<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996 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 0-26914
VALUJET, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 58-2189551
- -------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1800 Phoenix Boulevard, Atlanta, Georgia 30349
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
(770) 907-2580
- --------------------------------------------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
- -------------------------------------- ------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
- --------------------------------------------------------------------------------
(Title of class)
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 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
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As of March 10, 1997, the aggregate market value of voting stock held by non-
affiliates of the Registrant, based on the closing sales price of such stock in
the NASDAQ Stock Market on March 10, 1997, was approximately $340,000,000. As
of March 10, 1997, the Registrant had 54,878,322 shares of Common Stock
outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Documents Incorporated by Reference
-----------------------------------
Portions of the Proxy Statement to be used in connection with the
solicitation of proxies to be voted at the Registrant's annual meeting of
Stockholders to be held on May 21, 1997, to be filed with the Commission, are
incorporated by reference into Part III of this Report on Form 10-K.
<PAGE>
ITEM I
(of this Amendment No. 1)
The Form 10-K for the year ended December 31, 1996, filed with the Commission
on March 31, 1997, is hereby amended by substituting the following Item 7 in
place of Item 7 found on pages 18 through 28 of the report on Form 10-K
previously filed with the Commission:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS
---------------------
The following chart indicates the service offered by the Company from January
1995 through December 1996:
<TABLE>
<CAPTION>
Number of
As of Total Number Number of Peak- Cities
Quarter End of Aircraft Day Flights Served
----------- ------------ --------------- -------------------------
<S> <C> <C> <C>
March 1995 27 184 23
June 1995 28 208 24
September 1995 34 228 26
December 1995 42 268 26
March 1996 47 286 28
June 1996 51 0 Service suspended to all
markets as of June 17, 1996
September 1996 46* 16 Service resumed on September
30, 1996 to Atlanta, Fort Lauderdale,
Orlando, Tampa, Washington, D.C.
December 1996 43** 124 18
</TABLE>
* Of which 4 had been approved for service by the FAA
** Of which 15 had been approved for service by the FAA
On May 11, 1996, ValuJet tragically lost its Flight 592 en route from Miami
to Atlanta. There were no survivors. The accident resulted in extensive media
coverage calling into question the safety of low-fare airlines in general and
the Company in particular. In response to the accident, the FAA conducted an
extraordinary review of the Company's operations.
On June 17, 1996, the Company entered into a consent order with the FAA under
which: (i) the Company agreed to suspend operations until such time as the
Company was able to satisfy the FAA as to various regulatory compliance concerns
identified by the FAA as a result of its intensive inspections of the Company's
operations, (ii) the FAA agreed to work with the Company in order to reestablish
operations with up to 15 aircraft initially, and (iii)
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<PAGE>
the Company paid $2 million to the FAA to compensate it for the costs of the
special inspections conducted. In order to reduce costs while the Company
prepared its plan to restore service, the Company furloughed more than 90% of
its personnel (approximately 3,600 of 4,000) for several weeks.
On August 29, 1996, the FAA returned the Company's operating certificate and
the Department of Transportation ("DOT") issued a "show cause" order regarding
the Company's fitness as an air carrier. The DOT gave its final approval on
September 26, 1996, and the Company resumed operations with service between
Atlanta and four other cities on September 30, 1996.
Other effects of the accident, ensuing FAA inspections, media coverage and
suspension of operations include:
1. The suspension of operations has resulted in the failure of the Company
to meet certain financial covenants under certain of the Company's secured debt.
See Liquidity and Capital Resources below for further discussion.
2. The expansion of the Company's operations will likely be subject to FAA
and DOT approval for an indefinite period of time.
3. The Company is unable to predict how significantly the accident and
suspension of operations will affect load factors and yield or the length of
time load factors and yield will be impacted.
4. The Company has sold certain of its aircraft and has assigned its
rights to purchase certain aircraft previously under contract. In addition, the
Company plans to lease out or sell some of its other aircraft.
5. In 1996, the Company refunded fares paid by customers affected by the
Company's changing schedules and by those who otherwise chose to change their
travel plans.
