**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**ý**        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

 

**For the quarterly period ended September 30,2005**

 

**OR**

 

**o**        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

 

**For the transition periodfrom                    To                    **

 

**Commission filenumber  333-109064**

 

**WORLDSPAN,L.P.**

(Exact name of registrant as specified in itscharter)

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

 

Registrant’s telephone number, including areacode **(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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject 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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

 

o                                    Yes                            ý                                    No

 

**As of October 31, 2005,Registrant’s parent had outstanding 82,967,548 shares of Class A CommonStock and 11,000,000 shares of Class B Common Stock.**

 

 

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**WORLDSPAN,L.P.**

**REPORT ON FORM 10-Q**

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

 

**INDEX**

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

 

2

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**PART I.  FINANCIAL INFORMATION**

 

**ITEM1.  FINANCIAL STATEMENTS**

 

**Worldspan,L.P.**

**Condensed Consolidated Balance Sheets**

**(dollars inthousands)**

**(Unaudited)**

 
| ** **                                                                                        | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| **Assets**                                                                                        | ** ** | ** **                  | ** ** | ** **                 | ** ** |
| Current assets                                                                                    |       |                        |       |                       |       |
| Cash and cash  equivalents                                                                        |       | $                           | 49,536     |                       | $          | 100,474 |   |
| Trade  accounts receivable, net of an allowance for bad debt of $9,822 and $17,111,  respectively |       | 134,726                     |       | 102,793                    |       |
| Prepaid  expenses and other current assets                                                        |       | 18,927                      |       | 21,306                     |       |
| Total  current assets                                                                             |       | 203,189                     |       | 224,573                    |       |
| Property and equipment, net of accumulated  depreciation                                          |       | 96,690                      |       | 118,218                    |       |
| Deferred charges                                                                                  |       | 27,708                      |       | 34,351                     |       |
| Debt issuance costs, net of accumulated  amortization                                             |       | 15,452                      |       | 10,201                     |       |
| Supplier and agency relationships, net of  accumulated amortization                               |       | 245,568                     |       | 271,020                    |       |
| Developed technology, net                                                                         |       | 188,674                     |       | 206,802                    |       |
| Trade name                                                                                        |       | 72,142                      |       | 72,142                     |       |
| Goodwill                                                                                          |       | 112,035                     |       | 112,035                    |       |
| Other intangible assets, net                                                                      |       | 29,808                      |       | 31,914                     |       |
| Other long-term assets                                                                            |       | 31,384                      |       | 31,030                     |       |
| Total assets                                                                                      |       | $                           | 1,022,650  |                       | $          | 1,112,286 |   |
|                                                                                              |       |                        |       |                       |       |
| **Liabilities and Partners’ Capital**                                                        | ** ** | ** **                  | ** ** | ** **                 | ** ** |
| Current liabilities                                                                               |       |                        |       |                       |       |
| Accounts  payable                                                                                 |       | $                           | 16,865     |                       | $          | 14,671 |   |
| Accrued  expenses                                                                                 |       | 162,617                     |       | 156,635                    |       |
| Current  portion of capital lease obligations                                                     |       | 18,285                      |       | 19,369                     |       |
| Current  portion of long-term debt                                                                |       | 4,000                       |       | 12,497                     |       |
| Total  current liabilities                                                                        |       | 201,767                     |       | 203,172                    |       |
| Long-term portion of capital lease  obligations                                                   |       | 41,063                      |       | 54,079                     |       |
| Long-term debt                                                                                    |       | 678,500                     |       | 324,990                    |       |
| Pension and postretirement benefits                                                               |       | 61,137                      |       | 64,779                     |       |
| Other long-term liabilities                                                                       |       | 9,495                       |       | 13,867                     |       |
| Total  liabilities                                                                                |       | 991,962                     |       | 660,887                    |       |
| Commitments and contingencies                                                                     |       |                        |       |                       |       |
| Partners’ capital                                                                            |       | 30,688                      |       | 451,399                    |       |
| Total  liabilities and partners’ capital                                                     |       | $                           | 1,022,650  |                       | $          | 1,112,286 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

3

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**Worldspan,L.P.**

**Condensed Consolidated Statements of Operations**

**(dollars inthousands)**

**(Unaudited)**

 
| ** **                                                    | ** ** | **Three months ended**       | ** ** | **Nine months ended**        | ** ** |
|---------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                    | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                          |       |                         |       |                         |       |   |   |   |   |
| **Revenues**                                                  | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Electronic travel distribution                                |       | $                            | 222,487    |                         | $          | 217,937 |   | $ | 691,926 |   | $ | 682,963 |   |
| Information technology services                               |       | 17,218                       |       | 15,851                       |       | 53,992 |   | 48,159 |   |
| Total  revenues                                               |       | 239,705                      |       | 233,788                      |       | 745,918 |   | 731,122 |   |
| **Operating Expenses**                                        | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of revenues                                              |       |                         |       |                         |       |   |   |   |   |
| Cost of  revenues excluding developed technology amortization |       | 164,566                      |       | 164,819                      |       | 511,177 |   | 508,337 |   |
| Developed technology  amortization                            |       | 5,420                        |       | 5,508                        |       | 18,009 |   | 16,523 |   |
| Total cost  of revenues                                       |       | 169,986                      |       | 170,327                      |       | 529,186 |   | 524,860 |   |
| Selling, general and administrative                           |       | 25,402                       |       | 29,406                       |       | 83,554 |   | 95,434 |   |
| Amortization of intangible assets                             |       | 9,288                        |       | 9,136                        |       | 27,558 |   | 27,405 |   |
| Total  operating expenses                                     |       | 204,676                      |       | 208,869                      |       | 640,298 |   | 647,699 |   |
| Operating income                                              |       | 35,029                       |       | 24,919                       |       | 105,620 |   | 83,423 |   |
| **Other Income (Expense)**                                    | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense, net                                         |       | (15,793                      | )          | (10,104                      | )          | (43,695 | ) | (30,758 | ) |
| Loss on extinguishment of debt                                |       | —                       |       | —                       |       | (55,597 | ) | — |   |
| Other, net                                                    |       | (275                         | )          | (1,285                       | )          | (495 | ) | (1,167 | ) |
| Total other  expense, net                                     |       | (16,068                      | )          | (11,389                      | )          | (99,787 | ) | (31,925 | ) |
| Income before provision for income taxes                      |       | 18,961                       |       | 13,530                       |       | 5,833 |   | 51,498 |   |
| Income tax expense                                            |       | 860                          |       | 3,685                        |       | 3,317 |   | 3,987 |   |
| **Net income**                                                |       | $                            | 18,101     |                         | $          | 9,845 |   | $ | 2,516 |   | $ | 47,511 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

4

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**Worldspan,L.P.**

**Condensed Consolidated Statement of Partners’ Capital**

**(dollars inthousands)**

**(Unaudited)**

 
| ** **                                                   | ** ** | **Partners’  Capital** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------------------|------------|-----------|------------|
|                                                         |       |                        |       |                                        |       |      |       |
| Balance at December 31, 2004                            |       | $                           | 453,947    |                                        | $          | (2,548    | )          | $ | 451,399 |   |
| Comprehensive income:                                        |       |                        |       |                                        |       |      |       |
| Net income                                                   |       | 2,516                       |       | —                                      |       | 2,516     |       |
| Change in  fair value of derivative accounted for as a hedge |       | —                      |       | 1,847                                       |       | 1,847     |       |
| Loss  realized on settlement of investment                   |       | —                      |       | 97                                          |       | 97        |       |
| Unrealized  holding loss on investment                       |       | —                      |       | (109                                        | )          | (109      | )          |
| Comprehensive income                                         |       |                        |       |                                        |       | 4,351     |       |
| Distributions to and contributions from  WTI, net            |       | (427,238                    | )          | —                                      |       | (427,238  | )          |
| Stock-based compensation                                     |       | 2,176                       |       | —                                      |       | 2,176     |       |
| Balance at September 30, 2005                           |       | $                           | 31,401     |                                        | $          | (713      | )          | $ | 30,688 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

5

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**Worldspan,L.P.**

**Condensed Consolidated Statements of Cash Flows**

**(dollars inthousands)**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Nine months ended**        | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                         | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
| Cash flows from operating activities:                                              |       |                         |       |   |   |
| Net income                                                                         |       | $                            | 2,516      |   | $ | 47,511 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                         |       |   |   |
| Depreciation  and amortization                                                     |       | 76,000                       |       | 76,871 |   |
| Amortization  of debt issuance costs                                               |       | 2,479                        |       | 2,799 |   |
| Loss on  extinguishment of debt                                                    |       | 55,597                       |       | — |   |
| Stock-based  compensation                                                          |       | 2,176                        |       | 2,501 |   |
| Loss on  disposal of property and equipment, net                                   |       | 359                          |       | 444 |   |
| Gain on sale  of investment in other entity                                        |       | —                       |       | (953 | ) |
| Write-down  of impaired investments                                                |       | —                       |       | 1,498 |   |
| Other                                                                              |       | —                       |       | (56 | ) |
| Changes in operating assets and  liabilities:                                      |       |                         |       |   |   |
| Trade  accounts receivable, net                                                    |       | (31,933                      | )          | (30,717 | ) |
| Prepaid  expenses and other current assets                                         |       | 2,502                        |       | 6,563 |   |
| Deferred  charges                                                                  |       | 6,642                        |       | 921 |   |
| Other  long-term assets                                                            |       | 1,851                        |       | 1,564 |   |
| Accounts  payable                                                                  |       | 2,194                        |       | (8,433 | ) |
| Accrued  expenses                                                                  |       | 5,982                        |       | 18,144 |   |
| Pension and  postretirement benefits                                               |       | (3,641                       | )          | (5,296 | ) |
| Other  long-term liabilities                                                       |       | (4,370                       | )          | (1,444 | ) |
| Net cash  provided by operating activities                                         |       | 118,354                      |       | 111,917 |   |
| Cash flows from investing activities:                                              |       |                         |       |   |   |
| Purchase of  property and equipment                                                |       | (9,305                       | )          | (9,521 | ) |
| Proceeds  from sale of investment in other entity                                  |       | —                       |       | 5,765 |   |
| Proceeds  from sale of property and equipment                                      |       | 102                          |       | 117 |   |
| Capitalized  software for internal use                                             |       | (19                          | )          | (1,994 | ) |
| Net cash  used in investing activities                                             |       | (9,222                       | )          | (5,633 | ) |
| Cash flows from financing activities:                                              |       |                         |       |   |   |
| Proceeds  from issuance of debt, net of debt issuance costs                        |       | 734,727                      |       | — |   |
| Principal  payments on capital leases                                              |       | (14,516                      | )          | (16,389 | ) |
| Principal  payments on debt                                                        |       | (125,488                     | )          | (54,512 | ) |
| Repurchase  old notes                                                              |       | (327,555                     | )          | — |   |
| Distributions  to and contributions from WTI, net                                  |       | (427,238                     | )          | (4,091 | ) |
| Net cash  used in financing activities                                             |       | (160,070                     | )          | (74,992 | ) |
| Net (decrease) increase in cash and cash  equivalents                              |       | (50,938                      | )          | 31,292 |   |
| Cash and cash equivalents at beginning of  period                                  |       | 100,474                      |       | 43,746 |   |
| Cash and cash equivalents at end of period                                         |       | $                            | 49,536     |   | $ | 75,038 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

6

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**Worldspan,L.P.**

**Notes to Condensed Consolidated Financial Statements**

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

 

**1.  AccountingPolicies**

 

*Nature of Business.* Worldspan, L.P. (the “Partnership”) is a Delaware limited partnershipformed in 1990. On June 30, 2003, Worldspan Technologies Inc. (“WTI”),formerly named Travel Transaction Processing Corporation, formed by CitigroupVenture Capital Equity Partners, L.P. (“CVC”) and Ontario Teachers’ PensionPlan Board (“OTPP”), indirectly acquired 100% of the outstanding partnershipinterests of the Partnership from affiliates of Delta Air Lines, Inc. (“Delta”),Northwest Airlines, Inc. (“Northwest”) and American Airlines, Inc. (“American”)(the “Acquisition”). WTI owns all of the general partnership interests in thePartnership. WS Holdings LLC (“WS Holdings”), which is owned by WTI, is thesole limited partner of the Partnership, owning all of the limited partnershipinterests.

 

The Partnership provides information, reservations,transaction processing and related services for airlines, travel agencies andother travel-related entities. The Partnership owns and operates a globaldistribution system (“GDS”) and provides subscribers with access to and use ofthis GDS. The Partnership also charges airlines, hotels, car rental companiesand others for the use of the GDS.

 

*Basis ofPresentation.*  The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial information and with the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by accounting principles generallyaccepted in the United States for complete financial statements. In the opinionof management these financial statements contain all adjustments, consisting ofnormal recurring accruals, necessary to present fairly the financial position,results of operations and cash flows for the periods indicated. The preparationof financial statements in accordance with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andthe accompanying notes. Operating results for the three and nine months ended September 30,2005 and September 30, 2004 are not necessarily indicative of results thatmay be expected for any other interim period or for the year ending December 31,2005. The Partnership’s quarterly financial data should be read in conjunctionwith its consolidated 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.

 

*Derivative Instruments.*  All derivatives are measured at fair valueand recognized as either assets or liabilities in our condensed consolidatedbalance sheets. Changes in the fair values of derivative instruments that donot qualify as hedges and/or any ineffective portion of hedges are recognizedas a gain or loss in our condensed consolidated statement of operations in thecurrent period. Changes in the fair values of derivative instruments usedeffectively as fair value hedges are recognized in earnings, along with thechange in the value of the hedged item. Changes in the fair value of theeffective portions of cash flow hedges are reported in other comprehensiveincome (loss) and recognized in earnings when the hedged item is recognized inearnings.

 

*Risks and Uncertainties.* The Partnership derives substantially all ofits revenues from the travel industry. Accordingly, events, circumstances andchanges affecting the travel industry, particularly changes in airline traveland the financial well-being of the participating airlines, can significantlyaffect the Partnership’s business, financial condition and results ofoperations. The Partnership’s customers are primarily located in the UnitedStates and Europe.

 

Travel agencies are the primary channel ofdistribution for the services offered by travel vendors. If the Partnershipwere to lose all or part of the transactions generated by any significanttravel agencies and not replace such transactions, its business, financialcondition and results of operations could be adversely affected. One onlineagency subscriber, Expedia, generated transactions in the Partnership’selectronic travel distribution segment which resulted in revenues ofapproximately $66,353 and $61,221****for the threemonths ended September 30, 2005 and 2004, respectively, and $205,966 and$186,469 for the nine months September 30, 2005 and 2004, respectively.These amounts represented 28% and 26% of total revenues for the three monthsended September 30, 2005 and 2004, respectively, and 28% and 26% of totalrevenues for the nine months ended September 30, 2005 and 2004,respectively.

 

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A development within the GDS industry over the pastseveral years involves the competitive need for GDSs to maintain full contentfor airlines, including web fare content, for distribution to traditional andonline agency subscribers. We have entered into fare content agreements (whichinclude web fare content) with a number of major airlines. Subject totermination rights, these obligations continue until late 2005 (in the case ofUS Airways) or 2006 and 2007 (with respect to certain other of the contractedairlines).  Should we fail to maintaincompetitive content, our traditional and online agency subscribers could movetransactions from us to competitors with access to this content, thusnegatively affecting the Partnership’s business, financial condition and resultsof operations.

 

Furthermore, the Partnership charges airlinecarriers, rental car companies, hotels and other providers of travel productsand services (collectively referred to as “suppliers”) for electronic traveldistribution services and information technology services.

 

Effective September 14, 2005, Delta andNorthwest, both significant suppliers of the Partnership, entered bankruptcyprotection. Revenues generated by Delta and Northwest were $63,460 and $67,097for the three months ended September 30, 2005 and 2004, respectively, and$203,444 and $210,114 for the nine months ended September 30, 2005 and2004, respectively. These amounts, included in the electronic traveldistribution segment and the information technology services segment, representedapproximately 26% and 29% of total revenues for the three months ended September 30,2005 and 2004, respectively, and 27% and 29% of total revenues for the ninemonths ended September 30, 2005 and 2004, respectively.

