UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
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 0-22935
PEGASUS SOLUTIONS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 75-2605174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3811 Turtle Creek Boulevard, Suite 1100, Dallas, Texas 75219
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (214) 528-5656
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.
Yes [ X ] No [ ]
The number of shares of the registrant's common stock outstanding as of
August 10, 2000 was 24,380,457.
<PAGE>
PEGASUS SOLUTIONS, INC.
FORM 10-Q
For the Quarter Ended June 30, 2000
INDEX
Page
Part I. Financial Information ----
Item 1. Financial Statements (unaudited)
a) Condensed Consolidated Balance Sheets as of June 30,
2000 and December 31, 1999. 3
b) Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 2000 and 1999 4
c) Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2000 and 1999 5
d) Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except for share amounts)
(Unaudited)
<CAPTION>
June 30, 2000 December 31, 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 34,584 $ 104,616
Restricted cash 3,894 2,929
Short-term investments 1,384 35,283
Accounts receivable, net 36,947 4,854
Other current assets 6,525 2,585
------------ ------------
Total current assets 83,334 150,267
Intangible assets, net 106,939 -
Property and equipment, net 32,561 4,856
Goodwill, net 159,762 2,890
Other noncurrent assets 5,384 5,527
------------ ------------
Total assets $ 387,980 $ 163,540
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 36,885 $ 6,162
Deferred tax liability 15,068 -
Unearned income 11,861 63
Income tax payable 2,208 -
Customer deposits 4,434 384
Current portion of capital lease obligations 405 52
------------ ------------
Total current liabilities 70,861 6,661
Deferred tax liability 21,156 -
Note payable 20,000 -
Other noncurrent liabilities 783 107
Unearned income 550 -
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000
shares authorized; zero shares issued
and outstanding, - -
Common stock, $.01 par value; 50,000,000
shares authorized; 24,552,883 and
20,515,050 shares issued, respectively 246 205
Additional paid-in capital 284,183 156,978
Unearned compensation (262) (442)
Accumulated comprehensive gain (loss) 537 (25)
Retained earnings (deficit) (10,048) 82
Less treasury stock (174,726
shares, at cost) (26) (26)
------------ ------------
Total stockholders' equity 274,630 156,772
------------ ------------
Total liabilities and
stockholders' equity $ 387,980 $ 163,540
============ ============
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 52,364 $ 9,188 $ 63,024 $ 17,561
Cost of services 22,543 2,953 25,974 5,516
Research and development 2,202 618 2,805 1,230
Write-off of purchased in-process
research and development 8,000 - 8,000 -
General and administrative expenses 7,827 1,342 9,732 2,675
Marketing and promotion expenses 9,843 1,709 11,437 2,973
Depreciation and amortization 16,977 559 17,582 1,239
---------- ---------- ---------- ----------
Operating income (loss) (15,028) 2,007 (12,506) 3,928
Other income (expense):
Interest income (expense), net (31) 1,122 1,558 1,633
Write-off of minority interest investment - (1,100) - (1,100)
Other 95 - 95 -
---------- ---------- ---------- ----------
Income (loss) before income taxes (14,964) 2,029 (10,853) 4,461
Income taxes (1,814) 776 (724) 1,707
---------- ---------- ---------- ----------
Net income (loss) $ (13,150) $ 1,253 $ (10,129) $ 2,754
========== ========== ========== ==========
Other comprehensive income - change in
unrealized gain, net of tax 544 - 562 -
---------- ---------- ---------- ----------
Comprehensive income (loss) $ (12,606) $ 1,253 $ (9,567) $ 2,754
========== ========== ========== ==========
Net income (loss) per share:
Basic $ (0.54) $ 0.07 $ (0.46) $ 0.16
========== ========== ========== ==========
Diluted $ (0.54) $ 0.06 $ (0.46) $ 0.15
========== ========== ========== ==========
Weighted average shares outstanding:
Basic 24,157 18,115 22,257 16,995
========== ========== ========== ==========
Diluted 24,157 19,363 22,257 18,399
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
PEGASUS SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
--------------------------
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (10,129) $ 2,754
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 17,582 1,239
Write-off of purchased in-process research
and development 8,000 -
Write-off of minority interest investment - 1,100
Other 518 1,611
Changes in assets and liabilities:
Restricted cash (965) (151)
Accounts receivable 2,104 (1,444)
Other assets 4,082 (527)
Accounts payable and accrued liabilities (13,301) 1,469
Unearned income 1,866 1,181
Other liabilities 597 (18)
----------- ----------
Net cash provided by operating activities 10,354 7,214
----------- ----------
Cash flows from investing activities:
Purchase of REZsolutions, Inc. (95,865) -
Purchase of software, property and equipment (2,703) (1,712)
Purchase of marketable securities - (18,116)
Proceeds from maturity of marketable securities 35,294 16,231
Other 49 (100)
----------- ----------
Net cash used for investing activities (63,225) (3,697)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of stock 162 87,665
Repayment of notes payable (16,995) -
Proceeds from credit facility 10,000 -
Repayment of credit facility (10,000) -
Repayment of capital leases (328) (397)
----------- ----------
Net cash provided by (used for) financing activities (17,161) 87,268
----------- ----------
Net increase (decrease) in cash and cash equivalents (70,032) 90,785
Cash and cash equivalents, beginning of period 104,616 25,002
----------- ----------
Cash and cash equivalents, end of period $ 34,584 $ 115,787
=========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 231 $ 22
=========== ==========
Income taxes paid $ 690 $ 89
=========== ==========
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
On May 2, 2000, the stockholders of Pegasus Systems, Inc. approved
changing the Company's name to Pegasus Solutions, Inc. As a result of
the acquisition of REZ, Inc. on April 3, 2000, the new name is more
descriptive of the combined entity and our services. Pegasus' common
stock is traded on the Nasdaq National Market under the symbol PEGS.
Pegasus is a leading provider of end-to-end reservation distribution
systems, reservation technology systems and hotel representation
services for the global hotel industry. Pegasus is organized into two
business segments - hospitality and technology. The consolidated
financial statements include the accounts of Pegasus Solutions, Inc. and
its wholly owned subsidiaries ("Pegasus" or "the Company"). All
significant intercompany balances have been eliminated in consolidation.
