )Professional fees related to recapitalization
    
    
    
    
    
    
    (30,085
    )
    
    
    Write-off of deferred financing costs (note 8)
    
    
    
    
    
    
    
    
    
    
    (5,548
    )Interest income (note 4)
    
    
    6,570
    
    
    
    1,285
    
    
    
    750Interest expense (notes 4 and 8)
    
    
    (5,334
    )
    
    
    (14,526
    )
    
    
    (50,967
    )Other income (expense), net (note 4)
    
    
    6,705
    
    
    
    (83
    )
    
    
    1,248Income (loss) before income taxes
    
    
    117,872
    
    
    
    (29,599
    )
    
    
    (43,687
    )Provision for income taxes (note 10)
    
    
    49,278
    
    
    
    9,858
    
    
    
    259,590Net income (loss)
    
    $
    68,594
    
    
    $
    (39,457
    )
    
    $
    (303,277
    )
 See accompanying notes to consolidated financial statements 49




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
Years ended December 31, 2001, 2002 and 2003
(In thousands) 2001
    
    2002
    
    2003Net income (loss)
    
    $
    68,594
    
    
    $
    (39,457
    )
    
    $
    (303,277
    )Foreign currency translation adjustments
    
    
    190
    
    
    
    9,671
    
    
    
    4,509Change in unrealized gain on marketable equity securities,
net of income tax
    
    
    (119,415
    )
    
    
    
    
    
    
    Comprehensive loss
    
    $
    (50,631
    )
    
    $
    (29,786
    )
    
    $
    (298,768
    )
 See accompanying notes to consolidated financial statements 50




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity (Deficit)
Years ended December 31, 2001, 2002 and 2003
(In thousands) Due fromForeign
    
    Unrealized
    
    General
    
    TotalRetained
    
    currency
    
    gain on
    
    Electric
    
    StockholdersCommon
    
    Additional
    
    earnings/
    
    translation
    
    marketable
    
    Company
    
    equitystock
    
    paid-in capital
    
    (deficit)
    
    adjustments
    
    securities
    
    and affiliates
    
    (deficit)Balance at December 31, 2000
    
    $
    
    
    
    $
    
    
    
    $
    605,739
    
    
    $
    (19,875
    )
    
    $
    119,415
    
    
    $
    (389,176
    )
    
    $
    316,103Net income
    
    
    
    
    
    
    
    
    
    
    68,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,594Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    190Change in unrealized gain on equity
securities, net of income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (119,415
    )
    
    
    
    
    
    
    (119,415
    )Net transfers to General Electric Company
and affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137,978
    )
    
    
    (137,978
    )Balance at December 31, 2001
    
    
    
    
    
    
    
    
    
    
    674,333
    
    
    
    (19,685
    )
    
    
    
    
    
    
    (527,154
    )
    
    
    127,494Net loss
    
    
    
    
    
    
    
    
    
    
    (39,457
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,457
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,671
    
    
    
    
    
    
    
    
    
    
    
    9,671Distribution to General Electric in
connection with recapitalization
    
    
    
    
    
    
    
    
    
    
    (350,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (350,000
    )Net deferred tax assets resulting from U.S.
tax election in connection with
Recapitalization
    
    
    
    
    
    
    239,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239,309Net transfers from General Electric
Company and affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,939
    
    
    
    67,939Elimination of amounts due from
General Electric Company and affiliates
    
    
    
    
    
    
    
    
    
    
    (459,215
    )
    
    
    
    
    
    
    
    
    
    
    459,215
    
    
    
    Contributions from General Electric
Company (note 1)
    
    
    
    
    
    
    3,040
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,040Balance at December 31, 2002
    
    
    
    
    
    
    242,349
    
    
    
    (174,339
    )
    
    
    (10,014
    )
    
    
    
    
    
    
    
    
    
    
    57,996Net loss
    
    
    
    
    
    
    
    
    
    
    (303,277
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (303,277
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,509
    
    
    
    
    
    
    
    
    
    
    
    4,509Capital contribution by GXS Holdings in
connection with acquisition of Celarix, Inc. (note 17)
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Contributions from General Electric
Company (note 1)
    
    
    
    
    
    
    12,456
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,456Other (note 10)
    
    
    
    
    
    
    2,981
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,981Balance at December 31, 2003
    
    $
    
    
    
    $
    258,386
    
    
    $
    (477,616
    )
    
    $
    (5,505
    )
    
    $
    
    
    
    $
    
    
    
    $
    (224,735
    )
 See accompanying notes to consolidated financial statement 51




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2002 and 2003
(In thousands) 2001
    
    2002
    
    2003Cash flows from operating activities:Net income (loss)
    
    $
    68,594
    
    
    $
    (39,457
    )
    
    $
    (303,277
    )Adjustments to reconcile net income (loss) to net cash providedby (used in) operating activities:Depreciation and amortization
    
    
    41,943
    
    
    
    47,768
    
    
    
    47,346Asset impairment charges
    
    
    4,287
    
    
    
    5,425
    
    
    
    6,500Gain on sales of assets
    
    
    (8,576
    )
    
    
    
    
    
    
    (700
    )Gain on sale of investment
    
    
    (144,638
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    1,907
    
    
    
    (1,788
    )
    
    
    263,422Write-off of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    5,548Amortization of deferred financing costs and debt discount
    
    
    
    
    
    
    2,326
    
    
    
    3,558Minority interest
    
    
    (440
    )
    
    
    (545
    )
    
    
    (507
    )Proportionate share of losses in investee companies and
investment write-downs
    
    
    23,417
    
    
    
    4,668
    
    
    
    679Changes in operating assets and liabilities, net of effect of business acquisition:Decrease in receivables
    
    
    10,803
    
    
    
    11,947
    
    
    
    11,249(Increase) decrease in prepaid expense and other assets
    
    
    (3,433
    )
    
    
    (1,236
    )
    
    
    760Decrease in accounts payable
    
    
    (16,471
    )
    
    
    (10,356
    )
    
    
    (9,868
    )Decrease in deferred income
    
    
    (5,315
    )
    
    
    (2,176
    )
    
    
    (1,608
    )Increase (decrease) in other liabilities
    
    
    10,579
    
    
    
    (2,804
    )
    
    
    16,084Other
    
    
    2,885
    
    
    
    (4,604
    )
    
    
    (424
    )Net cash provided by (used in) operating activities
    
    
    (14,458
    )
    
    
    9,168
    
    
    
    38,762Cash flows from investing activities:Purchases of property and equipment
    
    
    (73,159
    )
    
    
    (37,815
    )
    
    
    (29,395
    )Acquisition of minority interests in affiliates
    
    
    
    
    
    
    (6,000
    )
    
    
    Proceeds from sales of assets
    
    
    11,245
    
    
    
    
    
    
    
    600Proceeds from sales of investments
    
    
    154,372
    
    
    
    
    
    
    
    Purchase of investments
    
    
    (9,286
    )
    
    
    
    
    
    
    Other
    
    
    (213
    )
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    82,959
    
    
    
    (43,815
    )
    
    
    (28,795
    )Cash flows from financing activities:Distribution to General Electric Company in connection with the Recapitalization
    
    
    
    
    
    
    (350,000
    )
    
    
    Net transfers (to) from General Electric Company and affiliates
    
    
    (137,978
    )
    
    
    67,939
    
    
    
    Short-term borrowings (repayments), net
    
    
    37,448
    
    
    
    (43,922
    )
    
    
    Payment of capital lease obligation
    
    
    (736
    )
    
    
    (18,464
    )
    
    
    Repayment of long-term debt
    
    
    
    
    
    
    (438
    )
    
    
    (174,562
    )Proceeds from long-term debt issuances
    
    
    
    
    
    
    410,000
    
    
    
    169,750Proceeds from sale and leaseback transaction
    
    
    19,200
    
    
    
    
    
    
    
    Capital contributions from General Electric Company
    
    
    
    
    
    
    3,040
    
    
    
    12,456Payment of financing costs
    
    
    
    
    
    
    (11,621
    )
    
    
    (12,577
    )Net cash provided by (used in) financing activities
    
    
    (82,066
    )
    
    
    56,534
    
    
    
    (4,933
    )Effect of exchange rate changes on cash
    
    
    (531
    )
    
    
    813
    
    
    
    4,363Increase (decrease) in cash and cash equivalents
    
    
    (14,096
    )
    
    
    22,700
    
    
    
    9,397Cash and cash equivalents, beginning of year
    
    
    28,729
    
    
    
    14,633
    
    
    
    37,333Cash and cash equivalents, end of year
    
    $
    14,633
    
    
    $
    37,333
    
    
    $
    46,730
 Supplemental disclosure of non-cash investing and financing activities: In connection with the acquisition of Celarix, GXS Holdings issued common and
preferred stock with an estimated fair value of $600. Such amount has been
reflected as an increase to additional paid-in capital with a corresponding
amount allocated to the fair value of assets purchased and liabilities assumed. See accompanying notes to consolidated financial statements 52




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) (1) Business and Basis of Presentation GXS Holdings, Inc. (GXS Holdings) (formerly RMS Electronic Commerce Systems,
Inc.) and GE Information Services, Inc. (GEIS) prior to September 27, 2002 were
wholly owned subsidiaries of GE Investments, Inc. (GE Investments), which is a
wholly owned subsidiary of General Electric Company (GE). On September 9,
2002, GXS Holdings formed GXS Corporation (GXS) and GXS Holdings contributed
all of its assets to GXS in exchange for all of the common stock of GXS. In
addition, GE Investments transferred 100% of the common stock that it held in
GEIS to GXS and GEIS became a wholly owned subsidiary of GXS. For financial
reporting purposes, this transaction was accounted for as a combination of
companies under common control. The consolidated financial statements have been
prepared as if the assets, liabilities and results of operations of GXS
Holdings were consolidated with those of GEIS for all periods presented. GXS
Corporation and subsidiaries (the Company) are primarily engaged in the
business of providing transaction management infrastructure products and
services that enable companies to electronically exchange essential business
documents. On June 21, 2002, GE, GE Investments and Global Acquisition Company, a wholly
owned subsidiary of Francisco Partners, L.P., (Francisco Partners) signed a
definitive agreement to effect a recapitalization (the Recapitalization
Agreement) of the Company. The recapitalization was consummated on September
27, 2002 (the Recapitalization) and resulted in the Company issuing $175,000 of
debt under a senior term loan agreement and $235,000 of debt under a senior
subordinated reset note agreement (see note 8). Proceeds, in the amount of
$350,000, were distributed by the Company to GE pursuant to terms of the
Recapitalization Agreement. In addition, Francisco Partners and its
co-investors, through a direct or indirect subsidiary, acquired 90% of the
outstanding common stock of GXS Holdings for $407,773. The Company incurred
$30,085 of fees to consummate the Recapitalization including $20,000 for
services rendered by Francisco Partners. The Recapitalization was accounted for as a leveraged recapitalization since
greater than 5% of the voting common stock of GXS Holdings was retained by GE.
Under leveraged recapitalization accounting, the transfer of a controlling
interest in GXS Holdings to Francisco Partners does not result in a change in
the accounting basis in the assets and liabilities of GXS Holdings or its
subsidiaries including GXS Corporation. Accordingly, the assets and
liabilities of GXS Corporation have been recorded at their historical cost
basis in the accompanying consolidated financial statements. Additionally, the
costs incurred to effect the Recapitalization have been expensed as incurred. The Recapitalization Agreement, together with a number of ancillary agreements,
govern the Companys relationship with GE following the recapitalization and
provide for the allocation of intellectual property, employee benefits, tax and
other liabilities and obligations relating to periods prior to the
Recapitalization and include an employee lease agreement that terminated on
December 31, 2002. In addition, GE has agreed to reimburse the Company for
certain defined operating and restructuring costs following the
Recapitalization. During the years ended December 31, 2002 and 2003, GE has
reimbursed the Company approximately $ 3,000 and $9,600 of these costs,
respectively. These costs include approximately $1,200 of costs and expenses
incurred with closing a data center in Rockville, Maryland, $2,700 of costs
incurred in connection with a services agreement with WorldCom, $2,200 for
notice pay and severance in connection with a reduction in force, $1,500 for
costs and expenses incurred for rebranding products and implementing an
internal computer infrastructure, $1,200 representing payments made on behalf
of certain employees in the United Kingdom covered under the GE pension plan,
$600 for an interest subsidy payment, $600 for certain taxes and $2,600
representing certain employee compensation payments made following the closing of the
Recapitalization. In addition, GE paid the Company $2,900 as a post closing adjustment related to
the Recapitalization. These amounts have been expensed in the accompanying
consolidated statements of operations and the reimbursements are reflected as
contributions to additional paid-in capital. Additionally, in connection with the Recapitalization, GE agreed to reimburse
the Company for the managed network fee related to the portion of the network
being used by them following the 53




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) Recapitalization.
Reimbursements during the years ended December 31, 2002 and 2003 of
approximately $1,750 each were credited to cost of revenues. During 2003, the
Company transitioned its telecommunications infrastructure to new providers
and, the network management arrangement with the former primary provider was
terminated. Accordingly, the managed network fee and the related GE
reimbursement were eliminated during 2003. In connection with the Recapitalization, the Companys acquiror and the
acquirors common parent have made an election under US Income Tax Regulations
that allows the Company to revalue its assets and liabilities for income tax
purposes. The tax benefit of the revaluation was approximately $242,000. Such
benefit was reflected as a contribution to additional paid-in capital. (2) Summary of Significant Accounting Policies (a) Consolidation The consolidated financial statements represent the consolidation of all
companies in which the Company directly or indirectly has a majority ownership
and controls the operations. All significant intercompany transactions and
balances have been eliminated in the consolidation. Investments in companies in
which the Company has a 50% or less ownership interest but can exercise
significant influence over the investees operations and policies are accounted
for under the equity method of accounting. The Company uses the cost method to
account for investments where it holds less than a 20% ownership interest and
where it cannot exercise significant influence over the investees operations
and policies. At each reporting period, the Company assesses the fair value of
its investments to determine if any impairment has occurred. To the extent the
Companys carrying value exceeds the estimated fair value and such loss is
considered to be an other than temporary decline, the Company records an
impairment charge. (b) Foreign Currency The financial statements of subsidiaries located outside of the United States
are measured using the local currency as the functional currency. Assets,
including goodwill, and liabilities are translated at the rates of exchange at
the balance sheet date. Income and expense items are translated at average
monthly rates of exchange. The resulting translation gains and losses are
included as a separate component of other comprehensive income included in
stockholders equity. Gains and losses from transactions in foreign currency
are included in the determination of net income (loss). Aggregate gains on
foreign currency transactions for the years ended December 31, 2001 and 2002
were $196 and $1,062, respectively. Aggregate losses on foreign currency
transactions for the year ended December 31, 2003 was $533. These amounts are
included in other income (expense) in the consolidated statements of income
(loss). (c) Cash and Cash Equivalents For purposes of the consolidated statement of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. Cash equivalents consist primarily of overnight
interest bearing deposits. (d) Revenue Recognition The Company generates revenues from three principal sources: 54




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##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) Transaction Processing The Company earns recurring transaction
processing fees from facilitating the exchange of business documents among
its customers computer systems and those of their trading partners. Such
revenues are based on a per transaction fee and are recognized in the
period in which the related transactions are processed. Revenue on
contracts with monthly or quarterly minimum transaction levels is
recognized based on the greater of actual transactions or the specified
contract minimum amounts. Software Licensing The Company earns revenue from the licensing of
software applications that facilitate and automate the exchange of
information among disparate business systems and applications. Such
revenues are recognized when the license agreement is signed, the license
fee is fixed and determinable, delivery has occurred, and collection is
considered probable. Revenue from licensing software that requires
significant customization and modification or where services are otherwise
considered essential to the functionality of the software are recognized
using the percentage of completion method, based on the costs incurred in
relation to the total estimated costs of the contract. Revenue from hosted
software applications are recognized ratably over the hosting period
unless the customer has the contractual right to take possession of the
software without significant penalty and it is feasible for the customer
to use the software with its own hardware or contract with another party
unrelated to the Company to host the software. Professional Services and Software Maintenance Professional services are
generally conducted under time and material contracts and revenue is
recognized as the related services are provided. Software maintenance
revenue is deferred and recognized on a straight-line basis over the life
of the related contract, which is typically one year. For arrangements with more than one element of revenue, the Company allocates
revenue to each component based on vendor specific objective evidence (VSOE),
in accordance with the criteria established in AICPA Statement of Position
97-2, Software Revenue Recognition,as amended, or Emerging Issues Task Force
(EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables,as
appropriate. VSOE for software maintenance is based on contractual renewal
rates. Professional services are separately priced and are based on standard
hourly rates determined by the nature of the service and the experience of the
professional performing the service. (e) Property and Equipment Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on accelerated methods over the estimated useful lives
of the assets over lives of three to forty years. Software and leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or estimated useful life of the asset. Property and equipment
includes costs related to the development of internal use software pursuant to
the guidance in AICPA Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.During the years
ended December 31, 2001, 2002 and 2003, the Company capitalized costs related
to the development of internal use software of $33,340, $26,860 and $19,519,
respectively. (f) Goodwill On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,which requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually. As of December
31, 2003, the Company has unamortized goodwill in the amount of $11,929.
During 2003, the Company completed impairment testing and determined that no
impairment charge was necessary. Had the Company adopted SFAS No. 142 on January 1, 2001, net income would have
been $72,793 for the year ended December 31, 2001. 55




---



##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) (g) Capitalized Software Costs Costs incurred in the development of software sold externally are charged to
expense until technological feasibility, as defined by Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketedhas been established. The
Company uses the working model method to establish technological feasibility.
Accordingly, the Company does not capitalize costs as there is generally a
short period of time between the date technological feasibility is achieved and
the date when the product is available for general release. (h) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of As of January 1, 2002, the Company adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assetsto account for
the impairment of its long-lived assets. Prior to January 1, 2002 the Company
accounted for the impairment of long-lived assets under SFAS No. 121. These
Statements require that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to undiscounted future net cash flows expected to be generated by
the asset. If these assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. (i) Research and Development Research and development costs are expensed as incurred. Research and
development costs amounted to $31,137, $15,246 and $9,058 for the years ended
December 31, 2001, 2002 and 2003, respectively. (j) Employee Benefits Prior to the Recapitalization, employees and retirees of the Company and its
affiliates participated in a number of employee benefit plans maintained by GE
and its affiliates. Following the Recapitalization, GE retained all
liabilities under these benefit plans. The principal benefit plans are
discussed below, other plans are not significant individually or in the
aggregate. Retirement Benefits The principal pension plan benefits were provided
under the GE Pension Plan, a defined benefit plan, which provided benefits
to certain U.S. employees of the Company based on the greater of a formula
recognizing career earnings or a formula recognizing length of service and
final average earnings. Eligible employees also participated in the GE
Savings and Security Program, a defined contribution plan. Under this
plan, eligible employees could invest a portion of their earnings
(generally up to 7% with GE matching 50% of the first 7% contributed, and
an additional 10% without any employer matching) in various program funds. Health and Life Benefits The principal health and life plan benefits
were covered under the GE Life, Disability and Medical plan, a health and
welfare plan, which provided benefits to pay medical expenses, flexible
spending accounts for otherwise unreimbursed expenses, short-term
disability benefits and life and accidental death and dismemberment
insurance benefits. Retirees shared in the cost of healthcare benefits. The cost of employee benefits billed by GE to the Company was $23,932, $19,545
and $0 for the years ended December 31, 2001, 2002, and 2003, respectively. 56




---



##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) Following the Recapitalization, the Company and its subsidiaries sponsor a
number of employee benefit programs. At December 31, 2003, the Company was the
sponsor of defined benefit pension plans in Germany and the Netherlands and was
still participating in a GE sponsored plan in the Philippines. (k) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The results of the Companys operations in the United States through the date
of the Recapitalization were included in GEs consolidated U.S. Federal tax
return and certain combined state income tax returns. Current tax liabilities
and receivables relating to the Companys operations prior to the
Recapitalization have been transferred to GE. Non-U.S. operations record
income tax assets and liabilities generally on a stand-alone basis. The
Companys results following the Recapitalization are no longer included in GEs
consolidated U.S. Federal tax return. (l) Derivative Instruments The Company applies the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. Under SFAS No. 133, all
derivative instruments (including certain derivative instrument embedded in
other contracts) are recognized in the balance sheet at their fair value and
changes in the fair value are recognized immediately in income, unless the
derivatives qualify as hedges of cash flows. For derivatives qualifying as
hedges of future cash flows, the effective portion of the changes in the fair
value is recorded temporarily in equity, and then recognized in income along
with the related effects of the hedged items. Any ineffective portion of
hedges is reported in income as it occurs. During the years ended December 31,
2001, 2002 and 2003, the Company did not hold any derivative instruments. (m) Stock Option Plan The Company applies the intrinsic-value based method of accounting prescribed
by Accounting Principles Board (ABP) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations to account for its fixed-plan
stock options. Under this method, compensation expense is recorded on the date
of the grant only if current market price of the underlying stock exceeds the
exercise price. SFAS No. 123, Accounting for Stock-Based Compensation,
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. As allowed
by SFAS No. 123, the Company has elected to continue to apply the
intrinsic-value-based method of accounting. As discussed in note 13, GXS
Holdings has issued certain options to employees of the Company. If the
Company adopted SFAS No. 123, the Company would have valued options using the
minimum value method. Had the Company recorded the cost of options under this
method, the Companys net loss for the years ended December 31, 2002 and 2003
would not have been materially different. (n) Fair Value of Financial Instruments The Companys financial instruments consist principally of cash and cash
equivalents, receivables, trade payables, accrued expenses, other liabilities
and long-term debt. Generally, their carrying amounts approximate fair value
because of the short-term maturity of these instruments. The fair value of the
Companys long-term debt is discussed further in note 8. 57




