| NAVIGANT INTERNATIONAL INC consider the risks described in Item 1A Risk Factors and other factors that may be identified from time to time in our filings with the Securities and Exchange Commission, or the SEC If any of these risks should actually occur, our actual results could differ materially from our forward-looking statements |
| BUSINESS General We are the second largest provider of corporate travel management services in the United States based on number of airline tickets sold in 2004 |
| We provide travel management services to corporations, government agencies and the military and, to a more limited extent, other travel services to these customers |
| With operations throughout the United States, various US territories and 20 foreign countries, we manage all aspects of our clients’ travel processes, focusing on reducing their travel expenses, which typically make up one of the largest controllable expenses in a corporate budget |
| Through our acquisition of TQ3 Travel Solutions, GmbH and our international subsidiaries we believe that we have expanded our global reach and added to our ability to serve the interest of our major customers in key worldwide markets |
| Through Scheduled Airlines Traffic Offices, Inc |
| or SatoTravel^®, we provide airline travel reservation services to the US government and its employees, as well as to large, private sector organizations |
| Our TQ3 Navigant Performance Group™ provides expertise in the areas of incentive programs, meetings and special events |
| We also provide specific group and leisure travel services, largely to our corporate clients and their individual travelers |
| In this report, the terms “Company,” “we,” “us” or “our” mean Navigant International, Inc |
| and all subsidiaries included in our consolidated financial statements |
| Founded in 1969 and headquartered in Minneapolis, Northwestern provides corporate travel management services combining personalized customer service and Web-enabled technologies |
| Northwestern, with 23 offices and 37 client onsite locations, was at the time of the acquisition, the 12th largest travel management company in the United States |
| Also in 2004, we acquired two additional travel management companies, along with another meeting and incentive company |
| In 2005, we acquired three travel management companies, including SYNERGI Travel New Zealand Limited and SYNERGI Travel Australia Pty |
| See Note 2 of the notes to consolidated financial statements in Item 8 of this Annual Report |
| On December 29, 2004, we completed a Global Business Travel Venture Agreement with TQ3 Travel Solutions Management Holding GmbH Under this agreement, we purchased a 50prca interest in TQ3 Travel Solutions GmbH TQ3 Travel Solutions GmbH operates an international network of licensees providing corporate travel management services |
| On January 3, 2006, we agreed with TQ3 Travel Solutions Management Holding GmbH to terminate this joint venture |
| As part of that termination, TQ3 Management Holding GmbH transferred its 50prca stake in TQ3 Travel Solutions GmbH to us |
| TQ3 Travel Solutions GmbH will retain the worldwide rights to the TQ3 brand name and trademark |
| We operate in one industry segment—air travel and ancillary products and our customers are geographically diverse with no single customer base concentrated in a single industry |
| Services Travel Management Services We provide our clients with a wide range of travel management services in addition to reservation and ticketing, including: • Developing corporate travel policies; • Managing adherence to travel policies; • Outsourcing travel management consulting services; • Designing information and management reporting systems; 2 ______________________________________________________________________ [28]Table of Contents • Negotiating favorable pricing with travel suppliers; and • Planning and organizing incentive programs, corporate meetings and special events |
| We book travel reservations for our clients with a variety of travel suppliers, including airlines, hotels and rental car companies, using three major global distribution systems—Sabre, Galileo/Apollo and Worldspan |
| We have long-term agreements with each of these companies |
| After making travel reservations for our clients, we issue tickets, both paper and electronic, and provide our customers with detailed itineraries, which include confirmation numbers for airline, hotel and car rental reservations |
| We can assist our clients in developing travel policies that enable each client to manage its travel expenses |
| These policies can mandate the use of particular vendors, set parameters on the class of service used by travelers, require advance purchase of airline tickets and define the use of “frequent flier” program benefits |
| These policies may also have risk management features, such as limiting the number of officers and employees who may travel on the same flight |
| Our management reports provide detailed and comprehensive information about each client’s travel expenses and patterns |
| These reports show savings achieved through the use of preferred vendors and adherence to travel policies, and analyze destinations, airlines and hotel usage and rental car expense |
| The information collected assists us and the client in negotiating discounts and pricing with vendors, and allows the client to monitor and enforce its travel policies |
| We operate a 24-hour toll-free telephone service to provide emergency assistance to travelers |
| Many other travel management companies contract with us to use this service and we believe it is one of the best 24-hour services in the travel industry |
| We provide meetings and incentive services as TQ3 Navigant Performance Group, or NPG NPG operates throughout the United States, Canada and the United Kingdom and provides innovation and expertise in the areas of incentive programs, meetings and special events |
| Services provided by NPG include, but are not limited to, strategic planning, promotion support, site selection, contract negotiations, program planning, registration, creative support and on-site management |
| We derive part of our meetings and incentive business through our existing corporate client base |
| Through our multiple call centers, TQ3 Travel Solutions, and advanced technology, we provide our clients with premium service, flexibility and cost-saving opportunities |
| In addition to corporate travel management, we provide leisure travel services to both individuals and groups as a small portion of our overall business |
