UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 2003

Commission file number 333-106143

GXS CORPORATION

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

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [   ] No [X ]

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

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

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

Item 1. Business

Overview

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

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

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

Recapitalization

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

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

Our Industry

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

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

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

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

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improving customer service levels.

The basic components of EDI transactions are:

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

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

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

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

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

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

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

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

Customers

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

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

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

Our Products and Services

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

EDI Services

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

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

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them to create and view business documents online.

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

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

Other Business to Business Solutions

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

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

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

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

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Custom Messaging and Network Solutions

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

Marketing and Sales

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

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

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

Customer Service

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

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

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

Competition

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

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

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

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

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

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

Data Processing Infrastructure

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

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

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

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

Product Development

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

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

Recent Acquisitions

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

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

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

Alliances and Joint Ventures

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

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

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

Intellectual Property

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

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

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

Employees

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

Available Information

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

Item 2. Properties

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

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

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

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

Item 3. Legal and Other Proceedings

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

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

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

Not applicable.

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PART II

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

Not applicable.

Item 6. Selected Consolidated Financial Data

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

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

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

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

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

Overview

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

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

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In general, we derive our revenue from:

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

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

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

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

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

Recent Trends and Cost-Reduction Initiatives

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

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

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

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

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

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

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

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

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Recapitalization

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

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

Critical Accounting Policies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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