6. The Company's cost per ASM has increased and is likely to remain
inflated to some extent to reflect the cost of additional maintenance procedures
and infrastructure adopted by the Company and lower aircraft utilization levels.
7. The Company may reduce its workforce permanently if reduced traffic
levels continue and the Company is unable to reestablish its previous service
levels.
8. The aircraft lost was insured for $4.0 million which was in excess of
book value. The Company carries $750 million of liability insurance. Although
the Company believes that such insurance will be sufficient to cover all claims
arising from the accident, there can be no assurance that all claims will be
covered or that the aggregate of all claims will not exceed such insurance
limits.
9. Several stockholder lawsuits have been filed against the Company and
certain of its officers and directors alleging, among other things, violation of
federal securities laws. While the Company denies that it has violated any of
its obligations under the federal securities laws and believes that the lawsuits
do not have any merit, there can be no assurance that the Company will not
sustain material liability under such or related lawsuits.
10. Various governmental authorities are conducting investigations of the
circumstances surrounding the accident. The Company is cooperating with the
authorities in connection with these investigations.
In light of these factors, persons investing in the securities of the Company
should be apprised of the following additional risks:
1. The suspension of operations has resulted in the failure of the Company
to meet certain financial covenants (the fixed charge coverage ratio) under
certain of the Company's secured debt agreements. This could result in the
acceleration of such debt and a reduction in the Company's cash position. If the
Company does not timely repay
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<PAGE>
all indebtedness accelerated or if the Company's other secured lenders or the
holders of the Company's 10 1/4 % senior notes seek to accelerate their debt as
a result of such accelerations, then a substantial portion or all of the
Company's debt could be accelerated. The Company does not have sufficient cash
to satisfy all of its debt at this time.
2. There is no assurance that the Company will recover sufficient customer
acceptance in order to regain profitability.
3. If the Company regains profitability, there may be reduced customer
support which could decrease the Company's profitability indefinitely.
4. The expansion of the Company's operations will likely be subject to FAA
and DOT approval for an indefinite period of time.
5. Although preliminary information indicates no connection, if the
National Transportation Safety Board (NTSB) were to determine that the Company's
maintenance procedures or aging aircraft contributed to the cause of the
accident, such determination could also have a substantial adverse effect on the
Company's future operations.
6. The occurrence of one or more subsequent incidents by the Company's
aircraft could likely have a substantial adverse effect on the Company's public
perception and future operations.
As a result of the accident, the ensuing extraordinary review of the
Company's operations by the FAA, the suspension of operations in June 1996
and the current and prospective FAA imposed limitation on the number of aircraft
that may be operated by the Company, the Company's results for periods prior to
May 11, 1996 are not necessarily reflective of the results to be expected in
future periods. The Company's operations for 1996 are also not reflective of
future operations as a result of the suspension of operations for a significant
portion of 1996. The following is a description of the costs incurred by
category for the year ended December 31, 1996 compared to year-ends December 31,
1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31, 1994 Year Ended December 31, 1995
---------------------------- -----------------------------
% of % of
Amount Revenues Per ASM Amount Revenues Per ASM
--------- -------- ------- --------- -------- -------
(000) (000)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $133,901 100.0% 9.05c $367,757 100.0% 9.62c
EXPENSE CATEGORY
Flight Operations $ 6,967 5.2% 0.47c $ 16,273 4.4% 0.42c
Aircraft Fuel 21,775 16.3 1.47 55,813 15.2 1.46
Maintenance 14,862 11.1 1.00 47,330 12.9 1.24
Station Operations 20,198 15.1 1.37 49,931 13.6 1.31
Passenger Services 3,942 2.9 0.27 10,363 2.8 0.27
Marketing and Advertising 6,546 4.9 0.44 8,989 2.4 0.23
Sales and Reservations 11,325 8.5 0.77 31,156 8.5 0.81