 

The following table summarizes the amounts owed tothe Partnership by Delta and Northwest as of September 30, 2005 under thePartnership’s two primary agreements held with these two airlines:

 
| ** **                                            | ** ** | **Delta** | ** ** | **Northwest** | ** ** |
|-------------------------------------------------------|------------|-----------|------------|---------------|------------|
| Pre-bankruptcy petition accounts receivable           |       | $         | 11,274     |          | $          | 20,311 |   |
| Post-bankruptcy petition accounts  receivable         |       | 7,174     |       | 5,092         |       |
| Total  accounts receivable at September 30, 2005 |       | $         | 18,448     |          | $          | 25,403 |   |

 

SinceSeptember 30, 2005, the Partnership has received payments of pre-bankruptcy petition and post- bankruptcy petition accounts receivable in theamount of $4,536 and $8,711, respectively, related to services provided in thethird quarter of 2005.  While underbankruptcy protection, Delta and Northwest could petition the court to rejectcertain or all of the existing agreements with the Partnership. At the presenttime, the Partnership is not aware of an action by either Delta or Northwest toreject the two primary agreements and, accordingly, continues to operate withthe two airlines under its existing commercial agreements. The Partnershipbelieves that the GDS and IT services it provides to Delta and Northwest areessential to their ongoing operations and their ability to ultimately emergefrom bankruptcy protection. The Partnership believes it will continue toprovide the services to the airlines and, absent further significantdeterioration in the financial condition of the airlines, the pre-bankuptcypetition and post–bankruptcy petition accounts receivable are expected to becollected. The Partnership expects that post-bankruptcy petition amounts willbe collected in accordance with the terms of the Partnership’s currentcommercial agreements while the pre-bankuptcy petition amounts will likely becollected over an extended period of time. In addition, the Partnership’s agreements with Delta and Northwestprovide that the Partnership has the right to recoup service fees owed to thePartnership by Delta and Northwest against the Partnership’s FASA creditobligations, although Delta and Northwest or other parties in interest in theirbankruptcy proceedings may elect to challenge that right.  The Partnership intends to exercise itsrecoupment rights for outstanding service fees owed to the Partnership in theamount of $11,415 for the period preceding the Delta and Northwest bankruptcies,although there is no assurance that the exercise of these rights will not besuccessfully challenged by the airlines in bankruptcy court.  As a result, the Partnership did not record areserve for the accounts receivable outstanding as of September 30,2005.  However, given the early stage ofthe bankruptcy proceedings, additional facts could become known or actionstaken by either airline in bankruptcy that could impact the Partnership’sassessment of the collectibility and thus result in a charge to earnings infuture periods. Furthermore, we are not yet in a position to ultimatelydetermine whether payments previously made to us will be challenged or unwoundin the bankruptcy proceedings.

 

*RecentlyIssued Accounting Pronouncements*.  In December 2004, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 123R, *Share-Based Payment*. The Statement requires an entity tomeasure cost of employee services received in exchange for an award of equityinstruments based on the grant-date fair value of the award. That cost will berecognized over the period during which an employee is required to provideservice in exchange for the award-the requisite service period. The Partnershipdoes not believe SFAS 123R will have significant impact on the Partnership’sconsolidated

 

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financialposition or results of operations. SFAS No. 123(R) will becomeapplicable to the Partnership beginning January 1, 2006.

 

InMay 2005, the FASB issued SFAS No. 154, “Accounting Changes and ErrorCorrections” (“SFAS No. 154”) which supersedes APB Opinion No. 20, “AccountingChanges” and SFAS No. 3 “Reporting Accounting Changes in Interim FinancialStatements”. SFAS No. 154 changes the requirements for accounting for andreporting of changes in accounting principle. The statement requires theretroactive application to prior periods’ financial statements of changes inaccounting principles, unless it is impracticable to determine either theperiod specific effects or the cumulative effect of the change. SFAS No. 154does not change the guidance for reporting the correction of an error inpreviously issued financial statements or the change in an accounting estimate.SFAS No. 154 is effective for accounting changes and corrections of errorsmade in fiscal years beginning after December 15, 2005. The Partnershipdoes not believe SFAS No. 154 will have a significant impact on thePartnership’s consolidated financial position or results of operations.

 

**2.  Debt**

 

On February 11, 2005, the Partnership, WSFinancing Corp. (“WS Financing”), the wholly-owned domestic subsidiaries of thePartnership parties thereto as guarantors (the “Guarantor Subsidiaries”) andThe Bank of New York Trust Company, N.A., as trustee, entered into an Indenture(the “Indenture”) as part of the Partnership’s and WS Financing’s refinancingtransactions (the “Refinancing Transactions”). Pursuant to the Indenture, thePartnership and WS Financing issued $300,000 of Senior Second Lien SecuredFloating Rate Notes due 2011 (the “Floating Rate Notes”), secured on a secondpriority basis by substantially all of the assets of the Partnership, WSFinancing and the Guarantor Subsidiaries. In connection with the closing underthe Indenture, the Floating Rate Notes were sold in a private placement andresold by the initial purchasers to qualified institutional buyers pursuant to Rule 144Aof the Securities Act of 1933 (the “Securities Act”) and to non-U.S. personspursuant to Regulation S of the Securities Act. On April 29, 2005,the Partnership filed a Form S-4 with the Securities and ExchangeCommission (“SEC”) to offer to exchange the Floating Rate Notes forsubstantially identical notes that will have been registered with the SEC.  The Form S-4 became effective on October 25,2005. The Floating Rate Notes agreement required that the Form S-4 bedeclared effective within 180 days of the closing of the offering or August 10,2005. Liquidated damages in the form of an increase in the interest rate of theFloating Rate Notes accrued from August 11, 2005 until the Form S-4became effective on October 25, 2005. As of September 30, 2005, the Partnership had accrued approximately$105 for the liquidated damages and will incur additional interest expense inthe fourth quarter of $49. No additional liquidated damages will accrue after October 24,2005.

 

In addition, in connection with the RefinancingTransactions, on February 11, 2005, the Partnership, as borrower, WTI, andWS Holdings entered into a new credit agreement (the “Credit Agreement”) withJ.P. Morgan Securities Inc. and UBS Securities LLC, as joint advisors,J.P. Morgan Securities Inc., UBS Securities LLC and LehmanBrothers Inc., as joint book-runners, J.P. Morgan Securities Inc.,UBS Securities LLC, Lehman Brothers Inc., Deutsche BankSecurities Inc. and Goldman Sachs Credit Partners L.P., as joint leadarrangers, UBS Securities LLC, as syndication agent, Lehman CommercialPaper Inc., Deutsche Bank Securities Inc. and Goldman Sachs CreditPartners L.P., as documentation agents, JPMorgan Chase Bank, N.A., asadministrative agent, and the several banks and other financial institutions orentities 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 “Senior Credit Facility”)consisting of a revolving credit facility in the amount of $40,000 and a newterm loan facility (the “Term Loan”) in the amount of $450,000.

 

The net proceeds to the Partnership from the sale ofthe Floating Rate Notes and the closing of the New Senior Credit Facility,along with available cash of the Partnership, were used to (i)(a) repayapproximately $57,488 of the outstanding balance of the then-existing seniorterm loan including any accrued and unpaid interest then outstanding under thePartnership’s then-existing senior credit facility (the “Old Credit Facility”)and (b) terminate all commitments then outstanding under the Old CreditFacility, (ii) accept for purchase pursuant to the cash tender offer forany and all of the Partnership’s outstanding 9 5/8% Senior Notes due 2011 (the “95/8% Senior Notes”) of approximately $279,350 of 9 5/8% Senior Notes validlytendered prior to the consent date (more than 99 1¤2% of the total aggregate principal amount of $280,000 of 9 5/8% SeniorNotes previously outstanding), and pay those holders the total purchase priceof $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 9 5/8% Senior Notes, for each$1,000.00 principal amount of 9 5/8% Senior Notes tendered in accordance withthe Partnership’s and WS Financing’s Offer to Purchase and Consent SolicitationStatement and Letter of Transmittal and Consent (the “Offer to Purchase andConsent Solicitation Statement”), plus accrued and unpaid interest on the 95/8% Senior Notes, for an aggregate total purchase price of $331,405, andaccept for purchase and pay for an additional $150 of 9 5/8% Senior Notestendered after February 4, 2005 but prior to February 22, 2005, theexpiration time of the tender offer, and pay those holders the purchase priceof $1,141.64 for each $1,000.00 principal amount of 9 5/8% Senior

 

9

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

 

In addition, in connection with the RefinancingTransactions, on February 16, 2005, WTI, CVC Capital Funding, LLC (“CVCCapital”) and Citicorp Mezzanine III, L.P. (“CMIII,” and together with CVCCapital, the “Funds”) entered into an Exchange Agreement (the “ExchangeAgreement”). In connection with the closing under the Exchange Agreement, WTIissued $43,630 aggregate principal amount of its new Subordinated Notes due2013 (the “Holdco Notes”) to the Funds and paid $365 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 (which was subsequently transferredin part to each of the Funds). WTI also paid the Funds a total of $8,638 as aconsent fee (the “Consent Fee”) in return for the approval by the Funds of theRefinancing Transactions and the replacement of the Seller Note with the HoldcoNotes.

 

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

 

As a result of the Refinancing Transactionsdescribed above, the Partnership recorded a loss on extinguishment of debt of$55,597 during the nine months ended September 30, 2005.

 

At the Partnership’s option, the interest rateapplied to borrowings under the New Term Loan during 2005 was based on theLIBOR rate plus the initial applicable margin of 2.75%. The interest rateapplicable to borrowings under the Floating Rate Notes is based on thethree-month LIBOR rate plus 6.25%.  At September 30,2005, the three-month LIBOR rate was 4.07%.

 

On March 4, 2005, the Partnership entered intoan interest rate swap 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 the interest rates on certain indebtedness toa fixed rate of 4.3%, effective November 15, 2005. 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 inthe fair value of the swap are recognized as a component of accumulated other comprehensiveincome in each reporting period. As of September 30, 2005, the fair valueof this swap was an asset of $1,847, which is included in other long-termassets in the condensed consolidated balance sheet.

 

Debt covenants contained in the Credit Agreement andthe Indenture require the Partnership to maintain certain financial ratios,including a minimum interest coverage ratio and a maximum total leverage ratio.Also, the Indenture requires the Partnership to maintain a minimum fixed chargecoverage ratio. In addition, certain non-financial covenants restrict theactivities of the Partnership. As of September 30, 2005, the Partnership believesit is in compliance with all of its debt covenants.

 

10

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Long-term debt consisted of the following:

 
| ** **                                | ** ** | **September 30, 2005** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|
|                                      |       |                        |       |
| Term loan under Senior Credit Facility    |       | $                           | 382,000    |   |
| Floating Rate Notes                       |       | 300,000                     |       |
| 9 5/8% Senior Notes                       |       | 500                         |       |
|                                      |       | 682,500                     |       |
| Less current portion of long-term debt    |       | 4,000                       |       |
| Long-term debt, excluding current portion |       | $                           | 678,500    |   |

 

Duringthe nine months ended September 30, 2005, the Partnership paid $68,000 inprincipal on the New Term Loan, of which $3,000 were scheduled principalpayments.

 

**3.  EmployeeBenefit Plans**

 

The components of net pension and postretirementcosts were as follows:

 
| ** **                                     | ** ** | **Pension benefits**         | ** ** | **Pension benefits**         | ** ** |
|------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | **Three months  ended**      | ** ** | **Three months  ended**      | ** ** | **Nine months  ended** | ** ** | **Nine months  ended** | ** ** |
| ** **                                     | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
| Service cost                                   |       | $                            | —     |                         | $          | — |   | $ | — |   | $ | — |   |
| Interest cost                                  |       | 2,892                        |       | 2,762                        |       | 8,677 |   | 8,286 |   |
| Expected return on plan assets                 |       | (3,656                       | )          | (3,389                       | )          | (10,968 | ) | (10,167 | ) |
| Amortization of transition obligation          |       | —                       |       | —                       |       | — |   | — |   |
| Amortization of prior service cost             |       | —                       |       | —                       |       | — |   | — |   |
| Recognized net actuarial loss                  |       | 27                           |       | —                       |       | 81 |   | — |   |
| Net periodic pension benefit (income)  expense |       | $                            | (737       | )                            | $          | (627 | ) | $ | (2,210 | ) | $ | (1,881 | ) |

 
| ** **                                     | ** ** | **Postretirement benefits**                       | ** ** | **Postretirement benefits**                       | ** ** |
|------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                     | ** ** | **Three months  ended  September 30,  2005** | ** ** | **Three months  ended  September 30,  2004** | ** ** | **Nine months  ended  September 30,  2005** | ** ** | **Nine months  ended  September 30,  2004** | ** ** |
| Service cost                                   |       | $                                                 | 66         |                                              | $          | 82 |   | $ | 197 |   | $ | 246 |   |
| Interest cost                                  |       | 407                                               |       | 418                                               |       | 1,220 |   | 1,254 |   |
| Expected return on plan assets                 |       | —                                            |       | —                                            |       | — |   | — |   |
| Amortization of transition obligation          |       | —                                            |       | —                                            |       | — |   | — |   |
| Amortization of prior service cost             |       | —                                            |       | —                                            |       | — |   | — |   |
| Recognized net actuarial loss                  |       | —                                            |       | —                                            |       | — |   | — |   |
| Net periodic pension benefit (income)  expense |       | $                                                 | 473        |                                              | $          | 500 |   | $ | 1,417 |   | $ | 1,500 |   |

 

**4.  RelatedParty Transactions**

 

In February 2005, thePartnership entered into a series of Refinancing Transactions. Certain of theparties to these transactions were related parties, including WTI, CVC andOTPP. See Note 2 for 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 before December 15,2005. The Partnership paid $3,850 of this prepayment to WTI during the threemonths ended September 30, 2005. The Partnership expects to pay the balance of $3,850 by December 15,2005. The prepaid advisory fees are included in “Prepaid expenses and othercurrent assets” and “Other long-term assets” in the accompanying consolidatedbalance sheets.

 

On January 10, 2005, WTI entered into a NoteRedemption Agreement (the “Note Redemption Agreement”) with Delta. Pursuant tothe Note Redemption Agreement, WTI redeemed the 10% Subordinated Note due 2012in an original principal amount of $45,000 issued by WTI to Delta on June 30,2003, the additional notes issued in lieu of cash interest and

 

11

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allaccrued and unpaid interest up to January 10, 2005 for $36,137. ThePartnership distributed $36,137 to WTI to finance this transaction.

 

During the nine months ended September 30,2005, the Partnership distributed $4,700 to WTI to enable WTI to pay incometaxes that it owed on the income generated by the Partnership in the UnitedStates and $1,587 to enable WTI to pay interest payments on the Holdco Notes.

 

**5.  Commitmentsand Contingencies**

 

In September 2003, the Partnership received multipleassessments totaling €39,503 from the tax authorities of Greece relating to taxyears 1993-2002. The Partnership filed appeals of these assessments. Pursuantto a formal tax amnesty program with the Greek authorities, the Partnershipreached a settlement of the outstanding assessments in an amount ofapproximately €7,775. The Partnership Interest Purchase Agreement, dated March 3,2003, provides that each of the founding airlines shall severally indemnify thePartnership and hold the Partnership harmless on a net after-tax basis from andagainst any and all taxes of the Partnership and its subsidiaries related toperiods prior to the sale of the Partnership on June 30, 2003. ThePartnership informed the founding airlines of the receipt of these assessmentsand the indemnity obligation of the founding airlines under the PartnershipInterest Purchase Agreement. As discussed in Note 1 of the financialstatements, Delta and Northwest entered bankruptcy protection in September 2005.In connection with the sale of the Partnership in 2003, Delta, Northwest andAmerican agreed to retain the rights and obligations of all tax mattersrelating to tax periods prior to June 30, 2003. Because of the indemnityprovision and other remedies available under the applicable agreements, thePartnership believes that amounts paid to settle this assessment will berecovered by the founding airlines and will not have an effect on thePartnership’s financial position or results of operations. However, we cannotassure you that the exercise of these rights will not be successfullychallenged in bankruptcy court. As of September 30, 2005, the balance ofthe amounts due from the founding airlines was $3,501 based on the September 30,2005 exchange rate.

 

In September 2005, the Partnership and Orbitzeach filed separate complaints against the other with respect to certaindisputes arising under the Partnership’s online agreement with Orbitz.  The Partnership’s complaint alleges thatOrbitz accessed its computer system without authorization to obtain its seatmap data in violation of the Federal Computer Fraud and Abuse Act. In addition,the Partnership’s complaint further alleges that Orbitz’s use of Galileo andITA, competing computer reservation systems, in connection with direct connectairline segments constitutes a breach of the Partnership’s agreement withOrbitz. The Partnership is seeking injunctive relief to prevent theunauthorized accessing and use of the Partnership’s seat map data as well as toprevent Orbitz’s use of the services or data of Galileo and ITA. ThePartnership also seeks monetary damages from Orbitz in excess of $50,000 andreimbursement for its attorneys’ fees and costs.