In the opinion of management, the unaudited condensed consolidated
financial statements presented herein reflect all adjustments necessary
to fairly state the financial position, operating results, and cash
flows for the periods presented. Such adjustments are of a normally
recurring nature. The results for interim periods are not necessarily
indicative of results expected for the entire fiscal year. The
accompanying unaudited condensed consolidated financial statements and
the notes thereto should be read in conjunction with the consolidated
financial statements and notes thereto contained in our annual report
for the year ended December 31, 1999 on Form 10-K and our Form S-4
(registration no. 333-92683) that was declared effective on March 31,
2000. Pegasus management believes that the disclosures are sufficient
for interim financial reporting purposes.
2. EARNINGS PER SHARE
Basic net income (loss) per share for the three and six months ended
June 30, 2000 and 1999 has been computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128")
using the weighted average number of common shares outstanding.
Diluted net income (loss) per share for the three and six months ended
June 30, 2000 and 1999 gives effect to all dilutive potential common
shares that were outstanding during the respective periods. Outstanding
options and warrants with strike prices below the average fair market
value of Pegasus common stock for the three and six months ended June
30, 1999 and for the three months ended March 31, 2000 were included in
the diluted earnings per share ("EPS") calculations for the respective
periods. Because of net losses for the three and six months ended
June 30, 2000, all outstanding options and warrants were excluded for the
calculation of diluted net loss per share.
<PAGE>
<TABLE>
The following table sets forth the options excluded from the diluted EPS
calculations for the six months ended June 30:
2000 1999
--------------------------------------- --------------------------------------
Three Weighted Weighted
Months Options Strike Average Options Strike Average
Ended Excluded Price Remaining Life Excluded Price Remaining Life
-------- -------- ------------- -------------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
March 31 99,000 $25.25-$29.02 6.6 years 1,500 $27.25 10.0 years
June 30 3,164,371 $1.34-$29.02 7.8 years 9,000 $27.25-$31.17 9.8 years
</TABLE>
<TABLE>
The following table sets forth the basic and diluted EPS computation for
the three and six months ended June 30, 2000 and 1999 (in thousands,
except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------
2000 1999 2000 1999
----------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ (13,150) $ 1,253 $ (10,129) $ 2,754
========================================
Basic:
Weighted average number
of shares outstanding 24,157 18,115 22,257 16,995
----------------------------------------
Net income (loss) per share $ (0.54) $ 0.07 $ (0.46) $ 0.16
========================================
Diluted:
Weighted average number
of shares outstanding 24,157 18,115 22,257 16,995
Additional weighted
average shares from
assumed exercise of
dilutive stock options
and warrants, net of
shares to be repurchased
with exercise proceeds - 1,248 - 1,404
----------------------------------------
Weighted average number
of shares outstanding
used in the diluted net
income per share
calculation 24,157 19,363 22,257 18,399
----------------------------------------
Net income (loss) per share $ (0.54) $ 0.06 $ (0.46) $ 0.15
========================================
</TABLE>
<PAGE>
3. SEGMENT INFORMATION
Based on the criteria set forth under Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," Pegasus was organized into three reportable
segments prior to the REZ acquisition - Pegasus Electronic Distribution,
Pegasus Commission Processing and Pegasus Business Intelligence. As a
result of the REZ acquisition, Pegasus is now organized into two
reportable segments - hospitality and technology.
* The hospitality segment provides representation, branding, commission
processing and other financial services to the hotel industry
worldwide. The hospitality segment also includes our TravelWeb.com
Web site.
* The technology segment provides central reservation system ("CRS"),
global distribution system ("GDS") and alternative distribution
services as well as data warehousing and distribution channel
management services to the global hotel industry.
Pegasus is organized primarily on the basis of services provided.
Segment data includes a charge allocating all corporate costs to the
operating segments. Management evaluates the performance of its segments
based on earnings before interest, income tax, depreciation and
amortization ("EBITDA").
<TABLE>
The following table presents information about reported segments for the
three months ended June 30 (in thousands):
Hospitality Technology Other Total
----------- ---------- ----- -----
<S> <C> <C> <C> <C>
2000
----
Net revenues $ 34,339 $ 18,025 $ -- $ 52,364
EBITDA 8,648 1,453 (152) 9,949
1999
----
Net revenues 4,935 4,253 -- 9,188
EBITDA 1,712 854 -- 2,566
</TABLE>
<PAGE>
<TABLE>
A reconciliation of total segment EBITDA to total consolidated income
(loss) before income taxes for the three months ended June 30, 2000 and
1999 is as follows (in thousands):
2000 1999
----------------------
<S> <C> <C>
Total EBITDA for reportable segments $ 9,949 $ 2,566
Depreciation and amortization (16,977) (559)
Write-off of purchased in-process research
and development (8,000) --
Interest income (expense), net (31) 1,122
Other 95 (1,100)
----------------------
Consolidated income (loss) before income taxes $ (14,964) $ 2,029
======================
</TABLE>
<TABLE>
The following table presents information about reported segments for the
six months ended June 30 (in thousands):
Hospitality Technology Other Total
----------- ---------- ----- -----
<S> <C> <C> <C> <C>
2000
----
Net revenues $ 39,795 $ 23,229 -- $ 63,024
EBITDA 10,776 2,497 (197) 13,076
1999
----
Net revenues 9,284 8,277 -- 17,561
EBITDA 3,292 1,875 -- 5,167
</TABLE>
<TABLE>
A reconciliation of total segment EBITDA to total consolidated income
(loss) before income taxes for the six months ended June 30, 2000 and
1999 is as follows (in thousands):
2000 1999
----------------------
<S> <C> <C>
Total EBITDA for reportable segments $ 13,076 $ 5,167
Depreciation and amortization (17,582) (1,239)
Write-off of purchased in-process research
and development (8,000) --
Interest income, net 1,558 1,633
Other 95 (1,100)
----------------------
Consolidated income (loss) before income taxes $ (10,853) $ 4,461
======================
</TABLE>
<PAGE>
4. ACQUISITION
On April 3, 2000, Pegasus completed the acquisition of REZ, Inc., also
known as REZsolutions, Inc. REZ now operates as a wholly owned
subsidiary of Pegasus. REZ stockholders received the following
consideration on a pro rata basis:
1) An aggregate 3.99 million shares of Pegasus common stock,
approximately 338,000 shares of which were placed in an
indemnification escrow account and approximately 123,000 shares of
which were placed in an escrow account pending the determination of
post-closing adjustments. No fractional shares were issued. REZ
stockholders received a cash payment in lieu of any fractional
shares.
