**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý**                                                                                                                                                                                                                                                                                                                              | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                              | ** ** | ** **                                                                                    |
| **For the quarterly period ended June 30, 2005**                                                                                                                                                                                                                                                                                        |
| ** **                                                                                                                                                                                                                                                                                                                              | ** ** | ** **                                                                                    |
| **OR**                                                                                                                                                                                                                                                                                                                                  |
| ** **                                                                                                                                                                                                                                                                                                                              | ** ** | ** **                                                                                    |
| **o**                                                                                                                                                                                                                                                                                                                                   | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                                                                              | ** ** | ** **                                                                                    |
| **For the transition period  from                          To                        ** |
| ** **                                                                                                                                                                                                                                                                                                                              | ** ** | ** **                                                                                    |
| ** **                                                                                                                                                                                                                                                                                                                              | ** ** | **Commission  file number  333-109064**                                                  |

 

**WORLDSPAN, L.P.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                    | ** ** | **75-3125716**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer Identification No.) |
| ** **                                                      | ** ** | ** **                           |
| **300 Galleria Parkway, N.W.  Atlanta, Georgia**                | ** ** | **30339**                            |
| (Address of principal executive offices)                        |       | (Zip Code)                           |

 

Registrant’s telephone number, including area code **(770)563-7400**

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

ý                                    Yes                            o                                    No

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined by Rule 12b-2 of the Act).

 

o                                    Yes                            ý                                    No

 

As of August 8, 2005, Registrant’s parent hadoutstanding 82,967,548 shares of Class A Common Stock and 11,000,000 shares ofClass B Common Stock.

 

 

----

 

**WORLDSPAN, L.P.**

**REPORT ON FORM 10-Q**

**FOR THE PERIOD ENDED JUNE 30, 2005**

 

**INDEX**

** **
| **PART I:** | **FINANCIAL INFORMATION**                                                                                                                                       |   |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ** **  | ** **                                                                                                                                                      |   |
| **Item 1.** | **Condensed Consolidated Financial  Statements (Unaudited)**                                                                                                    |   |
| ** **  | ** **                                                                                                                                                      |   |
| ** **  | **Condensed Consolidated  Balance Sheets –June 30, 2005 and December 31, 2004**                                                                            |   |
|        |                                                                                                                                                            |   |
| ** **  | **Condensed Consolidated  Statements of Operations – Three months and six months ended June 30, 2005  and three and six months ended June 30,  2004** |   |
|        |                                                                                                                                                            |   |
| ** **  | **Condensed Consolidated  Statements of Partners’ Capital – Six months ended June 30, 2005**                                                          |   |
|        |                                                                                                                                                            |   |
| ** **  | **Condensed Consolidated  Statements of Cash Flows –  Six months  ended June 30, 2005 and six months ended June 30, 2004**                            |   |
|        |                                                                                                                                                            |   |
| ** **  | **Notes to Condensed  Consolidated Financial Statements**                                                                                                       |   |
|        |                                                                                                                                                            |   |
| **Item 2.** | **Management’s Discussion and  Analysis of Financial Condition and Results of Operations**                                                                 |   |
| ** **  | ** **                                                                                                                                                      |   |
| **Item 3.** | **Quantitative  and Qualitative Disclosures About Market Risk**                                                                                                 |   |
| ** **  | ** **                                                                                                                                                      |   |
| **Item 4.** | **Controls  and Procedures**                                                                                                                                    |   |
| ** **  | ** **                                                                                                                                                      |   |
| **PART II** | **OTHER INFORMATION**                                                                                                                                           |   |
| ** **  | ** **                                                                                                                                                      |   |
| **Item 1.** | **Legal Proceedings**                                                                                                                                           |   |
| ** **  | ** **                                                                                                                                                      |   |
| **Item 6.** | **Exhibits**                                                                                                                                                    |   |

 

2

----

 

**PART I.  FINANCIAL INFORMATION**

 

**ITEM1.  FINANCIAL STATEMENTS**

 

**Worldspan, L.P.**

**Condensed Consolidated Balance Sheets**

**(dollars in thousands)**

**(Unaudited)**

 
| ** **                                                                                        | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **Assets**                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current assets                                                                                    |       |              |       |                  |       |
| Cash and cash equivalents                                                                         |       | $                 | 44,951     |                  | $          | 100,474 |   |
| Trade accounts receivable, net of an  allowance for bad debt of $12,933 and $17,111, respectively |       | 134,675           |       | 102,793               |       |
| Prepaid expenses and other current assets                                                         |       | 18,913            |       | 21,306                |       |
| Total current assets                                                                              |       | 198,539           |       | 224,573               |       |
| Property and equipment, net of accumulated  depreciation                                          |       | 104,477           |       | 118,218               |       |
| Deferred charges                                                                                  |       | 28,103            |       | 34,351                |       |
| Debt issuance costs, net of accumulated  amortization                                             |       | 16,264            |       | 10,201                |       |
| Supplier and agency relationships, net of  accumulated amortization                               |       | 254,154           |       | 271,020               |       |
| Developed technology, net                                                                         |       | 194,094           |       | 206,802               |       |
| Trade name                                                                                        |       | 72,142            |       | 72,142                |       |
| Goodwill                                                                                          |       | 112,035           |       | 112,035               |       |
| Other intangible assets, net                                                                      |       | 30,510            |       | 31,914                |       |
| Other long-term assets                                                                            |       | 27,007            |       | 31,030                |       |
| Total assets                                                                                      |       | $                 | 1,037,325  |                  | $          | 1,112,286 |   |
|                                                                                              |       |              |       |                  |       |
| **Liabilities  and Partners’ Capital**                                                       | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current liabilities                                                                               |       |              |       |                  |       |
| Accounts payable                                                                                  |       | $                 | 14,083     |                  | $          | 14,671 |   |
| Accrued expenses                                                                                  |       | 159,851           |       | 156,635               |       |
| Current portion of capital lease obligations                                                      |       | 18,712            |       | 19,369                |       |
| Current portion of long-term debt                                                                 |       | 4,000             |       | 12,497                |       |
| Total current liabilities                                                                         |       | 196,646           |       | 203,172               |       |
| Long-term portion of capital lease  obligations                                                   |       | 45,602            |       | 54,079                |       |
| Long-term debt                                                                                    |       | 711,500           |       | 324,990               |       |
| Pension and postretirement benefits                                                               |       | 62,393            |       | 64,779                |       |
| Other long-term liabilities                                                                       |       | 13,659            |       | 13,867                |       |
| Total liabilities                                                                                 |       | 1,029,800         |       | 660,887               |       |
| Commitments and contingencies                                                                     |       |              |       |                  |       |
| Partners’ capital                                                                            |       | 7,525             |       | 451,399               |       |
| Total liabilities and partners’ capital                                                      |       | $                 | 1,037,325  |                  | $          | 1,112,286 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

3

----

 

**Worldspan, L.P.**

**Condensed Consolidated Statements of Operations**

**(dollars in thousands)**

**(Unaudited)**

 
| ** **                                                    | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                    | ** ** | **June 30, 2005**      | ** ** | **June 30, 2004**    | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
|                                                          |       |                   |       |                 |       |   |   |   |   |
| **Revenues**                                                  | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Electronic travel distribution                                |       | $                      | 227,481    |                 | $          | 232,487 |   | $ | 469,439 |   | $ | 465,026 |   |
| Information technology services                               |       | 18,150                 |       | 16,317               |       | 36,774 |   | 32,309 |   |
| Total revenues                                                |       | 245,631                |       | 248,804              |       | 506, 213 |   | 497,335 |   |
| **Operating Expenses**                                        | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of  revenues                                             |       |                   |       |                 |       |   |   |   |   |
| Cost of revenues excluding developed  technology amortization |       | 168,470                |       | 173,416              |       | 346,612 |   | 343,754 |   |
| Developed technology amortization                             |       | 6,891                  |       | 5,508                |       | 12,589 |   | 11,015 |   |
| Total cost of revenues                                        |       | 175,361                |       | 178,924              |       | 359,201 |   | 354,769 |   |
| Selling, general and administrative                           |       | 25,535                 |       | 29,632               |       | 58,151 |   | 65,792 |   |
| Amortization of intangible assets                             |       | 9,135                  |       | 9,135                |       | 18,270 |   | 18,270 |   |
| Total operating expenses                                      |       | 210,031                |       | 217,691              |       | 435,622 |   | 438,831 |   |
| Operating income                                              |       | 35,600                 |       | 31,113               |       | 70,591 |   | 58,504 |   |
| **Other Income (Expense)**                                    | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense, net                                         |       | (15,573                | )          | (9,960               | )          | (27,902 | ) | (20,654 | ) |
| Loss on extinguishment of debt                                |       | —                 |       | —               |       | (55,597 | ) | — |   |
| Other, net                                                    |       | (11                    | )          | 433                  |       | (220 | ) | 118 |   |
| Total other expense, net                                      |       | (15,584                | )          | (9,527               | )          | (83,719 | ) | (20,536 | ) |
| Income (loss) before provision for income  taxes              |       | 20,016                 |       | 21,586               |       | (13,128 | ) | 37,968 |   |
| Income tax expense                                            |       | 1,539                  |       | 73                   |       | 2,457 |   | 302 |   |
| **Net income (loss)**                                         |       | $                      | 18,477     |                 | $          | 21,513 |   | $ | (15,585 | ) | $ | 37,666 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

4

----

 

**Worldspan, L.P.**

**Condensed Consolidated Statements of Partners’ Capital**

**(dollars in thousands)**

**(Unaudited)**

 
| ** **                                                   | ** ** | **Partners’  Capital** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------------------|------------|-----------|------------|
|                                                         |       |                        |       |                                        |       |      |       |
| Balance at December 31, 2004                                 |       | $                           | 453,947    |                                        | $          | (2,548    | )          | $ | 451,399 |   |
| Comprehensive loss:                                          |       |                        |       |                                        |       |      |       |
| Net loss                                                     |       | (15,585                     | )          | —                                      |       | (15,585   | )          |
| Change in fair value of derivative  accounted for as a hedge |       | —                      |       | (2,350                                      | )     | (2,350    | )     |
| Unrealized holding loss on investment                        |       | —                      |       | (109                                        | )          | (109      | )          |
| Comprehensive loss                                           |       |                        |       |                                        |       | (18,044   | )          |
| Distribution to and contributions from WTI,  net             |       | (427,238                    | )          | —                                      |       | (427,238  | )          |
| Stock-based compensation                                     |       | 1,408                       |       | —                                      |       | 1,408     |       |
| Balance at June 30, 2005                                     |       | $                           | 12,532     |                                        | $          | (5,007    | )          | $ | 7,525 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

5

----

 

**Worldspan, L.P.**

**Condensed Consolidated Statements of Cash Flows**

**(dollars in thousands)**

**(Unaudited)**

 
| ** **                                                                                | ** ** | **Six months ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                | ** ** | **June 30, 2005**    | ** ** | **June 30, 2004** | ** ** |
| Cash flows from operating activities:                                                     |       |                 |       |   |   |
| Net (loss) income                                                                         |       | $                    | (15,585    | ) | $ | 37,666 |   |
| Adjustments to reconcile net (loss) income  to net cash provided by operating activities: |       |                 |       |   |   |
| Depreciation and amortization                                                             |       | 51,187               |       | 51,084 |   |
| Amortization of debt issuance costs                                                       |       | 1,594                |       | 1,899 |   |
| Loss on extinguishment of debt                                                            |       | 55,597               |       | — |   |
| Stock-based compensation                                                                  |       | 1,408                |       | 1,767 |   |
| Loss on disposal of property and equipment,  net                                          |       | 322                  |       | 584 |   |
| Other                                                                                     |       | —               |       | (57 | ) |
| Changes in operating assets and  liabilities:                                             |       |                 |       |   |   |
| Trade accounts receivable, net                                                            |       | (31,882              | )          | (25,136 | ) |
| Prepaid expenses and other current assets                                                 |       | 2,419                |       | 8,908 |   |
| Deferred charges                                                                          |       | 6,249                |       | (2,919 | ) |
| Other long-term assets                                                                    |       | 1,673                |       | 159 |   |
| Accounts payable                                                                          |       | (588                 | )     | (8,463 | ) |
| Accrued expenses                                                                          |       | 3,217                |       | 29,092 |   |
| Pension and postretirement benefits                                                       |       | (2,385               | )          | (3,292 | ) |
| Other long-term liabilities                                                               |       | (209                 | )          | (880 | ) |
| Net cash provided by operating activities                                                 |       | 73,017               |       | 90,412 |   |
| Cash flows from investing activities:                                                     |       |                 |       |   |   |
| Purchase of property and equipment                                                        |       | (6,601               | )          | (7,359 | ) |
| Proceeds from sale of property and equipment                                              |       | 77                   |       | 92 |   |
| Capitalized software for internal use                                                     |       | (19                  | )          | (744 | ) |
| Net cash used in investing activities                                                     |       | (6,543               | )          | (8,011 | ) |
| Cash flows from financing activities:                                                     |       |                 |       |   |   |
| Proceeds from issuance of debt, net of debt  issuance costs                               |       | 734,801              |       | — |   |
| Principal payments on capital leases                                                      |       | (9,517               | )          | (10,969 | ) |
| Principal payments on debt                                                                |       | (92,488              | )          | (38,256 | ) |
| Repurchase old notes                                                                      |       | (327,555             | )          | — |   |
| Distributions to and contributions from WTI,  net                                         |       | (427,238             | )          | (3,464 | ) |
| Net cash used in financing activities                                                     |       | (121,997             | )          | (52,689 | ) |
| Net (decrease) increase in cash and cash  equivalents                                     |       | (55,523              | )          | 29,712 |   |
| Cash and cash equivalents at beginning of  period                                         |       | 100,474              |       | 43,746 |   |
| Cash and cash equivalents at end of period                                                |       | $                    | 44,951     |   | $ | 73,458 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

6

----

 

**Worldspan, L.P.**

**Notes to Condensed Consolidated Financial Statements**

**(Unaudited) (dollars in thousands)**

 

**1.  Accounting Policies**

 

*Nature of Business.*  Worldspan, L.P. (the “Partnership”)is a Delaware limited partnership formed in 1990. On June 30, 2003, WorldspanTechnologies Inc. (“WTI”), formerly named Travel Transaction ProcessingCorporation, formed by Citigroup Venture Capital Equity Partners, L.P. (“CVC”)and Ontario Teachers’ Pension Plan Board (“OTPP”), indirectly acquired 100% ofthe outstanding partnership interests of the Partnership from affiliates ofDelta Air Lines, Inc. (“Delta”), Northwest Airlines, Inc. (“Northwest”) andAmerican Airlines, Inc. (“American”) (the “Acquisition”). WTI owns all of thegeneral partnership interests in the Partnership. WS Holdings LLC (“WS Holdings”),which is owned by WTI, is the sole limited partner of the Partnership, owningall of the limited partnership interests.

 

ThePartnership provides information, reservations, transaction processing andrelated services for airlines, travel agencies and other travel-relatedentities. The Partnership owns and operates a global distribution system (“GDS”)and provides subscribers with access to and use of this GDS. The Partnershipalso charges airlines, hotels, car rental companies and others for the use ofthe GDS.

 

*Basis of Presentation.*  The accompanying unaudited condensedconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States for interimfinancial information and with the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements. In the opinion of management thesefinancial statements contain all adjustments, consisting of normal recurringaccruals, necessary to present fairly the financial position, results ofoperations and cash flows for the periods indicated. The preparation offinancial statements in accordance with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andthe accompanying notes. Operating results for the three and six months ended June30, 2005 and  June 30, 2004 are notnecessarily indicative of results that may be expected for any other interimperiod or for the year ending December 31, 2005. The Partnership’s quarterlyfinancial data should be read in conjunction with its consolidated financialstatements for the year ended December 31, 2004 (including the notes thereto),set forth in its annual report on Form 10-K filed with the Securities andExchange Commission on March 28, 2005.