 

Afterfiling its lawsuit, the Partnership learned that Orbitz filed suit against iton September 16, 2005, in the Circuit Court of Cook County, Illinois,County Department, Law Division, purporting to assert two causes of actionagainst the Partnership for violation of the Illinois Consumer Fraud Act andequitable estoppel. Orbitz has claimed that certain exclusivity, minimumsegment fee and 100% booking requirement provisions in the Partnership’sagreement were illegal and in violation of public policy. In its suit, Orbitzseeks a court order precluding the Partnership from pursuing its breach ofcontract claims against Orbitz, an order terminating and rescinding the firstand second amendments of the Partnership’s contract with Orbitz (which include,among other things, provisions containing commitments from Orbitz with respectto its usage of the Partnership’s GDS through 2011), monetary damages in excessof $50, punitive damages and reimbursement for attorneys’ fees and costs.

 

ThePartnership believes that the allegations in the Orbitz complaint are withoutmerit and the Partnership intends to defend against this action vigorously. Inaddition, the Partnership believes that Orbitz’s filing of its lawsuit againstit constitutes another violation of the contract between the parties, and thePartnership has instituted the dispute resolution process to resolve this issueas required by the contract. If the Partnership is unable to satisfactorilyresolve the claims asserted by Orbitz and its lawsuit against the Partnershipis successful, there would be few or no restrictions to prevent Orbitz frommoving a significant portion of its business from the Partnership’s GDS, whichwould have a material adverse effect on the Partnership’s business, financialcondition and results of operations.

 

**6.  OtherSignificant Events**

 

On May 5, 2004, the Partnership announced thatit had been informed by Expedia that it intends to move a portion of itstransactions to another GDS provider in order to diversify its GDSrelationships beyond using a single provider to process substantially all ofits GDS transactions. Expedia has not specified the volumes or percentages ofvolumes it intends

 

12

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toprocess through this other GDS. To date, the announced movement of Expedia’stransactions has not yet occurred. If Expedia were to move a materialportion of its transactions to other GDS providers, the Partnership’s businesswould be negatively and materially impacted.

 

On July 20, 2005, the Partnership announced areduction in force of approximately 70 employees. The reduction was the resultof improved organizational efficiency and the outsourcing of programming forcertain applications. The Partnership recorded a charge of $1,050, all of whichwas for severance and benefits, during the three months ended September 30,2005.  This amount is included in “Costof Revenues” in the accompanying consolidated statements of operations.  At September 30, 2005, the remainingliability associated with this workforce reduction was $19.

 

**7.  BusinessSegment Information**

 

The Partnership’s operations are classified into tworeportable business segments: electronic travel distribution and informationtechnology services. The Partnership’s two reportable business segments aremanaged separately based on fundamental differences in their operations. In addition,each business segment offers different products and services. The electronictravel distribution segment distributes travel services of its suppliers tosubscribers of the Worldspan GDS. By having access to the Worldspan GDS,subscribers are able to book reservations with the suppliers. The informationtechnology services segment provides technology services to Delta and Northwestand other companies in the travel industry.

 

The Partnership evaluates performance and allocatesresources based on operating income. The accounting policies of the reportablesegments are the same as those described in the summary of significantaccounting policies. There are no intersegment sales.

 
| ** **                           | ** ** | **Three months ended**       | ** ** | **Nine months ended**        | ** ** |
|--------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                           | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                 |       |                         |       |                         |       |   |   |   |   |
| Revenues                             |       |                         |       |                         |       |   |   |   |   |
| Electronic  travel distribution      |       | $                            | 222,487    |                         | $          | 217,937 |   | $ | 691,926 |   | $ | 682,963 |   |
| Information  technology services     |       | 17,218                       |       | 15,851                       |       | 53,992 |   | 48,159 |   |
| Total  revenues                      |       | $                            | 239,705    |                         | $          | 233,788 |   | $ | 745,918 |   | $ | 731,122 |   |
| Operating income (loss)              |       |                         |       |                         |       |   |   |   |   |
| Electronic  travel distribution      |       | $                            | 42,511     |                         | $          | 33,625 |   | $ | 128,554 |   | $ | 108,316 |   |
| Information  technology services     |       | (7,482                       | )          | (8,706                       | )          | (22,934 | ) | (24,893 | ) |
| Total  operating income              |       | $                            | 35,029     |                         | $          | 24,919 |   | $ | 105,620 |   | $ | 83,423 |   |
| Depreciation and amortization        |       |                         |       |                         |       |   |   |   |   |
| Electronic  travel distribution      |       | $                            | 19,481     |                         | $          | 21,030 |   | $ | 58,555 |   | $ | 64,256 |   |
| Information  technology services     |       | 5,332                        |       | 4,757                        |       | 17,445 |   | 12,615 |   |
| Total  depreciation and amortization |       | $                            | 24,813     |                         | $          | 25,787 |   | $ | 76,000 |   | $ | 76,871 |   |

 

Our principal administrative, marketing, productdevelopment and technical operations are located in the United States. Areas ofoperation outside of North America include EMEA and Latin America which areprimarily composed of selling and marketing functions.

 

The following table includes selected interimfinancial information for the three and nine months ended September 30,2005 and 2004 related to our geographic areas.

 
| ** **        | ** ** | **Three months ended**       | ** ** | **Nine months ended**        | ** ** |
|-------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **        | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|              |       |                         |       |                         |       |   |   |   |   |
| Geographic areas  |       |                         |       |                         |       |   |   |   |   |
| Total  revenues   |       |                         |       |                         |       |   |   |   |   |
| United  States    |       | $                            | 205,553    |                         | $          | 195,356 |   | $ | 636,427 |   | $ | 619,512 |   |
| Foreign           |       | 34,152                       |       | 38,432                       |       | 109,491 |   | 111,610 |   |
| Total             |       | $                            | 239,705    |                         | $          | 233,788 |   | $ | 745,918 |   | $ | 731,122 |   |
| Long-lived assets |       |                         |       |                         |       |   |   |   |   |
| United  States    |       | $                            | 787,833    |                         | $          | 871,427 |   | $ | 787,833 |   | $ | 871,427 |   |
| Foreign           |       | 31,628                       |       | 29,768                       |       | 31,628 |   | 29,768 |   |
| Total             |       | $                            | 819,461    |                         | $          | 901,195 |   | $ | 819,461 |   | $ | 901,195 |   |

 

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**8.  SupplementalGuarantor/Non-Guarantor Financial Information**

 

Concurrent with the closing of the Acquisitiondiscussed in Note 1, the 9 5/8% Senior Notes became fully and unconditionallyguaranteed on a senior unsecured basis by the domestic operations and assets ofthe Partnership (referred to as “Worldspan, L.P.—Guarantor” in the accompanyingfinancial information). Included in Worldspan, L.P.—Guarantor are Worldspan,L.P. and all of its wholly-owned domestic subsidiaries including WS Financing.These domestic subsidiaries also fully and unconditionally guarantee on asenior secured basis the Floating Rate Notes. These domestic subsidiariescollectively represent less than one percent of the Partnership’s total assets,Partners’ capital, total revenues, net income (loss), and cash flows fromoperating activities. The guarantees of each of the legal entities comprised byWorldspan, L.P.—Guarantor are joint and several. 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 9 5/8% Senior Notes and the Floating Rate Notes, was incorporatedon June 6, 2003. WS Financing does not have any substantial operations,assets or revenues. The following financial information presents condensedconsolidating balance sheets, statements of operations and statements of cashflows for Worldspan, L.P.—Guarantor and Non-Guarantor Subsidiaries. Theinformation has been presented as if Worldspan, L.P.—Guarantor accounted forits ownership of the Non-Guarantor Subsidiaries using the equity method ofaccounting.

 

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##### **Condensed Consolidating BalanceSheets**

**as of September 30,2005**

**(dollars inthousands)**

 
| ** **                                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Assets**                                      |       |                                 |       |                            |       |                     |       |                        |       |
| Current assets                                  |       |                                 |       |                            |       |                     |       |                        |       |
| Cash and  cash equivalents                      |       | $                                    | 46,518     |                            | $          | 3,018                    |       | $                           | —     |   | $ | 49,536 |   |
| Trade  accounts receivable, net                 |       | 132,810                              |       | 1,916                           |       | —                   |       | 134,726                     |       |
| Prepaid  expenses and other current assets      |       | 17,154                               |       | 1,773                           |       | —                   |       | 18,927                      |       |
| Total  current assets                           |       | 196,482                              |       | 6,707                           |       | —                   |       | 203,189                     |       |
| Property and equipment, net                     |       | 90,836                               |       | 5,854                           |       | —                   |       | 96,690                      |       |
| Deferred charges                                |       | 12,724                               |       | 14,984                          |       | —                   |       | 27,708                      |       |
| Debt issuance costs, net                        |       | 15,452                               |       | —                          |       | —                   |       | 15,452                      |       |
| Supplier and agency relationships, net          |       | 245,568                              |       | —                          |       | —                   |       | 245,568                     |       |
| Developed technology, net                       |       | 188,674                              |       | —                          |       | —                   |       | 188,674                     |       |
| Trade name                                      |       | 72,142                               |       | —                          |       | —                   |       | 72,142                      |       |
| Goodwill                                        |       | 112,035                              |       | —                          |       | —                   |       | 112,035                     |       |
| Other intangible assets, net                    |       | 29,808                               |       | —                          |       | —                   |       | 29,808                      |       |
| Investments in subsidiaries                     |       | 26,430                               |       | —                          |       | (26,430                  | )          | —                      |       |
| Other long-term assets                          |       | 20,594                               |       | 10,790                          |       | —                   |       | 31,384                      |       |
| Total assets                                    |       | $                                    | 1,010,745  |                            | $          | 38,335                   |       | $                           | (26,430    | ) | $ | 1,022,650 |   |
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Liabilities and Partners’ Capital**      |       |                                 |       |                            |       |                     |       |                        |       |
| Current liabilities                             |       |                                 |       |                            |       |                     |       |                        |       |
| Accounts  payable                               |       | $                                    | 10,136     |                            | $          | 6,729                    |       | $                           | —     |   | $ | 16,865 |   |
| Intercompany  accounts payable (receivable)     |       | 34,278                               |       | (34,278                         | )          | —                   |       | —                      |       |
| Accrued  expenses                               |       | 123,056                              |       | 39,561                          |       | —                   |       | 162,617                     |       |
| Current  portion of capital lease obligations   |       | 18,285                               |       | —                          |       | —                   |       | 18,285                      |       |
| Current  portion of long-term debt              |       | 4,000                                |       | —                          |       | —                   |       | 4,000                       |       |
| Total  current liabilities                      |       | 189,755                              |       | 12,012                          |       | —                   |       | 201,767                     |       |
| Long-term portion of capital lease  obligations |       | 41,063                               |       | —                          |       | —                   |       | 41,063                      |       |
| Long-term debt                                  |       | 678,500                              |       | —                          |       | —                   |       | 678,500                     |       |
| Pension and postretirement benefits             |       | 61,179                               |       | (42                             | )          | —                   |       | 61,137                      |       |
| Other long-term liabilities                     |       | 9,560                                |       | (65                             | )          | —                   |       | 9,495                       |       |
| Total  liabilities                              |       | 980,057                              |       | 11,905                          |       | —                   |       | 991,962                     |       |
| Commitments and contingencies                   |       |                                 |       |                            |       |                     |       |                        |       |
| Partners’ capital                          |       | 30,688                               |       | 26,430                          |       | (26,430                  | )          | 30,688                      |       |
| Total  liabilities and partners’ capital   |       | $                                    | 1,010,745  |                            | $          | 38,335                   |       | $                           | (26,430    | ) | $ | 1,022,650 |   |

 

15

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**CondensedConsolidating Balance Sheets**

**as of December 31,2004**

**(dollars inthousands)**

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

 

16

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**CondensedConsolidating Statements of Operations**

**for theThree Months Ended September 30, 2005**

**(dollars inthousands)**

 
| ** **                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                            |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                        |       | $                                    | 205,553    |                            | $          | 34,152                   |       | $                           | —     |   | $ | 239,705 |   |
| Operating expenses              |       | 173,226                              |       | 31,450                          |       | —                   |       | 204,676                     |       |
| Operating income                |       | 32,327                               |       | 2,702                           |       | —                   |       | 35,029                      |       |
| Other (expense) income          |       |                                 |       |                            |       |                     |       |                        |       |
| Interest  (expense) income, net |       | (15,810                              | )          | 17                              |       | —                   |       | (15,793                     | )          |
| Income from  subsidiaries       |       | 1,139                                |       | —                          |       | (1,139                   | )          | —                      |       |
| Other, net                      |       | 445                                  |       | (720                            | )          | —                   |       | (275                        | )          |
| Total other  expense, net       |       | (14,226                              | )          | (703                            | )          | (1,139                   | )          | (16,068                     | )          |
| Income before income taxes      |       | 18,101                               |       | 1,999                           |       | (1,139                   | )          | 18,961                      |       |
| Income tax expense              |       | —                               |       | 860                             |       | —                   |       | 860                         |       |
| Net income                      |       | $                                    | 18,101     |                            | $          | 1,139                    |       | $                           | (1,139     | ) | $ | 18,101 |   |

 

**CondensedConsolidating Statements of Operations**

**for theThree Months Ended September 30, 2004**

**(dollarsin thousands)**

 
| ** **                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                            |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                        |       | $                                    | 195,356    |                            | $          | 38,432                   |       | $                           | —     |   | $ | 233,788 |   |
| Operating expenses              |       | 175,913                              |       | 32,956                          |       | —                   |       | 208,869                     |       |
| Operating income                |       | 19,443                               |       | 5,476                           |       | —                   |       | 24,919                      |       |
| Other (expense) income          |       |                                 |       |                            |       |                     |       |                        |       |
| Interest  (expense) income, net |       | (10,114                              | )          | 10                              |       | —                   |       | (10,104                     | )          |
| Income from  subsidiaries       |       | 753                                  |       | —                          |       | (753                     | )          | —                      |       |
| Other, net                      |       | (237                                 | )          | (1,048                          | )          | —                   |       | (1,285                      | )          |
| Total other  expense, net       |       | (9,598                               | )          | (1,038                          | )          | (753                     | )          | (11,389                     | )          |
| Income before income taxes      |       | 9,845                                |       | 4,438                           |       | (753                     | )          | 13,530                      |       |
| Income tax expense              |       | —                               |       | 3,685                           |       | —                   |       | 3,685                       |       |
| Net income                      |       | $                                    | 9,845      |                            | $          | 753                      |       | $                           | (753       | ) | $ | 9,845 |   |

 

17

----

 

**CondensedConsolidating Statements of Operations**

**for theNine Months Ended September 30, 2005**

**(dollars inthousands)**

 
| ** **                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                            |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                        |       | $                                    | 636,427    |                            | $          | 109,491                  |       | $                           | —     |   | $ | 745,918 |   |
| Operating expenses              |       | 541,838                              |       | 98,460                          |       | —                   |       | 640,298                     |       |
| Operating income                |       | 94,589                               |       | 11,031                          |       | —                   |       | 105,620                     |       |
| Other (expense) income          |       |                                 |       |                            |       |                     |       |                        |       |
| Interest  (expense) income, net |       | (43,783                              | )          | 88                              |       | —                   |       | (43,695                     | )          |
| Loss on  extinguishment of debt |       | (55,597                              | )          | —                          |       | —                   |       | (55,597                     | )          |
| Income from  subsidiaries       |       | 6,742                                |       | —                          |       | (6,742                   | )          | —                      |       |
| Other, net                      |       | 565                                  |       | (1,060                          | )          | —                   |       | (495                        | )          |
| Total other  expense, net       |       | (92,073                              | )          | (972                            | )          | (6,742                   | )          | (99,787                     | )          |
| Income before income taxes      |       | 2,516                                |       | 10,059                          |       | (6,742                   | )          | 5,833                       |       |
| Income tax expense              |       | —                               |       | 3,317                           |       | —                   |       | 3,317                       |       |
| Net income                      |       | $                                    | 2,516      |                            | $          | 6,742                    |       | $                           | (6,742     | ) | $ | 2,516 |   |

 

**CondensedConsolidating Statements of Operations**

**for theNine Months Ended September 30, 2004**

**(dollars inthousands)**

 
| ** **                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                            |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                        |       | $                                    | 619,512    |                            | $          | 111,610                  |       | $                           | —     |   | $ | 731,122 |   |
| Operating expenses              |       | 548,773                              |       | 98,926                          |       | —                   |       | 647,699                     |       |
| Operating income                |       | 70,739                               |       | 12,684                          |       | —                   |       | 83,423                      |       |
| Other (expense) income          |       |                                 |       |                            |       |                     |       |                        |       |
| Interest  (expense) income, net |       | (30,825                              | )          | 67                              |       | —                   |       | (30,758                     | )          |
| Income from  subsidiaries       |       | 7,801                                |       | —                          |       | (7,801                   | )          | —                      |       |
| Other, net                      |       | (207                                 | )          | (960                            | )          | —                   |       | (1,167                      | )          |
| Total other  expense, net       |       | (23,231                              | )          | (893                            | )          | (7,801                   | )          | (31,925                     | )          |
| Income before income taxes      |       | 47,508                               |       | 11,791                          |       | (7,801                   | )          | 51,498                      |       |
| Income tax (benefit) expense    |       | (3                                   | )          | 3,990                           |       | —                   |       | 3,987                       |       |
| Net income                      |       | $                                    | 47,511     |                            | $          | 7,801                    |       | $                           | (7,801     | ) | $ | 47,511 |   |