2) Approximately $89 million in cash, $5.5 million of which is in an
indemnification escrow account.
3) A $20 million note payable to Utell International Group, Ltd. in
lieu of cash consideration otherwise receivable by Utell. Utell
was the majority REZ stockholder.
The acquisition was accounted for under the purchase method of
accounting. Accordingly, REZ's results of operations subsequent to the
acquisition date are included in the Company's unaudited condensed
consolidated financial statements.
The $246.5 million purchase price includes approximately $11.0 million
in acquisition costs and was allocated to assets acquired and
liabilities assumed based on estimated fair value at the acquisition
date. The approximate fair value of assets acquired and liabilities
assumed at the acquisition date, excluding a write-off of purchased in-
process research and development, is summarized below (in thousands):
Estimated fair value of REZ net tangible assets purchased $ 4,362
Deferred tax liability to establish deferred tax
liabilities associated with the intangibles acquired (42,179)
Customer relationships 59,600
Software 33,300
Workforce in-place 20,200
Non-compete agreement 3,700
Goodwill 159,492
The allocation of the purchase price to intangibles was based upon an
independent, third-party appraisal and management's estimates. The
intangible assets and goodwill have estimated useful lives and estimated
annual amortization as follows (in thousands):
Estimated Calculated
Useful Annual
Amount Life Amortization
-------- ------- ------------
Customer relationships $ 59,600 3 years $ 19,733
Software 33,300 3 years 11,048
Workforce in-place 20,200 3 years 6,815
Non-compete agreement 3,700 5 years 737
Goodwill 159,492 10 years 15,958
<PAGE>
The value assigned to purchased in-process research and development
("IPR&D") was determined by identifying research projects in areas for
which technological feasibility had not yet been established. These
projects totaled $8.0 million and include a customer reporting system
and Corporate Direct, a program for discounted corporate room rates on
the Internet. The value was determined by estimating the expected cash
flows from the projects once commercially viable, discounting the net
cash flows back to their present value and then applying a percentage of
completion to the calculated value as defined below.
Net Cash Flows. The net cash flows from the identified projects are
based on our estimates of revenues, cost of services, research and
development costs, marketing and promotion expenses, and general and
administrative expenses associated with each project. The research and
development costs included in the model reflect costs to sustain
projects, but exclude costs to bring in-process projects to
technological feasibility.
Discount Rate. The net cash flows were discounted back to their present
value using a 25% discount rate. This discount rate is higher than the
industry weighted average cost of capital due to inherent uncertainties
surrounding the successful development of the IPR&D, market acceptance
of the technology, the useful life of such technology and the
uncertainty of technological advances which could potentially impact the
estimates described above.
Percentage of Completion. The percentage of completion for each project
was determined using costs incurred to date on each project as compared
to the remaining research and development to be completed to bring each
project to technological feasibility. The percentage of completion
applied to the customer reporting and Corporate Direct projects were 65%
and 80%, respectively.
If the projects discussed above are not successfully developed, the
sales and profitability of the combined company may be adversely
affected in future periods.
Pro forma results of operations for the combined company as if the
transaction had occurred at the beginning of the earliest period
presented and carried forward into 2000 are as follows (in thousands):
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------- -----------------
Revenues $ 97,660 $ 184,024
Net loss (16,384) (35,261)
Basic net loss per share (0.68) (1.56)
Diluted net loss per share (0.68) (1.56)
5. CONTINGENCIES
Pegasus is subject to certain legal proceedings, claims and disputes
which arise in the ordinary course of our business. Although management
cannot predict the outcomes of these legal proceedings, we do not
believe these actions will have a material adverse effect on our
financial position, results of operations or liquidity.
<PAGE>
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that
all derivative instruments be recorded on the balance sheet at fair
value. Changes in the fair value of derivative instruments are recorded
each period in current earnings or other comprehensive income, depending
on whether the derivative is designated as part of a hedge transaction.
FAS 133, as amended by Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of Effective Date of FAS 133," is effective for first quarter
financial statements in fiscal 2001. Pegasus currently accounts for its
hedging activities in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation". Pegasus is currently
measuring the impact of adopting FAS 133.
On December 3, 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which summarizes some of the Staff's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. The Staff provided this guidance due, in part,
to the large number of revenue recognition issues that registrants
encounter. Pegasus is applying SAB 101 on a prospective basis beginning
in fiscal year 2000.
7. SUBSEQUENT EVENT
On August 9, 2000, the board of directors authorized the repurchase of
up to two million shares of the Company's common stock. The repurchase
is at the discretion of the board of directors' stock repurchase
committee and may be made on the open market, in privately negotiated
transactions or otherwise, depending on market conditions, price, share
availability and other factors. Shares repurchased may be reserved for
later reissue in connection with employee benefit plans and other
general corporate purposes.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS
The following discussion of the financial condition and results of
operations should be read in conjunction with the management's discussion
and analysis of financial condition and results of operations and the
consolidated financial statements and notes thereto included in our annual
report on Form 10-K for the year ended December 31, 1999 and our Form S-4
(registration no. 333-92683) that was declared effective on March 31, 2000.
This quarterly report on Form 10-Q contains forward-looking statements
including statements using terminology such as "may," "will," "expects,"
"plans," "anticipates," "estimates," "potential," or "continue," or the
negative thereof or other comparable terminology regarding beliefs, plans,
expectations or intentions for the future. Forward-looking statements
include statements regarding:
<PAGE>
* revenue growth and operating margins subsequent to the REZ acquisition
* revenue generated from new services
* the development of purchased in-process research and development
projects
* trends in the travel agency industry
* Pegasus Business Intelligence operating losses
* future liquidity and capital requirements
These forward-looking statements involve risks and uncertainties and actual
results could differ materially from those discussed in the forward-looking
statements. These risks and uncertainties include, but are not limited to,
those described under the heading "Risk Factors" in our filings with the
Securities and Exchange Commission, including our Form 10-K for the year
ended December 31, 1999 and our Form S-4 (registration no. 333-92683) that
was declared effective on March 31, 2000.