 

*DerivativeInstruments.*  Allderivatives are measured at fair value and recognized as either assets orliabilities in our condensed consolidated balance sheets. Changes in the fairvalues of derivative instruments that do not qualify as hedges and/or anyineffective portion of hedges are recognized as a gain or loss in our condensedconsolidated statement of operations in the current period. Changes in the fairvalues of derivative instruments used effectively as fair value hedges arerecognized in earnings, along with the change in the value of the hedged item.Changes in the fair value of the effective portions of cash flow hedges arereported in other comprehensive income (loss) and recognized in earnings whenthe hedged item is recognized in earnings.

 

*Risks and Uncertainties.*  ThePartnership derives substantially all of its revenues from the travel industry.Accordingly, events, circumstances and changes affecting the travel industry,particularly changes in airline travel and the financial well-being of theparticipating airlines, can significantly affect the Partnership’s business,financial condition and results of operations. The Partnership’s customers areprimarily located in the United States and Europe.

 

Travelagencies are the primary channel of distribution for the services offered bytravel vendors. If the Partnership were to lose all or part of the transactionsgenerated by any significant travel agencies and not replace such transactions,its business, financial condition and results of operations could be adverselyaffected. One online agency subscriber, Expedia, generated transactions in thePartnership’s electronic travel distribution segment which resulted in revenuesof approximately $66,185 and $62,559 for the three months ended June 30, 2005and 2004, respectively, and $139,547 and $125,944 for the six months ended June30, 2005 and 2004, respectively. These amounts represented 27% and 25% of totalrevenues for the three months ended June 30, 2005 and 2004, respectively, and 28%and 25% of total revenues for the six months ended June 30, 2005 and 2004,respectively.

 

A development within the GDSindustry over the past several years involves the competitive need for GDSs tomaintain full content for airlines, including web fare content, fordistribution to traditional and online agency subscribers. We have entered intofare content agreements (which include web fare content) with a number of majorairlines. Subject to termination rights, these obligations continue until late2005 (in the case of US Airways) or 2006 and 2007 (with respect to certainother of the contracted airlines). Should we fail to maintain competitive content, our traditional andonline agency subscribers could move transactions from us to competitors withaccess to this content, thus negatively affecting the Partnership’s business,financial condition and results of operation.

 

Furthermore,the Partnership charges airline carriers, rental car companies, hotels andother providers of travel products and services (collectively referred to as “suppliers”)for electronic travel distribution services and information technologyservices.

 

7

----

 

Revenues generated by two suppliers were$64,135 and $67,962 for the three months ended June 30, 2005 and 2004,respectively, and $139,984 and $137,121 for the six months ended June 30, 2005and 2004, respectively. These amounts, included in the electronic traveldistribution segment and the information technology services segment,represented approximately 26% and 27% of total revenues for the three monthsended June 30, 2005 and 2004, respectively, and 28% of total revenues for thesix months ended June 30, 2005 and 2004. At June 30, 2005 and December 31,2004, accounts receivable from these same two suppliers was approximately $35,986and $34,057, or 26.7% and 33.1%, respectively, of the Partnership’s total netaccounts receivable.

 

*RecentlyIssued Accounting Pronouncements*.  In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123R, *Share-BasedPayment*. The Statement requires an entity to measure cost ofemployee services received in exchange for an award of equity instruments basedon the grant-date fair value of the award. That cost will be recognized overthe period during which an employee is required to provide service in exchangefor the award-the requisite service period. The Partnership does not believeSFAS 123R will have significant impact on the Partnership’s consolidatedfinancial position or results of operation. SFAS No. 123(R) will become applicable to the Partnership beginningJanuary 1, 2006.

 

In May 2005, the FASB issuedSFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”) whichsupersedes APB Opinion No. 20, “Accounting Changes” and SFAS No. 3 “ReportingAccounting Changes in Interim Financial Statements”. SFAS No. 154 changes therequirements for accounting for and reporting of changes in accountingprinciple. The statement requires the retroactive application to prior periods’financial statements of changes in accounting principles, unless it isimpracticable to determine either the period specific effects or the cumulativeeffect of the change. SFAS No. 154 does not change the guidance for reportingthe correction of an error in previously issued financial statements or thechange in accounting estimate. SFAS No. 154 is effective for accounting changesand corrections of errors made in fiscal years beginning after December 15,2005. The Partnership does not believe SFAS No. 154 will have a significantimpact on the Partnership’s consolidated financial position or results ofoperations.

 

**2.  Debt**

 

OnFebruary 11, 2005, the Partnership, WS Financing Corp. (“WS Financing”),the wholly-owned domestic subsidiaries of the Partnership parties thereto asguarantors (the “Guarantor Subsidiaries”) and The Bank of New York TrustCompany, N.A., as trustee, entered into an Indenture (the “Indenture”) as partof the Partnership’s and WS Financing’s refinancing transactions (the “RefinancingTransactions”). Pursuant to the Indenture, the Partnership and WS Financingissued $300,000 of Senior Second Lien Secured Floating Rate Notes due 2011 (the“New Notes”), secured on a second priority basis by substantially all of theassets of the Partnership, WS Financing and the Guarantor Subsidiaries. Inconnection with the closing under the Indenture, the New Notes were sold in aprivate placement and resold by the initial purchasers to qualifiedinstitutional buyers pursuant to Rule 144A of the Securities Act of 1933(the “Securities Act”) and to non-U.S. persons pursuant to Regulation S ofthe Securities Act. On April 29, 2005, the Partnership filed a Form S-4 withthe Securities and Exchange Commission (“SEC”) to offer to exchange the NewNotes for substantially identical notes that will have been registered with theSEC.

 

Inaddition, in connection with the Refinancing Transactions, on February 11,2005, the Partnership, as borrower, WTI, and WS Holdings entered into a newcredit agreement (the “Credit Agreement”) with J.P. Morgan Securities Inc.and UBS Securities LLC, as joint advisors, J.P. Morgan Securities Inc., UBSSecurities LLC and Lehman Brothers Inc., as joint book-runners, J.P.Morgan Securities Inc., UBS Securities LLC, Lehman Brothers Inc.,Deutsche Bank Securities Inc. and Goldman Sachs Credit Partners L.P., asjoint lead arrangers, UBS Securities LLC, as syndication agent, LehmanCommercial Paper Inc., Deutsche Bank Securities Inc. and GoldmanSachs Credit Partners L.P., as documentation agents, JPMorgan Chase Bank, N.A.,as administrative agent, and the several banks and other financial institutionsor entities from time to time party thereto (the “Lenders”). In connection withthe closing under the Credit Agreement, the Lenders made available to thePartnership a new senior credit facility (the “New Senior Credit Facility”)consisting of a revolving credit facility in the amount of $40,000 and a newterm loan facility (the “New Term Loan”) in the amount of $450,000.

 

Thenet proceeds to the Partnership from the sale of the New Notes and the closingof the New Senior Credit Facility, along with available cash of thePartnership, were used to (i)(a) repay approximately $57,488 of the outstandingbalance of the then-existing senior term loan including any accrued and unpaidinterest then outstanding under the Partnership’s then-existing senior creditfacility (the “Old Credit Facility”) and (b) terminate all commitmentsthen outstanding under the Old Credit Facility, (ii) accept for purchasepursuant to the cash tender offer for any and all of the Partnership’soutstanding 9 5/8% Senior Notes due 2011 (the “Old Notes”) approximately$279,350 of Old Notes validly tendered prior to the consent date (more than 991¤2% of the total aggregate principal amount of $280,000 of Old Notespreviously outstanding), and pay those holders the total purchase price of$1,171.64, including a consent payment related to the solicitation of theholders’ consent to the elimination of substantially all of the covenantscontained in the indenture related to the Old Notes, for each $1,000.00principal amount of Old Notes tendered in accordance with the Partnership’s andWS Financing’s Offer to Purchase and Consent Solicitation Statement and Letterof Transmittal and Consent (the “Offer to Purchase and Consent SolicitationStatement”), plus accrued and unpaid interest on the Old Notes, for anaggregate total purchase price of $331,405, and accept for purchase and pay foran additional $150 of Old Notes tendered after February 4, 2005 but priorto February 22, 2005, the expiration time of the tender offer, and paythose holders the purchase price of $1,141.64 for each

 

8

----

 

$1,000.00 principal amount of old notestendered in accordance with the Offer to Purchase and Consent SolicitationStatement for an aggregate purchase price of $174, (iii) redeemoutstanding WTI Preferred Stock at a redemption price equal to the face amountof the WTI Preferred Stock plus accrued and unpaid dividends thereon (includingAdditional Dividends (as defined in WTI’s Amended and Restated Certificate ofIncorporation)) to the redemption date for a total redemption price ofapproximately $375,729, (iv) pay the Consent Fee (as defined below) to theFunds (as defined below) and (v) pay fees and expenses related to theRefinancing Transactions.

 

Inaddition, in connection with the Refinancing Transactions, on February 16,2005, WTI, CVC Capital Funding, LLC (“CVC Capital”) and Citicorp Mezzanine III,L.P. (“CMIII,” and together with CVC Capital, the “Funds”) entered into anExchange Agreement (the “Exchange Agreement”). In connection with the closingunder the Exchange Agreement, WTI issued $43,630 aggregate principal amount ofits new Subordinated Notes due 2013 (the “Holdco Notes”) to the Funds and paid$365 in accrued and unpaid interest in exchange for the surrender and cancellationby the Funds of all of the obligations owing by WTI to the Funds under eachFund’s interest in that certain Subordinated Note (the “Seller Note”), dated asof June 30, 2003, made by WTI in favor of American Airlines (which wassubsequently transferred in part to each of the Funds). WTI also paid the Fundsa total of $8,638 as a consent fee (the “Consent Fee”) in return for theapproval by the Funds of the Refinancing Transactions and the replacement ofthe Seller Note with the Holdco Notes.

 

Tofinance the redemption of the WTI Preferred Stock and the payment of theConsent Fee, the Partnership distributed $375,729 and $8,638, respectively, toWTI.

 

Asa result of the Refinancing Transactions described above, the Partnershiprecorded a loss on extinguishment of debt of $55,597 during the six monthsended June 30, 2005.

 

Atthe Partnership’s option, the interest rate applied to borrowings under the NewTerm Loan during 2005 was based on the LIBOR rate plus the initial applicablemargin of 2.75%. The interest rate applicable to borrowings under the New Notesis based on the three-month LIBOR rate plus 6.25%.

 

OnMarch 4, 2005, the Partnership entered into an interest rate swap with anotional amount that will start at $508,370 on November 15, 2005 andamortize on a quarterly basis to $102,250 at November 15, 2008. The resetdates on the swap are February 15, May 15, August 15 andNovember 15 of each year until maturity on November 15, 2008. Thisagreement, which has been designated as a cash flow hedge, will be used toconvert the variable component of the interest rates on certain indebtedness toa fixed rate of 4.3%, effective November 15, 2005. Because the critical termsof the swap match those of the debt it is hedging, the swap is considered aperfect hedge against changes in the fair value of the debt and the hedge willresult in no ineffectiveness being recognized in operations. Changes in thefair value of the swap are recognized as a component of accumulated othercomprehensive income in each reporting period. As of June 30, 2005, the fairvalue of this swap was a liability of $2,350, which is included in otherlong-term liabilities in the condensed consolidated balance sheet.

 

Debtcovenants contained in the Credit Agreement and the Indenture require thePartnership to maintain certain financial ratios, including a minimum interestcoverage ratio and a maximum total leverage ratio. Also, the Indenture requiresthe Partnership to maintain a minimum fixed charge coverage ratio. In addition,certain non-financial covenants restrict the activities of the Partnership. Asof June 30, 2005, the Partnership is in compliance with all of its debtcovenants.

 

Long-termdebt consisted of the following:

 
| ** **                                      | ** ** | **June 30, 2005** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|
|                                            |       |              |       |
| New Term loan under New Senior Credit  Facility |       | $                 | 415,000    |   |
| New Notes                                       |       | 300,000           |       |
| Old Notes                                       |       | 500               |       |
|                                            |       | 715,500           |       |
| Less current portion of long-term debt          |       | 4,000             |       |
| Long-term debt, excluding current portion       |       | $                 | 711,500    |   |

 

During the six months ended June 30, 2005, the Partnershippaid $35,000 in principal on the New Term Loan, of which $2,000 were scheduledprincipal payments. On August 1, 2005, the Partnership made a $12,000discretionary principal payment on the New Term Loan.

 

9

----

 

**3.  Employee BenefitPlans**

 

Thecomponents of net pension and postretirement costs were as follows:

 
| ** **                                     | ** ** | **Pension benefits**    | ** ** | **Pension benefits**    | ** ** |
|------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | **Three months  ended** | ** ** | **Three months  ended** | ** ** | **Six months  ended** | ** ** | **Six months  ended** | ** ** |
| ** **                                     | ** ** | **June 30,  2005**      | ** ** | **June 30,  2004**      | ** ** | **June 30,  2005** | ** ** | **June 30,  2004** | ** ** |
| Service cost                                   |       | $                       | —     |                    | $          | — |   | $ | — |   | $ | — |   |
| Interest cost                                  |       | 2,892                   |       | 2,762                   |       | 5,785 |   | 5,524 |   |
| Expected return on plan assets                 |       | (3,656                  | )          | (3,389                  | )          | (7,312 | ) | (6,778 | ) |
| Amortization of transition obligation          |       | —                  |       | —                  |       | — |   | — |   |
| Amortization of prior service cost             |       | —                  |       | —                  |       | — |   | — |   |
| Recognized net actuarial loss                  |       | 27                      |       | —                  |       | 54 |   | — |   |
| Net periodic pension benefit (income)  expense |       | $                       | (737       | )                       | $          | (627 | ) | $ | (1,473 | )  | $ | (1,254 | ) |

 

 
| ** **                                     | ** ** | **Postretirement benefits**             | ** ** | **Postretirement benefits**             | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                                     | ** ** | **Three months  ended  June 30,  2005** | ** ** | **Three months  ended  June 30,  2004** | ** ** | **Six months  ended  June 30,  2005** | ** ** | **Six months  ended  June 30,  2004** | ** ** |
| Service cost                                   |       | $                                       | 66         |                                    | $          | 82 |   | $ | 132 |   | $ | 164 |   |
| Interest cost                                  |       | 407                                     |       | 418                                     |       | 813 |   | 836 |   |
| Expected return on plan assets                 |       | —                                  |       | —                                  |       | — |   | — |   |
| Amortization of transition obligation          |       | —                                  |       | —                                  |       | — |   | — |   |
| Amortization of prior service cost             |       | —                                  |       | —                                  |       | — |   | — |   |
| Recognized net actuarial loss                  |       | —                                  |       | —                                  |       | — |   | — |   |
| Net periodic pension benefit (income)  expense |       | $                                       | 473        |                                    | $          | 500 |   | $ | 945 |   | $ | 1,000 |   |

 

**4.  Related PartyTransactions**

 

In February 2005, the Partnership entered into aseries of Refinancing Transactions. Certain of the parties to thesetransactions were related parties, including WTI, CVC and OTPP. See Note 2 fora full description of these matters.

 

Inconnection with the Refinancing Transactions, on February 16, 2005, thePartnership entered into an amendment to its Advisory Agreement with WTI toterminate all advisory and other fees payable under that agreement as ofJanuary 1, 2005 in return for a prepayment of $7,700 payable on or beforeDecember 15, 2005. The Partnership expects to make this prepayment in thethird quarter of 2005.

 

OnJanuary 10, 2005, WTI entered into a Note Redemption Agreement (the “NoteRedemption Agreement”) with Delta. Pursuant to the Note Redemption Agreement,WTI redeemed the 10% Subordinated Note due 2012 in an original principal amountof $45,000 issued by WTI to Delta on June 30, 2003, the additional notes issuedin lieu of cash interest and all accrued and unpaid interest up to January 10,2005 for $36,137. The Partnership distributed $36,137 to WTI to finance thistransaction.

 

Duringthe six months ended June 30, 2005, the Partnership distributed $4,700 to WTIto enable WTI to pay income taxes that it owed on the income generated by thePartnership in the United States and $1,587 to enable WTI to pay interestpayments on the Holdco Notes.

