**UNITED STATES**SECURITIESAND EXCHANGE COMMISSION

 

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                          |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                            |
| ** ** | ** ** | **For the quarterly period ended September  30, 2004**                                                                                                                                |
| ** ** | ** ** | ** **                                                                                                                                                                            |
| **OR**     |
| ** ** | ** ** | ** **                                                                                                                                                                            |
| ** ̈** | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                         |
| ** ** | ** ** | ** **                                                                                                                                                                            |
| ** ** | ** ** | **For the  transition period from                        To** |

** **

**Commission file number  333-109064**

 

**WORLDSPAN, L.P.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                               | ** ** | **75-3125716**                       |
|----------------------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization)            |       | (I.R.S. Employer Identification No.) |
|                                                                       |       |                                 |
| **300 Galleria Parkway, N.W.  Atlanta, Georgia**                           | ** ** | **30339**                            |
| (Address of principal executive offices)                                   |       | (Zip Code)                           |
|                                                                       |       |                                 |
| Registrant’s telephone number, including area code **(770) 563-7400** |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

ý                                    Yes                            o                                    No

 

Indicateby check mark whether the registrant is an accelerated filer (as defined byRule 12b-2 of the Act).

o                                    Yes                            ý                                    No

 

Asof November 8, 2004, Registrant’s parent had outstanding 83,037,160 shares ofClass A Common Stock and 11,000,000 shares of Class B Common Stock.

 

 

----

 

**WORLDSPAN,L.P.**

**REPORT ON FORM 10-Q**

**FOR THE PERIOD ENDED SEPTEMBER 30, 2004**

 

**INDEX**

** **
| **PART  I:** | **FINANCIAL  INFORMATION**                                                                                                                                                             | ** ** |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **   | ** **                                                                                                                                                                             | ** ** |
| **Item  1.** | **Condensed  Financial Statements (Unaudited)**                                                                                                                                        |       |
| ** **   | ** **                                                                                                                                                                             |       |
| ** **   | **Condensed  Consolidated Balance Sheets – September 30, 2004 and December 31, 2003**                                                                                             | ** ** |
|         |                                                                                                                                                                                   |       |
| ** **   | **Condensed  Consolidated Statements of Operations – Three and nine months ended September  30, 2004, three months ended September 30, 2003 and six months ended June 30,  2003** | ** ** |
|         |                                                                                                                                                                                   |       |
| ** **   | **Condensed  Consolidated Statements of Partners’ Capital – Nine months ended September  30, 2004**                                                                          | ** ** |
|         |                                                                                                                                                                                   |       |
| ** **   | **Condensed  Consolidated Statements of Cash Flows – Nine months ended September 30, 2004,  three months ended September 30, 2003 and six months ended June 30, 2003**            |       |
|         |                                                                                                                                                                                   |       |
| ** **   | **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 5.**  | **Other Information**                                                                                                                                                                  | ** ** |
| ** **   | ** **                                                                                                                                                                             | ** ** |
| **Item 6.**  | **Exhibits**                                                                                                                                                                           | ** ** |

 

----

 

**PART I****.  FINANCIAL INFORMATION**

 

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

 

**Worldspan, L.P.**

**Condensed Consolidated Balance Sheets**

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

 
| ** **                                      | ** ** | **Successor Basis**    | ** ** |
|-------------------------------------------------|------------|------------------------|------------|
| ** **                                      | ** ** | **September 30, 2004** | ** ** | **December 31, 2003** | ** ** |
| **Assets**                                      | ** ** | ** **             | ** ** | ** ** | ** ** |
| Current assets                                  |       |                   |       |   |   |
| Cash and cash equivalents                       |       | $                      | 75,038     |   | $ | 43,746 |   |
| Trade accounts receivable, net                  |       | 133,840                |       | 103,122 |   |
| Prepaid expenses and other current assets       |       | 17,068                 |       | 23,629 |   |
| Total current assets                            |       | 225,946                |       | 170,497 |   |
| Property and equipment, net                     |       | 122,798                |       | 120,510 |   |
| Deferred charges                                |       | 32,623                 |       | 33,544 |   |
| Debt issuance costs, net                        |       | 10,826                 |       | 13,626 |   |
| Supplier and agency relationships, net          |       | 279,453                |       | 304,752 |   |
| Developed technology, net                       |       | 213,722                |       | 228,322 |   |
| Trade name                                      |       | 72,142                 |       | 72,142 |   |
| Goodwill                                        |       | 114,435                |       | 109,740 |   |
| Other intangible assets, net                    |       | 32,616                 |       | 34,722 |   |
| Investments                                     |       | 804                    |       | 6,377 |   |
| Other long-term assets                          |       | 21,776                 |       | 25,263 |   |
| Total assets                                    |       | $                      | 1,127,141  |   | $ | 1,119,495 |   |
|                                            |       |                   |       |   |   |
| **Liabilities and Partners’ Capital**      | ** ** | ** **             | ** ** | ** ** | ** ** |
| Current liabilities                             |       |                   |       |   |   |
| Accounts payable                                |       | $                      | 11,244     |   | $ | 19,675 |   |
| Accrued expenses                                |       | 163,991                |       | 144,415 |   |
| Current portion of capital lease obligations    |       | 19,202                 |       | 16,136 |   |
| Current portion of long-term debt               |       | 10,373                 |       | 8,000 |   |
| Total current liabilities                       |       | 204,810                |       | 188,226 |   |
| Long-term portion of capital lease  obligations |       | 57,973                 |       | 55,002 |   |
| Long-term debt                                  |       | 328,115                |       | 385,000 |   |
| Pension and postretirement benefits             |       | 63,109                 |       | 68,405 |   |
| Other long-term liabilities                     |       | 11,126                 |       | 6,310 |   |
| Total liabilities                               |       | 665,133                |       | 702,943 |   |
| Commitments and contingencies                   |       |                   |       |   |   |
| Partners’ capital                          |       | 462,008                |       | 416,552 |   |
| Total liabilities and Partners’ capital    |       | $                      | 1,127,141  |   | $ | 1,119,495 |   |

 

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

 

3

----

 

**Worldspan, L.P.**

**Condensed Consolidated Statements ofOperations**

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

 
| ** **                                                    | ** ** | **Successor  Basis**                         | ** ** | **Successor  Basis**                         | ** ** | **Successor  Basis**                        | ** ** | **Predecessor  Basis**                | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                    | ** ** | **Three months  ended  September 30,  2004** | ** ** | **Three months  ended  September 30,  2003** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **Six months  ended  June 30,  2003** | ** ** |
|                                                          |       |                                         |       |                                         |       |                                        |       |                                  |       |
| **Revenues**                                                  |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Electronic travel distribution                                |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Third party                                                   |       | $                                            | 217,937    |                                         | $          | 212,916                                     |       | $                                     | 682,963    |   | $ | 272,968 |   |
| Related party                                                 |       | —                                       |       | —                                       |       | —                                      |       | 141,965                               |       |
| Information technology services                               |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Third party                                                   |       | 15,851                                       |       | 16,598                                       |       | 48,159                                      |       | 6,572                                 |       |
| Related party                                                 |       | —                                       |       | —                                       |       | —                                      |       | 45,967                                |       |
| Total revenues                                                |       | 233,788                                      |       | 229,514                                      |       | 731,122                                     |       | 467,472                               |       |
| **Operating Expenses**                                        |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Cost of revenues                                              |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Cost of revenues excluding developed  technology amortization |       | 164,819                                      |       | 163,685                                      |       | 508,337                                     |       | 334,469                               |       |
| Developed technology amortization                             |       | 5,508                                        |       | 5,508                                        |       | 16,523                                      |       | 7,359                                 |       |
| Total cost of revenues                                        |       | 170,327                                      |       | 169,193                                      |       | 524,860                                     |       | 341,828                               |       |
| Selling, general and administrative                           |       | 29,406                                       |       | 34,648                                       |       | 95,434                                      |       | 76,141                                |       |
| Amortization of intangible assets                             |       | 9,136                                        |       | 9,136                                        |       | 27,405                                      |       | —                                |       |
| Total operating expenses                                      |       | 208,869                                      |       | 212,977                                      |       | 647,699                                     |       | 417,969                               |       |
| Operating income                                              |       | 24,919                                       |       | 16,537                                       |       | 83,423                                      |       | 49,503                                |       |
| **Other Income (Expense)**                                    |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Interest expense, net                                         |       | (10,104                                      | )          | (10,319                                      | )          | (30,758                                     | )          | (2,355                                | )          |
| Change-in-control expense                                     |       | —                                       |       | —                                       |       | —                                      |       | (17,259                               | )          |
| Other, net                                                    |       | (1,285                                       | )          | 240                                          |       | (1,167                                      | )          | (1,331                                | )          |
| Total other expense, net                                      |       | (11,389                                      | )          | (10,079                                      | )          | (31,925                                     | )          | (20,945                               | )          |
| **Income before provision for income taxes**                  |       | 13,530                                       |       | 6,458                                        |       | 51,498                                      |       | 28,558                                |       |
| Income tax expense                                            |       | 3,685                                        |       | 87                                           |       | 3,987                                       |       | 144                                   |       |
| Net income                                                    |       | $                                            | 9,845      |                                         | $          | 6,371                                       |       | $                                     | 47,511     |   | $ | 28,414 |   |

 

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

 

4

----

 

**Worldspan, L.P.**

**Condensed Consolidated Statements of Partners’Capital**

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

 
| ** **                            | ** ** | **Partners’  Capital** | ** ** | **Accumulated  Other Comprehensive  Income** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|-----------------------------|------------|----------------------------------------------|------------|------------|------------|
|                                  |       |                        |       |                                         |       |       |       |
| **Successor Basis**                   | ** ** | ** **                  | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| Balance at December 31, 2003          |       | $                           | 416,127    |                                         | $          | 425        |       | $ | 416,552 |   |
| Comprehensive income:                 |       |                        |       |                                         |       |       |       |
| Net income                            |       | 47,511                      |       | —                                       |       | 47,511     |       |
| Unrealized holding loss on investment |       | —                      |       | (465                                         | )          | (465       | )          |
| Comprehensive income                  |       |                        |       |                                         |       | 47,046     |       |
| Distribution to WTI                   |       | (4,091                      | )          | —                                       |       | (4,091     | )          |
| Stock-based compensation              |       | 2,501                       |       | —                                       |       | 2,501      |       |
| Balance at September 30, 2004         |       | $                           | 462,048    |                                         | $          | (40        | )          | $ | 462,008 |   |

 

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

 

5

----

 

**Worldspan, L.P.**

**Condensed Consolidated Statements of CashFlows**

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

 
| ** **                                                                         | ** ** | **Successor Basis**                        | ** ** | **Successor Basis**                         | ** ** | **Predecessor Basis**                | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **Nine months  ended  September 30, 2004** | ** ** | **Three months  ended  September 30, 2003** | ** ** | **Six months  ended  June 30, 2003** | ** ** |
| Cash flows from operating activities:                                              |       |                                       |       |                                        |       |                                 |       |
| Net income                                                                         |       | $                                          | 47,511     |                                        | $          | 6,371                                |       | $ | 28,414 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                       |       |                                        |       |                                 |       |
| Depreciation and amortization                                                      |       | 76,871                                     |       | 26,656                                      |       | 32,322                               |       |
| Amortization of debt issuance costs                                                |       | 2,799                                      |       | 656                                         |       | —                               |       |
| Stock-based compensation                                                           |       | 2,501                                      |       | —                                      |       | —                               |       |
| Loss on disposal of property and equipment,  net                                   |       | 444                                        |       | 194                                         |       | 1,010                                |       |
| Gain on sale of investment in other entity                                         |       | (953                                       | )          | —                                      |       | —                               |       |
| Write-down of impaired investments                                                 |       | 1,498                                      |       | —                                      |       | —                               |       |
| Other                                                                              |       | (56                                        | )          | (19                                         | )          | 170                                  |       |
| Changes in operating assets and  liabilities:                                      |       |                                       |       |                                        |       |                                 |       |
| Trade accounts receivable, net                                                     |       | (30,717                                    | )          | (3,529                                      | )          | (17,075                              | )          |
| Related party accounts receivable, net                                             |       | —                                     |       | —                                      |       | (3,396                               | )          |
| Prepaid expenses and other current assets                                          |       | 6,563                                      |       | 2,024                                       |       | 5,412                                |       |
| Deferred charges                                                                   |       | 921                                        |       | (241                                        | )          | 1,945                                |       |
| Other long-term assets                                                             |       | 1,564                                      |       | (3,275                                      | )          | (16,840                              | )          |
| Accounts payable                                                                   |       | (8,433                                     | )          | (5,270                                      | )          | 640                                  |       |
| Accrued expenses                                                                   |       | 18,144                                     |       | (12,475                                     | )          | 6,330                                |       |
| Pension and postretirement benefits                                                |       | (5,296                                     | )          | 2,493                                       |       | 3,203                                |       |
| Other long-term liabilities                                                        |       | (1,444                                     | )          | (898                                        | )          | (1,112                               | )          |
| Net cash provided by operating activities                                          |       | 111,917                                    |       | 12,687                                      |       | 41,023                               |       |
| Cash flows from investing activities:                                              |       |                                       |       |                                        |       |                                 |       |
| Purchase of property and equipment                                                 |       | (9,521                                     | )          | (5,064                                      | )          | (4,236                               | )          |
| Proceeds from sale of investment in other  entity                                  |       | 5,765                                      |       | —                                      |       | —                               |       |
| Proceeds from sale of property and  equipment                                      |       | 117                                        |       | 50                                          |       | 396                                  |       |
| Capitalized software for internal use                                              |       | (1,994                                     | )          | (1,395                                      | )          | (1,367                               | )          |
| Net cash used in investing activities                                              |       | (5,633                                     | )          | (6,409                                      | )          | (5,207                               | )          |
| Cash flows from financing activities:                                              |       |                                       |       |                                        |       |                                 |       |
| Payments to seller airlines                                                        |       | —                                     |       | (702,846                                    | )          | —                               |       |
| Distributions to seller airlines                                                   |       | —                                     |       | —                                      |       | (110,000                             | )          |
| Equity contribution from WTI, net of  transaction costs                            |       | —                                     |       | 308,374                                     |       | —                               |       |
| Proceeds from issuance of debt, net of debt  issuance costs                        |       | —                                     |       | 390,063                                     |       | —                               |       |
| Principal payments on capital leases                                               |       | (16,389                                    | )          | (6,894                                      | )          | (13,986                              | )          |
| Principal payments on debt                                                         |       | (54,512                                    | )          | —                                      |       | —                               |       |
| Distributions to WTI, net                                                          |       | (4,091                                     | )          | —                                      |       | —                               |       |
| Net cash used in financing activities                                              |       | (74,992                                    | )          | (11,303                                     | )          | (123,986                             | )          |
| Net increase (decrease) in cash and cash  equivalents                              |       | 31,292                                     |       | (5,025                                      | )          | (88,170                              | )          |
| Cash and cash equivalents at beginning of  period                                  |       | 43,746                                     |       | 43,931                                      |       | 132,101                              |       |
| Cash and cash equivalents at end of period                                         |       | $                                          | 75,038     |                                        | $          | 38,906                               |       | $ | 43,931 |   |