| We derive part of our leisure travel business through our existing corporate client base |
| Use of Technology We embrace technology as a key to future success in the corporate travel management industry |
| Our information technology can provide our clients’ corporate travel managers, as well as financial officers, with extensive data about individual, departmental and company travel activity and patterns on a daily, real-time basis |
| We can use this information to consult with our corporate clients regarding the structure, operation and efficiency of a variety of corporate travel policies |
| In addition, we can provide corporate clients with comprehensive information about cost-saving opportunities for the travel undertaken by their employees |
| Our wholly-owned subsidiary, AQUA^® Software Products, Inc, has developed a fully-automated quality assurance program, AQUAPlatinum^TM, which features both a quality auditing system and a computerized cost avoidance system |
| We have branded our version of this product AQUA AQUA’s Trip Auditor™ module checks each travel record for accuracy and completeness and repetitively searches airline seat maps for each traveler’s 3 ______________________________________________________________________ [29]Table of Contents preferred seat assignments, hotel rate comparisons and frequent-flier upgrade opportunities |
| AQUA’s FareBuster™ module is a computerized cost avoidance program that checks each record for a lower airline fare and continuously checks wait list flights and flight inventories for discount fares that become available prior to travel |
| AQUA also advises travel managers of travelers who are not taking advantage of the lowest fare |
| Currently, we have the AQUA system installed to process nearly 100prca of our transactions |
| Three of the top five travel management companies in the United States license portions of the AQUA system |
| We believe that the Internet has the potential to allow us to provide an even higher level of service to our corporate clients while reducing distribution costs, especially labor costs |
| We have built a user base for our proprietary online travel management solution, Passportal, and we continue to develop and enhance this tool |
| We have also developed a Web-based Online Profile Management tool, which we launched in May 2004 to provide customer creation and management of traveler profiles that are centrally managed, standardized, and easily accessible |
| We serve our corporate clients through our consolidated Web site, TQ3Navigant |
| Through Dynamic Travel Reports, the corporate client can view trip information sorted at every level of corporate organization, from individual traveler to department, division or entire company |
| Dynamic Travel Reports allow corporate travel managers and other executives the ability to view their company’s travel activities and real-time data 24 hours a day using a password-protected system |
| We have introduced additional Internet products, including E-Ticket Tracking, a product designed to help travelers salvage value from an unused, non-refundable ticket; Compliance Dashboards, a tool to organize and monitor valuable travel data in a single, customizable view; and Automated Policy Management, a policy management/adherence application that allows corporations to define their corporate travel policies and apply these definitions against invoiced transactions, generating e-mail notifications to the traveler, supervisor and/or other designates for non-compliant records communicating what the appropriate purchasing decision should have been and thus improving policy compliance and driving down corporate travel and entertainment expenses |
| Although we rely heavily on technology, the total funds spent during the last three fiscal years on company-sponsored research and development has not been material |
| We primarily focus our technology development and implementations on replacing third-party applications that are generally available within our industry |
| As a result, we have spent less than dlra200 thousand in each of the last three years on research and development |
| Our existing programmers and other IT staff perform research and development as an adjunct to their day-to-day duties |
| We do not consider, and do not track, their research and development time as an incremental expense |
| Thus, we consider our research and development expense to be not material to our results of operations, taken as a whole |
| Distribution of Services We provide corporate travel management services to our clients through several channels, including on-site offices, regional travel management offices, call centers and on-site satellite ticket printers, or STPs |
| We believe this regional focus allows us to provide personal service and specialized local market knowledge |
| As of March 3, 2006, we had approximately 600 on-site offices on client premises, where we provide customized trip planning and reservation and ticketing services to the employees of corporate and governmental clients |
| On-site operations are typically used by clients with airline expenditures in excess of dlra1dtta0 million per year |
| Through an on-site office, we are able to work one-on-one with the client’s travel manager to meet the client’s travel needs, including the need for customized travel information and negotiations with travel suppliers frequently used by the customer |
| As of March 3, 2006, we had 120 regional and branch offices |
| These offices are typically used by corporate customers with less than dlra1dtta0 million in travel expenditures per year |
| The regional offices provide local companies with comprehensive travel management services, including trip planning, reservation and ticketing services, accounting, corporate travel reporting, negotiations with frequently used travel suppliers and consulting |
| 4 ______________________________________________________________________ [30]Table of Contents The regional nature of these offices allows them to leverage their local market expertise and to provide responsive and personalized service |
| In addition, regional offices provide backup to nearby on-site locations |
| As of March 3, 2006, we operated five call centers, which serve our large-scale corporate clients and several military and governmental customers |
| Call centers are typically used by corporate, military and government clients with more than dlra40dtta0 million in travel expenditures per year |