OVERVIEW
Pegasus is a leading provider of end-to-end reservation distribution
systems, reservation technology systems and hotel representation services
for the global hotel industry. On April 3, 2000, Pegasus completed the
acquisition of REZ, Inc., a leader in providing distribution services and
solutions for the hotel industry. Prior to the acquisition, Pegasus was
organized into three reporting segments - Pegasus Electronic Distribution,
Pegasus Commission Processing and Pegasus Business Intelligence. As a
result of the acquisition, Pegasus is now organized into two reporting
segments - hospitality and technology.
Pegasus has experienced substantial growth since its inception. Because the
acquired REZ business has historically experienced slower revenue growth and
lower operating margins than Pegasus, the combined company will likely
experience slower revenue growth and lower operating margins than Pegasus
has experienced in the past. If the combined company's revenue growth
and operating margins do not improve over REZ's historical operating
performance, the combined company's cash flow and operating results could be
adversely affected.
Hospitality
Our hospitality segment includes hotel representation and branding services,
Pegasus Financial Services and TravelWeb.com. Hospitality revenues
represented approximately 66% of consolidated revenue for the three months
ended June 30, 2000.
Representation and Brand Management Services. In order to sell their rooms
in marketplaces outside their locale, many independent hotels associate
themselves with our hotel representation service and use our systems and
infrastructure to market and make reservations for their rooms. Our hotel
representation services, offered under the Utell brand name, provide hotel
marketing, voice reservation and GDS and Internet representation services
for more than 6,400 hotels in more than 180 countries. Representation
revenues consist of reservation processing fees, membership fees and fees
for various marketing services.
<PAGE>
Pegasus offers brand management services under the Sterling Hotels &
Resorts[TM], Summit Hotels & Resorts[TM], Golden Tulip Hotels[TM] and Tulip
Inns[TM] brand names. Both the Sterling and Summit brands are "soft" brands
offering independent hotels the ability to maintain their own identity while
being affiliated with the Sterling or Summit brand. Sterling Hotels &
Resorts include over 150 independent luxury properties, and Summit Hotels &
Resorts include over 150 luxury independent hotels. Affiliation with Golden
Tulip allows member hotels to adopt the brand name and quality standards of
the well-known Golden Tulip Worldwide brand. Golden Tulip Worldwide members
include approximately 400 hotels worldwide. Brand management customers also
receive hotel marketing, voice reservation and GDS and Internet
representation services similar to our representation customers. Brand
management revenues consist of reservation processing fees, membership fees
and fees for various marketing services.
Representation and brand management services represented approximately 48%
of consolidated revenues for the three months ended June 30, 2000.
Pegasus Financial Services. Pegasus Financial Services includes Pegasus
Commission Processing and Paytell, a prepayment service that allows
travelers to prepay for a hotel stay, thus reducing their exposure to
foreign currency exchange rates.
Pegasus Commission Processing completes the hotel room reservation
transaction by collecting and consolidating hotel reservation commissions
due to each participating travel agency and providing transaction reports.
The value-added commission consolidation and reporting services that Pegasus
Commission Processing provides to both its hotel and travel agency
participants help both parties operate more efficiently and effectively.
More than 100,000 travel agencies and 30,000 hotels participate in our
commission processing service.
Pegasus Commission Processing revenues consist of both travel agency and
hotel fees. Travel agency fees are based on a percentage of the hotel
commissions processed by Pegasus on behalf of participating travel agencies.
Revenues from travel agency fees can vary substantially from period to
period based on the types of hotels at which reservations are made and
fluctuations in overall room rates. In addition, participating hotels
generally pay fees based on the number of commissionable transactions that
Pegasus processes for the respective hotel.
Many international travelers who book hotel rooms at our representation and
brand management customers utilize our Paytell service to reduce their
exposure to foreign currency fluctuations. Travelers using our Paytell
service prepay for hotel rooms in the traveler's local currency. When the
traveler actually stays at the hotel ("guest stay"), Pegasus remits the
amount to the hotel in the hotel's local currency. Revenues for this
service consist of a fee based on a percentage of the exchange rate for the
prepayment, interest earned until the guest stay occurs, and the difference
in the exchange rate that the traveler paid and the exchange rate when the
guest stay occurs.
<PAGE>
TravelWeb.com. TravelWeb.com is one of the largest interactive Internet
sites on which consumers can research and reserve hotel rooms around the
world as well as make airline reservations. TravelWeb.com contains detailed
property information on approximately 36,000 hotels and allows travelers to
directly access hotels' central reservation systems to check room
availability and make or cancel a reservation. Other features include hotel
photos, maps, weather information and special discount programs. For hotel
reservations that originate on the TravelWeb.com Web site, Pegasus charges
the hotel either a transaction fee based on the number of net reservations
made at participating properties or a commission based on the value of the
guest stay.
Technology
Our technology segment includes application server processing, Pegasus
Electronic Distribution (excluding TravelWeb.com) and Pegasus Business
Intelligence services. Technology revenues represented approximately 34% of
consolidated revenues for the three months ended June 30, 2000.
Application Server Processing. Application Server Processing ("ASP") is a
service for hotel customers that require their own central reservation
systems ("CRS") and includes a license for our REZView CRS software as well
as the hardware and facilities necessary to run their CRS and process
reservations. ASP includes the following CRS support services:
* system administration
* database administration
* electronic distribution channel management
* telecommunications management
* private-label voice reservation services
ASP revenues consist of transaction fees as well as license, maintenance and
support fees related to our REZView software.
Pegasus Electronic Distribution. Pegasus Electronic Distribution provides
the technology that facilitates electronic hotel room reservations. This
technology connects travel industry global distribution systems ("GDS") and
travel-related Internet sites to a hotel's central reservation system.