 

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

 

6

----

 

**Worldspan, L.P.**

**Notes to Condensed Consolidated FinancialStatements**

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

 

**1. Accounting Policies**

 

*Nature of Business.*  Worldspan, L.P. (the “Partnership”) is aDelaware limited partnership formed in 1990. On June 30, 2003, WorldspanTechnologies Inc. (“WTI”), formerly named Travel Transaction ProcessingCorporation, formed by Citigroup Venture Capital Equity Partners, L.P. (“CVC”)and Ontario Teachers’ Pension Plan Board (“OTPP”), indirectly acquired 100% ofthe outstanding partnership interests of the Partnership from affiliates ofDelta Air Lines, Inc. (“Delta”), Northwest Airlines, Inc. (“Northwest”) andAmerican Airlines, Inc. (“American”) (the “Acquisition”). WTI owns all of thegeneral partnership interests in the Partnership. WS Holdings LLC (“WS Holdings”),which is owned by WTI, is the sole limited partner of the Partnership, owningall of the limited partnership interests. Prior to the Acquisition, Delta,Northwest and American (collectively, the Partnership’s “founding airlines”)owned, through affiliates, approximately 40%, 34% and 26%, respectively, of thegeneral partnership interests in the Partnership. NEWCRS Limited, Inc. (“NEWCRS”),which was owned by the founding airlines, owned all of the limited partnershipinterests. American acquired its interest in the Partnership as part of itsacquisition of substantially all of the assets of Trans World Airlines, Inc. (“TWA”)in April 2001.

 

The Partnership provides information,reservations, transaction processing and related services for airlines, travelagencies and other travel-related entities. The Partnership owns and operates aglobal distribution system (“GDS”) and provides subscribers with access to anduse of this GDS. The Partnership also charges Delta, Northwest and others forthe use of the GDS.

 

*Basis of Presentation.*  The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States for interimfinancial information and with the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements. In the opinion of management thesefinancial statements contain all adjustments, consisting of normal recurringaccruals, necessary to present fairly the financial position, results ofoperations and cash flows for the periods indicated. The preparation offinancial statements in accordance with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andthe accompanying notes. Operating results for the three and nine months endedSeptember 30, 2004, three months ended September 30, 2003 and six months endedJune 30, 2003 are not necessarily indicative of results that may be expectedfor any other interim period or for the year ending December 31, 2004. ** **ThePartnership’s quarterly financial data should be read in conjunction with itsconsolidated financial statements for the year ended December 31, 2003(including the notes thereto), set forth in its annual report on Form 10-Kfiled with the Securities and Exchange Commission on March 30, 2004.

 

The consolidated financial statements presentthe Partnership for the three and nine months ended September 30, 2004 andthree months ended September 30, 2003 (“successor basis” reflecting theAcquisition and associated basis), and the six months ended June 30, 2003 (“predecessorbasis” for the period of Delta’s, Northwest’s and American’s ownership of thePartnership and associated basis).

 

In accordance with the requirements ofpurchase accounting, the assets and liabilities of the Partnership wereadjusted to their estimated fair values and the resulting goodwill was computedfor the Acquisition (see Note 2). The application of purchase accountinggenerally results in higher depreciation and amortization expense in periodsfollowing an acquisition. Accordingly, and because of other effects of purchaseaccounting, the accompanying consolidated financial statements as of and forthe period prior to the Acquisition are not comparable with those periodssubsequent to the Acquisition.

 

7

----

 

*Stock-Based Compensation.*  Under the WTI stock incentive plan, from timeto time, WTI offers restricted shares of its Class A Common Stock and grantsoptions to purchase shares of its Class A Common Stock to certain employees ofthe Partnership. WTI accounts for employee stock options and restricted sharesof Class A Common Stock in accordance with SFAS No. 123, *Accounting for Stock Based Compensation*.WTI values stock options based upon a binomial option-pricing model. As the WTIoptions and restricted shares of WTI Class A Common Stock are being granted toemployees of the Partnership, the Partnership recognizes this value as anexpense over the period in which the options and restricted shares vest, with acorresponding increase in partners’ capital.

 

*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 and not replace the transactions generated by any significanttravel agencies, its business, financial condition and results of operationscould be adversely affected. For the nine months ended September 30, 2004,three months ended September 30, 2003 and six months ended June 30, 2003, onesubscriber generated transactions in the Partnership’s electronic traveldistribution segment which resulted in revenues of approximately $186,469,$49,481 and $89,322 respectively. These amounts represented 26%, 22% and 19% oftotal operating revenues for the nine months ended September 30, 2004, threemonths ended September 30, 2003 and six months ended June 30, 2003,respectively.

 

Furthermore, the Partnership charges airlinecarriers, rental car companies, hotels and other providers of travel productsand services (collectively referred to as “associates”) for electronic traveldistribution services and information technology services. Revenues generatedby two associates for the nine months ended September 30, 2004, three monthsended September 30, 2003 and six months ended June 30, 2003 were $210,114,$68,727 and $152,506, respectively. These amounts, included in the electronictravel distribution segment and the information technology services segment,represented approximately 29% of total operating revenues for the nine monthsended September 30, 2004, 30% of total operating revenues for three monthsended September 30, 2003 and 33% of total operating revenues for the six monthsended June 30, 2003. At September 30, 2004 and December 31, 2003, accountsreceivable from these same two associates was approximately $37,554 and$32,704, respectively.

 

The Partnership maintained an allowance fordoubtful accounts of approximately $14,469 and $15,530 at September 30, 2004and December 31, 2003, respectively.

 

*Reclassifications.*  Certain reclassifications have been made inthe prior year’s financial statements to conform to classifications used in thecurrent year.

 

**2.  WTIAcquisition of Worldspan**

 

On June 30, 2003, WTI indirectly acquired100% of the outstanding partnership interests of the Partnership fromaffiliates of Delta, Northwest and American. The aggregate consideration forthe Acquisition was $901,500, consisting of $817,500 in cash and the issuanceby WTI of $84,000 of holding company subordinated seller notes payable by WTIto American and Delta. The holding company subordinated seller notes areunsecured obligations of WTI and are not the Partnership’s debt. The purchaseconsideration was subject to adjustment based upon certain items, such as thePartnership’s closing cash, debt and working capital. The resulting netaggregate consideration for the Acquisition was $837,766. The Acquisition hasbeen accounted for as a purchase transaction in accordance with SFAS No. 141, *Business Combinations*.

 

8

----

 

The $116,048 excess of the purchase priceover the estimated fair values of the net tangible assets and separately identifiableintangible assets of the Partnership was recorded as goodwill. As all income orlosses of the Partnership are allocated to WTI and WS Holdings for inclusion intheir respective income tax returns, none of the goodwill is expected to be taxdeductible by the Partnership. The purchase price was allocated among tangibleand intangible assets acquired and liabilities assumed based on estimated fairvalues at the Acquisition date. The following represents the allocation of thepurchase price that was pushed down to the Partnership at the time of theAcquisition:

 
| Current assets                                  |   | $        | 178,756 |   |
|-------------------------------------------------|--------|----------|---------|--------|
| Property and equipment                          |   | 129,504  |    |
| Deferred charges                                |   | 33,975   |    |
| Other long-term assets                          |   | 59,901   |    |
| Goodwill                                        |   | 116,048  |    |
| Other identifiable intangibles                  |   | 666,723  |    |
| Current liabilities                             |   | (203,085 | )       |
| Pension and postretirement benefits             |   | (64,067  | )       |
| Long-term portion of capital lease  obligations |   | (62,640  | )       |
| Other long-term liabilities                     |   | (17,349  | )       |
| Allocated purchase price                        |   | $        | 837,766 |   |

 

The $116,048 ofgoodwill was allocated as follows: $102,189 to the electronic traveldistribution segment and $13,859 to the information technology servicessegment.

 

During the quarter ended September 30, 2004,goodwill decreased $1,613 as a result of the reduction of a valuation allowanceon pre-acquisition foreign deferred tax assets.

 

Other identifiableintangibles acquired consist of the following:

 
| **Asset**                                 | ** ** | **Fair Value** | ** ** | **Estimated  Useful Life** | ** ** |
|-------------------------------------------|------------|----------------|------------|----------------------------|------------|
| ** **                                |       |           |       |                       |       |
| Supplier and agency relationships         |       | $              | 321,618    |                       | 8-11 years |   |
| Information technology services contracts |       | 36,126         |       | 5-15 years                 |       |
| Developed technology                      |       | 236,837        |       | 11 years                   |       |
| Trade name                                |       | 72,142         |       | Indefinite                 |       |
|                                           |            |                |            |                            |            |  |

 

The weighted average life of acquiredidentifiable intangibles, subject to amortization, is approximately nine years.Goodwill and trade name are not amortized but will be tested for impairment onan annual basis or at an interim date if indicators of impairment exist.

 

The following unaudited financial informationpresents the results of operations of the Partnership as if the Acquisition hadoccurred at the beginning of the period presented. Adjustments related to theAcquisition that affect the results of operations include credits provided toDelta and Northwest under their respective founder airline services agreement(the”FASAs”), interest expense associated with the debt issued in conjunctionwith the Acquisition, depreciation of the step-up of fixed assets, amortizationof the fair value of amortizing intangible assets, and the advisory fee payableto WTI. This pro forma information does not purport to be indicative of whatwould have occurred had the Acquisition occurred as of January 1, 2003 or ofresults of operations that may occur in the future.

 
| ** ** | ** ** | **Predecessor Basis**               | ** ** |
|------------|------------|-------------------------------------|------------|
| ** ** | ** ** | **Six months ended  June 30, 2003** | ** ** |
| ** ** | ** ** | ** **                          | ** ** |
| Revenues   |       | $                                   | 405,805    |   |
| Net loss   |       | (12,357                             | )          |
|            |            |                                     |            |  |

 

9

----

 

**3. Debt**

 

In conjunction with the Acquisition, thePartnership, and its wholly-owned subsidiary, WS Financing Corp., issued andsold $280,000 aggregate principal amount of 9 5/8% Senior Notes due 2011 (“SeniorNotes”) and the Partnership borrowed $125,000 under the term loan facilityportion of a senior credit facility due 2007 (“Term Loan”). The senior creditfacility also provides for a four-year revolving credit facility of up to $50,000in revolving credit loans and letters of credit. The Senior Notes areeffectively subordinated to the Term Loan, which is secured by substantiallyall of the assets of the issuers and the guarantors of the Senior Notes. Theinterest rate applicable to borrowings under the Term Loan is based on theLIBOR rate, or, at the Partnership’s option, the higher of several other commonindices. At September 30, 2004, the interest rate on the Term Loan was 5.59%.The Partnership is required to pay a commitment fee of 0.50% per annum on thedifference between committed amounts and amounts actually utilized under therevolving credit facility.

 

Debt covenants require the Partnership tomaintain certain financial ratios, including a minimum fixed charge coverageratio, a minimum interest coverage ratio, a maximum senior secured leverageratio and a maximum total leverage ratio. In addition, certain non-financialcovenants restrict the activities of the Partnership.

 

Long-term debt consisted of the following:

 
| ** **                                | ** ** | **Successor Basis**     | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
| ** **                                | ** ** | **September 30,  2004** | ** ** |
|                                      |       |                    |       |
| Senior Notes                              |       | $                       | 280,000    |   |
| Term Loan                                 |       | 58,488                  |       |
|                                      |       | 338,488                 |       |
| Less current portion of long-term debt    |       | 10,373                  |       |
| Long-term debt, excluding current portion |       | $                       | 328,115    |   |

 

During the ninemonths ended September 30, 2004, the Partnership paid $54,512 in principal onthe Term Loan, of which $4,512 was scheduled principal payments.

