WORLDSPAN L P - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 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

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

ý Yes ¨ No

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

¨ Yes ý No

As of August 10, 2004, Registrant’s parent had outstanding 29,661,533 shares of Common Stock and 3,929,288 shares of Class B Common Stock.

WORLDSPAN, L.P.

REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2004

INDEX

PART I:	FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – June 30, 2004 and December 31, 2003

	Condensed Consolidated Statements of Operations – Three and six months ended June 30, 2004 and three and six months ended June 30, 2003

	Condensed Consolidated Statements of Partners’ Capital – Six months ended June 30, 2004

	Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2004 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 Procedings

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Item 5.	Other Information

Item 6.	Exhibits and Reports on Form 8-K

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Worldspan, L.P.

Condensed Consolidated Balance Sheets

(Unaudited) (dollars in thousands)

	Successor Basis
	June 30, 2004		December 31, 2003
Assets
Current assets
Cash and cash equivalents	$	73,458	$	43,746
Trade accounts receivable, net	128,258		103,122
Prepaid expenses and other current assets	14,721		23,629
Total current assets	216,437		170,497
Property and equipment, net	130,116		120,510
Deferred charges	36,463		33,544
Debt issuance costs, net	11,729		13,626
Supplier and agency relationships, net	287,886		304,752
Developed technology, net	219,539		228,322
Trade name	72,142		72,142
Goodwill	116,048		109,740
Other intangible assets, net	33,318		34,722
Investments	6,063		6,377
Other long-term assets	21,570		25,263
Total assets	$	1,151,311	$	1,119,495

Liabilities and Partners’ Capital
Current liabilities
Accounts payable	$	11,212	$	19,675
Accrued expenses	175,043		144,415
Current portion of capital lease obligations	19,471		16,136
Current portion of long-term debt	10,364		8,000
Total current liabilities	216,090		188,226
Long-term portion of capital lease obligations	61,884		55,002
Long-term debt	344,380		385,000
Pension and postretirement benefits	65,113		68,405
Other long-term liabilities	11,689		6,310
Total liabilities	699,156		702,943
Commitments and contingencies
Partners’ capital	452,155		416,552
Total liabilities and Partners’ capital	$	1,151,311	$	1,119,495

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

Worldspan, L.P.

Condensed Consolidated Statements of Operations

(Unaudited) (dollars in thousands)

	Successor Basis			Predecessor Basis			Successor Basis			Predecessor Basis
	Three months Ended June 30, 2004			Three months ended June 30, 2003			Six months ended June 30, 2004			Six months ended June 30, 2003

Revenues
Electronic travel distribution
Third party	$	232,487		$	137,696		$	465,026		$	272,968
Related party	—			70,293			—			141,965
Information technology services
Third party	16,317			3,088			32,309			6,572
Related party	—			22,050			—			45,967
Total revenues	248,804			233,127			497,335			467,472
Operating Expenses
Cost of revenues
Cost of revenues excluding developed technology amortization	173,416			171,617			343,754			334,469
Developed technology amortization	5,508			3,397			11,015			7,359
Total cost of revenues	178,924			175,014			354,769			341,828
Selling, general and administrative	29,632			35,863			65,792			76,141
Amortization of intangible assets	9,135			—			18,270			—
Total operating expenses	217,691			210,877			438,831			417,969
Operating income	31,113			22,250			58,504			49,503
Other Income (Expense)
Interest income	86			150			186			401
Interest expense	(10,046		)	(1,388		)	(20,840		)	(2,756		)
Equity in earnings of investee	107			127			57			130
Change-in-control expense	—			(17,259		)	—			(17,259		)
Other, net	326			(681		)	61			(1,461		)
Total other expense, net	(9,527		)	(19,051		)	(20,536		)	(20,945		)
Income before provision for income taxes	21,586			3,199			37,968			28,558
Income tax expense	73			87			302			144
Net income	$	21,513		$	3,112		$	37,666		$	28,414

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

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	37,666			—			37,666
Unrealized holding loss on investment	—			(366		)	(366		)
Comprehensive income:							37,300
Distribution to WTI	(3,464		)	—			(3,464		)
Stock-based compensation	1,767			—			1,767
Balance at June 30, 2004	$	452,096		$	59		$	452,155

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

Worldspan, L.P.

Condensed Consolidated Statements of Cash Flows

(Unaudited) (dollars in thousands)

	Successor Basis			Predecessor Basis
	Six months ended June 30, 2004			Six months ended June 30, 2003

Cash flows from operating activities:
Net income	$	37,666		$	28,414
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	51,084			32,322
Amortization of debt issuance costs	1,899			—
Stock-based compensation	1,767			—
Equity in earnings of investee	(57		)	(130		)
Loss on disposal of property and equipment, net	584			1,010
Other	—			300
Changes in operating assets and liabilities:
Trade accounts receivable, net	(25,136		)	(17,075		)
Related party accounts receivable, net	—			(3,396		)
Prepaid expenses and other current assets	8,908			5,412
Deferred charges	(2,919		)	1,945
Other long-term assets	159			(16,840		)
Accounts payable	(8,463		)	640
Accrued expenses	29,092			6,330
Pension and postretirement benefits	(3,292		)	3,203
Other long-term liabilities	(880		)	(1,112		)
Net cash provided by operating activities	90,412			41,023
Cash flows from investing activities:
Purchase of property and equipment	(7,359		)	(4,236		)
Proceeds from sale of property and equipment	92			396
Capitalized software for internal use	(744		)	(1,367		)
Net cash used in investing activities	(8,011		)	(5,207		)
Cash flows from financing activities:
Distributions to founding airlines	—			(110,000		)
Distributions to WTI	(3,464		)	—
Principal payments on capital leases	(10,969		)	(13,986		)
Principal payments on debt	(38,256		)	—
Net cash used in financing activities	(52,689		)	(123,986		)
Net increase (decrease) in cash and cash equivalents	29,712			(88,170		)
Cash and cash equivalents at beginning of period	43,746			132,101
Cash and cash equivalents at end of period	$	73,458		$	43,931

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

Worldspan, L.P.

Notes to Condensed Consolidated Financial Statements

(Unaudited) (dollars in thousands)

1. Accounting Policies

Nature of Business. Worldspan, L.P. (the “Partnership”) is a Delaware limited partnership formed in 1990. On June 30, 2003, Worldspan Technologies Inc. (“WTI”), formerly named Travel Transaction Processing Corporation, formed by Citigroup Venture Capital Equity Partners, L.P. (“CVC”) and Ontario Teachers’ Pension Plan Board (“OTPP”), indirectly acquired 100% of the outstanding partnership interests of the Partnership from affiliates of Delta Air Lines, Inc. (“Delta”), Northwest Airlines, Inc. (“Northwest”) and American Airlines, Inc. (“American”) (the “Acquisition”). WTI owns all of the general partnership interests in the Partnership. WS Holdings LLC (“WS Holdings”), which is owned by WTI, is the sole limited partner of the Partnership, owning all 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 the general partnership interests in the Partnership. NEWCRS Limited, Inc. (“NEWCRS”), which was owned by the founding airlines, owned all of the limited partnership interests. American acquired its interest in the Partnership as part of its acquisition 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, travel agencies and other travel-related entities. The Partnership owns and operates a global distribution system (“GDS”) and provides subscribers with access to and use of this GDS. The Partnership also charges Delta, Northwest and others for the use of the GDS.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2004. Our quarterly financial data should be read in conjunction with our consolidated financial statements for the year ended December 31, 2003 (including the notes thereto), set forth in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2004.

The consolidated financial statements present the Partnership for the three and six months ended June 30, 2004 (“successor basis” reflecting the Acquisition and associated basis) and the three and six months ended June 30, 2003 (“predecessor basis” for the period of Delta’s, Northwest’s and American’s ownership of the Partnership and associated basis).

In accordance with the requirements of purchase accounting, the assets and liabilities of the Partnership were adjusted to their estimated fair values and the resulting goodwill computed for the Acquisition (see Note 2). The application of purchase accounting generally results in higher depreciation and amortization expense in periods following an acquisition. Accordingly, and because of other effects of purchase accounting, the accompanying consolidated financial statements as of and for the period prior to the Acquisition are not comparable with those periods subsequent to the Acquisition.

Stock-Based Compensation. Under the WTI stock incentive plan, WTI offers restricted shares of its Common Stock and grants options to purchase shares of its Common Stock to certain employees of the Partnership. WTI accounts for employee stock options and restricted shares of 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 WTI options and restricted shares of WTI Common Stock are being granted to employees of the Partnership, the Partnership recognizes this value as an expense over the period in which the options and restricted shares vest, with a corresponding increase in partners’ capital.

Risks and Uncertainties. The Partnership derives substantially all of its revenues from the travel industry. Accordingly, events affecting the travel industry, particularly airline travel and participating airlines, can significantly affect the Partnership’s business, financial condition and results of operations. The Partnership’s customers are primarily located in the United States and Europe.

