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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-10639
METRO AIRLINES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 74-2211124
(State of organization) (I.R.S. Employer Identification No.)
Post Office Box 612626
DFW Airport, Texas 75261-2626
(214) 929-5117
(Address and telephone number of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
New Common Stock, $.01 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. /X/
Issuer's revenues for its most recent fiscal year: $0.
The Company is unable to estimate the aggregate market value of the voting
stock held by non-affiliates of the registrant because the Company's stock is
not currently traded on a stock exchange and there is no authoritative source
for determining actual sales prices or bid and asked prices.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
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As of April 30, 1996, there were outstanding 23,034,415 shares of New
Common Stock of the Registrant.
Transitional small business format (check one). Yes No X
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PART I
ITEM 1. BUSINESS
GENERAL
Metro Airlines, Inc. ("Metro") is a Delaware corporation incorporated in
September 1981 as the parent corporation of Metroflight, Inc. ("Metroflight"),
which was organized in 1967 and operated as a regional airline with a hub at the
Dallas/Fort Worth International Airport ("Dallas/Fort Worth") until December 22,
1992. Metro Leasing, Inc. ("Metro Leasing") formerly leased aircraft from third
parties for sublease to other subsidiaries of Metro. Through other wholly owned
subsidiaries, which were sold or closed in early 1991, Metro formerly operated
separate regional airlines in the northeast, the southeast, and the Caribbean.
See "Business - Other Former Operations." Unless otherwise indicated, all
references herein to the "Company" include Metro and its two wholly owned
subsidiaries, Metroflight and Metro Leasing, Inc.
On April 1, 1991 (the "Petition Date"), Metro, Metroflight and Metro
Leasing filed in the United States Bankruptcy Court for the Northern District of
Texas, Dallas Division (the "Bankruptcy Court") voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Code"). A plan of reorganization (the "Plan") was confirmed by the Bankruptcy
Court on December 11, 1992, and the Plan, as modified post-confirmation, became
effective on December 28, 1993. See "Business - Chapter 11 Reorganization."
As more fully described below, Metroflight previously operated scheduled
passenger flights using the name American Eagle under a coordinated service
agreement with American Airlines, Inc. ("American"). On December 22, 1992,
Metroflight sold substantially all of its assets to Simmons Airlines, Inc.
("Simmons"), an affiliate of American, and all litigation pending at that time
between Metro, Metroflight and American was settled (the "Asset Sale and
Settlement"). The Company had ongoing disputes with Simmons and American
related to the collection of contingent assets related to the Asset Sale and
Settlement, including certain rights to monies in escrow. Such disputes were
settled in December 1993. See "Business - American Eagle Operations."
Subsequent to the Asset Sale and Settlement, the Company's activities have
been limited to the implementation of the Plan and the pursuit of certain
claims, which are expected to last well into fiscal 1997. It is anticipated
that the Company will be liquidated after all claims have been pursued and
realized to the extent possible. See "Business - Chapter 11 Reorganization."
Metro is currently in the process of dissolving Metroflight and Metro Leasing,
as they have no remaining assets or liabilities.
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AMERICAN EAGLE OPERATIONS
Prior to the Asset Sale and Settlement, Metroflight provided regularly
scheduled air service for passengers, cargo and mail through a "hub-and-spoke"
route system at Dallas/Fort Worth, with routes radiating like spokes from that
airport to 24 cities in Texas, Arkansas, Louisiana, Missouri and Oklahoma. The
majority of Metroflight's passengers connected with American at Dallas/Fort
Worth. Metroflight, an American Eagle carrier since 1984, was the exclusive
American Eagle operator at Dallas/Fort Worth.
Metroflight's affiliation with American was established under and governed
by certain code-sharing and other services agreements, as amended (the "American
Agreements"). Pursuant to these agreements, all of the Company's flights
serving Dallas/Fort Worth were identified in airline computer reservations
systems and the Official Airline Guide ("OAG") under American's "AA" designator
code and the Company's aircraft used for these flights were painted in American
Eagle colors. American provided the Company with, among other things,
reservation services through its SABRE system, passenger ticketing services,
revenue accounting services, baggage and freight handling and customer service
training, as well as the use of gate, ramp and terminal facilities at certain
airports. The Company paid American a per passenger fee for these services and
American paid the Company a fee for passengers connecting with American flights.
The initial term of the American Agreements extended through October 31,
1992. In April 1992, American sent Metroflight a notice attempting to terminate
the American Agreements as of October 31, 1992; however, such notice was not
effective and the American Agreements were extended through October 31, 1993.
Metro, Metroflight and American had additional agreements that the Company
contended provided for extension of the American Agreements through October 31,
2002 (the "Extension Agreements"); however, American denied the enforceability
of the Extension Agreements and sued to have them declared null and void. Metro
and Metroflight answered and counterclaimed asserting, among other things, that
the Extension Agreements were valid and enforceable.