 

**4. Employee Benefit Plans**

 

The components of net pension andpostretirement costs were as follows:

 
| ** **                                     | ** ** | **Successor Basis**                          | ** ** | **Successor Basis**                          | ** ** | **Successor Basis**                         | ** ** | **Predecessor Basis**                 | ** ** |
|------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                                     | ** ** | **Three months  ended  September 30,  2004** | ** ** | **Three months  ended  September 30,  2003** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **Six months  ended  June 30,  2003** | ** ** |
| **Pension benefits:**                          |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Service cost                                   |       | $                                            | —     |                                         | $          | 4,404                                       |       | $                                     | —     |   | $ | 5,483 |   |
| Interest cost                                  |       | 2,762                                        |       | 2,636                                        |       | 8,286                                       |       | 6,061                                 |       |
| Expected return on plan assets                 |       | (3,389                                       | )          | (3,170                                       | )          | (10,167                                     | )          | (7,061                                | )          |
| Amortization of transition obligation          |       | —                                       |       | —                                       |       | —                                      |       | 86                                    |       |
| Amortization of prior service cost             |       | —                                       |       | —                                       |       | —                                      |       | 59                                    |       |
| Recognized net actuarial loss                  |       | —                                       |       | —                                       |       | —                                      |       | 214                                   |       |
| Net periodic pension benefit (income)  expense |       | $                                            | (627       | )                                            | $          | 3,870                                       |       | $                                     | (1,881     | ) | $ | 4,842 |   |

 

10

----

 
| ** **                                  | ** ** | **Successor Basis**                          | ** ** | **Successor Basis**                          | ** ** | **Successor Basis**                         | ** ** | **Predecessor Basis**                 | ** ** |
|---------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                                  | ** ** | **Three months  ended  September 30,  2004** | ** ** | **Three months  ended  September 30,  2003** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **Six months  ended  June 30,  2003** | ** ** |
| **Postretirement benefits:**                |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Service cost                                |       | $                                            | 82         |                                         | $          | 82                                          |       | $                                     | 246        |   | $ | 955 |   |
| Interest cost                               |       | 418                                          |       | 418                                          |       | 1,254                                       |       | 1,681                                 |       |
| Expected return on plan assets              |       | —                                       |       | —                                       |       | —                                      |       | —                                |       |
| Amortization of transition obligation       |       | —                                       |       | —                                       |       | —                                      |       | —                                |       |
| Amortization of prior service cost          |       | —                                       |       | —                                       |       | —                                      |       | (425                                  | )          |
| Recognized net actuarial loss               |       | —                                       |       | —                                       |       | —                                      |       | 228                                   |       |
| Net periodic postretirement benefit expense |       | $                                            | 500        |                                         | $          | 500                                         |       | $                                     | 1,500      |   | $ | 2,439 |   |

 

InDecember 2003, the United States enacted into law the Medicare PrescriptionDrug, Improvement and Modernization Act of 2003 (the “Act”). The Actestablishes a prescription drug benefit under Medicare, known as “Medicare PartD,” and a federal subsidy to sponsors of retiree health care benefit plans thatprovide a benefit that is at least actuarially equivalent to Medicare Part D.In January 2004, the Financial Accounting Standards Board (“FASB”) issued FASBStaff Position No. 106-1, “Accounting and Disclosure Requirements Related tothe Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP106-1”). The Partnership elected to defer accounting for the effects of theAct, as permitted by FSP 106-1.  In May2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and DisclosureRequirements Related to the Medicare Prescription Drug, Improvement andModernization Act of 2003” (“FSP 106-2”). FSP 106-2 requires companies toaccount for the effect of the subsidy on benefits attributable to past serviceas an actuarial experience gain and as a reduction of the service costcomponent of net postretirement health care costs for amounts attributable tocurrent service, if the benefit provided is at least actuarially equivalent toMedicare Part D.  In 2005, the Centersfor Medicare and Medicaid Services (CMS) is expected to issue regulationsgoverning how employers should determine whether their prescription drugbenefits are at least actuarially equivalent to Medicare Part D.  Based on the proposed regulations, thePartnership has concluded that its retiree prescription drug benefits are notat least actuarially equivalent to Medicare Part D.  As such, the adoption of FSP 106-2 during thethird quarter of 2004 did not effect the Partnership’s financial position orresults of operations.

 

**5. Other Significant Events**

 

During the first quarter of 2004, the Partnership announced a workforcereduction. This reduction was the result of improved organizational efficiencyand the outsourcing of programming for certain applications. The total chargerecorded for this workforce reduction, which affected approximately 125employees, was $1,290, all of which was for severance and benefits. This amountis included in “Selling, general and administrative” expenses in theaccompanying condensed consolidated statements of operations. The $1,290 chargeincluded $960 for the electronic travel distribution segment and $330 for theinformation technology services segment. At September 30, 2004, there was no remaining liability associated withthis workforce reduction.

 

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

 

11

----

 

**6. Contingencies**

 

In September 2003, the Partnership receivedmultiple assessments totaling €39,503 from the tax authorities of Greecerelating to tax years 1993-2000. The Partnership has filed appeals of theseassessments, the outcome of which is currently uncertain. The PartnershipInterest Purchase Agreement, dated March 3, 2003, provides that each of thefounding airlines shall severally indemnify WTI and hold WTI harmless on a netafter-tax basis from and against any and all taxes of the Partnership and itssubsidiaries related to periods prior to the sale of the Partnership on June30, 2003. The Partnership has informed the founding airlines of the receipt ofthese assessments and the indemnity obligation of the founding airlines underthe Partnership Interest Purchase Agreement. Subsequent to this notice, thefounding airlines elected to take control of the defense of the claims.  On October 4, 2004, the Partnership appliedto the Greek authorities for partial relief under the terms of a formal taxamnesty program.  The Greek authoritieshave not yet responded to that application. Because of the indemnity provision, the Partnership believes thatamounts paid, if any, to settle this assessment will be reimbursed by thefounding airlines and will not have an effect on the Partnership’s financialposition or results of operations.

 

**7. Business Segment Information**

 

The Partnership’s operations are classifiedinto two reportable business segments: electronic travel distribution andinformation technology services. The Partnership’s two reportable businesssegments are managed separately based on fundamental differences in theiroperations. In addition, each business segment offers different products andservices. The electronic travel distribution segment distributes travelservices of its associates to subscribers of the Worldspan GDS. By havingaccess to the Worldspan GDS, subscribers are able to book reservations with theassociates. The information technology services segment provides technologyservices to Delta and Northwest and other companies in the travel industry.

 

The Partnership evaluates performance andallocates resources based on operating income. The accounting policies of thereportable segments are the same as those described in the summary ofsignificant accounting policies. There are no intersegment sales.

 

12

----

 
| ** **                         | ** ** | **Successor Basis**                          | ** ** | **Successor Basis**                          | ** ** | **Successor Basis**                         | ** ** | **Predecessor Basis**                 | ** ** |
|------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                         | ** ** | **Three months  ended  September 30,  2004** | ** ** | **Three months  ended  September 30,  2003** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **Six months  ended  June 30,  2003** | ** ** |
|                               |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Revenues                           |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Electronic travel distribution     |       | $                                            | 217,937    |                                         | $          | 212,916                                     |       | $                                     | 682,963    |   | $ | 414,933 |   |
| Information technology services    |       | 15,851                                       |       | 16,598                                       |       | 48,159                                      |       | 52,539                                |       |
| Total revenues                     |       | $                                            | 233,788    |                                         | $          | 229,514                                     |       | $                                     | 731,122    |   | $ | 467,472 |   |
| Operating income                   |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Electronic travel distribution     |       | $                                            | 33,625     |                                         | $          | 25,783                                      |       | $                                     | 108,316    |   | $ | 45,803 |   |
| Information technology services    |       | (8,706                                       | )          | (9,246                                       | )          | (24,893                                     | )          | 3,700                                 |       |
| Total operating income             |       | $                                            | 24,919     |                                         | $          | 16,537                                      |       | $                                     | 83,423     |   | $ | 49,503 |   |
| Depreciation and amortization      |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Electronic travel distribution     |       | $                                            | 21,030     |                                         | $          | 21,581                                      |       | $                                     | 64,256     |   | $ | 26,701 |   |
| Information technology services    |       | 4,757                                        |       | 5,075                                        |       | 12,615                                      |       | 5,621                                 |       |
| Total depreciation andamortization |       | $                                            | 25,787     |                                         | $          | 26,656                                      |       | $                                     | 76,871     |   | $ | 32,322 |   |
| Geographic areas                   |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Total revenues                     |       |                                         |       |                                         |       |                                        |       |                                  |       |
| United States                      |       | $                                            | 195,356    |                                         | $          | 190,689                                     |       | $                                     | 619,512    |   | $ | 406,854 |   |
| Foreign                            |       | 38,432                                       |       | 38,825                                       |       | 111,610                                     |       | 60,618                                |       |
| Total                              |       | $                                            | 233,788    |                                         | $          | 229,514                                     |       | $                                     | 731,122    |   | $ | 467,472 |   |
| Long-lived assets                  |       |                                         |       |                                         |       |                                        |       |                                  |       |
| United States                      |       | $                                            | 871,427    |                                         | $          | 952,756                                     |       | $                                     | 871,427    |   | $ | 173,362 |   |
| Foreign                            |       | 29,768                                       |       | 32,128                                       |       | 29,768                                      |       | 31,772                                |       |
| Total                              |       | $                                            | 901,195    |                                         | $          | 984,884                                     |       | $                                     | 901,195    |   | $ | 205,134 |   |

 

13

----

 

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

 

Concurrent with theclosing of the Acquisition discussed in Note 2, the Senior Notes became fullyand unconditionally guaranteed on a senior unsecured basis by the domesticoperations and assets of the Partnership (referred to as “Worldspan, L.P.—Guarantor”in the accompanying financial information). Included in Worldspan, L.P.—Guarantorare Worldspan, L.P. and all of its wholly-owned domestic subsidiaries includingWS Financing Corp.  These domesticsubsidiaries collectively represent less than one percent of the Partnership’stotal assets, Partners’ capital, total revenues, net income, and cash flowsfrom operating activities. The guarantees of each of the legal entitiescomprised by Worldspan, L.P.—Guarantor are joint and several.  The foreign subsidiaries (referred to as “Non-GuarantorSubsidiaries” in the accompanying financial information) represent the foreignoperations of the Partnership. WS Financing Corp., the co-issuer of the SeniorNotes, was incorporated on June 6, 2003. WS Financing Corp. does not have any substantial operations, assets orrevenues. The following financial information presents condensed consolidatingbalance sheets, statements of operations and statements of cash flows forWorldspan, L.P.—Guarantor and Non-Guarantor Subsidiaries. The information hasbeen presented as if Worldspan, L.P.—Guarantor accounted for its ownership ofthe Non-Guarantor Subsidiaries using the equity method of accounting.

 

14

----

 

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

**as of September 30, 2004**

**(Successor Basis)**

 
| ** **                                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Assets**                                      |       |                                 |       |                            |       |                     |       |                        |       |
| Current assets                                  |       |                                 |       |                            |       |                     |       |                        |       |
| Cash and cash equivalents                       |       | $                                    | 72,047     |                            | $          | 2,991                    |       | $                           | —     |   | $ | 75,038 |   |
| Trade accounts receivable, net                  |       | 130,644                              |       | 3,196                           |       | —                   |       | 133,840                     |       |
| Prepaid expenses and other current assets       |       | 15,103                               |       | 1,965                           |       | —                   |       | 17,068                      |       |
| Total current assets                            |       | 217,794                              |       | 8,152                           |       | —                   |       | 225,946                     |       |
| Property and equipment, net                     |       | 116,442                              |       | 6,356                           |       | —                   |       | 122,798                     |       |
| Deferred charges                                |       | 16,910                               |       | 15,713                          |       | —                   |       | 32,623                      |       |
| Debt issuance costs                             |       | 10,826                               |       | —                          |       | —                   |       | 10,826                      |       |
| Goodwill                                        |       | 114,435                              |       | —                          |       | —                   |       | 114,435                     |       |
| Other intangible assets, net                    |       | 597,933                              |       | —                          |       | —                   |       | 597,933                     |       |
| Investments                                     |       | 241                                  |       | 563                             |       | —                   |       | 804                         |       |
| Investments in subsidiaries                     |       | 16,390                               |       | —                          |       | (16,390                  | )          | —                      |       |
| Other long-term assets                          |       | 14,640                               |       | 7,136                           |       | —                   |       | 21,776                      |       |
| Total assets                                    |       | $                                    | 1,105,611  |                            | $          | 37,920                   |       | $                           | (16,390    | ) | $ | 1,127,141 |   |
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Liabilities and Partners’ Capital**      |       |                                 |       |                            |       |                     |       |                        |       |
| Current liabilities                             |       |                                 |       |                            |       |                     |       |                        |       |
| Accounts payable                                |       | $                                    | 9,580      |                            | $          | 1,664                    |       | $                           | —     |   | $ | 11,244 |   |
| Intercompany accounts payable (receivable)      |       | 12,127                               |       | (12,127                         | )          | —                   |       | —                      |       |
| Accrued expenses                                |       | 131,941                              |       | 32,050                          |       | —                   |       | 163,991                     |       |
| Current portion of capital lease  obligations   |       | 19,202                               |       | —                          |       | —                   |       | 19,202                      |       |
| Current portion of long-term debt               |       | 10,373                               |       | —                          |       | —                   |       | 10,373                      |       |
| Total current liabilities                       |       | 183,223                              |       | 21,587                          |       | —                   |       | 204,810                     |       |
| Long-term portion of capital lease  obligations |       | 57,973                               |       | —                          |       | —                   |       | 57,973                      |       |
| Long-term debt                                  |       | 328,115                              |       | —                          |       | —                   |       | 328,115                     |       |
| Pension and postretirement benefits             |       | 63,151                               |       | (42                             | )          | —                   |       | 63,109                      |       |
| Other long-term liabilities                     |       | 11,141                               |       | (15                             | )          | —                   |       | 11,126                      |       |
| Total liabilities                               |       | 643,603                              |       | 21,530                          |       | —                   |       | 665,133                     |       |
| Commitments and contingencies                   |       |                                 |       |                            |       |                     |       |                        |       |
| Partners’ capital                          |       | 462,008                              |       | 16,390                          |       | (16,390                  | )          | 462,008                     |       |
| Total liabilities and Partners’ capital    |       | $                                    | 1,105,611  |                            | $          | 37,920                   |       | $                           | (16,390    | ) | $ | 1,127,141 |   |