Travel agencies are the primary channel of distribution for the services offered by travel vendors. If the Partnership were to lose and not replace the transactions generated by any significant travel agencies, its business, financial condition and results of operations could be adversely affected. For the six months ended June 30, 2004 and 2003, one subscriber generated transactions in our electronic travel distribution segment which resulted in revenue of approximately $125,944 and $89,322 respectively. These amounts represented 25% and 19% of total operating revenues for the six months ended June 30, 2004 and 2003, respectively.

Furthermore, the Partnership charges associates for electronic travel distribution services and information technology services. Revenues generated by two associates for the six months ended June 30, 2004 and 2003 were $137,121 and $152,506, respectively. These amounts, included in the electronic travel distribution segment and the information technology services segment, represented approximately 28% of total operating revenues for the six months ended June 30, 2004 and 33% of total operating revenues for the six months ended June 30, 2003. At June 30, 2004 and December 31, 2003, accounts receivable from these same two associates was approximately $36,827 and $32,704, respectively.

The Partnership maintained an allowance for doubtful accounts of approximately $16,166 and $15,530 at June 30, 2004 and December 31, 2003, respectively.

Reclassifications. Certain reclassifications have been made in the prior year’s financial statements to conform to classifications used in the current year.

2. WTI Acquisition of Worldspan

On June 30, 2003, WTI indirectly acquired 100% of the outstanding partnership interests of the Partnership from affiliates of Delta, Northwest and American. The aggregate consideration for the Acquisition was $901,500, consisting of $817,500 in cash and the issuance by WTI of $84,000 of holding company subordinated seller notes payable by WTI to American and Delta. The holding company subordinated seller notes are unsecured obligations of WTI and are not the Partnership’s debt. The purchase consideration was subject to adjustment based upon certain items, such as the Partnership’s closing cash, debt and working capital. The resulting net aggregate consideration for the Acquisition was $837,766. The Acquisition has been accounted for as a purchase transaction in accordance with SFAS No. 141, Business Combinations.

The $116,048 excess of the purchase price over the estimated fair values of the net tangible assets and separately identifiable intangible assets of the Partnership was recorded as goodwill. As all income or losses of the Partnership are allocated to WTI and WS Holdings for inclusion in their respective income tax returns, none of the goodwill is expected to be tax deductible by the Partnership. The purchase price was allocated among tangible and intangible assets acquired and liabilities assumed based on estimated fair values at the transaction date. The following represents the allocation of the purchase price that was pushed down to the Partnership at the time of the acquisition:

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 of goodwill was allocated as follows: $102,189 to the electronic travel distribution segment and $13,859 to the information technology services segment.

Other identifiable intangibles 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 acquired identifiable intangibles, subject to amortization, is approximately nine years. Goodwill and trade name are not amortized but will be tested for impairment on an annual basis or at an interim date if indicators of impairment exist.

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

	Predecessor Basis
	Six months ended June 30, 2003

Revenues	$	450,805
Net loss	$	(12,357	)

3. Debt

In conjunction with the Acquisition, the Partnership issued and sold $280,000 aggregate principal amount of 9 5/8% Senior Notes due 2011 (“Senior Notes”) and borrowed $125,000 under the term loan facility portion of a senior credit facility due 2007 (“Term Loan”). The senior credit facility also provides for a four-year revolving credit facility of up to $50,000 in revolving credit loans and letters of credit. The Senior Notes are effectively subordinated to the Term Loan, which is secured by substantially all of the assets of the issuers and the guarantors of the Senior Notes. The interest rate applicable to borrowings under the Term Loan is based on the LIBOR rate, or, at the Partnership’s option, the higher of several other common indices. At June 30, 2004, the interest rate on the Term Loan was 5.12%. The Partnership is required to pay a commitment fee of 0.50% per annum on the difference between committed amounts and amounts actually utilized under the Term Loan.

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

Long-term debt consisted of the following:

	Successor Basis June 30, 2004

Senior Notes	$	280,000
Term Loan	74,744
	354,744
Less current portion of long-term debt	10,364
Long-term debt, excluding current portion	$	344,380

During 2004, the Partnership paid $38,256 in principal on the Term Loan, of which $3,256 was scheduled principal payments.

4. Employee Benefit Plans

The components of net pension and postretirement costs were as follows:

	Pension benefits						Pension benefits
	Successor Basis			Predecessor Basis			Successor Basis			Predecessor Basis
	Three months Ended June 30, 2004			Three months Ended June 30, 2003			Six months ended June 30, 2004			Six months ended June 30, 2003

Service cost	$	—		$	2,741		$	—		$	5,483
Interest cost	2,762			3,031			5,524			6,061
Expected return on plan assets	(3,389		)	(3,530		)	(6,778		)	(7,061		)
Amortization of transition obligation	—			43			—			86
Amortization of prior service cost	—			29			—			59
Recognized net actuarial loss	—			107			—			214
Net periodic benefit (income) expense	$	(627	)	$	2,421		$	(1,254	)	$	4,842

	Postretirement benefits					Postretirement benefits
	Successor Basis		Predecessor Basis			Successor Basis		Predecessor Basis
	Three months Ended June 30, 2004		Three months Ended June 30, 2003			Six months ended June 30, 2004		Six months Ended June 30, 2003

Service cost	$	82	$	476		$	164	$	955
Interest cost	418		840			836		1,681
Expected return on plan assets	—		—			—		—
Amortization of transition obligation	—		—			—		—
Amortization of prior service cost	—		(212		)	—		(425		)
Recognized net actuarial loss	—		114			—		228
Net periodic benefit expense	$	500	$	1,218		$	1,000	$	2,439

In December 2003, the United States enacted into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act establishes a prescription drug benefit under Medicare, known as “Medicare Part D,” and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In January 2004, the FASB issued FASB Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”). The Partnership elected to defer accounting for the effects of the Act, as permitted by FSP 106-1. Therefore, in accordance with FSP 106-1, the Partnership’s accumulated postretirement benefit obligation and net postretirement health care costs included in the condensed consolidated financial statements and accompanying notes do not reflect the effects of the Act on the plan. In May 2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”). FSP 106-2 requires companies to account for the effect of the subsidy on benefits attributable to past service as an actuarial experience gain and as a reduction of the service cost component of net postretirement health care costs for amounts attributable to current service, if the benefit provided is at least actuarially equivalent to Medicare Part D. The Partnership will adopt FSP 106-2 during the third quarter of 2004. The Partnership is evaluating the effect the adoption of FSP 106-2 will have on its financial position and results of operations.

5. Other Significant Events

During the first quarter of 2004, the Partnership announced a workforce reduction. This reduction was the result of improved organizational efficiency and the outsourcing of programming for certain applications. The total charge recorded for this workforce reduction, which affected approximately 125 employees, was $1,290, all of which was for severance and benefits. This amount is included in “Selling, general and administrative” expenses in the accompanying condensed consolidated statements of operations. The $1,290 charge included $960 for the electronic travel distribution segment and $330 for the information technology services segment. At June 30, 2004, the remaining liability associated with this workforce reduction was $146.

On May 5, 2004, the Partnership announced that it had been informed by Expedia that Expedia intends to move a portion of its transactions to another GDS provider in order to diversify its GDS relationships beyond using a single provider to process substantially all of its GDS transactions.

6. Contingencies

In September 2003, the Partnership received multiple assessments totaling €39,503 from the tax authorities of Greece relating to tax years 1993-2000. The Partnership is currently in the process of filing appeals of these assessments, the outcome of which is currently uncertain. The Partnership Interest Purchase Agreement, dated March 3, 2003, provides that each of our founding airlines shall severally indemnify WTI and hold WTI harmless on a net after-tax basis from and against any and all taxes of Worldspan and its subsidiaries related to periods prior to the sale of the Partnership on June 30, 2003. The Partnership has informed our founding airlines of the receipt of these assessments and the indemnity obligation of our founding airlines under the Partnership Interest Purchase Agreement. Because of this indemnity, the Partnership believes that amounts paid, if any, to settle this assessment will be reimbursed by our founding airlines and will not have an effect on the Partnership’s financial position or results of operations.

7. Business Segment Information

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

The Partnership evaluates performance and allocates resources based on operating income. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. There are no intersegment sales.