On November 25, 1992, the Company entered into agreements to sell
substantially all of the assets of Metroflight to Simmons, and to settle all
litigation between Metro, Metroflight and American. On December 11, 1992, the
Bankruptcy Court entered an order confirming the Company's reorganization plan,
which was based upon the Asset Sale and Settlement. The Asset Sale and
Settlement was completed on December 22, 1992. See "Business - Chapter 11
Reorganization."
Pursuant to the agreements for the Asset Sale and Settlement, Simmons
acquired Metroflight's assets for $10 million in cash, subject to certain
adjustments. Simmons also acquired the prepetition claims of certain of the
Company's creditors, which claims were recorded as liabilities of approximately
$32 million on the Company's books. In conjunction with the Asset Sale and
Settlement, Simmons forgave those claims against the Company. In
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addition, the American Agreements were terminated and American paid $4 million
in cash to settle all litigation with Metro and Metroflight.
As a result of the Asset Sale and Settlement, Metroflight, which accounted
for substantially all of the Company's consolidated revenues, ceased operations
on December 22, 1992. Since that date, the Company's operations have primarily
been limited to implementation of the Company's reorganization plan and the
pursuit of certain claims. See "Business -Other Former Operations."
Under the terms of the Asset Sale and Settlement, a portion of the proceeds
totalling $11.0 million was placed in two escrow accounts (the "Escrows").
Prior to December 28, 1993, approximately $4.6 million had been disbursed to the
Company. Disputes arose with respect to substantially all of the balance of the
funds in the Escrows and certain other funds held by Simmons in connection with
the Asset Sale and Settlement. The disputes were resolved on December 28, 1993
with the Company receiving $3.9 million from the Escrows and Simmons and
American receiving the remaining balance of the funds in the Escrows.
CHAPTER 11 REORGANIZATION
On April 1, 1991, Metro, Metroflight and Metro Leasing (collectively, the
"Debtors"), filed in the Bankruptcy Court voluntary petitions for reorganization
under Chapter 11 of the Code. The filing was necessary due to substantial
weakening of the Company's liquidity and financial condition resulting from
losses in the preceding two years, primarily in its Atlanta and Northeast
operations. See "Business - Other Former Operations." Also contributing to the
losses were increased fuel prices and lower passenger traffic as a result of the
war in the Persian Gulf.
Through December 11, 1992, each of the Debtors was operated as a debtor-in-
possession pursuant to the Code, which protects the Company from its creditors
pending the negotiation, filing and confirmation of a plan of reorganization.
The unsecured creditors of Metro and Metroflight formed a committee (the
"Creditors Committee") which was appointed by the United States Trustee to
represent the interests of such creditors in the bankruptcy proceedings.
On May 14, 1992, the Company and its Creditors Committee filed with the
Bankruptcy Court their Joint Plan of Reorganization, which plan was amended on
June 12, 1992, August 3, 1992 and November 25, 1992 (the "Plan"). On November
25, 1992, the Company entered into agreements to sell substantially all of the
assets of Metroflight to Simmons Airlines, Inc. ("Simmons"), an affiliate of
American Airlines, Inc. ("American") and to settle all litigation between Metro,
Metroflight and American (the "Asset Sale and Settlement"). The Bankruptcy
Court approved the Plan based upon the Asset Sale and Settlement on November 25,
1992. On December 11, 1992, the Bankruptcy Court entered an order confirming
the jointly proposed Plan, which became effective on December 22, 1992, on which
date the Asset Sale and Settlement was completed.
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Pursuant to the agreements for the Asset Sale and Settlement, Simmons
acquired Metroflight's assets for $10 million in cash, subject to certain
adjustments, and assumed approximately $32 million of the Company's debt. In
addition, the service agreements under which Metroflight operated as the
American Eagle carrier at Dallas/Fort Worth International Airport were
terminated. American also paid $4 million in cash to settle all litigation with
Metro and Metroflight. The proceeds of the sale of assets and settlement were
to be used to pay creditors of Metro and Metroflight in accordance with the
Plan.
Closing of the Plan and commencement of distributions to certain creditors
and stockholders did not occur as scheduled on March 22, 1993 because the
Company did not have sufficient cash to make the required cash payments. The
shortfall in cash was primarily due to two conditions: (1) adverse operating
results during the quarter ended January 31, 1993 and (2) adverse or incomplete
resolution of certain contingencies in connection with the Asset Sale and
Settlement. The Company therefore proposed certain post-confirmation
modifications (the "Plan Modification") to the Plan.
The Plan Modification was confirmed by the Bankruptcy Court on December 16,
1993 and the Plan became effective on December 28, 1993 (the "Effective Date"),
on which date the remaining contingencies in connection with the Asset Sale and
Settlement were resolved with the Company receiving $3.9 million of the funds
held in escrow.
The Plan called for the payment of approximately $4.5 million in cash,
including interest from March 22, 1993 to the date of payment, in satisfaction
of unsecured claims against Metroflight. The Plan also provided for the
cancellation of approximately $22.8 million in unsecured claims against Metro in
exchange for the issuance of approximately 99% of the common stock of the
Reorganized Company to the holders of such claims. The remaining 1% of the
common stock of the Reorganized Company was issued to the holders of the
Predecessor Company's common stock on December 28, 1993. As used herein, the
term "Predecessor Company" refers to the Company prior to December 28, 1993.