| The call centers provide clients with high levels of service, flexibility and cost-saving opportunities |
| As of March 3, 2006, we also operated approximately 160 STPs at client locations across the country |
| We use these printers to distribute tickets instantly to clients whose field locations have enough volume to justify the STP Locations with lower volume can receive tickets via overnight delivery services |
| We believe that the growth of electronic ticketing will eventually eliminate the need for STPs and overnight delivery, thus lowering distribution costs |
| We have entered into arrangements with third parties pursuant to which we fulfill travel reservations placed on the Internet |
| In addition, through our Passportal Web site, we allow clients to, among other things, check flight times, make reservations, access and sort password-protected corporate travel data, find restaurants and automatic teller machines and access the latest currency conversion rates |
| We offer reservation services to our clients through the Internet, e-mail and facsimile |
| These distribution methods offer clients the option of performing reservation services directly, while we provide a supporting role |
| Our role includes performing quality control on the reservation, assessing travel policy compliance, assisting the traveler with the use of the reservation system and issuing and delivering tickets reserved by the client |
| Additionally, we report to management on matters such as pre- and post-travel activity, cost-saving opportunities and the development and assessment of the client’s travel policy and negotiated rate opportunities |
| Significant Customers We provide services to numerous agencies and entities of the federal government under various individual contracts, which in the aggregate account for approximately 17prca of our total revenues in 2005, 19prca in 2004 and 24prca in 2003 |
| Individually, these travel service agreements contain varying terms and conditions, concern varying volumes, and are administered by different contracting officers |
| Seasonality The business travel industry is seasonal and our results have fluctuated because of these seasonal variations |
| Revenues and net income for us are generally higher in the second and third calendar quarters |
| We expect this seasonality to continue in the future |
| As we continue to complete acquisitions, we may become subject to additional seasonal influences |
| Competition The corporate travel management industry is extremely competitive |
| We compete primarily with other corporate travel management companies |
| Some of our competitors may have greater brand-name recognition and financial resources than we do |
| The largest corporate travel management company is significantly larger than us and our other competitors, and we compete with several companies that are similar in size to us |
| Competition within the corporate travel management industry is increasing as the industry undergoes a period of consolidation |
| Some of our competitors are expanding their size and financial resources through consolidation |
| Some travel management companies may have relationships with travel suppliers that give them access to favorable availability of products, including airplane seats and hotel rooms, or more competitive pricing than that offered by us |
| Furthermore, some corporate travel management companies have a strong presence in particular geographic areas that may make it difficult for us to attract clients in those areas |
| As a result of competitive pressures, we may suffer a loss of clients, and our revenues or margins may decline |
| 5 ______________________________________________________________________ [31]Table of Contents We also compete with online travel providers as well as travel suppliers, including airlines, hotels and rental car companies |
| Innovations in technology, such as the Internet and computer online services, have increased the ability of travel suppliers to distribute their travel products and some services directly to the consumer |
| Although corporate travel management companies and travel agencies remain the primary channel for travel distribution, businesses and consumers can use the Internet to access information about travel products and services and to purchase such products and services directly from the suppliers, thus bypassing corporate travel management companies and travel agents |
| We believe that we compete for clients based upon service, price and specialized knowledge |
| We believe that we are well-positioned to compete on these bases due to our combination of size and regional focus |
| We use our size to achieve operating efficiencies by implementing customized and industry-standard technologies and by consolidating administrative functions |
| Our size also provides opportunities to negotiate favorable arrangements with travel suppliers, such as airlines, hotels and rental car companies |
| Our regional focus, conversely, fosters personalized customer service and specialized local market knowledge, which help improve customer service, solidify customer relationships and expand our customer base |
| International Operations We continue to place emphasis on international markets as we look to further expand the presence of our brands and businesses abroad, particularly in Europe, given the large consumer marketplace for the goods and services that these brands and businesses offer |
| We believe our interest in TQ3 Travel Solutions, 50prca originally acquired in December 2004 with the remaining 50prca acquired in January 2006, has expanded our global reach and solidified our ability to serve major clients in key markets worldwide |
| For more information concerning our international operations refer to Note 12 of the notes to consolidated financial statements in Item 8 of this Annual Report |
| Marketing And Sales Our marketing continually targets both new and existing customers |
| Our sales staff identifies potential clients, and develops opportunities to provide additional travel services to existing clients |
| Over the past few years, travel policy and travel purchasing decisions in larger companies have been centralized in purchasing departments, with travel managers, or within the offices of chief financial officers |
| The selection of a travel agency has also become more formal, with larger accounts soliciting bids through “requests for proposals |