	Successor Basis			Predecessor Basis		Successor Basis			Predecessor Basis
	Three months ended June 30, 2004			Three months ended June 30, 2003		Six months ended June 30, 2004			Six months ended June 30, 2003

Revenues
Electronic travel distribution	$	232,487		$	207,989	$	465,026		$	414,933
Information technology services	16,317			25,138		32,309			52,539
Total revenues	$	248,804		$	233,127	$	497,335		$	467,472
Operating income
Electronic travel distribution	$	38,158		$	21,068	$	74,691		$	45,803
Information technology services	(7,045		)	1,182		(16,187		)	3,700
Total operating income	$	31,113		$	22,250	$	58,504		$	49,503
Depreciation and amortization
Electronic travel distribution	$	22,743		$	12,665	$	43,226		$	26,701
Information technology services	3,278			2,511		7,858			5,621
Total depreciation and amortization	$	26,021		$	15,176	$	51,084		$	32,322
Geographic areas
Total revenues
United States	$	210,949		$	204,401	$	424,156		$	406,854
Foreign	37,855			28,726		73,179			60,618
Total	$	248,804		$	233,127	$	497,335		$	467,472
Long-lived assets
United States	$	902,970		$	173,362	$	902,970		$	173,362
Foreign	31,904			31,772		31,904			31,772
Total	$	934,874		$	205,134	$	934,874		$	205,134

8. Supplemental Guarantor/Non-Guarantor Financial Information

Concurrent with the closing of the Acquisition discussed in Note 2, the Senior Notes became fully and unconditionally guaranteed on a senior unsecured basis by the domestic operations and assets of the Partnership (referred to as “Worldspan, L.P.—Guarantor” in the accompanying financial information). Included in Worldspan, L.P.—Guarantor are Worldspan, L.P. and all of its wholly-owned domestic subsidiaries including WS Financing Corp. These domestic subsidiaries collectively represent less than one percent of the Partnership’s total assets, Partners’ capital, total revenues, net income, and cash flows from operating activities. The guarantees of each of the legal entities comprised by Worldspan, L.P.—Guarantor are joint and several. The foreign subsidiaries (referred to as “Non-Guarantor Subsidiaries” in the accompanying financial information) represent the foreign operations of the Partnership. WS Financing Corp., the co-issuer, was established June 6, 2003. WS Financing Corp. does not have any substantial operations, assets or revenues. The following financial information presents condensed consolidating balance sheets, statements of operations and statements of cash flows for Worldspan, L.P.—Guarantor and Non-Guarantor Subsidiaries. The information has been presented as if Worldspan, L.P.—Guarantor accounted for its ownership of the Non-Guarantor Subsidiaries using the equity method of accounting.

Condensed Consolidating Balance Sheets

as of June 30, 2004

(Successor Basis)

	Worldspan, L.P.— Guarantor		Non-Guarantor Subsidiaries			Eliminating Entries			Worldspan Consolidated

Assets
Current assets
Cash and cash equivalents	$	71,610	$	1,848		$	—		$	73,458
Trade accounts receivable, net	125,622		2,636			—			128,258
Prepaid expenses and other current assets	11,542		3,179			—			14,721
Total current assets	208,774		7,663			—			216,437
Property and equipment, net	123,483		6,633			—			130,116
Deferred charges	19,632		16,831			—			36,463
Debt issuance costs	11,729		—			—			11,729
Goodwill	116,048		—			—			116,048
Other intangible assets, net	612,885		—			—			612,885
Investments	4,750		1,313			—			6,063
Investments in subsidiaries	15,637		—			(15,637		)	—
Other long-term assets	14,443		7,127			—			21,570
Total assets	$	1,127,381	$	39,567		$	(15,637	)	$	1,151,311

Liabilities and Partners’ Capital
Current liabilities
Accounts payable	$	9,281	$	1,931		$	—		$	11,212
Intercompany accounts payable (receivable)	6,279		(6,279		)	—			—
Accrued expenses	146,712		28,331			—			175,043
Current portion of capital lease obligations	19,471		—			—			19,471
Current portion of long-term debt	10,364		—			—			10,364
Total current liabilities	192,107		23,983			—			216,090
Long-term portion of capital lease obligations	61,884		—			—			61,884
Long-term debt	344,380		—			—			344,380
Pension and postretirement benefits	65,155		(42		)	—			65,113
Other long-term liabilities	11,700		(11		)	—			11,689
Total liabilities	675,226		23,930			—			699,156
Commitments and contingencies
Partners’ capital	452,155		15,637			(15,637		)	452,155
Total liabilities and Partners’ capital	$	1,127,381	$	39,567		$	(15,637	)	$	1,151,311

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

Condensed Consolidating Statements of Operations

for the Three Months Ended June 30, 2004

(Successor Basis)

	Worldspan, L.P.— Guarantor			Non-Guarantor Subsidiaries		Eliminating Entries			Worldspan Consolidated

Revenues	$	210,949		$	37,855	$	—		$	248,804
Operating expenses	185,031			32,660		—			217,691
Operating income	25,918			5,195		—			31,113
Other income (expense)
Interest income	83			3		—			86
Interest expense	(10,046		)	—		—			(10,046		)
Equity in earnings of investee	107			—		—			107
Income from subsidiaries	5,471			—		(5,471		)	—
Other, net	(20		)	346		—			326
Total other (expense) income, net	(4,405		)	349		(5,471		)	(9,527		)
Income before income taxes	21,513			5,544		(5,471		)	21,586
Income tax expense	—			73		—			73
Net income	$	21,513		$	5,471	$	(5,471	)	$	21,513

Condensed Consolidating Statements of Operations

for the Three Months Ended June 30, 2003

(Predecessor Basis)

	Worldspan, L.P.— Guarantor			Non-Guarantor Subsidiaries			Eliminating Entries		Worldspan Consolidated

Revenues	$	204,401		$	28,726		$	—	$	233,127
Operating expenses	177,672			33,205			—		210,877
Operating income (loss)	26,729			(4,479		)	—		22,250
Other income (expense)
Interest income	133			17			—		150
Interest expense	(1,388		)	—			—		(1,388		)
Equity in earnings of investee	127			—			—		127
Loss from subsidiaries	(4,116		)	—			4,116		—
Change-in-control expense	(17,259		)	—			—		(17,259		)
Other, net	(1,114		)	433			—		(681		)
Total other (expense) income, net	(23,617		)	450			4,116		(19,051		)
Income (loss) before income taxes	3,112			(4,029		)	4,116		3,199
Income tax expense	—			87			—		87
Net income (loss)	$	3,112		$	(4,116	)	$	4,116	$	3,112

Condensed Consolidating Statements of Operations

for the Six Months Ended June 30, 2004

(Successor Basis)

	Worldspan, L.P.— Guarantor			Non-Guarantor Subsidiaries		Eliminating Entries			Worldspan Consolidated

Revenues	$	424,156		$	73,179	$	—		$	497,335
Operating expenses	372,861			65,970		—			438,831
Operating income	51,295			7,209		—			58,504
Other income (expense)
Interest income	128			58		—			186
Interest expense	(20,840		)	—		—			(20,840		)
Equity in earnings of investee	57			—		—			57
Income from subsidiaries	7,050			—		(7,050		)	—
Other, net	(27		)	88		—			61
Total other (expense) income, net	(13,632		)	146		(7,050		)	(20,536		)
Income before income taxes	37,663			7,355		(7,050		)	37,968
Income tax (benefit) expense	(3		)	305		—			302
Net income	$	37,666		$	7,050	$	(7,050	)	$	37,666

Condensed Consolidating Statements of Operations

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 income	360			41			—		401
Interest expense	(2,756		)	—			—		(2,756		)
Equity in earnings of investee	130			—			—		130
Loss from subsidiaries	(5,632		)	—			5,632		—
Change-in-control expense	(17,259		)	—			—		(17,259		)
Other, net	(1,836		)	375			—		(1,461		)
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

Condensed Consolidating Statements of Cash Flows

for the Six Months Ended June 30, 2004

(Successor Basis)

	Worldspan, L.P.— Guarantor			Non-Guarantor Subsidiaries			Eliminating Entries			Worldspan Consolidated

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

Condensed Consolidating Statements of Cash Flows

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 founding 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

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

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

In accordance with the requirements of purchase accounting, the assets and liabilities of the Company were adjusted to their estimated fair values and the resulting goodwill computed for the Acquisition. The application of purchase accounting generally results in higher depreciation and amortization expense in periods following an acquisition. Accordingly, and because of other effects of purchase accounting, the results discussed for the three and six months ended June 30, 2004 are not comparable with the three and six months ended June 30, 2003.

Overview

We are a provider of mission-critical transaction processing and information technology services to the global travel industry. Globally, we are the largest transaction processor for online travel agencies, having processed 64% of all global distribution system, or GDS, online air transactions during the twelve months ended June 30, 2004. In the United States (the world’s largest travel market), we are the second largest transaction processor for travel agencies, accounting for 31% of GDS air transactions and over 67% of online GDS air transactions processed during the twelve months ended June 30, 2004. We provide subscribers (including traditional travel agencies, online travel agencies and corporate travel departments) with real-time access to schedule, price, availability and other travel information and the ability to process reservations and issue tickets for the products and services of approximately 800 travel suppliers (such as airlines, hotels, car rental companies, tour companies and cruise lines) throughout the world. During the twelve months ended June 30, 2004, we processed approximately 201 million transactions. We also provide information technology services to the travel industry, primarily airline internal reservation systems, flight operations technology and software development.