Pegasus Electronic Distribution supports a variety of distribution channels
including the following:
* GDS connectivity - Pegasus Electronic Distribution is linked to all
major global distribution systems and connects our hotel customers to
more than 350,000 travel agent terminals globally.
* Third-party Web sites - Since Pegasus Electronic Distribution is
already connected to more than 34,000 hotel properties that use our GDS
connectivity service, we can provide travel-related Web sites access to
our distribution database and real-time hotel reservation capability.
Pegasus provides reservation processing services to several of the top
travel Web sites such as Expedia.com, Lastminute.com, Oracle e-Travel,
TravelNow.com and our own TravelWeb.com.
* Hotel Web sites - Our NetBooker service enables hotel companies to
quickly and effectively implement Internet booking capabilities without
making expensive technology investments. Hotel Web sites that are
"Powered by Pegasus[TM]," offer brand loyal Internet shoppers real-time
rates, availability and booking capabilities.
<PAGE>
Pegasus Electronic Distribution revenues primarily consist of transaction
fees, commissions and monthly subscription or maintenance fees. In
addition, new hotel customers pay a one-time set-up fee for establishing the
connection between the hotel's CRS and the electronic distribution
technology. New third-party Web site customers pay a one-time set-up fee
for establishing the connection between a hotel's CRS and the third-party
Web site.
Pegasus has developed or is in the process of developing several new
services to capitalize on its existing technology and customer base and to
provide additional electronic hotel reservation capabilities and information
services to its existing customers and to other participants in the hotel
room distribution process. For example, Pegasus Electronic Distribution has
introduced services that automate the processing of hotel reservations for
large meetings and conventions and for corporate travelers. Pegasus has not
received a material amount of revenue from these services, and there can be
no assurance that any of these services will produce a material amount of
revenue in the future.
Pegasus Business Intelligence. Pegasus Business Intelligence provides data
warehousing services and marketing research and information services. By
compiling aggregate guest usage, consumer profile and reservation
transaction information, Pegasus Business Intelligence provides database
marketing, market research and marketing information systems for the
hospitality industry. Business intelligence revenues consist of fees charged
to hotels for the development of hotel databases and for consulting
services.
REZ, INC. ACQUISITION
On April 3, 2000, Pegasus completed the acquisition of REZ, Inc. REZ now
operates as a wholly owned subsidiary of Pegasus.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, REZ's results of operations subsequent to the acquisition date
are included in the Company's unaudited condensed consolidated financial
statements.
The $246.5 million purchase price includes approximately $11.0 million in
acquisition costs and was allocated to assets acquired and liabilities
assumed based on estimated fair value at the acquisition date. The
approximate fair value of assets acquired and liabilities assumed at the
acquisition date, excluding a write-off of purchased in-process research and
development, is summarized below (in thousands):
Estimated fair value of REZ net tangible assets purchased $ 4,362
Deferred tax liability to establish deferred tax
liabilities associated with the intangibles acquired (42,179)
Customer relationships 59,600
Software 33,300
Workforce in-place 20,200
Non-compete agreement 3,700
Goodwill 159,492
<PAGE>
The allocation of the purchase price to intangibles was based upon an
independent, third-party appraisal and management's estimates. The
intangible assets and goodwill have estimated useful lives and estimated
annual amortization as follows (in thousands):
Estimated Calculated
Useful Annual
Amount Life Amortization
------- ------- ------------
Customer relationships $ 59,600 3 years $ 19,733
Software 33,300 3 years 11,048
Workforce in-place 20,200 3 years 6,815
Non-compete agreement 3,700 5 years 737
Goodwill 159,492 10 years 15,958
The value assigned to purchased in-process research and development
("IPR&D") was determined by identifying research projects in areas for which
technological feasibility had not yet been established. These projects
totaled $8.0 million and include a customer reporting system and Corporate
Direct, a program for discounted corporate room rates on the Internet. The
value was determined by estimating the expected cash flows from the projects
once commercially viable, discounting the net cash flows back to their
present value and then applying a percentage of completion to the calculated
value as defined below.
Net Cash Flows. The net cash flows from the identified projects are based
on our estimates of revenues, cost of services, research and development
costs, marketing and promotion expenses, and general and administrative
expenses associated with each project. The research and development costs
included in the model reflect costs to sustain projects, but exclude costs
to bring in-process projects to technological feasibility.
Discount Rate. The net cash flows were discounted back to their present
value using a 25% discount rate. This discount rate is higher than the
industry weighted average cost of capital due to inherent uncertainties
surrounding the successful development of the IPR&D, market acceptance of
the technology, the useful life of such technology and the uncertainty of
technological advances which could potentially impact the estimates
described above.
Percentage of Completion. The percentage of completion for each project was
determined using costs incurred to date on each project as compared to the
remaining research and development to be completed to bring each project to
technological feasibility. The percentage of completion applied to the
customer reporting and Corporate Direct projects were 65% and 80%,
respectively.
If the projects discussed above are not successfully developed, the sales
and profitability of the combined company may be adversely affected in
future periods.
<PAGE>
RESULTS OF OPERATIONS
The results of operations for the three and six months ended June 30, 2000
and 1999 include the effect of the REZ acquisition, which was completed on
April 3, 2000 and is discussed in Note 4 to the unaudited condensed
consolidated financial statements contained herein. In accordance with
purchase accounting, REZ's results of operations subsequent to the
acquisition date are included in the accompanying unaudited condensed
consolidated financial statements.
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Net revenues. Net revenues for the three months ended June 30, 2000
increased to $52.4 million from $9.2 million for the three months ended June
30, 1999. Revenues increased primarily due to the acquisition of REZ.
Excluding the effect of REZ, revenues increased $3.1 million, or 33.5%
primarily due to higher transaction levels for Pegasus Electronic
Distribution and Pegasus Commission Processing.
Revenues for our hospitality segment were $34.3 million for the three months
ended June 30, 2000. Included in the three months ended June 30, 2000 is
$27.7 million in hospitality revenues related to REZ's operations subsequent
to the April 3, 2000 effective date of the acquisition. Excluding the
effect of REZ, hospitality revenues increased $1.7 million, or 34.7% for the
three months ended June 30, 2000 compared to the same period in 1999.