General and Administrative 5,039 3.8 0.34 10,617 2.9 0.28
Employee Bonuses 5,146 3.8 0.35 14,382 3.9 0.38
Depreciation 3,555 2.7 0.24 15,147 4.1 0.40
Other expenses (income), net 965 0.7 0.06 (70) (0.0) (0.00)
Shutdown and Other
Nonrecurring 0 0.0 0.00 0 0.0 0.00
-------- ----- ---- ------- ----- -----
Total Expenses $100,320 75.0% 6.78c $259,931 70.7% 6.80c
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-----------------------------
% of
Amount Revenues Per ASM
-------- -------- -------
(000)
<S> <C> <C> <C>
OPERATING REVENUES $219,636 100.0% 8.12c
EXPENSE CATEGORY
Flight Operations $ 16,479 7.5% 0.61c
Aircraft Fuel 46,691 21.3 1.73
Maintenance 49,500 22.5 1.83
Station Operations 42,018 19.1 1.55
Passenger Services 8,879 4.0 0.33
Marketing and Advertising 8,426 3.8 0.31
Sales and Reservations 18,378 8.4 0.68
General and Administrative 13,659 6.2 0.51
Employee Bonuses 1,245 0.6 0.05
Depreciation 17,551 8.0 0.65
Other expenses (income), net (5,252) (2.4) (0.19)
Shutdown and Other Nonrecurring 67,994 31.0 2.51
-------- ----- -----
Total Expenses $285,568 130.0% 10.57c
</TABLE>
OPERATING REVENUES
- ------------------
Total operating revenues for the year ended December 31, 1996 were
approximately $219.6 million as compared to $367.8 million and $133.9 million
for the years ending December 31, 1995 and 1994, respectively. The decrease from
1995 to 1996 is a result of the Company's reduced service level and suspension
of operations during the second and third quarters of 1996. The increase over
1994 is due to the Company flying more available seat miles (ASMs) during 1996.
The Company flew 2.7 billion ASMs in 1996 as compared to 3.8 billion and 1.5
billion in 1995 and 1994, respectively. The Company's load factors for 1996,
1995 and 1994 were 57.1%, 68.8% and 64.0%, respectively. The lower load factor
in 1996 is due in part to the accident and ensuing circumstances. The Company's
average fare was $69.81 for 1996, $68.10 for 1995 and $63.48 for 1994 due to the
absence of the 10% federal excise tax for a substantial part of 1996.
EXPENSES
- --------
Flight operations expenses include all expenses related directly to
the operation of the aircraft other than aircraft fuel, maintenance expenses and
passenger services expenses. Expenses for hull insurance and compensation of
pilots (exclusive of bonuses) are included in flight operations. Flight
operations expenses were higher, on a per ASM basis, for the year ended December
31, 1996 than the previous two years due to the extended period of time that the
Company's operations were suspended, the additional training costs incurred at
restart and the change in the Company's compensation structure in September 1996
which reduced the percentage of compensation represented by bonuses and shifted
this cost to base pay charged to each department. The cost of hull insurance
also increased substantially as of October 1, 1996. Certain flight operations
administrative costs were also incurred during the period of the suspension with
no ASMs being generated over which to spread these costs.
-5-
<PAGE>
Aircraft fuel expenses include both the direct cost of the fuel as
well as the costs of delivering fuel into the aircraft. Fuel expense, on a per
ASM basis, was higher for 1996 than either of the previous two years due to an
increase in the average price of fuel. The average price of fuel increased from
$0.58 per gallon for 1994 to $0.60 per gallon for 1995 to $0.71 per gallon for
1996. This approximate 20% increase in the price per gallon of fuel accounts
for the 18% increase in fuel cost per ASM.
Maintenance expenses include all administrative costs of the
maintenance department as well as normal recurring maintenance performed during
the year. Expenses for engine overhaul and certain scheduled heavy maintenance
procedures are included in this cost. Most non-routine maintenance costs
performed during the suspension of operations are included in the nonrecurring
expense line item. Maintenance expenses for the year ended December 31, 1996
were higher, on a per ASM basis, than both 1995 and 1994 due to the suspension
of operations during the second and third quarters of 1996 and the reduced level
of service once the Company was able to resume operations. The Company also had
a lower utilization rate on the aircraft it operated which results in the
spreading of certain fixed costs over fewer ASMs or block hours. The Company
maintained or paid storage costs on many more aircraft than it was able to
operate. Certain maintenance administrative costs were also incurred during the
period of the suspension of operations with no ASMs being generated over which
to spread these costs.