Our business is highly dependent upon the air travel industry. During the first half of 2003, travel booking volumes were significantly depressed industry wide, affected primarily by the war and on-going conflict in Iraq and concerns over severe acute respiratory syndrome, or SARS. Our leading position in processing online travel transactions provided for growth in our business during the second half of 2003. The recovery that we saw in travel transactions beginning late in the second quarter of 2003 continued during the later part of the year, particularly for our online business. Our relationships with four of the largest online travel agencies in the world have positioned us well to take advantage of the continuing shift to the online travel agency channel, where we have a higher market share. In addition, airlines have responded to the difficult operating conditions by offering lower prices on tickets distributed through direct and online channels, resulting in an increase in airline travel transactions generated through online travel agencies relative to traditional travel agencies. We believe our strong position in the online travel agency channel has allowed us to increase our airline transactions market share, despite the decrease in the number of total transactions since the beginning of 2001. Total transactions for the six months ended June 30, 2004, including airline and hospitality and destination services, were up 8.4% compared to the same period in 2003.

As a result of the market conditions and industry pressures described above, we took steps to reduce our operating expenses. For example, effective December 31, 2003, we froze all further benefit accruals under our defined benefit pension plan. In addition, we restructured our medical benefits in the first 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 limited grandfathered group of employees. We anticipate that these changes to our employee benefits will result in cost savings in 2004. During the first quarter of 2004, we also

renegotiated our network and communication contracts with our primary providers. We anticipate that these new agreements will result in reduced telecommunication charges during 2004. We have also recently renegotiated our technology agreement with IBM and our headquarters office lease, which we expect to reduce our costs, as well. Each of these steps has started to generate cost savings which are expected to continue in future years; however, the actual amount of our ongoing expenses may ultimately be impacted by future changes in healthcare and technology costs and usage, which we are unable to predict.

We depend upon a relatively small number of airlines and online travel agencies for a significant portion of our revenues. Our five largest airline relationships represented an aggregate of approximately 52% and 54% of our total revenues for the twelve months ended June 30, 2004 and December 31, 2003, respectively, while our top ten largest airline relationships represented an aggregate of approximately 64% and 66% of our total revenues for the twelve months ended June 30, 2004 and December 31, 2003, respectively. Our relationships with four online travel agencies, Expedia, Hotwire, Orbitz and Priceline, represented 45% of our total transactions during the twelve months ended June 30, 2004. We expect to continue to depend upon a relatively small number of airlines and online travel agencies for a significant portion of our revenues.

Supplier Content and Transaction Fees

During the five-year period ending December 31, 2003, we increased the transaction fees we collect from our airline suppliers, which pay a substantial portion of our transaction fees. We anticipate that this historic trend of annual transaction fee increases could be reduced in the future due to our plan to enter into fare content agreements with major airlines. For instance, we have recently entered into fare content agreements with Continental Airlines, Delta, Northwest, United Air Lines and US Airways. Generally, in these agreements, the airlines commit (subject to the exceptions contained in the agreements) to provide the traditional and online travel agencies covered by the agreements in the territories covered by the agreements with substantially the same fare content it provides to the travel agency subscribers of other GDSs (including web fares) in exchange for payments from us to each airline and subject to us keeping steady the average transaction fees paid by each airline for travel agency transactions in the territories covered by the agreements. In addition, pursuant to these agreements, each airline has agreed, among other things, to commit to the highest level of participation in our GDS. Subject to termination rights, these obligations continue until late 2005 (in the case of US Airways) or 2006 (with respect to the other contracted airlines). Further, in February 2004, we executed a three-year fare content agreement with British Airways to provide access to virtually all of their published fares (including web fares) to some of our U.K. travel agencies. We expect that these fare content agreements will provide our travel agencies in the territories covered by the agreements with access to improved content concerning the flights and fares of the participating airlines and other forms of non-discriminatory treatment. We believe that obtaining similar fare content from our other major airline travel suppliers is important to our ability to compete, since other GDSs have also entered into fare content agreements with various airlines. Consequently, we plan to pursue agreements similar to these fare content agreements 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 which we expect will reduce our revenues.

Channel Shift

An increasing number of travel transactions are being made online. During the twelve months ended June 30, 2004, airline transactions generated through online travel agencies accounted for approximately 29% of all airline transactions in the United States processed by a GDS, up from approximately 28% in 2003, approximately 23% in 2002 and approximately 17% in 2001. Between 2001 and 2003, the number of airline transactions in the United States generated through online travel agencies and processed by us increased at a compound annual growth rate of 24.3%. We believe that this shift to online travel agency bookings will continue, but the extent and pace of the shift is difficult to anticipate. Other industry developments, such as Expedia’s announcement that it intends to move a portion of its transactions to another GDS provider, compound our difficulty in forecasting the growth of our transactions from online travel agencies. We typically pay a higher inducement per transaction to our large online travel agency customers than our traditional agencies. Accordingly, as we continue to experience significant channel shift, we expect our inducements cost to continue to grow and direct costs related to supporting traditional travel agencies to continue to decline.

Since 2001, the combination of channel shift, declines in the global economy, terrorist actions and threats, wars in Afghanistan and Iraq, and health concerns over SARS has resulted in annual declines in transactions generated by traditional travel agencies. As a result of these declines, we have completed restructuring activities in 2001, 2002, 2003, and 2004 which have largely been focused on reducing the operating costs associated with servicing traditional travel agencies in areas such as labor, network, agency hardware, and advertising.

Uncertainty in Transaction Volumes from Online Travel Agencies

Although we have historically processed most of the airline transactions for our online travel agencies, these agencies may move a portion of their business to other technologies and technology providers, subject to some contractual limitations. For example, Expedia has announced that it intends to move a portion of its transactions to another GDS provider. In connection with the Acquisition, we recorded an intangible asset related to online 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 June 30, 2004 was $30.8 million. Upon determination of the specific volumes, percentage of volumes or timing relating to Expedia’s announced agreement with Sabre, we will further assess the impact, if any, on our overall financial condition as prescribed by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. In addition, Orbitz has developed direct connections with travel suppliers which bypass our GDS.

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

Neutrality

We do not own an online travel agency. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. Given the highly competitive nature of the travel agency business, we believe our customers value our neutrality. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies.

FASA Credits

Pursuant to the terms of our founder airline services agreements, or FASAs, we provide FASA credits to Delta and Northwest to be applied against FASA service fee payments due from these airlines to us. The FASA credits are structured and will be applied through June 2012 in scheduled monthly installments up to an aggregate total of approximately $108.3 million to each of Delta and Northwest as of June 30, 2004, and are reflected as reductions of FASA revenue in the corresponding periods. In the event that the monthly FASA credits deliverable by us to Delta or Northwest are more than the FASA service fee payments due from the applicable airline, then we will be obligated to pay such excess to such airline in cash. In connection with a proposed initial public offering by WTI of shares of its common stock, we recently entered into amendments of our FASAs with Delta and Northwest to provide that the FASA credits will terminate upon the closing of an initial public offering of WTI’s common stock with gross proceeds above $200 million on or before September 30, 2004, in exchange for a one-time payment from us to each of Delta and Northwest of approximately $77 million. The one-time payments would be capitalized and amortized as a reduction of FASA revenue in the corresponding periods. On June 29, 2004, WTI announced that it had elected to postpone the previously announced offering. The FASA credits are described in additional detail under the heading “Liquidity and Capital Resources.”

Impacts of the Acquisition

We were initially founded by Delta, Northwest and TWA. Although we were owned by Delta, Northwest and American (as successor of TWA) since our inception until the Acquisition, we operated as an autonomous entity during that time. The expenses reflected in our historical financial statements do not reflect any allocation of overhead costs incurred by our founding airlines. For the periods following the Acquisition, our expenses changed as a result of the purchase accounting treatment of the Acquisition and the costs associated with financing the Acquisition. Under the rules of purchase accounting, we adjusted the value of our assets and liabilities to their respective estimated fair values, and any excess of the purchase price over the fair market value of the net assets acquired was allocated to goodwill. As a result of these adjustments to our asset basis, our depreciation and amortization expenses increased. In addition, for the periods following the Acquisition, our revenues have been affected by the accounting treatment of our obligation to provide FASA credits and make FASA credit payments under the FASAs with Delta and Northwest. These payments are accounted for as a reduction to our gross information technology services revenues.

Business Segment Summary

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

• Electronic travel distribution revenues are generated by charging a fee per transaction, which is generally paid by the travel supplier, based upon the number of transactions involved in the booking. We record and charge one transaction for each segment of an air travel itinerary (e.g., four transactions for a round-trip airline ticket with one connection each way). We record and charge one transaction for each car rental, hotel, cruise or tour company booking, regardless of the length of time associated with the booking. Fees paid by travel suppliers vary according to the levels of functionality at which they can participate in our GDS. These levels of functionality generally depend upon the type of communications and real-time access allowed with respect to the particular travel supplier’s internal systems. Revenues are based on the volume of transactions and are not dependent on the revenue earned by the supplier for that booking. We recognize revenue for airline travel transactions in the month the transactions are processed, net of cancellations processed in that month. Revenues for other types of travel transactions are recognized at the time the booking is used by the traveler. Although the substantial majority of our electronic travel distribution revenues are derived from transaction fees paid by travel suppliers, we have an agreement with Hotwire which does not follow this traditional business model. Under our agreement with Hotwire, we generally derive revenues from a service fee payable by Hotwire (rather than the travel supplier) based upon the number of travel transactions booked.