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##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) (o) Use of Estimates Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America. Actual results could differ from those estimates. Significant
estimates used in preparing the consolidated financial statements include
recovery of long-lived assets, valuation of receivables and valuation of
deferred tax assets. In addition, estimates are required to recognize revenue
for arrangements with multiple deliverables and to assess the stage at which
software development costs should be capitalized. (p) Reclassifications Certain amounts in the 2001 and 2002 consolidated financial statements have
been reclassified to conform to the current year presentation. (q) Recently Adopted Accounting Standards In June 2001, the Financial Accounting Standards Board, or FASB issued
Statement No. 143, Accounting for Asset Retirement Obligations.SFAS No. 143
requires the Company to record the fair value of an asset retirement obligation
as a liability in the period in which it incurs a legal obligation associated
with the retirement of tangible long-lived assets that result from the
acquisition, construction, development, and/or normal use of the assets. The
Company also would record a corresponding asset that is depreciated over the
life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation would be adjusted at the end of each
period to reflect the passage of time and changes in the estimated future cash
flows underlying the obligation. The Company was required to adopt SFAS No.
143 on January 1, 2003. The adoption of SFAS No. 143 had no
material effect on the
Companys financial statements. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires that a liability for a
cost associated with the exit of disposal activity be recognized when incurred
at fair value. SFAS No. 146 eliminates the definition and requirements of EITF
Issue 94-3. SFAS No. 146 was effective for exit or disposal activities that
were initiated after December 31, 2002. The Company followed the guidance in
SFAS No. 146 to account for restructuring activities that occurred in 2003. In December 2003, the FASB, issued Financial Interpretation Number 46 Revised
(FIN 46R), Consolidation of Variable Interest Entities.FIN 46R addresses
how a business should evaluate whether it has a controlling financial interest
in an entity other than voting rights and, accordingly, should consolidate the
entity. FIN 46R was effective for the Company as of December 31, 2003.
Management has evaluated the provisions of FIN 46R and does not believe the
Company is a participant in any entity requiring consolidation by the
interpretation. In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity( SFAS No. 150").This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or as an asset in some
circumstances). Many of these instruments were previously classified as equity.
Some of the provisions are consistent with the current definition of
liabilities in FASB Concepts Statements No. 6, Elements of Financial
Statements. SFAS No. 150 became effective for financial instruments entered
into or modified after May 31, 2003. The adoption of SFAS
No. 150 did not have an impact on the Company's consolidated financial
statements. 58




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##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) (3) Revenues and Receivables The Company provides e-commerce and network services to various GE businesses
in the normal course of business. Sales to GE businesses and affiliates
amounted to approximately $30,564, $28,901 and $32,612 for years ended December
31, 2001, 2002 and 2003, respectively. Trade receivables as of December 31,
2002 and 2003 resulting from normal trade activity with GE were $549 and
$5,081, respectively. Pursuant to the terms of the Recapitalization Agreement,
GE is required for the two-year period ending September 27, 2004, to maintain
its affiliates respective business arrangements with the Company on terms and
conditions substantially similar to those in effect at the time of the
completion of the Recapitalization and to continue to purchase products and
services from the Company totaling $30,600 in each of the four calendar
quarters ending September 2003 and September 2004. For the twelve-month period
ending September 30, 2003, the Company considered GE to have met the obligation
based on sales plus orders placed during the quarter. In order to meet its
obligations, GE will need to purchase products and services of approximately
$22,500 during the nine months ending September 30, 2004. After September 30, 2004, GE will have no further obligation to purchase
products and services from the Company, except for multi-year contracts in
effect at that date. After September 30, 2004, there can be no assurance that
GE will continue to purchase products and services in the same amounts as in
2002 and 2003. The allowance for doubtful accounts and sales allowances were $9,565 and
$11,345 at December 31, 2002 and 2003, respectively. No customer represented more than 10% of revenues in 2002 or 2003. Sales to
one non-related customer were 11% of revenues in 2001. As of December 31, 2003, the Company had operations in approximately
twenty-five foreign countries. Receivables from customers in foreign countries
were $27,560 and $24,704 at December 31, 2002 and 2003, respectively. Revenues
generated by the Companys foreign subsidiaries were $130,730, $128,851 and
$139,230 for years ended December 31, 2001, 2002 and 2003, respectively. Of
such amount the United Kingdom generated revenues of $46,100, $48,134 and
$51,679 for years ended December 31, 2001, 2002 and 2003, respectively. No
other country generated more than 10% of the Companys revenues. (4) Other Related Party Transactions Trade payables as of December 31, 2002 and December 31, 2003 resulting from
normal activity with GE were $1,605 and $1,177. The Company participated, until
the Recapitalization, in pooled treasury operations with GE in most countries
in which it has activity. As part of this pooled activity, the Company earned
interest on balances on deposit with GE and paid interest when local operations
borrowed money from the pool. The Company had net interest income of $1,236 in
2001, virtually all of which was related to GE. During 2002, the Company
earned net interest income from GE of $1,285. Effective with the
Recapitalization, the Company conducts its own treasury operations. GE has provided a variety of services to the Company. These services have
included administering certain employee benefit plans and paying related
claims, provision of voice telecommunication services, outsourcing of certain
functions, centralized financial and administrative activities involved with
transaction processing, centralized purchasing of desk top software and other
corporate services. Such services have been charged to the Company as utilized
by the Company. Billings for these services, which are included in operating
expenses, amounted to $57,038, $58,841 and $13,044 for the years ended December
31, 2001, 2002 and 2003, respectively. As part of the Recapitalization, GE
will continue to provide these services on an as needed basis until September
2004. The Company has migrated most of these services to alternative providers,
or brought some of the services in-house. The remaining services will be
migrated to alternative providers or brought in-house during the first half of
2004. Management believes that the amounts paid to GE approximate the cost at which these
services could be obtained from a third party. In addition, management
believes that the methods used by GE to allocate expenses incurred by them on
the Companys behalf, prior to the Recapitalization were reasonable. 59




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##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) The Company entered into an agreement with GE Capital Corporation (GECC) in
2000 in which the Company agreed to select a vendor for certain products and
services in which GECC had an investments, in exchange for the right to share
in any gains on the sale of the investment. GECC made payments to the Company
of $6,250 for the year ended December 31, 2001 under the agreement. The amount
is included in other income (expense) in the consolidated statements of
operations. No future payments to the Company will be made under this
agreement. Prior to the Recapitalization, GE also provided certain centralized services,
such as compensation and benefit plan design, tax planning, marketing support,
treasury, auditing, public company reporting, and various other corporate
expenses which the Company paid for with an annually agreed corporate charge.
This corporate charge amounted to $12,940 for the year ended December 31, 2001
and $7,331 for the nine months ended September 30, 2002 . No amounts have been
paid to GE for these services subsequent to the Recapitalization. In connection with the Recapitalization, the Company entered into an agreement
with Francisco Partners under which the Company has agreed to pay to Francisco
Partners a fee of $2,000 annually plus expenses for financial advisory and
consulting services. Francisco Partners has informed the Company of its intent
to defer receipt of the fee. The expense related to the management fee
amounted to $500 and $2,000 for the years ended December 31, 2002 and 2003,
respectively. The Company reimbursed Francisco Partners for additional
expenses of $346, which were incurred during 2003. As of December 31, 2002 and
2003, the Company owed Francisco Partners $500 and $3,071, respectively, which
are included in accrued expenses and other liabilities in the accompanying
consolidated balance sheets. (5) Investments The Company has made a number of investments in distributors, value added
resellers and companies engaged in providing transaction management
infrastructure and related products and services. Investments consist of the
following at December 31: 2002
    
    2003Equity method investments
    
    $
    526
    
    
    $
    608Cost method investments
    
    
    2,959
    
    
    
    2,321Total
    
    $
    3,485
    
    
    $
    2,929
 Revenues, results of operations and net assets of the investee companies were
not significant for the years ended December 31, 2001 and 2002. Revenues
earned from sales to these affiliates were $4,714, $2,176 and $551 for the
years ended December 31, 2001, 2002 and 2003, respectively. During 2001, the Company disposed of its interest in a Japanese joint venture.
The Company received proceeds from the sales of $154,372 and recorded a gain of
$144,638. Such gain is included in gain on sales of investments in the
consolidated statements of operations. (6) Property and Equipment Property and equipment consist of the following as of December 31: 60




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##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) 2002
    
    2003Land and improvements
    
    $
    634
    
    
    $
        634Buildings, structures and related equipment
    
    
    14,864
    
    
    
        12,313Computer equipment and furniture
    
    
    240,644
    
    
    
        242,184Computer software
    
    
    163,805
    
    
    
        169,041Equipment leased to others
    
    
    475
    
    
    
        46Leasehold improvements
    
    
    22,288
    
    
    
        16,641442,710
    
    
    
        440,859Less accumulated depreciation and amortization
    
    
    285,810
    
    
    
        306,990Total
    
    $
    156,900
    
    
    $
    133,869
 Property and equipment held outside the United States at December 31, 2002 and
2003 was $20,617 and $14,652, respectively. During 2001, the Company sold for $11,245, in two separate transactions,
internally developed software and certain other assets and recognized gains of
$8,576 in the aggregate. During 2003 the Company sold certain software and
other assets relating to its I400 software product and recognized a gain of
$700. These amounts are included in gains on sale of assets in the
consolidated statements of operations. (7) Goodwill The following represents a summary of changes in goodwill for the years ended
December 31: 2001
    
    2002
    
    2003Beginning of the year
    
    $
    22,384
    
    
    $
    11,096
    
    
    $
    11,481Additions
    
    
    213
    
    
    
    
    
    
    
    Amortization
    
    
    (7,214
    )
    
    
    
    
    
    
    Impairment charge
    
    
    (4,287
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    385
    
    
    
    448End of the year
    
    $
    11,096
    
    
    $
    11,481
    
    
    $
    11,929
 In March 1999, the Company acquired an Irish operation which developed and
marketed e-commerce software products for sale to small businesses for $9,365.
The aggregate purchase, including transaction costs, exceeded the estimated
fair value of the net tangible assets and identifiable intangible assets
acquired by $8,781. This amount was allocated to goodwill and was being
amortized over a five-year period. In 2001, the Company abandoned these
operations and wrote-off the remaining goodwill of $4,287. (8) Long-Term Debt Long-term debt consists of the following at December 31: 61




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##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) 2002
    
    2003Term loan facility
    
    $
    174,562
    
    
    $
    New term loan facility
    
    
    
    
    
    
    70,000Senior secured floating rate notes,
net of debt discount of $4,480
    
    
    
    
    
    
    100,520Senior subordinated reset notes
    
    
    235,000
    
    
    
    235,000Long-term debt
    
    $
    409,562
    
    
    $
    405,520
 Credit Facility: The Company entered into a Credit Facility on September 27, 2002 which
consisted of a $175,000 term loan facility (Term Loan Facility) and a $35,000
revolving credit facility (Revolving Credit Facility). To consummate the
Recapitalization, the Company borrowed $175,000 under the Term Loan Facility
and $235,000 under the Senior Subordinated Reset Notes (Reset Notes). The Company entered into a New Credit Facility on March 21, 2003 consisting of
a $70,000 term loan (the New Term Loan Facility) and a $30,000 revolving credit
facility (the New Revolving Credit Facility). On March 21, 2003, the Company
also issued $105,000 of Senior Secured Floating Rate Notes (Floating Notes) for
proceeds of $99,750. These proceeds, cash on hand and the borrowings under the
New Term Loan Facility were used to repay borrowings outstanding under the Term
Loan Facility. In connection with the refinancing, the Company wrote off
$5,548 of deferred financing costs that the Company had incurred in
establishing the Term Loan and Revolving Credit Facilities. The ability to borrow under the New Credit Facility is subject to a borrowing
base, calculated monthly, at an amount equal to 90.0% of EDI Services Revenue
for the immediately preceding six consecutive completed months. The New Term
Loan Facility bears interest, at the Companys option, at either a floating
base rate plus 4.0% per annum or floating LIBOR plus 6.0% per annum. The New
Revolving Credit Facility bears interest, at the Companys option, at either a
floating base rate plus 2.0% per annum or floating LIBOR plus 4.25% per annum.
The base rate and LIBOR rate used to calculate the applicable interest rate on
the New Term Loan Facility and the New Revolving Credit Facility may not be
less than 4.25% and 2.25%, respectively. Outstanding borrowings under the New
Term Loan Facility as of December 31, 2003 bear interest at a base rate of
4.25% plus 4.0%. Interest is payable monthly in arrears for base rate loans
and on the last day of selected interest periods, but no later than every three
months, for LIBOR rate loans. Borrowings outstanding under the New Term Loan
Facility and the New Revolving Credit Facility mature on March 21, 2007. The New Revolving Credit Facility enables the Company to obtain revolving
credit loans and to issue letters of credit for working capital, acquisitions
and general corporate purposes. At December 31, 2003, the Company had
outstanding letters of credit of $8,900 and available borrowings of $21,100
under the New Revolving Credit Facility. The outstanding letters of credit
relate to performance obligations of the Company. The Company pays 0.75% per
annum on the unused portion of the New Revolving Credit Facility. The obligations of the Company under the New Credit Facility are guaranteed by
all of the Companys existing and future domestic subsidiaries. The
obligations of the Company under the New Credit Facility are secured by
first-priority liens on substantially all of the Companys and the Guarantors
existing and after-acquired property, both tangible and intangible. The
obligations of the Company and the Guarantors are secured by a pledge of all of
the Companys capital stock or other equity interests of the Companys existing and future domestic subsidiaries and a pledge of 66.0% of
the capital stock of the Companys material first-tier foreign subsidiaries. 62




---



##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) If the Company were to repay the borrowings under the New Credit Facility prior
to the maturity date, the Company would be required to pay a prepayment premium
equal to 1.00% of the maximum facility amount for each full or partial year
remaining until the maturity date. If the New Credit Facility is repaid with
the proceeds of a private placement of subordinated debt or equity, an initial
public offering of equity or a sale of substantially all of the Companys
assets or stock, the prepayment premium would be reduced by half. In addition, the New Credit Facility contains various covenants that restrict
the Company from taking various actions and require the Company to achieve and
maintain certain financial ratios. Senior Secured Floating Rate Notes: On March 21, 2003, the Company issued $105,000 of Senior Secured Floating Notes
(Floating Notes) for proceeds of $99,750. The Floating Notes mature on July
15, 2008 and bear interest at a floating rate based on six-month LIBOR plus 9%,
but never less than 12%. The interest rate at December 31, 2003 was 12%. The
Floating Notes are secured by second-priority security interests in
substantially all of the assets of GXS Corporation and its domestic
subsidiaries and 66% of the stock of the Companys material first-tier foreign
subsidiaries. In addition, the Floating Notes are guaranteed fully and
unconditionally by the Companys domestic subsidiaries. The debt discount of
$5,250 is being amortized over the life of the Floating Notes using the
interest method. Amortization for the period from issuance through December
31, 2003 was $770. Interest is payable semi-annually in arrears on January 15
and July 15 of each year commencing on July 15, 2003. The Floating Notes are redeemable at the option of the Company any time after
October 1, 2004, in whole or in part, at a redemption price equal to par plus
accrued and unpaid interest, plus a redemption premium. The premium is 3% for
the twelve months ending October 1, 2005 reducing to 1.5% for the twelve months
ending October 1, 2006. After October 1, 2006, the Floating Notes can be
redeemed at par plus accrued and unpaid interest. Upon the occurrence of a
change of control, as defined in the Indenture governing the Floating Notes,
each holder of the Notes will have the right to require the Company to
repurchase such holders notes at an offer price in cash equal to 101% of the
aggregate principle amount thereof plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of purchase. In certain situations, the Company must offer to redeem outstanding Floating
Notes with Excess Cash Flows as defined in the Indenture. In addition to the restrictions on incurrence of indebtedness, the Company may
not, and may not permit any of its subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or allow to exist or otherwise directly
or indirectly become liable, contingently or otherwise, for any indebtedness
secured by any of the assets of the Company or any subsidiary of the Company in
an aggregate principal amount, at any time, in excess of two times EDI Services
Revenues, as defined, for the most recently ended two fiscal quarter period of
the Company. Senior Subordinated Reset Notes: On September 27, 2002, the Company issued $235,000 of Reset Notes. The Reset
Notes, which mature on September 27, 2009, bear interest at a rate of 12% until
September 27, 2003. From and after September 27, 2003, interest on the notes
will be reset, with such reset to be based on a variety of factors including
the portion of the notes owned by GECC and the then current market conditions
for similar securities. The Company is currently in discussions with GECC
concerning the interest rate on the Reset Notes. If the interest rate on the Reset Notes is
increased to the maximum rate of 17% from 12%, the Companys annual interest
expense would increase by $11.8 million, $7.1 million of which the Company
would be required to pay in cash. For the period from September
27, 2003 to December 31, 2003, the Company accrued interest at a rate of 15%, the
rate which management believes to be the best estimate of where the
negotiations will conclude. Interest is payable semi-annually on April
15 and October 15 of each year commencing April 15, 2003. The Reset Notes are
general unsecured obligations of the Company and are guaranteed by all of the
Companys domestic subsidiaries. 63




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##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) The Reset Notes were redeemable at the option of the Company anytime prior to
September 27, 2003 at par plus accrued and unpaid interest. The Reset Notes
are redeemable at the option of the Company, in whole or in part, at any time
on or after September 27, 2006 at a redemption price equal to par plus accrued
and unpaid interest, plus a declining redemption premium. In addition, at any
time after September 27, 2003 and prior to September 27, 2005, the Company may
on any one or more occasions redeem up to 35% of the aggregate principal amount
of the Reset Notes at a redemption price of 100% of the principal amount
thereof, plus accrued and unpaid interest, at the redemption date plus a
premium, if any, as defined in the agreement, with the net cash proceeds of one
or more equity offerings, provided that the redemption occurs within 90 days of
the date of the closing of such equity offering. Upon the occurrence of a
change of control, as defined in the Indenture governing the Reset Notes, each
holder of the Reset Notes will have the right to require the Company to
repurchase such holders notes at an offer price in cash equal to 101% of the
aggregate principle amount thereof plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of purchase. The Indentures governing the Floating Notes and the Reset Notes contain certain
covenants that limit, among other things, the ability of the Company to (i) pay
dividends, redeem capital stock or make certain other restricted payments, (ii)
incur additional indebtedness or issue certain preferred equity interests,
(iii) merge into or consolidate with certain other entities or sell all or
significant portions of its assets, (iv) create liens on assets and (v) enter
into certain transactions with affiliates or related persons. The Company expects that cash flows from foreign operations will be required to
meet its domestic debt service requirements. Such cash flows are expected to be
generated from the sale of network and processing resources, software licenses
and software maintenance contracts to the foreign operations. However, there is
no assurance that the foreign subsidiaries will generate sufficient cash flow
or that the laws in foreign jurisdictions will not change to limit collections
on these sales or increase the tax burden on the collections. Interest expense for the years ended
    December 31, 2002 and 2003 includes amortization of deferred financing
    costs of $2,326 and $2,788, respectively, and for the year ended December 31,
    2003 includes amortization of the debt discount on the Floating Notes of $770.
    Interest paid for 2002 and 2003 was $1,909 and $40,645 respectively, including
    $30,550 paid to GE in 2003. During the year ended December 31, 2003 the
    Company capitalized interest costs of $1,000. The estimated fair value of the
    Companys long-term debt at December 31, 2003 approximated its carrying
    value. (9) Accrued Expenses and Other Liabilities The following represents a summary of other liabilities as of December 31: 2002
    
    2003Employee compensation and benefits
    
    $
    18,003
    
    
    $
    16,037Other taxes accrued
    
    
    3,828
    
    
    
    3,183Accrued interest and deferred financing costs
    
    
    12,606
    
    
    
    14,123Due to
Francisco Partners
    
    
    500
    
    
    
    3,071Other
    
    
    27,613
    
    
    
    26,991Total
    
    $
    62,550
    
    
    $
    63,405
 64




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##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) (10) Income Taxes Prior to the Recapitalization, the results of the Companys operations in the
United States were included in GEs consolidated U.S. federal tax return and
certain combined state income tax returns. Current tax liabilities relating to
the Companys operations prior to the Recapitalization have been transferred to
GE. Non-U.S. operations record income tax assets and liabilities generally on a
stand-alone basis. Following the Recapitalization, the Companys results are no
longer being included in GEs consolidated U.S. federal tax return. The provisions for income taxes is shown below: 2001
    
    2002
    
    2003Current income taxes:Federal
    
    $
    35,926
    
    
    $
    4,711
    
    
    $
    (6,463
    )State
    
    
    1,761
    
    
    
    (390
    )
    
    
    (989
    )Foreign
    
    
    9,684
    
    
    
    7,325
    
    
    
        3,62047,371
    
    
    
    11,646
    
    
    
        (3,832
    )Deferred income taxes:Federal
    
    
    1,816
    
    
    
    (6,019
    )
    
    
    205,872State
    
    
    500
    
    
    
    112
    
    
    
    45,561Foreign
    
    
    (409
    )
    
    
    4,119
    
    
    
    11,9891,907
    
    
    
    (1,788
    )
    
    
    263,422Total
    
    $
    49,278
    
    
    $
    9,858
    
    
    $
        259,590
 Income taxes paid, including amounts paid to GE, were $45,709, $25,538 and
$5,126 for 2001, 2002, and 2003, respectively. A reconciliation of the
effective rate of the provision for income taxes to the statutory rate is as
follows: 2001
    
    2002
    
    2003Statutory U.S. Federal income tax (benefit) rate
    
    
    35.0
    %
    
    
    (35.0
    %)
    
    
    (35.0
    %)Increase
(reduction) in rate resulting from:State and local tax
    
    
    1.2
    %
    
    
    (3.0
    %)
    
    
    (5.7
    %)Foreign taxes, including results of
examinations and carrybacks
    
    
    5.8
    %
    
    
    11.1
    %
    
    
    8.7
    %U.S.
residual tax on branch earnings
    
    
    0.1
    %
    
    
    
    
    
    
    7.9
    %Research and expenditure tax credits
    
    
    (0.4
    %)
    
    
    (1.3
    %)
    
    
    Changes in deferred income tax as a
result of change in control
    
    
    
    
    
    
    3.0
    %
    
    
    U.S. income taxes on foreign
earnings not previously taxed
    
    
    
    
    
    
    28.0
    %
    
    
    Changes in valuation allowance
    
    
    0.1
    
    
    
    30.5
    %
    
    
    615.3
    %Other
    
    
    
    
    
    
    
    
    
    
        3.0
    %Income tax expense
    
    
    41.8
    %
    
    
    33.3
    %
    
    
        594.2
    %
 65




---



##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) Prior to completion of the Recapitalization, GE repatriated earnings from the
Companys foreign subsidiaries, which had previously not been taxed in the U.S.
This resulted in additional income taxes of $8,284 in the year ended December
31, 2002. In addition, as a result of the change in control, the Company
expects that deferred tax temporary differences will be taxed at different
rates than those in effect when the Company was wholly owned by GE. This
resulted in additional income taxes of $894 in the year ended December 31,
2002. Deferred income tax balances reflect the impact of temporary differences
between the carrying amount of assets and liabilities and their tax bases and
are stated at tax rates expected to be in effect when taxes are actually paid
or recovered. The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31 are as follows: 2002
    