 

15

----

 

**Condensed Consolidating Balance Sheets**

**as of December 31, 2003**

**(Successor Basis)**

 
| ** **                                      | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Assets**                                      |       |                                 |       |                            |       |                     |       |                        |       |
| Current assets                                  |       |                                 |       |                            |       |                     |       |                        |       |
| Cash and cash equivalents                       |       | $                                    | 41,615     |                            | $          | 2,131                    |       | $                           | —     |   | $ | 43,746 |   |
| Trade accounts receivable, net                  |       | 100,593                              |       | 2,529                           |       | —                   |       | 103,122                     |       |
| Prepaid expenses and other current assets       |       | 21,422                               |       | 2,207                           |       | —                   |       | 23,629                      |       |
| Total current assets                            |       | 163,630                              |       | 6,867                           |       | —                   |       | 170,497                     |       |
| Property and equipment, net                     |       | 113,321                              |       | 7,189                           |       | —                   |       | 120,510                     |       |
| Deferred charges                                |       | 17,472                               |       | 16,072                          |       | —                   |       | 33,544                      |       |
| Debt issuance costs, net                        |       | 13,626                               |       | —                          |       | —                   |       | 13,626                      |       |
| Goodwill                                        |       | 109,740                              |       | —                          |       | —                   |       | 109,740                     |       |
| Other intangible assets, net                    |       | 639,938                              |       | —                          |       | —                   |       | 639,938                     |       |
| Investments                                     |       | 5,064                                |       | 1,313                           |       | —                   |       | 6,377                       |       |
| Investments in subsidiaries                     |       | 7,845                                |       | —                          |       | (7,845                   | )          | —                      |       |
| Other long-term assets                          |       | 18,472                               |       | 6,791                           |       | —                   |       | 25,263                      |       |
| Total assets                                    |       | $                                    | 1,089,108  |                            | $          | 38,232                   |       | $                           | (7,845     | ) | $ | 1,119,495 |   |
|                                            |       |                                 |       |                            |       |                     |       |                        |       |
| **Liabilities and Partners’ Capital**      |       |                                 |       |                            |       |                     |       |                        |       |
| Current liabilities                             |       |                                 |       |                            |       |                     |       |                        |       |
| Accounts payable                                |       | $                                    | 16,933     |                            | $          | 2,742                    |       | $                           | —     |   | $ | 19,675 |   |
| Intercompany accounts payable (receivable)      |       | (1,226                               | )          | 1,226                           |       | —                   |       | —                      |       |
| Accrued expenses                                |       | 117,944                              |       | 26,471                          |       | —                   |       | 144,415                     |       |
| Current portion of capital lease  obligations   |       | 16,136                               |       | —                          |       | —                   |       | 16,136                      |       |
| Current portion of long-term debt               |       | 8,000                                |       | —                          |       | —                   |       | 8,000                       |       |
| Total current liabilities                       |       | 157,787                              |       | 30,439                          |       | —                   |       | 188,226                     |       |
| Long-term portion of capital lease  obligations |       | 55,002                               |       | —                          |       | —                   |       | 55,002                      |       |
| Long-term debt                                  |       | 385,000                              |       | —                          |       | —                   |       | 385,000                     |       |
| Pension and postretirement benefits             |       | 68,439                               |       | (34                             | )          | —                   |       | 68,405                      |       |
| Other long-term liabilities                     |       | 6,328                                |       | (18                             | )          | —                   |       | 6,310                       |       |
| Total liabilities                               |       | 672,556                              |       | 30,387                          |       | —                   |       | 702,943                     |       |
| Commitments and contingencies                   |       |                                 |       |                            |       |                     |       |                        |       |
| Partners’ capital                          |       | 416,552                              |       | 7,845                           |       | (7,845                   | )          | 416,552                     |       |
| Total liabilities and Partners’ capital    |       | $                                    | 1,089,108  |                            | $          | 38,232                   |       | $                           | (7,845     | ) | $ | 1,119,495 |   |

 

16

----

 

**Condensed Consolidating Statements ofOperations**

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

**(Successor Basis)**

 
| ** **                     | ** ** | **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 income (expense)         |       |                                 |       |                            |       |                     |       |                        |       |
| 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 |   |

 

**Condensed Consolidating Statements ofOperations**

**for the Three Months Ended September 30, 2003**

**(Successor Basis)**

 
| ** **                     | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|--------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                           |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                       |       | $                                    | 190,689    |                            | $          | 38,825                   |       | $                           | —     |   | $ | 229,514 |   |
| Operating expenses             |       | 181,310                              |       | 31,667                          |       | —                   |       | 212,977                     |       |
| Operating income               |       | 9,379                                |       | 7,158                           |       | —                   |       | 16,537                      |       |
| Other income (expense)         |       |                                 |       |                            |       |                     |       |                        |       |
| Interest (expense) income, net |       | (10,422                              | )          | 103                             |       | —                   |       | (10,319                     | )          |
| Income from subsidiaries       |       | 5,271                                |       | —                          |       | (5,271                   | )          | —                      |       |
| Other, net                     |       | 2,143                                |       | (1,903                          | )          | —                   |       | 240                         |       |
| Total other expense, net       |       | (3,008                               | )          | (1,800                          | )          | (5,271                   | )          | (10,079                     | )          |
| Income before income taxes     |       | 6,371                                |       | 5,358                           |       | (5,271                   | )          | 6,458                       |       |
| Income tax expense             |       | —                               |       | 87                              |       | —                   |       | 87                          |       |
| Net income                     |       | $                                    | 6,371      |                            | $          | 5,271                    |       | $                           | (5,271     | ) | $ | 6,371 |   |

 

17

----

 

**Condensed Consolidating Statements ofOperations**

**for the Nine Months Ended September 30, 2004**

**(Successor Basis)**

 
| ** **                     | ** ** | **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 income (expense)         |       |                                 |       |                            |       |                     |       |                        |       |
| 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 |   |

 

**Condensed Consolidating Statements ofOperations**

**for the Six Months Ended June 30, 2003**

**(Predecessor Basis)**

 
| ** **                        | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                              |       |                                 |       |                            |       |                     |       |                        |       |
| Revenues                          |       | $                                    | 406,854    |                            | $          | 60,618                   |       | $                           | —     |   | $ | 467,472 |   |
| Operating expenses                |       | 351,447                              |       | 66,522                          |       | —                   |       | 417,969                     |       |
| Operating income (loss)           |       | 55,407                               |       | (5,904                          | )          | —                   |       | 49,503                      |       |
| Other income (expense)            |       |                                 |       |                            |       |                     |       |                        |       |
| Interest (expense) income, net    |       | (2,396                               | )          | 41                              |       | —                   |       | (2,355                      | )          |
| Loss from subsidiaries            |       | (5,632                               | )          | —                          |       | 5,632                    |       | —                      |       |
| Change-in-control expense         |       | (17,259                              | )          | —                          |       | —                   |       | (17,259                     | )          |
| Other, net                        |       | (1,706                               | )          | 375                             |       | —                   |       | (1,331                      | )          |
| Total other (expense) income, net |       | (26,993                              | )          | 416                             |       | 5,632                    |       | (20,945                     | )          |
| Income (loss) before income taxes |       | 28,414                               |       | (5,488                          | )          | 5,632                    |       | 28,558                      |       |
| Income tax expense                |       | —                               |       | 144                             |       | —                   |       | 144                         |       |
| Net income (loss)                 |       | $                                    | 28,414     |                            | $          | (5,632                   | )          | $                           | 5,632      |   | $ | 28,414 |   |

 

18

----

 

**Condensed Consolidating Statements of CashFlows**

**for the Nine Months Ended September 30, 2004**

**(Successor Basis)**

 
| ** **                                           | ** ** | **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                      | )          |
| Investment in subsidiaries                           |       | (8,545                               | )          | —                          |       | 8,545                    |       | —                      |       |
| Net cash provided by (used in) investing  activities |       | (11,670                              | )          | (2,508                          | )          | 8,545                    |       | (5,633                      | )          |
| Cash flows from financing activities:                |       |                                 |       |                            |       |                     |       |                        |       |
| Principal payments on capital leases                 |       | (16,389                              | )          | —                          |       | —                   |       | (16,389                     | )          |
| Principal payments on debt                           |       | (54,512                              | )          | —                          |       | —                   |       | (54,512                     | )          |
| Distributions to WTI, net                            |       | (4,091                               | )          | —                          |       | —                   |       | (4,091                      | )          |
| 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  period    |       | 41,615                               |       | 2,131                           |       | —                   |       | 43,746                      |       |
| Cash and cash equivalents at end of period           |       | $                                    | 72,047     |                            | $          | 2,991                    |       | $                           | —     |   | $ | 75,038 |   |

 

19

----

 

**Condensed Consolidating Statements of CashFlows**

**for the Three Months Ended September 30, 2003**

**(Successor Basis)**

 
| ** **                                                  | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                        |       |                                 |       |                            |       |                     |       |                        |       |
| Net cash provided by operating activities                   |       | $                                    | 10,352     |                            | $          | 2,335                    |       | $                           | —     |   | $ | 12,687 |   |
| Cash flows from investing activities:                       |       |                                 |       |                            |       |                     |       |                        |       |
| Purchase of property and equipment                          |       | (4,511                               | )          | (553                            | )          | —                   |       | (5,064                      | )          |
| Proceeds from sale of property and  equipment               |       | 50                                   |       | —                          |       | —                   |       | 50                          |       |
| Capitalized software for internal use                       |       | (1,395                               | )          | —                          |       | —                   |       | (1,395                      | )          |
| Investments in subsidiaries                                 |       | (18                                  | )          | —                          |       | 18                       |       | —                      |       |
| Net cash used in investing activities                       |       | (5,874                               | )          | (553                            | )          | 18                       |       | (6,409                      | )          |
| Cash flows from financing activities:                       |       |                                 |       |                            |       |                     |       |                        |       |
| Payments to seller airlines                                 |       | (702,846                             | )          | —                          |       | —                   |       | (702,846                    | )          |
| Equity contribution from WTI, net of  transaction costs     |       | 308,374                              |       | —                          |       | —                   |       | 308,374                     |       |
| Proceeds from issuance of debt, net of debt  issuance costs |       | 390,063                              |       | —                          |       | —                   |       | 390,063                     |       |
| Principal payments on capital leases                        |       | (6,894                               | )          | —                          |       | —                   |       | (6,894                      | )          |
| Contributions to subsidiaries                               |       | —                               |       | 18                              |       | (18                      | )          | —                      |       |
| Net cash (used in) provided by financing  activities        |       | (11,303                              | )          | 18                              |       | (18                      | )          | (11,303                     | )          |
| Net (decrease) increase in cash and cash  equivalents       |       | (6,825                               | )          | 1,800                           |       | —                   |       | (5,025                      | )          |
| Cash and cash equivalents at beginning of  period           |       | 42,841                               |       | 1,090                           |       | —                   |       | 43,931                      |       |
| Cash and cash equivalents at end of period                  |       | $                                    | 36,016     |                            | $          | 2,890                    |       | $                           | —     |   | $ | 38,906 |   |

 

**Condensed Consolidating Statements of CashFlows**

**for the Six Months Ended June 30, 2003**

**(Predecessor Basis)**

 
| ** **                                           | ** ** | **Worldspan, L.P.—  Guarantor** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminating  Entries** | ** ** | **Worldspan  Consolidated** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                 |       |                                 |       |                            |       |                     |       |                        |       |
| Net cash provided by (used in) operating  activities |       | $                                    | 44,815     |                            | $          | (3,792                   | )          | $                           | —     |   | $ | 41,023 |   |
| Cash flows from investing activities:                |       |                                 |       |                            |       |                     |       |                        |       |
| Purchase of property and equipment                   |       | (2,102                               | )          | (2,134                          | )          | —                   |       | (4,236                      | )          |
| Proceeds from sale of property and  equipment        |       | 396                                  |       | —                          |       | —                   |       | 396                         |       |
| Capitalized software for internal use                |       | (1,367                               | )          | —                          |       | —                   |       | (1,367                      | )          |
| Investments in subsidiaries                          |       | (55                                  | )          | —                          |       | 55                       |       | —                      |       |
| Net cash used in investing activities                |       | (3,128                               | )          | (2,134                          | )          | 55                       |       | (5,207                      | )          |
| Cash flows from financing activities:                |       |                                 |       |                            |       |                     |       |                        |       |
| Distribution to seller airlines                      |       | (110,000                             | )          | —                          |       | —                   |       | (110,000                    | )          |
| Principal payments on capital leases                 |       | (13,986                              | )          | —                          |       | —                   |       | (13,986                     | )          |
| Contributions to subsidiaries                        |       | —                               |       | 55                              |       | (55                      | )          | —                      |       |
| Net cash (used in) provided by financing  activities |       | (123,986                             | )          | 55                              |       | (55                      | )          | (123,986                    | )          |
| Net decrease in cash and cash equivalents            |       | (82,299                              | )          | (5,871                          | )          | —                   |       | (88,170                     | )          |
| Cash and cash equivalents at beginning of  period    |       | 125,140                              |       | 6,961                           |       | —                   |       | 132,101                     |       |
| Cash and cash equivalents at end of period           |       | $                                    | 42,841     |                            | $          | 1,090                    |       | $                           | —     |   | $ | 43,931 |   |