• Information technology services revenues are generated by charging a fee for hosting travel supplier inventory, reservations, flight operations and other computer applications within our data center and by providing software development and maintenance services on those applications. Fees paid by travel suppliers are generally based upon the volume of messages processed on behalf of the travel supplier or software development hours performed on the travel supplier’s applications. In some cases, we charge fees for access to and usage of certain of our proprietary applications on a per transaction basis. Revenues for information technology services are recognized in the month that the services are provided and are recorded net of the value of the FASA credits earned by Delta and Northwest in the corresponding month.

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

• Cost of electronic travel distribution revenues consists primarily of inducements paid to travel agencies, technology development and operations personnel, software costs, network costs, hardware leases, maintenance of computer and network hardware, the data center building, help desk and other travel agency support headcount. As our transactions from online travel agencies increase as a percent of our total transactions, we incur additional inducement and technology costs due to the average inducement paid to our large on-line customers typically exceeding the average inducement that we pay to traditional travel agencies

and due to a higher volume of messages processed per transaction in the online channel compared to traditional travel agency transactions. Cost of information technology services revenues consists primarily of technology development and operations personnel, software costs, network costs, hardware leases, depreciation of computer hardware and the data center building, amortization of capitalized software and maintenance of computer and network hardware.

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

Critical Accounting Policies

There have been no material changes to our critical accounting policies from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2004.

Results of Operations

The following table shows information derived from our consolidated statements of operations for the three and six months ended June 30, 2004 and 2003 expressed as a percentage of revenue for the periods presented.

	Successor Basis		Predecessor Basis		Successor Basis		Predecessor Basis
	Three months ended June 30, 2004		Three months ended June 30, 2003		Six months ended June 30, 2004		Six months ended June 30, 2003

Revenues:
Electronic travel distribution	93.4	%	89.2	%	93.5	%	88.8	%
Information technology services	6.6		10.8		6.5		11.2
Total revenues	100.0		100.0		100.0		100.0
Operating expenses:
Cost of revenues excluding developed technology amortization	69.7		73.6		69.1		71.5
Developed technology amortization	2.2		1.5		2.2		1.6
Total cost of revenues	71.9		75.1		71.3		73.1
Selling, general and administrative expenses	11.9		15.4		13.2		16.3
Amortization of intangible assets	3.7		—		3.7		—
Total operating expenses	87.5		90.5		88.2		89.4
Operating income	12.5		9.5		11.8		10.6
Total other expense, net	(3.8	)	(8.2	)	(4.1	)	(4.5	)
Income before provision for income taxes	8.7		1.3		7.7		6.1
Income tax expense	—		—		0.1		—
Net income	8.7	%	1.3	%	7.6	%	6.1	%

Comparison of Three Months Ended June 30, 2004 and June 30, 2003

Revenues

Total revenues were $248.8 million for the three months ended June 30, 2004, a $15.7 million or 6.7% increase from the three months ended June 30, 2003 revenues of $233.1 million. This increase was primarily attributable to higher average fees per transaction and an increase in the volume of transactions processed during the second quarter of 2004 when compared to the same period in the prior year.

Electronic travel distribution revenues were $232.5 million for the three months ended June 30, 2004, a $24.5 million or 11.8% increase from the three months ended June 30, 2003 revenues of $208.0 million. The increase in revenues was largely attributable to a 4.8% higher average fee per transaction coupled with a 1.7 million or 3.9% increase in transactions generated from air travel suppliers during the period. The increase was also attributable to a 3.0% higher average fee per transaction coupled with a 0.6 million or 12.4% increase in the volume of car and hotel transactions processed.

Information technology services revenues were $16.3 million for the three months ended June 30, 2004, an $8.8 million or 35.1% decrease from the three months ended June 30, 2003 revenues of $25.1 million. The decrease was primarily driven by $8.3 million of FASA credits, which are provided under the terms of the FASAs, and a reduction in certain operating expenses which are passed through to customers on a cost-plus basis.

Cost of Revenues Excluding Developed Technology Amortization

Cost of revenues excluding developed technology amortization was $173.4 million for the three months ended June 30, 2004, a $1.8 million increase from the three months ended June 30, 2003 cost of revenues of $171.6 million. Cost of revenues excluding developed technology amortization as a percentage of total revenues decreased to 69.7% for the three months ended June 30, 2004 compared to 73.6% for the three months ended June 30, 2003. This decrease was primarily driven by lower employee costs, network costs, software expenses and depreciation on hardware provided to traditional travel agencies, partially offset by higher inducements paid to travel agencies.

Cost of electronic travel distribution revenues excluding developed technology amortization was $151.9 million for the three months ended June 30, 2004, a $3.0 million or 2.0% increase from the three months ended June 30, 2003 cost of electronic travel distribution revenues excluding developed technology amortization of $148.9 million. Cost of electronic travel distribution revenues excluding developed technology amortization as a percentage of total revenues decreased to 61.1% for the three months ended June 30, 2004 compared to 63.9% for the three months ended June 30, 2003. This decrease was primarily driven by a 20.7% decline in employee costs, a 27.7% reduction in network and communication charges, a 36.3% decrease in software costs and a 12.5% reduction in depreciation, principally on hardware provided to traditional travel agencies, which was partially offset by a 26.1% increase in inducements paid to travel agencies. Employee costs declined as a result of the April 2003 workforce reductions. In addition, as part of a cost savings initiative, we reduced the salaries of U.S. and Canada employees by 5%, which was effective May 1, 2003. We also froze all further benefit accruals under the defined benefit pension plan effective December 31, 2003, which reduced the pension benefits net periodic costs during the three months ended June 30, 2004. Network costs decreased due to migration of customers to Internet-based products rather than dedicated circuits. In addition, during the first quarter of 2004, we renegotiated our network and communication contracts with our primary providers. Software expenses decreased as a result of our exercising our right to terminate agreements with two technology providers, for which there was no corresponding charge during the three months ended June 30, 2004. Depreciation on hardware provided to traditional travel agencies decreased during the period due to the decrease in capital expenditures for this type of hardware. As traditional travel agencies purchase their own equipment, our need to continue this capital expenditure decreases. Inducements grew due to the growth in transaction volumes and the continuing shift toward online travel agency transactions, which tend to have higher inducement costs than traditional travel agency transactions.

Cost of information technology services revenues excluding developed technology amortization was $21.5 million or 8.7% of total revenues for the three months ended June 30, 2004, a $1.2 million or 5.3% decrease from the three months ended June 30, 2003 cost of information technology revenues excluding developed technology amortization of $22.7 million or 9.7% of total revenues. This decrease was primarily driven by the reduced costs attributable to the hosting operations for Delta and Northwest.

Developed Technology Amortization

Developed technology amortization was $5.5 million or 2.2% of total revenues for the three months ended June 30, 2004, a $2.1 million or 62.1% increase from the three months ended June 30, 2003 developed technology amortization of $3.4 million or 1.5% of total revenues. This increase was a result of the Acquisition. Purchase accounting requires intangible assets to be recorded at their fair value and amortized over their estimated useful lives.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $29.6 million or 11.9% of total revenues for the three months ended June 30, 2004, a $6.3 million or 17.5% decrease from the three months ended June 30, 2003 selling, general and administrative expenses of $35.9 million or 15.4% of total revenues. The decrease was primarily driven by a restructuring charge of $4.6 million recorded during the three months ended June 30, 2003, for which there was no corresponding charge during the three months ended June 30, 2004. The 2003 workforce reduction, which affected approximately 200 employees, was a result of decreased travel, and related booking volumes, caused by several factors including the war in Iraq, concerns over SARS and the weakened economy. The $4.6 million charge included $4.0 million for the electronic travel distribution segment and $0.6 million for the information technology services segment. The annual labor costs represented by the employees terminated in the 2003 workforce reduction was approximately $11.1 million. We expect that the 2003 workforce reduction will decrease our labor costs in the future, although other factors, including any future expansion of our workforce, will also impact our ongoing labor costs.

Amortization of Intangible Assets

Amortization of intangible assets was $9.1 million or 3.7% of total revenues for the three months ended June 30, 2004, a $9.1 million increase from the three months ended June 30, 2003. This increase was a result of the Acquisition. Purchase accounting requires intangible assets to be recorded at their fair value and amortized over their estimated useful lives.

Operating Income

Operating income was $31.1 million for the three months ended June 30, 2004, an $8.8 million or 39.8% increase from the three months ended June 30, 2003 operating income of $22.3 million. Operating income as a percentage of total revenues increased to 12.6% for the three months ended June 30, 2004 compared to 9.5% in the three months ended June 30, 2003. The increase in operating income primarily resulted from an 11.0% increase in electronic travel distribution revenues, a 20.7% decrease in employee costs, a 27.7% decrease in network costs and a 36.3% decrease in software costs, partially offset by a 26.1% increase in inducements paid to travel agencies and increased amortization of the fair value of amortizing intangible assets as a result of the Acquisition.