 

**5.  Commitments andContingencies**

 

InSeptember 2003, the Partnership received multiple assessments totaling€39,503 from the tax authorities of Greece relating to tax years 1993-2002. ThePartnership filed appeals of these assessments. Pursuant to a formal taxamnesty program with the Greek authorities, the Partnership recently reached asettlement of the outstanding assessments in an amount of approximately €7,775.The Partnership Interest Purchase Agreement, dated March 3, 2003, providesthat each of the founding airlines shall severally indemnify WTI and hold WTIharmless on a net after-tax basis from and against any and all taxes of thePartnership and its subsidiaries related to periods prior to the sale of thePartnership on June 30, 2003. The Partnership informed the foundingairlines of the receipt of these assessments and the indemnity obligation ofthe founding airlines under the Partnership Interest Purchase Agreement.Because of the indemnity provision, the Partnership believes that amounts paidto settle this assessment will be reimbursed by the founding airlines and willnot have an effect on the Partnership’s financial position or results ofoperations. As of June 30, 2005, the balance of the amounts due from thefounding airlines was €3,459. American has paid its share in full while Deltaand Northwest are also current in their respective reimbursement payments tous. The remaining balance is scheduled to be repaid in monthly installmentsthrough June 2006.

 

**6.  Other SignificantEvents**

 

OnMay 5, 2004, the Partnership announced that it had been informed by Expediathat it intends to move a portion of its transactions to another GDS providerin order to diversify its GDS relationships beyond using a single provider toprocess substantially all of its GDS transactions. Expedia has not specifiedthe volumes or percentages of volumes it intends to process through this otherGDS. To date, the announced movement of Expedia’s transactions has not yetoccurred.

 

10

----

 

**7.  Business Segment Information**

 

ThePartnership’s operations are classified into two reportable business segments:electronic travel distribution and information technology services. ThePartnership’s two reportable business segments are managed separately based onfundamental differences in their operations. In addition, each business segmentoffers different products and services. The electronic travel distributionsegment distributes travel services of its suppliers to subscribers of theWorldspan GDS. By having access to the Worldspan GDS, subscribers are able tobook reservations with the suppliers. The information technology servicessegment provides technology services to Delta and Northwest and other companiesin the travel industry.

 

ThePartnership evaluates performance and allocates resources based on operatingincome. The accounting policies of the reportable segments are the same asthose described in the summary of significant accounting policies. There are nointersegment sales.

 
| ** **                          | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|-------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                          | ** ** | **June 30,  2005**     | ** ** | **June 30,  2004**   | ** ** | **June 30,  2005** | ** ** | **June 30,  2004** | ** ** |
|                                |       |                   |       |                 |       |   |   |   |   |
| Revenues                            |       |                   |       |                 |       |   |   |   |   |
| Electronic travel distribution      |       | $                      | 227,481    |                 | $          | 232,487 |   | $ | 469,439 |   | $ | 465,026 |   |
| Information technology services     |       | 18,150                 |       | 16,317               |       | 36,774 |   | 32,309 |   |
| Total revenues                      |       | $                      | 245,631    |                 | $          | 248,804 |   | $ | 506,213 |   | $ | 497,335 |   |
| Operating income                    |       |                   |       |                 |       |   |   |   |   |
| Electronic travel distribution      |       | $                      | 44,261     |                 | $          | 38,158 |   | $ | 86,043 |   | $ | 74,691 |   |
| Information technology services     |       | (8,661                 | )          | (7,045               | )          | (15,452 | ) | (16,187 | ) |
| Total operating income              |       | $                      | 35,600     |                 | $          | 31,113 |   | $ | 70,591 |   | $ | 58,504 |   |
| Depreciation and amortization       |       |                   |       |                 |       |   |   |   |   |
| Electronic travel distribution      |       | $                      | 19,399     |                 | $          | 22,743 |   | $ | 39,074 |   | $ | 43,226 |   |
| Information technology services     |       | 6,889                  |       | 3,278                |       | 12,113 |   | 7,858 |   |
| Total depreciation and amortization |       | $                      | 26,288     |                 | $          | 26,021 |   | $ | 51,187 |   | $ | 51,084 |   |

 

Ourprincipal administrative, marketing, product development and technicaloperations are located in the United States. Areas of operation outside ofNorth America include EMEA and Latin America which are primarily composed ofselling and marketing functions.

 

Thefollowing table includes selected interim financial information for the threeand six months ended June 30, 2005 and 2004 related to our geographic areas.

 
| ** **         | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|--------------------|------------|------------------------|------------|----------------------|------------|
| ** **         | ** ** | **June 30,  2005**     | ** ** | **June 30,  2004**   | ** ** | **June 30,  2005** | ** ** | **June 30,  2004** | ** ** |
|               |       |                   |       |                 |       |   |   |   |   |
| Geographic areas   |       |                   |       |                 |       |   |   |   |   |
| Total revenues     |       |                   |       |                 |       |   |   |   |   |
| United States      |       | $                      | 207,708    |                 | $          | 210,949 |   | $ | 430,874 |   | $ | 424,156 |   |
| Foreign            |       | 37,923                 |       | 37,855               |       | 75,339 |   | 73,179 |   |
| Total              |       | $                      | 245,631    |                 | $          | 248,804 |   | $ | 506,213 |   | $ | 497,335 |   |
| Long-lived  assets |       |                   |       |                 |       |   |   |   |   |
| United States      |       | $                      | 809,235    |                 | $          | 902,970 |   | $ | 809,235 |   | $ | 902,970 |   |
| Foreign            |       | 29,551                 |       | 31,904               |       | 29,551 |   | 31,904 |   |
| Total              |       | $                      | 838,786    |                 | $          | 934,874 |   | $ | 838,786 |   | $ | 934,874 |   |

 

**8.  Supplemental Guarantor/Non-GuarantorFinancial Information**

 

Concurrentwith the closing of the Acquisition discussed in Note 1, the Old Notes becamefully and unconditionally guaranteed on a senior unsecured basis by thedomestic operations and assets of the Partnership (referred to as “Worldspan,L.P.—Guarantor” in the accompanying financial information). Included in Worldspan,L.P.—Guarantor are Worldspan, L.P. and all of its wholly-owned domesticsubsidiaries including WS Financing. These domestic subsidiaries also fully andunconditionally guarantee on a senior secured basis the New Notes. Thesedomestic subsidiaries collectively represent less than one percent of thePartnership’s total assets, Partners’ capital, total revenues, net income(loss), and cash flows from operating activities. The guarantees of each of thelegal entities comprised by Worldspan, L.P.—Guarantor are joint and several.The foreign subsidiaries (referred to as “Non-Guarantor

 

11

----

 

Subsidiaries” in the accompanying financialinformation) represent the foreign operations of the Partnership. WS Financing,the co-issuer of the Old Notes and the New Notes, was incorporated on June 6,2003. WS Financing does not have any substantial operations, assets orrevenues. The following financial information presents condensed consolidatingbalance sheets, statements of operations and statements of cash flows forWorldspan, L.P.—Guarantor and Non-Guarantor Subsidiaries. The information hasbeen presented as if Worldspan, L.P.—Guarantor accounted for its ownership ofthe Non-Guarantor Subsidiaries using the equity method of accounting.

 

##### **Condensed Consolidating Balance Sheets**

**as of June 30, 2005**

**(dollars in thousands)**

 
| ** **                                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Assets**                                      |       |                                 |       |                            |       |                     |       |                        |       |
| Current assets                                  |       |                                 |       |                            |       |                     |       |                        |       |
| Cash and cash equivalents                       |       | $                                    | 38,643     |                            | $          | 6,308                    |       | $                           | —     |   | $ | 44,951 |   |
| Trade accounts receivable, net                  |       | 132,844                              |       | 1,831                           |       | —                   |       | 134,675                     |       |
| Prepaid expenses and other current assets       |       | 15,973                               |       | 2,940                           |       | —                   |       | 18,913                      |       |
| Total current assets                            |       | 187,460                              |       | 11,079                          |       | —                   |       | 198,539                     |       |
| Property and equipment, net                     |       | 98,634                               |       | 5,843                           |       | —                   |       | 104,477                     |       |
| Deferred charges                                |       | 14,436                               |       | 13,667                          |       | —                   |       | 28,103                      |       |
| Debt issuance costs                             |       | 16,264                               |       | —                          |       | —                   |       | 16,264                      |       |
| Supplier and agency relationships, net          |       | 254,154                              |       | —                          |       | —                   |       | 254,154                     |       |
| Developed technology, net                       |       | 194,094                              |       | —                          |       | —                   |       | 194,094                     |       |
| Trade name                                      |       | 72,142                               |       | —                          |       | —                   |       | 72,142                      |       |
| Goodwill                                        |       | 112,035                              |       | —                          |       | —                   |       | 112,035                     |       |
| Other intangible assets, net                    |       | 30,510                               |       | —                          |       | —                   |       | 30,510                      |       |
| Investments in subsidiaries                     |       | 25,291                               |       | —                          |       | (25,291                  | )          | —                      |       |
| Other long-term assets                          |       | 16,965                               |       | 10,042                          |       | —                   |       | 27,007                      |       |
| Total assets                                    |       | $                                    | 1,021,985  |                            | $          | 40,631                   |       | $                           | (25,291    | ) | $ | 1,037,325 |   |
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Liabilities  and Partners’ Capital**     |       |                                 |       |                            |       |                     |       |                        |       |
| Current liabilities                             |       |                                 |       |                            |       |                     |       |                        |       |
| Accounts payable                                |       | $                                    | 9,913      |                            | $          | 4,170                    |       | $                           | —     |   | $ | 14,083 |   |
| Intercompany accounts payable (receivable)      |       | 26,792                               |       | (26,792                         | )          | —                   |       | —                      |       |
| Accrued expenses                                |       | 121,789                              |       | 38,062                          |       | —                   |       | 159,851                     |       |
| Current portion of capital lease  obligations   |       | 18,712                               |       | —                          |       | —                   |       | 18,712                      |       |
| Current portion of senior debt                  |       | 4,000                                |       | —                          |       | —                   |       | 4,000                       |       |
| Total current liabilities                       |       | 181,206                              |       | 15,440                          |       | —                   |       | 196,646                     |       |
| Long-term portion of capital lease  obligations |       | 45,602                               |       | —                          |       | —                   |       | 45,602                      |       |
| Long-term debt                                  |       | 711,500                              |       | —                          |       | —                   |       | 711,500                     |       |
| Pension and postretirement benefits             |       | 62,435                               |       | (42                             | )          | —                   |       | 62,393                      |       |
| Other long-term liabilities                     |       | 13,717                               |       | (58                             | )          | —                   |       | 13,659                      |       |
| Total liabilities                               |       | 1,014,460                            |       | 15,340                          |       | —                   |       | 1,029,800                   |       |
| Commitments and contingencies                   |       |                                 |       |                            |       |                     |       |                        |       |
| Partners’ capital                          |       | 7,525                                |       | 25,291                          |       | (25,291                  | )          | 7,525                       |       |
| Total liabilities and partners’ capital    |       | $                                    | 1,021,985  |                            | $          | 40,631                   |       | $                           | (25,291    | ) | $ | 1,037,325 |   |

 

12

----

 

**Condensed Consolidating Balance Sheets**

**as of December 31, 2004**

**(dollars in thousands)**

 
| ** **                                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Assets**                                      |       |                                 |       |                            |       |                     |       |                        |       |
| Current assets                                  |       |                                 |       |                            |       |                     |       |                        |       |
| Cash and cash equivalents                       |       | $                                    | 96,504     |                            | $          | 3,970                    |       | $                           | —     |   | $ | 100,474 |   |
| Trade accounts receivable, net                  |       | 99,646                               |       | 3,147                           |       | —                   |       | 102,793                     |       |
| Prepaid expenses and other current assets       |       | 18,729                               |       | 2,577                           |       | —                   |       | 21,306                      |       |
| Total current assets                            |       | 214,879                              |       | 9,694                           |       | —                   |       | 224,573                     |       |
| Property and equipment, net                     |       | 111,972                              |       | 6,246                           |       | —                   |       | 118,218                     |       |
| Deferred charges                                |       | 15,956                               |       | 18,395                          |       | —                   |       | 34,351                      |       |
| Debt issuance costs, net                        |       | 10,201                               |       | —                          |       | —                   |       | 10,201                      |       |
| Supplier and agency relationships, net          |       | 271,020                              |       | —                          |       | —                   |       | 271,020                     |       |
| Developed technology, net                       |       | 206,664                              |       | 138                             |       | —                   |       | 206,802                     |       |
| Trade name                                      |       | 72,142                               |       | —                          |       | —                   |       | 72,142                      |       |
| Goodwill                                        |       | 112,035                              |       | —                          |       | —                   |       | 112,035                     |       |
| Other intangible assets, net                    |       | 31,914                               |       | —                          |       | —                   |       | 31,914                      |       |
| Investments in subsidiaries                     |       | 14,165                               |       | —                          |       | (14,165                  | )          | —                      |       |
| Other long-term assets                          |       | 20,187                               |       | 10,843                          |       | —                   |       | 31,030                      |       |
| Total assets                                    |       | $                                    | 1,081,135  |                            | $          | 45,316                   |       | $                           | (14,165    | ) | $ | 1,112,286 |   |
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Liabilities  and Partners’ Capital**     |       |                                 |       |                            |       |                     |       |                        |       |
| Current liabilities                             |       |                                 |       |                            |       |                     |       |                        |       |
| Accounts payable                                |       | $                                    | 11,926     |                            | $          | 2,745                    |       | $                           | —     |   | $ | 14,671 |   |
| Intercompany accounts payable (receivable)      |       | 15,305                               |       | (15,305                         | )          | —                   |       | —                      |       |
| Accrued expenses                                |       | 115,682                              |       | 40,953                          |       | —                   |       | 156,635                     |       |
| Current portion of capital lease  obligations   |       | 19,369                               |       | —                          |       | —                   |       | 19,369                      |       |
| Current portion of long-term debt               |       | 12,497                               |       | —                          |       | —                   |       | 12,497                      |       |
| Total current liabilities                       |       | 174,779                              |       | 28,393                          |       | —                   |       | 203,172                     |       |
| Long-term portion of capital lease  obligations |       | 54,079                               |       | —                          |       | —                   |       | 54,079                      |       |
| Long-term debt                                  |       | 324,990                              |       | —                          |       | —                   |       | 324,990                     |       |
| Pension and postretirement benefits             |       | 64,821                               |       | (42                             | )          | —                   |       | 64,779                      |       |
| Other long-term liabilities                     |       | 11,067                               |       | 2,800                           |       | —                   |       | 13,867                      |       |
| Total liabilities                               |       | 629,736                              |       | 31,151                          |       | —                   |       | 660,887                     |       |
| Commitments and contingencies                   |       |                                 |       |                            |       |                     |       |                        |       |
| Partners’ capital                          |       | 451,399                              |       | 14,165                          |       | (14,165                  | )          | 451,399                     |       |
| Total liabilities and partners’ capital    |       | $                                    | 1,081,135  |                            | $          | 45,316                   |       | $                           | (14,165    | ) | $ | 1,112,286 |   |

 

13

----

 

**Condensed Consolidating Statements of Operations**

**for the Three Months Ended June 30, 2005**

**(dollars in thousands)**

 
| ** **                        | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                              |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                          |       | $                                    | 207,708    |                            | $          | 37,923                   |       | $                           | —     |   | $ | 245,631 |   |
| Operating expenses                |       | 178,510                              |       | 31,521                          |       | —                   |       | 210, 031                    |       |
| Operating income                  |       | 29,198                               |       | 6,402                           |       | —                   |       | 35,600                      |       |
| Other income (expense)            |       |                                 |       |                            |       |                     |       |                        |       |
| Interest (expense) income, net    |       | (15,584                              | )          | 11                              |       | —                   |       | (15,573                     | )          |
| Income from subsidiaries          |       | 5,070                                |       | —                          |       | (5,070                   | )          | —                      |       |
| Other, net                        |       | (207                                 | )          | 196                             |       | —                   |       | (11                         | )          |
| Total other (expense) income, net |       | (10,721                              | )          | 207                             |       | (5,070                   | )          | (15,584                     | )          |
| Income before income taxes        |       | 18,477                               |       | 6,609                           |       | (5,070                   | )          | 20,016                      |       |
| Income tax expense                |       | —                               |       | 1,539                           |       | —                   |       | 1,539                       |       |
| Net income                        |       | $                                    | 18,477     |                            | $          | 5,070                    |       | $                           | (5,070     | ) | $ | 18,477 |   |

