**UNITED STATESSECURITIES 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 March 31, 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 telephonenumber, 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 May 13, 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 MARCH 31, 2005**

 

**INDEX**

** **
| **PART I:**  | **FINANCIAL INFORMATION**                                                                                            |   |
|--------------|----------------------------------------------------------------------------------------------------------------------|--------|
| ** **   | ** **                                                                                                           |   |
| **Item 1.**  | **Condensed Consolidated Financial Statements  (Unaudited)**                                                         |   |
| ** **   | ** **                                                                                                           |   |
| ** **   | **Condensed  Consolidated Balance Sheets – March 31, 2005 and December 31, 2004**                               |   |
|         |                                                                                                                 |   |
| ** **   | **Condensed  Consolidated Statements of Operations – Three months ended March 31, 2005 and  March 31, 2004**    |   |
|         |                                                                                                                 |   |
| ** **   | **Condensed  Consolidated Statements of Partners’ Capital (Deficit) – Three months ended  March 31, 2005** |   |
|         |                                                                                                                 |   |
| ** **   | **Condensed  Consolidated Statements of Cash Flows – Three months ended March 31, 2005 and  March 31, 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  4.** | **Submission  of Matters to a Vote of Security Holders**                                                             |   |
| ** **   | ** **                                                                                                           |   |
| **Item 6.**  | **Exhibits**                                                                                                         |   |

 

2

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**PART I.  FINANCIAL INFORMATION**

 

**ITEM 1****. FINANCIAL STATEMENTS**

 

**Worldspan, L.P.**

**Condensed Consolidated Balance Sheets**

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

 
| ** **                                              | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **Assets**                                              | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets                                          |       |               |       |                  |       |
| Cash and cash equivalents                               |       | $                  | 42,487     |                  | $          | 100,474 |   |
| Trade accounts receivable, net                          |       | 140,812            |       | 102,793               |       |
| Prepaid expenses and other current assets               |       | 20,377             |       | 21,306                |       |
| Total current assets                                    |       | 203,676            |       | 224,573               |       |
| Property and equipment, net                             |       | 109,415            |       | 118,218               |       |
| Deferred charges                                        |       | 32,667             |       | 34,351                |       |
| Debt issuance costs, net                                |       | 17,036             |       | 10,201                |       |
| Supplier and agency relationships, net                  |       | 262,587            |       | 271,020               |       |
| Developed technology, net                               |       | 201,138            |       | 206,802               |       |
| Trade name                                              |       | 72,142             |       | 72,142                |       |
| Goodwill                                                |       | 112,035            |       | 112,035               |       |
| Other intangible assets, net                            |       | 31,212             |       | 31,914                |       |
| Other long-term assets                                  |       | 32,275             |       | 31,030                |       |
| Total assets                                            |       | $                  | 1,074,183  |                  | $          | 1,112,286 |   |
|                                                    |       |               |       |                  |       |
| **Liabilities  and Partners’ (Deficit) Capital**   | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current liabilities                                     |       |               |       |                  |       |
| Accounts payable                                        |       | $                  | 15,764     |                  | $          | 14,671 |   |
| Accrued expenses                                        |       | 169,372            |       | 156,635               |       |
| Current portion of capital lease  obligations           |       | 18,973             |       | 19,369                |       |
| Current portion of long-term debt                       |       | 4,000              |       | 12,497                |       |
| Total current liabilities                               |       | 208,109            |       | 203,172               |       |
| Long-term portion of capital lease  obligations         |       | 49,885             |       | 54,079                |       |
| Long-term debt                                          |       | 745,500            |       | 324,990               |       |
| Pension and postretirement benefits                     |       | 63,528             |       | 64,779                |       |
| Other long-term liabilities                             |       | 13,225             |       | 13,867                |       |
| Total liabilities                                       |       | 1,080,247          |       | 660,887               |       |
| Commitments and contingencies                           |       |               |       |                  |       |
| Partners’ (deficit) capital                        |       | (6,064             | )          | 451,399               |       |
| Total liabilities and Partners’ (deficit)  capital |       | $                  | 1,074,183  |                  | $          | 1,112,286 |   |

 

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

 

3

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**Worldspan, L.P.**

**Condensed Consolidated Statements of Operations**

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

 
| ** **                                                    | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | **March 31, 2005**     | ** ** | **March 31, 2004** | ** ** |
|                                                          |       |                   |       |   |   |
| **Revenues**                                                  | ** ** | ** **             | ** ** | ** ** | ** ** |
| Electronic travel distribution                                |       | $                      | 241,958    |   | $ | 232,539 |   |
| Information technology services                               |       | 18,624                 |       | 15,992 |   |
| Total revenues                                                |       | 260,582                |       | 248,531 |   |
| **Operating  Expenses**                                       | ** ** | ** **             | ** ** | ** ** | ** ** |
| Cost of revenues                                              |       |                   |       |   |   |
| Cost of revenues excluding developed  technology amortization |       | 178,141                |       | 170,337 |   |
| Developed technology amortization                             |       | 5,698                  |       | 5,508 |   |
| Total cost of revenues                                        |       | 183,839                |       | 175,845 |   |
| Selling, general and administrative                           |       | 32,616                 |       | 36,160 |   |
| Amortization of intangible assets                             |       | 9,135                  |       | 9,135 |   |
| Total operating expenses                                      |       | 225,590                |       | 221,140 |   |
| Operating income                                              |       | 34,992                 |       | 27,391 |   |
| **Other  Income (Expense)**                                   | ** ** | ** **             | ** ** | ** ** | ** ** |
| Interest expense, net                                         |       | (12,329                | )          | (10,695 | ) |
| Loss on extinguishment of debt                                |       | (55,597                | )          | — |   |
| Other, net                                                    |       | (210                   | )          | (315 | ) |
| Total other expense, net                                      |       | (68,136                | )          | (11,010 | ) |
| (Loss) income before provision for income  taxes              |       | (33,144                | )          | 16,381 |   |
| Income tax expense                                            |       | 918                    |       | 229 |   |
| **Net  (loss) income**                                        |       | $                      | (34,062    | ) | $ | 16,152 |   |

 

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

 

4

----

 

**Worldspan, L.P.**

**Condensed Consolidated Statements of Partners’ Capital(Deficit)**

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

 
| ** **                                                   | ** ** | **Partners’  Capital (Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------|------------|-----------------------------------------------|------------|-----------|------------|
|                                                         |       |                                  |       |                                          |       |      |       |
| Balance at December 31, 2004                                 |       | $                                     | 453,947    |                                          | $          | (2,548    | )          | $ | 451,399 |   |
| Comprehensive income:                                        |       |                                  |       |                                          |       |      |       |
| Net loss                                                     |       | (34,062                               | )          | —                                        |       | (34,062   | )          |
| Change in fair value of derivative  accounted for as a hedge |       | —                                |       | 1,727                                         |       | 1,727     |       |
| Unrealized holding loss on investment                        |       | —                                |       | (94                                           | )          | (94       | )          |
| Comprehensive income                                         |       |                                  |       |                                          |       | (32,429   | )          |
| Distribution to WTI                                          |       | (425,678                              | )          | —                                        |       | (425,678  | )          |
| Stock-based compensation                                     |       | 644                                   |       | —                                        |       | 644       |       |
| Balance at March 31, 2005                                    |       | $                                     | (5,149     | )                                             | $          | (915      | )          | $ | (6,064 | ) |

 

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

 

5

----

 

**Worldspan, L.P.**

**Condensed Consolidated Statements of Cash Flows**

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

 
| ** **                                                                                | ** ** | **Three months ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                | ** ** | **March 31, 2005**     | ** ** | **March 31, 2004** | ** ** |
| Cash flows from operating activities:                                                     |       |                   |       |   |   |
| Net (loss) income                                                                         |       | $                      | (34,062    | ) | $ | 16,152 |   |
| Adjustments to reconcile net (loss) income  to net cash provided by operating activities: |       |                   |       |   |   |
| Depreciation and amortization                                                             |       | 24,880                 |       | 25,063 |   |
| Amortization of debt issuance costs                                                       |       | 760                    |       | 1,207 |   |
| Loss on extinguishment of debt                                                            |       | 55,597                 |       | — |   |
| Stock-based compensation                                                                  |       | 644                    |       | 1,047 |   |
| Loss (gain) on disposal of property and  equipment, net                                   |       | 250                    |       | (18 | ) |
| Other                                                                                     |       | —                 |       | 51 |   |
| Changes in operating assets and  liabilities:                                             |       |                   |       |   |   |
| Trade accounts receivable, net                                                            |       | (38,019                | )          | (38,919 | ) |
| Prepaid expenses and other current assets                                                 |       | 970                    |       | 9,619 |   |
| Deferred charges                                                                          |       | 1,684                  |       | (1,355 | ) |
| Other long-term assets                                                                    |       | 486                    |       | (783 | ) |
| Accounts payable                                                                          |       | 1,093                  |       | (1,717 | ) |
| Accrued expenses                                                                          |       | 12,664                 |       | 15,349 |   |
| Pension and postretirement benefits                                                       |       | (1,251                 | )          | (2,447 | ) |
| Other long-term liabilities                                                               |       | (643                   | )          | 425 |   |
| Net cash provided by operating activities                                                 |       | 25,053                 |       | 23,674 |   |
| Cash flows from investing activities:                                                     |       |                   |       |   |   |
| Purchase of property and equipment                                                        |       | (1,574                 | )          | (2,862 | ) |
| Proceeds from sale of property and  equipment                                             |       | 54                     |       | 20 |   |
| Net cash used in investing activities                                                     |       | (1,520                 | )          | (2,842 | ) |
| Cash flows from financing activities:                                                     |       |                   |       |   |   |
| Proceeds from issuance of debt, net of debt  issuance costs                               |       | 734,864                |       | — |   |
| Principal payments on capital leases                                                      |       | (4,737                 | )          | (4,905 | ) |
| Principal payments on debt                                                                |       | (58,488                | )          | (27,000 | ) |
| Repurchase old notes                                                                      |       | (327,481               | )          | — |   |
| Distributions to WTI, net                                                                 |       | (425,678               | )          | (569 | ) |
| Net cash used in financing activities                                                     |       | (81,520                | )          | (32,474 | ) |
| Net decrease in cash and cash equivalents                                                 |       | (57,987                | )          | (11,642 | ) |
| Cash and cash equivalents at beginning of  period                                         |       | 100,474                |       | 43,746 |   |
| Cash and cash equivalents at end of period                                                |       | $                      | 42,487     |   | $ | 32,104 |   |

 

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

 

6

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**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 Delta, Northwest and others for the use of the 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 months ended March 31,2005 and March 31, 2004 are not necessarily indicative of results that may beexpected for any other interim period or for the year ending December 31, 2005.** **ThePartnership’s quarterly financial data should be read in conjunction with itsconsolidated financial statements for the year ended December 31, 2004(including the notes thereto), set forth in its annual report on Form 10-Kfiled with the Securities and Exchange Commission on March 28, 2005.