Station operations expense includes all expenses incurred at the
airports, as well as station operations administration and liability insurance.
Certain facility rental expense related to non-operating stations as a result of
the suspension of operations are included in shutdown and other nonrecurring
expenses. Station operations expenses were higher, on a per ASM basis, for the
year ended December 31, 1996 than in 1995 and 1994 due largely to the suspension
of operations and the inefficiencies generated from restarting operations on a
limited basis. Many of the station facilities were not fully utilized during the
fourth quarter due to the limited operation. Another factor which contributed to
a higher 1996 station operations expense was an increase in insurance costs as
of October 1, 1996. Certain station operations administrative costs were also
incurred during the period of the suspension of operations with no ASMs being
generated over which to spread these costs.
Passenger services expenses include flight attendant wages and
benefits and catering expenses. Also included are the costs for flight
attendant training and flight attendant overnight expenses. The increase in
passenger services expenses for 1996, on a per ASM basis, over 1995 and 1994 is
due to the restructuring of the compensation policy as it relates to flight
attendants. The flight attendants' salary levels were adjusted upward and the
regular quarterly bonus portion of their compensation was eliminated. This
change caused the department expense to be higher while reducing the amount of
bonus expense.
Marketing and advertising expenses include all advertising expenses
and wages and benefits for the marketing department. Marketing and advertising
expenses for 1996, as a percentage of revenue, were higher than 1995 and lower
than 1994. These expenses were higher in 1996 than 1995 due to the additional
advertising costs incurred at the resumption of operations being spread over a
reduced revenue base caused by lower service levels and load factors. Certain
marketing administrative costs were also incurred during the period of the
suspension of operations with no ASMs being generated over which to spread these
costs.
Sales and reservations expenses include all of the costs related to
recording a sale or reservation. These expenses include wages and benefits for
reservationists, rent, telecommunication charges, credit card fees and travel
agency commissions. Sales and reservations expenses for the year ended December
31, 1996 were 8.4% of revenue as compared to 8.5 % for each of 1995 and 1994.
General and administrative expenses include the wages and benefits for
the Company's executive officers and various other administrative personnel.
Also included are costs for office supplies, legal expenses, bad debts,
accounting and other miscellaneous expenses. General and administrative costs
for 1996 were higher than each of 1995 and 1994 due to the shift in compensation
structure to one based to a larger extent on base salaries and also due to
increased legal fees.
-6-
<PAGE>
The amount of bonus expense for the year ended December 31, 1996
reflects the change in salary structure as of September 1996 to less of a bonus
based structure and the fact that the Company had a net loss from the second
quarter 1996 through the end of the year. The amount charged to 1996
approximates the amount paid to those employees in the quarterly pool for
the first quarter of 1996. The actual amount to be paid and the form of
such payout are at the sole discretion of the Company's Board of Directors.
Depreciation expense includes depreciation on aircraft and ground
equipment, but does not include any amortization of start-up and route
development costs as all of these costs are expensed as incurred. Depreciation
expense for the year ended December 31, 1996 was higher than each of the
previous two years as additional aircraft and other property have been acquired.
During 1996, the Company made the decision to dispose of certain idled aircraft.
Subsequent to the decision to sell or lease out such aircraft, no depreciation
was recorded on aircraft held for sale. Depreciation on aircraft idled as a
result of the suspension of operations and reduced operations and not yet
returned to service has been recorded in shutdown and other nonrecurring
expenses.
Shutdown and other nonrecurring expenses include costs associated with
the loss of Flight 592 and excess operating costs related to the reduced
schedule from May 19, 1996 to June 17, 1996, the suspension of operations from
June 17, 1996 to September 29, 1996 and the reduced schedule from September 30,
1996 to December 31, 1996. Such costs consist of expenses directly related to
the accident and the ensuing extensive FAA review of the Company's operations
including legal fees, payments to the FAA, inspection related costs and
maintenance in excess of normal recurring maintenance. In addition, depreciation
on grounded aircraft, rental of abandoned or idled facilities and costs of
personnel idled as a result of the reduced and suspended operations from May
through December 1996 are included in shutdown and other nonrecurring expenses.