 

**Condensed Consolidating Statements of Operations**

**for the Three Months Ended June 30, 2004**

**(dollars in thousands)**

 
| ** **                        | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                              |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                          |       | $                                    | 210,949    |                            | $          | 37,855                   |       | $                           | —     |   | $ | 248,804 |   |
| Operating expenses                |       | 185,031                              |       | 32,660                          |       | —                   |       | 217,691                     |       |
| Operating income                  |       | 25,918                               |       | 5,195                           |       | —                   |       | 31,113                      |       |
| Other income (expense)            |       |                                 |       |                            |       |                     |       |                        |       |
| Interest (expense) income, net    |       | (9,963                               | )          | 3                               |       | —                   |       | (9,960                      | )          |
| Income from subsidiaries          |       | 5,471                                |       | —                          |       | (5,471                   | )          | —                      |       |
| Other, net                        |       | 87                                   |       | 346                             |       | —                   |       | 433                         |       |
| Total other (expense) income, net |       | (4,405                               | )          | 349                             |       | (5,471                   | )          | (9,527                      | )          |
| Income before income taxes        |       | 21,513                               |       | 5,544                           |       | (5,471                   | )          | 21,586                      |       |
| Income tax expense                |       | —                               |       | 73                              |       | —                   |       | 73                          |       |
| Net income                        |       | $                                    | 21,513     |                            | $          | 5,471                    |       | $                           | (5,471     | ) | $ | 21,513 |   |

 

14

----

 

**Condensed Consolidating Statements of Operations**

**for the Six Months Ended June 30, 2005**

**(dollars in thousands)**

 
| ** **                        | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                              |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                          |       | $                                    | 430,874    |                            | $          | 75,339                   |       | $                           | —     |   | $ | 506,213 |   |
| Operating expenses                |       | 368,611                              |       | 67,011                          |       | —                   |       | 435,622                     |       |
| Operating income                  |       | 62,263                               |       | 8,328                           |       | —                   |       | 70,591                      |       |
| Other income (expense)            |       |                                 |       |                            |       |                     |       |                        |       |
| Interest (expense) income, net    |       | (27,973                              | )          | 71                              |       | —                   |       | (27,902                     | )          |
| Loss on extinguishment of debt    |       | (55,597                              | )          | —                          |       | —                   |       | (55,597                     | )          |
| Income from subsidiaries          |       | 5,603                                |       | —                          |       | (5,603                   | )          | —                      |       |
| Other, net                        |       | 119                                  |       | (339                            | )          | —                   |       | (220                        | )          |
| Total other expense, net          |       | (77,848                              | )          | (268                            | )          | (5,603                   | )          | (83,719                     | )          |
| (Loss) income before income taxes |       | (15,585                              | )          | 8,060                           |       | (5,603                   | )          | (13,128                     | )          |
| Income tax expense                |       | —                               |       | 2,457                           |       | —                   |       | 2,457                       |       |
| Net (loss) income                 |       | $                                    | (15,585    | )                               | $          | 5,603                    |       | $                           | (5,603     | ) | $ | (15,585 | ) |

 

**Condensed Consolidating Statements of Operations**

**for the Six Months Ended June 30, 2004**

**(dollars in thousands)**

 
| ** **                        | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                              |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                          |       | $                                    | 424,156    |                            | $          | 73,179                   |       | $                           | —     |   | $ | 497,335 |   |
| Operating expenses                |       | 372,861                              |       | 65,970                          |       | —                   |       | 438,831                     |       |
| Operating income                  |       | 51,295                               |       | 7,209                           |       | —                   |       | 58,504                      |       |
| Other income (expense)            |       |                                 |       |                            |       |                     |       |                        |       |
| Interest (expense) income         |       | (20,712                              | )          | 58                              |       | —                   |       | (20,654                     | )          |
| Income from subsidiaries          |       | 7,050                                |       | —                          |       | (7,050                   | )          | —                      |       |
| Other, net                        |       | 30                                   |       | 88                              |       | —                   |       | 118                         |       |
| Total other (expense) income, net |       | (13,632                              | )          | 146                             |       | (7,050                   | )          | (20,536                     | )          |
| Income before income taxes        |       | 37,663                               |       | 7,355                           |       | (7,050                   | )          | 37,968                      |       |
| Income tax (benefit) expense      |       | (3                                   | )          | 305                             |       | —                   |       | 302                         |       |
| Net income                        |       | $                                    | 37,666     |                            | $          | 7,050                    |       | $                           | (7,050     | ) | $ | 37,666 |   |

 

15

----

 

**Condensed Consolidating Statements of Cash Flows**

**for the Six Months Ended June 30, 2005**

**(dollars in thousands)**

 
| ** **                                                  | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                        |       |                                 |       |                            |       |                     |       |                        |       |
| Net cash provided by (used in) operating  activities        |       | $                                    | 80,446     |                            | $          | (7,429                   | )          | $                           | —     |   | $ | 73,017 |   |
| Cash flows from investing activities:                       |       |                                 |       |                            |       |                     |       |                        |       |
| Purchase of property and equipment                          |       | (5,240                               | )          | (1,361                          | )          | —                   |       | (6,601                      | )          |
| Proceeds from sale of property and  equipment               |       | 77                                   |       | —                          |       | —                   |       | 77                          |       |
| Capitalized software development costs                      |       | (19                                  | )          | —                          |       | —                   |       | (19                         | )          |
| Investment in subsidiaries                                  |       | (11,126                              | )          |                            |       | 11,126                   |       |                        |       |
| Net cash provided used in investing  activities             |       | (16,308                              | )          | (1,361                          | )          | 11,126                   |       | (6,543                      | )          |
| Cash flows from financing activities:                       |       |                                 |       |                            |       |                     |       |                        |       |
| Proceeds from issuance of debt, net of debt  issuance costs |       | 734,801                              |       | —                          |       | —                   |       | 734,801                     |       |
| Principal payments on capital leases                        |       | (9,517                               | )          | —                          |       | —                   |       | (9,517                      | )          |
| Principal payments on debt                                  |       | (92,488                              | )          | —                          |       | —                   |       | (92,488                     | )          |
| Repurchase old notes                                        |       | (327,555                             | )          | —                          |       | —                   |       | (327,555                    | )          |
| Distribution to and contributions from WTI,  net            |       | (427,238                             | )          | —                          |       | —                   |       | (427,238                    | )          |
| Contributions to subsidiaries                               |       | —                               |       | 11,126                          |       | (11,126                  | )          | —                      |       |
| Net cash (used in) provided by financing  activities        |       | (121,997                             | )          | 11,126                          |       | (11,126                  | )          | (121,997                    | )          |
| Net decrease in cash and cash equivalents                   |       | (57,859                              | )          | 2,336                           |       | —                   |       | (55,523                     | )          |
| Cash and cash equivalents at beginning of  period           |       | 96,504                               |       | 3,970                           |       | —                   |       | 100,474                     |       |
| Cash and cash equivalents at end of period                  |       | $                                    | 38,645     |                            | $          | 6,306                    |       | $                           | —     |   | $ | 44,951 |   |

 

**Condensed Consolidating Statements of Cash Flows**

**for the Six Months Ended June 30, 2004**

 
| ** **                                            | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                  |       |                                 |       |                            |       |                     |       |                        |       |
| Net cash provided by (used in) operating  activities  |       | $                                    | 96,753     |                            | $          | (6,341                   | )          | $                           | —     |   | $ | 90,412 |   |
| Cash flows from investing activities:                 |       |                                 |       |                            |       |                     |       |                        |       |
| Purchase of property and equipment                    |       | (5,614                               | )          | (1,745                          | )          | —                   |       | (7,359                      | )          |
| Proceeds from sale of property and  equipment         |       | 82                                   |       | 10                              |       | —                   |       | 92                          |       |
| Capitalized software for internal use                 |       | (744                                 | )          | —                          |       | —                   |       | (744                        | )          |
| Investments in subsidiaries                           |       | (7,793                               | )          | —                          |       | 7,793                    |       | —                      |       |
| Net cash used in investing activities                 |       | (14,069                              | )          | (1,735                          | )          | 7,793                    |       | (8,011                      | )          |
| Cash flows from financing activities:                 |       |                                 |       |                            |       |                     |       |                        |       |
| Distribution to WTI                                   |       | (3,464                               | )          | —                          |       | —                   |       | (3,464                      | )          |
| Principal payments on capital leases                  |       | (10,969                              | )          | —                          |       | —                   |       | (10,969                     | )          |
| Principal payments on debt                            |       | (38,256                              | )          | —                          |       | —                   |       | (38,256                     | )          |
| Contributions to subsidiaries                         |       | —                               |       | 7,793                           |       | (7,793                   | )          | —                      |       |
| Net cash (used in) provided by financing  activities  |       | (52,689                              | )          | 7,793                           |       | (7,793                   | )          | (52,689                     | )          |
| Net increase (decrease) in cash and cash  equivalents |       | 29,995                               |       | (283                            | )          | —                   |       | 29,712                      |       |
| Cash and cash equivalents at beginning of  year       |       | 41,615                               |       | 2,131                           |       | —                   |       | 43,746                      |       |
| Cash and cash equivalents at end of year              |       | $                                    | 71,610     |                            | $          | 1,848                    |       | $                           | —     |   | $ | 73,458 |   |

 

16

----

 

**9.  Goodwilland Other Intangible Assets**

 

Goodwill andother intangible assets consisted of the following:

 
| ** **                                | ** ** | ** **                 | ** ** | **Successor Basis**   | ** ** |
|-------------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | ** **                 | ** ** | **December 31, 2004** | ** ** | **June 30, 2005** | ** ** |
| ** **                                | ** ** | **Estimated  Useful Life** | ** ** | **Cost**              | ** ** | **Accumulated  Amortization** | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** |
| Supplier and agency relationships         |       | 8-11 years                 |       | $                     | 321,618    |   | $ | 50,598 |   | $ | 321,618 |   | $ | 67,464 |   |
| Information technology services contracts |       | 5-15 years                 |       | 36,126                |       | 4,212 |   | 36,126 |   | 5,616 |   |
| Developed technology                      |       | 5-11 years                 |       | 239,947               |       | 33,145 |   | 239,828 |   | 45,734 |   |
| Goodwill                                  |       | Indefinite                 |       | 112,035               |       | — |   | 112,035 |   | — |   |
| Trade name                                |       | Indefinite                 |       | 72,142                |       | — |   | 72,142 |   | — |   |
|                                      |       |                       |       | $                     | 781,868    |   | $ | 87,955 |   | $ | 781,749 |   | $ | 118,814 |   |

 

During thethree months ended June 30, 2005, the Partnership recorded a $1,500 writedownof certain purchased software to be enhanced and ultimately used inmulti-hosting services for smaller carriers. The carrying value of the softwarewas written down to zero as a result of management’s decision to pursue otherthird party solutions as a means to provide these services to smaller carriersas well as management’s current evaluation of the current and potential revenuestream, among other factors. The writedown is included in “Developed technologyamortization” in the accompanying consolidated statement of operations.

 

ThePartnership recorded amortization expense for its amortized intangible assetsof $16,026 and $14,642 for the three months ended June 30, 2005 and 2004,respectively and $30,859 and $29,285 for the six months ended June 30, 2005 and2004, respectively. Estimated amortization expense for the Partnership’sintangible assets, excluding the $30,859 amortization recorded for the sixmonths ended June 30, 2005, is as follows:

 
| **Year Ended December 31,** | ** ** | ** ** | ** ** |
|-----------------------------|------------|------------|------------|
| 2005                        |       | $          | 29,110     |   |
| 2006                        |       | 58,220     |       |
| 2007                        |       | 58,124     |       |
| 2008                        |       | 57,765     |       |
| 2009                        |       | 57,491     |       |
| Thereafter                  |       | 218,048    |       |
|                        |       | $          | 478,758    |   |

 

**10.  Subsequent Events**

 

OnJuly 20, 2005, the Partnership announced a reduction in force of approximately 70employees. The reduction was the result of improved organizational efficiencyand the outsourcing of programming for certain applications. The Partnership willrecord a charge for severance and benefits in the third quarter of 2005 ofapproximately $1,200. We anticipate these obligations to be paid in the thirdand fourth quarters of 2005 through internally generated funds.

 

17

----

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

*References to “WTI” refer to WorldspanTechnologies Inc. References to the “company” refer to Worldspan, L.P. Theterms “we”, “us”*, *“our” and other similar terms refer to theconsolidated businesses of the company and all of its subsidiaries. Referencesto the “Acquisition” refer to the acquisition by WTI, of our generalpartnership interests and, through its wholly-owned subsidiaries, limitedpartnership interests**. The following discussionand analysis of the financial condition and results of operations should beread in conjunction with the consolidated financial statements and relatednotes included in our annual report on Form 10-K filed with the Securities andExchange Commission on March 28, 2005.*

 

**Overview**

 

Weare a provider of mission-critical transaction processing and informationtechnology services to the global travel industry. We provide subscribers(including traditional travel agencies, online travel agencies and corporatetravel departments) with real-time access to schedule, price, availability andother travel information and the ability to process reservations and issuetickets for the products and services of approximately 800 travel suppliers(such as airlines, hotels, car rental companies, tour companies and cruiselines) throughout the world. Globally, we are the largest transaction processorfor online travel agencies, having processed approximately 63% of all globaldistribution system, or GDS, online air transactions during the twelve monthsended June 30, 2005. In the United States (the world’s largest travel market),we are the second largest transaction processor for travel agencies, accountingfor 32% of GDS air transactions and approximately 66% of online GDS airtransactions processed during the twelve months ended June 30, 2005. During thetwelve months ended June 30, 2005, we processed approximately 205 milliontransactions. We also provide information technology services to the travelindustry, primarily airline internal reservation systems, flight operationstechnology and software development.

 

Ourrelationships with four of the largest online travel agencies in the world havepositioned us well to take advantage of the continuing shift to the onlinetravel agency channel, where we have a higher market share. We believe ourstrong position in the online travel agency channel has allowed us to increaseour airline transaction volume, despite the difficult times in the travelindustry since 2001. Total transactions for the twelve months ended June 30,2005, including airline and hospitality and destination services, were up 1.8%compared to the same period in 2004.

 

As a result of the marketconditions and industry pressures described above, we took steps to reduce ouroperating expenses. We have reduced personnel cost through targeted reductionsin the number of personnel and personnel related costs such as benefit plansand pension plans and increased the use of offshore resources to reduce thecost of application development and travel agency support functions. We haverenegotiated our network, technology and communication contracts with ourprimary providers in the first quarter of 2004. In addition, we have pursued astrategy to move customers from Worldspan sponsored networks to third partysponsored networks. These actions have led to decreases in our network andcommunication expenses in both 2004 and 2005. Each of these actions hasgenerated cost savings which are expected to continue in future years; however,the actual amount of our ongoing expenses may ultimately be impacted by otherenvironmental factors such as changes in healthcare and technology costs andusage, which we are unable to predict.

 

Wedepend upon a relatively small number of airlines and online travel agenciesfor a significant portion of our revenues. Our five largest airlinerelationships represented an aggregate of approximately 50% and 51% of ourtotal revenues for the twelve months ended June 30, 2005 and December 31,2004, respectively, while our top ten largest airline relationships representedan aggregate of approximately 63% and 64% of our total revenues for the twelvemonths ended June 30, 2005 and December 31, 2004, respectively. Ourrelationships with four online travel agencies, Expedia, Hotwire, Orbitz andPriceline, represented 50% of our total transactions during the twelve monthsended June 30, 2005. We expect to continue to depend upon a relatively smallnumber of airlines and online travel agencies for a significant portion of ourrevenues.