 

*DerivativeInstruments.*  Allderivatives are measured at fair value and recognized as either assets orliabilities on our consolidated balance sheets. Changes in the fair values ofderivative instruments that do not qualify as hedges and/or any ineffectiveportion of hedges are recognized as a gain or loss in our consolidatedstatement of operations in the current period. Changes in the fair values of derivative instruments used effectively asfair value hedges are recognized in earnings, along with the change in thevalue of the hedged item. Changes in the fair value of the effective portionsof cash flow hedges are reported in other comprehensive income and recognizedin earnings when the 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. For the three months ended March 31, 2005 and March 31, 2004, onesubscriber, Expedia, generated transactions in the Partnership’s electronictravel distribution segment which resulted in revenues of approximately $73,362and $63,187, respectively. These amounts represented 28% and 25% of totalrevenues for the three months ended March 31, 2005 and March 31, 2004,respectively.

 

A development within the GDSindustry over the past several years involves the competitive need for GDSs tomaintain full content, including web fare content, for distribution totraditional and online agency subscribers. We have entered into fare content agreements (which include web farecontent) with a number of major airlines. Subject to termination rights, these obligations continue until late2005 (in the case of US Airways) or 2006 (with respect to certain other of thecontracted airlines).  Should we fail tomaintain competitive content, our traditional and online agency subscriberscould move transactions from us to competitors with access to this content,thus negatively affecting the Partnership’s business, financial condition andresults of operation.

 

Furthermore,the Partnership charges airline carriers, rental car companies, hotels andother providers of travel products and services (collectively referred to as “associates”)for electronic travel distribution services and information technologyservices. Revenues generated by two associates for the three months ended March31, 2005 and March 31, 2004 were $75,849 and $69,337, respectively. These amounts, included in the electronic traveldistribution segment and the information technology services segment,represented approximately 29% and 28% of total revenues for the three monthsended March 31, 2005 and  March 31, 2004,respectively. At March 31, 2005 and December 31, 2004, accounts receivable fromthese same two associates was approximately $41,311 and $34,057, or 29.3% and33.1%, respectively, of the Partnership’s total net accounts receivable.

 

ThePartnership maintained an allowance for doubtful accounts of approximately $15,198and $17,111 at March 31, 2005 and December 31, 2004, respectively.

 

7

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**2.  Debt**

 

On February 11, 2005, the Partnership, WS Financing Corp. (“WSFinancing”), the wholly-owned domestic subsidiaries of the Partnership partiesthereto as guarantors (the “Guarantor Subsidiaries”) and The Bank of New YorkTrust Company, N.A., as trustee, entered into an Indenture (the “Indenture”) aspart of 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 with the Securities and Exchange Commission (“SEC”)to offer to exchange the New Notes for substantially identical notes that havebeen registered with the SEC.

 

In addition, 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.,UBS Securities 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 in the amount of $450,000.

 

The net proceeds to the Partnership from the sale of the New Notes andthe closing of 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 for additional $150 of Old Notes tendered afterFebruary 4, 2005 but prior to February 22, 2005, the expiration timeof the tender offer, and pay those holders the purchase price of $1,141.64 foreach $1,000.00 principal amount of old notes tendered in accordance with theOffer to Purchase and Consent Solicitation Statement for an aggregate purchaseprice of $174, (iii) redeem outstanding WTI Preferred Stock at aredemption price equal to the face amount of the WTI Preferred Stock plusaccrued and unpaid dividends thereon (including Additional Dividends (asdefined in WTI’s Amended and Restated Certificate of Incorporation)) to theredemption date for a total redemption price of approximately $375,729, (iv) pay the Consent Fee (as defined below)to the Funds (as defined below) and (v) pay fees and expenses related tothe Refinancing Transactions.

 

In addition, in connection with the Refinancing Transactions, onFebruary 16, 2005, WTI, CVC Capital Funding, LLC (“CVC Capital”) andCiticorp Mezzanine III, L.P. (“CMIII,” and together with CVC Capital, the “Funds”)entered into an Exchange Agreement (the “Exchange Agreement”). In connectionwith the closing under the Exchange Agreement, WTI issued $43,630 aggregateprincipal amount of its new Subordinated Notes due 2013 (the “New HoldCo Notes”)to the Funds and paid  $365 in accruedand unpaid interest in exchange for the surrender and cancellation by the Fundsof all of the obligations owing by WTI to the Funds under each Fund’s interestin that certain Subordinated Note (the “Seller Note”), dated as ofJune 30, 2003, made by WTI in favor of American Airlines, Inc. (whichwas subsequently transferred in part to each of the Funds). WTI also paid theFunds a 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 New Holdco Notes.

 

To finance the redemption of the WTI Preferred Stock and the payment ofthe Consent Fee, the Partnership distributed $375,729 and $8,638, respectively,to WTI.

 

8

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As a result of the Refinancing Transactions described above, thePartnership recorded a loss on extinguishment of debt of $55,597.

 

On March 4, 2005, the Partnership entered into an interest rateswap with a notional amount that will start at $508,370 on November 15,2005 and amortize on a quarterly basis to $102,250 at November 15, 2008.The reset dates on the swap are February 15, May 15, August 15and November 15 of each year until maturity on November 15, 2008.This agreement, 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%.  Because the criticalterms of the swap match those of the debt it is hedging, the swap is considereda perfect hedge against changes in the fair value of the debt and the hedgewill result in no ineffectiveness being recognized in operations.  Changes in the fair value of the swap arerecognized as a component of accumulated other comprehensive income in eachreporting period.  As of March 31, 2005,the fair value of this swap was $1,727, which was recorded in other long-termassets on the consolidated balance sheet.

 

Debtcovenants contained in the Credit Agreement and the Indenture require thePartnership to maintain certain financial ratios, including a minimum fixedcharge coverage ratio, a minimum interest coverage ratio and a maximum total leverageratio. In addition, certain non-financial covenants restrict the activities ofthe Partnership.

 

Long-termdebt consisted of the following:

 
| ** **                                 | ** ** | **March 31, 2005** | ** ** |
|--------------------------------------------|------------|--------------------|------------|
|                                       |       |               |       |
| Term loan under New Senior Credit Facility |       | $                  | 449,000    |   |
| New Notes                                  |       | 300,000            |       |
| Old Notes                                  |       | 500                |       |
|                                       |       | 749,500            |       |
| Less current portion of long-term debt     |       | 4,000              |       |
| Long-term debt, excluding current portion  |       | $                  | 745,500    |   |

 

During the three months ended March 31, 2005, thePartnership paid the scheduled $1,000 in principal on the new term loan underthe New Senior Credit Facility.

 

**3.  Employee BenefitPlans**

 

Thecomponents of net pension and postretirement costs were as follows:

 
| ** **                                     | ** ** | **Pension Benefits**                     | ** ** | **Postretirement Benefits**              | ** ** |
|------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                     | ** ** | **Three months  ended  March 31,  2005** | ** ** | **Three months  ended  March 31,  2004** | ** ** | **Three months  ended  March 31,  2005** | ** ** | **Three months  ended  March 31,  2004** | ** ** |
| Service cost                                   |       | $                                        | —     |                                     | $          | — |   | $ | 66 |   | $ | 82 |   |
| Interest cost                                  |       | 2,892                                    |       | 2,762                                    |       | 407 |   | 418 |   |
| Expected return on plan assets                 |       | (3,656                                   | )          | (3,389                                   | )          | — |   | — |   |
| Amortization of transition obligation          |       | —                                   |       | —                                   |       | — |   | — |   |
| Amortization of prior service cost             |       | —                                   |       | —                                   |       | — |   | — |   |
| Recognized net actuarial loss                  |       | 27                                       |       | —                                   |       | — |   | — |   |
| Net periodic pension benefit (income)  expense |       | $                                        | (737       | )                                        | $          | (627 | ) | $ | 473 |   | $ | 500 |   |

 

9

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**4.  Related PartyTransactions**

 

In February 2005, the Partnership entered into aseries of refinancing transactions. Certain of the parties to these transactions were related parties,including WTI, CVC and OTPP.  See Note 2for a full description of these matters.

 

In connection with the Refinancing Transactions, on February 16,2005, the Partnership entered into an amendment to its Advisory Agreement withWTI to terminate 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. In addition, WTI entered into an amendment to itsAdvisory Agreement with CVC Management LLC to terminate all advisory and otherfees payable under that agreement as of January 1, 2005 in return for aprepayment of $4,620 payable on or before December 15, 2005. Also, onFebruary 16, 2005, WTI filed a Certificate of Amendment of its Amended andRestated Certificate of Incorporation, effective as of the date of filing, withthe Secretary of State of the State of Delaware to, among other things,terminate the special dividends payable to holders of the Class B CommonStock of WTI in return for a prepayment of $3,080 payable on or beforeDecember 15, 2005.

 

On January 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 amount of $45,000 issued byWTI to Delta on June 30, 2003, the additional notes issued in lieu of cashinterest and all accrued and unpaid interest up to January 10, 2005 for$36,137.  The Partnership distributed$36,137 to WTI to finance this transaction.

 

During the quarter ended March 31, 2005, the Partnership distributed$4,700 to WTI to enable WTI to cover income taxes that it owed on the incomegenerated by the Partnership in the United States.

 

**5.  Commitments andContingencies**

 

In September 2003, the Partnership received multiple assessmentstotaling €39,503 from the tax authorities of Greece relating to tax years1993-2002. The Partnership filed appeals of these assessments. Pursuant to aformal tax amnesty program with the Greek authorities, the Partnership recentlyreached a settlement of the outstanding assessments in an amount ofapproximately €7,775. The Partnership Interest Purchase Agreement, datedMarch 3, 2003, provides that each of the founding airlines shall severallyindemnify WTI and hold WTI harmless on a net after-tax basis from and againstany and all taxes of the Partnership and its subsidiaries related to periodsprior to the sale of the Partnership on June 30, 2003. The Partnershipinformed the founding airlines of the receipt of these assessments and theindemnity obligation of the founding airlines under the Partnership InterestPurchase Agreement. Because of the indemnity provision, the Partnershipbelieves that amounts paid to settle this assessment will be reimbursed by thefounding airlines and will not have an effect on the Partnership’s financialposition or results of operations.