    2003Deferred tax assets:Accrued and other liabilities
    
    $
    4,286
    
    
    $
    20,807Domestic net operating loss carryforwards
    
    
    9,704
    
    
    
    23,020Foreign net operating loss carryforwards
    
    
    6,414
    
    
    
    9,842Tax credit carryforwards
    
    
    3,951
    
    
    
    126Unrealized loss on investment
    
    
    
    
    
    
    3,865Intangible assets
    
    
    281,500
    
    
    
    254,233Property and equipment
    
    
    
    
    
    
    791Other
    
    
    8,609
    
    
    
    4,937Gross deferred tax assets
    
    
    314,464
    
    
    
    317,621Valuation allowance
    
    
    (12,190
    )
    
    
    (280,995
    )Net deferred tax assets
    
    
    302,274
    
    
    
    36,626Deferred tax liabilities:Property and equipment
    
    
    35,245
    
    
    
    31,863Other
    
    
    1,825
    
    
    
    Gross deferred tax liabilities
    
    
    37,070
    
    
    
    31,863Net deferred tax assets
    
    $
    265,204
    
    
    $
    4,763
 In connection with the Recapitalization, GXS made an election under US Income
Tax Regulations that allowed it to revalue its assets and liabilities for
income tax purposes. The tax benefit of the revaluation was approximately
$242,000. Such benefit has been reflected as a contribution to capital in the
accompanying consolidated statement of stockholders equity. During the year ended December 31, 2003 the Company finalized the calculation of the benefit which resulted in an additional credit to additional paid-in capital of $2,981. In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in this assessment. Management believes the Company
will achieve profitable operations in future years that will enable the Company
to recover the benefit of its U.S. net deferred tax assets. However, the
Company presently does not have 66




---



##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) sufficient objective evidence to support managements belief and, accordingly,
has established a full valuation allowance in 2003 of $273,376 for
its U.S. net deferred tax assets as required by generally accepted accounting
principles. During the years ended December 31, 2002 and 2003, the Company
increased its U.S. and foreign valuation allowances by $9,027 and $268,805,
respectively. Recording this valuation allowance does not impact the Companys ability
to realize the benefit of this asset. The Company has not recognized a deferred tax liability of approximately $3,700
for the undistributed earnings of its foreign operations that arose in 2003 and
prior years because the Company currently does not expect those unremitted
earnings to reverse and become taxable to the Company in the foreseeable
future. A deferred tax liability will be recognized when the Company is no
longer able to demonstrate that it plans to permanently reinvest undistributed
earnings. (11) Lease and Other Commitments The Company is a lessee under various noncancelable operating lease
arrangements for office space and equipment having terms expiring on various
dates. Amounts are net of approximately $600 in sublease rents annually
through December 2006. Approximately 15% of the aggregate lease commitments
relate to space which is vacant and available for sublease at the
Companys corporate headquarter. As of December 31, 2003, future minimum lease payments
are as follows: 2004
    
    $
    17,2712005
    
    
    14,1342006
    
    
    12,2112007
    
    
    10,4212008
    
    
    8,7222009 and thereafter
    
    
    44,844$
    107,603
 Rent expense for operating leases was $39,097, $35,569 and $37,166 for the years
ended December 31, 2001, 2002 and 2003, respectively. Rent expense includes
$170, $186 and $296 for the years ended December 31, 2001, 2002 and 2003,
respectively, billed by GE for office space and equipment. In 2001, the Company sold certain computer equipment for $19,200 and leased it
back for a 90-month period. The lease transaction was accounted for as a
capital lease. The capital lease obligation was retired by GE in connection
with the Recapitalization. The Company has entered into several multi-year software maintenance agreements
with a third-party vendor. Such agreements provide for payments of $1,628 in
2004, $556 in 2005 and $73 in 2006. Minority shareholders of one of the Companys consolidated subsidiaries have
rights, in certain circumstances, to require the Company to purchase some or
all of their ownership holdings at specified amounts. Management estimates
that these specified amounts generally equate to the fair market value of the
holders interest. Management estimates the potential obligation at December
31, 2003 to be approximately $1,600. (12) Pension and Other Retirement Benefits Following the Recapitalization, the Company sponsors a number of defined
contribution plans which cover a substantial portion of the Companys employees
in the United States and various countries around the world. Contributions to
these plans for the years ended December 31, 2002 and 2003 were $407 and $4,111,
respectively. In addition, the Company sponsors one unfunded defined benefit plan
which covers employees in our subsidiary in Germany. As
of December 31, 2003, the Plans benefit obligation 67




---



##### 



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

was $11,232, which is accrued and included in accrued expenses and other liabilities
    in the consolidated balance sheet. Pension expense for the years ended December 31,
    2001, 2002 and 2003 was $237, $220 and $483, respectively. The Plans
    benefit obligation was determined using a discount rate of 5.75%, and a compensation
    rate increase of 3.0%. The Company does not sponsor any other defined benefit pension plans or any
post retirement medical benefits plan. (13) Stock Option Plan GXS Holdings sponsors a stock option plan that provides for the grant of stock
options and certain other types of stock-based compensation awards to
employees, directors and consultants of the Company. The plan provides for the
grant of awards to acquire up to 13,636 shares of GXS Holdings common stock
(approximately 5% on a fully diluted basis). A summary of options granted,
terminated and outstanding as of and during the period since the
Recapitalization to December 31, 2003 is as follows: Granted during 2002
            and outstanding as of December 31, 2002
        
        
        
        10,761Granted
        
        
        
        2,564Terminated
        
        
        
        (1,043
        )Outstanding as of
            December 31, 2003
        
        
        
        12,282
 The options vest in various amounts over periods of up to eight years and were
granted at $0.50 per share. As of December 31, 2003, 4,446 of the options were
vested. The estimated fair value of the options using the minimum value method
and the Black-Scholes model was approximately $0.07 per option. Such value
assumes an option life of seven years and a risk free interest rate of 2.0%.
The options are generally not exercisable until an initial public offering or
seven years from the date of grant. Upon exercise of the options, GXS Holdings has the right to repurchase the
common stock for the lower of fair market value or the exercise price following
termination of employment for cause or for fair market value following
termination for other than cause. The repurchase right terminates upon the
earlier of an initial public offering, which raises proceeds of at lease
$75,000, or twelve months from the date of termination of employment. Fair
market value is determined by the price of the stock on the last date before
determination, if publicly traded, or by a committee of board of directors. (14) 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 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. The settlement
agreement was approved in accordance with WorldComs bankruptcy proceeding and
became effective on December 16, 2003. The Company also entered into a
separate settlement agreement with GE. The settlement agreements did not have
a material impact on the Companys consolidated financial statements. 68




---



##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) 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. (15) Restructuring During 2001, the Company adopted restructuring plans that involved the
termination of 548 employees and the exit of a facility. In connection with
the plan, the Company recognized charges for severance of $6,540 and lease
termination and other costs of $651. The amounts were paid by the end of 2001.
In connection with the plan, the Company recorded other asset write-offs in
the amount of $2,230. 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 and in 2003 actions were taken to darken a portion of the
headquarters facility. 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. The 2003 activities resulted in the termination of approximately 90 people
resulting in a restructuring and related charge of approximately $26,671,
principally related to severance and related termination costs and costs
associated with the closing of facility space. The amount recorded is net of
amounts the Company expects to receive from subleasing vacated space at its
headquarters. The facility charge takes the existing lease obligation less
anticipated rental receipts to be received from existing and potential
subleases. This requires significant judgments about the length of time the
space will remain vacant, anticipated cost escalators and operating costs
associated with the leases, the market rate at which the space will be
subleased, and broker fees or other costs necessary to market the space. These
judgments were based upon independent market analysis and assessment from
experienced real estate brokers. The following is a summary of the Companys restructuring activities and the
related obligations for the years ended December 31, 2001, 2002 and 2003: Severance
    
    Facilities
    
    Other
    
    TotalBalance at January 1, 2001
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Restructuring expense
    
    
    6,123
    
    
    
    135
    
    
    
    3,163
    
    
    
    9,421Payments and other
    
    
    (6,095
    )
    
    
    (135
    )
    
    
    (3,163
    )
    
    
    (9,393
    )Balance at December 31, 2001
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Restructuring expense
    
    
    10,967
    
    
    
    2,824
    
    
    
    4,615
    
    
    
    18,406Payments and other
    
    
    (10,661
    )
    
    
    (367
    )
    
    
    (4,615
    )
    
    
    (15,643
    )Balance at December 31, 2002
    
    
    334
    
    
    
    2,457
    
    
    
    
    
    
    
    2,791Restructuring expense
    
    
    13,573
    
    
    
    12,650
    
    
    
    448
    
    
    
    26,671Payments and other
    
    
    (4,315
    )
    
    
    (2,861
    )
    
    
    (448
    )
    
    
    (7,624
    )Balance at December 31, 2003
    
    $
    9,592
    
    
    $
    12,246
    
    
    $
    
    
    
    $
    21,838
 As
of December 31, 2003, the accruals for restructuring
charges are expected to be paid as follows
$12,797 in 2004;
$1,665 in 2005;
$1,443 in 2006;
$1,111 in 2007;
$816 in 2008; with the balance
paid in various amounts through 2014. (16) Asset Impairment Charges During the year ended December 31, 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 year ended December 31, 2002, the Company
recorded an impairment charge of $5,425 primarily related to certain software
under development for which the plans to 69




---



##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) deploy were curtailed. During the year ended December 31, 2001, the Company
recorded a goodwill impairment charge of $4,287 related to the abandonment of
certain Irish operations as discussed in note 7. (17) 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 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
 On a pro forma basis, assuming the acquisition had been consummated on January
1, 2002, the Companys unaudited revenue and net loss for the years ended
December 31, 2002 and 2003 would have been as follows: 2002
    
    2003Revenue
    
    $
    414,505
    
    
    $
    364,633Net loss
    
    $
    (47,526
    )
    
    $
    (42,332
    )
 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. (18) Subsequent Event (unaudited) On February 13, 2004, Global eXchange Services, Inc. completed the acquisition
of HAHT Commerce, Inc. (HAHT). Global eXchange Services acquired all of the
capital stock of HAHT through a merger of a wholly owned subsidiary of Global
eXchange Services, into HAHT for consideration of $15,000 in cash plus common
and preferred shares of GXS Holdings, Inc. valued at approximately $15,000,
subject to adjustment as provided in the Agreement and Plan of Merger, dated as
of January 14, 2004. HAHT Commerce is a provider of demand chain management applications that
strategically automate, integrate and optimize order management, product
information management, channel management, business intelligence and customer
services between manufacturers, their channel partners and business
customers. 70




---



##### 



GXS CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2002 and 2003
(In thousands, except per share amounts) During the twelve months ended April 30, 2003, HAHT had revenues of $16,292 and
net loss of $12,368. As of April 30, 2003, HAHT had working capital of $1,772,
long-lived assets of $293 and net worth of $3,959. (19) 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 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. 71




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Condensed 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
    )
    
    $
    572,667
 72




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
December 31, 2003
(In thousands) Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    19,389
    
    
    $
    27,341
    
    
    $
    
    
    
    $
    46,730Receivables
    
    
    
    
    
    
    33,963
    
    
    
    28,365
    
    
    
    
    
    
    
    62,328Other current assets
    
    
    15
    
    
    
        8,750
    
    
    
    1,624
    
    
    
    
    
    
    
    10,389Advances to subsidiaries
    
    
    262
    
    
    
    176,669
    
    
    
    96,517
    
    
    
    (273,448
    )
    
    
    Total current assets
    
    
    277
    
    
    
    238,771
    
    
    
    153,847
    
    
    
    (273,448
    )
    
    
    119,447Investments in affiliates
    
    
    
    
    
    
    2,403
    
    
    
    526
    
    
    
    
    
    
    
    2,929Investments in subsidiaries
    
    
    203,797
    
    
    
    33,472
    
    
    
    
    
    
    
    (237,269
    )
    
    
    Property and equipment, net
    
    
    235
    
    
    
    128,644
    
    
    
    4,990
    
    
    
    
    
    
    
    133,869Goodwill, net
    
    
    
    
    
    
    6,953
    
    
    
    4,976
    
    
    
        
    
    
    
    11,929Other noncurrent assets
    
    
    10,659
    
    
    
    3,036
    
    
    
    5,431
    
    
    
    (11,750
    )
    
    
    7,376Deferred financing costs
    
    
    15,886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,886$
    230,854
    
    
    $
    413,279
    
    
    $
    169,770
    
    
    $
    (522,467
    )
    
    $
    291,436Liabilities, Minority Interest, and Stockholders Equity (Deficit)Current liabilities:Trade payables
    
    $
    1,311
    
    
    $
    7,495
    
    
    $
    3,333
    
    
    $
    
    
    
    $
    12,139Other current liabilities
    
    
    15,319
    
    
    
    40,797
    
    
    
    17,657
    
    
    
    
    
    
    
    73,773Advances from affiliates
    
    
    33,439
    
    
    
    136,299
    
    
    
    103,710
    
    
    
    (273,448
    )
    
    
    Total current liabilities
    
    
    50,069
    
    
    
    184,591
    
    
    
    124,700
    
    
    
    (273,448
    )
    
    
    85,912Long-term debt
    
    
    405,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405,520Other liabilities
    
    
    
    
    
    
    24,891
    
    
    
    10,788
    
    
    
    (11,750
    )
    
    
    23,929Total liabilities
    
    
    455,589
    
    
    
    209,482
    
    
    
    135,488
    
    
    
    (285,198
    )
    
    
    515,361Minority interest
    
    
    
    
    
    
    
    
    
    
    810
    
    
    
    
    
    
    
    810Stockholders equity (deficit)
    
    
    (224,735
    )
    
    
    203,797
    
    
    
    33,472
    
    
    
    (237,269
    )
    
    
    (224,735
    )$
    230,854
    
    
    $
    413,279
    
    
    $
    169,770
    
    
    $
    (522,467
    )
    
    $
    291,436
 73




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Income (Loss) and Comprehensive Income (Loss)
Year ended December 31, 2001
(In thousands) Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    284
    
    
    
    393,285
    
    
    
    179,005
    
    
    
    (108,395
    )
    
    $
    464,179Costs and operating expenses
    
    
    4,157
    
    
    
    387,734
    
    
    
    173,901
    
    
    
    (108,395
    )
    
    
    457,397Gains on sales of assets
    
    
    
    
    
    
    (8,576
    )
    
    
    
    
    
    
    
    
    
    
    (8,576
    )Restructuring and related charges
    
    
    
    
    
    
    8,319
    
    
    
    1,102
    
    
    
    
    
    
    
    9,421Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    4,287
    
    
    
    
    
    
    
    4,287Corporate charge from General Electric
Company
    
    
    
    
    
    
    12,940
    
    
    
    
    
    
    
    
    
    
    
    12,940Operating income (loss)
    
    
    (3,873
    )
    
    
    (7,132
    )
    
    
    (285
    )
    
    
    
    
    
    
    (11,290
    )Other income, net
    
    
    
    
    
    
    126,065
    
    
    
    3,097
    
    
    
    
    
    
    
    129,162Income (loss) before income taxes
    
    
    (3,873
    )
    
    
    118,933
    
    
    
    2,812
    
    
    
    
    
    
    
    117,872Provision (benefit) for income taxes
    
    
    (1,402
    )
    
    
    41,405
    
    
    
    9,275
    
    
    
    
    
    
    
    49,278Income (loss) before equity in income
(loss) subsidiaries
    
    
    (2,471
    )
    
    
    77,528
    
    
    
    (6,463
    )
    
    
    
    
    
    
    68,594Equity in income (loss) of subsidiaries
    
    
    71,065
    
    
    
    (6,463
    )
    
    
    
    
    
    
    (64,602
    )
    
    
    Net income (loss)
    
    
    68,594
    
    
    
    71,065
    
    
    
    (6,463
    )
    
    
    (64,602
    )
    
    
    68,594Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    190
    
    
    
    
    
    
    
    190Change in unrealized gain on marketable
equity securities, net of tax
    
    
    
    
    
    
    (119,415
    )
    
    
    
    
    
    
    
    
    
    
    (119,415
    )Comprehensive income (loss)
    
    $
    68,594
    
    
    $
    (48,350
    )
    
    $
    (6,273
    )
    
    $
    (64,602
    )
    
    $
    (50,631
    )
 74




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year ended December 31, 2002
(Unaudited)
(In thousands) Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    349,903
    
    
    $
    133,857
    
    
    $
    (74,306
    )
    
    $
    409,454Costs and operating expenses
    
    
    1,109
    
    
    
    318,827
    
    
    
    114,184
    
    
    
    (74,306
    )
    
    
    359,814Restructuring and related charges
    
    
    
    
    
    
    10,965
    
    
    
    7,441
    
    
    
    
    
    
    
    18,406Asset impairment charges
    
    
    
    
    
    
    5,425
    
    
    
    
    
    
    
    
    
    
    
    5,425Corporate charge from General Electric
Company
    
    
    
    
    
    
    7,331
    
    
    
    
    
    
    
    
    
    
    
    7,331Operating income (loss)
    
    
    (1,109
    )
    
    
    7,355
    
    
    
    12,232
    
    
    
    
    
    
    
    18,478Other income, net
    
    
    (28,123
    )
    
    
    (23,430
    )
    
    
    3,476
    
    
    
    
    
    
    
    (48,077
    )Income (loss) before income taxes
    
    
    (29,232
    )
    
    
    (16,075
    )
    
    
    15,708
    
    
    
    
    
    
    
    (29,599
    )Provision (benefit) for income taxes
    
    
    (11,547
    )
    
    
    10,157
    
    
    
    11,248
    
    
    
    
    
    
    
    9,858Income (loss) before equity in income
(loss) of subsidiaries
    
    
    (17,685
    )
    
    
    (26,232
    )
    
    
    4,460
    
    
    
    
    
    
    
    (39,457
    )Equity in income (loss) of subsidiaries
    
    
    (21,772
    )
    
    
    4,460
    
    
    
    
    
    
    
    17,312
    
    
    
    Net income (loss)
    
    
    (39,457
    )
    
    
    (21,772
    )
    
    
    4,460
    
    
    
    17,312
    
    
    
    (39,457
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    9,671
    
    
    
    
    
    
    
    9,671Comprehensive income (loss)
    
    $
    (39,457
    )
    
    $
    (21,772
    )
    
    $
    14,131
    
    
    $
    17,312
    
    
    $
    (29,786
    )
 75




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year ended December 31, 2003
(In thousands) Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    314,439
    
    
    $
    140,352
    
    
    $
    (91,322
    )
    
    $
    363,469Costs and operating expenses
    
    
    192
    
    
    
    290,364
    
    
    
    120,255
    
    
    
    (91,322
    )
    
    
    319,489Gains on sales of assets
    
    
    
    
    
    
    (700
    )
    
    
    
    
    
    
    
    
    
    
    (700
    )Restructuring and related charges
    
    
    
    
    
    
    25,987
    
    
    
    684
    
    
    
    
    
    
    
    26,671Asset impairment charges
    
    
    
    
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    6,500Operating income (loss)
    
    
    (192
    )
    
    
    (7,712
    )
    
    
    19,413
    
    
    
    
    
    
    
    11,509Other income (expense), net
    
    
    (57,647
    )
    
    
    4,239
    
    
    
    (1,788
    )
    
    
    
    
    
    
    (55,196
    )Income (loss) before income taxes
    
    
    (57,839
    )
    
    
    (3,473
    )
    
    
    17,625
    
    
    
    
    
    
    
    (43,687
    )Provision (benefit) for income taxes
    
    
    (1,485
    )
    
    
    251,988
    
    
    
    9,087
    
    
    
    
    
    
    
    259,590Income (loss) before equity in
income (loss) of subsidiaries
    
    
    (56,354
    )
    
    
    (255,461
    )
    
    
    8,538
    
    
    
    
    
    
    
    (303,277
    )Equity in income (loss) of subsidiaries
    
    
    (246,923
    )
    
    
    8,538
    
    
    
    
    
    
    
    238,385
    
    
    
    Net income (loss)
    
    
    (303,277
    )
    
    
    (246,923
    )
    
    
    8,538
    
    
    
    238,385
    
    
    
    (303,277
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    4,509
    
    
    
    
    
    
    
    4,509Comprehensive income (loss)
    
    $
    (303,277
    )
    
    $
    (246,923
    )
    
    $
    13,047
    
    
    $
    238,385
    
    
    $
    (298,768
    )
 76




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2001
(In thousands) Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    68,594
    
    
    $
    71,065
    
    
    $
    (6,463
    )
    
    $
    (64,602
    )
    
    $
    68,594Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,407
    
    
    
    23,868
    
    
    
    15,668
    
    
    
    
    
    
    
    41,943Asset impairment charge
    
    
    
    
    
    
    
    
    
    
    4,287
    
    
    
    
    
    
    
    4,287Deferred income taxes
    
    
    6
    
    
    
    2,310
    
    
    
    (409
    )
    
    
    
    
    
    
    1,907Gain on sales of assets
    
    
    
    
    
    
    (8,576
    )
    
    
    
    
    
    
    
    
    
    
    (8,576
    )Gain on sales of investments
    
    
    
    
    
    
    (144,638
    )
    
    
    
    
    
    
    
    
    
    
    (144,638
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (440
    )
    
    
    
    
    
    
    (440
    )Proportionate share of losses in investee companies and
investment write-downs
    
    
    
    
    
    
    23,318
    
    
    
    99
    
    
    
    
    
    
    
    23,417Equity in net (income) loss of
subsidiaries
    
    
    (71,065
    )
    
    
    6,463
    
    
    
    
    
    
    
    64,602
    
    
    
    Changes in operating assets and
liabilities, net
    
    
    (276
    )
    
    
    323
    
    
    
    (999
    )
    
    
    
    
    
    
    (952
    )Net cash provided by (used in)
operating activities
    
    
    (334
    )
    
    
    (25,867
    )
    
    
    11,743
    
    
    
    
    
    
    
    (14,458
    )Cash flows for investing activities:Purchases of property and equipment
    
    
    (24
    )
    
    
    (56,528
    )
    
    
    (16,607
    )
    
    
    
    
    
    
    (73,159
    )Proceeds from sale of assets
    
    
    
    
    
    
    11,245
    
    
    
    
    
    
    
    
    
    
    
    11,245Proceeds from sales of investments
    
    
    
    
    
    
    154,372
    
    
    
    
    
    
    
    
    
    
    