 

18

----

 

**CondensedConsolidating Statements of Cash Flows**

**for theNine Months Ended September 30, 2005**

**(dollars inthousands)**

 
| ** **                                                  | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                        |       |                                 |       |                            |       |                     |       |                        |       |
| Net cash  provided by (used in) operating activities        |       | $                                    | 129,192    |                            | $          | (10,838                  | )          | $                           | —     |   | $ | 118,354 |   |
| Cash flows from investing activities:                       |       |                                 |       |                            |       |                     |       |                        |       |
| Purchase of  property and equipment                         |       | (6,926                               | )          | (2,379                          | )          | —                   |       | (9,305                      | )          |
| Proceeds  from sale of property and equipment               |       | 102                                  |       | —                          |       | —                   |       | 102                         |       |
| Capitalized  software development costs                     |       | (19                                  | )          | —                          |       | —                   |       | (19                         | )          |
| Investment  in subsidiaries                                 |       | (12,265                              | )          | —                          |       | 12,265                   |       | —                      |       |
| Net cash  used in investing activities                      |       | (19,108                              | )          | (2,379                          | )          | 12,265                   |       | (9,222                      | )          |
| Cash flows from financing activities:                       |       |                                 |       |                            |       |                     |       |                        |       |
| Proceeds  from issuance of debt, net of debt issuance costs |       | 734,727                              |       | —                          |       | —                   |       | 734,727                     |       |
| Principal  payments on capital leases                       |       | (14,516                              | )          | —                          |       | —                   |       | (14,516                     | )          |
| Principal  payments on debt                                 |       | (125,488                             | )          | —                          |       | —                   |       | (125,488                    | )          |
| Repurchase  old notes                                       |       | (327,555                             | )          | —                          |       | —                   |       | (327,555                    | )          |
| Distribution  to and contributions from WTI, net            |       | (427,238                             | )          | —                          |       | —                   |       | (427,238                    | )          |
| Contributions  to subsidiaries                              |       | —                               |       | 12,265                          |       | (12,265                  | )          | —                      |       |
| Net cash  (used in) provided by financing activities        |       | (160,070                             | )          | 12,265                          |       | (12,265                  | )          | (160,070                    | )          |
| Net decrease  in cash and cash equivalents                  |       | (49,986                              | )          | (952                            | )          | —                   |       | (50,938                     | )          |
| Cash and  cash equivalents at beginning of period           |       | 96,504                               |       | 3,970                           |       | —                   |       | 100,474                     |       |
| Cash and cash equivalents at end of period                  |       | $                                    | 46,518     |                            | $          | 3,018                    |       | $                           | —     |   | $ | 49,536 |   |

 

19

----

 

**CondensedConsolidating Statements of Cash Flows**

**for theNine Months Ended September 30, 2004**

 
| ** **                                           | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                 |       |                                 |       |                            |       |                     |       |                        |       |
| Net cash  provided by (used in) operating activities |       | $                                    | 117,094    |                            | $          | (5,177                   | )          | $                           | —     |   | $ | 111,917 |   |
| Cash flows from investing activities:                |       |                                 |       |                            |       |                     |       |                        |       |
| Purchase of  property and equipment                  |       | (7,013                               | )          | (2,508                          | )          | —                   |       | (9,521                      | )          |
| Proceeds  from sale of investments in other entity   |       | 5,765                                |       | —                          |       | —                   |       | 5,765                       |       |
| Proceeds  from sale of property and equipment        |       | 117                                  |       | —                          |       | —                   |       | 117                         |       |
| Capitalized  software for internal use               |       | (1,994                               | )          | —                          |       | —                   |       | (1,994                      | )          |
| Investments  in subsidiaries                         |       | (8,545                               | )          | —                          |       | 8,545                    |       | —                      |       |
| Net cash  used in investing activities               |       | (11,670                              | )          | (2,508                          | )          | 8,545                    |       | (5,633                      | )          |
| Cash flows from financing activities:                |       |                                 |       |                            |       |                     |       |                        |       |
| Distribution  to WTI, net                            |       | (4,091                               | )          | —                          |       | —                   |       | (4,091                      | )          |
| Principal  payments on capital leases                |       | (16,389                              | )          | —                          |       | —                   |       | (16,389                     | )          |
| Principal  payments on debt                          |       | (54,512                              | )          | —                          |       | —                   |       | (54,512                     | )          |
| Contributions  to subsidiaries                       |       | —                               |       | 8,545                           |       | (8,545                   | )          | —                      |       |
| Net cash  (used in) provided by financing activities |       | (74,992                              | )          | 8,545                           |       | (8,545                   | )          | (74,992                     | )          |
| Net increase  in cash and cash equivalents           |       | 30,432                               |       | 860                             |       | —                   |       | 31,292                      |       |
| Cash and cash equivalents at beginning of  year      |       | 41,615                               |       | 2,131                           |       | —                   |       | 43,746                      |       |
| Cash and cash equivalents at end of year             |       | $                                    | 72,047     |                            | $          | 2,991                    |       | $                           | —     |   | $ | 75,038 |   |

 

20

----

 

**9. Goodwill and Other Intangible Assets**

 

Goodwill and other intangible assetsconsisted of the following:

 
| ** **                                 | ** ** | ** **                 | ** ** | **Successor Basis**        | ** ** | ** **                    |
|--------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------------------|
| ** **                                 | ** ** | ** **                 | ** ** | **December 31, 2004** | ** ** | **September 30, 2005**   | ** ** |
| ** **                                 | ** ** | **Estimated  Useful Life** | ** ** | **Cost**                   | ** ** | **Accumulated  Amortization** | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** |
| Supplier and agency relationships          |       | 8-11 years                 |       | $                          | 321,618    |                          | $ | 50,598 |   | $ | 321,618 |   | $ | 76,050 |   |
| Information  technology services contracts |       | 5-15 years                 |       | 36,126                     |       | 4,212                         |   | 36,126 |   | 6,318 |   |
| Developed technology                       |       | 5-11 years                 |       | 239,947                    |       | 33,145                        |   | 239,828 |   | 51,154 |   |
| Goodwill                                   |       | Indefinite                 |       | 112,035                    |       | —                        |   | 112,035 |   | — |   |
| Trade name                                 |       | Indefinite                 |       | 72,142                     |       | —                        |   | 72,142 |   | — |   |
|                                       |       |                       |       | $                          | 781,868    |                          | $ | 87,955 |   | $ | 781,749 |   | $ | 133,522 |   |

 

During the nine months ended September 30,2005, the Partnership recorded a $1,500 writedown of certain purchased softwareto be enhanced and ultimately used in multi-hosting services for smallercarriers. The carrying value of the software was written down to zero as aresult of management’s decision to pursue other third party solutions as ameans to provide these services to smaller carriers as well as management’scurrent evaluation of the current and potential revenue stream of the software,among other factors. The writedown is included in “Developed technologyamortization” in the accompanying consolidated statement of operations.

 

As discussed in Note 1, Delta and Northwest, bothsignificant suppliers of the Partnership, entered bankruptcy protection in September 2005.  In connection with the Acquisition, thePartnership recorded an intangible asset in the amount of $33,152 related toits founding airline services agreements (“FASAs”) with Delta andNorthwest.  As of September 30,2005, the unamortized portion of the intangible asset related to the Delta andNorthwest FASAs was $28,184.  This amountis included in “Other intangible assets, net” in the accompanying consolidatedbalance sheets.  The services provided toDelta and Northwest under the terms of their respective FASAs include internalreservation services, development services and other support services.  The Partnership continues to provide servicesto the airlines in accordance with the terms of the respective FASA. ThePartnership believes that these services are essential to the continuedoperation of the airlines. In addition, the Partnership believes that the costof the services provided to Delta and Northwest are competitive to currentmarket rates for these services given the cost formula and the monthly creditthe airlines receive as a part of the FASAs. The Partnership does not believethat the long term value of the FASAs has changed based solely on thebankruptcy filing and any additional facts currently available to it. Given theearly stage of the bankruptcy proceedings for Delta and Northwest, additionalfacts could become known or actions taken by the airlines in bankruptcy thatcould impact the long term value of the FASAs and possibly result in animpairment of the intangible asset in the future.

 

In connection with the Acquisition, the Partnershipalso recorded additional intangible assets of approximately $321,618 related tothe value of its exisiting contracts with online travel agencies, traditionaltravel agencies and travel suppliers. The Partnership believes to date that theDelta and Northwest bankruptcy filings alone are not expected to have amaterially adverse impact on cash flows because the travel customer would beable to select another supplier if Delta and Northwest were to selectivelyreduce their flight capacity. Alternatively, in connection with theirbankruptcy related restructuring, Delta and Northwest could pursue a GDSalternative allowing them to bypass the Worldspan GDS.  If either Delta or Nothwest were successfulin bypassing the Worldspan GDS or significantly reducing their flight capacity,the Partnership’s cash flow and financial condition could be materially,adversely effected and possibly result in an impairment of the intangible assetin the future.

 

The Partnership recorded amortization expensefor its amortized intangible assets of $14,708 and $14,953 for the three monthsended September 30, 2005 and 2004, respectively, and $45,567 and $44,238for the nine months ended September 30, 2005 and 2004, respectively.Estimated amortization expense for the Partnership’s intangible assets,excluding the $45,567 amortization recorded for the nine months ended September 30,2005, is as follows:

 
| **Year Ended December 31,** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| Remaining in 2005                |       | $          | 14,708     |   |
| 2006                             |       | 58,833     |       |
| 2007                             |       | 58,277     |       |
| 2008                             |       | 57,459     |       |
| 2009                             |       | 57,185     |       |
|                                  |            |            |            |  |

 

21

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| Thereafter |   | 217,588 |    |
|------------|--------|---------|---------|
|       |   | $       | 464,050 |   |
|            |        |         |         |  |

 

22

----

 

**10. Subsequent Events**

 

In October 2005,Expedia notified the Partnership of its intention to move some portion but notall of its European transactions to another GDS provider in 2006.  Expedia’s European transactions representapproximately 3.0% of the Partnership’s total transaction volume for the ninemonths ended September 30, 2005.

 

23

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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 Securitiesand Exchange Commission on March 28, 2005, as amended.*

 

**Overview**

 

We are a provider of mission-critical transactionprocessing and information technology services to the global travel industry.We provide subscribers (including traditional travel agencies, online travelagencies and corporate travel departments) with real-time access to schedule,price, availability and other travel information and the ability to processreservations and issue tickets for the products and services of approximately800 travel suppliers (such as airlines, hotels, car rental companies, tourcompanies and cruise lines) throughout the world. Globally, we are the largesttransaction processor for online travel agencies, having processedapproximately 62% of all global distribution system, or GDS, online airtransactions during the twelve months ended September 30, 2005. In theUnited States (the world’s largest travel market), we are the second largesttransaction processor for travel agencies, accounting for 32% of GDS airtransactions and approximately 65% of online GDS air transactions processedduring the twelve months ended September 30, 2005. During the twelvemonths ended September 30, 2005, we processed approximately205 million transactions. We also provide information technology servicesto the travel industry, primarily airline internal reservation systems, flightoperations technology and software development.

 

Our relationships with four of the largest onlinetravel agencies in the world have positioned us well to take advantage of thecontinuing shift to the online travel agency channel, where we have a highermarket share. We believe our strong position in the online travel agencychannel has allowed us to increase our airline transaction volume, despite thedifficult times in the travel industry since 2001. Total transactions for thetwelve months ended September 30, 2005, including airline and hospitalityand destination services, were up 1.6% compared to the same period in 2004.

 

As a result of the market conditions and industrypressures described above, we took steps to reduce our operating expenses. Wehave reduced personnel cost through targeted reductions in the number ofpersonnel and personnel related costs such as benefit plans and pension plansand increased use of offshore resources to reduce the cost of applicationdevelopment and travel agency support functions. We renegotiated our network,technology and communication contracts with our primary providers in the firstquarter of 2004. In addition, we have pursued a strategy to move customers fromWorldspan sponsored networks to third party sponsored networks. These actionshave led to decreases in our network and communication expenses in both 2004and 2005. Each of these actions has generated cost savings which are expectedto continue in future years; however, the actual amount of our ongoing expensesmay ultimately be impacted by other environmental factors such as changes inhealthcare and technology costs and usage, which we are unable to predict.

 

We depend upon a relatively small number of airlinesand online travel agencies for a significant portion of our revenues. Our fivelargest airline relationships represented an aggregate of approximately 50% and51% of our total revenues for the twelve months ended September 30, 2005and December 31, 2004, respectively, while our top ten largest airlinerelationships represented an aggregate of approximately 62% and 64% of ourtotal revenues for the twelve months ended September 30, 2005 and December 31,2004, respectively. Our relationships with four online travel agencies,Expedia, Hotwire, Orbitz and Priceline, represented 50% of our totaltransactions during the twelve months ended September 30, 2005. We expectto continue to depend upon a relatively small number of airlines and onlinetravel agencies for a significant portion of our revenues.

 

In September 2005, we and Orbitz LLC (“Orbitz”)each filed separate complaints against the other with respect to certaindisputes arising under our online agreement with Orbitz.  See “Legal Proceedings.”

 

Effective September 14, 2005, Delta andNorthwest, both significant suppliers of ours, entered bankruptcy protection.Revenues generated by Delta and Northwest were $63.5 million and $67.1 millionfor the three months ended September 30, 2005 and 2004, respectively, and$203.4 million and $210.1 million for the nine months ended September 30,2005 and 2004, respectively. These amounts, included in the electronic traveldistribution segment and the information technology services segment,represented approximately 26% and 29% of total revenues for the three monthsended September 30, 2005 and 2004, respectively, and 27% and 29% of totalrevenues for the nine months ended September 30,

 

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2005and 2004, respectively.

 

The following table summarizes the amounts owed tous by Delta and Northwest as of September 30, 2005 under our two primaryagreements held with these two airlines:

 
| **(dollars in thousands)**                            | ** ** | **Delta** | ** ** | **Northwest** | ** ** |
|-------------------------------------------------------|------------|-----------|------------|---------------|------------|
| Pre-bankruptcy petition accounts receivable           |       | $         | 11,274     |          | $          | 20,311 |   |
| Post-bankruptcy petition accounts  receivable         |       | 7,174     |       | 5,092         |       |
| Total  accounts receivable at September 30, 2005 |       | $         | 18,448     |          | $          | 25,403 |   |

 

Since September 30, 2005, we have receivedpayments of pre-bankruptcy petition and post-bankruptcy petition accountsreceivable in the amount of $4.5 million and $8.7 million, respectively,related to services provided in the third quarter of 2005.  While under bankruptcy protection, Delta andNorthwest could petition the court to reject certain or all of the existingagreements with us. At the present time, we are not aware of an action byeither Delta or Northwest to reject the two primary agreements and, accordingly,continue to operate with the two airlines under our existing commercialagreements. We believe that the GDS and IT services we provide to Delta andNorthwest are essential to their ongoing operations and their ability toultimately emerge from bankruptcy protection. We believe we will continue toprovide the services to the airlines and, absent further significantdeterioration in the financial condition of the airlines, the pre-bankruptcypetition and post-bankruptcy petition accounts receivable are expected to becollected. We expect that post-bankruptcy petition amounts will be collected inaccordance with the terms of our current commercial agreements while thepre-bankruptcy petition amounts will likely be collected over an extendedperiod of time. In addition, our agreements with Delta and Northwest providethat we have the right to recoup service fees owed to us by Delta and Northwestagainst our founding airline services agreement (“FASA”) credit obligations,although Delta and Northwest or other parties in interest in their bankruptcy proceedingsmay elect to challenge that right.  Weintend to exercise our recoupment rights for outstanding service fees owed tous in the amount of $11.4 million for the period preceding the Delta andNorthwest bankruptcies, although there is no assurance that the exercise ofthese rights will not be successfully challenged by the airlines in bankruptcycourt.  As a result, we did not record areserve for the accounts receivable outstanding as of September 30,2005.  However, given the early stage ofthe bankruptcy proceedings, additional facts could become known or actionstaken by either airline in bankruptcy that could impact our assessment of thecollectibility and thus result in a charge to earnings in future periods.