The stockholders of the Predecessor Company at the Effective Date are also
entitled to receive a special payment of 27 cents per share of the Predecessor
Company's stock (the "Settlement Payment Right"), payable after all senior
claims are paid. The Plan calls for partial payment of the Settlement Payment
Right to be made at such time as the Reorganized Company has sufficient cash,
after deducting certain reserves, to pay at least 50%, or approximately
$775,000, of the total Settlement Payment Right, which is approximately
$1,550,000. The Company currently does not have sufficient resources to require
such a payment. However, in February 1996, the Company made an interim partial
distribution of $.06 per share of the Settlement Payment Right. The total
distributed was approximately $344,000.
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OTHER FORMER OPERATIONS
The Company, through its subsidiary, Metro Express, Inc. ("Metro Express"),
operated at Atlanta as a regional airline in affiliation with Eastern Air Lines,
Inc. ("Eastern") from early 1985 until January 19, 1991. Beginning in early
1988, Metro Express incurred substantial losses (approximately $30 million from
fiscal 1988 through fiscal 1991), primarily as a result of Eastern's financial
and labor problems. On January 18, 1991, Eastern ceased operations. The
following day, Metro Express also suspended all operations. On February 7,
1991, Metro Express filed a voluntary petition to be liquidated under Chapter 7
of the Code. This bankruptcy is being administered by a court-appointed
trustee.
Metro decided to liquidate Metro Express because it appeared unlikely that
Eastern's Atlanta gates would be acquired on a timely basis by another major
carrier that would need Metro Express' feeder operation and because Metro
believed there were no other viable opportunities for utilizing the assets of
Metro Express. Metro's administrative claim in the Metro Express bankruptcy was
allowed in the amount of approximately $330,000, which was received by Metro in
June 1995. Metro's unsecured claim in the Metro Express bankruptcy has been
allowed in the amount of approximately $5,411,000; however, the Company is
unable to determine the ultimate amount of its unsecured claim that might be
recovered from the liquidation of Metro Express. The ultimate distribution is
likely to be only a small percentage of the allowed claim.
Prior to 1991, the Company also operated in affiliation with Eastern
through its former subsidiary, Aviation Associates, Inc. ("AAI"). AAI operates
in the Caribbean and provided commuter services as Eastern Metro Express from
1985 to mid-January 1991. Upon Eastern's cessation of operations, AAI
terminated its agreements with Eastern and began operating as an independent
regional carrier.
On February 12, 1991, after receiving and reviewing bids from various
parties, Metro completed the sale of all of the outstanding stock of AAI to
Aeroflight Holdings, Inc. ("AHI"), a newly-formed company owned by E. A.
Henderson and J. L. Seaborn, who were then Chairman of the Board and President,
respectively, of Metro. The sales price was $6.5 million, of which $4.0 million
was paid by the cancellation of loans and deposits made by the purchaser to
Metro in December 1990 and January 1991 and $2.5 million was in the form of an
interest-bearing promissory note payable in ten years, or earlier in certain
circumstances, and secured by the stock of AAI. AHI and AAI filed for
protection under Chapter 11 of the Bankruptcy Code on December 14, 1993.
In connection with the sale of AAI to AHI, Metro indemnified AHI for
certain tax liabilities. AHI asserted claims under the indemnification of up to
approximately $2.4 million and has offset all interest payments due Metro
against those alleged claims. In February 1994, AHI filed suit against Metro in
its Bankruptcy Court to seek to collect amounts it claims are due under the
indemnification. Metro disputed AHI's indemnification claims and, prior to
AHI's bankruptcy filing, made demand on AHI to pay amounts the Company believed
were in default
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on the note. In May 1994, AAI and AHI filed a disclosure statement in
connection with a proposed plan of reorganization. On July 17, 1994, AAI ceased
operations. In February 1995, the Company reached an agreement for a settlement
with AHI and its principals, who are also Predecessor Company stockholders.
Under the terms of the settlement, which was approved by the Bankruptcy Court,
all litigation between the parties has been dismissed and all claims of the
Company and AHI against each other have been released. In addition, the
Settlement Payment Right due Messrs. Henderson and Seaborn was reduced by 15%,
or approximately $100,000. Further, the terms of the settlement required that
the Company make an initial partial distribution of the Settlement Payment
Right, which was completed in February 1996.
In April 1989, Metro acquired Brockway Air from Owens-Illinois Group, Inc.
Brockway Air operated as a regional airline in the northeastern United States in
affiliation with Piedmont Aviation, Inc. ("Piedmont"). After the acquisition,
the Company changed the name of Brockway Air to Metro Airlines Northeast, Inc.
("Metro Northeast"). Effective July 1, 1989, the agreement with Piedmont
terminated and Metro Northeast began operating in affiliation with Trans World
Airlines ("TWA"). This change in major carrier affiliation by Metro Northeast
resulted in a decline in passenger boardings from historical levels, primarily
due to TWA's lack of a strong presence in the markets previously served in
affiliation with Piedmont.