Personnel costs include full wages, salaries and benefits that were provided to
idled employees during the reduction and suspension of operations.
A summary of such costs is as follows:
<TABLE>
<CAPTION>
<S> <C>
Maintenance $27,750,000
Legal and other consulting 8,843,000
Facilities rental 6,114,000
Wages, salaries and benefits, excluding maintenance 4,895,000
Depreciation 11,054,000
FAA remediation 2,000,000
Other 7,338,000
-----------
$67,994,000
===========
</TABLE>
The Company also expects to incur additional shutdown and nonrecurring
expenses in the first and second quarters of 1997 as a result of idled aircraft
and facilities due to the reduced level of service attributable to the Company's
agreement with the FAA.
No accrual was provided for costs to be incurred in future periods related to
aircraft depreciation and maintenance and rental costs associated with
temporarily idled facilities as such costs will be recognized as they are
incurred. There was no accrual for salaries and wages in connection with the
June 18, 1996 furlough of employees at December 31, 1996 as such employees were
paid through June 30, 1996 with no additional severance benefits provided.
Other expenses (income), net includes interest income and interest expense as
well as certain property transactions. During the year ended December 31, 1996,
interest expense exceeded interest income by approximately $14,534,000 due to
increasing debt levels attributable to the acquisition of aircraft and the
completion of the issuance of $150 million 10 1/4 % senior notes due 2001.
During 1996, the Company also recognized $13.0 million of income as an
arrangement fee for aircraft transfers, a $2.8 million gain from insurance
recovery and a $3.9 million gain on the sale of aircraft.
-7-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the year ended December 31, 1996, the Company used cash flow from
operations of approximately $80.4 million, used cash of approximately $127.6
million to acquire property and equipment and generated cash flow from the
disposal of property and equipment of $97.6 million. Approximately $224.5
million of cash was generated from the issuance of debt which was partially
offset by debt repayments of approximately $93.0 million.
As of December 31, 1996, the Company had cash and cash equivalents of
approximately $150.0 million and working capital of approximately $168.6
million. The Company also had approximately $36.4 million of income tax
receivable which it expects to receive during the second or third quarter of
1997. There can be no assurance that the Internal Revenue Service will not
dispute or delay this refund.
As of December 31, 1996, the Company's fleet consisted of 43 DC-9-30
aircraft. During the third quarter 1996, the Company sold three of its four MD-
80 aircraft and all four of its DC-9-21 aircraft, purchased two DC-9-30 aircraft
under contract and assigned its purchase rights with respect to the remaining
DC-9-30 aircraft and MD-80 aircraft under contract. The Company sold its last
remaining MD-80 aircraft and two DC-9-30 aircraft during the fourth quarter of
1996 and is actively pursuing the sale or lease of up to 13 of its surplus DC-9-
30 aircraft.
The Company has contracted with McDonnell Douglas for the purchase of 50 MD-
95 aircraft, at a cost of approximately $1.0 billion (subject to adjustments for
inflation), for delivery in 1999 to 2002. Approximately $40 million of this
amount will be paid in progress payments during 1997 and 1998. The balance of
the purchase price after all progress payments will need to be paid or financed
upon delivery of each aircraft. If the Company exercises its option to acquire
up to an additional 50 MD-95 aircraft, additional payments could be required
beginning in this period. The Company expects to finance at least 80% of the
cost of each of these aircraft. Although McDonnell Douglas has agreed to
provide assistance with respect to the financing of aircraft to be acquired, the
Company will be required to obtain the financing from other sources. The
Company believes that with the assistance to be provided by McDonnell Douglas,
aircraft related debt financing should be available when needed. There is no
assurance that the Company will be able to obtain sufficient financing on
attractive terms. If it is unable to do so, the Company could be required to
modify its aircraft acquisition plans or to incur higher than anticipated
financing costs, which could have a material adverse effect on the Company's
results of operations and cash flows.