 

**6.  Other SignificantEvents**

 

OnMay 5, 2004, the Partnership announced that it had been informed by Expediathat Expedia intends to move a portion of its transactions to another GDSprovider in order to diversify its GDS relationships beyond using a singleprovider to process substantially all of its GDS transactions.  Expedia has not specified the volumes orpercentages of volumes it intends to process through this other GDS.  To date, the announced movement of Expedia’stransactions has not yet occurred.

 

10

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**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 associates to subscribers of theWorldspan GDS. By having access to the Worldspan GDS, subscribers are able tobook reservations with the associates. The information technology services segmentprovides technology services to Delta and Northwest and other companies in thetravel 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** | ** ** |
|-------------------------------------|------------|------------------------|------------|
| ** **                          | ** ** | **March 31,  2005**    | ** ** | **March 31, 2004** | ** ** |
|                                |       |                   |       |   |   |
| Revenues                            |       |                   |       |   |   |
| Electronic travel distribution      |       | $                      | 241,958    |   | $ | 232,539 |   |
| Information technology services     |       | 18,624                 |       | 15,992 |   |
| Total revenues                      |       | $                      | 260,582    |   | $ | 248,531 |   |
| Operating income                    |       |                   |       |   |   |
| Electronic travel distribution      |       | $                      | 41,783     |   | $ | 36,532 |   |
| Information technology services     |       | (6,791                 | )          | (9,141 | ) |
| Total operating income              |       | $                      | 34,992     |   | $ | 27,391 |   |
| Depreciation and amortization       |       |                   |       |   |   |
| Electronic travel distribution      |       | $                      | 19,656     |   | $ | 20,483 |   |
| Information technology services     |       | 5,224                  |       | 4,580 |   |
| Total depreciation and amortization |       | $                      | 24,880     |   | $ | 25,063 |   |
| Geographic areas                    |       |                   |       |   |   |
| Total revenues                      |       |                   |       |   |   |
| United States                       |       | $                      | 223,166    |   | $ | 213,207 |   |
| Foreign                             |       | 37,416                 |       | 35,324 |   |
| Total                               |       | $                      | 260,582    |   | $ | 248,531 |   |
| Long-lived assets                   |       |                   |       |   |   |
| United States                       |       | $                      | 836,892    |   | $ | 915,842 |   |
| Foreign                             |       | 33,615                 |       | 32,590 |   |
| Total                               |       | $                      | 870,507    |   | $ | 948,432 |   |

 

11

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**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 the domesticoperations and assets of the Partnership (referred to as “Worldspan,L.P.—Guarantor” in the accompanying financial information). Included inWorldspan, L.P.—Guarantor are Worldspan, L.P. and all of its wholly-owneddomestic subsidiaries including WS Financing. These domestic subsidiaries also fully and unconditionally guarantee ona senior secured basis the New Notes. These domestic subsidiaries collectively represent less than one percentof the Partnership’s total assets, Partners’ capital, total revenues, netincome, and cash flows from operating activities. The guarantees of each of thelegal entities comprised by Worldspan, L.P.—Guarantor are joint andseveral.  The foreign subsidiaries(referred to as “Non-Guarantor 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 anysubstantial operations, assets or revenues. The following financial informationpresents condensed consolidating balance sheets, statements of operations andstatements of cash flows for Worldspan, L.P.—Guarantor and Non-GuarantorSubsidiaries. The information has been presented as if Worldspan, L.P.—Guarantoraccounted for its ownership of the Non-Guarantor Subsidiaries using the equitymethod of accounting.

 

12

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

**as of March 31, 2005**

 
| ** **                                              | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                    |       |                                 |       |                            |       |                     |       |                        |       |
| **Assets**                                              |       |                                 |       |                            |       |                     |       |                        |       |
| Current assets                                          |       |                                 |       |                            |       |                     |       |                        |       |
| Cash and cash equivalents                               |       | $                                    | 38,685     |                            | $          | 3,802                    |       | $                           | —     |   | $ | 42,487 |   |
| Trade accounts receivable, net                          |       | 137,810                              |       | 3,002                           |       | —                   |       | 140,812                     |       |
| Prepaid expenses and other current assets               |       | 18,362                               |       | 2,015                           |       | —                   |       | 20,377                      |       |
| Total current assets                                    |       | 194,857                              |       | 8,819                           |       | —                   |       | 203,676                     |       |
| Property and equipment, net                             |       | 103,790                              |       | 5,625                           |       | —                   |       | 109,415                     |       |
| Deferred charges                                        |       | 15,517                               |       | 17,150                          |       | —                   |       | 32,667                      |       |
| Debt issuance costs                                     |       | 17,036                               |       | —                          |       | —                   |       | 17,036                      |       |
| Goodwill                                                |       | 112,035                              |       | —                          |       | —                   |       | 112,035                     |       |
| Other intangible assets, net                            |       | 567,079                              |       | —                          |       | —                   |       | 567,079                     |       |
| Investments in subsidiaries                             |       | 17,494                               |       | —                          |       | (17,494                  | )          | —                      |       |
| Other long-term assets                                  |       | 21,435                               |       | 10,840                          |       | —                   |       | 32,275                      |       |
| Total assets                                            |       | $                                    | 1,049,243  |                            | $          | 42,434                   |       | $                           | (17,494    | ) | $ | 1,074,183 |   |
|                                                    |       |                                 |       |                            |       |                     |       |                        |       |
| **Liabilities  and Partners’ (Deficit) Capital**   |       |                                 |       |                            |       |                     |       |                        |       |
| Current liabilities                                     |       |                                 |       |                            |       |                     |       |                        |       |
| Accounts payable                                        |       | $                                    | 14,397     |                            | $          | 1,367                    |       | $                           | —     |   | $ | 15,764 |   |
| Intercompany accounts payable (receivable)              |       | 17,811                               |       | (17,811                         | )          | —                   |       | —                      |       |
| Accrued expenses                                        |       | 129,317                              |       | 40,055                          |       | —                   |       | 169,372                     |       |
| Current portion of capital lease  obligations           |       | 18,973                               |       | —                          |       | —                   |       | 18,973                      |       |
| Current portion of senior debt                          |       | 4,000                                |       | —                          |       | —                   |       | 4,000                       |       |
| Total current liabilities                               |       | 184,498                              |       | 23,611                          |       | —                   |       | 208,109                     |       |
| Long-term portion of capital lease  obligations         |       | 49,885                               |       | —                          |       | —                   |       | 49,885                      |       |
| Long-term debt                                          |       | 745,500                              |       | —                          |       | —                   |       | 745,500                     |       |
| Pension and postretirement benefits                     |       | 63,570                               |       | (42                             | )          | —                   |       | 63,528                      |       |
| Other long-term liabilities                             |       | 11,854                               |       | 1,371                           |       | —                   |       | 13,225                      |       |
| Total liabilities                                       |       | 1,055,307                            |       | 24,940                          |       | —                   |       | 1,080,247                   |       |
| Commitments and contingencies                           |       |                                 |       |                            |       |                     |       |                        |       |
| Partners’ (deficit) capital                        |       | (6,064                               | )          | 17,494                          |       | (17,494                  | )          | (6,064                      | )          |
| Total liabilities and Partners’ (deficit)  capital |       | $                                    | 1,049,243  |                            | $          | 42,434                   |       | $                           | (17,494    | ) | $ | 1,074,183 |   |

 

13

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**Condensed Consolidating Balance Sheets**

**as of December 31, 2004**

 
| ** **                                      | ** ** | **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 |   |

 

14

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**Condensed Consolidating Statements of Operations**

**for the Three Months Ended March 31, 2005**

 
| ** **                        | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                              |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                          |       | $                                    | 223,166    |                            | $          | 37,416                   |       | $                           | —     |   | $ | 260,582 |   |
| Operating expenses                |       | 190,101                              |       | 35,489                          |       | —                   |       | 225,590                     |       |
| Operating income                  |       | 33,065                               |       | 1,927                           |       | —                   |       | 34,992                      |       |
| Other income (expense)            |       |                                 |       |                            |       |                     |       |                        |       |
| Interest (expense) income, net    |       | (12,389                              | )          | 60                              |       | —                   |       | (12,329                     | )          |
| Loss on extinguishment of debt    |       | (55,597                              | )          | —                          |       | —                   |       | (55,597                     | )          |
| Income from subsidiaries          |       | 533                                  |       | —                          |       | (533                     | )          | —                      |       |
| Other, net                        |       | 326                                  |       | (536                            | )          | —                   |       | (210                        | )          |
| Total other expense, net          |       | (67,127                              | )          | (476                            | )          | (533                     | )          | (68,136                     | )          |
| (Loss) income before income taxes |       | (34,062                              | )          | 1,451                           |       | (533                     | )          | (33,144                     | )          |
| Provision for income taxes        |       | —                               |       | 918                             |       | —                   |       | 918                         |       |
| Net (loss) income                 |       | $                                    | (34,062    | )                               | $          | 533                      |       | $                           | (533       | ) | $ | (34,062 | ) |

 

**Condensed Consolidating Statements of Operations**

**for the Three Months Ended March 31, 2004**

 
| ** **                     | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|--------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                           |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                       |       | $                                    | 213,207    |                            | $          | 35,324                   |       | $                           | —     |   | $ | 248,531 |   |
| Operating expenses             |       | 187,830                              |       | 33,310                          |       | —                   |       | 221,140                     |       |
| Operating income               |       | 25,377                               |       | 2,014                           |       | —                   |       | 27,391                      |       |
| Other income (expense)         |       |                                 |       |                            |       |                     |       |                        |       |
| Interest (expense) income, net |       | (10,750                              | )          | 55                              |       | —                   |       | (10,695                     | )          |
|                           |       |                                 |       |                            |       |                     |       |                        |       |
| Income from subsidiaries       |       | 1,579                                |       | —                          |       | (1,579                   | )          | —                      |       |
| Other, net                     |       | (57                                  | )          | (258                            | )          | —                   |       | (315                        | )          |
| Total other expense, net       |       | (9,228                               | )          | (203                            | )          | (1,579                   | )          | (11,010                     | )          |
| Income before income taxes     |       | 16,149                               |       | 1,811                           |       | (1,579                   | )          | 16,381                      |       |
| Income tax (benefit) expense   |       | (3                                   | )          | 232                             |       | —                   |       | 229                         |       |
| Net income                     |       | $                                    | 16,152     |                            | $          | 1,579                    |       | $                           | (1,579     | ) | $ | 16,152 |   |

 

15

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**Condensed Consolidating Statements of Cash Flows**