 

In connection with the acquisition of Worldspan, werecorded an intangible asset in the amount of $33.2 million related to ourFASAs with Delta and Northwest.  As of September 30,2005, the unamortized portion of the intangible asset related to the Delta andNorthwest FASAs was $28.2 million.  Thisamount is included in “Other intangible assets, net” in the accompanyingconsolidated balance sheets.  Theservices provided to Delta and Northwest under the terms of their respectiveFASAs include internal reservation services, development services and othersupport services.  We continue to provideservices to the airlines in accordance with the terms of the respective FASA.We believe that these services are essential to the continued operation of theairlines. In addition, we believe that the cost of the services provided toDelta and Northwest are competitive to current market rates for these servicesgiven the cost formula and the monthly credit the airlines receive as a part ofthe FASAs. We do not believe that the long term value of the FASAs has changedbased solely on the bankruptcy filing and any additional facts currentlyavailable to us. Given the early stage of the bankruptcy proceedings for Deltaand Northwest, additional facts could become known or actions taken by theairlines in bankruptcy that could impact the long term value of the FASAs andpossibly result in an impairment of the intangible asset in the future.

 

Inconnection with the acquisition, we also recorded additional intangible assetsof approximately $321.6 million related to the value of our exisiting contractswith online travel agencies, traditional travel agencies and travel suppliers.We believe to date that the Delta and Northwest bankruptcy filings alone arenot expected to have a materially adverse impact on cash flows because thetravel customer would be able to select another supplier if Delta and Northwestwere to reduce their flight capacity. Alternatively, in connection with theirbankruptcy related restructuring, Delta and Northwest could pursue a GDSalternative allowing them to bypass the Worldspan GDS.  If either Delta or Northwest were successfulin bypassing the Worldspan GDS or significantly reducing their flight capacity,our cash flow and financial condition could be materially, adversely effectedand possibly result in an impairment of the intangible asset in the future.Furthermore, we are not yet in a position to ultimately determine whetherpayments previously made to us by Delta or Northwest will be challenged orunwound in the bankruptcy proceedings.

 

 

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*** ***

***Supplier Content, Transaction Feesand Transaction Volume***

 

A development within the GDS industry over the pastseveral years involves the competitive need for GDSs to maintain full content,including web fare content, for distribution to traditional and online agencysubscribers. Historically, we have increased the transaction fees we collectfrom our airline suppliers, which pay a substantial portion of our transactionfees. We anticipate that this historic trend of annual transaction feeincreases could be reduced in the future due to our current fare contentagreements with major airlines. For instance, we have entered into fare contentagreements with American Airlines, British Airways, Continental Airlines,Delta, Northwest, United Air Lines and US Airways. Generally, in theseagreements, the airlines commit (subject to the exceptions contained in theagreements) to provide the traditional and online travel agencies covered bythe agreements in the territories covered by the agreements with substantiallythe same fare content it provides to the travel agency subscribers of otherGDSs (including web fares) in exchange for payments from us and/or discounts intransaction fees to each airline and subject to us keeping steady the averagetransaction fees paid by each airline for travel agency transactions in theterritories covered by the agreements. In addition, pursuant to theseagreements, each airline has agreed, among other things, to commit to thehighest level of participation in our GDS. Subject to termination rights, theseobligations continue until late 2005 (in the case of US Airways), 2006(with respect to the other contracted airlines) or 2007 (in the case of BritishAirways). We expect that these fare content agreements will provide our travelagencies in the territories covered by the agreements with access to improvedcontent concerning the flights and fares of the participating airlines andother forms of non-discriminatory treatment.

 

We believe that obtaining similar fare content fromour other major airline travel suppliers is important to our ability tocompete, since other GDSs have also entered into fare content agreements withvarious airlines. Consequently, we are pursuing agreements similar to thesefare content agreements with other major airlines in order to obtain access tosuch content. We expect that the fare content agreements will require us tomake, in the aggregate, 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, and resulting from, the ongoing threat of terrorist acts after September 11,2001, war in Iraq and rising fuel costs for commercial airlines, among otherissues, have adversely affected the financial condition of many commercialairlines. Several major airlines are experiencing liquidity problems, some havesought bankruptcy 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 operations.In September 2005, Delta and Northwest entered bankruptcy protection.  See related discussion in “MD&A—Overview.”

 

***Channel Shift***

 

An increasing number of travel transactions arebeing made online. During the twelve months ended September 30, 2005,airline transactions generated through online travel agencies accounted forapproximately 33% of all airline transactions in the United States processed bya GDS, up from approximately 31% in 2004, approximately 28% in 2003 andapproximately 23% in 2002. Between 2002 and 2004, the number of airlinetransactions in the United States generated through online travel agencies andprocessed by us increased at a compound annual growth rate of 15.6%. We believethat this shift to online travel agency bookings will continue, but the extentand pace of the shift is difficult to anticipate. Other industry developments,such as Expedia’s announcement that it intends to move a portion of itstransactions to other GDS providers, compound our difficulty in forecasting thegrowth of our transactions from online travel agencies. We typically pay ahigher inducement per transaction to our large online travel agency customersthan our traditional agencies. Accordingly, as we continue to experiencesignificant channel shift, we expect our inducements cost to continue to growand direct costs related to supporting traditional travel agencies to continueto decline.

 

Since 2001, the combination of channel shift,declines in the global economy, terrorist actions and threats, wars inAfghanistan and Iraq, and health concerns over SARS has resulted in annualdeclines in transactions generated by traditional travel agencies. As a resultof these declines, we have completed restructuring activities in each of thelast five years, which have largely been focused on reducing the operatingcosts associated with servicing traditional travel agencies in areas such aslabor, network, agency hardware, and advertising.

 

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

 

Although we have historically processed most of theairline transactions for our online travel agencies, these agencies may move aportion of their business to other technologies and technology providers,subject to some 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 October 2005, Expedia notified us of its intention to movesome portion but not all of its European transactions to another GDS providerin 2006.  See “Subsequent Events” forfurther discussion.  In connection withthe Acquisition, we recorded an intangible asset related to online customercontracts of $131.9 million, of which we estimate $35.2 million wasrelated to the Expedia contract. Based on that estimate, the portion of thisintangible asset that was unamortized as of September 30, 2005 was$25.3 million. Upon determination of the specific volumes, percentage ofvolumes or timing relating to Expedia’s announced agreement with the other GDSprovider, we will further assess the impact, if any, on our overall financialcondition as prescribed by Statement of Financial Accounting Standards (“SFAS”)No. 144, *Accounting for the Impairmentor Disposal of Long-Lived Assets*, and SFAS No. 142, *Goodwill and Other Intangible Assets*. Inaddition, Orbitz has developed direct connections with travel suppliers whichbypass our GDS. Further, Cendant Corporation recently acquired Orbitz. Cendant’sTravel Distribution Services Division includes Galileo, which is a competitorof ours. Orbitz is one of our largest online travel agency customers. Ourcontract with Orbitz extends into 2011 subject to standard termination rightsheld by Orbitz including for-cause termination rights.  Also, in September 2005, we and Orbitzeach filed separate complaints against the other with respect to certaindisputes arising under our online agreement with Orbitz.  See “Legal Proceedings.”

 

Although we currently continue to operate underthese agreements, it is uncertain as to whether or not these and our othermajor online travel agencies will not attempt to terminate their respectiveagreements with us or otherwise move business to another GDS in the future.With this uncertainty, we cannot reliably forecast the volume of suchtransactions and may experience transaction volume decreases that result in amaterial adverse effect on our financial condition and operating results.

 

***Neutrality***

 

We do not own an online travel agency. Unlike ourcompetitors, we have intentionally not pursued a strategy of verticalintegration and instead have forged strategic partnerships with leading onlinetravel agencies. Given the highly competitive nature of the travel agencybusiness, we believe our customers value our neutrality. As the shift towardsthe online travel agency channel continues, we believe the traditional travelagencies will increasingly view the GDS-owned online travel agencies ascompetitive to their core business. As a result, our neutrality gives us anopportunity to capture additional business from both online and traditionaltravel agencies not owned by a GDS. However, to the extent that such agenciesare acquired by or become affiliated with one of our competitors, thelikelihood of our capturing additional business from those agencies may bereduced and our existing business with those agencies may be at risk.

 

***FASA Credits***

 

Pursuantto the terms of our founder airline services agreements, or FASAs, we provideFASA credits to Delta and Northwest to be applied against FASA service feepayments due from these airlines to us. The FASA credits are structured andwill be applied through June 2012 in scheduled monthly installments up toan aggregate total of approximately $87.5 million to each of Delta andNorthwest as of September 30, 2005, and are reflected as reductions ofFASA revenue 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 “Liquidityand Capital Resources” for further information on the FASA credits. At thistime we cannot predict how the Delta and Northwest bankruptcies may affect theFASAs. The rejection of those agreements in bankruptcy by one or both airlinescould have a material adverse effect on our business, financial condition andresults of operations. Our agreements with Delta and Northwest provide that wehave the right to recoup service fees owed to us by Delta and Northwest againstour FASA credit obligations, although Delta and Northwest or other parties ininterest in their bankruptcy proceedings may elect to challenge that right. Weintend to exercise our recoupment rights for service fees owed to us for theperiod preceding the Delta and Northwest bankruptcies, although we cannotassure you that the exercise of these rights will not be successfullychallenged by the airlines in bankruptcy court.

 

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**Business Segment Summary**

 

Our revenues are primarily derived from transactionfees paid by our travel suppliers for electronic travel distribution services,and to a lesser extent, other transaction and subscription fees from ourinformation technology services operations:

 

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

 

Set forth below is a chart illustrating the flow ofpayments in a typical 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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*                 Transactionand inducement fees are for illustrative purposes only.

 

•                  Information technology services revenues aregenerated by charging a fee for hosting travel supplier inventory,reservations, flight operations and other computer applications within our datacenter and by providing software development and maintenance services on thoseapplications. Fees paid by travel suppliers are generally based upon the volumeof messages processed on behalf of the travel supplier or software 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 in the case of Delta and Northwest in thecorresponding month.

 

Our costs and expenses consist of the cost ofelectronic travel distribution and information technology services revenues,selling, general and administrative expenses and depreciation and amortization:

 

•                  Costof electronic travel distribution revenues consists primarily of inducementspaid to travel agencies, technology development and operations personnel,software costs, network costs, hardware leases, maintenance of computer andnetwork hardware, the data center building, help desk and other travel agencysupport headcount. As our transactions from online travel agencies increase asa percent of our total transactions, we

 

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incur additional inducement and technologycosts due to the average inducement paid to our large online 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,amortization of capitalized software and maintenance of computer and networkhardware.

 

•                  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.

 

**Critical Accounting Policies**

 

Thediscussion and analysis of our financial condition and results of operations isbased on our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States.The preparation of these financial statements requires us to make estimates andjudgments that affect our reported assets and liabilities, revenues andexpenses, and other financial information. Actual results may differsignificantly from these estimates, and our reported financial condition andresults of operations could vary under different assumptions and conditions. Inaddition, our reported financial condition and results of operations could varydue to a change in the application of a particular accounting standard.

 

Weregard an accounting estimate underlying our financial statements as a “criticalaccounting estimate” if the accounting estimate requires us to make assumptionsabout matters that are highly uncertain at the time of estimation and ifdifferent estimates that reasonably could have been used in the current period,or changes in the estimate that are reasonably likely to occur from period toperiod, would have had a material effect on the presentation of financialcondition, changes in financial condition, or results of operations.

 

Therehave been no changes to our critical accounting policies or significant changesin assumptions or estimates that would affect such policies during the ninemonths ended September 30, 2005. Our critical accounting policies aredescribed in Item 7, “*Management’sDiscussion and Analysis of Financial Condition and Results of Operations*“in our Annual Report on Form 10-K for the year ended December 31,2004, as amended.

 

**Results of Operations**

 

The following table showsinformation derived from our condensed consolidated statements of operationsfor the three and nine months ended September 30, 2005 and 2004 expressedas a percentage of revenues for the periods presented.

 
| ** **                                                    | ** ** | **Three months  ended  September 30,  2005** | ** ** | **Three months  ended  September 30,  2004** | ** ** | **Nine months  ended  September 30,  2005** | ** ** | **Nine months  ended  September 30,  2004** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
|                                                          |       |                                              |       |                                              |       |                                             |       |                                             |       |
| Revenues:                                                     |       |                                              |       |                                              |       |                                             |       |                                             |       |
| Electronic  travel distribution                               |       | 92.8                                              | %          | 93.2                                              | %          | 92.8                                             | %          | 93.4                                             | %          |
| Information  technology services                              |       | 7.2                                               |       | 6.8                                               |       | 7.2                                              |       | 6.6                                              |       |
| Total  revenues                                               |       | 100.0                                             |       | 100.0                                             |       | 100.0                                            |       | 100.0                                            |       |
| Operating expenses:                                           |       |                                              |       |                                              |       |                                             |       |                                             |       |
| Cost of  revenues excluding developed technology amortization |       | 68.6                                              |       | 70.5                                              |       | 68.5                                             |       | 69.5                                             |       |
| Developed technology amortization                             |       | 2.3                                               |       | 2.4                                               |       | 2.4                                              |       | 2.3                                              |       |
| Total cost  of revenues                                       |       | 70.9                                              |       | 72.9                                              |       | 70.9                                             |       | 71.8                                             |       |
| Selling, general and administrative expenses                  |       | 10.6                                              |       | 12.5                                              |       | 11.2                                             |       | 13.1                                             |       |
| Amortization of intangible assets                             |       | 3.9                                               |       | 3.9                                               |       | 3.7                                              |       | 3.7                                              |       |
| Total  operating expenses                                     |       | 85.4                                              |       | 89.3                                              |       | 85.8                                             |       | 88.6                                             |       |
| Operating income                                              |       | 14.6                                              |       | 10.7                                              |       | 14.2                                             |       | 11.4                                             |       |
| Total other expense, net                                      |       | (6.7                                              | )          | (4.9                                              | )          | (13.4                                            | )          | (4.4                                             | )          |
| Income before provision for income taxes                      |       | 7.9                                               |       | 5.8                                               |       | 0.8                                              |       | 7.0                                              |       |

 

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| Income tax expense |   | 0.4 |   | 1.6 |   | 0.4 |   | 0.5 |   |
|--------------------|--------|-----|--------|-----|--------|-----|--------|-----|--------|
| Net income         |   | 7.5 | %      | 4.2 | %      | 0.4 | %      | 6.5 | %      |

 

The following table showstotal transactions using the Worldspan GDS for the three and nine months ended September 30,2005 and 2004. The historical transaction data set forth below reflects thedesignations which were in effect for each period presented. We evaluate the classification of our travelagencies on a monthly basis and reclassify them as appropriate.

 

**WorldspanTransaction Summary(in millions)**

 
| ** **          | ** ** | **Three months  ended  September 30,  2005** | ** ** | **Three months  ended  September 30,  2004** | ** ** | **%  Change** | ** ** | **Nine months  ended  September 30,  2005** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **%  Change** | ** ** |
|---------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|---------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| Traditional         |       | 23.4                                              |       | 24.5                                              |       | (4.5          | )%         | 76.1                                             |       | 79.7                                             |       | (4.5          | )%         |
| Online              |       | 27.0                                              |       | 26.0                                              |       | 3.8           | %          | 84.1                                             |       | 78.2                                             |       | 7.5           | %          |
| Total  transactions |       | 50.4                                              |       | 50.5                                              |       | (0.2          | )%         | 160.2                                            |       | 157.9                                            |       | 1.5           | %          |

 

**WorldspanRevenue Summary(in millions)**

 
| ** **                       | ** ** | **Three months  ended  September 30,  2005** | ** ** | **Three months  ended  September 30,  2004** | ** ** | **%  Change** | ** ** | **Nine months  ended  September 30,  2005** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **%  Change** | ** ** |
|----------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|---------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| Electronic  travel distribution  |       | $                                                 | 222.5      |                                              | $          | 217.9         |       | 2.1                                              | %          | $                                                | 691.9      |          | $          | 683.0 |   | 1.3 | % |
| Information  technology services |       | 17.2                                              |       | 15.9                                              |       | 8.2           | %          | 54.0                                             |       | 48.1                                             |       | 12.3          | %          |
| Total  revenue                   |       | $                                                 | 239.7      |                                              | $          | 233.8         |       | 2.5                                              | %          | $                                                | 745.9      |          | $          | 731.1 |   | 2.0 | % |

 

**Worldspan AverageRevenue per Transaction**

 
| ** **               | ** ** | **Three months  ended  September 30,  2005** | ** ** | **Three months  ended  September 30,  2004** | ** ** | **%  Change** | ** ** | **Nine months  ended  September 30,  2005** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **%  Change** | ** ** |
|--------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|---------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| Revenue per  transaction |       | $                                                 | 4.41       |                                              | $          | 4.32          |       | 2.1                                              | %          | $                                                | 4.32       |          | $          | 4.33 |   | (0.2 | )% |
|                          |            |                                                   |            |                                                   |            |               |            |                                                  |            |                                                  |            |               |            |  |  |  |  |

 

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***Comparison of Three MonthsEnded September, 30, 2005 and September 30, 2004***

 

*Revenues*

 

Total revenues increased $5.9 million or 2.5% to$239.7 million from $233.8 million for the three months ended September 30,2005 and 2004, respectively. This increase was primarily attributable tohigher average fees per transaction and an increase in subscription-basedtechnology services when compared to the same period in the prior year.