 

***Supplier Content, Transaction Fees and TransactionVolume***

 

Adevelopment within the GDS industry over the past several years involves thecompetitive need for GDSs to maintain full content, including web fare content,for distribution to traditional and online agency subscribers. Historically, wehave increased the transaction fees we collect from our airline suppliers,which pay a substantial portion of our transaction fees. We anticipate thatthis historic trend of annual transaction fee increases could be reduced in thefuture due to our current fare content agreements with major airlines. Forinstance, we have entered into fare content agreements with American Airlines, BritishAirways, Continental Airlines, Delta, Northwest, United Air Lines and USAirways. Generally, in these agreements, the airlines commit (subject to theexceptions contained in the agreements) to provide the traditional and onlinetravel agencies covered by the agreements in the territories covered by theagreements with substantially the same fare content it provides to the travelagency subscribers of other GDSs (including web fares) in exchange for paymentsfrom us and/or discounts in transaction fees to each airline and subject to uskeeping steady the average transaction fees paid by each airline for travelagency transactions in the territories covered by the agreements. In addition,

 

18

----

 

pursuant to these agreements, each airlinehas agreed, among other things, to commit to the highest level of participationin our GDS. Subject to termination rights, these obligations continue untillate 2005 (in the case of US Airways), 2006 (with respect to the othercontracted airlines) or 2007 (in the case of British Airways). We expect thatthese fare content agreements will provide our travel agencies in theterritories covered by the agreements with access to improved contentconcerning the flights and fares of the participating airlines and other formsof non-discriminatory treatment.

 

Webelieve that obtaining similar fare content from our other major airline travelsuppliers is important to our ability to compete, since other GDSs have alsoentered into fare content agreements with various airlines. Consequently, weare pursuing agreements similar to these fare content agreements with othermajor airlines in order to obtain access to such content. We expect that thefare content agreements will require us to make, in the aggregate, significantpayments or other concessions to the participating airlines, which we expectwill reduce our revenues. Further, should we fail to maintain competitivecontent, our traditional and online agency subscribers could move transactionsfrom us to competitors with access to this content, thus negatively affectingthe Partnership’s business, financial condition and results of operation.

 

***Financial Conditions in the AirlineIndustry***

 

Thedownturn in the commercial airline market, together with, and resulting from,the ongoing threat of terrorist acts after September 11, 2001, war in Iraqand rising fuel costs for commercial airlines, among other issues, haveadversely affected the financial condition of many commercial airlines. Severalmajor airlines are experiencing liquidity problems, some have sought bankruptcyprotection and still others are considering, or may consider, bankruptcyrelief. We derive a substantial portion of our revenues from transaction feesreceived directly from airlines and from the sale of products and servicesdirectly to airlines. In circumstances where an airline declares bankruptcy, wemay be unable to collect our outstanding accounts receivable from the airline.In addition, the bankruptcy of the airline might result in reduced transactionfees and other revenues from the airline, a rejection by the airline of some orall of our agreements with it, or loss of the revenue by other means such as anairline liquidation, all of which could have a material adverse effect on ourbusiness, financial condition and results of operation.

 

***Channel Shift***

 

Anincreasing number of travel transactions are being made online. During thetwelve months ended June 30, 2005, airline transactions generated throughonline travel agencies accounted for approximately 33% of all airlinetransactions in the United States processed by a GDS, up from approximately 31%in 2004, approximately 28% in 2003 and approximately 23% in 2002. Between 2002and 2004, the number of airline transactions in the United States generatedthrough online travel agencies and processed by us increased at a compoundannual growth rate of 15.6%. We believe that this shift to online travel agencybookings will continue, but the extent and pace of the shift is difficult toanticipate. Other industry developments, such as Expedia’s announcement that itintends to move a portion of its transactions to another GDS provider, compoundour difficulty in forecasting the growth of our transactions from online travelagencies. We typically pay a higher inducement per transaction to our largeonline travel agency customers than our traditional agencies. Accordingly, aswe continue to experience significant channel shift, we expect our inducementscost to continue to grow and direct costs related to supporting traditionaltravel agencies to continue to decline.

 

Since2001, the combination of channel shift, declines in the global economy,terrorist actions and threats, wars in Afghanistan and Iraq, and healthconcerns over SARS has resulted in annual declines in transactions generated bytraditional travel agencies. As a result of these declines, we have completedrestructuring activities in each of the last five years, which have largelybeen focused on reducing the operating costs associated with servicingtraditional travel agencies in areas such as labor, network, agency hardware,and advertising.

 

***Uncertainty in Transaction Volumes fromOnline Travel Agencies***

 

Althoughwe have historically processed most of the airline transactions for our onlinetravel agencies, these agencies may move a portion of their business to othertechnologies and technology providers, subject to some contractual limitations.For example, Expedia announced in May 2004 that it intends to diversifyits GDS relationships beyond using a single provider to process substantiallyall of its GDS transactions and that it intends to move a portion of itstransactions to another GDS provider. Expedia has not specified the volumes orpercentages of volumes it intends to process through this other GDS. To date,the announced movement of Expedia’s transactions has not occurred and, at thistime, we cannot forecast the timing or magnitude of any such movement on ourfinancial position or results of operations. In connection with theAcquisition, we recorded an intangible asset related to online customercontracts of $131.9 million, of which we estimate $35.2 million wasrelated to the Expedia contract. Based on that estimate, the portion of thisintangible asset that was unamortized as of June 30, 2005 was $26.4 million.Upon determination of the specific volumes, percentage of volumes or timingrelating to Expedia’s announced agreement with the other GDS provider, we willfurther assess the impact, if any, on our overall financial condition asprescribed by Statement of Financial Accounting Standards (“SFAS”)No. 144, *Accounting for the Impairmentor Disposal of Long-Lived Assets*, and SFAS No. 142, *Goodwill and Other Intangible Assets*. Inaddition, Orbitz has developed direct connections with travel suppliers whichbypass our GDS. Further, Cendant Corporation recently acquired Orbitz. Cendant’sTravel Distribution Services Division includes Galileo, which is a competitorof ours. Orbitz is

 

19

----

 

one of our largest online travel agencycustomers. Our contract with Orbitz extends into 2011 subject to standardtermination rights held by Orbitz including for-cause termination rights.

 

Althoughwe currently continue to operate under these agreements, it is uncertain as towhether or not these and our other major online travel agencies will notattempt to terminate their respective agreements with us or otherwise movebusiness to another GDS in the future. With this uncertainty, we cannotreliably forecast the volume of such transactions and may experiencetransaction volume decreases that result in a material adverse effect on ourfinancial condition and operating results.

 

***Neutrality***

 

Wedo not own an online travel agency. Unlike our competitors, we haveintentionally not pursued a strategy of vertical integration and instead haveforged strategic partnerships with leading online travel agencies. Given thehighly competitive nature of the travel agency business, we believe ourcustomers value our neutrality. As the shift towards the online travel agencychannel continues, we believe the traditional travel agencies will increasinglyview the GDS-owned online travel agencies as competitive to their corebusiness. As a result, our neutrality gives us an opportunity to captureadditional business from both online and traditional travel agencies not ownedby a GDS. However, to the extent that such agencies are acquired by or becomeaffiliated with one of our competitors, the likelihood of our capturingadditional business from those agencies may be reduced and our existingbusiness with those agencies may be at risk.

 

***FASA Credits***

 

Pursuantto the terms of our founder airline services agreements, or FASAs, we provideFASA credits to Delta and Northwest to be applied against FASA service feepayments due from these airlines to us. The FASA credits are structured andwill be applied through June 2012 in scheduled monthly installments up toan aggregate total of approximately $91.7 million to each of Delta andNorthwest as of June 30, 2005, and are reflected as reductions of FASA revenuein the corresponding periods. In the event that the monthly FASA creditsdeliverable by us to Delta or Northwest are more than the FASA service feepayments due from the applicable airline, then we will be obligated to pay suchexcess to such airline in cash. Pursuant to a recent amendment of our FASA withDelta, Worldspan has the right, at its option, to terminate the FASA credits onor before December 31, 2005, in exchange for a one-time payment from us toDelta in an amount that varies depending upon when Worldspan elects to make theone-time payment.  The one-time paymentwould be capitalized and amortized as a reduction of FASA revenue in thecorresponding periods.  See the sectioncaptioned “Liquidity and Capital Resources” below for further information onthe FASA credits.

 

**Business Segment Summary**

 

Ourrevenues are primarily derived from transaction fees paid by our travelsuppliers for electronic travel distribution services, and to a lesser extent,other transaction and subscription fees from our information technologyservices operations:

 

•                  Electronic travel distribution revenues aregenerated by charging a fee per transaction, which is generally paid by thetravel supplier, based upon the number of transactions involved in the booking.We record and charge one transaction for each segment of an air travelitinerary (e.g., four transactions for a round-trip airline ticket with oneconnection each way). We record and charge one transaction for each car rental,hotel, cruise or tour company booking, regardless of the length of timeassociated with the booking. Fees paid by travel suppliers vary according tothe levels of functionality at which they can participate in our GDS. Theselevels of functionality generally depend upon the type of communications andreal-time access allowed with respect to the particular travel supplier’sinternal systems. Revenues are based on the volume of transactions and are notdependent on the revenue earned by the supplier for that booking. We recognizerevenue for airline travel transactions in the month the transactions areprocessed, net of cancellations processed in that month. Revenues for othertypes of travel transactions are recognized at the time the booking is used bythe traveler. Although the substantial majority of our electronic traveldistribution revenues are derived from transaction fees paid by travelsuppliers, we have an agreement with Hotwire which does not follow thistraditional business model. Under our agreement with Hotwire, we generallyderive revenues from a service fee payable by Hotwire (rather than the travelsupplier) based upon the number of travel transactions booked.

 

Setforth below is a chart illustrating the flow of payments in a typical consumertravel booking processed by us.

 
| 1 roundtrip airline ticket (one connection  each way) |   | 4 | transactions |   |
|-------------------------------------------------------|--------|---|--------------|--------|
| 1 car rental (3 days)                                 |   | 1 | transaction  |   |
| 1 hotel reservation (3 days)                          |   | 1 | transaction  |   |
|                                                  |   | 6 | transactions |   |

 

20

----

 

 

----

*    Transactionand inducement fees are for illustrative purposes only.

 

•                  Information technology services revenues aregenerated by charging a fee for hosting travel supplier inventory,reservations, flight operations and other computer applications within our datacenter and by providing software development and maintenance services on thoseapplications. Fees paid by travel suppliers are generally based upon the volumeof messages processed on behalf of the travel supplier or software development hoursperformed on the travel supplier’s applications. In some cases, we charge feesfor access to and usage of certain of our proprietary applications on a pertransaction basis. Revenues for information technology services are recognizedin the month that the services are provided and are recorded net of the valueof the FASA credits earned in the case of Delta and Northwest in thecorresponding month.

 

Ourcosts and expenses consist of the cost of electronic travel distribution andinformation technology services revenues, selling, general and administrativeexpenses and depreciation and amortization:

 

•                  Cost ofelectronic travel distribution revenues consists primarily of inducements paidto travel agencies, technology development and operations personnel, softwarecosts, network costs, hardware leases, maintenance of computer and networkhardware, the data center building, help desk and other travel agency supportheadcount. As our transactions from online travel agencies increase as apercent of our total transactions, we incur additional inducement andtechnology costs due to the average inducement paid to our large online customers typically exceeding the averageinducement that we pay to traditional travel agencies and due to a highervolume of messages processed per transaction in the online channel compared totraditional travel agency transactions. Cost of information technology servicesrevenues consists primarily of technology development and operations personnel,software costs, network costs, hardware leases, depreciation of computerhardware and the data center building, amortization of capitalized software andmaintenance of computer and network hardware.

 

•                  Selling, general and administrative expensesconsist primarily of sales and marketing, labor and associated costs,advertising services, professional fees, a portion of the expenses associatedwith our facilities, depreciation of computer equipment, furniture and fixturesand leasehold improvements, internal management costs and expenses for finance,legal, human resources and other administrative functions.

 

**CriticalAccounting Policies**

 

The discussion and analysisof our financial condition and results of operations is based on ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires us to make estimates and judgments thataffect our reported assets and liabilities, revenues and expenses, and other financialinformation. Actual results may differ significantly from these estimates, andour reported financial condition and results of operations could vary underdifferent assumptions and conditions. In addition, our reported financialcondition and results of operations could vary due to a change in theapplication of a particular accounting standard.

 

We regard an accountingestimate underlying our financial statements as a “critical accounting estimate”if the accounting estimate requires us to make assumptions about matters thatare highly uncertain at the time of estimation and if different estimates thatreasonably could have been used in the current period, or changes in theestimate that are reasonably likely to occur from period to period, would havehad a material effect on the presentation of financial condition, changes infinancial condition, or results of operations.

 

There have been no changesto our critical accounting policies or significant changes in assumptions orestimates that would affect such policies in the six months ended June 30,2005. Our critical accounting policies are described in Item 7, “ *Management’s Discussion and Analysis of FinancialCondition and Results of Operations*“ in our Annual Report on Form10-K for the year ended December 31, 2004.

 

21

----

 

**Results of Operations**

 

Thefollowing table shows information derived from our condensed consolidatedstatements of operations for the three and six months ended June 30, 2005 and2004 expressed as a percentage of revenues for the periods presented.

 
| ** **                                                    | ** ** | **Three months  ended  June 30, 2005** | ** ** | **Three months  ended  June 30, 2004** | ** ** | **Six months  ended  June 30, 2005** | ** ** | **Six months  ended  June 30, 2004** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
|                                                          |       |                                   |       |                                   |       |                                 |       |                                 |       |
| Revenues:                                                     |       |                                   |       |                                   |       |                                 |       |                                 |       |
| Electronic travel distribution                                |       | 92.6                                   | %          | 93.4                                   | %          | 92.7                                 | %          | 93.5                                 | %          |
| Information technology services                               |       | 7.4                                    |       | 6.6                                    |       | 7.3                                  |       | 6.5                                  |       |
| Total revenues                                                |       | 100.0                                  |       | 100.0                                  |       | 100.0                                |       | 100.0                                |       |
| Operating expenses:                                           |       |                                   |       |                                   |       |                                 |       |                                 |       |
| Cost of revenues excluding developed  technology amortization |       | 68.6                                   |       | 69.7                                   |       | 68.5                                 |       | 69.1                                 |       |
| Developed technology amortization                             |       | 2.8                                    |       | 2.2                                    |       | 2.5                                  |       | 2.2                                  |       |
| Total cost of revenues                                        |       | 71.4                                   |       | 71.9                                   |       | 71.0                                 |       | 71.3                                 |       |
| Selling, general and administrative  expenses                 |       | 10.4                                   |       | 11.9                                   |       | 11.5                                 |       | 13.2                                 |       |
| Amortization of intangible assets                             |       | 3.7                                    |       | 3.7                                    |       | 3.6                                  |       | 3.7                                  |       |
| Total operating expenses                                      |       | 85.5                                   |       | 87.5                                   |       | 86.1                                 |       | 88.2                                 |       |
| Operating income                                              |       | 14.5                                   |       | 12.5                                   |       | 13.9                                 |       | 11.8                                 |       |
| Total other expense, net                                      |       | (6.3                                   | )          | (3.8                                   | )          | (16.5                                | )          | (4.1                                 | )          |
| Income (loss) before provision for income  taxes              |       | 8.1                                    |       | 8.7                                    |       | (2.6)                                |       | 7.7                                  |       |
| Income tax expense                                            |       | 0.6                                    |       | —                                 |       | 0.5                                  |       | 0.1                                  |       |
| Net (loss) income                                             |       | 7.5                                    | %          | 8.7                                    | %          | (3.1                                 | )%         | 7.6                                  | %          |

 

Thefollowing table shows total transactions using the Worldspan GDS for the threeand six months ended June 30, 2005 and 2004. The historical transaction dataset forth below reflects the designations which were in effect for each periodpresented. We evaluate theclassification of our travel agencies on a monthly basis and reclassify them asappropriate.