 

**20**

----

 

**ITEM 2.**  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

*Management’s discussion and analysis of ourresults of operations includes periods prior to the consummation of theAcquisition. Accordingly, the discussion and analysis of historical periodsprior to July 1, 2003 does not reflect the significant impact that theAcquisition has had and will have on us, including increased leverage andincreased liquidity requirements. References to “WTI” refer to WorldspanTechnologies Inc.  References to the “company”refer to Worldspan, L.P. The terms “we”, “us”, “our” and other similar termsrefer to the consolidated businesses of the company and all of itssubsidiaries. References to the “Acquisition” refer to the acquisition by WTI,through its wholly-owned subsidiaries, of the general partnership interests andlimited partnership interest of Worldspan, L.P. The following discussion andanalysis of the financial condition and results of operations should be read inconjunction with the consolidated financial statements and related notesincluded in our annual report on Form 10-K filed with the Securities andExchange Commission on March 30, 2004.*

 

*In accordance with the requirements ofpurchase accounting, our assets and liabilities were adjusted to theirestimated fair values and the resulting goodwill computed for theAcquisition.  The application of purchaseaccounting generally results in higher depreciation and amortization expense inperiods following an acquisition. Accordingly, and because of other effects of purchase accounting, theresults discussed for the three and nine months ended September 30, 2004 arenot comparable with the three months ended September 30, 2003 and six monthsended June 30, 2003.*

 

**Overview**

 

Weare a provider of mission-critical transaction processing and informationtechnology services to the global travel industry. Globally, we are the largesttransaction processor for online travel agencies, having processed 64% of allglobal distribution system, or GDS, online air transactions during the twelvemonths ended September 30, 2004. In the United States (the world’s largesttravel market), we are the second largest transaction processor for travelagencies, accounting for 32% of GDS air transactions and over 67% of online GDSair transactions processed during the twelve months ended September 30, 2004.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. During the twelve monthsended September 30, 2004, we processed approximately 201 milliontransactions. We also provide information technology services to the travelindustry, primarily airline internal reservation systems, flight operationstechnology and software development.

 

Ourbusiness is highly dependent upon the air travel industry. During the firsthalf of 2003, travel booking volumes were significantly depressed industrywide, affected primarily by the war and on-going conflict in Iraq and concernsover severe acute respiratory syndrome, or SARS. Our leading position inprocessing online travel transactions provided for growth in our businessduring the second half of 2003. The recovery that we saw in travel transactionsbeginning late in the second quarter of 2003 continued during the later part ofthe year and into 2004, particularly for our online business. Our relationshipswith four of the largest online travel agencies in the world have positioned uswell to take advantage of the continuing shift to the online travel agencychannel, where we have a higher market share. In addition, airlines haveresponded to the difficult operating conditions by offering lower prices ontickets distributed through direct and online channels, resulting in anincrease in airline travel transactions generated through online travelagencies relative to traditional travel agencies. We believe our strong positionin the online travel agency channel has allowed us to increase our airlinetransactions market share, despite the decrease in the number of totaltransactions since the beginning of 2001. Total transactions for thenine months ended September 30, 2004, including airline and hospitality anddestination services, were up 5.7% compared to the same period in 2003.

 

Asa result of the market conditions and industry pressures described above, wetook steps to reduce our operating expenses. For example, effectiveDecember 31, 2003, we froze all further benefit accruals under our definedbenefit pension plan. In addition, we restructured our medical benefits in thefirst quarter of 2004 by increasing employee contributions and co-pays,implementing charges for working spouses, consolidating and changing providers,and eliminating medical benefits for future retirees, except for a limitedgrandfathered group of employees. These changes to

 

21

----

 

our employee benefits haveresulted in cost savings in 2004. During the first quarter of 2004, we alsorenegotiated our network and communication contracts with our primaryproviders, which have resulted in reduced telecommunication charges during2004. We have also renegotiated our technology agreement with IBM and ourheadquarters office lease, which reduced our costs, as well. Each of thesesteps has started to generate cost savings which are expected to continue infuture years; however, the actual amount of our ongoing expenses may ultimatelybe impacted by future changes in healthcare and technology costs and usage,which we are unable to predict.

 

We dependupon a relatively small number of airlines and online travel agencies for asignificant portion of our revenues. Our five largest airline relationshipsrepresented an aggregate of approximately 51% and 54% of our total revenues forthe twelve months ended September 30, 2004 and December 31, 2003,respectively, while our top ten largest airline relationships represented anaggregate of approximately 64% and 66% of our total revenues for the twelvemonths ended September 30, 2004 and December 31, 2003, respectively. Ourrelationships with four online travel agencies, Expedia, Hotwire, Orbitz andPriceline, represented 46% of our total transactions during the twelve monthsended September 30, 2004. We expect to continue to depend upon a relativelysmall number of airlines and online travel agencies for a significant portionof our revenues.

 

*Supplier Content and Transaction Fees*

 

Historically,we have increased annually the transaction fees we collect from our airlinesuppliers, which pay a substantial portion of our transaction fees. Weanticipate that this historic trend of annual transaction fee increases couldbe reduced in the future due to our plan to enter into fare content agreementswith major airlines. For instance, we have entered into fare content agreementswith American Airlines, Continental Airlines, Delta, Northwest, United AirLines and US Airways. Generally, in these agreements, the airlines commit(subject to the exceptions contained in the agreements) to provide thetraditional and online travel agencies covered by the agreements in theterritories covered by the agreements with substantially the same fare contentit provides to the travel agency subscribers of other GDSs (including webfares) in exchange for payments from us to each airline and subject to uskeeping steady the average transaction fees paid by each airline for travelagency transactions in the territories covered by the agreements. In addition,pursuant to these agreements, each airline has agreed, among other things, tocommit to the highest level of participation in our GDS. Subject to terminationrights, these obligations continue until late 2005 (in the case of US Airways)or 2006 (with respect to the other contracted airlines). Further, inFebruary 2004, we executed a three-year fare content agreement withBritish Airways to provide access to virtually all of their published fares (includingweb fares) to some of our U.K. travel agencies. We expect that these farecontent agreements will provide our travel agencies in the territories coveredby the agreements with access to improved content concerning the flights andfares of the participating airlines and other forms of non-discriminatorytreatment. We believe that obtaining similar fare content from our other majorairline travel suppliers is important to our ability to compete, since otherGDSs have also entered into fare content agreements with various airlines.Consequently, we plan to pursue agreements similar to these fare contentagreements with other major airlines in order to obtain access to such content.We expect that the fare content agreements will require us to make, in the aggregate,significant payments or other concessions to the participating airlines, whichwe expect will reduce our revenues.

 

*FinancialConditions in the Airline Industry*

 

The downturn in the commercial airline market, together with, andresulting from, the ongoing threat of terrorist acts after September 11, 2001,war in Iraq and rising fuel costs for commercial airlines, among other issues,have adversely affected the financial condition of many commercialairlines.  Several major airlines areexperiencing liquidity problems, some have sought bankruptcy protection andstill others are considering, or may consider, bankruptcy relief.  We derive a substantial portion of ourrevenues from transaction fees received directly from airlines and from thesale of products and services directly to airlines.  If an airline declared bankruptcy, we may beunable to collect our outstanding accounts receivable from the airline.  In addition, the bankruptcy of the airlinemight result in reduced transaction fees and other revenues from the airline, arejection by the airline of some or all of our agreements with it, or loss ofthe revenue by other means such as an airline liquidation, all of which couldhave a material adverse effect on our business, financial condition and resultsof operation.

 

22

----

 

*Channel Shift*

 

Anincreasing number of travel transactions are being made online. During thetwelve months ended September 30, 2004, airline transactions generated throughonline travel agencies accounted for approximately 30% of all airlinetransactions in the United States processed by a GDS, up from approximately 28%in 2003, approximately 23% in 2002 and approximately 17% in 2001. Between 2001and 2003, the number of airline transactions in the United States generatedthrough online travel agencies and processed by us increased at a compoundannual growth rate of 24.3%. We believe that this shift to online travel agencybookings will continue, but the extent and pace of the shift is difficult toanticipate. Other industry developments, such as Expedia’s announcement that itintends to move a portion of its transactions to another GDS provider, compoundour difficulty in forecasting the growth of our transactions from online travelagencies. We typically pay a higher inducement per transaction to our largeonline travel agency customers than our traditional agencies. Accordingly, aswe continue to experience significant channel shift, we expect our inducementscost to continue to grow and direct costs related to supporting traditionaltravel agencies to continue to decline.

 

Since2001, the combination of channel shift, declines in the global economy,terrorist actions and threats, wars in Afghanistan and Iraq, and healthconcerns over SARS has resulted in annual declines in transactions generated bytraditional travel agencies. As a result of these declines, we have completedrestructuring activities in 2001, 2002, 2003, and 2004 which have largely beenfocused on reducing the operating costs associated with servicing traditionaltravel agencies in areas such as labor, network, agency hardware andadvertising.

 

*Uncertainty in Transaction Volumes fromOnline Travel Agencies*

 

Although we havehistorically processed most of the airline transactions for our online travelagencies, these agencies may move their business to other technologies andtechnology providers, subject to some contractual limitations. For example,Expedia announced in May that it intends to diversify its GDS relationshipsbeyond using a single provider to process substantially all of its GDStransactions and that it intends to move a portion of its transactions toanother GDS provider.  Expedia has notspecified the volumes or percentages of volumes it intends to process through thisother GDS.  To date, the anticipatedmovement of Expedia’s transactions has not occurred and, at this time, wecannot forecast the timing or magnitude of any such movement on our financialposition or results of operations.  Inconnection with the Acquisition, we recorded an intangible asset related toonline customer contracts of $131.9 million, of which we estimate$35.2 million was related to the Expedia contract. Based on that estimate,the portion of this intangible asset that was unamortized as of September 30,2004 was $29.7 million. Upon determination of the specific volumes,percentage of volumes or timing relating to Expedia’s announced agreement withthe other GDS provider, we will further assess the impact, if any, on ouroverall financial condition as prescribed by SFAS No. 144, “Accounting forthe Impairment or Disposal of Long-Lived Assets”, and SFAS No. 142, “Goodwilland Other Intangible Assets”. In addition, Orbitz has developed directconnections with travel suppliers which bypass our GDS.  Further, Orbitz and Cendant Corporation (“Cendant”)recently announced that they have reached an agreement for the acquisition byCendant of all the shares of Orbitz. Cendant’s Travel Distribution Services Division includes Galileo, whichis a competitor of ours.  Orbitz is oneof our largest online travel agency customers with whom we have a long-termagreement which extends into 2011.

 

Although we currentlycontinue to operate under these agreements, it is uncertain as to whether ornot these and our other major online travel agencies will attempt to terminatetheir respective agreements with us or otherwise move business to another GDSin the future. With this uncertainty, we cannot reliably forecast the volume ofsuch transactions and may experience transaction volume decreases that resultin a material adverse effect on our financial condition and operating results.

 

*Neutrality*

 

Wedo not own an online travel agency. Unlike our competitors, we haveintentionally not pursued a strategy of vertical integration and instead haveforged strategic partnerships with leading online travel agencies. Given thehighly competitive nature of the travel agency business, we believe ourcustomers value our neutrality. As the shift towards the online travel agencychannel continues, we believe the traditional travel agencies will increasinglyview the GDS-owned online travel agencies as competitive to their corebusiness. As a result, our neutrality gives us an opportunity to capture

 

23

----

 

additional business from bothonline and traditional travel agencies. However, to the extent that such agencies are acquired by or becomeaffiliated with one of our competitors, the likelihood of our capturing additionalbusiness from those agencies may be reduced and our existing business withthose agencies may be at risk.

 

*FASA Credits*

 

Pursuant to the terms of ourfounder airline services agreements, or FASAs, with Delta Air Lines, Inc. (“Delta”)and Northwest Airlines, Inc. (“Northwest”), we provide FASA credits to Deltaand Northwest to be applied against FASA service fee payments due from theseairlines to us. The FASA credits are structured and will be applied throughJune 2012 in scheduled monthly installments up to an aggregate total ofapproximately $104.2 million to each of Delta and Northwest as ofSeptember 30, 2004, and are reflected as reductions of FASA revenue in thecorresponding periods. In the event that the monthly FASA credits deliverableby us to Delta or Northwest are more than the FASA service fee payments duefrom the applicable airline, then we will be obligated to pay such excess tosuch airline in cash. The FASA credits are described in additional detail underthe heading “Liquidity and Capital Resources.”

 

*Impacts of the Acquisition*

 

Wewere initially founded by Delta, Northwest and TWA. Although we were owned byDelta, Northwest and American (as successor of TWA) since our inception untilthe Acquisition, we operated as an autonomous entity during that time. Theexpenses reflected in our historical financial statements do not reflect anyallocation of overhead costs incurred by our founding airlines. For the periodsfollowing the Acquisition, our expenses changed as a result of the purchaseaccounting treatment of the Acquisition and the costs associated with financingthe Acquisition. Under the rules of purchase accounting, we adjusted the valueof our assets and liabilities to their respective estimated fair values, andany excess of the purchase price over the fair market value of the net assetsacquired was allocated to goodwill. As a result of these adjustments to ourasset basis, our depreciation and amortization expenses increased. In addition,for the periods following the Acquisition, our revenues have been affected bythe accounting treatment of our obligation to provide FASA credits and makeFASA credit payments under the FASAs with Delta and Northwest. These paymentsare accounted for as a reduction to our gross information technology servicesrevenues.