 

Electronic travel distribution revenues increased$4.6 million or 2.1% to $222.5 million from $217.9 million for the three monthsended September 30, 2005 and 2004, respectively. The increase inrevenues was attributable to a 2.1% increase in the average fee per transactioncoupled with a 1.0 million or 3.8% increase in transactions generated from theonline channel.  The increase in onlinetransaction volume was offset by a 1.1 million or 4.5% decrease in transactionsgenerated from the traditional channel during the period. The increase in theaverage fee per transaction when compared to the same period in the prior yearis primarily driven by rate increases that went into effect during the firstquarter of 2005.

 

Information technology services revenues increased$1.3 million or 8.2% to $17.2 million from $15.9 million for the three monthsended September 30, 2005 and 2004, respectively. The increase wasprimarily attributable to a $2.0 million increase in revenue associated withproducts and services we sell to airlines, which include Rapid Reprice andElectronic Ticketing.

 

*Cost of Revenues Excluding Developed Technology Amortization*

 

Cost of revenues excluding developed technologyamortization decreased $0.2 million or 0.1% to $164.6 million from $164.8million for the three months ended September 30, 2005 and 2004,respectively. This $0.2 million decrease was primarily attributable to lowernetwork and communications costs and employee costs, partially offset by higherinducements and outside services. Cost of revenues excluding developedtechnology amortization as a percentage of total revenues decreased to 68.6% forthe three months ended September 30, 2005 compared to 70.5% for the threemonths ended September 30, 2004.

 

Cost of electronic travel distributionrevenues excluding developed technology amortization decreased $0.2 million or0.1% to $143.5 million from $143.7 million for the three months ended September 30,2005 and 2004, respectively. Cost of electronic distribution revenues excludingdeveloped technology amortization decreased as a percentage of total electronictravel distribution revenue to 64.5% from 65.9% for the three months ended September 30,2005 and 2004, respectively. The decrease was primarily attributable to a $5.8million decline in network and communication costs and a $2.0 million decreasein employee and employee-related costs that was partially offset by a $9.3million increase in inducements paid to travel agencies and a $2.8 millionincrease in outsourcing costs. Network and communication costs decreased due tothe continued migration of traditional travel agencies to third-party ownedequipment and networks as well as the migration of supplier connections to lessexpensive IP-based solutions. Employee related costs declined from the prior year due to lowerheadcount as a result of improved organizational effectiveness and efficiency anda workforce reduction that was implemented in July 2005.  This decrease was partially offset by anincrease in outsourcing costs as programming for certain applications andcertain travel agency support functions are now performed by third-partyvendors.  Inducements increased as aresult of an 11.8% increase in the average inducement rate pertransaction.  In addition, online travelagency transactions, which tend to have higher inducement costs thantraditional travel agency transactions, increased from the prior year.  This increase was partially offset by lowertransactions generated in the traditional channel.

 

Cost of information technology servicesrevenues excluding developed technology amortization was $21.1 million  for the three months ended September 30,2005 and 2004. Cost of information technology services revenues excludingdeveloped technology amortization was 122.7% of information technology servicesrevenue for the three months ended September 30, 2005 as compared to132.7% for the three months ended September 30, 2004.  The decreased percentage is due primarily to higher revenue on unchangedcosts from the prior year.

 

*Developed Technology Amortization*

 

Developed technology amortization (“DTA”)decreased $0.1 million or 1.8% to $5.4 million from $5.5 million for the threemonths ended September 30, 2005 and 2004, respectively. DTA was 2.3% oftotal revenues for the three months ended September 30, 2005 as comparedto 2.4% for the three months ended September 30, 2004

 

 

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* *

*Selling, General and Administrative Expenses*

 

Selling, general and administrative expensesdecreased $4.0 million or 13.6% to $25.4 million from $29.4 million for thethree months ended September 30, 2005 and 2004, respectively. The decreasewas primarily attributable to a $2.0 million decrease in bad debt expense as aresult of the full recovery of an outstanding customer balance as well as adecline in employee costs related to lower headcount from the prior year as aresult of our restructuring efforts.  Asa percentage of total revenue, selling, general and administrative expensesdeclined to 10.6% in the three months ended September 30, 2005 from 12.5%in the prior year. Excluding the reduction in bad debt expense, selling,general and administrative expenses were 11.4% of total revenue for the threemonths ended September 30, 2005.

 

*Amortization of Intangible Assets*

 

Amortization of intangible assets increased $0.2million or 2.2% to $9.3 million from $9.1 million for the three months ended September 30,2005 and 2004, respectively.  As apercentage of total revenue, amortization of intangible assets was 3.9% for thethree months ended September 30, 2005 and 2004. The intangible assetsacquired as a result of the Acquisition are amortized on a straight-line basisover their estimated useful lives and the related amortization is expected toremain constant.

 

*Operating Income*

 

Operating income increased $10.1 million or40.6% to $35.0 million from $24.9 million for the three months ended September 30,2005 and 2004, respectively. As a percentage of total revenue, operating incomeincreased to 14.6% from 10.7% for the three months ended September 30,2005 and 2004, respectively. The increase is primarily due to an increase in revenueof $5.9 million or 2.5% and a decrease in operating expenses of $4.2 million or2.0%.

 

*Net Interest Expense*

 

Net interest expense increased $5.7 million or 56.4%to $15.8 million from $10.1 million for the three months ended September 30,2005 and 2004, respectively. The increase in net interest expense was primarilyrelated to the increase in debt outstanding that was issued in connection withthe Refinancing Transactions (as defined below under the heading “—Liquidityand Capital Resources–Senior Notes”) in February 2005. On April 29,2005, we filed a Form S-4 with the Securities and Exchange Commission (“SEC”)to offer to exchange the Floating Rate Notes for substantially identical notesthat will have been registered with the SEC. The Form S-4 became effective on October 25, 2005. TheFloating Rate Notes agreement required that the Form S-4 be declaredeffective within 180 days of the closing of the offering or August 10,2005. Liquidated damages in the form of an increase in the interest rate of theFloating Rate Notes accrued from August 11, 2005 until the Form S-4became effective on October 25, 2005. As of September 30, 2005, wehad accrued approximately $0.1 million for the liquidated damages and willincur additional interest expense in the fourth quarter of $0.05 million. Noadditional liquidated damages will accrue after October 24, 2005.

 

*Income Tax Expense*

 

Income tax expense attributable to foreignjurisdictions decreased $2.8 million to $0.9 million from $3.7 million for thethree months ended September 30, 2005 and 2004, respectively. The decreaserelates to an increase in the taxable income of our foreign subsidiaries duringthe three months ended September 30, 2004 resulting from revisions ofvarious tax planning strategies in the prior year.

 

*Net Income*

 

Net income increased $8.3 million or 84.7% to$18.1 million from $9.8 million for the three months ended September 30,2005 and 2004, respectively.  Theincrease was primarily due to improved operating income.

 

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***Comparison of Nine Months Ended September 30, 2005 and September 30,2004***

 

*Revenues*

 

Total revenues increased $14.8 million or 2.0% to$745.9 million from $731.1 million for the nine months ended September 30,2005 and 2004, respectively. The increase was attributable to anincrease in the total volume of transactions processed and an increase insubscription-based technology services when compared to the same period in theprior year. This increase was partially offset by lower average fees pertransaction and a decrease in the volume of transactions processed in thetraditional channel during the period.

 

Electronic travel distribution revenues increased$8.9 million or 1.3% to $691.9 million from $683.0 million for the nine monthsended September 30, 2005 and 2004, respectively. The increase inrevenues was attributable to a 5.9 million, or 7.5%, increase in transactionsgenerated from the online channel during the period.  This increase was partially offset by a 0.2%decline in the average fee per transaction and a 3.6 million or 4.5% decreasein transactions generated from the traditional channel during the period.

 

Information technology services revenues increased$5.9 million or 12.3% to $54.0 million from $48.1 million for the nine monthsended September 30, 2005 and 2004, respectively. The increase wasprimarily attributable to a $6.0 million increase in revenue associated withproducts and services we sell to airlines, which include Rapid Reprice, Faresand Pricing and Electronic Ticketing.

 

*Cost of Revenues Excluding Developed TechnologyAmortization*

 

Cost of revenues excluding developed technologyamortization increased $2.9 million or 0.6% to $511.2 million from $508.3million for the nine months ended September 30, 2005 and 2004,respectively. Cost of revenues excluding developed technology amortization as apercentage of total revenues decreased to 68.5% for the nine months ended September 30,2005 compared to 69.5% for the nine months ended September 30, 2004. The$2.9 million increase was primarily driven by higher inducements paid to travelagencies and outside services, partially offset by lower network andcommunication costs and employee costs.

 

Cost of electronic travel distributionrevenues excluding developed technology amortization increased $2.9 million or0.7% to $447.0 million from $444.1 million for the nine months ended September 30,2005 and 2004, respectively. Cost of electronic distribution revenues excludingdeveloped technology amortization as a percentage of total electronic traveldistribution revenue decreased to 64.6% for the nine months ended September 30,2005 compared to 65.0% for the nine months ended September 30, 2004. The$2.9 million increase was primarily attributable to a $32.4 million increase ininducements paid to travel agencies and a $7.3 million increase in outsourcingcosts, partially offset by a $16.7 million decrease in network andcommunication costs and a $6.9 million decrease in employee andemployee-related costs  Inducements increasedas a result of a 10.8% increase in the average inducement rate pertransaction.  In addition, online travelagency transactions, which tend to have higher inducement costs thantraditional travel agency transactions, increased from the prior year.  This increase was partially offset by lowertransactions generated in the traditional channel.  Outsourcing costs****increaseddue to an increase in outsourcing costs as programming for certain applicationsand certain travel agency support functions are now performed by third-partyvendors.  This was partially offset bylower employee related costs which declined from the prior year due to lowerheadcount as a result of improved organizational effectiveness and efficiencyand a workforce reduction that was implemented in 2005.  Network and communication costs decreased dueto the continued migration of traditional travel agencies to third-party ownedequipment and networks, the migration of supplier connections to less expensiveIP-based connections and the renegotiation of our network and communicationcontracts with our primary vendors in the first quarter of 2004.

 

Cost of information technology services revenuesexcluding developed technology amortization was $64.2 million for the ninemonths ended September 30, 2005 and 2004. As a percentage of information technology services revenue, costof information technology services revenues excluding developed technologyamortization decreased to 118.9%  from133.2% for the nine months ending September 30, 2005 and 2004,respectively, due to higher revenues.

 

*Developed Technology Amortization*

 

Developed technology amortization increased$1.5 million or 9.1% to $18.0 million from $16.5 million for the nine monthsended September 30, 2005 and 2004, respectively. DTA was 2.4% of totalrevenues for the nine months ended September 30, 2005 as compared to 2.3%for the nine months ended September 30, 2004. The $1.5 million increasewas primarily the result of the writedown in the second quarter of 2005 ofcertain purchased software to be enhanced and

 

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ultimately used in multi-hosting services for smaller carriers. Thecarrying value of the software was written down as a result of management’sdecision to pursue other third party solutions as a means to provide theseservices to smaller carriers as well as management’s current evaluation of thecurrent and potential revenue stream of the software, among other factors.

 

*Selling, General and Administrative Expenses*

 

Selling, general and administrative expensesdecreased $11.8 million or 12.4% to $83.6 million from $95.4 million for thenine months ended September 30, 2005 and 2004, respectively. The decreasewas primarily attributable to a $3.6 million decrease in bad debt expense as aresult of a settlement received on an outstanding customer balance as well as adecline in employee costs related to lower headcount from the prior year as aresult our restructuring activities. A portion of the settlement agreement withthe customer was received during the second quarter of 2005 while the remainderof the settlement was fully recovered in the third quarter of 2005. As apercentage of total revenue, selling, general and administrative expensesdeclined to 11.2% from 13.1% in the prior year. Excluding the reduction in baddebt expense, selling, general and administrative expenses were 11.7% of totalrevenue.

 

*Amortization of Intangible Assets*

 

Amortization of intangible assets increased $0.2million or 0.7% to $27.6 million from $27.4 million for the nine months ended September 30,2005 and 2004, respectively.  As apercentage of total revenue, amortization of intangible assets was 3.7% for thenine months ended September 30, 2005 and 2004. The intangible assetsacquired as a result of the Acquisition are amortized on a straight-line basisover their estimated useful lives and the related amortization is expected toremain constant.

 

*Operating Income*

 

Operating income increased $22.2 million or26.6% to $105.6 million from $83.4 million for the nine months ended September 30,2005 and 2004, respectively. As a percentage of total revenue, operating incomeincreased to 14.2% from 11.4% for the nine months ended September 30, 2005and 2004, respectively. The increase is due primarily to a $14.8 million or2.0% increase in total revenue and a decrease in operating expenses of $7.4million or 1.1%.

 

*Net Interest Expense*

 

Net interest expense increased $12.9 million or41.9% to $43.7 million from $30.8 million for the nine months ended September 30,2005 and 2004, respectively. The increase in net interest expense was primarilyrelated to the increase in debt outstanding that was issued in connection withthe Refinancing Transactions (as defined below under the heading “—Liquidityand Capital Resources–Senior Notes”) in February 2005. On April 29,2005, we filed a Form S-4 with the Securities and Exchange Commission (“SEC”)to offer to exchange the Floating Rate Notes for substantially identical notesthat will have been registered with the SEC. The Form S-4 became effective on October 25, 2005. TheFloating Rate Notes agreement required that the Form S-4 be declaredeffective within 180 days of the closing of the offering or August 10,2005. Liquidated damages in the form of an increase in the interest rate of theFloating Rate Notes accrued from August 11, 2005 until the Form S-4became effective on October 25, 2005. As of September 30, 2005, wehad accrued approximately $0.1 million for the liquidated damages and willincur additional interest expense in the fourth quarter of $0.05 million. Noadditional liquidated damages will accrue after October 24, 2005.

 

*Net Other Expense*

 

Net other expense increased $67.9 million to$99.8 million from $31.9 million for the nine months ended September 30,2005 and 2004, respectively. The increase was primarily due to a $55.6 millionloss on extinguishment of debt and a $12.9 million increase in net interestexpense, both related to the debt issued in connection with the RefinancingTransactions in February 2005.

 

*Income Tax Expense*

 

Income tax expense decreased $0.7 million to$3.3 million from $4.0 million for the nine months ended September 30,2005 and 2004, respectively.  Thedecrease relates to a decrease in the taxable income of our foreign subsidiariesin the current year resulting from revisions of various tax planning strategiesin the first quarter of 2005.

 

 

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*Net (Loss)/Income*

 

Net income decreased $45.0 million or 94.7%to $2.5 million from income of $47.5 million for the nine months ended September 30,2005 and 2004, respectively. The decrease was primarily due to a $55.6 millionloss on the extinguishment of debt associated with the Refinancing Transactionsand a $12.9 million increase in interest expense associated with the increaseddebt outstanding that was issued in connection with the RefinancingTransactions, partially offset by improved operating income.

 

**Liquidity and CapitalResources**

 

Our principal source of liquidity will be cash flowgenerated from operations, borrowings under capital lease obligations andborrowings under our new senior credit facility (as defined below). Ourprincipal uses of cash will be to fund our planned operating expenditures whichinclude operating expenses, capital expenditures, investments in our current aswell as future products and offerings, interest payments on our debt and anymandatory or discretionary principal payments of our debt. Based on our currentlevel of operations, we believe that our cash flow from operations, availablecash of $49.5 million and available borrowings under our new senior creditfacility will be adequate to meet our future liquidity needs for the next12 months, although no assurance can be given. Our future operating performanceand ability to extend or refinance our indebtedness will be dependent on futureeconomic conditions and financial, business and other factors that are beyondour control. Risk factors that could possibly affect the ability of ourinternally generated funds include, among other things:

 

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

 

•                  actsof global terrorism,

 

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

 

Effective September 14, 2005, Delta andNorthwest, both significant suppliers of ours, entered bankruptcy protection.Revenues generated by Delta and Northwest were $63.5 million and $67.1 millionfor the three months ended September 30, 2005 and 2004, respectively, and$203.4 million and $210.1 million for the nine months ended September 30,2005 and 2004, respectively. These amounts, included in the electronic traveldistribution segment and the information technology services segment,represented approximately 26% and 29% of total revenues for the three monthsended September 30, 2005 and 2004, respectively, and 27% and 29% of totalrevenues for the nine months ended September 30, 2005 and 2004,respectively.