Pegasus Commission Processing revenues increased approximately 41.0% for the
three months ended June 30, 2000 compared to the same period in 1999 as a
result of a 35.2% increase in the number of hotel commission transactions
processed for our member travel agencies. The increase in the number of
transactions was due in part to an increase in the number of hotel
properties and travel agencies participating in Pegasus Commission
Processing. The value of commissions paid to member travel agencies through
our commission processing service increased 41.2% for the three months ended
June 30, 2000 compared to the same period in 1999 because of an increase in
the number of hotel commission transactions processed combined with an
increase in the average value of commissions processed. Net revenues arising
from the increase in commissions paid was somewhat offset by a reduction in
the average fee received from participating travel agencies for
consolidating and remitting hotel commission payments. The decrease in
travel agency fees is due to consolidation within the travel agency
industry. Pegasus expects this trend to continue.
Revenues for our technology segment were $18.0 million for the three months
ended June 30, 2000. Included in the three months ended June 30, 2000 is
$12.9 million in technology revenue related to REZ's operations. Excluding
the effect of REZ, technology revenues increased $1.4 million, or 32.1% for
the three months ended June 30, 2000 compared to the same period in 1999.
Pegasus Electronic Distribution revenues increased 35.6% for the three
months ended June 30, 2000 as compared to the same period in 1999. This
increase resulted primarily from a 19.6% increase in the number of hotel
reservations made through our GDS and Internet-based distribution services.
Total transaction revenue per transaction increased 6.9% due to an increase
in the number of Internet-based transactions, which generate more revenue
per transaction.
<PAGE>
Pegasus Business Intelligence revenues were $421,000 for the three months
ended June 30, 2000, which is flat compared to the three months ended June
30,1999. Pegasus Business Intelligence revenues consisted of fees charged
to hotels for the development and maintenance of hotel databases and for
consulting services.
Pegasus Business Intelligence had net pretax losses of approximately $1.5
million and $1.1 million for the three months ended June 30, 2000 and 1999,
respectively. Pegasus expects this segment to continue to have losses in
the foreseeable future. However, Pegasus expects the losses to decline as
this segment develops new products, builds its customer base, increases
revenues and reduces costs.
Cost of services. Cost of services were $22.5 million for the three months
ended June 30, 2000. Included in the three months ended June 30, 2000 is
$18.9 million in cost of services attributable to REZ's operations.
Excluding the effect of REZ, cost of services increased $1.1 million for the
three months ended June 30, 2000 compared to the same period in 1999. Cost
of services for the old Pegasus business increased due to an increase in
headcount for electronic distribution and commission processing.
Research and development. Research and development expenses were $2.2
million for the three months ended June 30, 2000. Research and development
for the three months ended June 30, 2000 includes $1.4 million in research
and development expenses related to REZ's operations. Excluding the effect
of REZ, research and development expenses increased $228,000 for the three
months ended June 30, 2000 compared to the same period in 1999.
Write-off of purchased in-process research and development. During the
three months ended June 30, 2000, Pegasus wrote off $8.0 million for
REZsolutions research and development projects that had not yet reached
technological feasibility at the time of acquisition.
General and administrative expenses. General and administrative expenses
were $7.8 million for the three months ended June 30, 2000. General and
administrative expenses for the three months ended June 30, 2000 includes
$5.6 million in general and administrative expenses related to REZ.
Excluding the direct effect of REZ, general and administrative expenses
increased $923,000 for the three months ended June 30, 2000 compared to the
same period in 1999. General and administrative expenses increased due to
an increase in headcount as well as other expenses that were incurred as a
result of the REZ acquisition but did not meet the criteria for
capitalization.
Marketing and promotion expenses. Marketing and promotion expenses were $9.8
million for the three months ended June 30, 2000. Included in the three
months ended June 30, 2000 is $7.8 million in marketing and promotion
expenses attributable to REZ. Excluding the effect of REZ, marketing and
promotion expenses increased $361,000, for the three months ended June 30,
2000 compared to the same period in 1999. Marketing and promotion expenses
for the old Pegasus business increased due to an increase in headcount for
commission processing, business intelligence and corporate marketing.
<PAGE>
Depreciation and amortization. Depreciation and amortization expenses were
$17.0 million for the three months ended June 30, 2000. For the three
months ended June 30, 2000, depreciation and amortization expense for
property and equipment increased to $3.1 million from $449,000 for the three
months ended June 30, 1999 primarily due to $2.5 million of depreciation and
amortization expense related to REZ property and equipment. For the three
months ended June 30, 2000, amortization expense related to purchase
accounting increased to $13.9 million from $111,000 for the three months
ended June 30, 1999 because of the REZ acquisition.
Interest income (expense), net. Net interest income decreased $1.2 million
for the three months ended June 30, 2000 compared to the three months ended
June 30, 1999. Interest income decreased $616,000 for the three months
ended June 30, 2000 compared to the same period in 1999 as we utilized some
of our marketable securities to fund the REZ acquisition. Interest expense
increased $537,000 for the three months ended June 30, 2000 compared to the
same period in 1999 primarily due to $400,000 accrued interest on the Reed
note payable as well as interest expense for outstanding balances on our
Chase line of credit and capital leases.
Provision for Income Taxes. Pegasus recorded an income tax benefit of $1.8
million for the three months ended June 30, 2000 primarily due to large non-
deductible expenses related to purchase accounting. Pegasus recorded an
income tax provision of $776,000 for the three months ended June 30, 1999,
an effective tax rate of 38.3% of pretax income. The effective tax rate for
the three months ended June 30, 1999 differed from the statutory rate
primarily due to state income taxes.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net revenues. Net revenues for the six months ended June 30, 2000 increased
to $63.0 million from $17.6 million for the six months ended June 30, 1999.
Revenues increased primarily due to the acquisition of REZ. Excluding the
effect of REZ, revenues increased $5.4 million, or 30.5%, primarily due to
and higher transaction levels for Pegasus Electronic Distribution and
Pegasus Commission Processing.