 

**Business Segment Summary**

 

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

 

•                  Electronic traveldistribution revenues are generated by charging a fee per transaction, which isgenerally paid by the travel supplier, based upon the number of transactionsinvolved in the booking. We record and charge one transaction for each segmentof an air travel itinerary (e.g., four transactions for a round-trip airlineticket with one connection each way). We record and charge one transaction foreach car rental, hotel, cruise or tour company booking, regardless of thelength of time associated with the booking. Fees paid by travel suppliers varyaccording to the levels of functionality at which they can participate in ourGDS. These levels of functionality generally depend upon the type ofcommunications and real-time access allowed with respect to the particulartravel supplier’s internal systems. Revenues are based on the volume oftransactions and are not dependent on the revenues earned by the supplier forthat booking. We recognize revenues for airline travel transactions in themonth the transactions are processed, net of cancellations processed in thatmonth. Revenues for other types of travel transactions are recognized at thetime the booking is used by the traveler. Although the substantial majority ofour electronic travel distribution revenues are derived from transaction feespaid by travel suppliers, we have an agreement with Hotwire which does notfollow this traditional business model. Under our agreement with Hotwire, wegenerally derive revenues from a service fee payable by Hotwire (rather thanthe travel supplier) based upon the number of travel transactions booked.

 

24

----

 

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

 

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

 

## •                  Cost of 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 incur additional inducement andtechnology costs due to the average inducement paid to our large on-linecustomers typically exceeding the average inducement that we pay to traditionaltravel agencies and due to a higher volume of messages processed pertransaction in the online channel compared to traditional travel agencytransactions. Cost of information technology services revenues consistsprimarily of technology development and operations personnel, software costs,network costs, hardware leases, depreciation of computer hardware and the datacenter building, amortization of capitalized software and maintenance ofcomputer and network hardware.

 

## •                  Selling, general and administrative expenses consist primarily of salesand marketing, labor and associated costs, advertising services, professionalfees, a portion of the expenses associated with our facilities, depreciation ofcomputer equipment, furniture and fixtures and leasehold improvements, internalmanagement costs and expenses for finance, legal, human resources and otheradministrative functions.

 

**Critical Accounting Policies**

 

There have been no material changes to our criticalaccounting policies from the information provided in Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operationsincluded in our annual report on Form 10-K filed with the Securities andExchange Commission on March 30, 2004.

 

25

----

 

**Results of Operations**

 

Thefollowing table shows information derived from our consolidated statements ofoperations for the three and nine months ended September 30, 2004, the threemonths ended September 30, 2003 and the six months ended June 30, 2003expressed as a percentage of revenues for the periods presented.

 
| ** **                                                    | ** ** | **Successor  Basis**                         | ** ** | **Successor  Basis**                         | ** ** | **Successor  Basis**                        | ** ** | **Predecessor  Basis**                | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                    | ** ** | **Three months  ended  September 30,  2004** | ** ** | **Three months  ended  September 30,  2003** | ** ** | **Nine months  ended  September 30,  2004** | ** ** | **Six months  ended  June 30,  2003** | ** ** |
|                                                          |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Revenues:                                                     |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Electronic travel distribution                                |       | 93.2                                         | %          | 92.8                                         | %          | 93.4                                        | %          | 88.8                                  | %          |
| Information technology services                               |       | 6.8                                          |       | 7.2                                          |       | 6.6                                         |       | 11.2                                  |       |
| Total revenues                                                |       | 100.0                                        |       | 100.0                                        |       | 100.0                                       |       | 100.0                                 |       |
| Operating expenses:                                           |       |                                         |       |                                         |       |                                        |       |                                  |       |
| Cost of revenues excluding developed  technology amortization |       | 70.5                                         |       | 71.3                                         |       | 69.5                                        |       | 71.5                                  |       |
| Developed technology amortization                             |       | 2.4                                          |       | 2.4                                          |       | 2.3                                         |       | 1.6                                   |       |
| Total cost of revenues                                        |       | 72.9                                         |       | 73.7                                         |       | 71.8                                        |       | 73.1                                  |       |
| Selling, general and administrative  expenses                 |       | 12.5                                         |       | 15.1                                         |       | 13.1                                        |       | 16.3                                  |       |
| Amortization of intangible assets                             |       | 3.9                                          |       | 4.0                                          |       | 3.7                                         |       | —                                |       |
| Total operating expenses                                      |       | 89.3                                         |       | 92.8                                         |       | 88.6                                        |       | 89.4                                  |       |
| Operating income                                              |       | 10.7                                         |       | 7.2                                          |       | 11.4                                        |       | 10.6                                  |       |
| Total other expense, net                                      |       | (4.9                                         | )          | (4.4                                         | )          | (4.4                                        | )          | (4.5                                  | )          |
| Income before provision for income taxes                      |       | 5.8                                          |       | 2.8                                          |       | 7.0                                         |       | 6.1                                   |       |
| Income tax expense                                            |       | 1.6                                          |       | —                                       |       | 0.5                                         |       | —                                |       |
| Net income                                                    |       | 4.2                                          | %          | 2.8                                          | %          | 6.5                                         | %          | 6.1                                   | %          |

 

***Comparison of Three MonthsEnded September 30, 2004 and September 30, 2003***

 

*Revenues*

 

Total revenues were $233.8 million for the three months ended September30, 2004, a $4.3 million or 1.9% increase from the three months ended September30, 2003 revenues of $229.5 million. This increase was primarily attributableto an increase in the volume of transactions processed and higher average feesper transaction during the third quarter of 2004 when compared to the sameperiod in the prior year.

 

Electronic travel distribution revenues were $217.9 million for thethree months ended September 30, 2004, a $5.0 million or 2.3% increase from thethree months ended September 30, 2003 revenues of $212.9 million. The increasein revenues was attributable to a 0.2 million or 0.4% increase in transactionsprocessed during the period.  The increasewas also attributable to a 5.8% higher average fee per car transactionprocessed.

 

Information technology services revenues were $15.9 million for thethree months ended September 30, 2004, a $0.7 million or 4.2% decrease from thethree months ended September 30, 2003 revenues of $16.6 million. The decreasewas primarily attributable to a $0.9 million decline in FASA revenues caused bya reduction in certain operating expenses which are passed through to Delta andNorthwest.

 

26

----

 

*Cost of Revenues Excluding Developed Technology Amortization*

 

Cost of revenues excluding developed technology amortization was $164.8million for the three months ended September 30, 2004, a $1.1 million increasefrom the three months ended September 30, 2003 cost of revenues of $163.7million. Cost of revenues excluding developed technology amortization as apercentage of total revenues decreased to 70.5% for the three months endedSeptember 30, 2004 compared to 71.3% for the three months ended September 30,2003.  This decrease was primarilyattributable to lower employee costs, network costs and software expenses,partially offset by higher inducements paid to travel agencies.

 

Cost of electronic travel distribution revenues excluding developedtechnology amortization was $143.7 million for the three months ended September30, 2004, a $2.2 million or 1.6% increase from the three months ended September30, 2003 cost of electronic travel distribution revenues excluding developedtechnology amortization of $141.5 million. Cost of electronic traveldistribution revenues excluding developed technology amortization as apercentage of total revenues decreased to 61.5% for the three months endedSeptember 30, 2004 compared to 61.7% for the three months ended September 30,2003. This decrease was primarily attributable to a 12.2% decline in employeecosts, a 28.9% reduction in network and communication charges and a 23.5%decrease in software costs, which was partially offset by a 17.6% increase ininducements paid to travel agencies. Employee costs declined as a result of theworkforce reductions during the quarter ended March 31, 2004.  In addition, we froze all further benefitaccruals under the defined benefit pension plan effective December 31, 2003,which reduced the pension benefits net periodic costs during the three monthsended September 30, 2004. Network costs decreased due to migration of customersto Internet-based products rather than dedicated circuits. In addition, duringthe first quarter of 2004, we renegotiated our network and communicationcontracts with our primary providers. Software expenses decreased as a resultof our exercising our right to terminate agreements with two technologyproviders, for which there was no corresponding charge during the three monthsended September 30, 2004.  Inducementsgrew due to the growth in transaction volumes and the continuing shift towardonline travel agency transactions, which tend to have higher inducement coststhan traditional travel agency transactions.

 

Cost of information technology services revenues excluding developedtechnology amortization was $21.1 million or 9.0% of total revenues for thethree months ended September 30, 2004, a $1.1 million or 5.0% decrease from thethree months ended September 30, 2003 cost of information technology revenuesexcluding developed technology amortization of $22.2 million or 9.7% of totalrevenues. This decrease was primarily driven by the reduced costs attributableto the hosting operations for Delta and Northwest.

 

*Developed Technology Amortization*

 

Developed technology amortization was $5.5 million or 2.4% of totalrevenues for the three months ended September 30, 2004, which is unchanged fromthe three months ended September 30, 2003 developed technology amortization of$5.5 million or 2.4% of total revenues. The intangible assets acquired as aresult of the Acquisition are amortized on a straight-line basis over theirestimated useful lives and the related amortization is expected to be unchangedfrom the same period in the prior year.

 

*Selling, General and Administrative Expenses*

 

Selling, general and administrative expenses were $29.4 million or12.6% of total revenues for the three months ended September 30, 2004, a $5.2million or 15.0% decrease from the three months ended September 30, 2003selling, general and administrative expenses of $34.6 million or 15.1% of totalrevenues. The decrease was attributable to reduced advertising and promotionactivities, a decrease in bad debt reserves and a series of smallertransactions.  Advertising and promotiondecreased as a result of our cost savings initiatives.  The decrease in bad debt reserves was relatedto the improved aging of receivables of our customers.

 

*Amortization of Intangible Assets*

 

Amortization of intangible assets was $9.1 million or 3.9% of totalrevenues for the three months ended September 30, 2004, which is unchanged fromthe three months ended September 30, 2003 amortization of intangible assets of$9.1 million or 4.0% of total revenues. The intangible assets acquired as aresult of the Acquisition are

 

27

----

 

amortized on a straight-linebasis over their estimated useful lives and the related amortization isexpected to be unchanged from when compared to the same period in the prioryear.

 

*Operating Income*

 

Operating income was $24.9 million for the three months ended September30, 2004, an $8.4 million or 50.9% increase from the three months endedSeptember 30, 2003 operating income of $16.5 million. Operating income as apercentage of total revenues increased to 10.6% for the three months endedSeptember 30, 2004 compared to 7.2% in the three months ended September 30,2003. The increase in operating income primarily resulted from a 2.3% increasein electronic travel distribution revenues, a 12.2% decrease in employee costs,a 28.9% decrease in network and communication charges and a 23.5% decrease insoftware costs, partially offset by a 17.6% increase in inducements paid totravel agencies.

 

*Net Interest Expense*

 

Net interest expense was $10.1 million for the three months endedSeptember 30, 2004, a $0.2 million or 1.9% decrease from the three months endedSeptember 30, 2003 net interest expense of $10.3 million. The decrease in netinterest expense was primarily due to a decrease in interest expense related toour senior credit facility, partially offset by accelerated amortization of ourcapitalized debt issuance costs related to the senior credit facility, both ofwhich were caused by $50.0 million in accelerated payments of debt principalduring 2004.

 

*Income Tax Expense*

 

Income tax expense attributable to foreign jurisdictions was $3.7million for the three months ended September 30, 2004, a $3.6 million increasefrom the three months ended September 30, 2003 income tax expense of $0.1million. The increase in income tax expense relates to an increase in thetaxable income of our foreign subsidiaries during the three months endedSeptember 30, 2004 and the utilization of foreign deferred tax assets of $1.6million.

 

*Net Income*

 

Net income was $9.8 million for the three months ended September 30,2004, a $3.4 million increase from the three months ended September 30, 2003net income of $6.4 million. This increase was primarily as a result of an $8.4million increase in operating income, partially offset by an increase in incometax expense attributable to our foreign subsidiaries and the utilization offoreign deferred tax assets of $1.6 million.

 

***Comparison of Successor Nine Months Ended September30, 2004 to the Successor Three Months Ended September 30, 2003 and the PredecessorSix Months Ended June 30, 2003***

 

*Revenues*

 

Total revenues were $731.1 million for the nine months ended September30, 2004, a $34.1 million or 4.9% increase from the three months endedSeptember 30, 2003 revenues of $229.5 million and the six months ended June 30,2003 revenues of $467.5 million. This increase was primarily attributable tohigher average fees per transaction and an increase in the volume of transactionsprocessed during the first nine months of 2004 when compared to the same periodin the prior year.

 

Electronic travel distribution revenues were $683.0 million for thenine months ended September 30, 2004, a $55.2 million or 8.8% increase from thethree months ended September 30, 2003 revenues of $212.9 million and the sixmonths ended June 30, 2003 revenues of $414.9 million. The increase in revenueswas largely attributable to a 2.9% higher average fee per air transactioncoupled with a 7.3 million or 5.4% increase in transactions generated from airtravel suppliers during the period. The increase was also attributable to a2.5% higher average fee per car and hotel transaction coupled with a 1.4million or 10.1% increase in the volume of car and hotel transactionsprocessed.

 

28

----

 

Information technology services revenues were $48.2 million for thenine months ended September 30, 2004, a $20.9 million or 30.2% decrease fromthe three months ended September 30, 2003 revenues of $16.6 million and the sixmonths ended June 30, 2003 revenues of $52.5 million. The decrease wasprimarily attributable to $16.7 million of FASA credits for the first sixmonths of 2004, which are provided under the terms of the FASAs, for whichthere was no corresponding credit during the first six months of 2003 and areduction in certain operating expenses which are passed through to Delta andNorthwest.