| ” We have adapted to these changes by relying on a sales force specially trained in the business of corporate travel, supported by experienced marketing staff |
| We have approximately 120 Associates in our sales and marketing departments |
| Management Information Systems We use networked management information systems for financial management, reporting and communication |
| These systems provide management with current financial information from all of our offices, and allow management to share that information easily and quickly with others |
| The systems also allow management to communicate efficiently with Associates and each other throughout the business day |
| We employ technicians to administer, install and maintain our computer hardware and software, as well as computer programmers to create software solutions for us and our customers |
| We began implementing a single, companywide information technology platform to service our accounting and reporting requirements in 1999, and with the exception of SatoTravel and NPG, 100prca of our North American transactions are currently being transacted on the same platform |
| We plan to convert SatoTravel to our standard system by the end of 2006 |
| Employees As of March 3, 2006, we had approximately 5cmam130 full-time Associates, none of whom are subject to collective bargaining agreements |
| We believe that we enjoy good relations with our Associates |
| Here we make available free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practical after such material is electronically filed with or furnished to the SEC We also have available a code of conduct, which can be found on our Web site |
| We have not incorporated by reference the information on our Web site into this Annual Report and you should not consider it part of this document |
| The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 |
| The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 |
| The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www |
| ITEM 1A RISK FACTORS Our significant indebtedness and interest payment obligations may adversely affect our ability to obtain additional financing, repay the Term Loan, service other existing debt, use our operating cash flow in other areas of our business, or otherwise adversely affect our operations |
| We continue to be significantly leveraged |
| As of December 25, 2005, we had dlra218dtta7 million of consolidated debt outstanding and our consolidated debt as a percentage of capitalization was 47dtta0prca |
| We may also need to incur additional debt in the future to complete acquisitions, make earn-out payments, make capital expenditures or for working capital, even though our Credit Agreement from the Bank of America, NA, as Administrative Agent, or the Credit Facility, and other indebtedness may impose some limits on our ability to do so |
| Our high level of indebtedness could have other important consequences, which include the following: • Our ability to obtain additional financing to fund the repayment of the dlra10 million term loan agreement funded on August 29, 2005, or the Term Loan, debt service requirements, capital expenditures, working capital or other purposes may be impaired; • Our ability to use operating cash flow in other areas of our business will be limited because we must dedicate a substantial portion of these funds to pay interest and principal on our debt; • Our Credit Facility bears interest at variable rates, which could result in higher interest expense in the event of increases in interest rates; • We may not be able to compete with others who are not as highly leveraged; and • Our significant leverage may limit our flexibility to adjust to changing market conditions, changes in our industry and economic downturns |
| Our ability to pay interest on our debt obligations and repay the Term Loan will depend upon our future operating performance and our ability to obtain additional debt or equity financing |
| Prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments |
| If in the future we cannot generate sufficient cash flow from operations to meet our obligations, we will need to refinance, obtain additional financing or sell assets |
| Our business may not generate cash flow, or we may not obtain funding sufficient to satisfy the repayment of the Term Loan or our debt service requirements |
| 7 ______________________________________________________________________ [33]Table of Contents Our Credit Facility and Term Loan impose restrictions which may adversely affect our ability to finance future operations or capital needs or engage in other business activities |
| The restrictions in our existing debt agreements, including the Credit Facility, and any future financing agreements may adversely affect our ability to finance future operations or capital needs or to engage in other business activities |
| These restrictions limit our ability, without agreement of our lenders, to: • Incur additional debt or prepay or modify any additional debt that may be incurred; • Make investments; • Pay any dividends or make any distributions; • Repurchase our securities; • Create liens; • Transfer or sell assets; • Enter into transactions with affiliates; • Issue or sell stock of subsidiaries; • Merge or consolidate; or • Materially change the nature of our business |
| In addition, our Credit Facility limits our ability to consummate acquisitions using total consideration in excess of dlra10 million without the consent of the participating banks |
| The November 3, 2005 Credit Facility Amendment restricted our ability to complete acquisitions by requiring the consent of participating banks for all acquisitions, including those using total consideration of less than dlra10 million, until we meet the original financial ratios contained in the Credit Facility |
| These limitations may reduce our ability to continue our acquisition program |