    154,372Purchases of investments
    
    
    
    
    
    
    (9,286
    )
    
    
    
    
    
    
    
    
    
    
    (9,286
    )Other
    
    
    
    
    
    
    
    
    
    
    (213
    )
    
    
    
    
    
    
    (213
    )Net cash provided by (used for) investing activities
    
    
    (24
    )
    
    
    99,803
    
    
    
    (16,820
    )
    
    
    
    
    
    
    82,959Cash flows from financing activities:Net contributions (to) from General
Electric Company and affiliates
    
    
    358
    
    
    
    (88,221
    )
    
    
    (50,115
    )
    
    
    
    
    
    
    (137,978
    )Short-term borrowings, net
    
    
    
    
    
    
    
    
    
    
    37,448
    
    
    
    
    
    
    
    37,448Proceeds from sale and leaseback transaction
    
    
    
    
    
    
    19,200
    
    
    
    
    
    
    
    
    
    
    
    19,200Payment of capital lease obligation
    
    
    
    
    
    
    (736
    )
    
    
    
    
    
    
    
    
    
    
    (736
    )Net cash provided by (used for)
financing activities
    
    
    358
    
    
    
    (69,757
    )
    
    
    (12,667
    )
    
    
    
    
    
    
    (82,066
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (531
    )
    
    
    
    
    
    
    (531
    )Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    4,179
    
    
    
    (18,275
    )
    
    
    
    
    
    
    (14,096
    )Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    914
    
    
    
    27,815
    
    
    
    
    
    
    
    28,729Cash and cash equivalents, end of year
    
    $
    
    
    
    $
    5,093
    
    
    $
    9,540
    
    
    $
    
    
    
    $
    14,633
 77




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2002
(In thousands) Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (39,457
    )
    
    $
    (21,772
    )
    
    $
    4,460
    
    
    $
    17,312
    
    
    $
    (39,457
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    46,354
    
    
    
    1,414
    
    
    
    
    
    
    
    47,768Asset impairment charge
    
    
    
    
    
    
    5,425
    
    
    
    
    
    
    
    
    
    
    
    5,425Deferred income taxes
    
    
    
    
    
    
    18,417
    
    
    
    (20,205
    )
    
    
    
    
    
    
    (1,788
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (545
    )
    
    
    
    
    
    
    (545
    )Proportionate share of losses in investee companies and
investment write-downs
    
    
    
    
    
    
    3,420
    
    
    
    1,248
    
    
    
    
    
    
    
    4,668Equity in net (income) loss of subsidiaries
    
    
    21,772
    
    
    
    (4,460
    )
    
    
    
    
    
    
    (17,312
    )
    
    
    Changes in operating assets and liabilities, net
    
    
    (11,212
    )
    
    
    (23,768
    )
    
    
    28,077
    
    
    
    
    
    
    
    (6,903
    )Net cash provided by (used in)
operating activities
    
    
    (28,897
    )
    
    
    23,616
    
    
    
    14,449
    
    
    
    
    
    
    
    9,168Cash flows for investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (36,786
    )
    
    
    (1,029
    )
    
    
    
    
    
    
    (37,815
    )Acquisition of minority interests in affiliates
    
    
    
    
    
    
    (6,000
    )
    
    
    
    
    
    
    
    
    
    
    (6,000
    )Net cash provided by (used for) investing activities
    
    
    
    
    
    
    (42,786
    )
    
    
    (1,029
    )
    
    
    
    
    
    
    (43,815
    )Cash flows from financing activities:Distribution to General Electric Company in
connection with recapitalization
    
    
    (350,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (350,000
    )Net contributions from General Electric Company and
affiliates
    
    
    
    
    
    
    41,006
    
    
    
    26,933
    
    
    
    
    
    
    
    67,939Advance (to) from subsidiaries
    
    
    (19,044
    )
    
    
    10,435
    
    
    
    8,609
    
    
    
    
    
    
    
    Repayment of short-term borrowings, net
    
    
    
    
    
    
    
    
    
    
    (43,922
    )
    
    
    
    
    
    
    (43,922
    )Proceeds from issuance of long-term debt
    
    
    410,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    410,000Payment of long-term debt
    
    
    (438
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (438
    )Payment of capital lease obligation
    
    
    
    
    
    
    (18,464
    )
    
    
    
    
    
    
    
    
    
    
    (18,464
    )Payment of financing costs
    
    
    (11,621
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,621
    )Capital contribution from General Electric Company
    
    
    
    
    
    
    3,040
    
    
    
    
    
    
    
    
    
    
    
    3,040Net cash provided by (used for)
financing activities
    
    
    28,897
    
    
    
    36,017
    
    
    
    (8,380
    )
    
    
    
    
    
    
    56,534Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    813
    
    
    
    
    
    
    
    813Increase in cash and cash equivalents
    
    
    
    
    
    
    16,847
    
    
    
    5,853
    
    
    
    
    
    
    
    22,700Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    5,093
    
    
    
    9,540
    
    
    
    
    
    
    
    14,633Cash and cash equivalents, end of year
    
    $
    
    
    
    $
    21,940
    
    
    $
    15,393
    
    
    $
    
    
    
    $
    37,333
 78




---



##### 



GXS CORPORATION AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2003
(In thousands) Non-Parent
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedCash flows from operating activities:Net income (loss)
    
    $
    (303,277
    )
    
    $
    (246,923
    )
    
    $
    8,538
    
    
    $
    238,385
    
    
    $
    (303,277
    )Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:Depreciation and amortization
    
    
    
    
    
    
    44,564
    
    
    
    2,782
    
    
    
    
    
    
    
    47,346Asset impairment charges
    
    
    
    
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    6,500Deferred income taxes
    
    
    257,938
    
    
    
    (4,013
    )
    
    
    9,497
    
    
    
    
    
    
    
    263,422Gain on sale of assets
    
    
    
    
    
    
    (700
    )
    
    
    
    
    
    
    
    
    
    
    (700
    )Write-off of deferred financing costs
    
    
    5,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,548Amortization of deferred financing costs and debt discount
    
    
    3,558
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,558Minority interest
    
    
    
    
    
    
    
    
    
    
    (507
    )
    
    
    
    
    
    
    (507
    )Equity in net loss ofsubsidiaries
    
    
    246,923
    
    
    
    (8,538
    )
    
    
    
    
    
    
    (238,385
    )
    
    
    Changes in operating assets and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    liabilities, net
    
    
    (205,666
    )
    
    
    233,203
    
    
    
    (10,665
    )
    
    
    
    
    
    
    16,872Net cash provided by
operating activities
    
    
    5,024
    
    
    
    24,093
    
    
    
    9,645
    
    
    
    
    
    
    
    38,762Cash flows for investing activities:Purchases of property and equipment
    
    
    (91
    )
    
    
    (27,244
    )
    
    
    (2,060
    )
    
    
    
    
    
    
    (29,395
    )Proceeds from sale of assets
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    600Net cash used for investing activities
    
    
    (91
    )
    
    
    (26,644
    )
    
    
    (2,060
    )
    
    
    
    
    
    
    (28,795
    )Cash flows from financing activities:Net contributions from General
Electric Company and affiliates
    
    
    12,456
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,456Repayment of long-term debt
    
    
    (174,562
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174,562
    )Proceeds from long-term debt issuances
    
    
    169,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,750Payment of financing costs
    
    
    (12,577
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,577
    )Net cash used for
financing activities
    
    
    (4,933
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,933
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    4,363
    
    
    
    
    
    
    
    4,363Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (2,551
    )
    
    
    11,948
    
    
    
    
    
    
    
    9,397Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    21,940
    
    
    
    15,393
    
    
    
    
    
    
    
    37,333Cash and cash equivalents, end of year
    
    $
    
    
    
    $
    19,389
    
    
    $
    27,341
    
    
    $
    
    
    
    $
    46,730
 79




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Independent Auditors Report The Board of Directors and Stockholders Global eXchange Services Limited: We have audited the accompanying consolidated balance sheets of Global eXchange
Services Limited (GXS or the Company) as at 31 December 2003 and 2002 and
the related profit and loss accounts for each of the years in the three-year
period ended 31 December 2003. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GXS as at 31
December 2003 and 2002 and the results of their operations for each of the
years in the three-year period ended 31 December 2003, in conformity with
generally accepted accounting principles in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect of
such differences is summarized in note 24 to the consolidated financial
statements. As more fully described in note 21 to the consolidated financial statements,
GXS has adopted FRS 19 Deferred Tax in the year ended 31 December 2002.
Consequently, GXSs consolidated financial statements for the year ended 31
December 2001 referred to above have been restated. /s/ KPMG Audit Plc London, United Kingdom
23 March 2004 80




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Consolidated profit and loss accountfor the year ended 31 December 2003
    
    2002
    
    2001Note
    
    £000
    
    £000
    
    £000(restated)Turnover
    
    
    3
    
    
    
    32,852
    
    
    
    37,475
    
    
    
    36,859Cost of sales
    
    
    
    
    
    
    (8,816
    )
    
    
    (10,665
    )
    
    
    (13,307
    )Gross profit
    
    
    
    
    
    
    24,036
    
    
    
    26,810
    
    
    
    23,552Administrative expenses
    
    
    
    
    
    
    (15,571
    )
    
    
    (15,011
    )
    
    
    (17,791
    )Other operating income
    
    
    
    
    
    
    642
    
    
    
    691
    
    
    
    687Operating profit
    
    
    
    
    
    
    9,107
    
    
    
    12,490
    
    
    
    6,268Exceptional charge
    
    
    8
    
    
    
    (751
    )
    
    
    
    
    
    
    Interest receivable and similar income
    
    
    9
    
    
    
    1,430
    
    
    
    768
    
    
    
    485Interest payable and similar charges
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    (22
    )Profit on ordinary activities before taxation
    
    
    4
    
    
    
    9,786
    
    
    
    13,258
    
    
    
    6,731Tax on profit on ordinary activities
    
    
    11
    
    
    
    (2,944
    )
    
    
    (4,374
    )
    
    
    (2,882
    )Profit on ordinary activities after taxation
    
    
    
    
    
    
    6,842
    
    
    
    8,884
    
    
    
    3,849Dividends paid and proposed on preferred
shares (net of capital contribution of
£1,212,000 in 2002)
    
    
    12
    
    
    
    (999
    )
    
    
    702
    
    
    
    (1,253
    )Retained profit for the financial year
    
    
    20
    
    
    
    5,843
    
    
    
    9,586
    
    
    
    2,596Retained profit brought forward
    
    
    
    
    
    
    15,675
    
    
    
    6,089
    
    
    
    3,493Retained profit carried forward
    
    
    20
    
    
    
    21,518
    
    
    
    15,675
    
    
    
    6,089
 The notes on pages 83 to 100 form part of these consolidated financial
statements. The movement in reserves is shown in note 20 to these consolidated financial
statements. The results in the above profit and loss account relate entirely to continuing
operations. The group has no recognised gains and losses other than those included in the
profit and loss account above and therefore no separate statement of total
recognised gains and losses has been presented. 81




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Consolidated balance sheetat 31 December 2003
    
    2003
    
    2002
    
    2002Note
    
    £000
    
    £000
    
    £000
    
    £000Fixed assetsIntangible assets
    
    
    13
    
    
    
    
    
    
    
    355
    
    
    
    
    
    
    
    1,967Tangible assets
    
    
    14
    
    
    
    
    
    
    
    703
    
    
    
    
    
    
    
    8921,058
    
    
    
    
    
    
    
    2,859Current assetsDebtors: amounts falling due within one year
    
    
    15
    
    
    
    14,643
    
    
    
    
    
    
    
    13,905Debtors: amounts falling due after more than one year
    
    
    15
    
    
    
    34,090
    
    
    
    
    
    
    
    25,406Cash at bank and in hand
    
    
    
    
    
    
    3,230
    
    
    
    
    
    
    
    67551,963
    
    
    
    
    
    
    
    39,986Creditors:amounts falling due within
one year
    
    
    16
    
    
    
    (9,649
    )
    
    
    
    
    
    
    (5,697
    )Net current assets
    
    
    
    
    
    
    
    
    
    
    42,314
    
    
    
    
    
    
    
    34,289Total assets less current liabilities
    
    
    
    
    
    
    
    
    
    
    43,372
    
    
    
    
    
    
    
    37,148Provisions for liabilities and charges
    
    
    17
    
    
    
    
    
    
    
    (854
    )
    
    
    
    
    
    
    (473
    )Net assets
    
    
    
    
    
    
    
    
    
    
    42,518
    
    
    
    
    
    
    
    36,675Capital and reservesCalled up share capital
    
    
    19
    
    
    
    
    
    
    
    21,000
    
    
    
    
    
    
    
    21,000Profit and loss account
    
    
    
    
    
    
    
    
    
    
    21,518
    
    
    
    
    
    
    
    15,675Shareholders fundsEquity
    
    
    
    
    
    
    
    
    
    
    23,518
    
    
    
    
    
    
    
    17,675Non-equity
    
    
    19
    
    
    
    
    
    
    
    19,000
    
    
    
    
    
    
    
    19,00042,518
    
    
    
    
    
    
    
    36,675
 82




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(forming part of the financial statements) 1 Accounting policies The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Companys financial
statements except as noted below. a) Basis of preparation The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules. b) Goodwill Goodwill arose on the acquisition of International Network Services Limited
(INS) and was written off over 10 years, the period the directors estimated
over which benefits accrued from the acquisition. c) Other intangible fixed assets and amortisation Other intangible assets represents development costs and other internally
developed software costs and are being written off over 3 years. d) Fixed assets and depreciation Depreciation is provided to write off the cost less the estimated residual
value of tangible fixed assets by equal instalments over their estimated useful
economic lives as follows: i) Plant and machinery Plant and other equipment are depreciated at the following rates: Year of acquisition
    
    -
    
    
    7
    %First year
    
    -
    
    
    25
    %Second year
    
    -
    
    
    22
    %Third year
    
    -
    
    
    18
    %Fourth year
    
    -
    
    
    16
    %Fifth year
    
    -
    
    
    12
    %
  Furniture and motor vehicles are depreciated at 10% and 25% per annum
respectively. ii) Land and buildings  Leasehold improvements to sites used for the Companys marketing, financial
and administrative operations are amortised over the shorter of ten years or
the period of the lease. Leasehold improvements to sites used in the
communications network are amortised over the shorter of five years or the
period of the lease.  No depreciation is provided on freehold land. 83




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 1 Accounting policies(continued) e) Cash flow statement Under FRS1 Cash flow statements (revised 1996) 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 the ultimate parent companys financial
statements which are available to the public. f) Transactions with related parties The Company, as a subsidiary undertaking of Acquisition UK Limited (see note 2,
Ultimate parent company), has taken advantage of an exemption contained in FRS
8 Related Party Disclosures, in preparing its accounts. This exemption
allows the Company not to disclose details of transactions with other group
companies or investees of the group qualifying as related parties, as the
consolidated accounts of Acquisition UK Limited, in which the Company is
included, are available to the public. g) Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the profit and loss account. h) Leases Assets acquired under finance leases, which transfer to the lessee
substantially all the benefits and risks of ownership, are included in fixed
assets and depreciated over their estimated useful lives. The interest element
of the leasing obligation is charged to the profit and loss account over the
period of the lease in proportion to the capital balance outstanding. Lease
obligations, net of future finance charges, are shown under creditors. Operating lease payments are charged to the profit and loss account in the year
to which they relate. i) Post-retirement benefits The employees of the Company participated in two GE defined benefit schemes
providing benefits based on final pensionable pay. The assets of the schemes
were held separately from those of the Company. Contributions to the schemes
were charged to the profit and loss account so as to spread the cost of
pensions over employees working lives within the Company. The employees of
the Company became deferred members of the two GE defined benefit schemes in
September 2003 (see note 8, Exceptional charge). The Company now operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the company in an independently
administered fund. The amount charged to the profit and loss account
represents the contributions payable to the scheme in respect of the accounting
period. j) Reclassifications Certain prior year amounts have been reclassified to conform with the current
years presentation. 84




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 1 Accounting policies(continued) k) Taxation The charge for taxation is based on the profit for the year and takes into
account taxation deferred because of timing differences between the treatment
of certain items for taxation and accounting purposes. Deferred tax is recognised without discounting, in respect of all timing
differences between the treatment of certain items for taxation and accounting
purposes which have arisen but not reversed by the balance sheet date, except
as otherwise required by FRS 19. l) Turnover The Company generates revenues from three principal sources: Transaction
Processing The Company earns transaction processing fees from
facilitating the exchange of business documents among the companys computer
systems and those of their trading partners. These revenues are based on a per
transaction fee and are recognized in the period the related transaction is
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. Revenues are recognised when the
license agreement is signed, the license fee is fixed and determinable,
delivery has occurred, and collection is probable. Revenue from licensing
software that requires significant customisation and modification or where
services are otherwise considered essential to the functionality of the
software are recognised 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 rateably 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 in 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 element based on vendor specific objective evidence (VSOE).
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. Royalty Income In previous years the Company earned royalty income of 50%
from group undertakings on global sales of Edi*Switch and Enterprise products.
In 2003, by Shareholder Agreement, the royalty rate on such sales was reduced
to 10%. m) US management charges For the first time in 2003 the Company has been assessed management charges by
its US parent in respect of costs incurred in the US on its behalf. n) Basis of consolidation The consolidated financial statements incorporate the financial statements of
the parent company and its subsidiary undertaking, International Network
Services Limited, made up to 31 December 2003. The acquisition method of
accounting has been adopted. 85




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 2 Ultimate parent company and parent undertaking of larger group of which the company is a member The companys immediate parent undertaking and controlling entity for the
period until 27 September 2002, was GE Information Services Inc. (a company
incorporated in the United States of America). With effect from 27 September
2002, as a result of the recapitalization transaction, the Companys immediate
parent undertaking and controlling entity was GXS International, Inc. (a company
incorporated in the United States of America). On 31 December 2002 GXS
International, Inc. transferred its beneficial interest in the Company to
Acquisition UK Ltd (a company incorporated in the United Kingdom). With effect
from 31 December 2002 Acquisition UK Limited is the Companys immediate parent. The largest group in which the results of the company are consolidated is that
headed by the companys ultimate parent undertaking and controlling entity,
Global Acquisition Company (a company incorporated in the United States of
America) located at 2822 Sand Hill Road, Suite 280, Menlo
Park, California 94025, USA. 3 Analysis of turnover on ordinary activities before taxation 2003
    
    2002
    
    2001£000
    
    £000
    
    £000By geographical marketUnited Kingdom  to third parties
    
    
    31,425
    
    
    
    31,564
    
    
    
    28,939United Kingdom  to group undertakings
    
    
    
    
    
    
    
    
    
    
    4,329Rest of Europe  to third parties
    
    
    586
    
    
    
    565
    
    
    
    3,175Other  to third parties
    
    
    131
    
    
    
    
    
    
    
    Other  to group undertakings
    
    
    710
    
    
    
    5,346
    
    
    
    41632,852
    
    
    
    37,475
    
    
    
    36,859
 4 Profit on ordinary activities before taxation 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Profit on ordinary activities before taxation is
stated after charging/(crediting):Auditors remuneration:- audit
    
    
    148
    
    
    
    35
    
    
    
    36- other services
    
    
    176
    
    
    
    69
    
    
    
    16Depreciation and amounts written off:- owned tangible fixed assets
    
    
    310
    
    
    
    448
    
    
    
    460- goodwill
    
    
    1,363
    
    
    
    1,486
    
    
    
    1,486- other intangible assets
    
    
    249
    
    
    
    293
    
    
    
    194Loss on sale of tangible fixed assets
    
    
    1
    
    
    
    52
    
    
    
    167Foreign exchange losses/(gains)
    
    
    (225
    )
    
    
    172
    
    
    
    262Operating lease rentals:- plant and machinery
    
    
    76
    
    
    
    73
    
    
    
    288- land and buildings
    
    
    1,038
    
    
    
    1,062
    
    
    
    1,208
 86




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 5 Remuneration of directors 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Directors emoluments
    
    
    644
    
    
    
    638
    
    
    
    735644
    
    
    
    638
    
    
    
    735Company contributions to pension schemes
    
    
    39
    
    
    
    21
    
    
    
    33Compensation for loss of office
    
    
    
    
    
    
    192
    
    
    
    161683
    
    
    
    851
    
    
    
    929
 The aggregate of emoluments and amounts receivable under long-term incentive
schemes of the highest paid director was £290,000 (2002: £428,000; 2001:
£566,000). Number of directors2003
    
    2002
    
    2001Retirement benefits are accruing to the following number
of directors under:Money purchase schemes
    
    
    4
    
    
    
    
    
    
    
    Defined benefit schemes
    
    
    
    
    
    
    4
    
    
    
    4
 6 Staff numbers and costs The average number of persons employed by the company (including directors)
during the year, analysed by category, was as follows: Number of employees2003
    
    2002
    
    2001Sales and sales support
    
    
    86
    
    
    
    46
    
    
    
    66Technical development
    
    
    21
    
    
    
    49
    
    
    
    51Administration
    
    
    28
    
    
    
    44
    
    
    
    46135
    
    
    
    139
    
    
    
    163
 The aggregate payroll costs of these persons were as follows: 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Wages and salaries
    
    
    6,457
    
    
    
    7,925
    
    
    
    11,023Social security costs
    
    
    687
    
    
    
    1,102
    
    
    
    1,351Other pension costs
    
    
    713
    
    
    
    431
    
    
    
    535Additional pension payment to GE Pension Schemes
(see note 8, Exceptional charge)
    
    
    751
    
    
    
    
    
    
    
    8,608
    
    
    
    9,458
    
    
    
    12,909
 87




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 7 Redundancy Costs 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Paid during the year
    
    
    310
    
    
    
    1,307
    
    
    
    1,574Accrued
    
    
    
    
    
    
    79
    
    
    
    310
    
    
    
    1,386
    
    
    
    1,574
 8 Exceptional Charges 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Pensions Charge
    
    
    751
    
    
    
    
    
    
    
    
 The claim brought by 21 employees over the change in the company pension scheme
has been settled. 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 over 50 will be entitled to retire at 60 as if they were full members
of the GE Pension Plan. Global eXchange Services Limited made a contribution
to 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 employees
claim. 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
payment 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. 9 Interest receivable and similar income 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Receivable from group undertakings
    
    
    1,391
    
    
    
    539
    
    
    
    485Other interest receivable
    
    
    39
    
    
    
    229
    
    
    
    1,430
    
    
    
    768
    
    
    
    485
 10 Interest payable and similar charges 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Other interest payable
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22
 88