**for the Three Months Ended March 31, 2005**

 
| ** **                                                  | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan Consolidated** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|--------------------------|------------|---------------------------------|------------|
|                                                        |       |                                 |       |                                |       |                     |       |                            |       |
| Net cash provided by (used in) operating  activities        |       | $                                    | 28,244     |                                | $          | (3,191                   | )          | $                               | —     |   | $ | 25,053 |   |
| Cash flows from investing activities:                       |       |                                 |       |                                |       |                     |       |                            |       |
| Purchase of property and equipment                          |       | (1,267                               | )          | (307                                | )          | —                   |       | (1,574                          | )          |
| Proceeds from sale of property and  equipment               |       | 54                                   |       | —                              |       | —                   |       | 54                              |       |
| Investment in subsidiaries                                  |       | (3,329                               | )          | —                              |       | 3,329                    |       | —                          |       |
| Net cash provided used in investing  activities             |       | (4,542                               | )          | (307                                | )          | 3,329                    |       | (1,520                          | )          |
| Cash flows from financing activities:                       |       |                                 |       |                                |       |                     |       |                            |       |
| Proceeds from issuance of debt, net of debt  issuance costs |       | 734,864                              |       | —                              |       | —                   |       | 734,864                         |       |
| Principal payments on capital leases                        |       | (4,737                               | )          | —                              |       | —                   |       | (4,737                          | )          |
| Principal payments on debt                                  |       | (58,488                              | )          | —                              |       | —                   |       | (58,488                         | )          |
| Repurchase old notes                                        |       | (327,481                             | )          | —                              |       | —                   |       | (327,481                        | )          |
| Distribution to WTI, net                                    |       | (425,678                             | )          | —                              |       | —                   |       | (425,678                        | )          |
| Contributions to subsidiaries                               |       | —                               |       | 3,329                               |       | (3,329                   | )          | —                          |       |
| Net cash (used in) provided by financing  activities        |       | (81,520                              | )          | 3,329                               |       | (3,329                   | )          | (81,520                         | )          |
| Net decrease in cash and cash equivalents                   |       | (57,818                              | )          | (169                                | )          | —                   |       | (57,987                         | )          |
| Cash and cash equivalents at beginning of  period           |       | 96,504                               |       | 3,970                               |       | —                   |       | 100,474                         |       |
| Cash and cash equivalents at end of period                  |       | $                                    | 38,686     |                                | $          | 3,801                    |       | $                               | —     |   | $ | 42,487 |   |

 

16

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**Condensed Consolidating Statements of Cash Flows**

**for the Three Months Ended March 31, 2004**

 
| ** **                                           | ** ** | **Worldspan,   L.P.— Guarantor** | ** ** | **Non-  Guarantor Subsidiaries** | ** ** | **Eliminating Entries** | ** ** | **Worldspan Consolidated** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
|                                                 |       |                                       |       |                                  |       |                         |       |                            |       |
| Net cash provided by operating activities            |       | $                                          | 25,256     |                                  | $          | (1,582                       | )          | $                               | —     |   | $ | 23,674 |   |
| Cash flows from investing activities:                |       |                                       |       |                                  |       |                         |       |                            |       |
| Purchase of property and equipment                   |       | (2,228                                     | )          | (634                                  | )          | —                       |       | (2,862                          | )          |
| Proceeds from sale of property and  equipment        |       | 20                                         |       | —                                |       | —                       |       | 20                              |       |
| Investments in subsidiaries                          |       | (1,579                                     | )          | —                                |       | 1,579                        |       | —                          |       |
| Net cash used in investing activities                |       | (3,787                                     | )          | (634                                  | )          | 1,579                        |       | (2,842                          | )          |
| Cash flows from financing activities:                |       |                                       |       |                                  |       |                         |       |                            |       |
| Distribution to WTI                                  |       | (569                                       | )          | —                                |       | —                       |       | (569                            | )          |
| Principal payments on capital leases                 |       | (4,905                                     | )          | —                                |       | —                       |       | (4,905                          | )          |
| Principal payments on debt                           |       | (27,000                                    | )          |                                  |       |                         |       | (27,000                         | )          |
| Contributions to subsidiaries                        |       | —                                     |       | 1,579                                 |       | (1,579                       | )          | —                          |       |
| Net cash (used in) provided by financing  activities |       | (32,474                                    | )          | 1,579                                 |       | (1,579                       | )          | (32,474                         | )          |
| Net decrease in cash and cash equivalents            |       | (11,005                                    | )          | (637                                  | )          | —                       |       | (11,642                         | )          |
| Cash and cash equivalents at beginning of  period    |       | 41,615                                     |       | 2,131                                 |       | —                       |       | 43,746                          |       |
| Cash and cash equivalents at end of period           |       | $                                          | 30,610     |                                  | $          | 1,494                        |       | $                               | —     |   | $ | 32,104 |   |

 

17

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**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**

 

We are a provider of mission-critical transaction processing andinformation technology services to the global travel industry. Globally, we arethe largest transaction processor for online travel agencies, having processed63% of all global distribution system, or GDS, online air transactions duringthe twelve months ended March 31, 2005. In the United States (the world’slargest travel market), we are the second largest transaction processor fortravel agencies, accounting for 32% of GDS air transactions and over 66% ofonline GDS air transactions processed during the twelve months ended March 31,2005. We provide subscribers (including traditional travel agencies, onlinetravel agencies and corporate travel departments) with real-time access toschedule, price, availability and other travel information and the ability toprocess reservations and issue tickets for the products and services ofapproximately 800 travel suppliers (such as airlines, hotels, car rentalcompanies, tour companies and cruise lines) throughout the world. During thetwelve months ended March 31, 2005, we processed approximately 204 milliontransactions. We also provide information technology services to the travelindustry, primarily airline internal reservation systems, flight operationstechnology and software development.

 

Our relationships with four of the largest online travel agencies inthe world have positioned us well to take advantage of the continuing shift tothe online travel agency channel, where we have a higher market share. Inaddition, airlines have responded to their difficult operating conditions byoffering lower prices on tickets distributed through direct and onlinechannels, resulting in an increase in airline travel transactions generatedthrough online travel agencies relative to traditional travel agencies. Webelieve our strong position in the online travel agency channel has allowed usto increase our airline transactions market share, despite the difficult timesin the travel industry since 2001. Total transactions for the twelve monthsended March 31, 2005, including airline and hospitality and destinationservices, were up 2.5% compared to the same period in 2004.

 

As a result of the market conditions and industry pressures describedabove, we took steps to reduce our operating expenses. For example, effectiveDecember 31, 2003, we froze all further benefit accruals under our definedbenefit pension plan. In addition, we restructured our medical benefits in thefirst quarter of 2004 by increasing employee contributions and co-pays,implementing charges for working spouses, consolidating and changing providers,and eliminating medical benefits for future retirees, except for a limitedgrandfathered group of employees. These changes to our employee benefits haveresulted in cost savings in 2004. During the first quarter of 2004, we alsorenegotiated our network and communication contracts with our primaryproviders. These new agreements resulted in reduced telecommunication chargesduring 2004. We also renegotiated our technology agreement with IBM and ourheadquarters office lease, which we expect to reduce our costs, as well. Eachof these steps has started to generate cost savings which are expected to continuein future years; however, the actual amount of our ongoing expenses mayultimately be impacted by future changes in healthcare and technology costs andusage, which we are unable to predict.

 

We depend upon a relatively small number of airlines and online travelagencies for a significant portion of our revenues. Our five largest airlinerelationships represented an aggregate of approximately 51% of our totalrevenues for the twelve months ended March 31, 2005 and December 31, 2004,while our top ten largest airline relationships represented an aggregate ofapproximately 63% and 64% of our total revenues for the twelve months endedMarch 31, 2005 and December 31, 2004, respectively. Our relationships withfour online travel agencies, Expedia, Hotwire, Orbitz and Priceline,represented 47% of our total transactions during the twelve months ended March31, 2005. We expect to continue to depend upon a relatively small number ofairlines and online travel agencies for a significant portion of our revenues.

 

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***Supplier Content, Transaction Fees andTransaction Volume***

*** ***

A development within the GDS industry over the past several yearsinvolves the competitive need for GDSs to maintain full content, including webfare content, for distribution to traditional and online agency subscribers.  Historically, we have increased thetransaction fees we collect from our airline suppliers, which pay a substantialportion of our transaction fees. We anticipate that this historic trend ofannual transaction fee increases could be reduced in the future due to our planto enter into fare content agreements with major airlines. For instance, wehave entered into fare content agreements with American Airlines, ContinentalAirlines, Delta, Northwest, United Air Lines and US Airways. Generally, inthese agreements, the airlines commit (subject to the exceptions contained inthe agreements) to provide the traditional and online travel agencies coveredby the agreements in the territories covered by the agreements withsubstantially the same fare content it provides to the travel agencysubscribers of other GDSs (including web fares) in exchange for payments fromus 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,pursuant to this agreement, each airline has agreed, among other things, tocommit to the highest level of participation in our GDS. Subject to terminationrights, these obligations continue until late 2005 (in the case ofUS Airways) or 2006 (with respect to the other contracted airlines).Further, in February 2004, we executed a three-year fare content agreementwith British Airways to provide access to virtually all of their publishedfares (including web fares) to some of our U.K. travel agencies. We expectthat these 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.

 

We believe that obtaining similar fare content from our other majorairline travel suppliers is important to our ability to compete, since otherGDSs have also entered into fare content agreements with various airlines.Consequently, we are pursuing agreements similar to these fare contentagreements with other major airlines in order to obtain access to such content.We expect that the fare content agreements will require us to make, in theaggregate, significant payments or other concessions to the participatingairlines, which we expect will reduce our revenues. Further, should we fail tomaintain competitive content, our traditional and online agency subscriberscould move transactions from us to competitors with access to this content,thus negatively affecting the Partnership’s business, financial condition andresults of operation.

 

***Financial Conditions in the AirlineIndustry***

*** ***

The downturn in the commercial airline market, together with, andresulting from, the ongoing threat of terrorist acts after September 11,2001, war in Iraq and rising fuel costs for commercial airlines, among other issues,have adversely affected the financial condition of many commercial airlines.Several major airlines are experiencing liquidity problems, some have soughtbankruptcy protection and still others are considering, or may consider,bankruptcy relief. We derive a substantial portion of our revenues fromtransaction fees received directly from airlines and from the sale of productsand services directly to airlines. In circumstances where an airline declaresbankruptcy, we may be unable to collect our outstanding accounts receivablefrom the airline. In addition, the bankruptcy of the airline might result inreduced transaction fees and other revenues from the airline, a rejection bythe airline of some or all of our agreements with it, or loss of the revenue byother means such as an airline liquidation, all of which could have a materialadverse effect on our business, financial condition and results of operation.

 

***Channel Shift***

*** ***

An increasing number of travel transactions are being made online.During the twelve months ended March 31, 2005, airline transactions generatedthrough online travel agencies accounted for approximately 32% 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.