 

The following table summarizes the amounts owed tous by Delta and Northwest as of September 30, 2005 under our two primaryagreements held with these two airlines:

 
| **(dollars in thousands)**                            | ** ** | **Delta** | ** ** | **Northwest** | ** ** |
|-------------------------------------------------------|------------|-----------|------------|---------------|------------|
| Pre-bankruptcy petition accounts receivable           |       | $         | 11,274     |          | $          | 20,311 |   |
| Post-bankruptcy petition accounts  receivable         |       | 7,174     |       | 5,092         |       |
| Total  accounts receivable at September 30, 2005 |       | $         | 18,448     |          | $          | 25,403 |   |

 

SinceSeptember 30, 2005, we have received payments of pre-bankruptcy petitionand post-bankruptcy petition accounts receivable in the amount of $4.5 millionand $8.7 million, respectively, related to services provided in the thirdquarter of 2005.  While under bankruptcyprotection, Delta and Northwest could petition the court to reject certain orall of the existing agreements with us. At the present time, we are not awareof an action by either Delta or Northwest to reject the two primary agreementsand, accordingly, continue to operate with the two airlines under our existingcommercial agreements. We believe that the GDS and IT services we provide toDelta and Northwest are essential to their ongoing operations and their abilityto ultimately emerge from bankruptcy protection. We believe we will continue toprovide the services to the airlines and, absent further significantdeterioration in the financial condition of the airlines, the pre-bankruptcypetition and post-bankruptcy petition accounts receivable are expected to becollected. We expect that post-bankruptcy petition amounts will be collected inaccordance with the terms of our current commercial agreements while thepre-bankruptcy petition amounts will likely be collected over an extendedperiod of time. In addition, our agreements with Delta and Northwest providethat we have the right to recoup service fees owed to us by Delta and Northwestagainst our FASA credit obligations, although Delta and Northwest or otherparties in interest in their bankruptcy proceedings may elect to challenge thatright.  We intend to exercise ourrecoupment rights for outstanding service fees owed to us in the amount of$11.4 million for the period preceding the Delta and Northwest bankruptcies,although there is no assurance that the exercise of these rights will not be

 

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successfully challenged by theairlines in bankruptcy court.  As aresult, we did not record a reserve for the accounts receivable outstanding asof September 30, 2005.  However,given the early stage of the bankruptcy proceedings, additional facts couldbecome known or actions taken by either airline in bankruptcy that could impactour assessment of the collectibility and thus result in a charge to earnings infuture periods. Furthermore, we are not yet in a position to ultimatelydetermine whether payments previously made to us by Delta or Northwest will bechallenged or unwound in the bankruptcy proceedings.

 

Given the early stage of the bankruptcy proceedings,it is not possible for us to determine the long term impacts of the Delta andNorthwest bankruptcies at this time. We continue to provide services to andreceive payments from both Delta and Northwest in accordance with our variouscommercial agreements. Actions taken in the future by the airlines in thebankruptcy proceedings, such as the rejection of the Participating CarrierAgreements (“PCA”), which represent 82% of total revenue generated by Delta andNorthwest for the nine months ended September 30, 2005, would have amaterial, adverse impact on our financial condition and cash flows. There canbe no assurance that our cash flow from operations and borrowings availableunder our senior credit facility would be adequate to meet our future liquidityneeds without additional capital.  Suchcapital may or may not be available to us.

 

For a more complete discussion of risk factors thatmight affect the availability of our internally generated funds, see “RiskFactors” in Item 1 of our annual report on Form 10-K for the year ended December 31,2004, as amended.

 

At September 30, 2005, we had cash and cashequivalents of $49.5 million and working capital of $1.4 million ascompared to $75.0 million in cash and cash equivalents and working capitalof $21.1 million at September 30, 2004. The $25.5 million decrease in cashand cash equivalents was primarily the result of $68.0 million in principalpayments made on the new senior credit facility during 2005, partially offsetby higher cash flows from operations. We may also continue to use cash flowsfrom operations to retire debt as appropriate, based on market conditions andour desired liquidity and capital structure. The $19.7 million decrease in working capital was primarily the resultof the decrease in cash and an increase in accounts payable, partially offsetby a decrease to the current portion of long-term debt.

 

Historically, we have funded our operations throughinternally generated cash. We generated cash from operating activities of$118.4 million and $111.9 million for the nine months ended September 30,2005 and 2004, respectively. The $6.5 million increase in cash provided byoperating activities during the first nine months of 2005 as compared to thefirst nine months of 2004 primarily resulted from an increase in net income,excluding loss on extinguishment of debt, of $10.6 million, partially offset bya $2.1 million decline in changes in operating assets and liabilities.

 

We used cash for investing activities ofapproximately $9.2 million and $5.6 million in the nine months ended September 30,2005 and 2004, respectively. The $3.6 million increase in cash used for investingactivities during the first nine months of 2005 as compared to the first ninemonths of 2004 primarily resulted from proceeds realized in the prior year onthe sale of an investment, partially offset by a decrease in capitalizedsoftware for internal use and capital expenditures. The decline in capitalexpenditures during 2005 as compared to 2004 primarily resulted from decreasedpurchases of agency equipment.

 

We used cash for financing activities ofapproximately $160.1 million and $75.0 million in the nine months ended September 30,2005 and 2004, respectively. The $85.1 million increase in cash used forfinancing activities during the first nine months of 2005 as compared to thefirst nine months of 2004 primarily resulted from the Refinancing Transactionsin February 2005. To finance the redemption of the WTI Preferred Stock andthe payment of the Consent Fee (as defined below under the heading “— Use ofProceeds”), we distributed $375.7 million and $8.6 million, respectively, toWTI. In addition, WTI redeemed the Delta subordinated note in January 2005and we distributed $36.1 million to WTI to finance this transaction.

 

*Senior Credit Facility*

 

In June 2003, we entered into a senior creditfacility, referred to herein as our “old senior credit facility,” with asyndicate of financial institutions as lenders. In February 2005, weentered into a new credit agreement that made available a new senior creditfacility, referred to herein as our “new senior credit facility,” with asyndicate of financial institutions as lenders, consisting of a revolvingcredit facility of $40.0 million and a term loan facility (the “New TermLoan”) of $450.0 million, and extinguished and terminated all obligationsthen existing under the old senior credit facility. The old senior creditfacility 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 wasavailable until June 30, 2007, and

 

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

 

We borrowed $125.0 million under the old creditfacility’s term loan facility in connection with the Acquisition. The revolvingcredit facility was 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

 

•                  the New Term Loan

 

Obligations under the old senior credit facility andthe guarantees were secured by, and obligations under our new senior creditfacility and the guarantees 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 foreign subsidiaries.

 

Borrowings under the old senior credit facility boreinterest at a rate equal to, at our option:

 

•                  a base rate generally defined as the sum of (i) thehigher of (x) the prime rate (as quoted on the British Banking AssociationTelerate Page 5) and (y) the federal funds effective rate, plusone half percent (0.50%) per annum) and (ii) an applicable margin, or

 

•                  a LIBOR rate generally defined as the sum of (i) therate at which euro deposits for one, two, three or six months (as selected byus) are offered in the interbank euro market as set forth on page 3750 ofthe Dow Jones Telerate Screen and (ii) an applicable margin.

 

The initial applicable margin for the base raterevolving loans under the old senior credit facility was 2.75% and theapplicable margin for the euro revolving loans was 3.75%. The applicable marginfor the loans was subject to reduction based upon the ratio of our consolidatedtotal bank debt to consolidated EBITDA. We also were required to pay acommitment fee of 0.50% per annum on the difference between committed amountsand amounts actually utilized under the revolving credit facility. Fees forletters of credit under the old senior credit facility were based on the faceamount of each letter of credit outstanding multiplied by to the applicablemargin for LIBOR borrowings under the revolving credit facility and werepayable quarterly in arrears. In addition, we were required to pay each letterof credit bank a fronting fee to be determined based upon the face amount ofall outstanding letters of credit issued by it.

 

Our borrowings under the new senior credit facilitywill be subject to quarterly interest payments with respect to loans bearinginterest at the base rate described below or at the end of each one, two, threeor six month interest period for loans bearing interest at the LIBOR ratedescribed below and bear interest at a rate which, at our option, can beeither:

 

•                  a base rate generally defined as the sum of (i) thehighest of (x) the administrative agent’s prime rate, (y) the federalfunds effective rate, plus one half percent (0.50%) per annum and (z) thecertificate of deposit rate, plus one half percent (0.50%) per annum and (ii) anapplicable margin, or

 

•                  a LIBOR rate generally defined as the sum of (i) therate at which euro deposits for one, two, three or six months (as selected byus) are offered in the interbank euro market as set forth on page 3750 ofthe Dow Jones Telerate Screen and (ii) an applicable margin.

 

The initial applicable margin for base rate loansunder the new senior credit facility is 1.75% and the applicable margin forLIBOR rate loans is 2.75%.

 

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For the remaining three months of 2005, assumingmandatory scheduled payments only and using a LIBOR rate of 4.07%****we expect the cash principal and interest payments relatedto the $450.0 million borrowed under the New Term Loan to be$1.0 million and approximately $6.5 million, respectively. The actualamounts to be paid for cash principal and interest during the remainder of 2005may differ significantly from these amounts depending on the LIBOR rate ineffect at the time and any discretionary payments that we may elect to makeduring the remainder of the year.

 

The old senior credit facility required us to meetfinancial tests, including without limitation, a minimum fixed charge coverageratio, a minimum interest coverage ratio, a maximum senior secured leverageratio and a maximum total leverage ratio. Our new senior credit facility alsorequires us to meet financial tests, including without limitation, a minimuminterest coverage ratio and a maximum total leverage ratio. In addition, theold senior credit facility contained, and our new senior credit facilitycontains customary covenants which, among other things, limit the incurrence ofadditional indebtedness, investments, dividends, transactions with affiliates,asset sales, acquisitions, capital expenditures, mergers and consolidations,prepayments of other indebtedness, liens and encumbrances and other matterscustomarily restricted in a senior credit facility. As of September 30,2005, we believe we were in compliance with the applicable covenants.

 

*Senior Notes*

 

On June 30, 2003, we issued $280.0 millionaggregate principal amount of 9 5/8% Senior Notes Due 2011, referred to hereinas the “9 5/8% Senior Notes.” Interest on the 9 5/8% Senior Notes accrues at 95/8% per annum. As part of our issuance of $300.0 million in aggregateprincipal amount of Senior Second Lien Secured Floating Rate Notes due 2011,referred to herein as the “Floating Rate Notes,” and the refinancing of our oldsenior credit facility with our $490.0 million new senior credit facility(collectively, the “Refinancing Transactions”), in February 2005 weconsummated a tender offer for and consent solicitation relating to our 9 5/8%Senior Notes. As a result of this tender offer and consent solicitation, werepurchased more than 99 1/2% of the total aggregate principal amount of$280.0 million of 9 5/8% Senior Notes previously outstanding, received therequisite consents from the holders of the 9 5/8% Senior Notes with respect tothe consent solicitation and executed a supplemental indenture that eliminatedsubstantially all of the restrictive covenants and certain default provisionsin the indenture governing the remaining outstanding 9 5/8% Senior Notes. Thesupplemental indenture became effective on February 11, 2005 upon ouracceptance for payment of a majority in principal amount of the outstanding 95/8% Senior Notes tendered.

 

On February 11, 2005, we issued$300.0 million in aggregate principal amount of Floating Rate Notes,secured on a second priority basis by substantially all of our assets, theassets of WS Financing Corp. (“WS Financing”) and those of our guarantorsubsidiaries. Interest on the Floating Rate Notes accrues at a rate equal tothree-month LIBOR, which will be reset quarterly, plus 6.25%.

 

On March 4, 2005, we entered into an interestrate swap with a notional amount that will start at $508.4 million on November 15,2005 and 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 15and November 15 each year until maturity on November 15, 2008. Thisagreement, which has been designated as a cash flow hedge, will be used toconvert the variable component of interest rates on certain indebtedness to afixed rate of 4.3%. As of September 30, 2005, the fair value of theinterest rate swap was recorded as an asset in the amount of $1.8 million.

 

We cannot redeem the remaining 9 5/8% Senior Notesbefore June 15, 2007. There is currently $0.5 million aggregateprincipal amount of 9 5/8% Senior Notes outstanding.

 

The 9 5/8% Senior Notes are unsecured seniorobligations, are equal in right of payment to all of our existing and futureunsecured senior debt, and are senior in right of payment to all of our futuresubordinated debt. The Floating Rate Notes are secured on a second prioritybasis by substantially all of our assets, the assets of WS Financing and thoseof our guarantor subsidiaries. Each of the 9 5/8% Senior Notes and the FloatingRate Notes are guaranteed by each subsidiary guarantor (as defined in theindenture governing the 9 5/8% Senior Notes or the Floating Rate Notes, asapplicable).

 

If we experience a change of control (as defined inthe indenture governing the 9 5/8% Senior Notes or the Floating Rate Notes, asapplicable), each holder of 9 5/8% Senior Notes and Floating Rate Notes mayrequire us to repurchase all or any portion of the holder’s notes at a purchaseprice equal to 101% of the principal amount plus accrued and unpaid interest tothe date of purchase.

 

The indenture governing the 9 5/8% Senior Notescontained, and the indenture governing the Floating Rate Notes contains certaincovenants that among other things, limit (i) the incurrence of additionaldebt by us and certain of our

 

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subsidiaries,(ii) the payment of dividends and the purchase, redemption or retirementof capital stock or subordinated indebtedness, (iii) investments, (iv) certaintransactions with affiliates, (v) sales of assets, including capital stockof subsidiaries and (vi) certain consolidations, mergers and transfers ofassets. As of September 30, 2005, we believe we were in compliance withthe applicable covenants. The indenture governing the 9 5/8% Senior Notesprohibited, and the indenture governing the Floating Rate Notes prohibits,certain restrictions on distributions from certain subsidiaries.

 

*Use of Proceeds*

 

The net proceeds to us from the sale of the FloatingRate Notes and the closing of the new senior credit facility, along withavailable cash, were used to (i)(a) repay approximately $58.0 milliondue under the old senior credit facility, and (b) terminate allcommitments then outstanding under the old senior credit facility, (ii) acceptfor purchase pursuant to the cash tender offer for any and all of our’s and WSFinancing’s outstanding 9 5/8% Senior Notes of which $279.5 million of 95/8% Senior Notes were validly tendered prior to the consent date (more than 991¤2% of the totalaggregate principal amount of $280.0 million of 9 5/8% Senior 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 9 5/8% Senior Notes, for each$1,000.00 principal amount of 9 5/8% Senior Notes tendered in accordance withthe cash tender offer plus, accrued and unpaid interest on the 9 5/8% SeniorNotes, for an aggregate total purchase price of $331.4 million and accept for purchase and pay for additional 95/8% Senior Notes tendered after February 4, 2005 but prior to February 22,2005, the expiration time of the tender offer, and pay those holders thepurchase price of $1,141.64 for each $1,000.00 principal amount of 9 5/8%Senior 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 RefinancingTransactions, on February 16, 2005, WTI, CVC Capital Funding, LLC (“CVCCapital”) and Citicorp Mezzanine III, L.P. (“CMIII,” and together with CVCCapital, the “Funds”) entered into an Exchange Agreement (the “ExchangeAgreement”). In connection with the closing under the Exchange Agreement, WTIissued $43.6 million aggregate principal amount of its new SubordinatedNotes due 2013 (the “Holdco Notes”) to the Funds and paid $0.4 million inaccrued and unpaid interest in exchange for the surrender and cancellation bythe Funds of all of the obligations owing by WTI to the Funds under each Fund’sinterest in that certain Subordinated Note (the “Seller Note”), dated as of June 30,2003, made by WTI in favor of American Airlines, Inc. (which wassubsequently transferred in part to each of the Funds). WTI also paid the Fundsa total of $8.6 million as a consent fee (the “Consent Fee”) in return forthe approval by the Funds of the Refinancing Transactions and the replacementof the Seller Note with the Holdco Notes.

 

Also in connection with the RefinancingTransactions, on February 16, 2005, we entered into an amendment to ourAdvisory Agreement with WTI to terminate all advisory and other fees payableunder that agreement as of January 1, 2005 in return for a prepayment of$7.7 million payable on or before December 15, 2005.  We paid $3.9 million of this prepayment toWTI during the third quarter of 2005. We expect to pay the remaining balance ofthe prepayment by December 15, 2005.