Metro Northeast's operations generated losses for seven consecutive
quarters beginning in the second quarter of fiscal 1990. The seasonal winter
slump in passenger traffic, combined with TWA's reduction in operations, high
fuel prices and a further decline in traffic attributable primarily to the war
in the Persian Gulf and the sluggish economy in the Northeast produced losses at
Metro Northeast that the Company could no longer fund. As a result, Metro
Northeast suspended operations on February 7, 1991.
On March 21, 1991, Metro sold all of the outstanding capital stock of Metro
Northeast to ZAL Airlines Holding, Inc. ("ZAL"). The sales price was $3,880,000
and consisted of a short-term promissory note from ZAL, which note was
guaranteed by Metro Northeast and its subsidiaries and was secured by a pledge
of all of the capital stock of Metro Northeast and the assets of Metro Northeast
and its subsidiaries. ZAL defaulted on payment of the promissory note, and on
May 31, 1991, ZAL and Metro Northeast and its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the Code in the United States
Bankruptcy Court for the Western District of New York. The Company pursued its
claims against ZAL and Metro Northeast in their bankruptcy proceedings and
reached an agreement with them pursuant to which the Company's claim for the
balance of the note was compromised and settled in exchange for the release of
the Company's liens. Under the settlement agreement, which was approved by the
bankruptcy courts in New York and Texas, the Company received cash (net of
expenses) of approximately $888,000, equity in a spare engine of $116,000 and
spare parts valued at approximately $2.8 million. The effect of the settlement
of the note, which was fully reserved in fiscal 1991, was recorded as a gain in
fiscal 1992. The spare engine and parts received in the settlement were
included in the assets sold to Simmons.
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In January 1988, the Company began air cargo operations as a means of
diversifying its business. In its former cargo business, the Company operated
feeder routes for major overnight freight carriers and was paid a fee per flight
based on the length of the route. The Company's cargo operations were operated
by its Metro Express II, Inc. ("MXII") subsidiary under the name Starlite
Express. On September 24, 1991, Metro sold, with Bankruptcy Court approval, all
of the outstanding capital stock of MXII to Air Cargo Carriers, Inc. for a sales
price of one dollar, with Metro retaining the cash on hand in MXII and the
purchaser assuming the liabilities of MXII.
SERVICE MARKS, TRADE NAMES AND FRANCHISES
The Company has registered its name and logo as service marks (Reg. No.
914743 and Reg. No. 1304148).
EMPLOYEES
At April 30, 1996, the Company employed 3 persons on a part-time contract
basis, all in administrative and accounting functions. None of the Company's
employees are represented by unions. The collective bargaining agreements
covering certain former employees furloughed in connection with the Asset Sale
and Settlement were terminated effective December 22, 1992 and the Company
believes it has no further material liabilities under those agreements.
REGULATION
In the opinion of management, the Company is in substantial compliance with
all material federal laws and regulations pertaining to its current operations.
The Company also believes its former airline operations were in substantial
compliance with all material federal laws and regulations pertaining to those
operations.
INSURANCE
The Company carries insurance coverage for automobile liability and
property damage and workers compensation. Management believes that the amounts
and coverages of its insurance protection are reasonable and adequate.
ITEM 2. PROPERTIES
In connection with the Asset Sale and Settlement, Simmons either purchased
or assumed the Company's leases on all facilities used in its former operations.
Leases for all aircraft formerly used by Metroflight in its operations were
terminated effective December 22, 1992 in connection with the Asset Sale and
Settlement.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than
routine lawsuits and claims related to its former airline operations, all of
which are fully covered by insurance.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended April 30, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
In connection with the confirmation of the Plan, as modified, the
Predecessor Company's existing Common Stock, $.10 par value ("Common Stock") and
Class B Common Stock, $.10 par value ("Class B Common Stock"), were cancelled.
Authorized capital stock of the Reorganized Company consists of 32,000,000
shares of New Common Stock, $.01 par value ("New Common Stock"). In accordance
with the Plan, 22,804,071 shares of New Common Stock were issued to creditors of
Metro holding allowed unsecured claims and 230,344 shares were issued to holders
on the Effective Date of the Company's Common Stock and Class B Common Stock.
There is no established trading market for the New Common Stock.
The Predecessor Company's Common Stock formerly traded over-the-counter
under the symbol "MAIQC"; however, since the sale of the Company's remaining
operating subsidiary in December 1992, quotations on stock trades and prices of
trades were not reported by any established public trading market. There was no
public market for Metro's Class B Common Stock as there were restrictions on its
transfer.
As of April 30, 1996, there were approximately 580 holders of record of the
Company's New Common Stock. Based on information obtained from claims filed
during its Bankruptcy proceedings, the Company believes that a number of its
stockholders hold their shares in "street name" and that there are, therefore,
substantially more than 580 beneficial owners of the New Common Stock.