| Under our Credit Facility and Term Loan, as amended, we must maintain ratios of less than the following: For the Quarter Ending _________________________________________________________________ Maximum Consolidated Total Leverage Ratio _________________________________________________________________ Maximum Consolidated Senior Leverage Ratio _________________________________________________________________ December 25, 2005 4dtta30:1dtta0 2dtta90:1dtta0 March 26, 2006 4dtta00:1dtta0 2dtta65:1dtta0 June 25, 2006 3dtta80:1dtta0 2dtta60:1dtta0 September 24, 2006 3dtta70:1dtta0 2dtta25:1dtta0 December 31, 2006 and thereafter 3dtta25:1dtta0 2dtta25:1dtta0 As amended, we must maintain ratios of greater than the following: For the Quarter Ending _________________________________________________________________ Minimum Consolidated Fixed Charges Coverage Ratio _________________________________________________________________ December 25, 2005 1dtta70:1dtta0 March 26, 2006 1dtta70:1dtta0 June 25, 2006 1dtta70:1dtta0 September 24, 2006 1dtta75:1dtta0 December 31, 2006 1dtta80:1dtta0 April 1, 2007 and thereafter 2dtta00:1dtta0 The Credit Facility and Term Loan contain cross-default provisions related to other indebtedness over dlra1cmam000cmam000, which is triggered by our failure to pay any such indebtedness or the breach of any other term or condition beyond any grace period of any such indebtedness |
| The effect of the cross-default provision is to permit the holders of the Credit Facility and Term Loan to declare those agreements in default and accelerate the 8 ______________________________________________________________________ [34]Table of Contents maturity or payment of that indebtedness |
| Triggering the cross-default provision will give rise to remedies under our Credit Facility and Term Loan that lenders can exercise prior to any remedies under the other indebtedness |
| Our Credit Facility and Term Loan also require us to timely deliver our financial statements to the lenders |
| Our ability to comply with these requirements may be affected by events beyond our control |
| If we breach any of these covenants in our Credit Facility and Term Loan, or if we are unable to comply with the required financial ratios, we may be in default under our Credit Facility and Term Loan or other indebtedness |
| A significant portion of our indebtedness then may become immediately due and payable |
| We may not have, or be able to obtain, sufficient funds to make these accelerated payments |
| Compliance with the covenants is also a condition to continued borrowings under our revolving line of credit under our Credit Facility on which we will rely to fund our liquidity |
| Our Credit Facility matures on October 31, 2007 and we may not be able to refinance it on commercially reasonable terms, if at all |
| Before our Credit Facility matures on October 31, 2007, we intend to refinance the Credit Facility |
| With rising interest rates and our significant leverage, we may not be able to refinance, in whole or in part, our outstanding balance under our Credit Facility on commercially reasonable terms, if at all |
| If our debt service increases under a refinanced credit facility, the increased interest costs could impact our net income |
| If we are unable to refinance our Credit Facility, in whole or in part, we do not believe cash flow from operations will be sufficient to repay a significant portion of the outstanding balance under our Credit Facility |
| Consequently, we may need to seek alternative financing to repay amounts that are not refinanced |
| Such alternative financing could include the issuance of additional equity, which would dilute existing shareholders and could significantly decrease our earnings per share |
| We may not be able to complete an equity financing on commercially reasonable terms, if at all |
| If we are unable to refinance our Credit Facility or complete an equity financing to repay our Credit Facility, we may need to sell assets to repay the Credit Facility |
| If we cannot pay amounts due under our Credit Facility, we may be in default, and our lenders may be able to exercise all their rights and remedies against us and our assets |
| Declines or disruptions in the travel industry, such as those caused by terrorism, war or general economic downturns, could reduce our revenues and seriously harm our business |
| Our revenue increases or decreases with the level of travel activity, particularly with the volume of business travel |
| Our revenue is especially sensitive to declines or disruptions in the travel industry, in particular those caused by economic conditions and those events that affect, or are perceived to degrade, traveler safety |
| The financial, political, economic and other uncertainties following the terrorist attacks upon the United States in September 2001 resulted in a significant decline in travel, and many of our customers became much more cautious regarding their travel plans |
| Future acts of war, terrorism, military or civil responses to terrorism or the fear of such events occurring, as well as general health and safety concerns, could cause travel volume to decrease dramatically and to remain at lower than anticipated volumes for an extended period of time |
| In addition, travel-related accidents, bad weather, increased fuel prices and new security directives, which make travel more expensive or more difficult, may reduce demand for travel services |
| Negative economic conditions may also decrease demand for travel services |
| A decrease in demand for travel services, in particular those services associated with business travel, will impact our revenues and adversely affect our results of operations |
| If such a decrease continued for a long period of time, our financial condition could be significantly harmed |
| 9 ______________________________________________________________________ [35]Table of Contents If commissions, overrides or incentives for reservations or other revenues from vendors or suppliers are decreased or eliminated altogether, our revenue may be reduced |
| We derive part of our revenues from commissions paid by international airlines, incentive override commissions paid by the major airlines, incentive payments and other revenues from distribution system vendors and commissions from hotel and car vendors |
| International airlines are eliminating commissions, all airlines may reduce or terminate incentive override commissions, distribution system vendors may reduce or terminate incentive payments or other revenues, hotel and car vendors may reduce or terminate commissions and we may not be able to extend our current arrangements or enter into new arrangements that are as favorable as our current arrangements |
| If any of these events were to occur, our revenue could decrease and our financial condition could be seriously harmed |
| Additionally, if, during any period, we fail to meet our incentive level thresholds, our revenues could decrease |
| Our customers either pay for our services under management agreements or service fee arrangements |