 

**Worldspan TransactionSummary(in millions)**

 
| ** **         | ** ** | **Three months  ended  June 30, 2005** | ** ** | **Three months  ended  June 30, 2004** | ** ** | **Change** | ** ** | **Six months  ended  June 30, 2005** | ** ** | **Six months  ended  June 30, 2004** | ** ** | **Change** | ** ** |
|--------------------|------------|----------------------------------------|------------|----------------------------------------|------------|------------|------------|--------------------------------------|------------|--------------------------------------|------------|------------|------------|
| Traditional        |       | 25.1                                   |       | 26.4                                   |       | (4.9       | )%         | 52.7                                 |       | 55.6                                 |       | (5.2       | )%         |
| Online             |       | 27.6                                   |       | 25.6                                   |       | 7.8        | %          | 57.1                                 |       | 51.8                                 |       | 10.2       | %          |
| Total transactions |       | 52.7                                   |       | 52.0                                   |       | 1.3        | %          | 109.8                                |       | 107.4                                |       | 2.2        | %          |

 

***Comparison of Three Months EndedJune 30, 2005 and June 30, 2004***

 

*Revenues*

 

Total revenues decreased$3.2 million or 1.3% to $245.6 million from $248.8 million for the three monthsended June 30, 2005 and 2004, respectively. This decrease was primarilyattributable to lower average fees per transaction and a decrease in the volumeof transactions processed in the traditional channel during the second quarterof 2005 when compared to the same period in the prior year.  This decrease was partially offset by anincrease in the volume of transactions processed in the online channel andhigher subscription-based information technology services.

 

Electronic traveldistribution revenues decreased $5.0 million or 2.2% to $227.5 million from$232.5 million for the three months ended June 30, 2005 and 2004, respectively.The decrease in revenues was attributable to a 2.7% decline in theaverage fee per transaction processed coupled with a 1.3 million or 4.9%decrease in transactions generated from the traditional channel during theperiod. The decline in the average fee per transaction when compared to thesame period in the prior year is primarily driven by new webfare contentagreements executed in late June and throughout the second half of 2004. Thedecrease in revenues was partially offset by a 2.0 million, or 7.8%, increasein transactions generated from the online channel during the period.

 

Informationtechnology services revenues increased $1.9 million or 11.7% to $18.2 millionfrom $16.3 million for the three months ended June 30, 2005 and 2004,respectively. The increase was primarily attributable to a $2.3 millionincrease in revenue associated with products and services we sell to airlines,which include Worldspan Rapid Reprice, Fares and Pricing and ElectronicTicketing.

 

22

----

 

*Cost of Revenues ExcludingDeveloped Technology Amortization*

 

Costof revenues excluding developed technology amortization decreased $4.9 millionor 2.8% to $168.5 million from $173.4 million for the three months ended June30, 2005 and 2004, respectively. This $4.9 million decrease was primarilyattributable to lower network and communications costs and employee costs, partiallyoffset by cost of higher inducements. Cost of revenues excluding developedtechnology amortization as a percentage of total revenues decreased to 68.6%for the three months ended June 30, 2005 compared to 69.7% for the three monthsended June 30, 2004.

 

Cost ofelectronic travel distribution revenues excluding developed technologyamortization decreased $4.9 million or 3.2% to $147.0 million from $151.9million for the three months ended June 30, 2005 and 2004, respectively. Costof electronic distribution revenues excluding developed technology amortizationdecreased as a percentage of total electronic travel distribution revenue to 64.6%from 65.3% for the three months ended June 30, 2005 and 2004, respectively. Thedecrease was primarily attributable to a $5.3 million decrease in network andcommunication costs and a $2.2 million decrease in employee andemployee-related costs that was partially offset by a $4.6 million increase ininducement costs paid to travel agencies. Network and communication costsdecreased due to the continued migration of traditional travel agencies tothird-party owned equipment and networks as well as the migration of supplierconnections to less expensive IP-based solutions. Employee related costsdeclined from prior years due to lower headcount as a result of improved organizationaleffectiveness and efficiency, partially offset by an increase in outsourcingcosts as programming for certain applications and certain travel agency supportfunctions are now performed by third-party vendors. Inducements increased fromthe prior year due to increased transactions from online travel agencies, whichtend to have higher inducement costs and increased inducement costs pertransaction for traditional agencies, partially offset by a decline intransactions from traditional travel agencies.

 

Cost ofinformation technology services revenues excluding developed technologyamortization was $21.5 million for the three months ended June 30, 2005 and2004. Cost of information technology services revenues excluding developedtechnology amortization was 118.1% of information technology services revenuefor the three months ended June 30, 2005 as compared to 131.9% for the threemonths ended June 30, 2004. The decreased percentage is due primarily to higherrevenue on unchanged costs from the prior year.

 

*DevelopedTechnology Amortization*

 

Developedtechnology amortization (“DTA”) increased $1.4 million or 25.5% to $6.9 millionfrom $5.5 million for the three months ended June 30, 2005 and 2004,respectively. DTA was 2.8% of total revenues for the three months ended June30, 2005 as compared to 2.2% for the three months ended June 30, 2004. The $1.4million increase was primarily the result of the writedown of certain purchasedsoftware to be enhanced and ultimately used in multi-hosting services forsmaller carriers. The carrying value of the software was written down as aresult of management’s decision to pursue other third party solutions as ameans to provide these services to smaller carriers as well as management’scurrent evaluation of the current and potential revenue stream, among otherfactors.

 

*Selling,General and Administrative Expenses*

 

Selling,general and administrative expenses decreased $4.1 million or 13.9% to $25.5million from $29.6 million for the three months ended June 30, 2005 and 2004,respectively. The decrease was primarily attributable to a $2.6 milliondecrease in bad debt expense as a result of a settlement and partial recoveryof an outstanding customer balance as well as a decrease in employee costsrelated to lower headcount from the prior year as a result of our restructuringefforts. The settlement agreement with the customer provides for monthly cashpayments for the next 12 months or full payment in the event the customer’sbankruptcy plan is approved. As a percentage of total revenue, selling, generaland administrative expenses declined to 10.4% in the three months ended June30, 2005 from 11.9% in the prior year. Excluding the reduction in bad debtexpense, selling, general and administrative expenses were 11.4% of totalrevenue for the three months ended June 30, 2005.

 

*Amortizationof Intangible Assets*

 

Amortizationof intangible assets was $9.1 million or 3.7% of total revenues for the threemonths ended June 30, 2005, unchanged from the three months ended June 30, 2004.The intangible assets acquired as a result of the Acquisition are amortized ona straight-line basis over their estimated useful lives and the relatedamortization is expected to remain constant.

 

*OperatingIncome*

 

Operatingincome increased $4.5 million or 14.5% to $35.6 million from $31.1 million forthe three months ended June 30, 2005 and 2004, respectively. As a percentage oftotal revenue, operating income increased to 14.5% from 12.5% for the threemonths ended June 30, 2005 and 2004, respectively. The increase is dueprimarily to decrease in operating expenses of $7.7 million or 3.5%, offset bya $3.2 million or 1.3% decline in total revenue.

 

23

----

 

*NetInterest Expense*

 

Netinterest expense increased $5.6 million or 56% to $15.6 million from $10.0million for the three months ended June 30, 2005 and 2004, respectively. Theincrease in net interest expense was primarily related to the increase in debt outstandingthat was issued in connection with the Refinancing Transactions (as definedbelow under the heading “—Liquidity and Capital Resources–Senior Notes”) inFebruary 2005.

 

*IncomeTax Expense*

 

Incometax expense attributable to foreign jurisdictions increased $1.4 million to $1.5million from $0.1 million for the three months ended June 30, 2005 and 2004,respectively. The increase relates to the implementation of various taxplanning strategies in our foreign subsidiaries during the first quarter of2005. The tax planning strategies are causing a transfer in tax liabilitiesfrom WTI to the Partnership as well as reducing the overall taxes paid by thePartnership and WTI.

 

*Net Other Expense*

 

Net otherexpense increased $6.1 million or 63.6% to $15.6 million from $9.5 million forthe three months ended June 30, 2005 and 2004, respectively. The increase wasprimarily due to a $5.6 million increase in net interest expense related to thedebt issued in connection with the Refinancing Transactions in February 2005.

 

*Net Income*

 

Net incomedecreased $3.0 million or 14.0% to $18.5 million from $21.5 million for thethree months ended June 30, 2005 and 2004, respectively. The decrease wasprimarily due to a $5.6 million increase in interest expense associated withthe debt issued in connection with the Refinancing Transactions, a $1.4 millionincrease in income tax expense attributable to tax planning strategiesimplemented in the first quarter of 2005, partially offset by improvedoperating income.

 

***Comparison of Six Months Ended June30, 2005 and June 30, 2004***

 

*Revenues*

 

Total revenues increased$8.9 million or 1.8% to $506.2 million from $497.3 million for the six monthsended June 30, 2005 and 2004, respectively. The increase wasattributable to an increase in the volume of transactions processed in theonline channel and an increase in subscription-based technology services duringthe six months of 2005 when compared to the same period in the prior year. Thisincrease was partially offset by lower average fees per transaction and adecrease in the volume of transactions processed in the traditional channelduring the period.

 

Electronic traveldistribution revenues increased $4.4 million or 1.0% to $469.4 million from$465.0 million for the six months ended June 30, 2005 and 2004, respectively. Theincrease in revenues was attributable to a 5.3 million, or 10.2%, increase intransactions processed in the online channel during the period. This increasein revenues was partially offset by a 1.6% decline in the average fee pertransaction processed and a 2.9 million or 5.2% decrease in transactionsgenerated from the traditional channel during the period. The decline in theaverage fee per transaction when compared to the same period in the prior year isprimarily driven by new webfare content agreements executed throughout 2004.

 

Information technologyservices revenues increased $4.5 million or 13.9% to $36.8 million from $32.3million for the six months ended June 30, 2005 and 2004, respectively. Theincrease was primarily attributable to a $4.0 million increase in revenueassociated with products and services we sell to airlines, which includeWorldspan Rapid Reprice, Fares and Pricing and Electronic Ticketing.

 

*Cost ofRevenues Excluding Developed Technology Amortization*

 

Cost of revenues excludingdeveloped technology amortization increased $2.8 million or 0.8% to $346.6million from $343.8 million for the six months ended June 30, 2005 and 2004,respectively. Cost of revenues excluding developed technology amortization as apercentage of total revenues decreased to 68.5% for the six months ended June30, 2005 compared to 69.1% for the six months ended June 30, 2004. The $2.8million increase was primarily driven by higher inducements paid to travelagencies, which was partially offset by lower employee costs and network andcommunication costs.

 

Cost ofelectronic travel distribution revenues excluding developed technologyamortization increased $2.7 million or 0.9% to $303.5 million from $300.8million for the six months ended June 30, 2005 and 2004, respectively. Cost ofelectronic distribution revenues excluding developed technology amortization asa percentage of total electronic travel distribution revenue was 64.7% for thesix months ended June 30, 2005 and 2004. The increase was primarily attributableto a $23.1 million increase in inducement costs paid to travel agencies,partially offset by $11.0 million decrease in network and communication costsand a $6.2 million decrease in employee and employee-related costs. Inducementsincreased from the prior year due to increased transactions from online travelagencies, which tend to have higher inducement costs, and increased inducementcosts, per transaction for traditional agencies, partially offset by a declinein transactions from traditional travel agencies. Network and communicationcosts decreased due to the continued migration of traditional travel agenciesto third-party owned equipment and networks, the migration of supplierconnections to less expensive IP-based connections and the renegotiation of ournetwork and 

 

24

----

 

communication contracts withour primary vendors in the first quarter of 2004. Employee related costsdeclined from prior years due to lower headcount as a result of improved organizationaleffectiveness and efficiency, partially offset by an increase in outsourcingcosts as programming for certain applications and certain travel agency supportfunctions are now performed by third-party vendors.

 

Cost of informationtechnology services revenues excluding developed technology amortization increased$0.1 million or 0.2% to $43.1 million from $43.0 million for the six monthsended June 30, 2005 and 2004, respectively.

 

*DevelopedTechnology Amortization*

 

Developedtechnology amortization (“DTA”) increased $1.6 million or 14.5% to $12.6million from $11.0 million for the six months ended June 30, 2005 and 2004,respectively. DTA was 2.5% of total revenues for the six months ended June 30,2005 as compared to 2.2% for the six months ended June 30, 2004. The $1.6million increase was primarily the result of the writedown in the secondquarter of certain purchased software to be enhanced and ultimately used inmulti-hosting services for smaller carriers. The carrying value of the softwarewas written down as a result of management’s decision to pursue other thirdparty solutions as a means to provide these services to smaller carriers aswell as management’s current evaluation of the current and potential revenuestream, among other factors.

 

*Selling,General and Administrative Expenses*

 

Selling,general and administrative expenses decreased $7.6 million or 11.6% to $58.2 millionfrom $65.8 million for the six months ended June 30, 2005 and 2004,respectively. The decrease was primarily attributable to a $2.6 milliondecrease in bad debt expense as a result of a settlement and partial recoveryof an outstanding customer balance as well as a decrease in employee costsrelated to lower headcount from the prior year as a result our restructuringactivities. The settlement agreement with the customer provides for monthlycash payments for the next 12 months or full payment in the event the customer’sbankruptcy plan is approved. As a percentage of total revenue, selling, generaland administrative expenses declined to 11.5% from 13.2% in the prior year.Excluding the reduction in bad debt expense, selling, general andadministrative expenses were 12.0% of total revenue.

 

*Amortizationof Intangible Assets*

 

Amortization of intangibleassets was $18.3 million or 3.6% of total revenues for the six months endedJune 30, 2005, unchanged from the six months ended June 30, 2004. Theintangible assets acquired as a result of the Acquisition are amortized on astraight-line basis over their estimated useful lives and the relatedamortization is expected to remain constant.

 

*OperatingIncome*

 

Operatingincome increased $12.1 million or 20.7% to $70.6 million from $58.5 million forthe six months ended June 30, 2005 and 2004, respectively. As a percentage oftotal revenue, operating income increased to 13.9% from 11.8% for the sixmonths ended June 30, 2005 and 2004, respectively. The increase is dueprimarily to an $8.9 million or 1.8% increase in total revenue and a decreasein operating expenses of $3.2 million or 0.7%.

 

*NetInterest Expense*

 

Netinterest expense increased $7.2 million or 34.8% to $27.9 million from $20.7million for the six months ended June 30, 2005 and 2004, respectively. Theincrease in net interest expense was primarily related to the increase in debtoutstanding that was issued in connection with the Refinancing Transactions (asdefined below under the heading “—Liquidity and Capital Resources–Senior Notes”)in February 2005.

 

*Net OtherExpense*

 

Net otherexpense increased $63.2 million to $83.7 million from $20.5 million for the sixmonths ended June 30, 2005 and 2004, respectively. The increase was due to a$55.6 million loss on extinguishment of debt and a $7.2 million increase in netinterest expense, both related to the debt issued in connection with theRefinancing Transactions in February 2005.

 

*Income TaxExpense*

 

Income taxexpense increased $2.2 million to $2.5 million from $0.3 million for the sixmonths ended June 30, 2005 and 2004, respectively. The increase is attributableto the implementation of tax planning strategies in our foreign subsidiariesduring the first quarter of 2005. The tax planning strategies are causing a transferin income tax liabilities from WTI to the Partnership as well as reducing theoverall taxes ultimately to be paid by the Partnership and WTI.

 

*Net (Loss)/Income*

 

Net incomedecreased $53.3 million or 141.4% to a loss of $15.6 million from income of$37.7 million for the six months ended June 30, 2005 and 2004, respectively.The decrease was primarily due to a $55.6 million loss on the extinguishment ofdebt associated with the Refinancing Transactions, a $ 7.2 million increase ininterest expense associated with the increased debt outstanding that was issuedin connection with the Refinancing Transactions, a $2.2 million increase inincome tax expense attributable to tax planning strategies implemented in thefirst quarter of 2005, partially offset by improved operating income.