 

Since 2001, the combination of channel shift, declines in the globaleconomy, terrorist actions and threats, wars in Afghanistan and Iraq, andhealth concerns over SARS has resulted in annual declines in transactionsgenerated by traditional travel agencies. As a result of these declines, wehave completed restructuring activities in each of the last five years, whichhave largely been focused on reducing the operating costs associated withservicing traditional travel agencies in areas such as labor, network, agencyhardware, and advertising.

 

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***Uncertainty in Transaction Volumesfrom Online Travel Agencies***

*** ***

Although we have historically processed most of the airlinetransactions for our online travel agencies, these agencies may move a portionof their business to other technologies and technology providers, subject tosome contractual limitations. For example, Expedia announced in May 2004that it intends to diversify its GDS relationships beyond using a singleprovider to process substantially all of its GDS transactions and that itintends to move a portion of its transactions to another GDS provider. Expediahas not specified the volumes or percentages of volumes it intends to processthrough this other GDS. To date, the announced movement of Expedia’stransactions has not occurred and, at this time, we cannot forecast the timingor magnitude of any such movement on our financial position or results ofoperations. In connection with the Acquisition, we recorded an intangible assetrelated to online customer contracts of $131.9 million, of which weestimate $35.2 million was related to the Expedia contract. Based on thatestimate, the portion of this intangible asset that was unamortized as of March31, 2005 was $27.5 million. Upon determination of the specific volumes, percentageof volumes or timing relating to Expedia’s announced agreement with the otherGDS provider, we will further assess the impact, if any, on our overallfinancial condition as prescribed by Statement of Financial AccountingStandards (“SFAS”) No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*, and SFASNo. 142, *Goodwill and Other IntangibleAssets*. In addition, Orbitz has developed direct connections withtravel suppliers which bypass our GDS. Further, Cendant Corporation recentlyacquired Orbitz. Cendant’s Travel Distribution Services Division includesGalileo, which is a competitor of ours. Orbitz is one of our largest onlinetravel agency customers. Our contract with Orbitz extends into 2011 subject tostandard termination rights held by Orbitz including for-cause terminationrights.

 

Although we currently continue to operate under these agreements, it isuncertain as to whether or not these and our other major online travel agencieswill not attempt to terminate their respective agreements with us or otherwisemove business 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***

*** ***

We do 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. However,to the extent that such agencies are acquired by or become affiliated with oneof our competitors, the likelihood of our capturing additional business fromthose agencies may be reduced and our existing business with those agencies maybe at risk.

 

***FASA Credits***

*** ***

Pursuant to the terms of our founder airline services agreements, orFASAs, we provide FASA credits to Delta and Northwest to be applied againstFASA service fee payments due from these airlines to us. The FASA credits arestructured and will be applied through June 2012 in scheduled monthly installmentsup to an aggregate total of approximately $95.9 million to each of Deltaand Northwest as of March 31, 2005, and are reflected as reductions of FASArevenue in the corresponding periods. In the event that the monthly FASAcredits deliverable by us to Delta or Northwest are more than the FASA servicefee payments due from the applicable airline, then we will be obligated to paysuch excess to such airline in cash. Pursuant to a recent amendment of our FASAwith Delta, Worldspan has the right, at its option, to terminate the FASAcredits on or before December 31, 2005, in exchange for a one-time paymentfrom us to Delta in an amount that varies depending upon when Worldspan electsto make the one-time payment. The one-time payment would be capitalized andamortized as a reduction of FASA revenue in the corresponding periods. See thesection captioned “Liquidity and Capital Resources” below for furtherinformation on the FASA credits.

 

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**Business Segment Summary**

** **

Our revenues are primarily derived from transaction fees paid by ourtravel suppliers for electronic travel distribution services, and to a lesserextent, 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 time associatedwith the booking. Fees paid by travel suppliers vary according to the levels offunctionality at which they can participate in our GDS. These levels offunctionality generally depend upon the type of communications and real-timeaccess allowed with respect to the particular travel supplier’s internalsystems. Revenues are based on the volume of transactions and are not dependenton the revenue earned by the supplier for that booking. We recognize revenuefor airline travel transactions in the month the transactions are processed,net of cancellations processed in that month. Revenues for other types oftravel transactions are recognized at the time the booking is used by thetraveler. Although the substantial majority of our electronic travel distributionrevenues are derived from transaction fees paid by travel suppliers, we have anagreement with Hotwire which does not follow this traditional business model.Under our agreement with Hotwire, we generally derive revenues from a servicefee payable by Hotwire (rather than the travel supplier) based upon the numberof travel transactions booked.

 

Set forth below is a chart illustrating the flow of payments in atypical consumer travel 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 |   |

 

 

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*    Transaction and inducement fees are forillustrative 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 developmenthours performed on the travel supplier’s applications. In some cases, we chargefees for access to and usage of certain of our proprietary applications on aper transaction basis. Revenues for information technology services arerecognized in the month that the services are provided and are recorded net ofthe value of the FASA credits earned by Delta and Northwest in the correspondingmonth.

 

Our costs and expenses consist of the cost of electronic traveldistribution and information technology services revenues, selling, general andadministrative expenses and depreciation and amortization:

 

•                  Cost of electronic travel distributionrevenues consists primarily of inducements paid to travel agencies, technologydevelopment and operations personnel, software costs, network costs, hardwareleases, maintenance of computer and network hardware, the data center building,help desk and other travel agency support headcount. As our transactions fromonline travel agencies increase as a percent of our total transactions, weincur additional inducement and technology costs due to the average inducementpaid to our large online

 

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customerstypically exceeding the average inducement that we pay to traditional travelagencies and due to a higher volume of messages processed per transaction inthe online channel compared to traditional travel agency transactions. Cost ofinformation technology services revenues consists primarily of technologydevelopment and operations personnel, software costs, network costs, hardwareleases, depreciation of computer hardware and the data center building, amortizationof capitalized software and maintenance 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**

 

Therehave been no material changes to our critical accounting policies from theinformation provided in Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations included in our annual report onForm 10-K filed with the Securities and Exchange Commission on March 28, 2005.

 

**Results of Operations**

 

Thefollowing table shows information derived from our condensed consolidatedstatements of operations for the three months ended March 31, 2005 and March31, 2004 expressed as a percentage of revenues for the periods presented.

 
| ** **                                                    | ** ** | **Three months  ended   March 31,   2005** | ** ** | **Three months  ended  March 31,  2004** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
|                                                          |       |                                       |       |                                     |       |
| Revenues:                                                     |       |                                       |       |                                     |       |
| Electronic travel distribution                                |       | 92.9                                       | %          | 93.6                                     | %          |
| Information technology services                               |       | 7.1                                        |       | 6.4                                      |       |
| Total revenues                                                |       | 100.0                                      |       | 100.0                                    |       |
| Operating expenses:                                           |       |                                       |       |                                     |       |
| Cost of revenues excluding developed  technology amortization |       | 68.4                                       |       | 68.5                                     |       |
| Developed technology amortization                             |       | 2.2                                        |       | 2.2                                      |       |
| Total cost of revenues                                        |       | 70.6                                       |       | 70.7                                     |       |
| Selling, general and administrative  expenses                 |       | 12.5                                       |       | 14.6                                     |       |
| Amortization of intangible assets                             |       | 3.5                                        |       | 3.7                                      |       |
| Total operating expenses                                      |       | 86.6                                       |       | 89.0                                     |       |
| Operating income                                              |       | 13.4                                       |       | 11.0                                     |       |
| Total other expense, net                                      |       | (26.1                                      | )          | (4.4                                     | )          |
| (Loss) income before provision for income  taxes              |       | (12.7                                      | )          | 6.6                                      |       |
| Income tax expense                                            |       | 0.4                                        |       | 0.1                                      |       |
| Net (loss) income                                             |       | (13.1                                      | )%         | 6.5                                      | %          |

 

***Comparison of Three Months EndedMarch 31, 2005 and March 31, 2004***

 

*Revenues*

 

Totalrevenues were $260.6 million for the three months ended March 31, 2005, a $12.1million or 4.9% increase from the three months ended March 31, 2004 revenues of$248.5 million. This increase was primarily attributable to an increase in thevolume of transactions processed and an increase in subscription-basedtechnology services during the first quarter of 2005 when compared to the sameperiod in the prior year.

 

Electronictravel distribution revenues were $242.0 million for the three months endedMarch 31, 2005, a $9.5 million or 4.1% increase from the three months endedMarch 31, 2004 revenues of $232.5 million. The increase in revenues wasattributable to a 1.7 million or 3.1% increase in transactions processed duringthe period.

 

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Informationtechnology services revenues were $18.6 million for the three months endedMarch 31, 2005, a $2.6 million or 16.3% increase from the three months endedMarch 31, 2004 revenues of $16.0 million. The increase was primarilyattributable to a $2.3 million increase in revenue associated with products andservices we sell to airlines, which include Worldspan Rapid Reprice, Fares andPricing and Electronic Ticketing.

 

*Cost ofRevenues Excluding Developed Technology Amortization*

 

Costof revenues excluding developed technology amortization was $178.1 million forthe three months ended March 31, 2005, a $7.8 million increase from the threemonths ended March 31, 2004 cost of revenues of $170.3 million. This $7.8million increase was primarily attributable to higher inducements, partiallyoffset by lower network and communications costs and employee costs.  Cost of revenues excluding developedtechnology amortization as a percentage of total revenues decreased to 68.4%for the three months ended March 31, 2005 compared to 68.5% for the threemonths ended March 31, 2004.  

 

Costof electronic travel distribution revenues excluding developed technologyamortization was $156.5 million for the three months ended March 31, 2005, a$7.7 million or 5.2% increase from the three months ended March 31, 2004 costof electronic travel distribution revenues excluding developed technologyamortization of $148.8 million. Cost of electronic travel distribution revenuesexcluding developed technology amortization as a percentage of total revenuesincreased to 60.0% for the three months ended March 31, 2005 compared to 59.9%for the three months ended March 31, 2004. This $7.7 million increase wasprimarily attributable to a 22.0% increase in inducements paid to travelagencies which was partially offset by a 48.1% reduction in network andcommunication costs and a 15.0% decline in employee costs. Inducements grew dueto the growth in transaction volumes and the continuing shift toward onlinetravel agency transactions, which tend to have higher inducement costs thantraditional travel agency transactions. Network and communication costs decreased due to migration of customersto Internet-based products rather than dedicated circuits.  In addition, during the first quarter of2004, we renegotiated our network and communication contracts with our primaryproviders. Employee costs declined as a result of workforce reductions.  This decline was partially offset by anincrease in outsourcing costs as programming for certain applications andcertain travel agency support functions are now performed by third-partyvendors.    