| Under our management agreements, our customers pay us fees for transactions, and a significant portion of the revenues received by us from vendors on account of such transactions are typically credited against the fees payable by the customer to us |
| A reduction in vendor revenues would increase the out-of-pocket expenses for our customers and may cause such customers to seek a reduction in our fees or to terminate, or to attempt to terminate, their management agreements with us |
| For those agreements where we retain a portion of the vendor revenues, a decrease in revenues from vendors would also decrease that portion of those revenues retained by us under management agreements |
| For transactions performed for customers with whom we have service fee arrangements, we typically retain all vendor revenues paid on account of such transactions |
| If vendor revenues were to be reduced or eliminated, our revenues would decrease, and we may not be able to recover such reductions by increasing service fees to those customers |
| In addition, some of our customers can negotiate and obtain net agreements directly from vendors, and when this occurs we typically cease to receive revenue from the vendors for the travel activity of these customers |
| Although we attempt to recapture this revenue through increased or additional fees to the customer, we are not always able to obtain increased or additional fees, and consequently, our revenue would decrease |
| Our industry is extremely competitive, becoming increasingly consolidated and subject to new methods of distribution, all of which may result in loss of clients or declining revenues or margins |
| The corporate travel management industry is extremely competitive |
| Some of our competitors have greater brand-name recognition and financial resources than we do |
| Competition within the corporate travel management industry is increasing as the industry undergoes a period of consolidation |
| Many of our competitors are expanding their size and financial resources through consolidation |
| Some travel management companies may have relationships with travel suppliers which give them access to favorable availability of products, including airplane seats and hotel rooms, or more competitive pricing than that offered to us |
| Furthermore, some corporate travel management companies have a strong presence in particular geographic areas which may make it difficult for us to attract customers in those areas |
| As a result of competitive pressures, we may suffer a loss of clients, and our revenues or margins may decline |
| We also compete with travel suppliers, including airlines, hotels and rental car companies |
| Innovations in technology, such as the Internet and computer online services, have increased the ability of travel suppliers to distribute their travel products and services directly to consumers |
| Although corporate travel management companies and travel agencies remain the primary channel for travel distribution, businesses and consumers can now use the Internet to access information about travel products and services and to purchase such products and services directly from the suppliers, thereby bypassing corporate travel management companies and travel agents |
| In addition, although we believe the service, knowledge and skills of our employees and our 10 ______________________________________________________________________ [36]Table of Contents incorporation of new, alternative distribution channels position us to compete effectively in the changing industry, there can be no assurance that we will compete successfully or that the failure to compete successfully will not have a material adverse effect on our financial condition and results of operations |
| As customers convert to our lower cost, online travel solutions, they often require that we maintain current service levels and staffing configurations, making it difficult to reduce our costs in proportion with the decrease in revenues |
| Future acquisitions are a component of our strategy and our anticipated growth |
| We face risks in continuing to acquire corporate travel management companies |
| A substantial amount of the growth of our revenues has come from acquisitions |
| One of our strategies is to increase our revenues and the markets we serve through the acquisition of additional corporate travel companies |
| In the future, we may not make acquisitions at the pace we desire or on favorable terms, if at all |
| In addition, the consolidation of the travel management industry has reduced the number of companies available for purchase, which could lead to higher prices being paid for the acquisition of the remaining travel management companies |
| If we are unable to identify and successfully negotiate suitable acquisitions at the pace we desire or at all, we may not be able to generate sufficient internal growth to sustain our historical growth rate |
| The November 3, 2005 Credit Facility Amendment also restricted our ability to complete acquisitions by requiring the consent of the participating banks for all acquisitions until we meet certain financial ratios |
| The companies we have acquired, or which we may acquire in the future, may not achieve sales and profitability that would justify our investment in them |
| Our acquisitions of companies outside the United States may subject us to risks inherent in conducting business internationally |
| These risks include fluctuations in currency exchange rates, new and different legal and regulatory requirements and difficulties in staffing and managing foreign operations |
| We currently intend to finance our future acquisitions by using cash, borrowed funds, shares of our common stock or a combination thereof |
| If our common stock does not maintain a sufficient market value, if our common stock price is highly volatile, or if, for other reasons, potential acquisition candidates are unwilling to accept our common stock as part of the consideration for the sale of their businesses, we may then be required to use more of our cash resources or more borrowed funds in order to maintain our acquisition program |
| Our Credit Facility and Term Loan limit our ability to consummate acquisitions using total consideration in excess of dlra10 million without the consent of participating banks |
| The November 3, 2005 Credit Facility Amendment further restricted our ability to complete acquisitions by requiring the consent of participating banks for all acquisitions until we meet certain financial ratios |