Net Interest Expense

Net interest expense was $10.0 million for the three months ended June 30, 2004, a $8.8 million increase from the three months ended June 30, 2003 net interest expense of $1.2 million. This increase in net interest expense was primarily due to the interest expense associated with the debt issued in connection with the Acquisition.

Income Tax Expense

Income tax expense attributable to foreign jurisdictions was $0.1 million for the three months ended June 30, 2004, consistent with the three months ended June 30, 2003 income tax expense of $0.1 million. As a limited partnership, we have historically not been subject to federal and state income taxes in the United States.

Net Income

Net income was $21.5 million for the three months ended June 30, 2004, an $18.4 million increase from the three months ended June 30, 2003 net income of $3.1 million. This increase was primarily as a result of a $8.9 million increase in operating income and a $17.3 million change-in-control expense recorded during the three months ended June 30, 2003, for which there was no corresponding charge during the three months ended June 30, 2004. These amounts were partially offset by an $8.8 million increase in net interest expense associated with the debt issued in connection with the Acquisition.

Comparison of Six Months Ended June 30, 2004 and June 30, 2003

Revenues

Total revenues were $497.3 million for the six months ended June 30, 2004, a $29.8 million or 6.4% increase from the six months ended June 30, 2003 revenues of $467.5 million. This increase was primarily attributable to higher average fees per transaction and an increase in the volume of transactions processed during the first six months of 2004 when compared to the same period in the prior year.

Electronic travel distribution revenues were $465.0 million for the six months ended June 30, 2004, a $50.1 million or 12.1% increase from the six months ended June 30, 2003 revenues of $414.9 million. The increase in revenues was largely attributable to a 4.3% higher average fee per transaction coupled with a 6.3 million or 7.1% increase in transactions generated from air travel suppliers during the period. The increase was also attributable to a 2.8% higher average fee per transaction coupled with a 1.0 million or 11.1% increase in the volume of car and hotel transactions processed.

Information technology services revenues were $32.3 million for the six months ended June 30, 2004, a $20.2 million or 38.5% decrease from the six months ended June 30, 2003 revenues of $52.5 million. The decrease was primarily driven by $16.7 million of FASA credits, which are provided under the terms of the FASAs, and a reduction in certain operating expenses which are passed through to customers on a cost-plus basis.

Cost of Revenues Excluding Developed Technology Amortization

Cost of revenues excluding developed technology amortization was $343.8 million for the six months ended June 30, 2004, a $9.3 million increase from the six months ended June 30, 2003 cost of revenues excluding developed technology amortization of $334.5 million. Cost of revenues excluding developed technology amortization as a percentage of total revenues decreased to 69.1% for the six months ended June 30, 2004 compared to 71.5% for the six months ended June 30, 2003. This decrease was primarily driven by lower employee costs, network costs, software expenses and depreciation on hardware provided to traditional travel agencies, partially offset by higher inducements paid to travel agencies.

Cost of electronic travel distribution revenues excluding developed technology amortization was $300.8 million for the six months ended June 30, 2004, a $12.7 million or 4.4% increase from the six months ended June 30, 2003 cost of electronic travel distribution revenues excluding developed technology amortization of $288.1 million. Cost of electronic travel distribution revenues excluding developed technology amortization as a percentage of total revenues decreased to 60.5% for the six months ended June 30, 2004 compared to 61.6% for the six months ended June 30, 2003. This decrease was primarily driven by a 21.5% decline in employee costs, a 23.6% reduction in network and communication charges, a 22.6% decrease in software costs and a 22.8% reduction in depreciation, principally on hardware provided to traditional travel agencies, which was partially offset by a 27.8% increase in inducements paid to

travel agencies. Employee costs declined as a result of the April 2003 workforce reductions. In addition, as part of a cost savings initiative, we reduced the salaries of U.S. and Canada employees by 5%, which was effective May 1, 2003. We also froze all further benefit accruals under the defined benefit pension plan effective December 31, 2003, which reduced the pension benefits net periodic costs during the six months ended June 30, 2004. Network costs decreased due to migration of customers to Internet-based products rather than dedicated circuits. In addition, during the first quarter of 2004, we renegotiated our network and communication contracts with our primary providers. Software expenses decreased as a result of our exercising our right to terminate agreements with two technology providers, for which there was no corresponding charge during the six months ended June 30, 2004. Depreciation on hardware provided to traditional travel agencies decreased during the period due to the decrease in capital expenditures for this type of hardware. As traditional travel agencies purchase their own equipment, our need to continue this capital expenditure decreases. Inducements grew due to the growth in transaction volumes and the continuing shift toward online travel agency transactions, which tend to have higher inducement costs than traditional travel agency transactions.

Cost of information technology services revenues excluding developed technology amortization was $43.0 million or 8.7% of total revenues for the six months ended June 30, 2004, a $3.4 million or 7.3% decrease from the six months ended June 30, 2003 cost of information technology revenues excluding developed technology amortization of $46.4 million or 9.9% of total revenues. This decrease was primarily driven by the reduced costs attributable to the hosting operations for Delta and Northwest.

Developed Technology Amortization

Developed technology amortization was $11.0 million or 2.2% of total revenues for the six months ended June 30, 2004, a $3.6 million or 48.6% increase from the six months ended June 30, 2003 developed technology amortization of $7.4 million or 1.6% of total revenues. This increase was a result of the Acquisition. Purchase accounting requires intangible assets to be recorded at their fair value and amortized over their estimated useful lives.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $65.8 million or 13.2% of total revenues for the six months ended June 30, 2004, a $10.3 million or 13.5% decrease from the six months ended June 30, 2003 selling, general and administrative expenses of $76.1 million or 16.3% of total revenues. The decrease was driven by a 73.2% reduction in advertising and promotional activities and a restructuring charge of $4.6 million recorded during the six months ended June 30, 2003, an increase of $3.3 million from the restructuring charge of $1.3 recorded during the six months ended June 30, 2004. The 2003 workforce reduction, which affected approximately 200 employees, was a result of decreased travel, and related booking volumes, caused by several factors including the war in Iraq, concerns over SARS and the weakened economy. The $4.6 million charge included $4.0 million for the electronic travel distribution segment and $0.6 million for the information technology services segment. The annual labor costs represented by the employees terminated in the 2003 workforce reduction was approximately $11.1 million. We expect that the 2003 workforce reduction will decrease our labor costs in the future, although other factors, including any future expansion of our workforce, will also impact our ongoing labor costs.

Amortization of Intangible Assets

Amortization of intangible assets was $18.3 million or 3.7% of total revenues for the six months ended June 30, 2004, a $18.3 million increase from the six months ended June 30, 2003. This increase was a result of the Acquisition. Purchase accounting requires intangible assets to be recorded at their fair value and amortized over their estimated useful lives.

Operating Income

Operating income was $58.5 million for the six months ended June 30, 2004, a $9.0 million or 18.2% increase from the six months ended June 30, 2003 operating income of $49.5 million. Operating income as a percentage of total revenues increased to 11.8% for the six months ended June 30, 2004 compared to 10.6% in the six months ended June 30, 2003. The increase in operating income primarily resulted from an 11.7% increase in electronic travel distribution

revenues, a 21.5% decrease in employee costs, a 23.6% decrease in network costs and a 22.6% decrease in software costs, partially offset by a 27.8% increase in inducements paid to travel agencies and increased amortization of the fair value of amortizing intangible assets as a result of the Acquisition.

Net Interest Expense

Net interest expense was $20.7 million for the six months ended June 30, 2004, an $18.3 million increase from the six months ended June 30, 2003 net interest expense of $2.4 million. This increase in net interest expense was primarily due to the interest expense associated with the debt issued in connection with the Acquisition.

Income Tax Expense

Income tax expense attributable to foreign jurisdictions was $0.3 million for the six months ended June 30, 2004, a $0.2 million increase from the six months ended June 30, 2003 income tax expense of $0.1 million. As a limited partnership, we have historically not been subject to federal and state income taxes in the United States.

Net Income

Net income was $37.7 million for the six months ended June 30, 2004, a $9.3 million increase from the six months ended June 30, 2003 net income of $28.4 million. This increase was primarily as a result of a $9.0 million increase in operating income and a $17.3 million change-in-control expense recorded during the six months ended June 30, 2003, for which there was no corresponding charge during the six months ended June 30, 2004. These amounts were partially offset by an $18.3 million increase in net interest expense associated with the debt issued in connection with the Acquisition.

Liquidity and Capital Resources

Our principal source of liquidity will be cash flow generated from operations and borrowings under our senior credit facility. Our principal uses of cash will be to meet debt service requirements, finance our capital expenditures, make any FASA credit payments and provide working capital. Based on our current level of operations, we believe that our cash flow from operations, available cash and available borrowings under our senior credit facility will be adequate to meet our future liquidity needs for at least the next 12 months, although no assurance can be given. Our future operating performance and ability to extend or refinance our indebtedness will be dependent on future economic conditions and financial, business and other factors that are beyond our control. We have historically generated significant cash flow from operations. During the fourth quarter of 2003 and the first half of 2004, we used this cash flow to prepay an aggregate of $45.0 million of our term loan in addition to the mandatory repayment schedule.