DIVIDENDS
The Company has never paid a cash dividend and will not do so in the
foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
Until January 1991, the Company, through its wholly owned subsidiaries,
operated four separate regional passenger airlines and an air cargo carrier.
Since January 1991, the Company has sold or shut down all of its passenger
operations and its cargo operation. See Item 1 - Business.
In February 1991, Metro Express, a wholly owned subsidiary of Metro that
operated in Atlanta in affiliation with Eastern, filed a petition to be
liquidated under Chapter 7 of the Code. Also in February 1991, Metro Northeast,
a wholly owned subsidiary of Metro that operated in the northeastern United
States in affiliation with TWA, suspended its operations. Metro sold all of the
outstanding capital stock of Metro Northeast in March 1991. In February 1991,
Metro also sold all of the outstanding capital stock of AAI, its wholly owned
subsidiary that operated in the Caribbean. In September 1991, Metro sold all of
the outstanding capital stock of MXII, its wholly owned subsidiary that operated
solely as an air cargo carrier.
The Company's remaining operations after March 1991 consisted of those of
its Metroflight subsidiary, which operated as the American Eagle carrier at
Dallas/Fort Worth until the Asset Sale and Settlement on December 22, 1992. See
Item 1 - "Business - American Eagle Operations." Subsequent to the Asset Sale
and Settlement, the Company's activities have been limited to liquidation of
remaining assets and implementation of the Plan.
On April 1, 1991, Metro, Metroflight and Metro Leasing (collectively, the
"Debtors"), filed voluntary petitions for reorganization in the Bankruptcy Court
under Chapter 11 of the Code. The filing was necessary due to substantial
weakening of the Company's financial condition resulting from losses in the
preceding two years, primarily in its Atlanta and Northeast operations. Also
contributing to the losses were increased fuel prices and lower passenger
traffic as a result of the war in the Persian Gulf. Each of the Debtors was
operated as a debtor-in-possession pursuant to the Code while pursuing approval
of a plan of reorganization, which was confirmed on December 11, 1992 and became
effective, as modified, on December 28, 1993.
LIQUIDITY AND CAPITAL RESOURCES
As previously discussed, the Company filed for reorganization under
Chapter 11 of the Code on April 1, 1991. The Company's reorganization plan was
confirmed on December 11, 1992. On December 22, 1992, the Company sold
substantially all of the assets of Metroflight, its primary operating
subsidiary. The Company currently has no ongoing operations. Since the Asset
Sale and Settlement, its activities have been limited to the pursuit of certain
claims and implementation of the Plan, which became effective, as modified, on
December 28, 1993.
As of April 30, 1996, the Company had cash and cash equivalents on hand
of approximately $123,000, compared to $327,000 at April 30, 1995.
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At December 22, 1992, the Company received cash proceeds from the Asset
Sale and Settlement of approximately $1.7 million, of which approximately $1.4
million was used to pay postpetition taxes and payables. An additional $11.0
million from the proceeds was placed in two escrow accounts (the "Escrows").
Prior to December 28, 1993, approximately $4.6 million had been disbursed to the
Company from the Escrows. On December 28, 1993, the remaining contingencies in
connection with the Asset Sale and Settlement were resolved, with the Company
receiving $3.9 million of the remaining funds held in the Escrows. Concurrent
with receipt of the escrow funds, the Plan, as modified, became effective. In
connection with the settlement of the escrow disputes, the Company recorded
additional gain on the sale of discontinued operations of approximately
$2,797,000 during the period ended December 28, 1993.
Under the Plan, payments in full of allowed prepetition claims, with
interest from March 22, 1993 to the payment date, were to be made to Metroflight
unsecured creditors. From December 29, 1993 through April 30, 1994, the Company
paid approximately $4.5 million in full satisfaction of such claims. The
stockholders of the Predecessor Company at the Effective Date are also entitled
to receive a special payment of 27 cents per share of the Predecessor Company's
stock (the "Settlement Payment Right"), payable after all senior claims are
paid. The Plan calls for partial payment of the Settlement Payment Right to be
made at such time as the Reorganized Company has sufficient cash, after
deducting certain reserves, to pay at least 50%, or approximately $775,000, of
the total Settlement Payment Right, which is approximately $1,550,000. The
Company currently does not have sufficient resources to require such a payment.
However, under the terms of the settlement with AHI, the Company agreed to make
an initial partial payment of the Settlement Payment Right. Such payment, which
totalled approximately $344,000 was made in February 1996. For purposes of
establishing the liability associated with the Settlement Payment Right, the
Company recorded a payable to Predecessor Company stockholders with a
corresponding charge to the Predecessor Company stockholders' accounts in an
amount equal to the net assets of the Reorganized Company at the Effective Date.
The payable is adjusted as subsequent income or losses are incurred since such
income or losses increase or reduce the net assets available for payment of the
Settlement Payment Right. Since the Effective Date, the payable has been
reduced by the cumulative net loss incurred from the Effective Date through
April 30, 1996. The payable has not been reduced by reserves for future
administrative expenses or costs of litigation.