 

*Capital Lease Obligations*

 

We lease equipment and software under capital leaseobligations. As of September 30, 2005, our obligations under capitalleases totaled $59.3 million. The interest rate used in computing the presentvalue of the minimum lease payments ranges from approximately 4.0% to 12.0%depending on the asset being leased.

 

*Subordinated Notes*

 

As part of the Acquisition, WTI issued to AmericanAirlines and Delta subordinated seller notes, referred to herein as the “subordinatedseller notes,” in the original principal amounts of $39.0 million and$45.0 million, respectively, which were scheduled to mature on July 31,2012. In March 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

 

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affiliatesof CVC, CVC Capital Funding, LLC and Citicorp Mezzanine III, L.P. (“CMIII” andtogether with CVC Capital, the “Funds”) and paid $0.4 million 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 the remaining American subordinated seller note.

 

The holding company notes and subordinated sellernotes are not our direct debt obligations. As long as we are not in defaultunder the new senior credit facility, we expect to be permitted to disbursefunds to WTI sufficient to pay cash interest of up to 12% for the holding companynotes. Under the old senior credit facility, we were permitted to disbursefunds to WTI sufficient to pay the 5% cash interest component of the sellersubordinated notes. During the nine months ended September 30, 2005 and2004, we distributed $2.1 million and $2.2 million, respectively, to WTI forthis purpose. The holding company notes are, and the subordinated seller noteswere, unsecured obligations of WTI contractually and structurally subordinatedto our Floating Rate Notes and our new senior credit facility, or our 9 5/8%Senior Notes and our old senior credit facility, as applicable, andstructurally subordinated to all of our other debt. The subordinated sellernote originally issued to American Airlines bore interest at an annual rateequal to 12.0% and the subordinated seller note originally issued to Delta boreinterest at an annual rate equal to 10.0%.

 

*FASAs*

 

Pursuant to the terms of the FASAs, we provide FASAcredits to Delta and Northwest to be applied against FASA service fee paymentsdue from these airlines to us. The FASA credits are structured and will beapplied through June 2012 in an amount up to an aggregate total of$87.5 million to each of Delta and Northwest as of September 30,2005, and are reflected as reductions to our FASA revenues in the correspondingperiods. The FASA credits are provided to Delta and Northwest in monthlyinstallments, with an annual amount of $16.7 million scheduled to beprovided to each of these founding airlines during the first six years of the respectiveFASA term, an annual amount of $9.2 million scheduled to be provided toeach of these founding airlines during the seventh and eighth years of therespective FASA term and an annual amount of $6.7 million scheduled to beprovided 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 afailure by us to satisfy the mainframe processing time, system availability orcritical production data performance standards under that agreement (whichrepresent performance standards which we have historically met under ourpredecessor services agreements with Delta and Northwest). Furthermore, such atermination by Delta or Northwest of its FASA constitutes an event of defaultunder our new senior credit facility. In the event that the event of default iswaived by the applicable lenders under our senior credit facilities (as definedin the subordination agreement executed by the founding airlines) or our seniorcredit facilities 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 payablein cash to such airline as and when, and only to the extent that, we arepermitted to make such payments as “Restricted Payments” under the restrictedpayment covenant test contained in the indenture governing our 9 5/8% SeniorNotes and the Floating Rate Notes. If a FASA is otherwise terminated inaccordance with its terms prior to the expiration of its term, such as atermination by either Delta or Northwest without cause, or is rejected by Deltaor Northwest in bankruptcy, then the obligation to provide the remaining FASAcredits or to make the remaining FASA credit payments then deliverable orpayable to the airline under the applicable FASA will terminate. See discussionof the Delta and Northwest bankruptcies under “MD&A – Overview.” Ourobligations to provide FASA credits or to make the FASA credit payments willnot terminate if either or both of Delta and Northwest reduce or ceaseoperations in a way that reduces or eliminates the amount of airline serviceseither founding airline obtains under the FASAs, although an airline’s failureto comply with its software development minimum and exclusivity obligationswould constitute a breach of its agreement. If we terminate a FASA other thanas expressly permitted by the agreement, then we will be obligated to providethe scheduled FASA credits to the applicable airline by way of a monthly cashpayment rather than applying the FASA credits against FASA service fee paymentsdue from the airline. 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. In the event of our bankruptcy or insolvency, holders of oursenior debt (as defined in the subordination agreement executed by the foundingairlines), including the 9 5/8% Senior Notes and the Floating Rate Notes, willbe entitled to receive payments in full in cash before we may make any FASAcredit payments in cash. In that event, Delta and Northwest will, however,retain their rights to apply the scheduled FASA credit payments against theirobligations to pay us fees for our services under the FASAs. In the event thatwe wrongfully terminate

 

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aFASA, we will remain obligated to deliver the FASA credits to the applicableairline by paying the credit amounts to the applicable airline in cash on amonthly basis according to the nine-year schedule described above.However, if we reject a FASA in a bankruptcy of the company, our FASA creditpayment obligations to the applicable airline will match the obligationsdescribed above in a termination of a FASA by such airline due to our failureto satisfy performance standards. Any FASA credit payment obligations by us toan airline in such a bankruptcy will be subordinated to our senior debt (asdefined in the subordination agreement executed by the founding airlines),including the 9 5/8% Senior Notes and the Floating Rate Notes. Our agreementswith Delta and Northwest provide that we have the right to recoup service feesowed to us by Delta and Northwest against our FASA credit obligations, althoughDelta and Northwest or other parties in interest in their bankruptcyproceedings may elect to challenge that right. We intend to exercise ourrecoupment rights for service fees owed to us for the period preceding theDelta and Northwest bankruptcies, although we cannot assure you that theexercise of these rights will not be successfully challenged by the airlines inbankruptcy court.

 

*Taxes*

 

Because we are a limited partnership, our partnerswill owe taxes on all of the income that we generate in the United States. We expectthat WTI will cause us to make distributions to it from time to time sufficientto cover all income taxes owed by WTI. Under the terms of our senior creditfacility and the indentures governing our 9 5/8% Senior Notes and the FloatingRate Notes, we are specifically permitted to make these tax distributions.

 

We implemented various tax planning strategies inour foreign subsidiaries during the first quarter of 2005. The tax planningstrategies will cause a transfer in tax liabilities from WTI to us as well asreduce the overall taxes paid by us and WTI. We believe these strategies willreduce the overall tax obligations of the Partnership and WTI and thus willlower distributions to WTI for income taxes. During 2005, we do not expect tomake any tax distributions to WTI.

 

**Capital Expenditures**

 

Capitalexpenditures for property and equipment, including both purchased assets andassets acquired under capital leases, as well as capitalized software, totaled$10.0 million for the nine months ended September 30, 2005, a decrease of$23.9 million from capital expenditures of $33.9 million for the nine monthsended September 30, 2004. We have estimated approximately $15.0 millionfor capital expenditures in 2005, which relates to normal growth in capacityrequirements and routine replacement of older equipment.

 

**Off-Balance Sheet Arrangements**

 

At September 30, 2005 and December 31,2004, we did not have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements or other contractuallynarrow or limited purposes. We are, therefore, not materially exposed to anyfinancing, liquidity, market or credit risk that could arise if we had engagedin such relationships.

 

**Effect of Inflation**

 

Inflation generally affects us by increasing ourcosts of labor, equipment and new materials. We do not believe that inflationhas had any material effect on our results of operations during the three andnine months ended September 30, 2005.

 

**Subsequent Events**

 

In October 2005, Expedia notified us ofits intention to move some portion but not all of its European transactions toanother GDS provider in 2006.  Expedia’sEuropean transactions represent approximately 3.0% of our total transactionvolume for the nine months ended September 30, 2005.

 

**Worldspan Cautionary Statement**

 

Statements in this report and the exhibits heretowhich are not purely historical facts, including statements about forecastedfinancial projections or other statements about anticipations, beliefs,expectations, hopes, intentions or strategies for the future, may beforward-looking statements within the meaning of Section 27A of theSecurities Act, and Section 21E of the Exchange Act, as amended. Readersare cautioned not to place undue reliance on forward-looking statements. Allforward-looking statements are based upon information available to the companyon the date this report was submitted. We

 

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undertakeno obligation to publicly update or revise any forward-looking statements,whether as a result of new information, future events or otherwise. Anyforward-looking statements involve risks and uncertainties that could causeactual events or results to differ materially from the events or resultsdescribed in the forward-looking statements, including, but not limited to,risks or uncertainties related to: our revenues being highly dependent on thetravel and transportation industries; airlines limiting their participation intravel marketing and distribution services; or other changes within, oraffecting, the travel industry. We may not succeed in addressing these and otherrisks.

 

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**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk represents the risk of changes in valueof a financial instrument, derivative or non-derivative, caused by fluctuationsin interest rates, foreign exchange rates and equity prices. Changes in thesefactors could cause fluctuations in the results of our operations and cashflows. In the ordinary course of business, we are exposed to foreign currencyand interest rate risks. These risks primarily relate to the sale of productsand services to foreign customers and changes in interest rates on ourlong-term debt.

 

**Foreign Exchange Rate Market Risk**

 

We consider the U.S. dollar to be the functionalcurrency for all of our entities. Substantially all of our net sales and themajority of our expenses during the nine months ended September 30, 2005and 2004 were denominated in U.S. dollars. Therefore, foreign currencyfluctuations did not materially impact our financial results in those periods.We have foreign currency exposure arising from the remeasurement of our foreignsubsidiaries’ financial statements into U.S. dollars. The primary currencies towhich we are exposed to fluctuations include the euro and the British poundsterling. The fair value of our net foreign investments would not be materiallyaffected by a 10% adverse change in foreign currency exchange rates from September 30,2005 levels.

 

**Interest Rate Market Risk**

 

Our old senior credit facility was, and our newsenior credit facility is, variable rate debt. Interest rate changes thereforegenerally do not affect the market value of such debt but do impact the amountof our interest payments and, therefore, our future earnings and cash flows,assuming other factors are held constant. As of September 30, 2005, we hadvariable rate debt of approximately $682.0 million. Holding othervariables constant, including levels of indebtedness, a one hundred basis pointincrease in interest rates on our variable debt would have an estimated impacton pre-tax earnings and cash flows for the next year of approximately$6.8 million. Under the terms of our old senior credit facility, we wererequired to have at least 50% of our total indebtedness subject to either afixed interest rate or interest rate protection for a period of not less thanthree years.

 

On March 4, 2005, we entered into an interestrate swap with a notional amount that will start at $508.4 million on November 15,2005 and 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 15and November 15 each year until maturity on November 15, 2008. Thisagreement, which has been designated as a cash flow hedge, will be used toconvert the variable component of interest rates on certain indebtedness to afixed rate of 4.3%. As of September 30, 2005, the fair value of theinterest rate swap was recorded as an asset in the amount of $1.8 million.

 

**ITEM4.  CONTROLS AND PROCEDURES**

 

As of the end of the period covered by thisreport, we conducted an evaluation, under the supervision and with theparticipation of our principal executive officer and principal financialofficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act). Based on this evaluation, our principal executive officerand principal financial officer concluded that our disclosure controls andprocedures are effective to provide reasonable assurance that materialinformation required to be included in our periodic SEC reports is recorded,processed, summarized and reported within the time periods specified in SEC rules andforms. In addition, we reviewed our internal controls and based upon thatreview determined that certain changes were necessary to improve our internalcontrols over financial reporting. As previously reported in our Form 10-Kfor the year ended December 31, 2004 (filed March 28, 2005), asamended,  Form 10-Q for the firstquarter ended March 31, 2005 (filed May 16, 2005), as amended, and Form 10-Q  for the second quarter ended June 30,2005 (filed August 10, 2005), certain deficiencies identified inthe fourth quarter of 2004 involved the absence of a control to insurecompleteness of the transfer of information between our processing and billingsystems. We improved our internal controls by implementing a monthly review andanalysis of the nature of rejected items to insure that the systemclassification of these items as non-billable was appropriate. The managementreview procedure described above specifically addressing this transfer issue isnow in place.  Specifically, we havereviewed over 99% of the transactions previously excluded from the transferfrom the processing system to the billing system for the period April 20,2005 through June 30, 2005 and found no transactions that were incorrectlyrejected.  This procedure was completedin the third quarter of 2005 and resulted in no transactions that were incorrectlyrejected.

 

We previously reported,  in our Form 10-K for the year ended December 31,2004 (filed March 28, 2005), as amended, Form 10-Q for the firstquarter ended March 31, 2005 (filed May 16, 2005), as amended, and Form 10-Q  for the second quarter ended June 30,2005 (filed August 10, 2005), on insufficient resources in ourfinance department. Corrective

 

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controls have been implemented, including the active recruitment andplacement of additional experienced financial personnel. The hiring planinstituted by our Chief Financial Officer has been substantially completed withthe addition of nine new hires in the finance department.

 

**PART II.  OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

In September 2003, we received multipleassessments totaling €39.5 million from the tax authorities of Greecerelating to tax years 1993-2002. Pursuant to a formal tax amnesty program withthe Greek authorities, we recently reached a settlement of the outstandingassessments in an amount of approximately of €7.8 million. The purchaseagreement between our founding airlines and us provides that each of ourfounding airlines will severally indemnify us on a net after-tax basis from andagainst any of our taxes related to periods prior to the Acquisition. Becauseof this indemnity and other remedies available to us under the applicableagreements, we believe that the settlement payments made by us to the Greekauthorities will be recovered from our founding airlines and will not have amaterial impact upon our business, financial condition or results ofoperations. However, we cannot assure you that the exercise of these rightswill not be successfully challenged in bankruptcy court. As of September 30,2005, the balance of the amounts due from the founding airlines was $3.5million based on the September 30, 2005 exchange rate.

 

OnSeptember 19, 2005, we filed a lawsuit against Orbitz in the United StatesDistrict Court, Northern District of Illinois, Eastern Division. Orbitz is oneof our largest online travel agency customers and represented approximately 9%of our transaction volume for the nine month period ended Sepetember 30, 2005.Our complaint alleges that Orbitz accessed our computer system withoutauthorization to obtain our seat map data in violation of the Federal ComputerFraud and Abuse Act. In addition, our complaint further alleges that Orbitz’suse of Galileo and ITA, competing computer reservation systems, in connectionwith direct connect airline segments constitutes a breach of our agreement withOrbitz. We are seeking injunctive relief to prevent the unauthorized accessingand use of our seat map data as well as to prevent Orbitz’s use of the servicesor data of Galileo and ITA. We also seek monetary damages from Orbitz in excessof $50.0 million and reimbursement for our attorneys’ fees and costs.

 

Afterfiling our lawsuit, we learned that Orbitz filed suit against us on September 16,2005, in the Circuit Court of Cook County, Illinois, County Department, LawDivision, purporting to assert two causes of action against us for violation ofthe Illinois Consumer Fraud Act and equitable estoppel. Orbitz has claimed thatcertain exclusivity, minimum segment fee and 100% booking requirementprovisions in our agreement were illegal and in violation of public policy. Inits suit, Orbitz seeks a court order precluding Worldspan from pursuing itsbreach of contract claims against Orbitz, an order terminating and rescindingthe first and second amendments of our contract with Orbitz (which include,among other things, provisions containing commitments from Orbitz with respectto its usage of our GDS through 2011), monetary damages in excess of $0.05million, punitive damages and reimbursement for attorneys’ fees and costs. Webelieve that the allegations in the Orbitz complaint are without merit and weintend to defend against this action vigorously. In addition, we believe thatOrbitz’s filing of its lawsuit against us constitutes another violation of thecontract between the parties, and we have instituted the dispute resolutionprocess to resolve this issue as required by the contract. If we are unable tosatisfactorily resolve the claims asserted by Orbitz and its lawsuit against usis successful, there would be few or no restrictions to prevent Orbitz frommoving a significant portion of its business from our GDS, which would have amaterial adverse effect on our business, financial condition and results ofoperations.

 

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

 

**ITEM 6.  EXHIBITS**

 

***Exhibits:***

 

31.1 Certification of the Principal Executive Officer pursuant to Section 302of the Sarbanes-Oxley Act of 2002.

 

31.2 Certification of the Principal Financial Officer pursuant to Section 302of the Sarbanes-Oxley Act of 2002.

 

32.1 Certifications pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                  | WORLDSPAN, L.P. |
|-----------------------|-----------------|
|                  |            |
|                  |            |
| November 7, 2005 |            |   | /s/ Rakesh Gangwal |   |
| DATE                  | By:             | Rakesh Gangwal |
|                  |            | Chairman, President and Chief Executive Officer |
|                  |            | and Director |
|                  |            | (principal executive officer) |
|                  |            |
|                  |            |
| November 7, 2005 |            |   | /s/ Kevin W. Mooney |   |
| DATE                  | By:             | Kevin W. Mooney |
|                  |            | Chief Financial Officer |
|                  |            | (principal financial and accounting officer) |
|                       |                 |  |  |  |  |

 

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