PEGS Pegasus Solutions (MM)

Pegasus Solutions, Inc. (Nasdaq:PEGS): Q4 2005 Results -- Revenues (GAAP): $41.5 million -- Net income per share (GAAP): Basic and Diluted: $0.04 -- Diluted income from continuing operations per share (GAAP): $0.03 -- Diluted income from continuing operations per share (adjusted): $0.11 Pegasus Solutions, Inc. (Nasdaq:PEGS), a global leader in providing technology and services to hotels and travel distributors, today reported its financial results for the fourth quarter and year ended December 31, 2005. "In December Pegasus announced that it had executed a definitive merger agreement with an equity group led by Prides Capital Partners, LLC, following a review of strategic alternatives for the company conducted with the assistance of Bear Stearns," said John F. Davis III, president, chief executive officer and chairman of Pegasus Solutions. "We expect the merger transaction to close in the first half of this year. Now and after the closing, our focus will continue to be on delivering technology and business process solutions that assist hotels and travel distributors in maximizing revenue and profitability." The transaction, which is subject to stockholder approval, is valued at approximately $275 million. Under the terms of the merger agreement, Pegasus stockholders not affiliated with the investment group will receive $9.50 in cash for each share of Pegasus common stock they hold. For further information, please refer to our proxy statement and Schedule 13E-3 filed with the Securities and Exchange Commission. Fourth Quarter Overview (See tables included with this release for reconciliation of non-GAAP measures to GAAP measures.) -- On a GAAP basis, revenues were $41.5 million for the quarter, compared to $44.4 million in the fourth quarter of 2004. -- Income from continuing operations per diluted share was $0.03 for the quarter, including merger related costs, compared to $0.14 in the fourth quarter of 2004. -- Adjusted income from continuing operations per diluted share was $0.11 for the quarter, compared to $0.20 in the year ago quarter. In addition to the exclusion of amortization of software and identifiable assets obtained through acquisitions in both quarters, fourth quarter 2005 adjusted per share results also exclude an after tax charge of $1.2 million primarily related to the transaction costs. -- Adjusted EBITDA was $8.4 million or 20 percent of revenues for the quarter, compared to adjusted EBITDA of $9.6 million, or 22 percent of revenues, in the same quarter last year. -- The cash balance (including auction rate securities) increased to $38.0 million at year end versus $30.2 million at September 30, 2005 as a result of positive operating cash flows and the timing of capital expenditures. Fiscal Year 2005 Financial Results (See tables included with release for reconciliation of non-GAAP measures.) -- Operating cash flows increased 2 percent to $30.6 million compared to $30.2 million in 2004. -- Revenues decreased 5 percent to $175.5 million compared to $185.4 million in 2004. -- Income from continuing operations per diluted share was $0.25, including merger related costs, compared to $0.53 in 2004. -- Adjusted income per diluted share decreased to $0.48 compared to $0.64 in 2004. -- Adjusted EBITDA was $32.7 million compared to adjusted EBITDA of $39.4 million in 2004 with an associated adjusted EBITDA margin of 18 percent, compared to 21 percent in 2004. Fourth Quarter Service Line Review -- For Pegasus' distribution services, revenues were $6.0 million, up 3 percent from the year-ago quarter. During the fourth quarter, switch transactions increased 14 percent in total compared to the same quarter last year. -- Representation services revenues were $15.3 million for the quarter. Due to reduced pricing and the transition of a significant Unirez by Pegasus(TM) customer to the company's central reservation service (CRS), revenue is down 12 percent compared to the prior year quarter. The company's Utell by Pegasus(TM) service was negatively impacted by a 7 percent decrease in reservation volume, a 6 percent decrease in the average commission earned and an approximate 7 percent decrease in the exchange rates of the British pound and the euro against the U.S. dollar, as compared to the prior year quarter. On a sequential quarter basis, the Utell by Pegasus(TM) average commission earned has stabilized and the representation portfolio count has increased more than 3 percent. Pegasus fourth quarter initiatives included representation product showcases and customer-focused revenue and yield management programs. -- Reservation services revenues were $7.3 million, down 23 percent compared to the same period