 

Costof information technology services revenues excluding developed technologyamortization was $21.7 million or 8.3% of total revenues for the three monthsended March 31, 2005, a $0.2 million or 0.9% increase from the three monthsended March 31, 2004 cost of information technology revenues excludingdeveloped technology amortization of $21.5 million or 8.7% of total revenues. 

 

*DevelopedTechnology Amortization*

 

Developedtechnology amortization was $5.7 million or 2.2% of total revenues for thethree months ended March 31, 2005, a $0.2 million or 3.6% increase from thethree months ended March 31, 2004 developed technology amortization of $5.5million or 2.2% of total revenues. The intangible assets acquired as a result ofthe Acquisition, which comprise substantially all of the balance, are amortizedon a straight-line basis over their estimated useful lives and the relatedamortization is expected to be unchanged from the same period in the prioryear.

 

*Selling,General and Administrative Expenses*

 

Selling,general and administrative expenses were $32.6 million or 12.5% of totalrevenues for the three months ended March 31, 2005, a $3.6 million or 9.9%decrease from the three months ended March 31, 2004 selling, general andadministrative expenses of $36.2 million or 14.6% of total revenues. Thedecrease was primarily attributable to reduced headcount and a series ofsmaller activities. 

 

*Amortizationof Intangible Assets*

 

Amortizationof intangible assets was $9.1 million or 3.5% of total revenues for the threemonths ended March 31, 2005, which is unchanged from the three months endedMarch 31, 2004 amortization of intangible assets of $9.1 million or 3.7% oftotal revenues. The intangible assets acquired as a result of the Acquisitionare amortized on a straight-line basis over their estimated useful lives andthe related amortization is expected to be unchanged from when compared to thesame period in the prior year.

 

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*OperatingIncome*

 

Operating income was $35.0 million for the three monthsended March 31, 2005 a $7.6 million or 27.7% increase from the three monthsended March 31, 2004 operating income of $27.4 million. Operating income as apercentage of total revenues increased to 13.4% for the three months endedMarch 31, 2005 compared to 11.0% in the three months ended March 31, 2004. Theincrease in operating income primarily resulted from a 4.1% increase inelectronic travel distribution revenues, a 47.8% decrease in network andcommunication charges and an 11.9% decrease in employee costs, partially offsetby a 22.0% increase in inducements paid to travel agencies.

 

*NetInterest Expense*

 

Netinterest expense was $12.3 million for the three months ended March 31, 2005, a$1.6 million or 15.0% increase from the three months ended March 31, 2004 netinterest expense of $10.7 million. The increase in net interest expense wasprimarily related to the debt issued in connection with the RefinancingTransactions (as defined below under the heading “—Liquidity and CapitalResources–Senior Notes”) in February 2005.

 

*NetOther Expense*

 

Netother expense was $68.1 million for the three months ended March 31, 2005, a$57.1 million increase from the three months ended March 31, 2004 net otherexpense of $11.0 million.  The increasewas due to a $55.6 million loss on extinguishment of debt and a $1.6 millionincrease in net interest expense, both related to the debt issued in connectionwith the Refinancing Transactions in February 2005.

 

*IncomeTax Expense*

 

Incometax expense attributable to foreign jurisdictions was $0.9 million for thethree months ended March 31, 2005, a $0.7 million increase from the threemonths ended March 31, 2004 income tax expense of $0.2 million. The increase inincome tax expense relates to an increase in the taxable income of our foreignsubsidiaries during the three months ended March 31, 2005.

 

*NetLoss*

 

Netloss was $34.1 million for the three months ended March 31, 2005, a $50.3million decrease from the three months ended March 31, 2004 net income of $16.2million. This decrease was primarily as a result of a $55.6 million loss onextinguishment of debt partially offset by a $7.6 million increase in operatingincome.

 

**Liquidity and Capital Resources**

 

Our principal source of liquidity will be cash flow generated fromoperations and borrowings under our new senior credit facility (as definedbelow). Our principal uses of cash will be to meet debt service requirements,finance our capital expenditures, make any FASA credit payments, and provideworking capital. Based on our current level of operations, we believe that ourcash flow from operations, available cash and available borrowings under ournew senior credit facility will be adequate to meet our future liquidity needsfor at least the next 12 months, although no assurance can be given. Ourfuture operating performance and ability to extend or refinance ourindebtedness will be dependent on future economic conditions and financial,business and other factors that are beyond our control. We have historicallygenerated significant cash flow from operations. During 2004, we used this cashflow to prepay an aggregate of $50.0 million of our term loan in additionto making the payments required by the mandatory repayment schedule.

 

At March 31, 2005, we had cash and cash equivalents of $42.5 millionand working capital of $(4.4) million as compared to $32.1 million incash and cash equivalents and working capital of $(22.0) million at March 31,2004. The $10.4 million increase in cash and cash equivalents was primarily theresult of an increase in operating income. The $17.6 million increase in working capital was primarily theresult of an increase in operating income and a decrease to the current portionof long-term debt.  The reduction in cashand cash equivalents during the quarter ended March 31, 2005 negativelyimpacted working capital when compared to December 31, 2004.

 

Historically, we have funded our operations through internallygenerated cash. We generated cash from operating activities of $25.1 millionfor the three months ended March 31, 2005 as compared to $23.7 million forthe three months ended March 31, 2004. The $1.4 million increase in cashprovided by operating activities during the first quarter 2005 as compared tothe first quarter 2004 primarily resulted from a $50.2 million decrease innet income, a $54.8 million increase in non-cash items

 

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anda $3.2 million increase for changes in operating assets and liabilities.The increase in non-cash items during the period was primarily the result ofthe $55.6 million loss on extinguishment of debt during the first quarter of2005

 

We used cash for investing activities of approximately $1.5 millionfor the three months ended March 31, 2005 as compared to $2.8 million forthe three months ended March 31, 2004. The $1.3 million decrease in cash usedfor investing activities during the first quarter 2005 as compared to the firstquarter 2004 primarily resulted from a decrease in capital expenditures. Thedecline in capital expenditures during 2005 as compared to 2004 primarilyresulted from decreased purchases of internal equipment.

 

We used cash for financing activities of approximately $81.5 millionfor the three months ended March 31, 2005 as compared to $32.5 million forthe three months ended March 31, 2004. The $49.0 million increase  in cash used for financing activities duringthe first quarter of 2005 as compared to the first quarter 2004 primarilyresulted from the Refinancing Transactions in February 2005.  To finance the redemption of the WTIPreferred Stock and the payment of the Consent Fee (as defined below under theheading “-Liquidity and Capital Resources – Use of Proceeds”), we distributed$375.7 million and $8.6 million, respectively, to WTI.  In addition, WTI redeemed the Deltasubordinated note in January 2005 and we distributed $36.1 million to WTI tofinance this transaction.  The Partners’deficit balance of $6.1 million at March 31, 2005 was primarily a result ofthese distributions to WTI.

 

*SeniorCredit Facility*

 

In June 2003, we entered into a senior credit facility, referredto herein as our “old senior credit facility,” with a syndicate of financialinstitutions as lenders. In February 2005 we entered into a new creditagreement that made available a new senior credit facility, referred to hereinas our “new senior credit facility,” with a syndicate of financial institutionsas lenders, consisting of a revolving credit facility of $40.0 million anda term loan facility 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.

 

We borrowed $125.0 million under the old credit facility’s termloan facility in connection with the Acquisition. The revolving credit facilitywas available for working capital and general corporate needs.

 

The new 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

 

•                  a five-year term loan facility of$450.0 million.

 

Obligations under the old senior credit facility and the guaranteeswere secured by, and obligations under our new senior credit facility and theguarantees are secured by:

 

•                  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.

 

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Borrowings under the old senior credit facility bore interest at a rateequal to, at our option:

 

•                  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.

 

The initial applicable margin for the base rate revolving loans underthe old senior 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.

 

Our borrowings under the new senior credit facility will be subject toquarterly interest payments with respect to loans bearing interest at the baserate described below or at the end of each one, two, three or six monthinterest period for loans bearing interest at the LIBOR rate described belowand bear interest 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.

 

The initial applicable margin for base rate loans under the new seniorcredit facility is 1.75% and the applicable margin for LIBOR rate loans is2.75%.

 

In 2005, assuming mandatory scheduled payments only and using a LIBORrate of 2.79%, we expect the cash principal and interest payments related tothe $450.0 million borrowed under the term loan facility portion of thenew senior credit facility to be $4.0 million and approximately$21.8 million, respectively. The actual amounts to be paid for cashprincipal and interest during 2005 may differ significantly from these amountsdepending on the LIBOR rate in effect at the time and any discretionarypayments that we may elect to make during the year.

 

The old senior credit facility required us to meet financial tests,including without limitation, a minimum fixed charge coverage ratio, a minimuminterest coverage ratio, a maximum senior secured leverage ratio and a maximumtotal leverage ratio. Our new senior credit facility also requires us to meetfinancial tests, including without limitation, a minimum interest coverageratio and a maximum total leverage ratio. In addition, the old senior creditfacility contained, and our new senior credit facility contains customarycovenants which, among other things, limit the incurrence of additionalindebtedness, investments, dividends, transactions with affiliates, assetsales, acquisitions, capital expenditures, mergers and consolidations,prepayments of other indebtedness, liens and encumbrances and other matterscustomarily restricted in a senior credit facility. As of March 31, 2005,we were in compliance with the applicable covenants.

 

*SeniorNotes*

 

On June 30, 2003, we issued $280.0 million aggregateprincipal amount of 9 5/8% Senior Notes Due 2011, referred to herein as the “oldsenior notes.” Interest on the old senior notes accrues at 9 5/8% per annum. Aspart of our issuance of $300.0 million in aggregate principal amount ofSenior Second Lien Secured Floating Rate Notes due 2011, referred to herein asthe “new senior secured notes,” and the refinancing of our old senior creditfacility with our $490.0 million new senior credit facility (collectively,the “Refinancing Transactions”), in February 2005 we consummated a tenderoffer for and consent solicitation relating to our old senior notes. As aresult of this tender offer and consent solicitation, we repurchased more than99 1/2% of the total aggregate principal amount of $280.0 million of oldsenior notes previously outstanding, received the requisite consents from theholders of the old senior notes with respect to the consent solicitation andexecuted a supplemental indenture

 

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thateliminated substantially all of the restrictive covenants and certain defaultprovisions in the indenture governing the remaining outstanding old seniornotes. The supplemental indenture became effective on February 11, 2005upon our acceptance for payment of a majority in principal amount of theoutstanding old senior notes tendered.

 

On February 11, 2005, we issued $300.0 million in aggregateprincipal amount of new senior secured notes, secured on a second prioritybasis by substantially 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 rate equal to three-month LIBOR, which will be resetquarterly, plus 6.25%.