In addition to cash on hand, the Company has certain other assets,
primarily prepaid expenses that it expects to liquidate at amounts approximating
carrying value.
The Company also has an allowed unsecured claim of approximately $5.4
million in the Chapter 7 bankruptcy proceedings of Metro Express, the Company's
subsidiary that is being liquidated by a trustee. Although the Company expects
to receive a cash distribution on its unsecured claim from the liquidation of
Metro Express, there can be no assurance as to the amount or timing of such
distribution. Any distribution will likely be only a small percentage of the
allowed claim. In addition, the Company's administrative claim in the Metro
Express bankruptcy was allowed in the amount of approximately $330,000, which
was received by the Company in June 1995.
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The Company believes that its current cash on hand is sufficient to fund
operating expenses during the implementation of the Plan, which is expected to
last well into fiscal 1997, as well as to pursue the Company's claim against
Metro Express. It is anticipated that the Company will be ultimately
liquidated.
The Company has no commitments for capital expenditures or leases. The
Company currently has no available borrowing capability and it is unlikely that
it would be able to obtain additional outside financing. Under the terms of the
Plan, the Company is not permitted to pledge any assets owned as of the
effective date of the Plan without approval of a committee representing the
interest of prepetition creditors. All of the Company's available cash, after
payment of administrative expenses, is currently committed to payments to
creditors and Predecessor Company stockholders.
IMPACT OF INFLATION
The Company's operating costs, which are currently limited to general and
administrative expenses, are subject to general inflationary pressures. The
Company currently has no ongoing sources of revenue as all operations have been
discontinued.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements: Page No.
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Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet as of April 30, 1996 . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years ended
April 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity
for the years ended April 30, 1996 and 1995. . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the years ended
April 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-6
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
At April 30, 1996, the directors and executive officer of the Company were as
follows:
Age as
of June 30, Director
Name Position 1996 Since
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Glenn S. Koach Chairman of the Board and Director 41 1992
Brian K. Miller President and 37 -
Chief Executive Officer,
Secretary and Treasurer
Hal N. Carr Director 75 1987
Lawrence C. Levey Director 63 1992
Thomas J. Ryan, III Director 54 1992
Glenn S. Koach has for more than the past five years been a principal of
Riverside Capital Advisers, Inc., an investment management firm.
Brian K. Miller was elected President, Secretary and Treasurer of the
Company in January 1993. Prior to that he served as Senior Vice President -
Chief Financial Officer and Secretary of the Company from July 1991 to January
1993. Prior to that he held various positions with the Company for five years,
including Vice President - Controller and Corporate Controller. He has served
as Treasurer of the Company since April 1988. Mr. Miller is a Certified Public
Accountant. From March 1994 through November 1995, Mr. Miller was employed as
Vice President and Chief Financial Officer of Lone Star Airlines, a regional
airline based in Fort Worth, Texas. Since March 1, 1994, Mr. Miller's services
to the Company have been provided on a contract basis.
Hal N. Carr has for more than the past five years been actively engaged
in personal investment activities.
-14-
<PAGE>
Lawrence C. Levey has for more than the past five years served as Vice
President - Director Corporate Credit of Owens-Illinois, Inc., a major packaging
manufacturer.
Thomas J. Ryan, III has for more than the past five years been a
principal of Riverside Capital Advisers, Inc., an investment management firm.
EFFECT OF BANKRUPTCY PROCEEDINGS
Under the Plan Modification (see Item 1. "Business - Chapter 11
Reorganization"), Metro's Certificate of Incorporation and Bylaws were amended
to authorize the issuance of a single class of New Common Stock and to cancel
the Company's Common Stock and Class B Common Stock. Approximately 99% of the
New Common Stock was issued to Metro's unsecured creditors and 1% was issued to
Metro's existing stockholders on December 28, 1993.
Under the Plan Modification, the Certificate of Incorporation and Bylaws
of Metro were also amended to provide that the Board of Directors of Metro shall
consist of seven members. The current directors were submitted to the
Bankruptcy Court at the Confirmation Hearing and became initial directors on
December 22, 1992.
Lawrence C. Levey holds the position of the Place Eight Director
described in the Plan. The Plan and the Plan Modification provide that such
position shall be for a fixed term of 10 years. If a vacancy occurs in such
position during such term, Owens-Illinois, Inc. shall nominate two candidates to
fill such vacancy if it is then a holder of New Common Stock, and the remaining
members of the Board of Directors shall appoint one of such nominees to fill
such vacancy. If Owens-Illinois, Inc. is not a holder of New Common Stock at
the date such vacancy occurs, such position shall be filled by the Board of
Directors as otherwise provided in the Bylaws. Such position shall be called
the Place Six Director from and after the Effective Date.
James W. Sight is designated in the Plan Modification to be the Plan Nine
Director provided for in the Plan. From and after the Effective Date, such
position shall be called the Plan Seven Director. The term of the Place Seven
Director shall expire on the earlier of five (5) years after the Effective Date
or the date when James W. Sight no longer owns any shares of New Common Stock.