last year. The loss of a CRS customer was partially offset by the positive impact from a significant representation customer converting to the CRS service. Excluding the reservations attributable to those two customers, CRS transactions increased 6 percent. However, reduced pricing on contract renewals that took effect in early 2005 resulted in the year-over-year decrease in revenue. -- Revenues for the company's financial services were $8.6 million, up 8 percent year-over-year, due to increased transactions and improved average daily room rates in the United States. Financial Results "Fourth quarter revenues of $41.5 million came in at the high end of our previous guidance," said Susan K. Conner, executive vice president and chief financial officer. "Our adjusted EPS for the fourth quarter was $0.11 and it excludes an after-tax charge of $1.2 million for costs primarily related to the merger transaction. A definitive agreement had not been signed at the time of our last conference call, and the fourth quarter guidance we provided did not exclude these costs. Accordingly, for our guidance we treated these after-tax costs as operating expenses. Had we excluded these transaction costs, our adjusted EPS guidance would have ranged from $0.08 to $0.11." Davis concluded: "Pegasus has a rich heritage of providing services and technology solutions for hotels and travel distributors throughout the world. Our ability to anticipate industry trends and respond to customer needs is how we built this company. Moving forward, we plan to intensify our efforts on what we do best -- helping our customers grow by providing our leading solutions to the market." About Pegasus Solutions, Inc. Dallas-based Pegasus Solutions, Inc. (Nasdaq:PEGS) is a global leader in providing technology and services to hotels and travel distributors. Founded in 1989, Pegasus' customers include a majority of the world's travel agencies and more than 60,000 hotel properties around the globe. Pegasus' services include central reservation systems, electronic distribution services, commission processing and payment services, and marketing representation services, including the consumer Web site, www.hotelbook.com. The company's representation services, including Utell by Pegasus(TM) and Unirez by Pegasus(TM), are used by more than 7,000 member hotels in more than 130 countries, making Pegasus the hotel industry's largest third-party marketing and reservations provider. Pegasus has 17 offices in 12 countries, including regional hubs in London, Singapore and Scottsdale, Arizona. For more information, please visit www.pegs.com. Forward-Looking Statements Some statements made in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding future events, financial projections, estimated transaction volumes and expected average daily room rates, as well as management's expectations, beliefs, hopes, intentions or strategies regarding the future. Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from current expectations. Factors that could cause or contribute to such difference include, but are not limited to Pegasus' failure to complete the acquisition of the company as contemplated by the Agreement and Plan of Merger dated December 19, 2005 among Perseus Holding Corp., 406 Acquisition Corp. and the company, or delays with respect to such closing, terrorist acts or war, global health epidemics, variation in demand for and acceptance of the company's products and services, the level of product and price competition from existing and new competitors, delays in developing, marketing and deploying new products and services, the inability of the company to sell the PMS operations, risks associated with a PMS sale transaction and the inability of the company to terminate the PMS services as expected, as well as other risks identified in the company's Securities and Exchange Commission filings, including those appearing under the caption Risk Factors in the company's Annual Report on Form 10-K for the year ended December 31,2004. For further information regarding the merger agreement, please refer to the company's filings with the SEC. Use of Non-GAAP Financial Measures Pegasus provides financial measures and terms not calculated in accordance with generally accepted accounting principles in the United States (GAAP). We believe that presentation of non-GAAP measures such as adjusted revenues, adjusted income from continuing operations per share, EBITDA and adjusted EBITDA provide investors with an alternative method for assessing our operating results in a manner that enables investors to more thoroughly evaluate our current performance as compared to past performance. We also believe these non-GAAP