| If we are unable to use common stock for acquisitions and we do not have sufficient cash resources, our growth could be limited unless we are able to obtain additional capital through debt or other financing |
| We may not be able to obtain additional capital, if and when needed, on terms we deem acceptable |
| Governmental agencies, which in the aggregate are a material part of our customer base, are subject to budget processes, which could limit the demand for our travel services |
| Governmental agencies, which in the aggregate represent approximately 17prca of our total revenues as of the year ended December 25, 2005, are subject to budgetary processes and expenditure constraints |
| The funding of government programs is subject to legislative appropriation |
| Budgetary allocations are dependent, in part, upon governmental policies which fluctuate from time to time in response to political and other factors |
| Although we have multi-year contracts with our governmental agency customers, governments generally appropriate funds on a fiscal year basis even though a contract may continue for several years |
| Consequently, programs are often only partially funded and additional funds are committed only upon further appropriations |
| If our government agency customers do not receive legislative appropriation, such agencies may reduce their travel, which could reduce our revenue |
| 11 ______________________________________________________________________ [37]Table of Contents Governmental agencies have special contracting abilities and requirements, including the unilateral ability to suspend or terminate current contracts at will, to reduce the value of current contracts, and to prevent us from being awarded new contracts |
| As a government contractor, we are subject to periodic audits and reviews, which may decrease our revenues or adversely impact our margins |
| Also as a government contractor, we may have to meet onerous contract requirements, and our failure to meet these requirements may impact our revenues |
| Government contracts typically contain termination provisions unfavorable to us and are subject to audit and modification by the government at its sole discretion, which subject us to additional risks |
| These risks include the ability of the US government to unilaterally: • Suspend or prevent us for a set period of time from receiving new contracts or extending existing contracts based on violations or suspected violations of laws or regulations; • Terminate our existing contracts; • Reduce the scope and value of our existing contracts; • Audit and object to our contract-related costs and fees, including allocated indirect costs; and • Change terms and conditions in our contracts |
| The US government can terminate any of its contracts with us either for its convenience or if we default by failing to perform in accordance with the contract schedule and terms |
| Termination for convenience provisions generally enable us to recover only our costs incurred or committed, and settlement expenses and profit on the work completed prior to termination |
| Termination for default provisions do not permit these recoveries and make us liable for excess costs incurred by the US government in procuring undelivered items from another source |
| As a government contractor, we are subject to periodic audits and reviews |
| Based on the results of its audits, the US government may adjust our contract-related costs and fees, including allocated indirect costs |
| In addition, under US government purchasing regulations, some of our costs may not be reimbursable or allowed in our negotiation of fixed-price contracts |
| Further, as a US government contractor, we are subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities to which purely private sector companies are not |
| In contracting with governmental agencies, we are subject to governmental agency contract requirements that vary from agency to agency |
| Future sales to governmental agencies will depend, in part, on our ability to meet governmental agency contract requirements, which may be onerous or even impossible for us to satisfy |
| Goodwill comprises much of our total assets, and if we determine that goodwill has become impaired in the future, net income in such years will decrease |
| As of December 25, 2005, dlra398dtta5 million or 68dtta3prca of our total assets and 158dtta6prca of our stockholders’ equity represent goodwill |
| Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations accounted for under the purchase method |
| We test for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired |
| A write-down or impairment of goodwill would decrease our net income and our shareholders’ equity |
| Our customers are not committed to provide us with a specific volume of business and may terminate their contracts with us or choose not to renew contracts which could seriously harm our revenues |
| Our contracts with customers do not commit our customers to provide us with a specific volume of business and many can typically be terminated by our customers with or without cause, with little or no advance notice and without penalty |
| Customers may terminate their agreements with us for a variety of reasons, including acquisition or consolidation, a change in outsourcing strategy, or reactions to pressures, changes or perceived 12 ______________________________________________________________________ [38]Table of Contents advantages in the travel industry generally |
| Customers may attempt to use this leverage to negotiate a reduction in our fees |
| If a significant number of customers elected to terminate their agreements with us, or decided to reduce their travel expenditures, it could reduce our revenues and harm our business |
| If our travel suppliers cancel or modify their agreements with us, we may be subject to changes in our pricing agreements, commission schedules and incentive override commission arrangements and more restricted access to travel suppliers’ products and services, which could seriously harm our results of operations |
| We are dependent upon travel suppliers for access to their products and services, including airplane seats and hotel rooms |
| Travel suppliers offer us pricing that is preferential to published fares, enabling us to offer prices lower than would be generally available to travelers and other corporate travel management companies or travel agents |