 

25

----

 

**Liquidity and Capital Resources**

 

Ourprincipal source of liquidity will be cash flow generated from operations,borrowings under capital lease obligations and borrowings under our new seniorcredit facility (as defined below). Our principal uses of cash will be to fundour planned operating expenditures which include operating expenses, capitalexpenditures, investments in our current as well as future products andofferings, interest payments on our debt and any mandatory principal paymentsof our debt. Based on our current level of operations, we believe that our cashflow from operations, available cash of $45.0 million and available borrowingsunder our new senior credit facility will be adequate to meet our futureliquidity needs for at least the next 12 months, although no assurance canbe given. Our future operating performance and ability to extend or refinanceour indebtedness will be dependent on future economic conditions and financial,business and other factors that are beyond our control. Risk factors that couldpossibly affect the ability of our internally generated funds include, amongother things:

 

•                  reducedsales due to declines in transaction volumes or movement of transactions toanother GDS,

 

•                  actsof global terrorism,

 

**•**                  bankruptcyfilings of any of the airlines that comprise a significant portion of ourrevenues.

 

Fora more complete discussion of risk factors that might affect the availabilityof our internally generated funds, see “Risk Factors” in Item 1 of our annualreport on Form 10-K for the year ended December 31, 2004.

 

AtJune 30, 2005, we had cash and cash equivalents of $45.0 million andworking capital of $1.9 million as compared to $73.5 million in cashand cash equivalents and working capital of $0.3 million at June 30, 2004. The$28.5 million decrease in cash and cash equivalents was primarily the result of$34.0 million in principal payments made on the new senior credit facilityduring the second quarter of 2005. We may also continue to use cash flows fromoperations to retire debt as appropriate, based on market conditions and ourdesired liquidity and capital structure. On August 1, 2005, we made a $12,000discretionary principal payment on the New Term Loan (as defined below). The $1.6million increase in working capital was primarily the result of an increase inoperating income and a decrease to the current portion of long-term debt andaccrued expenses primarily for inducement related accruals.

 

Historically, we have fundedour operations through internally generated cash. We generated cash fromoperating activities of $73.0 million and $90.4 million for the six monthsended June 30, 2005 and 2004, respectively. The $17.4 million decrease in cashprovided by operating activities during the first six months of 2005 ascompared to the first six months of 2004 primarily resulted from a $53.3million decrease in net income and a $19.0 million decrease for changes inoperating assets and liabilities, partially offset by an increase in non-cash andcash charges of $54.8 million, primarily related to the RefinancingTransactions.

 

Weused cash for investing activities of approximately $6.5 million and $8.0million in the six months ended June 30, 2005 and 2004, respectively. The $1.5million decrease in cash used for investing activities during the first sixmonths of 2005 as compared to the first six months of 2004 primarily resultedfrom a decrease in capital expenditures. The decline in capital expendituresduring 2005 as compared to 2004 primarily resulted from decreased purchases of agencyequipment.

 

Weused cash for financing activities of approximately $122.0 million and $52.7million in the six months ended June 30, 2005 and 2004, respectively. The $69.3million increase in cash used for financing activities during the first sixmonths of 2005 as compared to the first six months of 2004 primarily resultedfrom the Refinancing Transactions in February 2005. To finance the redemptionof the WTI Preferred Stock and the payment of the Consent Fee (as defined belowunder the heading “— Use of Proceeds”), we distributed $375.7 million and $8.6million, respectively, to WTI. In addition, WTI redeemed the Delta subordinatednote in January 2005 and we distributed $36.1 million to WTI to finance thistransaction.

 

*SeniorCredit Facility*

 

InJune 2003, we entered into a senior credit facility, referred to herein asour “old senior credit facility,” with a syndicate of financial institutions aslenders. In February 2005 we entered into a new credit agreement that madeavailable a new senior credit facility, referred to herein as our “new seniorcredit facility,” with a syndicate of financial institutions as lenders,consisting of a revolving credit facility of $40.0 million and a term loanfacility (the “New Term Loan”) of $450.0 million, and extinguished and terminatedall obligations then existing under the old senior credit facility. The oldsenior credit facility provided for aggregate borrowings by us of up to$175.0 million, consisting of:

 

•                  a four-year revolving credit facility of upto $50.0 million in revolving credit loans and letters of credit which isavailable until June 30, 2007, and

 

•                  a four-year term loan facility of$125.0 million which matures on June 30, 2007.

 

Weborrowed $125.0 million under the old credit facility’s term loan facilityin connection with the Acquisition. The revolving credit facility was availablefor working capital and general corporate needs.

 

26

----

 

Thenew senior credit facility consists of:

 

•                  a five-year revolving credit facility of upto $40.0 million in revolving credit loans with a $15.0 millionsublimit for letters of credit and a $5.0 million sublimit for swing lineloans, and

 

•                  the New Term Loan

 

Obligationsunder the old senior credit facility and the guarantees were secured by, andobligations under our new senior credit facility and the guarantees are securedby:

 

•                  a perfected first priority security interestin all of our tangible and intangible assets and all of the tangible andintangible assets of WTI and each of the other guarantors of the new seniorcredit facility, subject to customary exceptions, and

 

•                  a pledge of (i) all of the membershipinterests of WS Holdings LLC owned by WTI, (ii) all of our partnershipinterests owned by WTI and WS Holdings LLC, (iii) all of the capital stockof our domestic subsidiaries and some of our foreign subsidiaries and(iv) 65% of the capital stock of other of our first-tier foreignsubsidiaries.

 

Borrowingsunder the old senior credit facility bore interest at a rate equal to, at ouroption:

 

•                  a base rate generally defined as the sum of(i) the higher of (x) the prime rate (as quoted on the BritishBanking Association Telerate Page 5) and (y) the federal fundseffective rate, plus one half percent (0.50%) per annum) and (ii) anapplicable margin, or

 

•                  a LIBOR rate generally defined as the sum of(i) the rate at which euro deposits for one, two, three or six months (asselected by us) are offered in the interbank euro market as set forth on page3750 of the Dow Jones Telerate Screen and (ii) an applicable margin.

 

Theinitial applicable margin for the base rate revolving loans under the oldsenior credit facility was 2.75% and the applicable margin for the eurorevolving loans was 3.75%. The applicable margin for the loans was subject toreduction based upon the ratio of our consolidated total bank debt toconsolidated EBITDA. We also were required to pay a commitment fee of 0.50% perannum on the difference between committed amounts and amounts actually utilizedunder the revolving credit facility. Fees for letters of credit under the oldsenior credit facility were based on the face amount of each letter of creditoutstanding multiplied by to the applicable margin for LIBOR borrowings underthe revolving credit facility and were payable quarterly in arrears. Inaddition, we were required to pay each letter of credit bank a fronting fee tobe determined based upon the face amount of all outstanding letters of creditissued by it.

 

Ourborrowings under the new senior credit facility will be subject to quarterlyinterest payments with respect to loans bearing interest at the base ratedescribed below or at the end of each one, two, three or six month interestperiod for loans bearing interest at the LIBOR rate described below and bearinterest at a rate which, at our option can be either:

 

•                  a base rate generally defined as the sum of(i) the highest of (x) the administrative agent’s prime rate,(y) the federal funds effective rate, plus one half percent (0.50%) perannum and (z) the certificate of deposit rate, plus one half percent(0.50%) per annum and (ii) an applicable margin, or

 

•                  a LIBOR rate generally defined as the sum of(i) the rate at which euro deposits for one, two, three or six months (asselected by us) are offered in the interbank euro market as set forth on page3750 of the Dow Jones Telerate Screen and (ii) an applicable margin.

 

Theinitial applicable margin for base rate loans under the new senior creditfacility is 1.75% and the applicable margin for LIBOR rate loans is 2.75%.

 

Forthe remaining six months of 2005, assuming mandatory scheduled payments onlyand using a LIBOR rate of 2.79%, we expect the cash principal and interestpayments related to the $450.0 million borrowed under the New Term Loan tobe $2.0 million and approximately $11.5 million, respectively. Theactual amounts to be paid for cash principal and interest during 2005 maydiffer significantly from these amounts depending on the LIBOR rate in effectat the time and any discretionary payments that we may elect to make during theyear.

 

Theold senior credit facility required us to meet financial tests, includingwithout limitation, a minimum fixed charge coverage ratio, a minimum interestcoverage ratio, a maximum senior secured leverage ratio and a maximum totalleverage ratio. Our new senior credit facility also requires us to meetfinancial tests, including without limitation, a minimum interest coverageratio and a

 

27

----

 

maximumtotal leverage ratio. In addition, the old senior credit facility contained,and our new senior credit facility contains customary covenants which, amongother things, limit the incurrence of additional indebtedness, investments,dividends, transactions with affiliates, asset sales, acquisitions, capitalexpenditures, mergers and consolidations, prepayments of other indebtedness,liens and encumbrances and other matters customarily restricted in a seniorcredit facility. As of June 30, 2005, we were in compliance with the applicablecovenants.

 

*SeniorNotes*

 

OnJune 30, 2003, we issued $280.0 million aggregate principal amount of9 5/8% Senior Notes Due 2011, referred to herein as the “old senior notes.”Interest on the old senior notes accrues at 9 5/8% per annum. As part of ourissuance of $300.0 million in aggregate principal amount of Senior SecondLien Secured Floating Rate Notes due 2011, referred to herein as the “newsenior secured notes,” and the refinancing of our old senior credit facilitywith our $490.0 million new senior credit facility (collectively, the “RefinancingTransactions”), in February 2005 we consummated a tender offer for andconsent solicitation relating to our old senior notes. As a result of thistender offer and consent solicitation, we repurchased more than 99 1/2% of thetotal aggregate principal amount of $280.0 million of old senior notespreviously outstanding, received the requisite consents from the holders of theold senior notes with respect to the consent solicitation and executed a supplementalindenture that eliminated substantially all of the restrictive covenants andcertain default provisions in the indenture governing the remaining outstandingold senior notes. The supplemental indenture became effective onFebruary 11, 2005 upon our acceptance for payment of a majority inprincipal amount of the outstanding old senior notes tendered.

 

OnFebruary 11, 2005, we issued $300.0 million in aggregate principalamount of new senior secured notes, secured on a second priority basis bysubstantially all of our assets, the assets of WS Financing Corp. (“WSFinancing”) and those of our guarantor subsidiaries. Interest on the new seniorsecured notes accrues at a rate equal to three-month LIBOR, which will be resetquarterly, plus 6.25%.

 

OnMarch 4, 2005, we entered into an interest rate swap with a notionalamount that will start at $508.4 million on November 15, 2005 andamortize on a quarterly basis to $102.2 million at November 15, 2008.The reset dates on the swap are February 15, May 15, August 15and November 15 each year until maturity on November 15, 2008. Thisagreement, which has been designated as a cash flow hedge, will be used toconvert the variable component of interest rates on certain indebtedness to afixed rate of 4.3%. As of June 30, 2005, the fair value of the interest rateswap was recorded as a liability in the amount of $2.4 million.

 

Wecannot redeem the remaining old senior notes before June 15, 2007. Thereis currently $0.5 million aggregate principal amount of old senior notesoutstanding.

 

Theold senior notes are unsecured senior obligations, are equal in right ofpayment to all of our existing and future unsecured senior debt, and are seniorin right of payment to all of our future subordinated debt. The new seniorsecured notes are secured on a second priority basis by substantially all ofour assets, the assets of WS Financing and those of our guarantor subsidiaries.Each of the old senior notes and the new senior secured notes are guaranteed byeach subsidiary guarantor (as defined in the indenture governing the old seniornotes or the new senior secured notes, as applicable).

 

Ifwe experience a change of control (as defined in the indenture governing theold senior notes or the new senior secured notes, as applicable), each holderof old senior notes and new senior secured notes may require us to repurchaseall or any portion of the holder’s notes at a purchase price equal to 101% ofthe principal amount plus accrued and unpaid interest to the date of purchase.

 

Theindenture governing the old senior notes contained, and the indenture governingthe new senior secured notes contains, certain covenants that, among otherthings, limit (i) the incurrence of additional debt by us and certain ofour subsidiaries, (ii) the payment of dividends and the purchase,redemption or retirement of capital stock or subordinated indebtedness,(iii) investments, (iv) certain transactions with affiliates,(v) sales of assets, including capital stock of subsidiaries and (vi) certainconsolidations, mergers and transfers of assets. As of June 30, 2005, we werein compliance with the applicable covenants. The indenture governing the oldsenior notes prohibited, and the indenture governing the new senior securednotes prohibits, certain restrictions on distributions from certainsubsidiaries.

 

*Use of Proceeds*

 

Thenet proceeds to us from the sale of the new senior secured notes and theclosing of the new senior credit facility, along with available cash, were usedto (i)(a) repay approximately $58.0 million due under the old seniorcredit facility, and (b) terminate all commitments then outstanding underthe old senior credit facility, (ii) accept for purchase pursuant to thecash tender offer for any and all of our’s and WS Financing’s outstanding oldsenior notes of which $279.5 million of old senior notes were validlytendered prior to the consent date (more than 99 1¤2% of the total aggregate principal amount of $280.0 million of oldsenior notes previously outstanding), and pay those holders the total purchaseprice of $1,171.64, including a consent payment related to the solicitation ofthe holders’ consent to the elimination of substantially all of the covenantscontained in the indenture related to the old senior notes, for each $1,000.00principal amount of old senior notes tendered in accordance with the cashtender offer plus, accrued and unpaid

 

28

----

 

intereston the old senior notes, for an aggregate total purchase price of  $331.4 million and accept for purchaseand pay for additional old senior notes tendered after February 4, 2005but prior to February 22, 2005, the expiration time of the tender offer,and pay those holders the purchase price of $1,141.64 for each $1,000.00 principalamount of old notes tendered in accordance with the cash tender offer for anaggregate purchase price of $0.2 million, (iii) redeem 100% of theoutstanding WTI Preferred Stock, at a redemption price equal to the face amountof the WTI Preferred Stock plus accrued and unpaid dividends thereon (includingAdditional Dividends (as defined in WTI’s Amended and Restated Certificate ofIncorporation)) to the redemption date for a total redemption price ofapproximately $375.7 million, (iv) pay the Consent Fee (as definedbelow) to the Funds (as defined below) and (v) pay fees and expensesrelated to the Refinancing Transactions.

 

Inaddition, in connection with the Refinancing Transactions, on February 16,2005, WTI, CVC Capital Funding, LLC (“CVC Capital”) and Citicorp Mezzanine III,L.P. (“CMIII,” and together with CVC Capital, the “Funds”) entered into anExchange Agreement (the “Exchange Agreement”). In connection with the closingunder the Exchange Agreement, WTI issued $43.6 million aggregate principalamount of its new Subordinated Notes due 2013 (the “Holdco Notes”) to the Fundsand paid $0.4 million in accrued and unpaid interest in exchange for thesurrender and cancellation by the Funds of all of the obligations owing by WTIto the Funds under each Fund’s interest in that certain Subordinated Note (the “SellerNote”), dated as of June 30, 2003, made by WTI in favor of AmericanAirlines, Inc. (which was subsequently transferred in part to each of theFunds). WTI also paid the Funds a total of $8.6 million as a consent fee(the “Consent Fee”) in return for the approval by the Funds of the RefinancingTransactions and the replacement of the Seller Note with the Holdco Notes.

 

Alsoin connection with the Refinancing Transactions, on February 16, 2005, weentered into an amendment to our Advisory Agreement with WTI to terminate alladvisory and other fees payable under that agreement as of January 1, 2005in return for a prepayment of $7.7 million payable on or beforeDecember 15, 2005.

 

*CapitalLease Obligations*

 

Welease equipment and software under capital lease obligations. As of June 30,2005, our obligations under capital leases totaled $64.3 million. The interestrate used in computing the present value of the minimum lease payments rangesfrom approximately 4.0% to 12.0% depending on the asset being leased.