The Company's compliance with Stage 3 noise requirements will require
substantial additional capital expenditures over the next several years. By
December 31, 1999, all of the Company's aircraft must be brought into compliance
with Stage 3 requirements. The Company intends to meet its Stage 3 noise
requirement obligations by installing hush kits on Stage 2 aircraft, disposing
of Stage 2 aircraft and acquiring Stage 3 aircraft. The Company expects that FAA
certified hush kits will cost approximately $2.2 million per aircraft or
approximately $55.0 million for a fleet of 25 non-hushed DC-9-30 aircraft as of
December 31, 1996. Any disposition of Stage 2 aircraft would reduce this
obligation. The Company may be able to finance a portion of the cost of these
hush kits and plans to make the balance of payments on these hush kits out of
its working capital. The Company expects to pay the debt service on such loans
out of cash flow generated from operations during the term of the financing.
The phase-in period for full compliance with Stage 3 (until December 31, 1999)
and the expected terms of financing, if available, should allow the Company to
spread the payments for Stage 3 compliance over a number of years.
As of December 31, 1996, the Company's debt related to asset financing
totaled $94.7 million, with respect to which the Company's aircraft and certain
other equipment are pledged as security. The Company has purchased all of its
aircraft and, consequently, has no lease commitments relating to its aircraft
fleet. In addition, the Company has $150 million of 10 1/4 % senior unsecured
notes outstanding. The principal balance of the senior notes is due in 2001 and
interest is payable semi-annually. All of the Company's debt has final
maturities ranging from 1998 to 2006 with scheduled debt amortization
(calculated without giving effect to any prepayment that may be required as a
result of any covenant violations or sale of assets) as follows:
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<PAGE>
1997--$21.5 million, 1998--$23.1 million, 1999--$20.6 million, 2000--$15.5
million, 2001--$162.9 million, 2002 and after --$1.1 million. These notes
provide for acceleration of their maturities upon certain defaults, including a
payment default or defaults resulting in an acceleration of other debt of the
Company and its subsidiaries.
Certain debt bears interest at fixed rates ranging from 7.43% to 10.18% per
annum and is repayable in consecutive monthly or quarterly installments over a
four- to five-year period. Certain other notes with an aggregate unpaid
principal balance of approximately $14.3 million as of December 31, 1996 have a
variable rate of interest based on the London interbank offered rate (LIBOR)
plus 1.85% to 3% (1.85% at December 31, 1996 and December 31, 1995) based on the
Company's compliance with specific financial ratios concerning leverage and
fixed charge coverage. Certain other notes have a variable rate of interest
based on LIBOR plus 1.20% to 2.75%.
A substantial number of the secured notes require prepayment if specific
financial ratios (concerning debt to equity, net worth, fixed charge coverage
and current ratio) are not maintained. Of the $94.7 million principal amount of
secured debt as of December 31, 1996, there is debt with a principal balance of
approximately $66.1 million subject to loan agreements with financial covenants.
As of December 31, 1996, the Company was in violation of the fixed charge
coverage ratio with seven lenders on approximately $66.1 million of debt. The
Company has subsequently executed agreements with six of the seven affected
lenders for the waiver or reset of this financial test for the fourth quarter of
1996 and each quarter in 1997. The remaining lender represents approximately
$19.0 million in outstanding debt, which has been classified as current
maturities or debt on assets held for disposition, where appropriate, until such
time as an agreement is completed. The Company expects to continue negotiations
with this lender in an effort to reach a waiver agreement and avoid a prepayment
event or acceleration of debt. There can be no assurance that such negotiations
will be successful. The Company continues to meet all of its debt payment
obligations on time.