| Travel suppliers can generally cancel or modify their agreements with us upon relatively short notice |
| If a travel supplier cancels or modifies their agreement with us, we may be subject to changes in our pricing agreements, commission schedules and incentive override commission arrangements, and more restricted access to travel suppliers’ products and services, which could seriously harm our results of operations |
| In addition, our clients may enter into net agreements with travel service providers to directly receive any override commissions in the form of additional point-of-sale discounts rather than allowing us to receive these commissions |
| If technologies we depend on fail or our right to use global distribution systems is restricted, we may not be able to process transactions for our customers as efficiently, if at all, which would seriously harm the results of our operations |
| Our business is dependent upon a number of different information and telecommunications technologies |
| In addition, our ability to quote prices for airline tickets, hotel rooms, rental cars and other travel related services, make reservations, and sell such and other travel related services is dependent upon our contractual right to use, and the performance of, global distribution systems operated by Sabre, Galileo/Apollo and Worldspan |
| If these technologies or systems fail, or if our access to these systems is restricted, we may not be able to process transactions for our customers as efficiently, if at all, which would seriously harm our results of operations |
| Rapid technological changes and new distribution channels may adversely affect the value of our current or future technologies to us and our customers, which could cause us to increase expenditures to upgrade and protect our technology or develop and protect competing offerings in new distribution channels |
| Distribution channels and technology in our industry are evolving rapidly |
| Our ability to compete and our future results depend in part on our ability to make timely and cost-effective enhancements and additions to our technology, to introduce new products and services that meet customer demands and to keep pace with rapid advancements in technology |
| Maintaining flexibility to respond to technological and market dynamics may require substantial expenditures and lead-time |
| We cannot assure you that we will successfully identify and develop new products or services in a timely manner, that offerings, technologies or services developed by others will not render our offerings obsolete or noncompetitive, or that the technologies in which we focus our investments will achieve acceptance in the marketplace and provide a return on our investment |
| Bankruptcies of airlines or other providers of travel services could result in us failing to collect outstanding receivables from these providers or having to repay a portion of collected revenues to the bankruptcy trustee |
| We derive part our revenue from commissions paid by international airlines, incentive override commissions paid by various airlines and incentive payments and commissions from other providers of travel services |
| This revenue is recorded as a receivable as earned and collected on a monthly or quarterly basis |
| If an airline or other provider of travel services were to declare bankruptcy, we may not receive payment for these outstanding receivables in a timely manner, or at all |
| In addition, the debtor or the bankruptcy trustee may claim that any receivables collected by us during the 90 days prior the bankruptcy filing were preference payments, which may need to be disgorged |
| If we do not collect this revenue, or have to return revenue as a preference 13 ______________________________________________________________________ [39]Table of Contents payment, we would become a general unsecured creditor of the debtor, and we may not collect any amount of our outstanding receivable |
| If we fail to collect these receivables or have to disgorge collected receivables as a preference payment, our revenue would decrease |
| Conversion of our outstanding 4dtta875prca convertible subordinated debentures due 2023 into our common stock would dilute the ownership interests of existing stockholders, including holders who had previously converted their debentures |
| The conversion of some or all of our 4dtta875prca convertible subordinated debentures due 2023 into our common stock, including conversions following certain changes of control of Navigant, would dilute the ownership interests of existing stockholders |
| Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock |
| In addition, the existence of the debentures may encourage short selling by market participants because the conversion of the debentures could depress the price of our common stock |
| Our industry is seasonal, causing fluctuating results of operations |
| The domestic and international travel service industry is seasonal |
| Our past results have fluctuated because of seasonal variations in the travel services industry |
| Our net revenues and net income are generally higher in the second and third calendar quarters and lowest in the fourth calendar quarter |
| We expect this seasonality to continue in the future |
| Our quarterly results of operations may also be subject to fluctuations as a result of the timing and cost of acquisitions, changes in relationships with travel suppliers, changes in the mix of services offered by us, the timing of the payment of incentive override commissions by travel suppliers, extreme weather conditions or other factors affecting travel |
| If our agent reporting agreements are cancelled, we would be unable to sell airline tickets and our revenues would decrease |
| We depend on the ability to sell airline tickets for a substantial portion of our revenue |
| To sell airline tickets, we must enter into, and maintain, an agent reporting agreement for each operating subsidiary with the Airlines Reporting Corporation, or ARC, for domestic agencies or with the Bank Settlement Plan, or BSP, for international agencies |
| Agent reporting agreements impose numerous financial, operational and administrative obligations on us |
| These agreements allow ARC or BSP to cancel an agent reporting agreement for failure to meet any of these obligations |
| If our agent reporting agreements are cancelled by ARC or BSP, we would be unable to sell airline tickets and our revenues would decrease |