 

On March 4, 2005, we entered into an interest rate swap with anotional amount that will start at $508.4 million on November 15, 2005and amortize on a quarterly basis to $102.2 million at November 15,2008. The reset dates on the swap are February 15, May 15,August 15 and November 15 each year until maturity onNovember 15, 2008. This agreement, which has been designated as a cashflow hedge, will be used to convert the variable component of interest rates oncertain indebtedness to a fixed rate of 4.3%. As of March 31, 2005, the fair value of the interest rate swap was $1.7million.

 

We cannot redeem the remaining old senior notes before June 15,2007. There is currently $0.5 million aggregate principal amount of oldsenior notes outstanding.

 

The old senior notes are unsecured senior obligations, are equal inright of payment to all of our existing and future unsecured senior debt, andare senior in right of payment to all of our future subordinated debt. The newsenior secured notes are secured on a second priority basis by substantiallyall of our assets, the assets of WS Financing and those of our guarantorsubsidiaries. Each of the old senior notes and the new senior secured notes areguaranteed by each subsidiary guarantor (as defined in the indenture governingthe old senior notes or the new senior secured notes, as applicable).

 

If we experience a change of control (as defined in the indenturegoverning the old senior notes or the new senior secured notes, as applicable),each holder of old senior notes and new senior secured notes may require us torepurchase all or any portion of the holder’s notes at a purchase price equalto 101% of the principal amount plus accrued and unpaid interest to the date ofpurchase.

 

The indenture governing the old senior notes contained, and theindenture governing the new senior secured notes contains, certain covenantsthat, among other things, limit (i) the incurrence of additional debt byus and certain of our subsidiaries, (ii) the payment of dividends and thepurchase, redemption or retirement of capital stock or subordinatedindebtedness, (iii) investments, (iv) certain transactions with affiliates,(v) sales of assets, including capital stock of subsidiaries and(vi) certain consolidations, mergers and transfers of assets. As ofMarch 31, 2005, we were in compliance with the applicable covenants. Theindenture governing the old senior notes prohibited, and the indenturegoverning the new senior secured notes prohibits, certain restrictions ondistributions from certain subsidiaries.

 

*Use of Proceeds*

* *

The net proceeds to us from the sale of the new senior secured notesand the closing of the new senior credit facility, along with available cash,were used to (i)(a) repay approximately $58.0 million due under the oldsenior credit facility, and (b) terminate all commitments then outstandingunder the old senior credit facility, (ii) accept for purchase pursuant tothe cash tender offer for any and all of our’s and WS Financing’s outstandingold senior notes $279.5 million of old senior notes validly tendered priorto 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 interest on the old senior notes, for anaggregate total purchase price of $331.4 million and accept for purchase and pay for additional oldsenior notes tendered after February 4, 2005 but prior toFebruary 22, 2005, the expiration time of the tender offer, and pay thoseholders the purchase price of $1,141.64 for each $1,000.00 principal amount ofold notes tendered in accordance with the cash tender offer for an aggregatepurchase price of $0.2 million, (iii) redeem 100% of the outstandingWTI Preferred Stock, at a redemption price equal to the face amount of the WTIPreferred Stock plus accrued and unpaid dividends thereon (including AdditionalDividends (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.

 

In addition, in connection with the Refinancing Transactions, onFebruary 16, 2005, WTI, CVC Capital Funding, LLC (“CVC Capital”) andCiticorp Mezzanine III, L.P. (“CMIII,” and together with CVC Capital, the “Funds”)entered into an Exchange Agreement (the “Exchange Agreement”). In connectionwith the closing under the Exchange Agreement, WTI issued

 

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$43.6 millionaggregate principal amount of its new Subordinated Notes due 2013 (the “NewHoldCo Notes”) to the Funds and paid $0.4 million in accrued and unpaidinterest in exchange for the surrender and cancellation by the Funds of all ofthe obligations owing by WTI to the Funds under each Fund’s interest in thatcertain Subordinated Note (the “Seller Note”), dated as of June 30, 2003,made by WTI in favor of American Airlines, Inc. (which was subsequentlytransferred in part to each of the Funds). WTI also paid the Funds a total of$8.6 million 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 New Holdco Notes.

 

Also in connection with the Refinancing Transactions, onFebruary 16, 2005, we entered into an amendment to our Advisory Agreementwith WTI to terminate all advisory and other fees payable under that agreementas of January 1, 2005 in return for a prepayment of $7.7 millionpayable on or before December 15, 2005. In addition, WTI entered into anamendment to its Advisory Agreement with CVC Management LLC to terminate alladvisory and other fees payable under that agreement as of January 1, 2005in return for a prepayment of $4.6 million payable on or beforeDecember 15, 2005. Also, on February 16, 2005, WTI filed aCertificate of Amendment of its Amended and Restated Certificate ofIncorporation, effective as of the date of filing, with the Secretary of Stateof the State of Delaware to, among other things, terminate the specialdividends payable to holders of the Class B Common Stock of WTI in returnfor a prepayment of $3.1 million payable on or before December 15,2005.

 

*CapitalLease Obligations*

 

Welease equipment and software under capital lease obligations.  As of March 31, 2005, our obligations undercapital leases totaled $68.9 million. The interest rate used in computing the present value of the minimumlease payments ranges from approximately 4.0% to 12.0% depending on the assetbeing leased.

 

*SubordinatedNotes*

 

As part of the Acquisition, WTI issued to American Airlines and Deltasubordinated seller notes, referred to herein as the “subordinated seller notes”,in the original 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.

 

While the holding company notes are not, and the subordinated sellernotes were not, our debt obligations, so long as we are not in default under,and are in compliance with all financial covenants of our new senior creditfacility, the indenture governing the new senior secured notes and continue tomaintain a fixed charge coverage ratio (as defined in the indenture) of 2.25xor better, we expect to be permitted to distribute funds to WTI sufficient topay cash interest of up to 12% for the holding company notes and previously wewere permitted to distribute funds to WTI sufficient to pay the 5% cashinterest component of the subordinated seller notes when the same conditionswere met with respect to our old senior credit facility and old senior notes.During the six months ended December 31, 2003 and the year endedDecember 31, 2004, we distributed $1.9 million and $4.4 million,respectively, to WTI for this purpose. The holding company notes are, and thesubordinated seller notes were, unsecured obligations of WTI contractually andstructurally subordinated to our new senior secured notes and our new seniorcredit facility, or our old senior notes and our old senior credit facility, asapplicable, and structurally subordinated to all of our other debt. The subordinatedseller note originally issued to American Airlines bore interest at an annualrate equal to 12.0% and the subordinated seller note originally issued to Deltabore interest at an annual rate equal to 10.0%.

 

*FASAs*

 

Pursuant to the terms of the FASAs, we provide FASA credits to Deltaand Northwest to be applied against FASA service fee payments due from theseairlines to us. The FASA credits are structured and will be applied throughJune 2012 in an amount up to an aggregate total of $95.9 million toeach of Delta and Northwest as of December 31, 2004, and are reflected asreductions to our FASA revenues in the corresponding periods. The FASA creditsare provided to Delta and Northwest in

 

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monthlyinstallments, with an annual amount of $16.7 million scheduled to beprovided to each of these founding airlines during the first six years of therespective FASA term, an annual amount of $9.2 million scheduled to beprovided to each of these founding airlines during the seventh and eighth yearsof the respective FASA term and an annual amount of $6.7 million scheduledto be provided to each of these founding airlines during the ninth year of therespective FASA term. In the event that the monthly FASA credits deliverable byus to Delta or Northwest are more than the FASA service fee payments due fromthe applicable airline, then we will be obligated to pay such excess to suchairline in cash. Pursuant to a recent amendment of our FASA with Delta,Worldspan has the right, at its option, to terminate the FASA credits to Deltaon or before December 31, 2005, in exchange for a one-time payment from usto Delta in an amount that varies depending upon when Worldspan elects to makethe one-time payment. The one-time payment would be capitalized and amortizedas a reduction of FASA revenue in the corresponding periods.

 

Delta or Northwest may terminate its FASA due to a failure by us tosatisfy the mainframe processing time, system availability or criticalproduction data performance standards under that agreement (which representperformance standards which we have historically met under our predecessorservices agreements with Delta and Northwest). Furthermore, such a terminationby Delta or Northwest of its FASA constitutes an event of default under our newsenior credit 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 either orboth of Delta and Northwest reduce or cease operations in a way that reduces oreliminates the amount of airline services either founding airline obtains underthe 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*

 

Because we are a limited partnership, our partners will owe taxes onall of the income that we generate in the United States. We expect that WTIwill cause us to make distributions to it from time to time sufficient to coverall income taxes owed by WTI. Under the terms of our senior credit facility andthe indentures governing our old senior notes and the new senior secured notes,we are specifically permitted to make these tax distributions. During 2005, weexpect to distribute $7.7 million to WTI for this purpose.

 

**CapitalExpenditures**

 

Capital expenditures for property and equipment, includingboth purchased assets and assets acquired under capital leases, as well ascapitalized software, totaled $1.7 million for the three months ended March 31,2005, a decrease of $22.1 million from capital expenditures of $23.8 millionfor the three months ended March 31, 2004. We have estimated approximately$26.8 million for capital expenditures in 2005, which relates to normal growthin capacity requirements and routine replacement of older equipment. 

 

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**Off-BalanceSheet Arrangements**

 

AtMarch 31, 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 months ended March 31, 2005.

 

**WorldspanCautionary Statement**

 

Statements in this report and the exhibits hereto which are not purelyhistorical facts, including statements about forecasted financial projectionsor other statements about anticipations, beliefs, expectations, hopes,intentions or strategies for the future, may be forward-looking statementswithin the meaning of Section 27A of the Securities Act, andSection 21E of the Exchange Act, as amended. Readers are cautioned not toplace undue reliance on forward-looking statements. All forward-lookingstatements are based upon information available to the company on the date thisreport was submitted. We undertake no obligation to publicly update or reviseany forward-looking statements, whether as a result of new information, futureevents or otherwise. Any forward-looking statements involve risks anduncertainties that could cause actual events or results to differ materiallyfrom the events or results described in the forward-looking statements,including, but not limited to, risks or uncertainties related to: our revenuesbeing highly dependent on the travel and transportation industries; airlineslimiting their participation in travel marketing and distribution services; orother changes within, or affecting, the travel industry. We may not succeed inaddressing these and other risks.

 

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

 

Market risk represents the risk of changes in value of a financialinstrument, derivative or non-derivative, caused by fluctuations in interestrates, foreign exchange rates and equity prices. Changes in these factors couldcause fluctuations in the results of our operations and cash flows. In theordinary course of business, we are exposed to foreign currency and interestrate risks. These risks primarily relate to the sale of products and servicesto foreign customers and changes in interest rates on our long-term debt.