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 11 Taxation Analysis of charge in period 2003
    
    
    
    
    
    2002
    
    
    
    
    
    2001£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000(restated)
    
    (restated)UK corporation taxCurrent tax on income for the period
    
    
    2,951
    
    
    
    
    
    
    
    4,295
    
    
    
    
    
    
    
    2,382Adjustments in respect of prior periods
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1202,951
    
    
    
    
    
    
    
    4,295
    
    
    
    
    
    
    
    2,502Total current tax
    
    
    
    
    
    
    2,951
    
    
    
    
    
    
    
    4,295
    
    
    
    
    
    
    
    2,502Deferred tax (see note 18)Origination/reversal of timing differences
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    380Tax on profit on ordinary activities
    
    
    
    
    
    
    2,944
    
    
    
    
    
    
    
    4,374
    
    
    
    
    
    
    
    2,882
 Factors affecting the tax charge for the current period The current tax charge for the period is higher (2002: higher; 2001: higher)
than the standard rate of corporation tax in the UK 30% (2001: 30%; 2001: 30%).
The differences are explained below. 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Current tax reconciliationProfit on ordinary activities before tax
    
    
    9,786
    
    
    
    13,258
    
    
    
    6,731Current tax at 30% (2001: 30%; 2001: 30%)
    
    
    2,936
    
    
    
    3,977
    
    
    
    2,019Effects of:Expenses not deductible for tax purposes
    
    
    11
    
    
    
    20
    
    
    
    245Timing differences
    
    
    56
    
    
    
    (71
    )
    
    
    (339
    )Depreciation for period in excess of capital allowances
    
    
    384
    
    
    
    438
    
    
    
    457Non-taxable income
    
    
    
    
    
    
    (69
    )
    
    
    Utilisation of tax losses from other group companies
    
    
    (436
    )
    
    
    
    
    
    
    Adjustments to tax charge in respect of previous periods
    
    
    
    
    
    
    
    
    
    
    120Total current tax charge (see above)
    
    
    2,951
    
    
    
    4,295
    
    
    
    2,502
 The company has claimed tax losses from Acquisition UK Limited, a group
company, in order to reduce its taxable profits. No consideration has been
paid by the Company for such losses. 89




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 12 Dividends and other appropriations 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Non-equity shares:Final dividend proposed
    
    
    999
    
    
    
    510
    
    
    
    1,253Capital contribution made
    
    
    
    
    
    
    (1,212
    )
    
    
    999
    
    
    
    (702
    )
    
    
    1,253
 The aggregate amount of proposed dividends is £999,000 (2002: £510,000; 2001: £1,253,000). A capital contribution of £1,212,000 was made in 2002 in relation to dividends overpaid in previous years. 13 Intangible fixed assets Other intangibleassets
    
    Goodwill
    
    Total£000
    
    £000
    
    £000CostAt beginning of year
    
    
    1,346
    
    
    
    16,055
    
    
    
    17,401Additions
    
    
    
    
    
    
    
    
    
    
    At end of year
    
    
    1,346
    
    
    
    16,055
    
    
    
    17,401AmortisationAt beginning of year
    
    
    742
    
    
    
    14,692
    
    
    
    15,434Charged in year
    
    
    249
    
    
    
    1,363
    
    
    
    1,612At end of year
    
    
    991
    
    
    
    16,055
    
    
    
    17,046Net book valueAt 31 December 2003
    
    
    355
    
    
    
    
    
    
    
    355At 31 December 2002
    
    
    604
    
    
    
    1,363
    
    
    
    1,967
 90




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 14 Tangible fixed assets Short leasehold land and
    
    Plant andbuildings
    
    machinery
    
    Total£000
    
    £000
    
    £000CostAt beginning of year
    
    
    1,426
    
    
    
    1,708
    
    
    
    3,134Additions
    
    
    
    
    
    
    122
    
    
    
    122Disposals
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )At end of year
    
    
    1,426
    
    
    
    1,826
    
    
    
    3,252DepreciationAt beginning of year
    
    
    908
    
    
    
    1,334
    
    
    
    2,242Charge for year
    
    
    90
    
    
    
    220
    
    
    
    310On disposals
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )At end of year
    
    
    998
    
    
    
    1,551
    
    
    
    2,549Net book valueAt 31 December 2003
    
    
    428
    
    
    
    275
    
    
    
    703At 31 December 2002
    
    
    518
    
    
    
    374
    
    
    
    892
 No assets held at 31 December 2003 were the subject of hire purchase or finance
leases (2002: £nil; 2001: £nil). 15 Debtors 2003
    
    2002£000
    
    £000Amounts due within one year:Trade debtors
    
    
    6,068
    
    
    
    7,436Amounts owed by group undertakings
    
    
    7,865
    
    
    
    5,893Corporation tax
    
    
    
    
    
    
    Other debtors
    
    
    111
    
    
    
    63Prepayments and accrued income
    
    
    599
    
    
    
    51314,643
    
    
    
    13,905Amounts due after more than one year:Deferred tax asset (see note 18)
    
    
    622
    
    
    
    615ACT recoverable
    
    
    
    
    
    
    791Amounts owed by group undertakings
    
    
    33,468
    
    
    
    24,00034,090
    
    
    
    25,406
 91




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 16 Creditors: amounts falling due within one year 2003
    
    2002£000
    
    £000Trade creditors
    
    
    103
    
    
    
    466Amounts owed to group undertakings
    
    
    5,994
    
    
    
    362Corporation tax
    
    
    275
    
    
    
    299Other taxes and social security
    
    
    
    
    
    
    41Accruals and deferred income
    
    
    2,612
    
    
    
    4,251Other creditors
    
    
    665
    
    
    
    2789,649
    
    
    
    5,697
 17 Provisions for liabilities and charges Dilapidationsto propertiesas requiredby rental
    
    Onerous
    
    Otheragreements
    
    lease
    
    provisions
    
    Total£000
    
    £000
    
    £000
    
    £000At beginning of year
    
    
    473
    
    
    
    
    
    
    
    
    
    
    
    473Charge/credit to the profit and loss for the year
    
    
    
    
    
    
    295
    
    
    
    72
    
    
    
    367Additional amounts provided
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14At end of year
    
    
    487
    
    
    
    295
    
    
    
    72
    
    
    
    854
 The leases stipulate that the Company must maintain the buildings in a
reasonable condition and that the buildings are reviewed and refurbished every
5 years. The onerous lease relates to the Shortland Building that GXS sub-leased to a GE
Company. The amount provided is the rental cost to GXS until the expiration of
the lease in 2006. 18 Deferred tax The elements of deferred taxation are as follows: 2003
    
    2002£000
    
    £000Difference between accumulated depreciation
and amortisation and capital allowances
    
    
    447
    
    

    
    497Other timing differences
    
    
    175
    
    
    
    118Deferred tax asset (see note 15)
    
    
    622
    
    
    
    615
 92




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 19 Called up share capital 2003
    
    2002£000
    
    £000AuthorisedEquity: 5,000,000 Ordinary shares of £1 each
    
    
    5,000
    
    
    
    5,000Non equity: 6,666,660 Floating rate cumulative redeemable
Preference shares of £28.50 each
    
    
    190,000
    
    
    
    190,000195,000
    
    
    
    195,000Allotted, called up and fully paidEquity: 2,000,000 Ordinary shares of £1 each
    
    
    2,000
    
    
    
    2,000Non equity: 666,666 Floating rate cumulative redeemable
preference shares of £28.50 each
    
    
    19,000
    
    
    
    19,00021,000
    
    
    
    21,000
 The ordinary shares and preferred shares rank pari passu in all respects. The preferred shares will be redeemable by the company on the tenth anniversary
of the date of issue at the nominal value together with all dividends accrued
but unpaid calculated up to and including the redemption date. The preferred
shares carry the right to a cumulative preferential dividend payable in arrears
on the anniversary of the date of issue provided there are sufficient
distributable reserves available. 20 Reconciliation of movements in shareholders funds Called-up share
    
    Profit and losscapital
    
    account
    
    Shareholders funds£000
    
    £000
    
    £0001 January 2003
    
    
    21,000
    
    
    
    15,675
    
    
    
    36,675Retained profit for the year
    
    
    
    
    
    
    5,843
    
    
    
    5,84331 December 2003
    
    
    21,000
    
    
    
    21,518
    
    
    
    42,518
 93




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 20 Reconciliation of movements in shareholders funds(continued) Shareholders funds are apportioned as follows: 2003
    
    2002Equity
    
    Non-equity
    
    Total
    
    Equity
    
    Non-equity
    
    Total£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000Ordinary shares of £1.00 each
    
    
    23,518
    
    
    
    
    
    
    
    23,518
    
    
    
    17,675
    
    
    
    
    
    
    
    17,675Preferred shares of £28.50 each
    
    
    
    
    
    
    19,000
    
    
    
    19,000
    
    
    
    
    
    
    
    19,000
    
    
    
    19,00023,518
    
    
    
    19,000
    
    
    
    42,518
    
    
    
    17,675
    
    
    
    19,000
    
    
    
    36,675
 21 Reserves Profitand lossaccount£0001 January 2002 as restated (originally stated at £5,395,000)
    
    
    6,089Retained profit for year
    
    
    9,5861 January 2003
    
    
    15,675Retained profit for the year
    
    
    5,84331 December 2003
    
    
    21,518
 The Company adopted FRS 19 Deferred taxation during the fiscal year ended 31
December 2002 and restated the opening balance sheet. This resulted in an
increase in shareholders equity of £694,000 at 1 January 2002. The tax charge
for the fiscal year ended 31 December 2001 increased by £380,000 as a result of
the adoption of the standard. If the standard had not been adopted, the tax charge for the 2002 year would
have been reduced by £79,000, resulting in an increase of the profit after tax
by £79,000. 94




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) 22 Operating leases Annual commitments under non-cancellable operating leases are as follows: 2003
    
    2002Plant and
    
    
    
    
    
    
    
    
    
    Plant andOther
    
    machinery
    
    Total
    
    Other
    
    machinery
    
    Total£000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000Expiring within:1 year
    
    
    52
    
    
    
    11
    
    
    
    63
    
    
    
    
    
    
    
    10
    
    
    
    102-5 years
    
    
    
    
    
    
    89
    
    
    
    89
    
    
    
    206
    
    
    
    119
    
    
    
    325Over 5 years
    
    
    712
    
    
    
    
    
    
    
    712
    
    
    
    675
    
    
    
    
    
    
    
    675764
    
    
    
    100
    
    
    
    864
    
    
    
    881
    
    
    
    129
    
    
    
    1,010
 23 Pension scheme The employees of the Company participated in two funded defined benefit pension
schemes, the GE Pension Plan and General Electric (USA) Supplementary Pension
Scheme, providing benefits based on final pensionable pay. Contributions were
based on pension costs across the Company. Because the Company was unable to
identify its share of the scheme assets and liabilities on a consistent and
reasonable basis, the scheme had been accounted for by the Company as a defined
contribution scheme. The employees have become deferred member of the GE
Pension Scheme in September 2003. The latest full actuarial valuation of the GE Pension Plan was carried out at 5
April 2001 by a qualified independent actuary. At this date there was a
funding deficit of £23,300,000 and a funding level of 89%. The actuarial valuation showed that the market value of the General Electric
(USA) Supplementary Pension Scheme amounted to approximately £11,100,000. The
actuarial valuation of the assets was sufficient to meet 103% of accrued
liabilities of the scheme. The pension charge for the year through December 2003 was £517,000 (2002:
£431,000; 2001: £535,000). Contributions to the scheme are charged to the
profit and loss account so as to spread the cost of pensions over employees
working lives. The Company now operates a defined contribution pension scheme. The pension
cost charge for the period represents contributions payable by the company to
the scheme and amounted to £196,000. There were no outstanding or prepaid contributions at either the beginning or
end of the financial year. 95




---



##### 



Global eXchange Services Limited
(Formerly GE Information Services limited)
31 December 2003 Notes(continued) 24
    
    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 reflect retained profit for the financial year (Net Income) and
shareholders funds (Shareholders Equity) 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 is effective for the Company for 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 (INS) has been capitalised and is being
amortised on a straight-line basis over 10 years. As of 31 December 2003 the
INS goodwill has been fully amortised. The application of US GAAP with respect to the accounting for goodwill results
in an increase to Net Income and Shareholders Equity representing the
amortisation charge recognised in the UK GAAP financial statements but reversed
for the purpose of the US GAAP financial statements. If goodwill was not subject to amortisation, Net Income and Shareholders
Equity under US GAAP for the fiscal year ended 31 December 2001 would have
increased by £1,486,000. 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 shares in a separate classification between debt and shareholders
equity, known as the mezzanine level. This results in a decrease to US GAAP
Shareholders Equity. 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). c) Pensions 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. Under US GAAP the £751,000 payment made by GE for the settlement of the
employee pension claim (see note 8, Exceptional charges) 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 recapitalization transaction, which occurred on 27 September
2002. 96




---



##### 



Global eXchange Services Limited
(Formerly GE Information Services limited)
31 December 2003 Notes(continued) d) Income Taxes In 2003, the Company realized a current tax benefit through the use of tax
losses generated by Acquisition UK Limited, the Companys immediate parent and
a member of the Companys tax group. The Company was not required to
compensate Acquisition UK Limited for the use of these tax losses. Under UK
GAAP, the use of these losses is recorded as a reduction in tax expense. Under
US GAAP, allocating the tax benefits of a parent to a subsidiary with income in
the absence of consolidated financial statements is not a permissible method of
allocation. To the extent that the parent contributes such tax benefits to the
subsidiary without commensurate consideration, a capital contribution is deemed
to have occurred. In addition, the Company is required to record the tax
expense that would otherwise would have been reported without taking into
account the tax losses contributed by Acquisition UK Limited. Reconciliation The following table summarises the effect on Net Income of differences between
UK GAAP and US GAAP for the three years ended 31 December 2003. Net Income Year ended 31 DecemberReference
    
    2003
    
    2002
    
    2001in note 24
    
    £000
    
    £000
    
    £000Net Income as reported under UK GAAP
    
    
    
    
    
    
    5,843
    
    
    
    9,586
    
    
    
    2,596Significant US GAAP adjustments- Amortisation of goodwill
    
    
    a
    
    
    
    1,363
    
    
    
    1,486
    
    
    
    - Preference share dividends
    
    
    b
    
    
    
    999
    
    
    
    (702
    )
    
    
    1,253Pension
    
    
    c
    
    
    
    (751
    )
    
    
    
    
    
    
    Income taxes
    
    
    d
    
    
    
    (436
    )
    
    
    
    
    
    
    Net Income under US GAAP
    
    
    
    
    
    
    7,018
    
    
    
    10,370
    
    
    
    3,849
 The following table summarizes the effect on Shareholders Equity of
differences between UK GAAP and US GAAP as at 31 December 2003 and 2002. Shareholders Equity As at 31 DecemberReference
    
    2003
    
    2002in note 24
    
    £000
    
    £000Shareholders Equity as reported under UK GAAP
    
    
    
    
    
    
    42,518
    
    
    
    36,675Significant US GAAP adjustments- Amortisation of goodwill
    
    
    a
    
    
    
    2,849
    
    
    
    1,486- Preference shares
    
    
    b
    
    
    
    (19,000
    )
    
    
    (19,000
    )Shareholders Equity under US GAAP
    
    
    
    
    
    
    26,367
    
    
    
    19,161
 97




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) e) SFAS No 95 Statement of cash flowsUnder UK GAAP the group 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 fiscal
years ended 31 December 2003, 2002 and 2001. Cash flow statement  US GAAP Year ended 31 December2003
    
    2002
    
    2001£000
    
    £000
    
    £000Cash flows from operating activitiesNet income (Profit after tax under US GAAP):
    
    
    7,018
    
    
    
    10,370
    
    
    
    3,849Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortisation
    
    
    559
    
    
    
    741
    
    
    
    2,140Provision for losses on debtors
    
    
    (65
    )
    
    
    249
    
    
    
    37Loss on disposal of fixed assets
    
    
    1
    
    
    
    52
    
    
    
    167Change in assets and liabilities:Decrease in debtors
    
    
    869
    
    
    
    12,683
    
    
    
    4,117Increase / (decrease) in creditors
    
    
    2,977
    
    
    
    (913
    )
    
    
    283Increase in corporation tax creditor
    
    
    412
    
    
    
    1,741
    
    
    
    674(Increase) / decrease in deferred tax debtor
    
    
    (7
    )
    
    
    79
    
    
    
    380Increase / (decrease) in other provisions for liabilities and charges
    
    
    381
    
    
    
    (78
    )
    
    
    (707
    )Net cash provided by operating activities
    
    
    12,145
    
    
    
    24,924
    
    
    
    10,940Cash flows from investing activities:Capital expenditure
    
    
    (122
    )
    
    
    (305
    )
    
    
    (623
    )Loans to group undertakings
    
    
    (9,468
    )
    
    
    (24,539
    )
    
    
    (11,655
    )Cash flows from financing activitiesDividends paid
    
    
    
    
    
    
    (2,661
    )
    
    
    Capital contribution received
    
    
    
    
    
    
    1,212
    
    
    
    Net increase / (decrease) in cash and cash equivalents under US GAAP
    
    
    2,555
    
    
    
    (1,369
    )
    
    
    (1,338
    )Cash and cash equivalents under US GAAP at the beginning of the year
    
    
    675
    
    
    
    2,044
    
    
    
    3,382Cash and cash equivalents under US GAAP at the end of the year
    
    
    3,230
    
    
    
    675
    
    
    
    2,044
 98




---



##### 



Global eXchange Services Limited
(Formerly GE Information Services limited)
31 December 2003 Notes(continued) Supplemental disclosures of cash flow information 2003
    
    2002
    
    2001£000
    
    £000
    
    £000Net cash received during the year for:Interest
    
    
    64
    
    
    
    421
    
    
    
    456Income taxes
    
    
    412
    
    
    
    309
    
    
    
    18Cash paid during the period for:Income taxes
    
    
    2,372
    
    
    
    1,865
    
    
    
    2,046
 Supplemental schedule of non-cash investing and financing activities The Company disposed of fixed assets with a net book value of £1,000 in 2003,
£52,000 in 2002 and £167,000 in 2001 for no cash consideration. 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. f) 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 31 December 2003
and 31 December 2002, there were debtors falling due after more than one year
of £34,090,000 and £25,406,000 respectively. Debtors falling due after more than one year includes five 20 year loans of
£4,485,000, £582,000, £900,000, £1,797,000 and £1,704,000 respectively to
Acquisition UK Limited, drawn down in March 2003, April 2003 and three loans
drawn down in October 2003 respectively. GXS International Inc. novated their
loan agreement to Acquisition UK Limited for two 20 year loans of £23,100,000
and £900,000 drawn down in September 2002. The interest rate per annum on
these loans is the sum of LIBOR plus 1%. g) Income tax classifications and disclosures 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 31 December
2003 and 31 December 2002 is £447,000 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 years ended 31 December 2003,2002 and 2001 is domestic. 99




---



##### 



Global eXchange Services Limited (Formerly GE Information Services limited) 31 December 2003 Notes(continued) h) Exceptional charge Under UK GAAP, the pension charge of £751,000 for the year ended 31 December
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. 25 Companies Act 1985 The consolidated financial statements do not constitute statutory accounts
within the meaning of the Companies Act 1985 of Great Britain for any periods
presented. Statutory accounts for the years ended December 31, 2003, 2001 and
2001 have been filed with the United Kingdoms Registrar of Companies. The
auditor has reported on these accounts. The reports were unqualified and did
not contain statements under Section 237(2) or (3) of the Act. 100




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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9a. Controls and Procedures As of the end of the period covered by this annual 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. 101




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PART III Item 10. Directors and Executive Officers MANAGEMENT The following table shows information about the executive officers and
directors as of the date of this annual report: Name
    
    Age
    
    PositionDavid Stanton
    
    
    41
    
    
    Chairman of the Board of DirectorsGary Greenfield
    
    
    49
    
    
    Chief Executive Officer, President
and DirectorRowland Archer
    
    
    50
    
    
    Senior Vice President of
Engineering and Chief Technology OfficerRoss Curtis
    
    
    50
    
    
    Senior Vice President of Global SalesMandy Edwards
    
    
    46
    
    
    Senior Vice President and Chief Information OfficerBruce Hunter
    
    
    55
    
    
    Senior Vice President, General Counsel and SecretaryJames Macioce
    
    
    57
    
    
    Senior Vice President of Global Transaction ServicesRobert Patrick
    
    
    32
    
    
    Senior Vice President and Chief Marketing OfficerJohn Soenksen
    
    
    41
    
    
    Senior Vice President, Chief Financial Officer and TreasurerSteven Scala
    
    
    43
    
    
    Senior Vice President of Corporate
DevelopmentTasos Tsolakis
    
    
    47
    
    
    Senior Vice President of Global
Professional and Customer ServicesDavid Golob
    
    
    36
    
    
    DirectorVenkat Mohan
    
    
    51
    
    
    DirectorBrian Ruder
    
    
    31
    
    
    DirectorCarl Wilson
    
    
    57
    
    
    Director
 Officers are elected annually by the Board of Directors and hold office at the
pleasure of the Board of Directors until the next annual selection of officers
or until their successors are elected and qualified. David Stantonhas been the Chairman of our Board of Directors since the
recapitalization. Mr. Stanton is a founder of Francisco Partners and has been
its Managing Partner since its formation in 1999. Prior to founding Francisco
Partners, Mr. Stanton led the technology investing activities of Texas Pacific
Group, a private equity fund, from 1994 until August 1999. Prior to joining
Texas Pacific Group, he was a venture capitalist with Trinity Ventures, which
specializes in investments in information technology, software and
telecommunications companies. Earlier in his career, Mr. Stanton was a strategy
consultant with Bain & Company, an international management consulting firm.
He also sits on the board of directors of AMI. Gary Greenfieldhas been our President and Chief Executive Officer since
December 2003. Mr. Greenfield has also served as an Operating Partner with
Francisco Partners since December 2003. Prior to joining us, Mr. Greenfield
served as Chief Executive Officer of Peregrine Systems, a global leader in
consolidated asset and service management software, where he led the company
from June 2002 through August 2003 through a major restructuring and turnaround
effort. From 1998 to 2001, he served as President and Chief Executive Officer
of Merant, a publicly traded e-business development solution company. Mr.
Greenfield joined Sage/INTERSOLV Software (a predecessor of Merant through a
merger) in 1987 as Vice President of Marketing, and served in various
capacities until becoming President in 1995, and Chief Executive Officer in
1998. 102