Any vacancy that occurs in such position shall be filled by the Board of
Directors as provided in the Bylaws. Mr. Sight resigned from the Board of
Directors for personal reasons in October 1995. The Board has not filled the
vacancy created by his resignation.
Other than the Place Six and Place Seven Directors, all directors of
Metro shall serve for terms of one (1) year each and shall be elected by the
holders of New Common Stock at each annual meeting. Vacancies occurring in such
director positions during any year shall be filled by the remaining members of
the Board of Directors as provided in the Bylaws.
J. L. Seaborn resigned from the Board for personal reasons effective
February 16, 1994. Jerome F. Snyder resigned from the Board for personal
reasons effective May 13, 1994.
-15-
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires certain
persons, including the Company's directors and executive officers, to file
reports with the Securities and Exchange Commission regarding beneficial
ownership of certain equity securities of the Company.
Based solely on the Company's review of such forms furnished to the
Company and written representation from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officer, directors and more than 10% shareholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION
The Company's executive officers are elected by the Board of Directors.
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to the
Company's sole executive officer during the fiscal years ended April 30, 1996
and 1995:
- --------------------------------------------------------------------------------
Summary Compensation Table
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Annual compensation Long term compensation
----------------------------------------------------------------------------------------------
Awards Payouts
----------------------------------------------------------------------------------------------
LTIP All other
Name and principal Other annual Restricted stock Options/ payouts compensation
position Year Salary ($) Bonus ($) compensation ($) award(s) ($) SARs (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian K. Miller 1996 19,900 - - - - - -
President and CEO 1995 12,155 - - - - - 51,759(a)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Accrued sick leave payable in accordance with employment agreement.
There were no grants of options and or SARs made in the last fiscal year.
There were no options or SARs exercised during the last fiscal year and none
were outstanding at April 30, 1996. The Metro Airlines, Inc. 1981 Incentive
Stock Option Plan was terminated in July 1993. The Company has no long-term
incentive plans and no pension or other defined benefit or actuarial plans.
COMPENSATION OF DIRECTORS
The Company's directors currently receive no compensation, other than
reimbursement of reasonable out-of-pocket expenses incurred in connection with
board meetings.
-16-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 1996, certain information
concerning shares of New Common Stock beneficially owned by : (i) each person
known by the Company to own beneficially more than 5% of the outstanding New
Common Stock and (ii) the executive officer and directors of the Company. The
table has been prepared from information obtained from the persons named
therein.
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of Percent
of Title of Beneficial of
Beneficial Owner Class Ownership(1) Class(2)
---------------- ----- ------------ --------
<S> <C> <C> <C>
Owens-Illinois, Inc. New Common Stock 3,500,000 15.2%
One Seagate
Toledo, OH 43666
Glenn S. Koach(3) New Common Stock 113 (4)
Hal N. Carr New Common Stock 36,740 (4)
Brian K. Miller New Common Stock 110 (4)
Thomas J. Ryan, III - - -
Lawrence C. Levey(3) - - -
All Officers and Directors as a Group New Common Stock 36,963 1.6%
(5 persons)
</TABLE>
- ------------
(1) Each stockholder has sole voting and dispositive power over all shares
listed opposite such stockholder's name, except as indicated below.
(2) Percentages are calculated on the basis of the number of shares
outstanding at April 30, 1996.
(3) Messrs. Koach and Levey are former members of the Official Committee of
Unsecured Creditors, which represented the interests of the Company's
unsecured creditors in the Company's bankruptcy proceedings until
confirmation of the Plan. Mr. Levey is an officer of Owens-Illinois, Inc.
(4) Represents less than 1% of outstanding shares of class.
-17-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
On February 12, 1991, after receiving and reviewing bids from various
parties, the Company completed the sale of all of the stock of its wholly owned
subsidiary, Aviation Associates, Inc. ("AAI"). AAI was sold to Aeroflight
Holdings, Inc. ("AHI"), a newly formed company owned by E. A. Henderson and J.
L. Seaborn. AAI, which was acquired by the Company in October 1985, operates as
a regional airline in the Caribbean. The sales price was $6.5 million, of which
$4.0 million was paid by cancellation of loans and deposits made by the
purchasers to the Company. The remaining $2.5 million was in the form of a
promissory note payable in ten years, or earlier in certain circumstances,
bearing interest at prime rate, and secured by the stock of AAI.