 

*Cost of Revenues Excluding Developed Technology Amortization*

 

Cost of revenues excluding developed technology amortization was $508.3million for the nine months ended September 30, 2004, a $10.1 million increasefrom cost of revenues excluding developed technology amortization of $163.7 forthe three months ended September 30, 2003 and $334.5 million for the six monthsended June 30, 2003. Cost of revenues excluding developed technologyamortization as a percentage of total revenues decreased to 69.5% for the ninemonths ended September 30, 2004 compared to 71.3% for the three months endedSeptember 30, 2003 and 71.5% for the six months ended June 30, 2003.  This decrease was primarily attributable tolower employee costs, network costs, software expenses and depreciation onhardware provided to traditional travel agencies, partially offset by higherinducements paid to travel agencies.

 

Cost of electronic travel distribution revenues excluding developedtechnology amortization was $444.1 million for the nine months ended September30, 2004, a $14.5 million or 3.4% increase from cost of electronic traveldistribution revenues excluding developed technology amortization of $141.5 forthe three months ended September 30, 2003 and $288.1 million for the six monthsended June 30, 2003. Cost of electronic travel distribution revenues excludingdeveloped technology amortization as a percentage of total revenues decreasedto 60.8% for the nine months ended September 30, 2004 compared to 61.7% for thethree months ended September 30, 2003 and 61.6% for the six months ended June30, 2003. This decrease was primarily attributable to an 18.8% decline inemployee costs, a 25.3% reduction in network and communication charges, a 22.8%decrease in software costs and a 15.1% reduction in depreciation, principallyon hardware provided to traditional travel agencies, which was partially offsetby a 24.3% increase in inducements paid to travel agencies. Employee costsdeclined as a result of the April 2003 workforce reductions.  In addition, as part of a cost savingsinitiative, we reduced the salaries of U.S. and Canada employees by 5%, whichwas effective May 1, 2003. We also froze all further benefit accruals under thedefined benefit pension plan effective December 31, 2003, which reduced thepension benefits net periodic costs during the nine months ended September 30,2004.  Network costs decreased due tomigration of customers to Internet-based products rather than dedicatedcircuits. In addition, during the first quarter of 2004, we renegotiated ournetwork and communication contracts with our primary providers.  Software expenses decreased as a result ofour exercising our right to terminate agreements with two technology providers,for which there was no corresponding charge during the nine months ended September30, 2004.  Depreciation on hardwareprovided to traditional travel agencies decreased during the period due to thedecrease in capital expenditures for this type of hardware. As traditionaltravel agencies purchase their own equipment, our need to continue this capitalexpenditure decreases.  Inducements grewdue to the growth in transaction volumes and the continuing shift toward onlinetravel agency transactions, which tend to have higher inducement costs thantraditional travel agency transactions.

 

Cost of information technology services revenues excluding developedtechnology amortization was $64.2 million or 8.8% of total revenues for thenine months ended September 30, 2004, a $4.4 million or 6.4% decrease from costof information technology services revenues excluding developed technologyamortization of $22.2 million, or 9.7% of total revenues, for the three monthsended September 30, 2003 and $46.4 million, or 9.9% of total revenues, for thesix months ended June 30, 2003. This decrease was primarily caused by thereduced costs attributable to the hosting operations for Delta and Northwest.

 

*Developed Technology Amortization*

 

Developed technology amortization was $16.5 million or 2.3% of totalrevenues for the nine months ended September 30, 2004, a $3.6 million or 27.9%increase from the three months ended September 30, 2003 developed technologyamortization of $5.5 million and the six months ended June 30, 2003 developedtechnology amortization of $7.4 million, or 2.4% and 1.6% of total revenues forthe three months ended September 30, 2003 and the six months

 

29

----

 

ended June 30, 2003,respectively. This increase was a result of the Acquisition.  Purchase accounting requires intangibleassets to be recorded at their fair value and amortized over their estimateduseful lives.  The related amortizationduring the first nine months of 2004 was higher when compared to the sameperiod in the prior year because there was no corresponding amortization duringthe first six months of 2003.

 

*Selling, General and Administrative Expenses*

 

Selling, general and administrative expenses were $95.4 million or13.1% of total revenues for the nine months ended September 30, 2004, a $15.3million or 13.8% decrease from the three months ended September 30, 2003selling, general and administrative expenses of $34.6 million and the sixmonths ended June 30, 2003 selling, general and administrative expenses of$76.1 million, or 15.1% and 16.3% of total revenues for the three months endedSeptember 30, 2003 and the six months ended June 30, 2003, respectively. Thedecrease was attributable to our recording a workforce reduction charge of $1.3million during the nine months ended September 30, 2004 as compared to aworkforce reduction charge of $4.6 million recorded during the six months endedJune 30, 2003, reduced advertising and promotion activities, a decrease in baddebt reserves and a series of smaller transactions.  The 2003 workforce reduction, which affectedapproximately 200 employees, was a result of decreased travel, and relatedbooking volumes, caused by several factors including the war in Iraq, concernsover SARS and the weakened economy.  The$4.6 million charge included $4.0 million for the electronic travel distributionsegment and $0.6 million for the information technology services segment.  The annual labor costs represented by theemployees terminated in the 2003 workforce reduction was approximately $11.1million.  We expect that the 2003workforce reduction will decrease our labor costs in the future, although otherfactors, including any future expansion of our workforce, will also impact ourongoing labor costs.  Advertising andpromotion decreased as a result of our cost savings initiatives.  The decrease in bad debt reserves was relatedto the improved aging of receivables of our customers.

 

*Amortization of Intangible Assets*

 

Amortization of intangible assets was $27.4 million or 3.7% of totalrevenues for the nine months ended September 30, 2004, an $18.3 millionincrease from the three months ended September 30, 2003 amortization ofintangible assets of $9.1 million or 4.0% of total revenues. This increase wasa result of the Acquisition. Purchase accounting requires intangible assets tobe recorded at their fair value and amortized over their estimated usefullives. The related amortization during the first nine months of 2004 was higherwhen compared to the same period in the prior year since there was nocorresponding amortization during the first six months of 2003.

 

*Operating Income*

 

Operating income was $83.4 million for the nine months ended September30, 2004, a $17.4 million or 26.4% increase from the three months endedSeptember 30, 2003 operating income of $16.5 million and the six months endedJune 30, 2003 operating income of $49.5 million. Operating income as apercentage of total revenues increased to 11.4% for the nine months endedSeptember 30, 2004 compared to 7.2% and 10.6% in the three months endedSeptember 30, 2003 and the six months ended June 30, 2003, respectively. The increasein operating income primarily resulted from an 8.8% increase in electronictravel distribution revenues, an 18.8% decrease in employee costs, a 25.3%decrease in network and communication costs, a 22.8% decrease in softwareexpenses, a 15.1% decrease in depreciation primarily on agency and officeequipment and a 75.4% reduction in advertising and promotion activities,partially offset by a 24.3% increase in inducements paid to travel agencies andincreased amortization of the fair value of amortizing intangible assets as aresult of the Acquisition.

 

*Net Interest Expense*

 

Net interest expense was $30.8 million for the nine months endedSeptember 30, 2004, an $18.1 million increase from the three months endedSeptember 30, 2003 net interest expense of $10.3 million and the six monthsended June 30, 2003 net interest expense of $2.4 million. This increase in netinterest expense was primarily due to the interest expense associated with thedebt issued in connection with the Acquisition.

 

30

----

 

*Income Tax Expense*

 

Income tax expense attributable to foreign jurisdictions was $4.0million for the nine months ended September 30, 2004, a $3.8 million increasefrom the three months ended September 30, 2003 income tax expense of $0.1million and the six months ended June 30, 2003 income tax expense of $0.1million. The increase in income tax expense relates to an increase in thetaxable income of our foreign subsidiaries during the nine months endedSeptember 30, 2004 and the utilization of foreign deferred tax assets of $1.6million.

 

*Net Income*

 

Net income was $47.5 million for the nine months ended September 30,2004, a $12.7 million increase from the three months ended September 30, 2003net income of $6.4 million and the six months ended June 30, 2003 net income of$28.4 million. This increase was primarily as a result of a $17.4 millionincrease in operating income and a $17.3 million change-in-control expenserecorded during the six months ended June 30, 2003, for which there was nocorresponding charge during the nine months ended September 30, 2004.  These amounts were partially offset by an$18.1 million increase in net interest expense associated with the debt issuedin connection with the Acquisition and a $3.8 million increase in income taxexpense attributable to our foreign subsidiaries and the utilization of foreigndeferred tax assets of $1.6 million.

 

**Liquidityand Capital Resources**

 

Our principal source of liquidity will be cash flow generated from operationsand borrowings under our senior credit facility. Our principal uses of cashwill be to meet debt service requirements, finance our capital expenditures,make any FASA credit payments and provide working capital. Based on our currentlevel of operations, we believe that our cash flow from operations, availablecash and available borrowings under our senior credit facility will be adequateto meet our future liquidity needs for at least the next 12 months, although noassurance can be given. Our future operating performance and ability to extendor refinance our indebtedness will be dependent on future economic conditionsand financial, business and other factors that are beyond our control. We havehistorically generated significant cash flow from operations.  During 2004, we used this cash flow to prepayan aggregate of $50.0 million of our term loan in addition to the mandatoryrepayment schedule.

 

At September 30, 2004, we had cash and cash equivalents of $75.0million and working capital of $21.1 million as compared to $38.9 million incash and cash equivalents and working capital of ($17.5) million at September30, 2003. The $38.6 million increase in working capital and the $36.1 millionincrease in cash were primarily the result of increases in net income.

 

Historically, we have funded our operations through internallygenerated cash. We generated cash from operating activities of $111.9 millionfor the nine months ended September 30, 2004 as compared to $12.7 million forthe three months ended September 30, 2003 and $41.0 million for the six monthsended June 30, 2003.  The $58.2 millionincrease in cash provided by operating activities during the first nine monthsof 2004 as compared to the first nine months of 2003 primarily resulted from a$14.1 million increase in net income, a $22.0 million increase for changes inoperating assets and liabilities and an increase in non-cash charges of $22.1million.

 

We used cash for investing activities of approximately $5.6 million forthe nine months ended September 30, 2004 as compared to $6.4 million for thethree months ended September 30, 2003 and $5.2 for the six months ended June30, 2003. The decrease in cash used for investing activities during the firstnine months of 2004 as compared to the first nine months of 2003 primarilyresulted from proceeds realized on the sale of an investment in September 2004.

 

We used cash for financing activities of approximately $75.0 millionfor the nine months ended September 30, 2004 as compared to $11.3 million forthe three months ended September 30, 2003 and $124.0 million for the six monthsended June 30, 2003. The decrease in cash used for financing activities duringthe first nine months of 2004 as compared to the first nine months of 2003primarily resulted from a $110.0 million decrease in distributions to ourfounding airlines, partially offset by $54.5 million of payments made withrespect to the senior credit facility.

 

31

----

 

*Senior Credit Facility*

 

In June 2003, we entered into a senior credit facility with a syndicateof financial institutions as lenders. The senior credit facility provides foraggregate borrowings by us of up to $175.0 million, consisting of:

 

•                                          afour-year revolving credit facility of up to $50.0 million in revolving creditloans and letters of credit which is available until June 30, 2007, and

 

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

 

We borrowed $125.0 million under the term loan facility in connectionwith the Acquisition. The revolving credit facility is available for workingcapital and general corporate needs.

 

Obligations under the senior credit facility and the guarantees aresecured by:

 

•                                          aperfected first priority security interest in all of our tangible andintangible assets and all of the tangible and intangible assets of WTI and eachof its direct and indirect domestic subsidiaries and certain foreignsubsidiaries, subject to customary exceptions, and

 

•                                          apledge of (i) all of the membership interests of WS Holdings LLC owned by WTI,(ii) all of our partnership interests owned by WTI and WS Holdings LLC, (iii)all of the capital stock of our domestic subsidiaries and some of our foreignsubsidiaries and (iv) 65% of the capital stock of other of our first-tierforeign subsidiaries.

 

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

 

•                                          abase rate generally defined as the sum of (i) the higher of (x) the prime rate(as quoted on the British Banking Association Telerate Page 5) and (y) thefederal funds effective rate, plus one half percent (0.50%) per annum) and (ii)an applicable margin, or

 

•                                          aLIBOR rate generally defined as the sum of (i) the rate at which euro depositsfor one, two, three or six months (as selected by us) are offered in theinterbank euro market as set forth on page 3750 of the Dow Jones TelerateScreen and (ii) an applicable margin.

 

The initial applicable margin for the base rate revolving loans is2.75% and the applicable margin for the euro revolving loans is 3.75%. Theapplicable margin for the loans is subject to reduction based upon the ratio ofour consolidated total bank debt to consolidated EBITDA. We are also requiredto pay a commitment fee of 0.50% per annum on the difference between committedamounts and amounts actually utilized under the revolving credit facility. Feesfor letters of credit are based on the face amount of each letter of creditoutstanding under the senior credit facility multiplied by to the applicablemargin for LIBOR borrowings under the revolving credit facility and are payablequarterly in arrears. In addition, we must pay each letter of credit bank afronting fee to be determined based upon the face amount of all outstandingletters of credit issued by it.

 

Total cash principal and interest payments related to the $125.0million borrowed under the term loan facility portion of our senior creditfacility were $16.3 million and $1.1 million, respectively, for the threemonths ended September 30, 2004. The remaining principal payment schedules willrequire payments over a four-year period for the term loan, totaling to thefollowing principal payments: $1.0 million in 2004, $12.5 million in 2005,$12.5 million in 2006 and $32.5 million in 2007.