At June 30, 2004, we had cash and cash equivalents of $73.5 million and working capital of $0.3 million as compared to $43.9 million in cash and cash equivalents and working capital of ($20.1) million at June 30, 2003. The $20.4 million increase in working capital and the $29.6 million increase in cash were primarily the result of increases in net income.

Historically, we have funded our operations through internally generated cash. We generated cash from operating activities of $90.4 million and $41.0 million for the six months ended June 30, 2004 and 2003, respectively. The $49.4 million increase in cash provided by operating activities during the first six months of 2004 as compared to the first six months of 2003 primarily resulted from a $9.3 million increase in net income, a $18.4 million increase for changes in operating assets and liabilities and an increase in non-cash charges of $21.8 million.

We used cash for investing activities of approximately $8.0 million and $5.2 million in the six months ended June 30, 2004 and 2003, respectively. The increase in cash used for investing activities during the first six months of 2004 as compared to the first six months of 2003 primarily resulted from increased purchases of computer hardware.

We used cash for financing activities of approximately $52.7 million and $124.0 million in the six months ended June 30, 2004 and 2003, respectively. The decrease in cash used for financing activities during the first six months of 2004 as compared to the first six months of 2003 primarily resulted from a $110.0 million decrease in distributions to our founding airlines, partially offset by $38.3 million of payments associated with the senior credit facility.

Senior Credit Facility

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

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

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

We borrowed $125.0 million under the term loan facility in connection with the Acquisition. The revolving credit facility is available for working capital and general corporate needs.

Obligations under the senior credit facility and the guarantees are secured by:

• a perfected first priority security interest in all of our tangible and intangible assets and all of the tangible and intangible assets of WTI and each of its direct and indirect domestic subsidiaries and certain foreign subsidiaries, subject to customary exceptions, and

• a pledge 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 foreign subsidiaries and (iv) 65% of the capital stock of other of our first-tier foreign subsidiaries.

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

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

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

The initial applicable margin for the base rate revolving loans is 2.75% and the applicable margin for the euro revolving loans is 3.75%. The applicable margin for the loans is subject to reduction based upon the ratio of our consolidated total bank debt to consolidated EBITDA. We are also required to pay a commitment fee of 0.50% per annum on the difference between committed amounts and amounts actually utilized under the revolving credit facility. Fees for letters of credit are based on the face amount of each letter of credit outstanding under the senior credit facility multiplied by to the applicable margin for LIBOR borrowings under the revolving credit facility and are payable quarterly in arrears. In addition, we must pay each letter of credit bank a fronting fee to be determined based upon the face amount of all outstanding letters of credit issued by it.

Total cash principal and interest payments related to the $125.0 million borrowed under the term loan facility portion of our senior credit facility were $11.3 million and $1.5 million, respectively, for the three months ended June 30, 2004. The remaining principal payment schedules will require payments over a four-year period for the term loan, totaling to the following principal payments: $2.5 million in 2004, $15.7 million in 2005, $15.7 million in 2006 and $40.8 million in 2007.

The senior credit facility requires us to meet financial tests, including without limitation, a minimum fixed charge coverage ratio, a minimum interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. The minimum fixed charge ratio will be 1.00 to 1.00 until the end of the second quarter of 2005 and will be 1.10 to 1.00 thereafter. The minimum interest coverage ratio will be 2.15 to 1.00 until the end of the second quarter of 2005 and will increase to 3.00 to 1.00 by the end of the term of the senior credit facility. The maximum senior secured leverage ratio will be 1.65 to 1.00 through the second quarter of 2004 and will decrease to 1.00 to 1.00 by the end of the term of the senior credit facility. The maximum total leverage ratio will be 3.85 to 1.00 until the end of the second quarter of 2004 and will decrease 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 of other indebtedness, liens and encumbrances and other matters customarily restricted in a senior credit facility. As of June 30, 2004, we were in compliance with these covenants.

95/8% Senior Notes Due 2011

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

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

The notes are unsecured senior obligations, are equal in right of payment to all of our existing and future unsecured senior debt, and are senior in right of payment to all of our future subordinated debt. The notes are guaranteed by each subsidiary guarantor (as defined in the indenture governing the notes).

If we experience a change of control (as defined in the indenture governing the notes), each holder of notes may require us to repurchase all or any portion of the holder’s notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest to the date of purchase.

The indenture governing the notes contains certain covenants that, among other things, limit (i) the incurrence of additional debt by us and certain 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 June 30, 2004, we were in compliance with these covenants. The indenture also prohibits certain restrictions on distributions from certain subsidiaries.

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

Capital Lease Obligations

We lease equipment and software under capital lease obligations. As of June 30, 2004, our obligations under capital leases totaled $81.4 million. The interest rate used in computing the present value of the minimum lease payments ranges from approximately 4.0% to 12.0% depending on the asset being leased.

Subordinated Notes

As part of the Acquisition, WTI issued to American and Delta subordinated seller notes in the original principal amounts of $39.0 million and $45.0 million, respectively. The subordinated seller notes mature on July 31, 2012; provided that to the extent that any portion of the subordinated seller notes are not prepaid by WTI by June 30, 2011, a 5% premium will be payable by WTI on the outstanding principal amount and accrued and unpaid interest thereon which is prepaid or repaid following June 30, 2011 at the time of such prepayment or repayment. The subordinated seller notes are unsecured obligations of WTI, are not our debt obligations and are contractually and structurally subordinated to our

senior notes and our senior credit facility and structurally subordinated to all of our other debt. The subordinated seller note originally issued to American bears interest at an annual rate equal to 12.0% and the subordinated seller note originally issued to Delta bears interest 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 credit facility, the indenture governing our senior notes and other permitted senior debt and continue to maintain a fixed charge coverage ratio (as defined in the indenture) of 2.25x or better, WTI will pay interest equal to 5% of the then outstanding principal amount of the subordinated seller notes in cash, with the remaining interest payable in cash or 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 in kind. While the subordinated seller notes are not our debt obligations, so long as we are not in default under, and are in compliance with all financial covenants of, our senior credit facility and the indenture governing our senior notes and continue to maintain a fixed charge coverage ratio (as defined in the indenture) of 2.25x or better, we will be permitted to distribute funds to WTI sufficient to pay the 5% cash interest component of the subordinated seller notes. During the six months ended June 30, 2004, we distributed $2.2 million to WTI for this purpose.

FASAs

Pursuant to the terms of the FASAs, we provide FASA credits to Delta and Northwest to be applied against FASA service fee payments due from these airlines to us. The FASA credits are structured and will be applied through June 2012 in an amount up to an aggregate total of approximately $108.3 million to each of Delta and Northwest as of June 30, 2004, and are reflected as reductions to our FASA revenues in the corresponding periods. The FASA credits are provided to Delta and Northwest in monthly installments, with an annual amount of $16.7 million scheduled to be provided to each of these founding airlines during the first six years of the respective FASA term, an annual amount of $9.2 million scheduled to be provided to each of these founding airlines during the seventh and eighth years of the respective FASA term and an annual amount of $6.7 million scheduled to be provided to each of these founding airlines during the ninth year of the respective FASA term. In the event that the monthly FASA credits deliverable by us to Delta or Northwest are more than the FASA service fee payments due from the applicable airline, then we will be obligated to pay such excess to such airline in cash. In connection with a proposed initial public offering by WTI of shares of its common stock, we recently entered into amendments of our FASAs with Delta and Northwest to provide that the FASA credits will terminate upon the closing of an initial public offering of WTI’s common stock with gross proceeds above $200 million on or before September 30, 2004, in exchange for a one-time payment from us to each of Delta and Northwest of approximately $77 million. The one-time payments would be capitalized and amortized as a reduction of FASA revenue in the corresponding periods. On June 29, 2004, WTI announced that it had elected to postpone the previously announced offering.