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Rowland
Archer has been our Senior Vice President
of Engineering and Chief Technology Officer since March 2004. Prior to joining us, Mr. Archer was Chief
Technology Officer of HAHT Commerce. Mr. Archer was also one of the founders
of HAHT Commerce. From 1992 to 1995 he served as Vice President of Software
Development for Q+E Software, which later became a division of INTERSOLV. From
1978 to 1992, Mr. Archer held a variety of positions at Data General. Mr.
Archer was responsible for the release of several hundred system and
application software products including the industrys first symmetrical
multiprocessing UNIX, many releases of communications software, databases,
computer languages, graphics and third party applications. Ross Curtishas been our Senior Vice President of Global Sales since January
2003. Prior to joining us, Mr. Curtis served as Executive Vice President of
World Wide Sales at BearingPoint, Inc., formerly KPMG Consulting, Inc., since
February 2000. Mr. Curtis joined KPMG in 1996 as Director of Business
Development and was elected partner in July 1997. From 1997 to 2000, he served
as Managing Partner in charge of sales. From 1993 to 1996, Mr. Curtis served as
Vice President World Wide Field Operations for Mergent International, a
supplier of research data. Prior to this he served as Group Sales Director for
Oracle Corporation. Mr. Curtis also has held sales leadership positions with
Applied Data Research, a software company. Mandy Edwardshas been our Senior Vice President and Chief Information Officer
since the
recapitalization. Ms. Edwards held a similar position at Global eXchange
Services, Inc. since April 2001. Prior to that, in 2000, Ms. Edwards was a
General Manager of the Aircraft Engine Exchange, a service that Global eXchange
Services, Inc. provided on behalf of General Electric. In 1999, Ms. Edwards was
Manager of Community Management Services and Client Solution Design and from
1993 to 1999, she held various leadership positions in Global eXchange
Services, Inc. Customer Quality Programs organization. Ms. Edwards joined
General Electric as a Senior Consultant for GE Consulting Services in 1982.
Between 1982 and 1993, Ms. Edwards held several consulting and information
technology leadership positions in General Electric, and was the Manager of
Corporate Staff Systems at the time she joined our company. Bruce Hunterhas been our Senior Vice President and General Counsel since the
recapitalization and, since January 1, 2004, has also served as
our acting Senior Vice President of Human Resources. Mr. Hunter held
a similar general
counsel position at Global eXchange Services, Inc. since January 1989. Mr.
Hunter has over 28 years of corporate law experience. Prior to joining Global
eXchange Services he held various legal positions with General Electric,
including GE Corporate Legal Operations, GE Industrial Systems, GE Lighting and
the GE semiconductor business. James Maciocehas been our Senior Vice President of Global Transaction Services
since the
recapitalization. Mr. Macioce held a similar position at Global eXchange
Services, Inc. since March 2000. He began his career with General Electric in
1971 with GE Transportation Services in its Information Systems Department.
Over the next 10 years he held a variety of information systems leadership
positions until he joined our company in 1981. During the last 20 years, Mr.
Macioce has held a variety of key positions including President of GE
Consulting Services and, from the mid-1990s to 2000, Vice President of Global
Technical Operations. Robert Patrickhas been our Senior Vice President and Chief Marketing Officer
since November 2003. Prior to joining us, Mr. Patrick served as Chief
Marketing Officer and Vice President of Strategy at Digex, Incorporated. Prior
to that position, Mr. Patrick held a variety of senior management positions at
Digex, including Vice President of Business and Product Development where he
was responsible for directing all business planning, creating new high growth
services and driving key strategic relationships. 103




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Before joining Digex in 1996, Mr. Patrick held positions as Senior Consultant
for Accenture (formerly Anderson Consulting) and Senior Computer Specialist for
the FBI. John Soenksenhas been our Senior Vice President, Chief Financial Officer and
Treasurer since
August 2003. Prior to joining us, Mr. Soenksen served as Vice President and CFO
for Multilink
Technology Corporation, a provider of advanced semiconductor-based solutions
that accelerate the deployment of high-speed optical networks. He also held the
position of Controller and Treasurer for Multilink. Before working at
Multilink, Mr. Soenksen was the Manager of Accounting & Reporting and then
became the Manager of Customer Financial Services at the Schindler Elevator
Corp. He has also worked as a Corporate Controller for SAP America, the
Controller and Treasurer for Ferag, Inc., a Senior Auditor for
PricewaterhouseCoopers and began his career as Chief Accountant for the
Pullman-Peabody Company. Steven Scalahas been our Senior Vice President of Corporate Development since
August 2003. Mr. Scala previously held the position of Senior Vice President of
Global Marketing at Global eXchange Services, Inc. since July 2001, overseeing
our portfolio of electronic commerce software and services. Prior to that, Mr.
Scala held various other positions with our company. He joined our company in
1997, as the marketing director of EDI software and services. In 1999, he
became Vice President and General Manager of Integration Solutions, overseeing
one of our software product lines. From the early 1980s until joining us in
1997, Mr. Scala held positions of increasing responsibility with IBM in
marketing, sales and programming. Tasos Tsolakishas been our Senior Vice President of Global Professional and
Customer Services since March 2004. Prior to this he served as our Senior Vice
President of Global Technology Operations (which included professional services
and engineering) since January 2002. Mr. Tsolakis joined our company in July
1998 as the Vice President for Global Professional Services. From 1994 to 1998,
Mr. Tsolakis was the Services Director for the AT&T Worldnet Business and
Consumer Services. Prior to that, Mr. Tsolakis held management positions at
AT&T Network Services Division and AT&T Bell Laboratories where he was
responsible for the development and support of the data and digital video
services. David Golobhas been a Director since the recapitalization. Mr. Golob has been
a Partner at
Francisco Partners since September 2001. From 1998 to 2000, Mr. Golob was a
Managing Director with Tiger Management, where he was co-head of the global
technology group. Prior to Tiger Management, Mr. Golob spent seven years as a
private equity investor focused on the software industry at General Atlantic
Partners and Sutter Hill Ventures. Earlier in his career, Mr. Golob was a
management consultant with McKinsey & Company. Venkat Mohanhas been a Director since the recapitalization. Mr. Mohan is a
Venture Partner at
Norwest Venture Partners, which he joined in 2000. Before joining Norwest
Venture Partners, Mr. Mohan served for several years as President and Chief
Operating Officer of OnDisplay, a leading provider of business-to-business
infrastructure software and services. From September 1996 to October 1999, Mr.
Mohan also served as our Vice President of Global Marketing and Business
Development. He was also President of Cadis Software, Ltd., a software start-up
company, from 1993 to 1996 and Chief Executive Officer of WIPRO Systems, Ltd.,
one of Indias largest software companies, from 1988 to 1990. In addition, he
previously worked for Hewlett Packard, Young & Rubicam, and McKinsey & Company.
Mr. Mohan also sits on the board of directors for Softface, Inc. Norwest
Venture Partners is one of the co-investors in our Company. Brian Ruderhas been a Director since the recapitalization. He has been a Vice
President at Francisco Partners since June 2000. Between 1998 and 2000, Mr.
Ruder attended the Harvard Business School, 104




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where he earned his Masters in Business Administration degree with distinction.
During that time, he also worked in the B2B eCommerce division of Netscape,
Inc. and co-founded Upromise, Inc. Prior to that time, Mr. Ruder was an
executive at Hellman & Friedman LLC, a private equity fund, from 1996 to 1998,
where he was responsible for the identification, evaluation and execution of
private equity transactions in a variety of industries including information
technology, professional services and infrastructure development. Prior to
joining Hellman & Friedman, Mr. Ruder was an Analyst in the Corporate Finance
Department of Morgan Stanley & Co. Carl Wilsonhas been a Director since December 2003. He has been Executive
Vice President and Chief Information Officer of Marriott International, Inc.
since 1997. He has global accountability for all business information
technology resources. Before joining Marriott Mr. Wilson served as Chief
Information Officer and Vice President of Information Resources for
Georgia-Pacific Corporation. Prior to this, he served as Senior Vice President
of Management Information Services for the Food and International Retailing
Sectors of Grand Metropolitan Plc. and Vice President of Information Management
for The Pillsbury Company. Mr. Wilson is a member of the AT&T Executive
Customer Advisory Council. Mr. Wilson also serves as a director for Enamics,
Inc. and Software Architects, Inc. Board Committees Our board of directors has established the following standing committees: Audit Committee.The audit committee reviews the professional services provided
by our independent accountants and the independence of such accountants from
management. The audit committee also reviews the scope of the audit coverage
and our annual financial statements and such other matters with respect to our
accounting and auditing practices and procedures as are required by the audit
committees charter or that the audit committee may find appropriate or as are
brought to its attention. While the audit committee has the powers and responsibilities set forth in its
charter, it is not the responsibility of the audit committee to plan or conduct
audits or to determine that our financial statements are complete and accurate
or are in compliance with generally accepted accounting principles. This
responsibility will fall to our management and our independent auditors.
Likewise, it is not the responsibility of our audit committee to conduct
investigations, resolve disputes, if any, between management and our
independent auditors or to assure compliance with laws and regulations or our
legal and ethical compliance policies. Members of our audit committee are
Messrs. Mohan, Golob and Ruder, with Mr. Golob serving as chairman. Executive Committee.Except to the extent that its powers are limited by law,
our articles of
incorporation or bylaws or our board of directors, the executive committee has
the same powers as our board of directors. During the intervals between
meetings of the board of directors, the executive committee may exercise all of
the powers of the board of directors in the management and control of our
business. All action taken by the executive committee is required to be
reported at the boards first meeting after the action is taken. Members of our
executive committee are Messrs. Stanton and Golob, with Mr. Stanton serving as
chairman. Compensation Committee.The compensation committee is responsible for:  
    
    reviewing and recommending to our board of directors the adoption
or amendment of the various compensation and benefit plans and programs
maintained for our officers and other key employees, including any
stock option or incentive compensation plans and approving the terms
and conditions of awards under such plans; 105




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##### 




    
    reviewing and approving certain compensation and benefit
arrangements for senior management;
    
    reviewing and approving compensation for individuals holding the
offices of Senior Vice President and above; and
    
    reviewing and recommending to the board of directors for approval
the compensation for our Chief Executive officer. The compensation committee administers our compensation and benefit plans and
programs, including our stock incentive plan and other long-term incentive
plans. Members of our compensation committee are
Messrs. Stanton, Golob and Wilson, with Mr. Stanton serving as chairman. Code of Ethics We have adopted a Compliance Guide that includes a code of ethics and conduct
and applies to all employees, including our Chief Executive Officer (principal
executive officer), Chief Financial Officer (principal financial officer) and
Vice President and Controller (principal accounting officer). Copies of this
Compliance Guide are available free of charge upon written request to GXS
Secretary at 100 Edison Park Drive, Gaithersburg, MD, 20878. Item 11. Executive Compensation Director Compensation We intend to pay outside directors $5,000 for each board meeting plus $1,000
for each committee meeting attended. In addition, all directors are reimbursed
for out-of-pocket expenses incurred in attending meetings and other activities
related to their service as a director. 50,000 stock options have also been
granted to Mr. Wilson and Mr. Mohan. Compensation of Executive Officers The following table sets forth information concerning the annual and long-term
compensation in 2002 and 2003 for services rendered in all capacities to us and
our subsidiaries for our Chief Executive Officer and our four other most highly
compensated executive officers. Except as noted, compensation was paid by us,
except for Mr. Seegers compensation, which prior to November 18, 2002 was paid
by General Electric and reimbursed to General Electric by us. 106




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##### 



Summary Compensation Table Long-term CompensationAnnual Compensation
        
        Awards
        
        PayoutsOther
        
        Securities
        
        Long- termAnnual
        
        Underlying
        
        Incentive
        
        All OtherName and Principal
        
        
        
        
        
        Salary
        
        Bonus
        
        Compensation
        
        Options/SARS
        
        Payouts
        
        CompensationPosition (1)
        
        Year
        
        ($)
        
        ($)
        
        ($)
        
        (#) (2)
        
        ($) (3)
        
        ($)Gary Greenfield (11)
        
        
        2003
        
        
        
        87,692
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        6,185
        (6)Chief Executive Officer,
            President and DirectorRoss Curtis
        
        
        2003
        
        
        
        342,172
        
        
        
        250,000
        
        
        
        9,250
        (15)
        
        
        750,000
        
        
        
        
        
        
        
        12,000
        (6)Senior Vice President
            of Global SalesBruce Hunter
        
        
        2003
        
        
        
        224,281
        
        
        
        112,500
        
        
        
        6,100
        (16)
        
        
        
        
        
        
        
        
        
        
        23,411
        (6)Senior Vice President
            and General Counsel
        
        
        2002
        
        
        
        199,873
        
        
        
        215,000
        (14)
        
        
        
        (5)
        
        
        284,091
        
        
        
        
        
        
        
        389,620
        (7)James Macioce
        
        
        2003
        
        
        
        224,281
        
        
        
        112,500
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        23,334
        (6)Senior Vice President
            of Global Transaction Services
        
        
        2002
        
        
        
        206,283
        
        
        
        210,000
        (14)
        
        
        
        
        
        
        568,182
        
        
        
        
        
        
        
        395,933
        (8)Tasos Tsolakis
        
        
        2003
        
        
        
        299,041
        
        
        
        100,000
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        23,511
        (6)Senior Vice President
            of Global Technology Operations
        
        
        2002
        
        
        
        268,365
        
        
        
        155,000
        (14)
        
        
        
        
        
        
        568,182
        
        
        
        
        
        
        
        398,380
        (9)Harvey Seegers  (12)
        
        
        2003
        
        
        
        449,712
        
        
        
        
        
        
        
        1,443,145
        (13)Former Chief Executive
            Officer, President and Director
        
        
        2002
        
        
        
        386,992
        
        
        
        333,000
        (14)
        
        
        63,550
        (4)
        
        
        3,409,091
        
        
        
        145,800
        
        
        
        711,001
        (10)
  (1)
    
    The positions reflected in the table are the positions presently held with us by the named executive
officers and held during 2003 at our principal operating subsidiary, Global eXchange Services, Inc.  (2)
    
    Represents options granted under the GXS Stock Incentive Plan. For more information about this
plan, see Stock Incentive Plan.  (3)
    
    This amount represents the value of payouts pursuant to the long-term performance incentive awards
granted by General Electric to Mr. Seegers under the GE Contingent Long-Term Performance
Incentive Award program.  (4)
    
    $2,310 (club dues); $327 (tax gross-up on Medicare); $25,864 (legal fees); $16,062 (company-leased automobile); $18,031 (financial counseling); $956 (personal use of company aircraft).  (5)
    
    Other annual compensation received was in the form of perquisites, the amount of which did not
exceed the lesser of $50,000, or 10% of the total annual salary and bonus reported for the executive.  (6)
    
    Represents contributed to retirement savings plan.  (7)
    
    $8,035 (amount contributed to retirement savings plan); $4,585 (earnings on deferred compensation
paid by General Electric); $377,000 (retention bonus paid by General Electric). 107




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(8)
    
    $8,035 (amount contributed to retirement savings plan); $898 (earnings on deferred compensation
paid by General Electric); $387,000 (retention bonus paid by General Electric).(9)
    
    $8,380 (amount contributed to retirement savings plan); $390,000 (retention bonus paid by General
Electric).(10)
    
    $17,046 (contribution to supplemental life insurance plan); $8,955 (amount contributed to
retirement savings plan); $685,000 (retention bonus paid by General Electric).(11)
    
    Mr. Greenfield commenced his employment with the Company in December 2003.(12)
    
    Mr. Seegers resigned as Chief Executive Officer, President and Director effective
December 1, 2003.(13)
    
    $1,443,145 severance paid December 2003.(14)
    
    25% of bonus paid by Global eXchange Services, 75% of bonus paid by General Electric.(15)
    
      $9,250 (company-leased automobile).(16)
    
    $6,100 (company-leased automobile). The following table shows options granted to our Chief Executive Officer and
our four other most
highly compensated executive officers in 2003: Option/SAR Grants in Last Fiscal Year OPTION/SAR GRANTS IN LAST FISCAL YEAR Individual Grants
        
        Potential Realizable Value AtAssumed Annual Rates Of StockPrice Appreciation For OptionTermNumber Of
        
        Percent Of TotalSecurities
        
        Options/SARsUnderlying
        
        Granted ToOption/SARs Granted
        
        Employees In Fiscal
        
        Exercise Price
        
        ExpirationName
        
        (#)
        
        Year
        
        ($/Sh)
        
        Date
        
        5%($)
        
        10% ($)Gary GreenfieldRoss Curtis
        
        
        750,000
        
        
        
        40.20
        %
        
        .50 / share
        
        
        1/6/2013
        
        
        
        236,000
        
        
        
        598,000Bruce HunterJames MacioceTasos TsolakisHarvey Seegers
 Option Exercises and Fiscal Year End Values Number of Securities
        
        Value of UnexercisedUnderlying Unexercised
        
        In-The-Money OptionsOptions at December 31, 2003
        
        at December 31, 2003(1)SharesAcquired on
        
        Value
        
        Exercisable
        
        Unexercisable
        
        Exercisable
        
        UnexercisableName
        
        Exercise
        
        ReceivedGary Greenfield
        
        
        
        
        
        $
        
        
        
        
        
        
        
        
        
        
        
        $
        
        
        
        $
        Ross Curtis
        
        
        
        
        
        
        
        
        
        
        159,375
        
        
        
        590,625
        
        
        
        
        
        
        
        Bruce Hunter
        
        
        
        
        
        
        
        
        
        
        74,574
        
        
        
        209,517
        
        
        
        
        
        
        
        James Macioce
        
        
        
        
        
        
        
        
        
        
        149,148
        
        
        
        419,034
        
        
        
        
        
        
        
        Tasos Tsolakis
        
        
        
        
        
        
        
        
        
        
        149,148
        
        
        
        419,034
        
        
        
        
        
        
        
        Harvey Seegers
        
        
        
        
        
        
        
        
        
        
        3,409,091
        
        
        
        
        
        
        
        
        
        
        
        
  (1)
    
    Represents the total gain that would be realized if all exercisable
options were exercised.
There is no public market for our common stock as of the date of this
annual report, and there was no public market for our common stock as of
December 31, 2003. Accordingly, these values have been calculated on the
basis of an assumed fair market value of $0.50 per share, which is equal
to the exercise price of all options listed above. Employment Agreements We have entered into employment agreements with Messrs. Curtis, Hunter,
Macioce, Scala, Soenksen and Tsolakis and with Ms. Edwards. We have signed
offer letters with Messrs. Greenfield, Patrick and Archer providing the terms
of their compensation. The terms of the employment agreements are similar. The
agreements provide for a term of two years, after which each agreement
automatically renews for a period of one year. These employment agreements
provide for salary and an annual bonus, a portion of which is guaranteed. Under the employment agreements, each officer received options to purchase
shares of the common stock of our parent company, GXS Holdings, Inc. Each
employment agreement also provides for customary employee benefits. Generally,
each officer is subject to non-competition and non-solicitation provisions
during his or her period of employment and for a period of twelve months after
termination, and each officer is required to enter into a proprietary
information and inventions agreement. The employment agreements provide that if we terminate an officer without
cause, other than by reason of the officers death or disability, the
terminated officer will receive:  
    
    a lump sum equal to:  
    
    earned but unpaid salary and accrued benefits; plus 108




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##### 




    
    an amount equal to a portion of the officers most recent
bonus and a severance payment equal to the officers then-current
annual salary and most recent bonus; and  
    
    accelerated vesting of the portion of the officers options
that would have become vested within the twelve-month period
following the date of termination. If the officers service with us terminates for any other reason, the
terminated officer will receive a lump sum equal to earned but unpaid salary
and accrued benefits. If we fail to renew an officers agreement, the officer
will receive:  
    
    a lump sum equal to earned but unpaid salary and accrued benefits;
and  
    
    a severance payment equal to one hundred percent or fifty percent
of the officers then-current annual salary and most recent bonus. In addition, upon the termination of an officer without cause within twelve
months of a change in control of us or our parent, GXS Holdings, or upon the
death of the officer, the officers options vest in full. GXS Holdings has the
right, under GXS Holdings stock incentive plan and the applicable stock option
agreement, to repurchase the shares of common stock acquired upon exercise of
options in accordance with the terms of the plan and the applicable award
agreement. Mr. Greenfields
    offer letter provides for an annual salary and customary employee benefits.
    It also provides for options to purchase shares of both common and preferred
    stock of GXS Holdings. Mr. Greenfield has been granted options to purchase
    568,909 shares of GXS Holdings Common Stock and 20,029 shares of
    GXS preferred stock which will vest as of June 1, 2004, subject to accelerated
    vesting in the event that his employment is terminated by the Company without
    cause. As a condition to receiving the options to purchase GXS Holdings common
    stock, Mr. Greenfield is subject to non-competition and non-solicitation
    provisions during his period of employment and for a period of twelve months
    after termination, and is required to enter into a proprietary information
    and inventions agreement. Mr. Patricks and Mr. Archers offer letters provide for an annual salary,
annual bonus, customary employee benefits and options to purchase shares of the
common stock of GXS Holdings. In the case of Mr. Patrick, (i) a portion of the
annual bonus is guaranteed, and (ii) in the event of his termination of
employment by the company without cause, he is entitled to receive, as
severance, continuation of his then-current salary and medical benefits for
twelve months and a payment equal to a pro rated portion of his most recent
annual bonus. Mr. Archers letter provides for a retention bonus to be paid
in two increments. The first increment, which is equal to 40% of his annual
salary, is to be paid upon the first anniversary of the closing of the
acquisition of HAHT Commerce, Inc. The second increment, which is equal to 60%
of his annual salary, is to be paid upon the second anniversary of such
acquisition. As a condition to receiving the options to purchase GXS Holdings
common stock, Messrs. Patrick and Archer are subject to non-competition and
non-solicitation provisions during their periods of employment and for a period
of twelve months after termination, and are required to enter into a
proprietary information and inventions agreement. We entered into a separation agreement, dated December 1, 2003, with our former
Chief Executive Officer, Harvey Seegers. Pursuant to this agreement, Mr.
Seegers was paid a severance payment equal to the sum of (i) the pro rated
portion of his most recent annual bonus, and (ii) 1.5 times the sum of his
then-current annual salary plus his most recent annual bonus. In addition, all
options that had been previously granted to Mr. Seegers became fully vested.
Mr. Seegers is also subject to non-competition and non-solicitation provisions
for a period of eighteen months. 109