Revenues for our hospitality segment were $39.8 million for the six months
ended June 30, 2000. Included in the six months ended June 30, 2000 is
$27.7 million in hospitality revenue related to REZ's operations subsequent
to the April 3, 2000 effective date of the acquisition. Excluding the
effect of REZ, hospitality revenues increased $2.8 million, or 30.4% for the
six months ended June 30, 2000 compared to the same period in 1999.
<PAGE>
Pegasus Commission Processing revenues increased 34.4% for the six months
ended June 30, 2000 compared to the same period in 1999 as a result of a
37.2% increase in the number of hotel commission transactions processed for
our member travel agencies. The increase in the number of transactions was
due in part to an increase in the number of hotel properties and travel
agencies participating in Pegasus Commission Processing. The value of
commissions paid to member travel agencies through our commission processing
service increased 40.2% for the six months ended June 30, 2000 compared to
the same period in 1999 because of an increase in the number of hotel
commission transactions processed combined with an increase in the average
value of commissions processed. Net revenues arising from the increase in
commissions paid was somewhat offset by a reduction in the average fee
received from participating travel agencies for consolidating and remitting
hotel commission payments. The decrease in travel agency fees is due to
consolidation within the travel agency industry. Pegasus expects this trend
to continue.
Revenues for our technology segment were $23.2 million for the six months
ended June 30, 2000. Included in the six months ended June 30, 2000 is
$12.9 million in technology revenue related to REZ's operations. Excluding
the effect of REZ, technology revenues increased $2.5 million, or 30.8% for
the six months ended June 30, 2000 compared to the same period in 1999.
Pegasus Electronic Distribution revenues increased 35.2% for the six months
ended June 30, 2000 as compared to the same period in 1999. This increase
resulted primarily from a 19.1% increase in the number of hotel reservations
made through our GDS and Internet-based distribution services. Transaction
revenue per transaction increased 9.6% due to an increase in the number of
Internet-based transactions, which generate more revenue per transaction.
Pegasus Business Intelligence revenues decreased $70,000, or 8.3%, to
$774,000 for the six months ended June 30, 2000 compared to $844,000 for the
six months ended June 30,1999. Pegasus Business Intelligence revenues
consisted of fees charged to hotels for the development and maintenance of
hotel databases and for consulting services.
Pegasus Business Intelligence had net pretax losses of approximately $2.9
million and $2.0 million for the six months ended June 30, 2000 and 1999,
respectively. Pegasus expects this segment to continue to have losses in
the foreseeable future. However, Pegasus expects the losses to decline as
this segment develops new products, builds its customer base, increases
revenues and reduces costs.
Cost of services. Cost of services were $26.0 million for the six months
ended June 30, 2000. Included in the six months ended June 30, 2000 is
$18.9 million in cost of services attributable to REZ's operations.
Excluding the effect of REZ, cost of services increased $2.0 million for the
six months ended June 30, 2000 compared to the same period in 1999. Cost of
services for the old Pegasus business increased due to an increase in
headcount for electronic distribution and commission processing.
Research and development. Research and development expenses were $2.8
million for the six months ended June 30, 2000. Research and development
expenses for the six months ended June 30, 2000 include $1.4 million related
to REZ's operations. Excluding the effect of REZ, research and development
expenses increased $219,000 for the six months ended June 30, 2000 compared
to the same period in 1999.
<PAGE>
Write-off of purchased in-process research and development. During the six
months ended June 30, 2000, Pegasus wrote off $8.0 million for REZsolutions
research and development projects that had not yet reached technological
feasibility at the time of acquisition.
General and administrative expenses. General and administrative expenses
were $9.7 million for the six months ended June 30, 2000. General and
administrative expenses for the six months ended June 30, 2000 include $5.6
million related to REZ. Excluding the effect of REZ, general and
administrative expenses increased $1.5 million for the six months ended June
30, 2000 compared to the same period in 1999. General and administrative
expenses increased due to an increase in headcount as well as other expenses
that were incurred as a result of the acquisition but did not meet the
criteria for capitalization.
Marketing and promotion expenses. Marketing and promotion expenses were
$11.4 million for the six months ended June 30, 2000. Included in the six
months ended June 30, 2000 is $7.8 million in marketing and promotion
expenses attributable to REZ. Excluding the effect of REZ, marketing and
promotion expenses increased $692,000 for the six months ended June 30, 2000
compared to the same period in 1999. Marketing and promotion expenses for
the old Pegasus business increased due to an increase in headcount for
commission processing, business intelligence and corporate marketing.
Depreciation and amortization. Depreciation and amortization expenses were
$17.6 million for the six months ended June 30, 2000. For the six months
ended June 30, 2000, depreciation and amortization expense for property and
equipment increased to $3.6 million from $1.0 million for the six months
ended June 30, 1999 primarily due to $2.5 million of depreciation and
amortization expense related to REZ property and equipment. For the six
months ended June 30, 2000, amortization expense related to purchase
accounting increased to $14.0 million from $221,000 for the six months ended
June 30, 1999 because of the REZ acquisition.
Interest income, net. Net interest income decreased $75,000 for the six
months ended June 30, 2000 compared to the six months ended June 30, 1999.
Interest income increased $449,000 for the six months ended June 30, 2000
compared to the same period in 1999 as we had additional marketable
securities during the first quarter of 2000 due to a secondary public
offering of our common stock in May 1999. This increase was partially offset
by lower interest income during the second quarter of 2000 as some
marketable securities were used to fund the REZ acquisition. Interest
expense increased $525,000 for the six months ended June 30, 2000 compared
to the same period in 1999 primarily due to $400,000 accrued interest on the
Reed note payable as well as interest expense for outstanding balances on
our Chase line of credit and capital leases.
Provision for Income Taxes. Pegasus recorded an income tax benefit of
$724,000 for the six months ended June 30, 2000 primarily due to large non-
deductible expenses related to purchase accounting. Pegasus recorded an
income tax provision of $1.7 million for the six months ended June 30, 1999,
an effective tax rate of 38.3% of pretax income. The effective tax rate for
the six months ended June 30, 1999 differed from the statutory rate
primarily due to state income taxes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Pegasus' principal sources of liquidity at June 30, 2000 included cash and
cash equivalents of $34.6 million, short-term investments of $1.4 million
and restricted cash of $3.9 million as well as a credit facility with Chase
Bank of Texas, N.A. Pegasus' principal sources of liquidity at December 31,
1999 included cash and cash equivalents of $104.6 million, short-term
investments of $35.3 million and restricted cash of $2.9 million.