If the Company is unable to successfully negotiate waivers or forbearance
from its secured lender with financial covenants who has yet to agree to a
waiver and if such lender demands prepayment of debt, then the Company will be
required to prepay such debt within a short period of time. If the Company
fails to do so, then such secured lender would have the right to foreclose upon
the aircraft securing such debt and other debt holders of the Company (including
holders of the unsecured Company's 10 1/4 % senior notes) would have the right
to accelerate the Company's debt. Based on the language of the Indenture
governing the Company's 10 1/4 % senior notes, the Company believes that the
holders of the senior notes would not have the right to accelerate the senior
notes if the Company pays off debt within the time provided after acceleration
upon the occurrence of a prepayment event (such as the failure to satisfy a
financial covenant).
Although the Company has sufficient cash assets to pay its recurring
obligations and debt service for an extended period of time, the Company's
failure to resume profitable operations may result in defaults under the
Company's secured debt and the acceleration of the Company's debt. In such
event, there can be no assurance that the Company would be able to satisfy all
of its obligations on a timely basis.
As a result of the accident and suspension of operations, several class
action suits have been filed by stockholders against the Company and various
officers and directors alleging, among other things, misrepresentations under
applicable securities laws. The plaintiffs seek unspecified damages based upon
the decrease in market value of shares of the Company's stock. Although
management of the Company intends to defend these actions vigorously and
believes that the suits are without merit, any litigation contains elements of
uncertainty and there can be no assurance that the Company will not sustain
material liability under such or related lawsuits.
Numerous lawsuits have also been filed against the Company seeking damages
attributable to the deaths of those on Flight 592, and additional lawsuits are
expected. The Company's insurance carrier has assumed defense of these lawsuits
under a reservation of rights. As all claims are handled independently by the
Company's insurance carrier, the Company cannot reasonably estimate the amount
of liability which might finally exist. As a result, no accruals for losses and
the related claim for recovery from the Company's
-9-
<PAGE>
insurance carrier have been reflected in the Company's financial statements.
The Company maintains $750 million of liability insurance per occurrence with a
major group of independent insurers that provide facilities for all forms of
aviation insurance for many major airlines. Although the Company believes,
based on the information currently available to it, that such coverage is
sufficient to cover claims associated with this accident and that the insurers
have sufficient financial strength to pay claims, there can be no assurance that
the total amount of judgments and settlements will not exceed the amount of
insurance available therefor or that all damages awarded will be covered by
insurance.
ITEM II
(of this Amendment No. 1)
The Form 10-K for the year ended December 31, 1996, filed with the Commission
on March 31, 1997, is hereby amended by substituting the following as Note 14 in
the Notes to Consolidated Financial Statements in place of Note 14 found on page
F-30 of the report on Form 10-K previously filed with the Commission:
NOTE 14. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $150,000,000 of 10 1/4% Senior Notes issued during 1996 are
fully and unconditionally guaranteed on a joint and several basis by ValuJet
Airlines, Inc., a wholly-owned subsidiary of the Company, and all its
subsidiaries ("Guarantors"). All of the operations of the Company are
conducted by ValuJet Airlines, Inc. and its subsidiaries. All of the
Guarantors are wholly-owned or indirect subsidiaries of the Company, and
there are no direct or indirect subsidiaries that are not Guarantors.
Separate financial statements of the Guarantors are not presented because all
of the Company's subsidiaries guarantee the Senior Notes on a full,
unconditional and joint and several basis.
Summarized financial information of ValuJet Airlines, Inc. and its
subsidiaries is as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------
<S> <C>
Current assets $246,041,431
Non-current assets 162,571,884
Current liabilities 81,743,233
Non-current liabilities 207,167,474
Year Ended
December 31, 1996
-----------------
Operating revenues $219,636,232
Operating loss (51,398,542)
Loss before income taxes (65,932,299)
Net loss (41,469,299)
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
Registrant has duly caused this Amendment No. 1 to the Annual Report on Form 10-
K to be signed on its behalf by the undersigned thereunto duly authorized.
VALUJET, INC.
Date: April 4, 1997 /s/ Robert L. Priddy
-------------------------------------------------
Robert L. Priddy
Chairman of the Board and Chief Executive Officer
Date: April 4, 1997 /s/ Michael D. Acks
-------------------------------------------------
Michael D. Acks
Controller and Chief Accounting Officer
-11-