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Stock Incentive Plan Our parent company, GXS Holdings, Inc., sponsors a stock incentive plan that
provides for the grant of stock options and other awards to our employees,
directors and consultants. Under the plan, incentive stock options may be
granted only to employees and only in accordance with applicable state laws and
federal rules governing incentive stock options. The plan also provides for
grants of nonstatutory stock options and other stock-based awards. These grants
may be made to employees, directors and consultants. The plan may be
administered by the board of directors or by a committee of directors delegated
by the board of directors. Presently, the compensation committee serves this
function. The compensation committee is authorized to designate participants in the plan
and to determine the exercise price, the number of shares subject to individual
awards and the terms and conditions, including the vesting schedule, of each
award granted under the plan. The options generally expire ten years from the
date of grant except in certain termination events, in which case the options
expire early. The plan provides for payment of the exercise price of options in
the form of cash or, subject to the discretion of the board of directors or
compensation committee, by delivery of other securities of GXS Holdings, or in
such other manner as may be permitted by the board of directors. The board of directors may amend the plan. However, an amendment requires
shareholder consent if such consent is necessary to comply with regulatory
requirements, unless the amendment serves to conform the plan to the local
rules and regulations of a non-U.S. jurisdiction. In addition, an amendment to
the plan or to any particular award is not effective with respect to any plan
participant who is adversely affected by the amendment without the consent of
that participant. The plan terminates in 2012, unless terminated earlier by the
board of directors and, under specified circumstances, the shareholders. As of December 31, 2003, 13,636,364 shares of common stock have been reserved
for issuance under the plan. As of December 31, 2003, GXS Holdings has granted
options to purchase 12,282,072 shares of GXS Holdings common stock at an
exercise price of $0.50 per share to a number of our employees and outside
directors, including all of our executive officers except Messrs.
Greenfield and Archer, whose options were not granted until March 2004. The options vest in various
amounts over periods of up to eight years; vested options not qualifying as
incentive stock options under the Internal Revenue Code are generally not
exercisable until an initial public offering or seven years from the date of
grant. Upon exercise of an option, GXS Holdings has the right to repurchase the common
stock for the lower of fair market value or the exercise price following
termination of employment for cause or for fair market value following
termination for other than cause. The repurchase right terminates upon the
earlier of an initial public offering, which raises proceeds of at least $75.0
million, or twelve months from the date of termination of employment. Fair
market value is determined by the price of the stock on the last date before
determination, if publicly traded, or by a committee of the board of directors
of GXS Holdings. 401(k) Plan Our domestic employees are eligible to participate in a defined contribution
retirement plan that complies with Section 401(k) of the Internal Revenue Code.
Under the plan, which we adopted following the recapitalization, we provide
matching contributions of up to 100% of the employees contribution of the
first 3% of the employees salary, and 50% of the next 2% of salary, up to
total matching contributions of 4% of the employees compensation. In addition,
at our discretion we may provide additional contributions to employees, and we
have made payments of 6% of the employees salary in January 2004 if they were
on the payroll at December 31, 2003. 110




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Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters GXS Holdings, Inc. owns 100% of our issued and outstanding common stock. The
following table sets forth information regarding the beneficial ownership of
the voting capital stock of GXS Holdings as of the date of this annual report
by:  
    
    The stockholders we know to be beneficial owners of more than five
percent of the outstanding shares of GXS Holding voting stock;  
    
    Each of our directors and executive officers; and  
    
    All of our directors and executive officers as a group. The table shows the beneficial ownership of the parties listed as of the date
of this annual report. Unless otherwise indicated, we believe that each of the
stockholders listed has sole voting and investment power with respect to their
beneficially owned shares of common stock. The percentages reflected
beneficial ownership as determined under Rule 13d-3 under the Securities
Exchange Act of 1934 and are based on 103,476,914 shares of common stock
outstanding and 4,139,077 shares of Series A Preferred Stock outstanding as of
the date of this annual report. Unless otherwise set forth below, the address of the listed
stockholders is c/o GXS Holdings, Inc., 100 Edison Park Drive, Gaithersburg,
Maryland 20878. Number of Shares ofSeries A Preferred
    
    
    
    
    
    Number of Shares ofStock Beneficially
    
    
    
    
    
    Common StockName
    
    Owned
    
    Percent of Class
    
    Beneficially Owned
    
    Percent of ClassFive Percent StockholdersFrancisco Partners GP, LLC (1)
    
    
    3,691,033
    
    
    
    89
    %
    
    
    92,275,825
    
    
    
    89
    %2882 Sand Hill RoadSuite 280Menlo Park, CA 94025GE Investments, Inc. (2)
    
    
    400,000
    
    
    
    10
    %
    
    
    10,000,000
    
    
    
    10
    %c/o General Electric Company3135 Easton TurnpikeFairfield, CT 06431Directors and Executive OfficersDavid Stanton (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gary Greenfield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rowland Archer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ross Curtis (4)
    
    
    
    
    
    
    
    
    
    
    159,375
    
    
    
    *Mandy Edwards (4)
    
    
    
    
    
    
    
    
    
    
    74,574
    
    
    
    *
 111




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Number of Shares ofSeries A Preferred
    
    
    
    
    
    Number of Shares ofStock Beneficially
    
    
    
    
    
    Common StockName
    
    Owned
    
    Percent of Class
    
    Beneficially Owned
    
    Percent of ClassBruce Hunter (4)
    
    
    
    
    
    
    
    
    
    
    74,574
    
    
    
    *James Macioce (4)
    
    
    
    
    
    
    
    
    
    
    149,148
    
    
    
    *Robert Patrick
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    John Soenksen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Steven Scala (4)
    
    
    
    
    
    
    
    
    
    
    149,148
    
    
    
    *Tasos Tsolakis (4)
    
    
    
    
    
    
    
    
    
    
    149,148
    
    
    
    *David Golob (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Venkat Mohan (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brian Ruder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Carl Wilson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    All directors and executive officers as a group
(15 persons)
    
    
    
    
    
    
    
    
    
    
    755,967
    
    
    
    *Harvey Seegers (4) (5)
    
    
    
    
    
    
    
    
    
    
    3,409,091
    
    
    
    3
    %
 * Less than 1%  (1)
    
    Francisco Partners GP, LLC indirectly holds all of its voting stock
through Global Acquisition Company LLC, Global Acquisition Holding Company
and Global Acquisition Company. As the managing member of Global
Acquisition Company LLC, Francisco Partners GP, LLC exercises voting and
dispositive power over the shares of GXS Holdings voting stock held by
Global Acquisition Company. David Stanton and David Golob are members of
the management committee of Francisco Partners GP, LLC and, as a result,
may be deemed to have or share beneficial ownership of the GXS Holdings
voting stock held by these entities. Messrs. Stanton and Golob disclaim
beneficial ownership of all such shares of GXS Holding voting stock.
Shares disclosed in the table do not include 5,819 shares of preferred
stock and 145,464 shares of common stock that Global Acquisition Company
may acquire in connection with our acquisition on June 3, 2003 of assets
of Celarix, Inc. These shares are being held in escrow pending resolution
of items related to the acquisition. The shares disclosed in the table
include 91,033 shares of preferred stock and 2,275,825 shares of common
stock issued in connection with our acquisition of HAHT Commerce, Inc. on
February 13, 2004 that Global Acquisition Company will acquire upon
completion of exchange procedures related to the HAHT acquisition, but do
not include 42,225 shares of preferred stock and 1,055,625 shares of
common stock that Global Acquisition Company may acquire in connection
with the HAHT acquisition, but are currently held in escrow pending the
resolution of items related to the HAHT acquisition.  (2)
    
    GE Investments is an indirect, wholly owned subsidiary of General
Electric.  (3)
    
    Mr. Mohan is a Venture Partner at Norwest Venture Partners, which is a
co-investor with Francisco Partners GP, LLC in Global Acquisition Company
LLC.  (4)
    
    The number of common shares shown in the table reflects stock options
vested under the GXS Holdings stock incentive plan for directors and
executive officers of the Company.  (5)
    
    Mr. Seegers was President and Chief Executive Officer of the Company
until December 2003. The number of common shares shown in the table for
Mr. Seegers reflect stock options vested under the GXS Holdings stock
incentive plan. These options expire on December 1, 2004. 112




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Item 13. Certain Relationships and Related Transactions In
September 2002, we effected a recapitalization of our Company which resulted
in Francisco
Partners and co-investors indirectly owning 90% of our parents common stock
and an equivalent interest in our parents preferred stock and General Electric
indirectly owning 10% of our parents common stock and an equivalent interest
in our parents preferred stock. The recapitalization agreement, together with a number of ancillary agreements,
govern our relationship with General Electric since the recapitalization. The
ancillary agreements include:  
    
    a tax matters agreement;  
    
    a services agreement;  
    
    an intellectual property agreement and license;  
    
    a license agreement allowing us to use the GE monogram for a period of time;  
    
    an employee lease agreement, which terminated on December 31, 2002,
and a transitional employee services agreement; and  
    
    a stockholders agreement. The summaries of the material terms of these agreements set forth below may not
contain all of the terms that may be important to you. Copies of these
agreements may be obtained by writing to us at the address listed in Business
 Available Information. Recapitalization Agreement The recapitalization agreement sets forth, among other things, the agreement
among General Electric, GE Investments and Global Acquisition Company with
respect to the principal corporate transactions required to effect the
recapitalization and the other agreements governing our relationship with
General Electric following the recapitalization as described above under
Recapitalization. In addition, under the recapitalization agreement, General
Electric has agreed that it and its subsidiaries will not engage in any EDI
business, as conducted by us, until September 27, 2005. Under the terms of the
recapitalization agreement, General Electric and GE Investments have also
agreed, until September 27, 2004, that they and their affiliates will maintain
their respective business relationships with us and that they and their
affiliates will continue to purchase products and services from us at the
aggregate annual dollar volume prevailing for General Electric and its
affiliates in 2001. For the year ended December 31, 2003, General Electric,
together with its affiliates, generated $32.6 million, or approximately 9.0%,
of our total revenues. Under terms of the agreement GE will be required to
purchase products and services totaling $22.5 million during the nine months ending
September 30, 2004. After that date GE has no further obligation to purchase
products and services except for contracts for services that extend beyond that
date. There can be no assurance that GE will continue to purchase products and
services at the current levels after September 30, 2004. Services Agreement 113




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In connection with the recapitalization, we entered into a services agreement
with Global Acquisition Company, General Electric and GE Capital Financial Inc.
under which General Electric agreed to provide or cause to be provided to us,
on a transitional basis, various administrative and support services to enable
us to conduct our business as an ongoing enterprise after the recapitalization
in substantially the same manner that it was conducted prior to the
recapitalization. These services include:  
    
    various finance and human resource services, including accounts
payable processing, general ledger, payroll processing, statutory
reporting, travel and living expense processing, collections, billing
and benefit administration, which services are in most cases provided
at a fixed fee or based on actual costs incurred and available to us
until September 27, 2003;  
    
    the inclusion of a hyperlink to our website from the General
Electric website until September 27, 2003; and  
    
    other services including telecommunications services,
administration services for various facilities and access for Harvey
Seegers to General Electrics corporate jet service, which are provided
to us based on actual costs incurred and generally available to us
until September 27, 2003. We requested General Electric to extend certain of the individual services
provided by General Electric under this agreement for up to three months, until
December 31, 2003. Under the services agreement, we were also required to provide General Electric
with various administrative and support services including telecommunications
services, processing services, Web-hosting services and outbound Internet
services. We provided these services until March 27, 2003 or September 27,
2003, depending on the service. General Electric also required to pay, or to
reimburse us for, transition costs and other incidental costs that we incurred
as a result of the provision of these services. The services agreement was utilized by us to transition from a wholly owned
subsidiary to a stand-alone company, and we do not expect the costs of any
continued services provided by General Electric from the date of this annual
report to be material. Intellectual Property Agreement and License In connection with the recapitalization, we entered into an intellectual
property agreement with
General Electric and Global Acquisition Company to provide for the license of
certain intellectual property rights and assignment of certain trademark rights
from General Electric to us to enable us to conduct our business as an ongoing
enterprise in substantially the same manner as it was conducted by General
Electric prior to the recapitalization. In return, we agreed to license certain
intellectual property rights to General Electric for use by General Electric
other than rights related to the EDI business. Under the terms of the agreement, General Electric transferred and assigned all
of its worldwide rights, titles and interests to the following trademarks,
together with any associated goodwill: Mark III®,Tradanet EDI Express and
Tradanet. In addition, General Electric granted us a non-exclusive,
irrevocable, royalty-free, fully paid-up, worldwide, perpetual right and
license to intellectual property controlled by General Electric which we
currently use in our business or to commercialize our products and service. We
have the right to extend sublicenses under that license. In return, we granted
to General Electric a non-exclusive, irrevocable, royalty-free, fully paid-up,
worldwide, perpetual right and license to intellectual property owned by us to
the extent the intellectual property was used by General Electric in its
existing businesses at the time of the recapitalization other than as our
customer. 114




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##### 



The term of the intellectual property agreement is perpetual and neither party
is able to terminate the agreement, the rights or the licenses for breach. The
exclusive remedies for breach are the recovery of monetary damages, injunctive
relief or other equitable relief imposed by a court. GE Monogram License Agreement In connection with the recapitalization, General Electric granted to us a
royalty-free, fully paid-up, non-exclusive, non-transferable, limited license
to use the GE monogram trademark worldwide for a period of two years following
the closing of the recapitalization in connection with specified products and
services that adhere to particular standards of quality. The license requires
that we use the GE monogram in the same manner and form as it was used by us
prior to the recapitalization. General Electric reserved the right to supervise and control our use of the GE
monogram for the purpose of protecting and maintaining the goodwill associated
with the GE monogram and General Electrics reputation. General Electric also
has the right to inspect our facilities, information relating to our products
and services and specified documentation. If, upon inspection, General Electric
finds that our products and services do not conform to the applicable standards
of quality, we will be required to cure the defect within 15 days after notice
from General Electric, or to cease manufacturing, marketing, promoting and
selling non-conforming products and rendering non-conforming services under the
GE monogram. We are also required to cease using the GE monogram upon notice from General
Electric if, in General Electrics opinion, our use of the monogram might
result in an adverse claim against us or General Electric by a third party. We
have indemnified General Electric for all losses arising out of or relating to
the agreement and the manufacture, sale, offering for sale, promotion or other
disposition of products or the performance, rendering, offering to perform or
render or promotion of services under the GE monogram. General Electric has the right to terminate the agreement if we fail to
implement a quality control plan for our goods and services that is acceptable
to General Electric within 45 days from the date that we receive notice from
General Electric that our quality control plan is unacceptable or if we fail to
cure our breach of any provisions of this agreement after 20 days written
notice by General Electric. Tax Matters Agreement and Related Tax Matters General Electric, GE Investments and Global Acquisition Company have entered
into a tax matters agreement to make certain representations, warranties and
covenants with respect to tax matters and to allocate the liability for taxes
owed or asserted by various taxing authorities. General Electric and several of
its affiliates, including us, have previously filed combined, consolidated,
unitary and other similar United States or foreign, state, local or other
governmental income or franchise tax returns. As a consequence of the
recapitalization, we will no longer file our tax returns as part of any
consolidated, unitary, or other similar combined group of General Electric
entities. The agreement sets forth the obligations of each party with respect to tax
liabilities for the taxable periods before and after the recapitalization.
Under the agreement, General Electric is required to file consolidated and
combined tax returns for all taxable periods beginning on or before the closing
of the recapitalization and is responsible for the payment of taxes required
under those returns. General Electric is also required to file all necessary
separate tax returns with respect to us for all taxable periods ending on or
before the closing of the recapitalization and for the payment of taxes
required under those returns. With respect to any taxable period that begins on
or before and ends after the closing of the recapitalization, we, or Global
Acquisition Company, will be responsible for the filing of our tax returns and
the payment of our taxes, 115




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##### 



but General Electric will reimburse us, or Global Acquisition Company, for any
taxes paid that are attributable to the pre-closing portion. We, or Global
Acquisition Company, will be responsible for filing and paying our taxes for
all taxable periods after the closing. If any payment required to be made under
the agreement to another party to the agreement is made after the date when
due, interest will accrue on the amount at the rate designated in Section
6621(a)(2) of the Internal Revenue Code, compounded on a daily basis. The
agreement provides for various cross-indemnities between the parties. As required by the tax matters agreement, Global Acquisition Company, General
Electric and, if necessary, GE Investments have filed or will file all
necessary elections under Section 338(h)(10) of the Internal Revenue Code to
treat our acquisition by Global Acquisition Company as a sale of all of our
assets. General Electric or GE Investments already have or will file a similar
election in each state that requires such a filing to obtain similar treatment
for state tax purposes. Global Acquisition Company, General Electric and their
respective subsidiaries have all agreed to file any required tax returns in a
manner consistent with treating the acquisition as a sale of all of our assets.
General Electric will pay any taxes for all taxable periods or portions of
taxable periods ending on or before the date of the closing of the
recapitalization attributable to the making of the Section 338(h)(10) election.
Global Acquisition Company is required to provide notice to General Electric of
any foreign subsidiary for which Global Acquisition Company intends to file
elections under Section 338(g) to treat their acquisition by Global Acquisition
Company as an acquisition of all of their assets for tax purposes. Global
Acquisition Company is required to pay to General Electric an amount equal to
General Electrics good faith estimate of the present value of the additional
tax liability that General Electric will incur for all taxable periods as a
result of the Section 338(g) elections actually made, less $250,000. Subsequent to the recapitalization, we entered into an agreement with Global
Acquisition Holding
Company and Global Acquisition Company to apportion certain of their tax
benefits as permitted by Section 1563 of the Internal Revenue Code. To the
extent we are able to utilize tax benefits under this agreement, we would not
anticipate making payments to Global Acquisition Holding Company or Global
Acquisition Company. Stockholders Agreement In connection with the recapitalization, Global Acquisition Company and GE
Investments have entered into a stockholders agreement with regard to their
stock holdings in GXS Holdings, Inc. The stockholders agreement provides for
customary transfer restrictions, tag-along rights, drag-along rights, rights of
first offer, information rights, pre-emptive rights and registration rights
with respect to the shares of our capital stock held, directly or indirectly,
by Global Acquisition Company and GE Investments. Under the stockholders
agreement:  
    
    GE Investments has the right to require GXS Holdings to offer to it
the right to purchase its pro rata share of any capital stock or other
equity-linked securities that GXS Holdings proposes to offer to any
person, subject to a limited number of exceptions, so that GE
Investments can maintain its percentage shareholding;  
    
    GE Investments has the right to participate, on a pro rata basis,
in any transfer of GXS Holdings capital stock by Global Acquisition
Company, subject to a limited number of exceptions, or in any other
liquidity event at the same price and on the same terms and conditions
as Global Acquisition Company;  
    
    Global Acquisition Company has the right to cause GE Investments to
participate, on a pro rata basis, in any significant transfer or sale
of GXS Holdings capital stock by Global Acquisition 116




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##### 



Company at the same price and on the same terms and conditions as Global
Acquisition Company;  
    
    GE Investments has the right, at any time after the first
anniversary of the closing of the recapitalization, to transfer all or
any part of its shares, subject to a limited number of exceptions, in a
private sale although GE Investments will be required to first offer
the shares to Global Acquisition Company;  
    
    GE Investments and Global Acquisition Company have the right to
make certain transfers of their respective shares, such as transfers to
affiliates, de minimustransfers, pledges or similar encumbrances;  
    
    GE Investments has the right to one demand registration of any
 shares of GXS Holdings capital stock that it then holds after one year
following the initial public offering of GXS Holdings capital stock,
if GXS Holdings is then eligible to use Form S-3 to register the shares
and if GE Investments owns at least 5% of GXS Holdings outstanding
capital stock at the time; and  
    
    GE Investments has unlimited piggy-back registration rights,
after the initial public offering of GXS Holdings capital stock, to
include any shares of GXS Holdings capital stock that it then holds in
registrations that GXS Holdings effects for its own account. In addition, for three years following the closing of the recapitalization and
so long as we are not a reporting company under the Exchange Act, at the
request of GE Investments, we are required to deliver to GE Investments copies
of any information or documents provided to our board of directors on a
quarterly basis. Finally, except with respect to any monitoring fees charged to
us by Francisco Partners, all transactions between Global Acquisition Company
or Francisco Partners and us are required to be on arms length terms. Employee Lease Arrangements In connection with the recapitalization we entered into an employee lease
agreement with respect to U.S. employees, and a transitional employee services
agreement, with respect to some non-U.S. employees, with General Electric, GE
Investments, GE International and Global Acquisition Company. Under the
employee lease agreement, to assist us with the transition to becoming an
independent company, as of the closing of the recapitalization on September 27,
2002, all of our domestic employees became employees of General Electric. We
leased the services of these employees, U.S. expatriates temporarily working
for us overseas and other specified classes of employees from General Electric
until November 18, 2002, in the case of domestic employees, and December 31,
2002, in the case of expatriate employees, at which time these employees again
became our employees. The transitional employee services agreement applies to individuals in India,
China and the Philippines who had been employed by a General Electric entity
but were assigned full-time to provide services to our non-U.S. operations in
their respective countries. Under this agreement, these individuals continued
to provide full-time services to our non-U.S. operations and remained employed
by the relevant General Electric entity. The relevant General Electric entity
continued to provide payroll and benefits services with respect to these
employees, and we provided reimbursement for these services. Shortly before
March 31, 2003, the employees in India and China were hired by our newly
created legal entities in their respective countries. 117