Restricted cash represents funds for travel agency commission checks that
were never submitted to the bank by travel agencies for payment within one
year of their original issuance. After one year, the bank places a stop on
the outstanding travel agency commission checks and returns the funds to
Pegasus. Pegasus records, in an accrued liability account, an amount equal
to the restricted cash recorded upon receipt of funds from the bank.
Reasons for the checks not clearing include travel agencies going out of
business, change in address or the checks being lost. The returned funds
are repaid to the original travel agency if they can be located, or if not,
then to their state of residence as required by the unclaimed property laws
of their state.
Working capital decreased to $12.5 million at June 30, 2000 from $143.6
million at December 31, 1999. Net cash provided by operating activities was
$10.4 million for the six months ended June 30, 2000 compared to $7.2
million for the same period in 1999.
Capital expenditures consisted of purchases of software, furniture and
computer equipment as well as internally developed software costs and
amounted to $2.7 million for the six months ended June 30, 2000 compared to
$1.7 million for the same period in 1999. Pegasus has financed its cash
requirements for investments primarily through cash generated from
operations, the sale of capital stock and borrowings from its revolving
credit facility. Pegasus estimates that its capital expenditures during
2000 will approximate $8.0 million and primarily relate to adding capacity
to existing systems.
Proceeds from the exercise of stock options and warrants were $162,000 for
the six months ended June 30, 2000 compared to $3.2 million for the same
period in 1999.
Pegasus completed secondary public offerings of its common stock in February
1998, raising net proceeds to Pegasus of $4.2 million, and in May 1999,
raising net proceeds to Pegasus of $84.4 million. A portion of the proceeds
was used at the time of each offering to repay certain lease obligations,
for working capital and other general corporate purposes, with the remaining
proceeds placed in short-term marketable securities. On April 3, 2000,
Pegasus completed the acquisition of REZ, Inc. utilizing approximately $89
million of the net proceeds from its initial and secondary public offerings.
Other consideration included an aggregate of 3.99 million shares of Pegasus
common stock and a $20 million note payable to Utell, the majority REZ
stockholder.
<PAGE>
In conjunction with the REZ acquisition, Pegasus entered into a credit
agreement on April 17, 2000. Under the terms of the credit agreement,
Pegasus has an aggregate $30 million revolving credit facility with Chase
Bank of Texas, Compass Bank and Wells Fargo Bank (Texas). The credit
agreement has a two-year term, and the current interest rate is LIBOR plus
2%. There was no amount outstanding under the credit facility at June 30,
2000.
On August 9, 2000, the board of directors authorized the repurchase of up to
two million shares of the Company's common stock. The repurchase is at the
discretion of the board of directors' stock repurchase committee and may be
made on the open market, in privately negotiated transactions or otherwise,
depending on market conditions, price, share availability and other factors.
Shares repurchased may be reserved for later reissue in connection with
employee benefit plans and other general corporate purposes.
Our future liquidity and capital requirements will depend on numerous
factors, including:
* Our profitability
* Operational cash requirements
* Competitive pressures
* Development of new services and applications
* Acquisition of complimentary businesses or technologies
* Response to unanticipated cash requirements
Pegasus believes that its liquidity and cash flow from operations together
with funds available from current and future debt financing, will be
sufficient to meet its foreseeable operating and capital requirements
through at least the end of 2000. Pegasus may consider other financing
alternatives to fund its requirements, including possible public or private
debt or equity offerings. However, there can be no assurance that any
financing alternatives sought by Pegasus will be available or will be on
terms that are attractive to Pegasus. Further, any debt financing may
involve restrictive covenants, and any equity financing may be dilutive to
stockholders.
Part II - Other Information
Item 1. Legal Proceedings - Pegasus is subject to certain legal
proceedings, claims and disputes which arise in the ordinary course of
our business. Although management cannot predict the outcomes of these
legal proceedings, we do not believe these actions will have a
material adverse effect on our financial position, results of
operations or liquidity.
<PAGE>
Item 4. Submission of Matters to Vote of Security Holders - Pegasus held
its annual meeting of stockholders on Tuesday May 2, 2000. At the
annual meeting Pegasus stockholders took the following actions:
1) By a vote of 15,493,952 for and 1,487,193 withheld, the
stockholders elected John F. Davis, III as class III director
for a term of three years or until his successor is elected and
qualified.
2) By a vote of 16,823,326 for and 157,819 withheld, the
stockholders elected Michael A. Barnett as class III director
for a term of three years or until his successor is elected and
qualified.
3) By a vote of 15,493,952 for, 99,759 against, 4,038 abstaining
and 1,383,396 non-votes, the stockholders approved changing the
Company's name to Pegasus Solutions, Inc. by means of an amendment
to Pegasus' Certificate of Incorporation to read "The name of the
corporation is Pegasus Solutions, Inc."
4) By a vote of 9,820,404 for, 5,082,734 against, 22,968
abstaining and 2,055,039 non-votes, the stockholders approved
amendments to Pegasus' Amended 1997 Stock Option Plan that:
* Increase the number of shares reserved for issuance under the
plan;
* Eliminate the annual grant of 1,500 options to each non-employee
director at an exercise price of 85% of fair market value; and
* Give the plan administrator discretionary rights to make stock
option grants to non-employee directors at fair market value.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On May 15, 2000, Pegasus filed a Form 8-K/A to amend Item 2 of the
Form 8-K filed with the Commission on April 18, 2000.
<PAGE>
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.
PEGASUS SOLUTIONS, INC.
August 14, 2000 /s/ JOHN F. DAVIS, III
----------------------
John F. Davis, III,
President and Chief
Executive Officer
August 14, 2000 /s/ JEROME L. GALANT
--------------------
Jerome L. Galant,
Chief Financial Officer,
(principal accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
------- -----------------------
27 Financial Data Schedule