 

*SubordinatedNotes*

 

Aspart of the Acquisition, WTI issued to American Airlines and Delta subordinatedseller notes, referred to herein as the “subordinated seller notes”, in theoriginal principal amounts of $39.0 million and $45.0 million,respectively, which were scheduled to mature on July 31, 2012. InMarch 2004, affiliates of CVC acquired from American Airlines the$39.0 million subordinated seller note originally issued to AmericanAirlines, together with the right to receive all accrued and unpaid interestthereon. Thereafter, pursuant to the terms of the subordinated seller note, WTIpaid cash interest to these affiliates of CVC in the aggregate amount ofapproximately $2.0 million and was obligated to issue additional notes tosuch affiliates in lieu of cash interest in the aggregate principal amount of$2.9 million, in each case, for the year ended 2004. In January 2005,WTI redeemed the Delta subordinated note, along with all additional notesissued or issuable in lieu of cash interest payments, for an aggregate paymentof $36.1 million. As a result of this redemption, the Delta subordinatedseller note was cancelled. In February 2005, in connection with theRefinancing Transactions, WTI issued $43.6 million aggregate principalamount of its new Subordinated Notes due 2013, referred to here in as the “holdingcompany notes”, to two affiliates of CVC, CVC Capital Funding, LLC and CiticorpMezzanine III, L.P. (“CMIII” and together with CVC Capital, the “Funds”) andpaid $0.4 million in accrued and unpaid interest in exchange for thesurrender and cancellation by the Funds of all of the obligations owing by WTIto the Funds under each Fund’s interest in the remaining American subordinatedseller note.

 

Theholding company notes and subordinated seller notes are not direct debtobligations of the Partnership. As long as we are not in default under the newsenior credit facility, we expect to be permitted to disburse funds to WTIsufficient to pay cash interest of up to 12% for the holding company notes.Under the old senior credit facility, we were permitted to disburse funds toWTI sufficient to pay the 5% cash interest component of the seller subordinatednotes. During the six months ended June 30, 2005 and 2004, we distributed $1.6million and $2.2million, respectively, to WTI for this purpose. The holdingcompany notes are, and the subordinated seller notes were, unsecuredobligations of WTI contractually and structurally subordinated to our newsenior secured notes and our new senior credit facility, or our old seniornotes and our old senior credit facility, as applicable, and structurallysubordinated to all of our other debt. The subordinated seller note originallyissued to American Airlines bore interest at an annual rate equal to 12.0% andthe subordinated seller note originally issued to Delta bore interest at anannual rate equal to 10.0%.

 

*FASAs*

 

Pursuantto the terms of the FASAs, we provide FASA credits to Delta and Northwest to beapplied against FASA service fee

 

29

----

 

paymentsdue from these airlines to us. The FASA credits are structured and will beapplied through June 2012 in an amount up to an aggregate total of $91.7 millionto each of Delta and Northwest as of June 30, 2005, and are reflected asreductions to our FASA revenues in the corresponding periods. The FASA creditsare provided to Delta and Northwest in monthly installments, with an annualamount of $16.7 million scheduled to be provided to each of these foundingairlines during the first six years of the respective FASA term, an annualamount of $9.2 million scheduled to be provided to each of these foundingairlines during the seventh and eighth years of the respective FASA term and anannual amount of $6.7 million scheduled to be provided to each of thesefounding airlines during the ninth year of the respective FASA term. In theevent that the monthly FASA credits deliverable by us to Delta or Northwest aremore than the FASA service fee payments due from the applicable airline, thenwe will be obligated to pay such excess to such airline in cash. Pursuant to arecent amendment of our FASA with Delta, Worldspan has the right, at itsoption, to terminate the FASA credits to Delta on or before December 31,2005, in exchange for a one-time payment from us to Delta in an amount thatvaries depending upon when Worldspan elects to make the one-time payment. Theone-time payment would be capitalized and amortized as a reduction of FASA revenuein the corresponding periods.

 

Deltaor Northwest may terminate its FASA due to a failure by us to satisfy themainframe processing time, system availability or critical production dataperformance standards under that agreement (which represent performancestandards which we have historically met under our predecessor servicesagreements with Delta and Northwest). Furthermore, such a termination by Deltaor Northwest of its FASA constitutes an event of default under our new seniorcredit facility. In the event that the event of default is waived by theapplicable lenders under our senior credit facilities (as defined in thesubordination agreement executed by the founding airlines) or our senior creditfacilities are no longer outstanding, then any remaining FASA creditsdeliverable by us to the terminating airline will not be provided according tothe initial nine year schedule specified above and will instead be payable incash to such airline as and when, and only to the extent that, we are permittedto make such payments as “Restricted Payments” under the restricted paymentcovenant test contained in the indenture governing our old senior notes and thenew senior secured notes. If a FASA is otherwise terminated in accordance withits terms prior to the expiration of its term, such as a termination by eitherDelta or Northwest without cause, or is rejected by Delta or Northwest inbankruptcy, then the obligation to provide the remaining FASA credits or tomake the remaining FASA credit payments then deliverable or payable to theairline under the applicable FASA will terminate. Our obligations to provideFASA credits or to make the FASA credit payments will not terminate if eitheror both of Delta and Northwest reduce or cease operations in a way that reducesor eliminates the amount of airline services either founding airline obtainsunder the FASAs, although an airline’s failure to comply with its softwaredevelopment minimum and exclusivity obligations would constitute a breach ofits agreement. If we terminate a FASA other than as expressly permitted by theagreement, then we will be obligated to provide the scheduled FASA credits tothe applicable airline by way of a monthly cash payment rather than applyingthe FASA credits against FASA service fee payments due from the airline. In theevent that the monthly FASA credits deliverable by us to Delta or Northwest aremore than the FASA service fee payments due from the applicable airline, thenwe will be obligated to pay such excess to such airline in cash. In the eventof our bankruptcy or insolvency, holders of our senior debt (as defined in thesubordination agreement executed by the founding airlines), including the oldsenior notes and the new senior secured notes, will be entitled to receivepayments in full in cash before we may make any FASA credit payments in cash.In that event, Delta and Northwest will, however, retain their rights to applythe scheduled FASA credit payments against their obligations to pay us fees forour services under the FASAs. In the event that we wrongfully terminate a FASA,we will remain obligated to deliver the FASA credits to the applicable airlineby paying the credit amounts to the applicable airline in cash on a monthlybasis according to the nine-year schedule described above. However, if wereject a FASA in a bankruptcy of the company, our FASA credit paymentobligations to the applicable airline will match the obligations describedabove in a termination of a FASA by such airline due to our failure to satisfyperformance standards. Any FASA credit payment obligations by us to an airlinein such a bankruptcy will be subordinated to our senior debt (as defined in thesubordination agreement executed by the founding airlines), including the oldsenior notes and the new senior secured notes.

 

*Taxes*

 

Becausewe are a limited partnership, our partners will owe taxes on all of the incomethat we generate in the United States. We expect that WTI will cause us to makedistributions to it from time to time sufficient to cover all income taxes owedby WTI. Under the terms of our senior credit facility and the indenturesgoverning our old senior notes and the new senior secured notes, we arespecifically permitted to make these tax distributions.

 

Weimplemented various tax planning strategies in our foreign subsidiaries duringthe first quarter of 2005. The tax planning strategies will cause a transfer intax liabilities from WTI to us as well as reduce the overall taxes paid by usand WTI. We believe these strategies will reduce the overall tax obligations ofthe Partnership and WTI and thus will lower distributions to WTI for incometaxes. During 2005, we do not expect to make any tax distributions to WTI.

 

**CapitalExpenditures**

 

Capital expenditures for property and equipment, includingboth purchased assets and assets acquired under capital leases, as well ascapitalized software, totaled $6.6 million for the six months ended June 30,2005, a decrease of $0.8 million from capital expenditures of $7.4 million forthe six months ended June 30, 2004. We have estimated approximately $26.8million for capital expenditures in 2005, which relates to normal growth incapacity requirements and routine replacement of older equipment.

 

30

----

 

**Off-BalanceSheet Arrangements**

 

AtJune 30, 2005 and December 31, 2004, we did not have any relationships withunconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities, which would havebeen established for the purpose of facilitating off-balance sheet arrangementsor other contractually narrow or limited purposes. We are, therefore, notmaterially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such relationships.

 

**Effectof Inflation**

 

Inflationgenerally affects us by increasing our costs of labor, equipment and newmaterials. We do not believe that inflation has had any material effect on ourresults of operations during the three and six months ended June 30, 2005.

 

**SubsequentEvents**

 

OnJuly 20, 2005, the Partnership announced a reduction in force of approximately 70employees. The reduction was the result of improved organizational efficiencyand the outsourcing of programming for certain applications. The Partnershipwill record a charge for severance and benefits in the third quarter of 2005 ofapproximately $1.2 million. We anticipate these obligations to be paid in thethird and fourth quarters of 2005 through internally generated funds.

 

**WorldspanCautionary Statement**

 

Statementsin this report and the exhibits hereto which are not purely historical facts,including statements about forecasted financial projections or other statementsabout anticipations, beliefs, expectations, hopes, intentions or strategies forthe future, may be forward-looking statements within the meaning ofSection 27A of the Securities Act, and Section 21E of the ExchangeAct, as amended. Readers are cautioned not to place undue reliance on forward-lookingstatements. All forward-looking statements are based upon information availableto the company on the date this report was submitted. We undertake noobligation to publicly update or revise any forward-looking statements, whetheras a result of new information, future events or otherwise. Any forward-lookingstatements involve risks and uncertainties that could cause actual events orresults to differ materially from the events or results described in theforward-looking statements, including, but not limited to, risks oruncertainties related to: our revenues being highly dependent on the travel andtransportation industries; airlines limiting their participation in travelmarketing and distribution services; or other changes within, or affecting, thetravel industry. We may not succeed in addressing these and other risks.

 

31

----

 

**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

Marketrisk represents the risk of changes in value of a financial instrument,derivative or non-derivative, caused by fluctuations in interest rates, foreignexchange rates and equity prices. Changes in these factors could causefluctuations in the results of our operations and cash flows. In the ordinarycourse of business, we are exposed to foreign currency and interest rate risks.These risks primarily relate to the sale of products and services to foreigncustomers and changes in interest rates on our long-term debt.

 

**Foreign Exchange Rate Market Risk**

 

Weconsider the U.S. dollar to be the functional currency for all of our entities.Substantially all of our net sales and the majority of our expenses during thesix months ended June 30, 2005 and 2004 were denominated in U.S. dollars.Therefore, foreign currency fluctuations did not materially impact ourfinancial results in those periods. We have foreign currency exposure arisingfrom the translation of our foreign subsidiaries’ financial statements intoU.S. dollars. The primary currencies to which we are exposed to fluctuationsinclude the euro and the British pound sterling. The fair value of our netforeign investments would not be materially affected by a 10% adverse change inforeign currency exchange rates from June 30, 2005 levels.

 

**Interest Rate Market Risk**

 

Ourold senior credit facility was, and our new senior credit facility is variablerate debt. Interest rate changes therefore generally do not affect the marketvalue of such debt but do impact the amount of our interest payments and,therefore, our future earnings and cash flows, assuming other factors are heldconstant. As of June 30, 2005, we had variable rate debt of approximately $715.0 million.Holding other variables constant, including levels of indebtedness, a onehundred basis point increase in interest rates on our variable debt would havean estimated impact on pre-tax earnings and cash flows for the next year ofapproximately $7.2 million. Under the terms of our old senior creditfacility, we were required to have at least 50% of our total indebtednesssubject to either a fixed interest rate or interest rate protection for aperiod of not less than three years.

 

OnMarch 4, 2005, we entered into an interest rate swap with a notionalamount that will start at $508.4 million on November 15, 2005 and amortizeon a quarterly basis to $102.2 million at November 15, 2008. Thereset dates on the swap are February 15, May 15, August 15 andNovember 15 each year until maturity on November 15, 2008. Thisagreement, which has been designated as a cash flow hedge, will be used toconvert the variable component of interest rates on certain indebtedness to afixed rate of 4.3%. As of June 30, 2005, the fair value of the interest rateswap was recorded as a liability in the amount of $2.4 million.

 

**ITEM4.  CONTROLS AND PROCEDURES**

 

As of the endof the period covered by this report, we conducted an evaluation, under thesupervision and with the participation of our principal executive officer andprincipal financial officer, of the effectiveness of the design and operationof our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act). Based on this evaluation, our principalexecutive officer and principal financial officer concluded that our disclosurecontrols and procedures are effective to provide reasonable assurance thatmaterial information required to be included in our periodic SEC reports isrecorded, processed, summarized and reported within the time periods specifiedin SEC rules and forms. In addition, we reviewed our internal controls andbased upon that review determined that certain changes were necessary toimprove our internal controls over financial reporting. As previously reportedin our Form 10-K filed March 28, 2005, Form 10-Q filed May 16, 2005 and ourForm 10-Q/A filed May 25, 2005, certain deficiencies identified in the fourthquarter of 2004 involved the absence of a control to insure completeness of thetransfer of information between our processing and billing systems. We improvedour internal controls by implementing a monthly review and analysis of thenature of rejected items to insure that the system classification of theseitems as non-billable was appropriate. The management review proceduredescribed above specifically addressing this transfer issue is now in place.  Specifically, we have reviewed over 99% of thetransactions previously excluded from the transfer from the processing systemto the billing system for the period April 20, 2005 through June 30, 2005 andfound no transactions that were incorrectly rejected.

 

We previouslyreported, in our Form 10-K filed March 28, 2005, Form 10-Q filed May 16, 2005and our Form 10-Q/A filed May 25, 2005, on insufficient resources in ourfinance department. Corrective controls have been implemented, including theactive recruitment and placement of additional experienced financial personnel.The hiring plan instituted by our Chief Financial Officer has beensubstantially completed with the addition of nine new hires in the financedepartment.

 

32

----

 

**PART II.  OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

Asdescribed in our Annual Report on Form 10-K for the year ended December 31,2004, in September 2003, we received multiple assessments totaling€39.5 million from the tax authorities of Greece relating to tax years1993-2002. Pursuant to a formal tax amnesty program with the Greek authorities,we reached a settlement of the outstanding assessments in an amount ofapproximately of €7.8 million. The purchase agreement between our foundingairlines and us provides that each of our founding airlines will severallyindemnify us on a net after-tax basis from and against any of our taxes relatedto periods prior to the Acquisition. Because of this indemnity, we believe thatthe settlement payments made by us to the Greek authorities will be reimbursedby our founding airlines and will not have a material impact upon our business,financial condition or results of operations. In fact, American has prepaid to us known Greek tax paymentsattributable to it and Delta and Northwest are current in their respectivereimbursement payments to us.

 

Weare involved in various other litigation proceedings as both plaintiff anddefendant. In the opinion of our management, none of these other litigationmatters, individually or in the aggregate, if determined adversely to us, wouldhave a material adverse effect on our business, financial condition or resultsof operations.

 

**ITEM 6.  EXHIBITS**

 

***Exhibits:***

 

31.1 Certification of thePrincipal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Actof 2002.

 

31.2 Certification of thePrincipal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Actof 2002.

 

32.1 Certifications pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

 

33

----

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|             | WORLDSPAN,  L.P. |   |
|------------------|------------------|--------|
|             |             |   |   |
|             |             |   |   |
| August  10, 2005 |             |   | /s/  Rakesh Gangwal |
| DATE             |             | By:    | Rakesh  Gangwal |
|             |             |   | Chairman,  President and Chief Executive Officer |
|             |             |   | and  Director |
|             |             |   | (principal  executive officer) |
|             |             |   |   |
|             |             |   |   |
| August  10, 2005 |             |   | /s/  Kevin W. Mooney |
| DATE             |             | By:    | Kevin  W. Mooney |
|             |             |   | Chief  Financial Officer |
|             |             |   | (principal  financial and accounting officer) |
|                  |                  |        |  |  |

 

34

----