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##### 



During the applicable term of the agreements, General Electric was responsible
for all employee compensation and benefits, and we were required to reimburse
General Electric for any and all costs and expenses for these employees. In addition, both the employee lease agreement and the transitional employee
services agreement required Global Acquisition Company and us to indemnify
General Electric and its affiliates for losses resulting from the gross
negligence of Global Acquisition Company and/or its affiliates in connection
with the employee services provided under the agreements during the lease term.
Both agreements also required General Electric, GE Investments and GE
International to indemnify Global Acquisition Company and/or its affiliates for
losses resulting from the gross negligence of General Electric and/or its
affiliates in connection with the employee services provided under the
agreements. Transactions with Francisco Partners We have entered into a monitoring agreement with Francisco Partners under which
Francisco
Partners will provide management consulting and financial and other services to
us for an annual fee of $2.0 million plus expenses. The monitoring agreement
includes customary indemnification provisions in favor of Francisco Partners.
At the closing of the recapitalization, we also paid to Francisco Partners a
transaction fee of $20.0 million for services rendered in connection with the
financial structuring of the recapitalization and other management services. In
addition, we reimbursed Francisco Partners for fees and expenses associated
with the recapitalization and related financing. The amounts reimbursed totaled
$1.7 million. In addition, in connection with the acquisition by our subsidiary, Global
eXchange Services, on
June 3, 2003, of substantially all of the assets of Celarix related to its
current logistics integration and visibility solutions, Francisco Partners has
agreed to exchange interests in certain entities affiliated with Francisco
Partners for the preferred stock and common stock of our parent, GXS Holdings,
issued and held in escrow as consideration for the acquired Celarix assets. We
estimate the value of this preferred stock and common stock to be approximately
$0.6 million, subject to possible post-closing adjustment. In connection with acquisition by our subsidiary, Global eXchange Services, on
February 13, 2004, of HAHT Commerce, Francisco Partners has agreed to exchange
interests in certain entities affiliated with Francisco Partners for the
preferred stock and common stock of our parent, GXS Holdings, issued to former
stockholders of HAHT Commerce as consideration for the acquired capital stock,
part of which is being held in escrow subject to satisfaction of certain
conditions set forth in the agreement under which the acquisition was
completed. We estimate the value of all of the preferred stock and common
stock issued to HAHT Commerce stockholders including the portion held in escrow
to be approximately $15.0 million, subject to possible post-closing
adjustments. Senior Subordinated Reset Notes In connection with the recapitalization, we issued and sold $235.0 million
aggregate principal amount of our senior subordinated reset notes to GECC.
Because we did not refinance the senior subordinated reset notes on or before
September 27, 2003, we were required to pay to GECC a fee equal to 1.0% of the
outstanding aggregate principal amount of the senior subordinated reset notes
and the interest rate will be reset as described in Description of Other
Indebtedness  Senior Subordinated Reset Notes up to a maximum of 17% per
year, although interest in excess of 15% per year is payable in kind at our
option. 118




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##### 



Other Related Party Arrangements Prior to the recapitalization, we entered into over 100 customer agreements
with General Electric and its affiliates for the provision of our services. For
the year ended December 31, 2003, we generated approximately $32.6 million, or
approximately 9.0%, of our total revenues under these agreements. We derived
approximately $30.6 million, or 6.6%, of our revenues from General Electric and
its affiliates in 2001 and $28.9 million, or 7.1%, in 2002. Under the terms of
the recapitalization agreement, General Electric and GE Investments have
agreed, until September 27, 2004, that they and their affiliates will maintain
their respective business relationships with us and that they and their
affiliates will continue to purchase products and services from us at the
aggregate annual dollar volume prevailing for General Electric and its
affiliates in 2001. Trade receivables as of December 31, 2002 and 2003
resulting from normal trade activity with General Electric were $0.5 million
and $5.0 million, respectively. Trade payables as of December 31, 2002 and
2003 resulting from normal activity with General Electric were $1.6 million and
$1.2 million, respectively. Prior to the recapitalization, we participated in pooled treasury operations
with General Electric in most countries in which we have operations. As part of
this pooled activity, we earned interest on balances on deposit with General
Electric and paid interest when local operations borrowed money from the pool.
We had net interest income of $1.2 million and $1.3 million in 2001 and 2002,
respectively, virtually all of which represented payments to or from General
Electric. Effective with the recapitalization, we conduct our own treasury
operations. Prior to the recapitalization, General Electric provided a variety of services
to us. Certain services, such as administration of employee benefit plans and
payment of related claims, provision of voice and data networking, outsourcing
of certain functions, centralized financial and administrative activities
involved with transaction processing, centralized purchasing of desk top
software and other corporate services, were charged to us as utilized by us.
Billings for these services amounted to approximately $57.0 million, $58.8
million and $13.0 million for the years ended December 31, 2001, 2002 and 2003,
respectively. As part of the recapitalization, General Electric agreed to
continue to provide these services on an as needed basis for up to two years.
Management believes that the amounts paid to General Electric approximate the
costs of the services which could be obtained from a third party. Prior to the recapitalization, General Electric also provided certain
centralized services, such as compensation and benefit plan design, tax
planning, marketing support, treasury, auditing and public company reporting,
which we paid for with an annually agreed fee. This fee amounted to $12.9
million and $7.3 million for the years ended December 31, 2001 and 2002
respectively. Management believes that costs to provide these services on a
stand-alone basis are approximately $2.9 million annually. Prior to the recapitalization, our employees and retirees participated in a
number of employee benefit plans maintained by General Electric and its
affiliates, as described in note 2(j) to our audited consolidated financial
statements. Since the recapitalization, our employees and retirees continue to
be eligible for any benefits under these plans in which they were vested at the
time of the recapitalization, and General Electric retained all obligations
with respect to the provision of these benefits. Our employees also
participated in stock option plans sponsored by General Electric. The General
Electric stock options granted prior to the recapitalization continue to vest
since the recapitalization but must be exercised no later than five years after
the closing of the recapitalization or the original option expiration date,
whichever is earlier. Item 14. Principal Accountant Fees and Services The following table presents fees for professional audit services rendered by
KPMG LLP for the audit of the Companys annual financial statements for 2002
and 2003, and fees billed for other services rendered by KPMG LLP (in
thousands of dollars). 119




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##### 



2002
    
    2003Audit (1)
    
    $
    2,175
    
    
    $
    1,700Audit Related
    
    
    
    
    
    
    Audit and audit related fees
    
    
    2,175
    
    
    
    1,700Tax fees (2)
    
    
    177
    
    
    
    380$
    2,352
    
    
    $
    2,080
 (1)
    
    Includes statutory audits and services related to offering
memorandums and registration statements.(2)
    
    Tax fees consisted of fees for tax consultation and return
preparation services. The Audit Committees Outside Auditor Independence Policy provides for
pre-approval of the audit, audit related and tax services specifically
described by the Committee on an annual basis and, in addition,
advance approval for individual
engagements anticipated to exceed pre-established thresholds. The policy authorized the Committee to delegate to one or more of
its members pre-approval authority with respect to permitted services. 120




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##### 



Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (A) Documents filed as part of this report  (i)
    
    Financial Statements of GXS Corporation: The following
financial statements, together with the report thereon of
independent auditors, are included in this Report:  
    
    Independent Auditors Report
    
    Consolidated Balance Sheets as of December 31, 2002 and 2003
    
    Consolidated Statements of Operations for the
Years Ended December 31, 2001, 2002 and 2003
    
    Consolidated Statements of Comprehensive Loss for
the Years Ended December 31, 2001, 2002 and 2003
    
    Consolidated Statements of Stockholders Equity
(Deficit) for the Years Ended December 31, 2001, 2002 and 2003 121




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##### 




    
    Consolidated Statements of Cash Flows for the
Years Ended December 31, 2001, 2002 and 2003
    
    Notes to Consolidated Financial Statements for
the Years Ended December 31, 2001, 2002 and 2003  (ii)
    
    The capital stock of some of the Companys subsidiaries is pledged to
secure some of the Companys debt obligations. Accordingly, the Company
is providing financial statements for Global eXchange
Services Limited. The consolidated financial statements for our subsidiary
Global eXchange Services, Inc. are substantially identical to those of
the Company, and the consolidated financial statements of
our subsidiary Acquisition UK Limited are substantially identical to those of Global
Exchange Services Limited, which are provided
herein. The following financial statements of each of the Company
and Global eXchange Services Limited, together with the
reports thereon of independent auditors are included in this Report:  
    
    Independent Auditors Report
    
    Consolidated Profit and Loss for the Years Ended
December 31, 2003, 2002 and 2001
    
    Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    Notes to Consolidated Financial Statements  (2)
    
    Consolidated Financial Statement Schedule of Valuation and Qualifying
Accounts 122




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##### 



B. Exhibits Exhibit Number
    
    Description3.1
    
    Certificate of Incorporation filed with the Secretary of State of
Delaware on September 9, 2002 (Incorporated by reference to Exhibit 3.1
to GXS Corporations Registration Statement No. 333-106143 on Form S-4
filed on June 16, 2003.)3.2
    
    By-laws of GXS Corporation (Incorporated by reference to Exhibit
3.2 to GXS Corporations Registration Statement No. 333-106143 on Form
S-4 filed on June 16, 2003.)4.1
    
    Indenture, dated as of September 27, 2002 between GXS Corporation,
the subsidiary guarantors and Wells Fargo Bank Minnesota, National
Association, as trustee (Incorporated by reference to Exhibit 4.1 to
GXS Corporations Registration Statement No. 333-106143 on Form S-4
filed on June 16, 2003.)4.2
    
    Registration Rights Agreement dated as of September 27, 2002
between GXS Corporation, the subsidiary guarantors and General Electric
Capital Company (Incorporated by reference to Exhibit 4.2 to GXS
Corporations Registration Statement No. 333-106143 on Form S-4 filed
on June 16, 2003.)4.3
    
    Form of Note (included in Exhibit 4.1)4.4
    
    Form of Guarantee (including in Exhibit 4.1)4.5
    
    Indenture, dated as of March 21, 2003 between GXS Corporation, the
subsidiary guarantors and Wells Fargo Bank Minnesota, National
Association, as trustee (Incorporated by reference to Exhibit 4.5 to
GXS Corporations Registration Statement No. 333-106143 on Form S-4
filed on June 16, 2003.)4.6
    
    Registration Rights Agreement dated as of March 21, 2003 between
GXS Corporation, the subsidiary guarantors and Credit Suisse First
Boston (Incorporated by reference to Exhibit 4.6 to GXS Corporations
Registration Statement No. 333-106143 on Form S-4 filed on June 16,
2003.)4.7
    
    Form of Note (included in Exhibit 4.5)4.8
    
    Form of Guarantee (included in Exhibit 4.5)4.9
    
    Intercreditor Agreement, dated as of March 21, 2003, among Foothill
Capital Corporation, Wells Fargo Bank Minnesota, National Association,
GXS Holdings, Inc., GXS Corporation, Global eXchange Services, Inc.,
Global eXchange Services Holdings, Inc., GXS International, Inc. and
TPN Register, L.L.C. (Incorporated by reference to Exhibit 4.9 to GXS
Corporations Registration Statement No. 333-106143 on Form S-4 filed
on June 16, 2003.)10.1
    
    Employment Agreement, dated as of September 28, 2002, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Harvey F.
Seegers (Incorporated by reference to Exhibit 10.1 to GXS Corporations
 123




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##### 



Exhibit Number
    
    DescriptionRegistration Statement No. 333-106143 on Form S-4 filed
on June 16, 2003.)10.2
    
    Employment Agreement, dated as of September 30, 2002, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and James Macioce
(Incorporated by reference to Exhibit 10.2 to GXS Corporations
Registration Statement No. 333-106143 on Form S-4 filed on June 16,
2003.)10.3
    
    Employment Agreement, dated as of September 30, 2002, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Bruce E. Hunter
(Incorporated by reference to Exhibit 10.3 to GXS Corporations
Registration Statement No. 333-106143 on Form S-4 filed on June 16,
2003.)10.4
    
    Employment Agreement, dated as of September 30, 2002, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Mike Humenik
(Incorporated by reference to Exhibit 10.4 to GXS Corporations
Registration Statement No. 333-106143 on Form S-4 filed on June 16,
2003.)10.5
    
    Employment Agreement, dated as of September 30, 2002, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Steven Scala
(Incorporated by reference to Exhibit 10.5 to GXS Corporations
Registration Statement No. 333-106143 on Form S-4 filed on June 16,
2003.)10.6
    
    Employment Agreement, dated as of September 30, 2002, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Jeff McCroskey
(Incorporated by reference to Exhibit 10.6 to GXS Corporations
Registration Statement No. 333-106143 on Form S-4 filed on June 16,
2003.)10.7
    
    Employment Agreement, dated as of September 30, 2002, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Anastasios
Tsolakis (Incorporated by reference to Exhibit 10.7 to GXS
Corporations Registration Statement No. 333-106143 on Form S-4 filed
on June 16, 2003.)10.8
    
    Employment Agreement, dated as of September 30, 2002, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Mandy Edwards
(Incorporated by reference to Exhibit 10.8 to GXS Corporations
Registration Statement No. 333-106143 on Form S-4 filed on June 16,
2003.)10.9
    
    Employment Agreement, dated as of January 6, 2003, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Ross Curtis
(Incorporated by reference to Exhibit 10.9 to GXS Corporations
Registration Statement No. 333-106143 on Form S-4 filed on June 16,
2003.)10.10
    
    GXS Holdings, Inc. Stock Incentive Plan (Incorporated by reference
to Exhibit 10.10 to GXS Corporations Registration Statement No.
333-106143 on Form S-4 filed on June 16, 2003.)
 124




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##### 



Exhibit Number
    
    Description10.11
    
    GXS Investment and Savings Plan (Incorporated by reference to
Exhibit 10.11 to GXS Corporations Registration Statement No.
333-106143 on Form S-4 filed on June 16, 2003.)10.12
    
    Loan and Security Agreement, dated as of March 21, 2003, by and
among GXS Corporation, GXS Holdings, Inc., the financial institutions
party thereto and Foothill Capital Corporation (Incorporated by
reference to Exhibit 10.12 to GXS Corporations Registration Statement
No. 333-106143 on Form S-4 filed on June 16, 2003.)10.13
    
    General Continuing Guaranty, dated as of March 21, 2003, by GXS
Holdings, Inc. and the guarantors (Incorporated by reference to Exhibit
10.13 to GXS Corporations Registration Statement No. 333-106143 on
Form S-4 filed on June 16, 2003.)10.14
    
    Open-End Mortgage, Security Agreement, Assignment of Rents and
Leases and Fixture Filing (Ohio), dated as of March 21, 2003, made by
Global eXchange Services, Inc. in favor of Wells Fargo Bank Minnesota,
National Association (Incorporated by reference to Exhibit 10.14 to GXS
Corporations Registration Statement No. 333-106143 on Form S-4 filed
on June 16, 2003.)10.15
    
    Open-End Mortgage, Security Agreement, Assignment of Rents and
Leases and Fixture Filing, dated as of March 21, 2003, made by GXS
Holdings, Inc., GXS Corporation and the guarantors in favor of Foothill
Capital Corporation (Incorporated by reference to Exhibit 10.15 to GXS
Corporations Registration Statement No. 333-106143 on Form S-4 filed
on June 16, 2003.)10.16
    
    Recapitalization Agreement, dated as of June 21, 2002, by and
among General Electric Company, GE Investments, Inc. and Global
Acquisition Company (Incorporated by reference to Exhibit 10.16 to GXS
Corporations Registration Statement No. 333-106143 on Form S-4 filed
on June 16, 2003.)10.17
    
    Services Agreement, dated as of September 27, 2002, by and among
General Electric Company, GXS Holdings, Inc., Global Acquisition
Company and GE Capital Financial, Inc. (Incorporated by reference to
Exhibit 10.17 to GXS Corporations Registration Statement No.
333-106143 on Form S-4 filed on June 16, 2003.)10.18
    
    Intellectual Property Agreement and License, dated as of September
27, 2002, by and among, General Electric Company, GXS Corporation and
Global Acquisition Company (Incorporated by reference to Exhibit 10.18
to GXS Corporations Registration Statement No. 333-106143 on Form S-4
filed on June 16, 2003.)10.19
    
    GE Monogram License, dated as of September 27, 2002, by and
between Monogram Licensing, Inc. and GXS Corporation (Incorporated by
reference to Exhibit 10.19 to GXS Corporations Registration Statement
No. 333-106143 on Form S-4 filed on June 16, 2003.)10.20
    
    Tax Matters Agreement, dated as of June 21, 2002, by and among
General Electric Company, GE Investments, Inc. and Global Acquisition
Company (Incorporated by reference to Exhibit 10.20 to GXS
 125




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##### 



Exhibit Number
    
    DescriptionCorporations Registration Statement No. 333-106143 on
Form S-4 filed on June 16, 2003.)10.21
    
    Asset Purchase Agreement, dated as of June 3, 2003, by and between
GXS Holdings, Inc. and Celarix, Inc. (Incorporated by reference to
Exhibit 10.21 to GXS Corporations Registration Statement No.
333-106143 on Form S-4 filed on June 16, 2003.)10.22
    
    Employment Agreement, dated August 4, 2003, by and among Global
eXchange Services, Inc., GXS Holdings, Inc. and John Soenksen
(Incorporated by reference to Exhibit 10.1 to Amendment No. 2 to GXS
Corporations Registration Statement No. 333-106143 on Form S-4 filed
on September 5, 2003.)10.23
    
    Agreement and Plan of Merger, dated as of January 14, 2004, by and
among HAHT Commerce, Inc., GXS January, Inc., GXS Holdings, Inc. and
certain stockholders of HAHT Commerce, Inc. (Incorporated by reference
to Exhibit 2.1 to GXS Corporations Current Report on Form 8-K filed on
January 15, 2004.)*10.24
    
    Employment Agreement, dated November 4, 2003, by and among Global
eXchange Services, Inc., GXS Holdings, Inc. and Robert Patrick.*10.25
    
    Employment Agreement, dated December 1, 2003, by and among Global
eXchange Services, Inc., GXS Holdings, Inc. and Gary Greenfield.*10.26
    
    Agreement, dated December 5, 2003, by and among Global eXchange
Services, Inc., GXS Holdings, Inc. and Carl Wilson.*10.27
    
    Agreement, dated January 16, 2004, by and among Global eXchange
Services, Inc., GXS Holdings, Inc. and Venkat Mohan.*10.28
    
    Employment Agreement, dated January 20, 2004, by and among Global
eXchange Services, Inc., GXS Holdings, Inc. and Rowland Archer.*10.29
    
    First Amendment to Loan and
Security Agreement, dated as of December 31, 2003, by and among
GXS Corporation, GXS Holdings, Inc., the financial institutions party
thereto and Foothill Capital Corporation.*10.30
    
    Second Amendment to Loan and
Security Agreement dated as of March 29, 2004, by and among
GXS Corporation, GXS Holdings, Inc., the financial institutions party
thereto and Foothill Capital Corporation.*10.31
    
    Separation Agreement, dated as of December 1, 2003, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Harvey F. Seegers.*12
    
    Ratio of Earnings to Fixed Charges*14
    
    Code of Ethics*21
    
    Subsidiaries of GXS Corporation.*31.1
    
    Form of Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer*31.2
    
    Form of Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
  *
    
    Filed herewith  C.
    
    Reports on Form 8-K  None 126




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##### 



GXS CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS(In thousands) (1)
    
    (2)Balance at
    
    Charged to
    
    Charged tobeginning of
    
    costs, expenses
    
    other
    
    
    
    
    
    Balance atyear
    
    and income
    
    accounts
    
    Deductions
    
    end of yearFor the year ended December
31, 2003:Allowance for doubtful accounts
    
    $
    4,292
    
    
    
    (881
    )
    
    
    121
    (B)
    
    
    (994
    ) (A)
    
    $
    2,538Allowance for sales credits
    
    $
    5,273
    
    
    
    9,508
    
    
    
    214
    (B)
    
    
    (6,188
    ) (C)
    
    $
    8,807For the year ended December
31, 2002:Allowance for doubtful accounts
    
    $
    4,849
    
    
    $
    1,762
    
    
    $
    125
    (B)
    
    $
    (2,444
    ) (A)
    
    $
    4,292Allowance for sales credits
    
    $
    7,137
    
    
    $
    14,229
    
    
    $
    81
    (B)
    
    $
    (16,174
    ) (C)
    
    $
    5,273For the year ended December
31, 2001:Allowance for doubtful accounts
    
    $
    2,785
    
    
    $
    3,238
    
    
    $
    (67
    )(B)
    
    $
    (1,107
    )(A)
    
    $
    4,849Allowance for sales credits
    
    $
    6,442
    
    
    $
    11,914
    
    
    $
    (7
    )(B)
    
    $
    (11,212
    )(C)
    
    $
    7,137
  A.
    
    Doubtful accounts written off, less recoveries on accounts previously written offB.
    
    Related to foreign exchange fluctuationC.
    
    Gross value of all sales credits issued during year 127




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##### 



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, we have duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized. GXS CorporationBy:    /s/ Gary GreenfieldGary GreenfieldChief Executive Officer and PresidentDate: March 30, 2004
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Gary GreenfieldGary Greenfield
    
    President, Chief Executive Officer
and Director (Principal Executive
Officer)
    
    March 30, 2004/s/ John SoenksenJohn Soenksen
    
    Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
    
    March 30, 2004/s/ John DuvallJohn Duvall
    
    Vice President and Controller
(Principal Accounting Officer)
    
    March 30, 2004/s/ David StantonDavid Stanton
    
    Director
    
    March 30, 2004/s/ David GolobDavid Golob
    
    Director
    
    March 30, 2004/s/ Venkat MohanVenkat Mohan
    
    Director
    
    March 30, 2004/s/ Brian RuderBrian Ruder
    
    Director
    
    March 30, 2004/s/ Carl WilsonCarl Wilson
    
    Director
    
    March 30, 2004
 128




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##### 



EXHIBIT INDEX Exhibit Number
    
    Description10.24
    
    Employment Agreement, dated November 4, 2003, by and among Global
eXchange Services, Inc., GXS Holdings, Inc. and Robert Patrick.10.25
    
    Employment Agreement, dated December 1, 2003, by and among Global
eXchange Services, Inc., GXS Holdings, Inc. and Gary Greenfield.10.26
    
    Agreement, dated December 5, 2003, by and among Global eXchange
Services, Inc., GXS Holdings, Inc. and Carl Wilson.10.27
    
    Agreement, dated January 16, 2004, by and among Global eXchange
Services, Inc., GXS Holdings, Inc. and Venkat Mohan.10.28
    
    Employment Agreement, dated January 20, 2004, by and among Global
eXchange Services, Inc., GXS Holdings, Inc. and Rowland Archer.10.29
    
    First Amendment to Loan and
Security Agreement, dated as of December 31, 2003, by and among
GXS Corporation, GXS Holdings, Inc., the financial institutions party
thereto and Foothill Capital Corporation.10.30
    
    Second Amendment to Loan and
Security Agreement dated as of March 29, 2004, by and among
GXS Corporation, GXS Holdings, Inc., the financial institutions party
thereto and Foothill Capital Corporation.10.31
    
    Separation Agreement, dated as of
December 1, 2003, by and among
Global eXchange Services, Inc., GXS Holdings, Inc. and Harvey F.
Seegers.12
    
    Ratio of Earnings to Fixed Charges14
    
    Code of Ethics21
    
    Subsidiaries of GXS Corporation.31.1
    
    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
Officer
 129