 

**Foreign Exchange Rate Market Risk**

 

We consider the U.S. dollar to be the functional currency for all ofour entities. Substantially all of our net sales and the majority of ourexpenses during the three months ended March 31, 2005 and 2004 were denominatedin U.S. dollars. Therefore, foreign currency fluctuations did not materiallyimpact our financial results in those periods. We have foreign currencyexposure arising from the translation of our foreign subsidiaries’ financialstatements into U.S. dollars. The primary currencies to which we are exposed tofluctuations include the euro and the British pound sterling. The fair value ofour net foreign investments would not be materially affected by a 10% adversechange in foreign currency exchange rates from March 31, 2005 levels.

 

**Interest Rate Market Risk**

 

Our old senior credit facility was, and our new senior credit facilityis variable rate debt. Interest rate changes therefore generally do not affectthe market value of such debt but do impact the amount of our interest paymentsand, therefore, our future earnings and cash flows, assuming other factors areheld constant. As of March 31, 2005, we had variable rate debt of approximately$749.0 million. Holding other variables constant, including levels ofindebtedness, a one hundred basis point increase in interest rates on ourvariable debt would have an estimated impact on 2005 pre-tax earnings and cashflows of approximately $6.6 million. Under the terms of our old seniorcredit facility, we were required to have at least 50% of our totalindebtedness subject to either a fixed interest rate or interest rateprotection for a period of not less than three years.

 

On March 4, 2005, we entered into an interest rate swap with anotional amount that will start at $508.4 million on November 15,2005 and amortize on a quarterly basis to $102.2 million atNovember 15, 2008. The reset dates on the swap are February 15,May 15, August 15 and November 15 each year until maturity onNovember 15, 2008. This agreement, which has been designated as a cashflow hedge, will be used to convert the variable component of interest rates oncertain indebtedness to a fixed rate of 4.3%. As of March 31, 2005, the fair value of the interest rate swap was $1.7million.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

 

As of the end of the period covered by this report, we conducted an evaluation,under the supervision and with the participation of our principal executiveofficer and principal financial officer, of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on thisevaluation, our principal executive officer and principal financial officerconcluded that our disclosure controls and procedures are effective to providereasonable assurance that material information required to be included in ourperiodic SEC reports is recorded, processed, summarized and reported within thetime periods specified in SEC rules and forms. In addition, we reviewed ourinternal controls and based on that review determined that certain changes werenecessary to improve our internal controls over financial reporting. Certaindeficiencies identified in the fourth quarter of 2004 involved the absence of acontrol to insure completeness of the transfer of information between ourprocessing and billing systems. As a result, a control addressing these issuesis in the process of implementation (a process that began this quarter).

 

We also determined that as of year end 2004, we did not have sufficientresources in our finance department, resulting in a number of audit adjustmentsproposed by our external auditors during the year end audit process. Highturnover within the finance department and the departure of our chief financialofficer in November 2004 were identified as factors contributing to this issue.Corrective controls, including the appointment of a new chief financial officeron March 21, 2005 and the active recruitment and placement of additionalexperienced financial personnel, are currently being implemented.

 

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**PART II.  OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

As described in our Annual Report on Form 10-K for the year endedDecember 31, 2004, in September 2003, we received multiple assessmentstotaling €39.5 million from the tax authorities of Greece relating to taxyears 1993-2002. Pursuant to a formal tax amnesty program with the Greekauthorities, we reached a settlement of the outstanding assessments in anamount of approximately of €7.8 million. The purchase agreement betweenour founding airlines and us provides that each of our founding airlines willseverally indemnify us on a net after-tax basis from and against any of ourtaxes related to periods prior to the Acquisition. Because of this indemnity,we believe that the settlement payments made by us to the Greek authoritieswill be reimbursed by our founding airlines (and certain payments to date havebeen reimbursed) and will not have a material impact upon our business,financial condition or results of operations.

 

We are involved in various other litigation proceedings as bothplaintiff and defendant. In the opinion of our management, none of these otherlitigation matters, individually or in the aggregate, if determined adverselyto us, would have a material adverse effect on our business, financialcondition or results of operations.

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

In January 2005, we commenced a cash tender offer and consentsolicitation for any and all of our outstanding old senior notes, and solicitedthe consent of holders of our old senior notes to the elimination ofsubstantially all of the restrictive covenants and certain default provisionsin the indenture governing the old senior notes.  The proposed amendments to the indenturerequired the consent of a majority in aggregate principal amount of outstandingold senior notes not owned by us or WS Financing or our affiliates to beadopted, and the tender and consent of the former holders of approximately99-1/2% aggregate principal amount of our old senior notes was obtained onFebruary 11, 2005.

 

**ITEM 6.  EXHIBITS**

 

***Exhibits:***

 
| 3.3   |   | Amendment  No.1 to the Seventh Amended and Restated Agreement of Limited Partnership of  Worldspan, L.P., dated as of March 1, 2005, by and between Worldspan  Technologies Inc. and WS Holdings LLC. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.4   |   | First  Supplemental Indenture, dated as of February 7, 2005, among Worldspan, L.P.,  as successor in interest to WS Merger LLC, WS Financing Corp., the guarantors  named therein and The Bank of New York, as trustee. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.5   |   | Indenture,  dated as of February 11, 2005, among Worldspan, L.P., WS Financing Corp., the  guarantors parties thereto and The Bank of New York Trust Company, N.A., as  trustee. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.6   |   | Form  of Senior Second Lien Secured Floating Rate Note due 2011 (included in  Exhibit 4.5). (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.7   |   | Registration  Rights Agreement, dated as of February 11, 2005, by and among Worldspan,  L.P., WS Financing Corp., the guarantors listed therein, and J.P. Morgan  Securities Inc., UBS Securities LLC, Lehman Brothers Inc., Deutsche Bank  Securities Inc., and Goldman, Sachs & Co., as representatives of the  several initial purchasers. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.85 |   | Note  Redemption Agreement, dated as of January 10, 2005, by and between Worldspan  Technologies Inc. and Delta Air Lines, Inc. (1) ***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.86 |   | Second  Amendment to Delta Founder Airline Services Agreement, dated as of January  10, 2005, by and between Worldspan Technologies Inc. and Delta Air Lines,  Inc. (1) ***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.87 |   | Employment  Agreement, dated as of January 25, 2005, by and between Worldspan, L.P.,  Worldspan Technologies Inc. and Dale Messick. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.88 |   | Waiver  and Consent to Credit Agreement, dated as of February 4, 2005, among  Worldspan Technologies Inc., WS Holdings LLC, Worldspan, L.P. and Lehman  Commercial Paper Inc., as administrative agent. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.89 |   | Credit  Agreement, dated as of February 11, 2005, among Worldspan Technologies Inc.,  WS Holdings LLC, Worldspan, L.P., J.P. Morgan Securities Inc. and UBS  Securities LLC, as joint advisors, J.P. Morgan Securities Inc., UBS  Securities 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., as joint lead  arrangers, UBS Securities LLC, as syndication agent, Lehman Commercial Paper  Inc., Deutsche Bank Securities Inc. and Goldman Sachs Credit Partners L.P.,  as documentation agents, JPMorgan Chase Bank, N.A., as administrative agent,  and the several banks and other financial institutions or entities from time  to time party thereto. (1) |
| 10.90 |   | Intercreditor  Agreement, dated as of February 11, 2005, among JPMorgan Chase Bank, N.A., as  administrative agent, The Bank of New York Trust Company, N.A., as trustee  and collateral agent, Worldspan Technologies, Inc., WS Holdings LLC,  Worldspan, L.P. and each other obligor therto.  (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

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| 10.91 |   | Amendment  to the Advisory Agreement, dated as of February 16, 2005, by and between  Worldspan, L.P. and Worldspan Technologies Inc. (3)                        |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.92 |   | Amendment  to the Advisory Agreement, dated as of February 16, 2005, by and between  Worldspan Technologies Inc and CVC Management LLC. (4)                     |
| 10.93 |   | Exchange  Agreement, dated as of February 16, 2005, by and among Worldspan  Technologies, Inc., Citicorp Mezzanine III, L.P. and CVC Capital Funding,  LLC. (5) |
| 10.94 |   | First  Amendment to the Worldspan Technologies Inc. Stock Incentive Plan, dated  March 17, 2005. (6)                                                            |
| 10.95 |   | Employment  Agreement, dated as of March 21, 2005 by and between Worldspan, L.P.,  Worldspan Technologies Inc. and Kevin W. Mooney. (7)                         |
| 31.1  |   | Certification  of the Principal Executive Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                   |
| 31.2  |   | Certification  of the Principal Financial Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                   |
| 32.1  |   | Certifications  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                      |

 

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| (1) |   | Filed as a like numbered  exhibit to our Annual Report on Form 10-K for the year ended December 31,  2004 and incorporated herein by reference. |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Filed as a like numbered  exhibit to our Registration Statement on Form S-4 filed April 29, 2005 and  incorporated herein by reference.         |
| (3) |   | Filed as Exhibit 10.90 to  our Annual Report on Form 10-K for the year ended December 31, 2004 and  incorporated herein by reference.           |
| (4) |   | Filed as Exhibit 10.91 to  our Annual Report on Form 10-K for the year ended December 31, 2004 and  incorporated herein by reference.           |
| (5) |   | Filed as Exhibit 10.92 to  our Annual Report on Form 10-K for the year ended December 31, 2004 and  incorporated herein by reference.           |
| (6) |   | Filed as Exhibit 10.93 to  our Annual Report on Form 10-K for the year ended December 31, 2004 and  incorporated herein by reference.           |
| (7) |   | Filed as Exhibit 10.94 to  our Annual Report on Form 10-K for the year ended December 31, 2004 and  incorporated herein by reference.           |

 

***Certain portions of this document have been omitted pursuant to a confidentialtreatment request.

 

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**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. |   |
|---------------|-----------------|--------|
|          |            |   |   |
|          |            |   |   |
| May  13, 2005 |            |   | /s/  Rakesh Gangwal |
| DATE          |            | By:    | Rakesh  Gangwal |
|          |            |   | Chairman,  President and Chief Executive Officer |
|          |            |   | and  Director |
|          |            |   | (principal  executive officer) |
|          |            |   |   |
|          |            |   |   |
| May  13, 2005 |            |   | /s/  Kevin W. Mooney |
| DATE          |            | By:    | Kevin  W. Mooney |
|          |            |   | Chief  Financial Officer |
|          |            |   | (principal  financial and accounting officer) |
|               |                 |        |  |  |

 

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