Delta or Northwest may terminate its FASA due to a failure by us to satisfy the mainframe processing time, system availability or critical production data performance standards under that agreement (which represent performance standards which we have historically met under our predecessor services agreements with Delta and Northwest). Furthermore, such a termination by Delta or Northwest of its FASA will constitute an event of default under our senior credit facility and may constitute a default under any other of our future senior credit facilities. In the event that the event of default is waived by the applicable lenders under our senior credit facilities (as defined in the subordination agreement executed by the founding airlines) or our senior credit facilities are no longer outstanding, then any remaining FASA credits deliverable by us to the terminating airline will not be provided according to the initial eight-year schedule specified above and will instead be payable in cash to such airline as and when, and only to the extent that, we are permitted to make such payments as “Restricted Payments” under the restricted payment covenant test contained in the indenture governing our senior notes. If a FASA is otherwise terminated in accordance with its terms prior to the expiration of its term, such as a termination by either Delta or Northwest without cause, or is rejected by Delta or Northwest in bankruptcy, then the obligation to provide the remaining FASA credits or to make the remaining FASA credit payments then deliverable or payable to the airline under the applicable FASA will terminate. Our obligations to provide FASA credits or to make the FASA credit payments will not terminate if either or both of Delta and Northwest reduce or cease operations in a way that reduces or eliminates the amount of airline services either founding airline obtains under the FASAs, although an airline’s failure to comply with its software development minimum and exclusivity obligations would constitute a breach of its agreement. If we terminate a FASA other than as expressly permitted by the agreement, then we will be obligated to provide the scheduled FASA credits to the applicable airline by way of a monthly

cash payment rather than applying the FASA credits against FASA service fee payments due from the airline. In the event that the monthly FASA credits deliverable by us to Delta or Northwest are more than the FASA service fee payments due from the applicable airline, then we will be obligated to pay such excess to such airline in cash. In the event of our bankruptcy or insolvency, holders of our senior debt (as defined in the subordination agreement executed by the founding airlines), including the senior notes, will be entitled to receive payment in full in cash before we may make any FASA credit payments in cash. In that event, Delta and Northwest will, however, retain their rights to apply the scheduled FASA credit payments against their obligations to pay us fees for our services under the FASAs. In the event that we wrongfully terminate a FASA, we will remain obligated to deliver the FASA credits to the applicable airline by paying the credit amounts to the applicable airline in cash on a monthly basis according to the eight-and-a-half-year schedule described above. However, if we reject a FASA in a bankruptcy of the company, our FASA credit payment obligations to the applicable airline will match the obligations described above in a termination of a FASA by such airline due to our failure to satisfy performance standards. Any FASA credit payment obligations by us to an airline in such a bankruptcy will be subordinated to our senior debt (as defined in the subordination agreement executed by the founding airlines), including the senior notes.

Taxes

Because we are a limited partnership, our partners will owe taxes on all of the income that we generate in the United States. We expect that WTI will cause us to make distributions to it from time to time sufficient to cover all income taxes owed by WTI. Under the terms of our senior credit facility and the indenture governing our senior notes, we are specifically permitted to make these tax distributions.

Capital Expenditures

Capital expenditures for property and equipment, including both purchased assets and assets acquired under capital leases, as well as capitalized software, totaled $29.3 million for the six months ended June 30, 2004, an increase of $8.0 million from capital expenditures of $22.8 million for the six months ended June 30, 2003. We have forecasted approximately $54.5 million for capital expenditures in 2004. Of that amount, approximately $19.5 million relates to a significant upgrade of mainframe computer equipment at our data center. The upgraded equipment is expected to be in use through June 2008. The remaining $35.0 million represents normal growth in capacity requirements as well as routine replacement of older equipment.

Contractual Obligations

In March 2004, we entered into an agreement to purchase data network services for our U.S. and Canadian offices and travel agency customers that expires in 2007. In addition, the agreement includes voice services for our U.S. and Canadian offices. The minimum commitment over the term of the agreement is $30.0 million

Off-Balance Sheet Arrangements

At June 30, 2004 and December 31, 2003, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk 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 any material effect on our results of operations during the six months ended June 30, 2004 and 2003.

Forward-Looking Statements

Statements in this report and the exhibits hereto which are not purely historical facts, including statements about forecasted financial projections or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within 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 are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements are based upon information available to us on the date this report was submitted. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including, but not limited to, risks or uncertainties related to: the computer reservation system rules of the Department of Transportation; our revenues being highly dependent on the travel and transportation industries; airlines limiting their participation in travel marketing and distribution services; or other changes within the travel industry. We may not succeed in addressing these and other risks.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. Changes in these factors could cause fluctuations in the results of our operations and cash flows. In the ordinary course of business, we are exposed to foreign currency and interest rate risks. These risks primarily relate to the sale of products and services to 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 of our entities. Substantially all of our net sales and the majority of our expenses during the six months ended June 30, 2004 and 2003 were denominated in U.S. dollars. Therefore, foreign currency fluctuations did not materially impact our financial results in those periods. We have foreign currency exposure arising from the translation of our foreign subsidiaries’ financial statements into U.S. dollars. The primary currencies to which we are exposed to fluctuations include the euro and the British pound sterling. The fair value of our net foreign investments would not be materially affected by a 10% adverse change in foreign currency exchange rates from June 30, 2004 levels.

Interest Rate Market Risk

Our senior credit facility is variable rate debt. Interest rate changes therefore generally do not affect the market value of such debt but do impact the amount of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant. As of June 30, 2004, we had variable rate debt of approximately $74.7 million. Holding other variables constant, including levels of indebtedness, a one hundred basis point increase in interest rates on our variable debt would have had an estimated impact on pre-tax earnings and cash flows for the next year of approximately $0.7 million. Under the terms of our senior credit facility, we are required to have at least 50% of our total indebtedness subject to either a fixed interest rate 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 an evaluation, under the supervision and with the participation of the principal executive officer (“CEO”) and principal financial officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, we have received assessments totaling €39.5 million from the tax authorities of Greece and are in the process of filing appeals. There have been no material changes to this matter since our last periodic report.

We are involved in various other litigation proceedings as both plaintiff and defendant. In the opinion of our management, none of these other litigation matters, individually or in the aggregate, if determined adversely to us, would have a material adverse effect on our business, financial condition or results of operations.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

On June 28, 2004, WTI filed an amendment to its certificate of incorporation to effect a reverse stock split of each of WTI’s classes of common stock at a ratio of 1 to approximately 2.80.

ITEM 5. OTHER INFORMATION

Recently, WTI filed a registration statement with the Securities and Exchange Commission relating to a proposed initial public offering of shares of its common stock. WTI indicated in that registration statement that it intended for us to use a portion of the proceeds of the offering to exercise our right under the indenture to redeem up to 35% of the aggregate principal amount of the Senior Notes. WTI also indicated in that registration statement that it intended to use a portion of the proceeds of the offering to redeem the subordinated seller notes and to prepay and terminate the FASA credits payable to Delta and Northwest. On June 29, 2004, WTI announced that it had elected to postpone the proposed offering.

We have filed a registration statement on Form S-1 to register the resale from time to time by an affiliate of CVC of up to $30,000,000 aggregate principal amount of our 9-5/8% Senior Notes due 2011. Under the terms of a registration rights agreement that we, WS Financing Corp. and our subsidiary guarantors entered into with the initial purchasers of our Senior Notes, we were obligated to prepare a registration statement on Form S-1 to register the resale from time to time by an affiliate of CVC of up to $30,000,000 aggregate principal amount of our 9-5/8% Senior Notes due 2011. On August 6, 2004, this registration statement was declared effective by the Securities and Exchange Commission. We will not receive any of the proceeds from the sale of our Senior Notes by the CVC affiliate.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:

10.79		Amendment, dated as of May 12, 2004, to Employment Agreement among Worldspan Technologies Inc., Rakesh Gangwal and Worldspan, L.P. (1)
10.80		Amendment, dated as of May 12, 2004, to Employment Agreement among Worldspan Technologies Inc., M. Gregory O’Hara and Worldspan, L.P. (1)
10.81		Amendment No. 1 to Restricted Stock Subscription Agreement, dated as of June 21, 2004, by and between Worldspan Technologies Inc. and Rakesh Gangwal (1)
10.82		Amendment No. 1 to Restricted Stock Subscription Agreement, dated as of June 21, 2004, by and between Worldspan Technologies Inc. and M. Gregory O’Hara (1)
31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Filed as a like numbered exhibit to our Registration Statement on Form S-1 (File No. 333-115732) and incorporated herein by reference.

Reports on Form 8-K:

Form 8-K filed April 6, 2004 pursuant to Item 5 in connection with our entry, on March 31, 2004, into Amendment 9 to the CRS Marketing, Services and Development Agreement, dated as of March 11, 2004, among the Company and Expedia Inc.

Form 8-K filed May 14, 2004 pursuant to Item 12 in connection with our press release on May 13, 2004 regarding the Company’s financial results for the quarter ended March 31, 2004.

Form 8-K filed May 17, 2004 pursuant to Item 12 in connection with our press release on May 17, 2004 regarding a conference call the Company will be holding to discuss its financial results for the quarter ended March 31, 2004.

Form 8-K filed June 10, 2004 pursuant to Item 5 in connection with the Company’s voluntary prepayment, made on June 10, 2004, of $10,000,000 on the term loan portion of its senior credit facility.

Form 8-K filed June 30, 2004 pursuant to Item 5 in connection with the announcement on June 29, 2004 of Worldspan Technologies Inc. (“WTI”), the parent of Worldspan, L.P., that WTI had elected to postpone the previously announced public offering of its common stock.

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 the undersigned thereunto duly authorized.

	WORLDSPAN, L.P.


August 10, 2004		/s/ Rakesh Gangwal
DATE	By:	Rakesh Gangwal Chairman, President & Chief Executive Officer and Director (principal executive officer)


August 10, 2004		/s/ Michael S. Wood
DATE	By:	Michael S. Wood Senior Vice President and Chief Financial Officer (principal financial and accounting officer)