measures provide investors with a better baseline for assessing the company's future earnings expectations. Our management uses these non-GAAP measures for the same purpose. The non-GAAP measures included in this release are provided to give investors access to the types of measures that we use in analyzing our results. Adjusted revenues consist of GAAP revenues adjusted for the items included in the accompanying reconciliation. Adjusted income from continuing operations per share consists of GAAP income from continuing operations per share adjusted for the items included in the accompanying reconciliation. We believe these measures enable management and investors to more thoroughly evaluate our current performance as compared to past performance and provide a better baseline for assessing the company's future earnings expectations. However, these measures do not provide a complete picture of our operations. Therefore net income (loss) per share and revenues and income from continuing operations per share on both a non-GAAP basis and GAAP basis may need to be considered to get a comprehensive view of our results. EBITDA consists of GAAP net income (loss) adjusted for the items included in the accompanying reconciliation. We believe that EBITDA provides useful information to investors about the company's performance because it eliminates the effects of period to period changes in taxes, discontinued operations, cost associated with capital investments and interest income (expense). Adjusted EBITDA consists of EBITDA adjusted for the items included in the accompanying reconciliation. EBITDA and adjusted EBITDA do not give effect to the cash the company must use to service its debt or pay its income taxes and thus do not reflect the funds generated from operations or actually available for capital expenditures. Pegasus' calculation of adjusted revenues, adjusted income from continuing operations per share, EBITDA and adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies. These non-GAAP measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Schedules that reconcile adjusted revenues and adjusted income from continuing operations per share to their most directly comparable GAAP measure and EBITDA and adjusted EBITDA to GAAP net income (loss) are included with this release. Availability of Information Pegasus Solutions, Inc. has filed a preliminary Proxy Statement on Schedule 14A and Schedule 13E-3 with the SEC and intends to file a definitive Proxy Statement on Schedule 14A and Schedule 13E-3 with the SEC. Investors and security holders are advised to read Pegasus Solutions' definitive Proxy Statement and Schedule 13E-3 when they become available, because they will contain important information. Investors and security holders may obtain a copy of the definitive Proxy Statement on Schedule 14A (when filed) and Schedule 13E-3 from the SEC's Web site at www.sec.gov. Pegasus Solutions also will provide a copy of these materials without charge on its Web site at www.pegs.com. Pegasus Solutions, Inc. and its directors and executive officers may be deemed to be participants in the solicitation of proxies from stockholders of Pegasus Solutions. Information regarding the names of Pegasus Solutions' directors, executive officers and their respective interests in Pegasus Solutions by security holding or otherwise is set forth in Pegasus' proxy statement relating to the 2005 Annual Meeting of Stockholders, which may be obtained free of charge from the SEC's Web site at www.sec.gov and from Pegasus Solutions' Web site at www.pegs.com. -0- *T PEGASUS SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Year Ended Ended December 31, December 31, ----------------- ------------------- 2005 2004 2005 2004 -------- -------- --------- --------- Revenues: Service revenues $37,244 $40,740 $158,127 $170,159 Customer reimbursements 4,244 3,704 17,355 15,253 -------- -------- --------- --------- Total revenues 41,488 44,444 175,482 185,412 -------- -------- --------- --------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 18,455 19,739 81,385 85,968 Customer reimbursements 4,244 3,704 17,355 15,253 -------- -------- --------- --------- Total costs of services 22,699 23,443 98,740 101,221 -------- -------- --------- --------- Research and development 929 637 3,391 3,676 General and administrative expenses 5,967 5,655 23,688 23,878 Marketing and promotion expenses 5,312 5,109 21,121 19,618 Depreciation and amortization 5,073 4,069 18,963 17,516 -------- -------- --------- --------- Operating income 1,508 5,531 9,579 19,503 Other income (expense): Gain on sale -- -- -- 1,961 Interest expense, net (244) (339) (1,294) (1,862) Other (138) 948 130 814 -------- -------- --------- --------- Income from continuing operations before income taxes 1,126 6,140 8,415 20,416 Income tax expense (539) (2,883) (3,186) (7,956) -------- -------- --------- --------- Income from continuing operations 587 3,257 5,229 12,460 Discontinued operations, net of tax 199 (1,482) (12,884) (4,475) -------- -------- --------- --------- Net income (loss) $786 $1,775 $(7,655) $7,985 ======== ======== ========= ========= Basic income (loss) per share: Continuing operations $0.03 $0.15 $0.25 $0.54 Discontinued operations 0.01 (0.07) (0.62) (0.19) -------- -------- --------- --------- Net income (loss) $0.04 $0.08 $(0.37) $0.35 ======== ======== ========= ========= Diluted income (loss) per share: Continuing operations $0.03 $0.14 $0.25 $0.53 Discontinued operations 0.01 (0.05) (0.62) (0.17) -------- -------- --------- --------- Net income (loss) $0.04 $0.09 $(0.37) $0.36 ======== ======== ========= ========= Weighted average shares outstanding: Basic 20,766 21,556 20,749 22,903 ======== ======== ========= ========= Diluted (See Note 1) 20,890 25,556 20,952 26,941 ======== ======== ========= ========= Note (1) The company's fourth quarter and full year 2004 diluted per share data include approximately 3.7 million additional shares, applicable to its contingently convertible debt, in the weighted average share base used in the diluted per share computations. See attached reconciliation of per share computations. Subject to certain conditions, the company's convertible debt is convertible into common stock at a conversion price of approximately $20.13 per share. PEGASUS SOLUTIONS, INC. RECONCILIATION OF PER SHARE COMPUTATIONS (In thousands, except per share amounts) (Unaudited) Three Months Year Ended Ended December 31, December 31, --------------- ----------------- 2005 2004 2005 2004 ------- ------- -------- -------- Income from continuing operations (a) $587 $3,257 $5,229 $12,460 Discontinued operations, net of tax (b) 199 (1,482) (12,884) (4,475) ------- ------- -------- -------- Net income (loss) (c) $786 $1,775 $(7,655) $7,985 ======= ======= ======== ======== Income from continuing operations (a) $587 $3,257 $5,229 $12,460 Adjustment for interest on convertible debt, net of tax -- 406 -- 1,789 ------- ------- -------- -------- Income from continuing operations, as adjusted (d) $587 $3,663 $5,229 $14,249 ======= ======= ======== ======== Net income (loss) (c) $786 $1,775 $(7,655) $7,985 Adjustment for interest on convertible debt, net of tax -- 406 -- 1,789 ------- ------- -------- -------- Net Income (loss), as adjusted (e) $786 $2,181 $(7,655) $9,774 ======= ======= ======== ======== Basic income (loss) per share: Continuing operations (a)/(f) $0.03 $0.15 $0.25 $0.54 Discontinued operations (b)/(f) 0.01 (0.07) (0.62) (0.19) ------- ------- -------- -------- Net income (loss) (c)/(f) $0.04 $0.08 $(0.37) $0.35 ======= ======= ======== ======== Diluted income (loss) per share: Continuing operations (d)/(g) $0.03 $0.14 $0.25 $0.53 Discontinued operations (b)/(g) 0.01 (0.05) (0.62) (0.17) ------- ------- -------- -------- Net income (loss) (e)/(g) $0.04 $0.09 $(0.37) $0.36 ======= ======= ======== ======== Basic weighted average shares outstanding (f) 20,766 21,556 20,749 22,903 Dilutive effect of stock options 124 274 203 312 Dilutive effect of convertible debt (See Note 1) -- 3,726 -- 3,726 ------- ------- -------- -------- Diluted weighted average shares outstanding (g) 20,890 25,556 20,952 26,941 ------- ------- -------- -------- Note (1) Subject to certain conditions, the company's convertible debt is convertible into common stock at a conversion price of approximately $20.13 per share. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share amounts) (Unaudited) Three Months Ended December 31, 2005 ---------------------------------- As Adjustments Adjusted Reported --------- ----------- -------- Revenues: Service revenues $37,244 $-- $37,244 Customer reimbursements 4,244 -- 4,244 --------- ----------- -------- Total revenues 41,488 -- 41,488 --------- ----------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 18,455 (231) (1) 18,224 Customer reimbursements 4,244 -- 4,244 --------- ----------- -------- Total costs of services 22,699 (231) 22,468 --------- ----------- -------- Research and development 929 (19) (1) 910 General and administrative expenses 5,967 (1,282) (1) 4,685 Marketing and promotion expenses 5,312 (268) (1) 5,044 Depreciation and amortization 5,073 (788) (2) 4,285 --------- ----------- -------- Operating income 1,508 2,588 4,096 Other income (expense): Interest expense, net (244) -- (244) Other (138) -- (138) --------- ----------- -------- Income from continuing operations before income taxes 1,126 2,588 3,714 Income tax expense (539) (798) (3) (1,337) --------- ----------- -------- Income from continuing operations 587 $1,790 $2,377 =========== ======== Discontinued operations, net of tax 199 --------- Net income $786 ========= Diluted income (loss) per share: Continuing operations $0.03 $0.11 ======== Discontinued operations 0.01 --------- Net income $0.04 ========= Diluted weighted average shares outstanding 20,890 -- 20,890 ========= =========== ======== Notes (1) To adjust for the impact of costs related to the merger agreement and severance. (2) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (3) To adjust income tax expense for assumed 36% tax rate. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share amounts) (Unaudited) Three Months Ended December 31, 2004 ---------------------------------- As Adjustments Adjusted Reported --------- ----------- -------- Revenues: Service revenues $40,740 $-- $40,740 Customer reimbursements 3,704 -- 3,704 --------- ----------- -------- Total revenues 44,444 -- 44,444 --------- ----------- -------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 19,739 19,739 Customer reimbursements 3,704 -- 3,704 --------- ----------- -------- Total costs of services 23,443 -- 23,443 --------- ----------- -------- Research and development 637 -- 637 General and administrative expenses 5,655 5,655 Marketing and promotion expenses 5,109 -- 5,109 Depreciation and amortization 4,069 (766) (1) 3,303 --------- ----------- -------- Operating income 5,531 766 6,297 Other income (expense): Interest expense, net (339) -- (339) Other 948 -- 948 --------- ----------- -------- Income from continuing operations before income taxes 6,140 766 6,906 Income tax expense (2,883) 259 (2) (2,624) --------- ----------- -------- Income from continuing operations 3,257 $1,025 $4,282 =========== ======== Discontinued operations, net of tax (1,482) --------- Net income $1,775 ========= Diluted income (loss) per share: Continuing operations $0.14 $0.20 ======== Discontinued operations (0.05) --------- Net income $0.09 ========= Diluted weighted average shares outstanding 25,556 (3,726) (3) 21,830 ========= =========== ======== Notes (1) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (2) To adjust income tax expense for assumed 38% tax rate. (3) To exclude the dilutive effect of convertible debt -- convertible at $20.13 per share. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share amounts) (Unaudited) Year Ended December 31, 2005 ------------------------------------- As Adjustments Adjusted Reported --------- ----------- --------- Revenues: Service revenues $158,127 $1,500 (1) $159,627 Customer reimbursements 17,355 -- 17,355 --------- ----------- --------- Total revenues 175,482 1,500 176,982 --------- ----------- --------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 81,385 (470)(1),(2) 80,915 Customer reimbursements 17,355 -- 17,355 --------- ----------- --------- Total costs of services 98,740 (470) 98,270 --------- ----------- --------- Research and development 3,391 (65) (2) 3,326 General and administrative expenses 23,688 (1,749) (2) 21,939 Marketing and promotion expenses 21,121 (351) (2) 20,770 Depreciation and amortization 18,963 (3,133) (3) 15,830 --------- ----------- --------- Operating income 9,579 7,268 16,847 Other income (expense): Interest expense, net (1,294) -- (1,294) Other 130 -- 130 --------- ----------- --------- Income from continuing operations before income taxes 8,415 7,268 15,683 Income tax expense (3,186) (2,460) (4) (5,646) --------- ----------- --------- Income from continuing operations 5,229 $4,808 $10,037 =========== ========= Discontinued operations, net of tax (12,884) --------- Net loss $(7,655) ========= Diluted income (loss) per share: Continuing operations $0.25 $0.48 ========= Discontinued operations (0.62) --------- Net loss $(0.37) ========= Diluted weighted average shares outstanding 20,952 -- 20,952 ========= =========== ========= Notes (1) To adjust for the impact of converting from monthly to weekly commission processing. (2) To adjust for the impact of costs related to the merger agreement, severance and facility closure costs. (3) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (4) To adjust income tax expense for assumed 36% tax rate. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands, except per share amounts) (Unaudited) Year Ended December 31, 2004 ----------------------------------- As Adjustments Adjusted Reported --------- ----------- --------- Revenues: Service revenues $170,159 $-- $170,159 Customer reimbursements 15,253 -- 15,253 --------- ----------- --------- Total revenues 185,412 -- 185,412 --------- ----------- --------- Costs of services (exclusive of depreciation and amortization shown separately below): Cost of services 85,968 (1,915) (1) 84,053 Customer reimbursements 15,253 -- 15,253 --------- ----------- --------- Total costs of services 101,221 (1,915) 99,306 --------- ----------- --------- Research and development 3,676 -- 3,676 General and administrative expenses 23,878 (465) (1) 23,413 Marketing and promotion expenses 19,618 -- 19,618 Depreciation and amortization 17,516 (3,067) (2) 14,449 --------- ----------- --------- Operating income 19,503 5,447 24,950 Other income (expense): Gain on sale 1,961 (1,961) (3) -- Interest expense, net (1,862) -- (1,862) Other 814 -- 814 --------- ----------- --------- Income from continuing operations before income taxes 20,416 3,486 23,902 Income tax expense (7,956) (1,127) (4) (9,083) --------- ----------- --------- Income from continuing operations 12,460 $2,359 $14,819 =========== ========= Discontinued operations, net of tax (4,475) --------- Net income $7,985 ========= Diluted income (loss) per share: Continuing operations $0.53 $0.64 ========= Discontinued operations (0.17) --------- Net income $0.36 ========= Diluted weighted average shares outstanding 26,941 (3,726) 23,215 ========= =========== ========= Notes (1) To adjust for severance and other non-recurring costs related to the company's information technology organization. (2) To adjust for amortization of software and identifiable intangible assets obtained through acquisitions. (3) To adjust for gain on sale of Travelweb LLC. (4) To adjust income tax expense for assumed 38% tax rate. PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands) (Unaudited) Three Months Ended December 31, -------------------- 2005 2004 --------- ---------- Total revenues $41,488 $44,444 ========= ========== Net income (loss) $786 $1,775 Reconciling items: Discontinued operations, net of tax (199) 1,482 Income tax expense 539 2,883 Gain on sale -- -- Interest expense, net 244 339 Other income 138 (948) Depreciation and amortization 5,073 4,069 --------- ---------- EBITDA $6,581 $9,600 ========= ========== EBITDA margin 16% 22% ========= ========== Adjustments: Costs related to the merger agreement and severance 1,800 -- --------- ---------- Adjusted EBITDA $8,381 $9,600 ========= ========== Adjusted EBITDA margin 20% 22% ========= ========== PEGASUS SOLUTIONS, INC. RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (In thousands) (Unaudited) Year Ended December 31, ------------------- 2005 2004 --------- --------- Total revenues $175,482 $185,412 Adjustment: Impact of converting from monthly to weekly commission processing 1,500 -- --------- --------- Adjusted revenues $176,982 $185,412 ========= ========= Net income (loss) $(7,655) $7,985 Reconciling items: Discontinued operations, net of tax 12,884 4,475 Income tax expense 3,186 7,956 Gain on sale -- (1,961) Interest expense, net 1,294 1,862 Other income (expense) (130) (814) Depreciation and amortization 18,963 17,516 --------- --------- EBITDA $28,542 $37,019 ========= ========= EBITDA margin 16% 20% ========= ========= Adjustments: Net impact of converting from monthly to weekly commission processing 1,350 -- Costs related to the merger agreement, severance and facility closure 2,785 2,380 --------- --------- Adjusted EBITDA $32,677 $39,399 ========= ========= Adjusted EBITDA margin 18% 21% ========= ========= PEGASUS SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) December 31, December 31, 2005 2004 ------------ ------------ ASSETS Cash and cash equivalents $32,315 $17,599 Auction rate securities 5,700 5,650 Short-term investments -- 6,001 Accounts receivable, net 23,786 28,551 Other current assets 9,971 9,061 ------------ ------------ Total current assets 71,772 66,862 Goodwill 163,156 163,585 Intangible assets, net 4,357 5,827 Property and equipment, net 59,067 80,326 Other noncurrent assets 16,769 12,614 ------------ ------------ Total assets $315,121 $329,214 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued liabilities $31,478 $29,531 Unearned revenue 6,519 6,763 Other current liabilities 4,547 5,621 ------------ ------------ Total current liabilities 42,544 41,915 Noncurrent uncleared commission checks 5,915 5,576 Other noncurrent liabilities 17,535 19,407 Convertible debt 75,000 75,000 Commitments and contingencies Stockholders' equity: Common stock 208 211 Additional paid-in capital 237,596 242,112 Unearned compensation (273) (408) Accumulated other comprehensive loss (2,145) (995) Accumulated deficit (61,259) (53,604) ------------ ------------ Total stockholders' equity 174,127 187,316 ------------ ------------ Total liabilities and stockholders' equity $315,121 $329,214 ============ ============ *T