 

The senior credit facility requires us to meet financial tests,including without limitation, a minimum fixed charge coverage ratio, a minimuminterest coverage ratio, a maximum senior secured leverage ratio and a maximumtotal leverage ratio. The minimum fixed charge ratio will be 1.00 to 1.00 untilthe end of the second quarter of 2005 and will be 1.10 to 1.00 thereafter. Theminimum interest coverage ratio will be 2.15 to 1.00 until the end of thesecond quarter of 2005 and will increase to 3.00 to 1.00 by the end of the termof the senior credit facility. The maximum senior secured

 

32

----

 

leverage ratio will be 1.65 to1.00 through the second quarter of 2004 and will decrease to 1.00 to 1.00 bythe end of the term of the senior credit facility. The maximum total leverageratio will be 3.85 to 1.00 until the end of the second quarter of 2004 and willdecrease to 2.75 to 1.00 by the end of the term of the senior credit facility.In addition, the senior credit facility contains customary covenants which,among other things, limit the incurrence of additional indebtedness,investments, dividends, transactions with affiliates, asset sales,acquisitions, capital expenditures, mergers and consolidations, prepayments ofother indebtedness, liens and encumbrances and other matters customarilyrestricted in a senior credit facility. As of September 30, 2004, we were incompliance with these covenants.

 

*9  5/8% Senior NotesDue 2011*

 

On June 30, 2003, we issued $280.0 million aggregate principal amountof 95/8% Senior Notes Due 2011 (“Senior Notes”). Interest on thenotes accrues at 95/8% per annum.

 

We cannot redeem the Senior Notes before June 15, 2007 except that,until June 15, 2006, we can choose to redeem up to an aggregate of 35% of theoriginal principal amount of the Senior Notes, or $98.0 million, at aredemption price of 109.625% of the principal amount of the Senior Notes weredeem with funds raised in certain equity offerings.

 

The Senior Notes are unsecured senior obligations, are equal in rightof payment to all of our existing and future unsecured senior debt, and aresenior in right of payment to all of our future subordinated debt. The SeniorNotes are guaranteed by each subsidiary guarantor (as defined in the indenturegoverning the Senior Notes).

 

If we experience a change of control (as defined in the indenturegoverning the Senior Notes), each holder of Senior Notes may require us torepurchase all or any portion of the holder’s Senior Notes at a purchase priceequal to 101% of the principal amount plus accrued and unpaid interest to thedate of purchase.

 

The indenture governing the Senior Notes contains certain covenantsthat, among other things, limit (i) the incurrence of additional debt by us andcertain of our subsidiaries, (ii) the payment of dividends and the purchase,redemption or retirement of capital stock or subordinated indebtedness, (iii)investments, (iv) certain transactions with affiliates, (v) sales of assets,including capital stock of subsidiaries and (vi) certain consolidations,mergers and transfers of assets. As of September 30, 2004, we were incompliance with these covenants. The indenture also prohibits certainrestrictions on distributions from certain subsidiaries.

 

Depending on capital market conditions, we may elect to repurchase ouroutstanding Senior Notes in open market purchases or otherwise.

 

*Capital Lease Obligations*

 

We lease equipment and software under capital lease obligations.  As of September 30, 2004, our obligations undercapital leases totaled $77.2 million. The interest rate used in computing the present value of the minimumlease payments ranges from approximately 4.0% to 12.0% depending on the assetbeing leased.

 

*Subordinated Notes*

 

As part of the Acquisition, WTI issued to American and Deltasubordinated seller notes in the original principal amounts of $39.0 millionand $45.0 million, respectively. The subordinated seller notes mature on July31, 2012; provided that to the extent that any portion of the subordinatedseller notes are not prepaid by WTI by June 30, 2011, a 5% premium will bepayable by WTI on the outstanding principal amount and accrued and unpaidinterest thereon which is prepaid or repaid following June 30, 2011 at the timeof such prepayment or repayment. The subordinated seller notes are unsecuredobligations of WTI, are not our debt obligations and are contractually andstructurally subordinated to our senior notes and our senior credit facilityand structurally subordinated to all of our other debt. The subordinated sellernote originally issued to American bears interest at an annual rate equal to12.0% and the subordinated seller note originally issued to Delta bearsinterest at an annual rate equal to 10.0%. So long as we are not in default under,and are in compliance with all financial covenants of, our senior creditfacility, the indenture governing our senior notes and other permitted seniordebt and continue to maintain a fixed charge coverage ratio (as defined in theindenture) of 2.25x

 

33

----

 

or better, WTI will payinterest equal to 5% of the then outstanding principal amount of thesubordinated seller notes in cash, with the remaining interest payable in cashor in kind at WTI’s option. During a default under our senior credit facility,the indenture governing our senior notes and/or other permitted senior debt,WTI will be permitted to pay all interest on the subordinated seller notes inkind. While the subordinated seller notes are not our debt obligations, so longas we are not in default under, and are in compliance with all financialcovenants of, our senior credit facility and the indenture governing our seniornotes and continue to maintain a fixed charge coverage ratio (as defined in theindenture) of 2.25x or better, we will be permitted to distribute funds to WTIsufficient to pay the 5% cash interest component of the subordinated sellernotes. During the nine months ended September 30, 2004, we distributed $2.2million to WTI for this purpose.

 

*FASAs*

 

Pursuant to the terms of the FASAs, we provide FASA credits to Deltaand Northwest to be applied against FASA service fee payments due from theseairlines to us. The FASA credits are structured and will be applied throughJune 2012 in an amount up to an aggregate total of approximately $104.2 millionto each of Delta and Northwest as of September 30, 2004, and are reflected asreductions to our FASA revenues in the corresponding periods. The FASA creditsare provided to Delta and Northwest in monthly installments, with an annualamount of $16.7 million scheduled to be provided to each of these foundingairlines during the first six years of the respective FASA term, an annualamount of $9.2 million scheduled to be provided to each of these foundingairlines during the seventh and eighth years of the respective FASA term and anannual amount of $6.7 million scheduled to be provided to each of thesefounding airlines during the ninth year of the respective FASA term. In theevent that the monthly FASA credits deliverable by us to Delta or Northwest aremore than the FASA service fee payments due from the applicable airline, thenwe will be obligated to pay such excess to such airline in cash.

 

Delta or Northwest may terminate its FASA due to a failure by us tosatisfy the mainframe processing time, system availability or criticalproduction data performance standards under that agreement (which representperformance standards which we have historically met under our predecessorservices agreements with Delta and Northwest). Furthermore, such a terminationby Delta or Northwest of its FASA will constitute an event of default under oursenior credit facility and may constitute a default under any other of ourfuture senior credit facilities. 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 eight-year schedule specified above and will instead be payable incash to such airline as and when, and only to the extent that, we are permittedto make such payments as “Restricted Payments” under the restricted paymentcovenant test contained in the indenture governing the Senior Notes. If a FASAis otherwise terminated in accordance with its terms prior to the expiration ofits term, such as a termination by either Delta or Northwest without cause, oris rejected by Delta or Northwest in bankruptcy, then the obligation to providethe remaining FASA credits or to make the remaining FASA credit payments thendeliverable or payable to the airline under the applicable FASA will terminate.Our obligations to provide FASA credits or to make the FASA credit paymentswill not 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 senior notes, will be entitled to receive payment infull in cash before we may make any FASA credit payments in cash. In thatevent, Delta and Northwest will, however, retain their rights to apply thescheduled FASA credit payments against their obligations to pay us fees for ourservices under the FASAs. In the event that we wrongfully terminate a FASA, wewill remain obligated to deliver the FASA credits to the applicable airline bypaying the credit amounts to the applicable airline in cash on a monthly basisaccording to the eight-and-a-half-year schedule described above. However, if wereject a FASA in a bankruptcy of the company, our FASA credit paymentobligations to the applicable airline will match the obligations describedabove in a termination of a FASA by such airline due to our failure

 

34

----

 

to satisfy performance standards.Any FASA credit payment obligations by us to an airline in such a bankruptcywill be subordinated to our senior debt (as defined in the subordinationagreement executed by the founding airlines), including the Senior Notes.

 

*Taxes*

 

Because we are a limited partnership, our partners will owe taxes onall of the income that we generate in the United States. We expect that WTIwill cause us to make distributions to it from time to time sufficient to coverall income taxes owed by WTI. Under the terms of our senior credit facility andthe indenture governing the Senior Notes, we are specifically permitted to makethese tax distributions.

 

**Capital Expenditures**

 

Capital expenditures for property and equipment, including bothpurchased assets and assets acquired under capital leases, as well ascapitalized software, totaled $33.9 million for the nine months ended September30, 2004, an increase of $4.6 million from capital expenditures of $6.5 millionfor the three months ended September 30, 2003 and $22.8 million for the sixmonths ended June 30, 2003. We have forecasted approximately $38.8 million forcapital expenditures in 2004. Of that amount, approximately $19.5 millionrelates to a significant upgrade of mainframe computer equipment at our datacenter. The upgraded equipment is expected to be in use through June 2008. Theremaining $19.3 million represents normal growth in capacity requirements aswell as routine replacement of older equipment.

 

**Off-Balance Sheet Arrangements**

 

At September 30, 2004 and December 31, 2003, we did not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities,which would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes. We are,therefore, not materially exposed to any financing, liquidity, market or creditrisk that could arise if we had engaged in such relationships.

 

**Effect of Inflation**

 

Inflation generally affects us by increasing our costs of labor,equipment and new materials. We do not believe that inflation has had anymaterial effect on our results of operations during the nine months endedSeptember 30, 2004 and 2003.

 

**Forward-Looking Statements**

 

Statements in this report and the exhibits hereto which are not purelyhistorical facts, including statements about forecasted financial projectionsor other statements about anticipations, beliefs, expectations, hopes,intentions or strategies for the future, may be forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, as amended,and Section 21E of the Securities Exchange Act of 1934, as amended. Readers arecautioned not to place undue reliance on forward-looking statements. Allforward-looking statements are based upon information available to us on thedate this report was submitted. We undertake no obligation to publicly updateor revise any forward-looking statements, whether as a result of newinformation, future events or otherwise. Any forward-looking statements involverisks and uncertainties that could cause actual events or results to differmaterially from the events or results described in the forward-lookingstatements, including, but not limited to, risks or uncertainties related to:our revenues being highly dependent on the travel and transportationindustries; airlines limiting their participation in travel marketing anddistribution services; or other changes within the travel industry. We may notsucceed in addressing these and other risks.

 

35

----

 

**ITEM 3.****  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

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

 

**Foreign Exchange Rate Market Risk**

 

We consider the U.S. dollar to be the functional currency for all ofour entities. Substantially all of our net sales and the majority of ourexpenses during the nine months ended September 30, 2004 and 2003 weredenominated in U.S. dollars. Therefore, foreign currency fluctuations did notmaterially impact our financial results in those periods. We have foreigncurrency exposure arising from the translation of our foreign subsidiaries’financial statements into U.S. dollars. The primary currencies to which we areexposed to fluctuations include the euro and the British pound sterling. Thefair value of our net foreign investments would not be materially affected by a10% adverse change in foreign currency exchange rates from September 30, 2004levels.

 

**Interest Rate Market Risk**

 

Our senior credit facility is variable rate debt. Interest rate changestherefore generally do not affect the market value of such debt but do impactthe amount of our interest payments and, therefore, our future earnings andcash flows, assuming other factors are held constant. As of September 30, 2004,we had variable rate debt of approximately $58.5 million. Holding othervariables constant, including levels of indebtedness, a one hundred basis pointincrease in interest rates on our variable debt would have had an estimatedimpact on pre-tax earnings and cash flows for the next year of approximately$0.6 million. Under the terms of our senior credit facility, we are required tohave at least 50% of our total indebtedness subject to either a fixed interestrate or interest rate protection for a period of not less than three years.

 

 

**ITEM 4.****  CONTROLS AND PROCEDURES**

 

As of the end of the period covered by this report, we conducted anevaluation, under the supervision and with the participation of the principalexecutive officer (“CEO”) and principal financial officer (“CFO”), of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the CEOand CFO concluded that our disclosure controls and procedures are effective toprovide reasonable assurance that information required to be disclosed by us inreports that it files or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms. There was no change in our internalcontrol over financial reporting during our most recently completed fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

36

----

 

**PART II****.  OTHER INFORMATION**

 

**ITEM1.  LEGALPROCEEDINGS**

 

As described in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2004, we have received assessments totaling €39.5 million from thetax authorities of Greece and are in the process of filing appeals.  On October 4, 2004, we applied to the Greekauthorities for partial relief under the terms of a formal tax amnestyprogram.  The Greek authorities have notyet responded to that application.

 

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

 

**ITEM 5. OTHER INFORMATION**

 

On August 13, 2004, WTI filed an amendment toits certificate of incorporation to effect a stock split of each of WTI’sclasses of common stock at a ratio of approximately 2.80 to 1.

 

**ITEM 6. EXHIBITS**

 

***Exhibits:***

 

31.1                           Certificationof the Principal Executive Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

31.2                           Certificationof the Principal Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

32.1                           Certificationspursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

37

----

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                   | WORLDSPAN,  L.P. |
|------------------------|------------------|
|                   |             |   |
|                   |             |   |
|  November 8, 2004 |             |  /s/ Rakesh Gangwal |
|  DATE             | By:              | Rakesh Gangwal |
|                   |             | Chairman, President and Chief Executive Officer  and Director  (principal executive officer) |
|                   |             |   |
|                   |             |   |
|  November 8, 2004 |             |  /s/ Michael S. Wood |
|  DATE             | By:              | Michael S. Wood |
|                   |             | Senior Vice President and  Chief Financial Officer  (principal financial and accounting officer) |

 

38

----