In connection with the sale of AAI to AHI, Metro indemnified AHI for
certain tax liabilities. AHI has asserted claims under the indemnification of
up to approximately $2.4 million and offset all interest payments due Metro
against those alleged claims. Metro disputed AHI's indemnification claim and
made demand on AHI to pay amounts the Company believed were in default on the
note. In December 1993, AHI and AAI filed for protection under Chapter 11 of
the Bankruptcy Code. AHI filed an action against the Company in the Bankruptcy
Court based on its indemnification claim, and the Company filed a counterclaim
seeking to foreclose on the stock of AAI. In addition, the Company filed a
third-party claim against Messrs. Henderson and Seaborn alleging, among other
things, breach of fiduciary duty and self-dealing. As a result of the AHI
bankruptcy, the Company fully reserved the balance on the note as of April 30,
1994. In May 1994, AAI and AHI filed a disclosure statement in connection with
a proposed plan of reorganization. On July 17, 1994, AAI ceased operations. In
February 1995, the Company reached an agreement for a settlement with AHI and
its principals, who are also Predecessor Company stockholders. Under the terms
of the settlement, which was approved by the Bankruptcy Court, all litigation
between the parties has been dismissed and all claims of the Company and AHI
against each other have been released. In addition, the Settlement Payment
Right due Messrs. Henderson and Seaborn has been reduced by 15%, or
approximately $100,000. Further, the terms of the settlement required that the
Company make an initial partial distribution of the Settlement Payment Right,
which was done in February 1996.
The Board of Directors of the Company has determined all transactions
between the Company and affiliated parties to be on terms that are no less
favorable than could be obtained from unaffiliated third parties and at least a
majority of the disinterested members of the Board has approved each such
transaction.
-18-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
13(a) EXHIBITS:
Exhibit
No.
- --------
2.1 - Second Amended and Restated Joint Disclosure Statement as filed with
the Bankruptcy Court. (Incorporated by reference to Exhibit 1 to the
Company's Form 10-Q for the fiscal quarter ended October 31, 1992, as
amended by the Company's Form 8 dated January 5, 1993.)
2.2 - Findings of Fact And Conclusions Of Law Relating To The Confirmation Of
The Second Amended And Restated Joint Plan Of Reorganization As
Corrected and Amended, as filed with the Bankruptcy Court on December
11, 1992. (Incorporated by reference to Exhibit 2 to the Company's
Form 10-Q for the fiscal quarter ended October 31, 1992, as amended by
the Company's Form 8 dated January 5, 1993.)
2.3 - Order Confirming Second Amended And Restated Joint Plan Of
Reorganization As Modified and Amended Post-Confirmation, as entered by
the Bankruptcy Court on December 16, 1993. (Incorporated by reference
to Exhibit 1 to the Company's Current Report on Form 8-K dated December
20, 1993.)
2.4 - Second Amended and Restated Joint Plan of Reorganization as Modified
and Amended Post-Confirmation of Metro Airlines, Inc., Metroflight,
Inc. and Metro Leasing, Inc. dated as of December 16, 1993.
(Incorporated by reference to Exhibit 1 to the Company's Current Report
on Form 8-K dated June 28, 1993.)
2.5 - Supplemental Disclosure in Support of Proposed Post-Confirmation
Modification of the Second Amended and Restated Joint Plan of
Reorganization of Metro Airlines, Inc., Metroflight, Inc. and Metro
Leasing, Inc. dated as of June 17, 1993. (Incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K dated January 11,
1994.)
3.1 - Restated Certificate of Incorporation of the Company, dated as of
December 27, 1993. (Incorporated by reference to Exhibit 3 to the
Company's Current Report on Form 8-K dated January 11, 1994.)
3.2 - Bylaws of the Company, dated as of December 28, 1993. (Incorporated by
reference to Exhibit 4 to the Company's Current Report on Form 8-K
dated January 11, 1994.)
-19-
<PAGE>
21.1* - Subsidiaries of Metro Airlines, Inc.
- ----------------------------
*Filed herewith.
13(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
April 30, 1996.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
METRO AIRLINES, INC.
Date: July 29, 1996 By /s/ Brian K. Miller
------------------------ ----------------------------------
Brian K. Miller
President
By /s/ Mitchell E. Gassaway
----------------------------------
Mitchell E. Gassaway
Controller
Principal Accounting Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ GLENN S. KOACH Co-Chairman of the Board July 29, 1996
- -------------------------
Glenn S. Koach
/s/ BRIAN K. MILLER President, July 29, 1996
- ------------------------- Treasurer and Secretary
Brian K. Miller Principal Financial Officer
/s/ HAL N. CARR Director July 29, 1996
- -------------------------
Hal N. Carr
/s/ LAWRENCE C. LEVEY Director July 29, 1996
- -------------------------
Lawrence C. Levey
/s/ THOMAS J. RYAN, III Director July 29, 1996
- -------------------------
Thomas J. Ryan, III
-21-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Metro Airlines, Inc.:
We have audited the consolidated financial statements of Metro Airlines, Inc.
and subsidiaries as listed in the index included in Part II, Item 7. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in notes 1 and 3 to the consolidated financial statements, the
Company has no ongoing operations. The Company's current activities consist of
implementing a reorganization plan and pursuing certain claims. It is
anticipated that the Company will be liquidated after all claims have been
pursued and realized to the extent possible.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Metro Airlines, Inc.
and subsidiaries as of April 30, 1996, and the results of their operations and
their cash flows for the years ended April 30, 1996 and 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
July 3, 1996
F-1
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
APRIL 30, 1996
--------------
Current assets:
Cash and cash equivalents $ 123
Prepaid expenses and other 128
------
Total assets $ 251
------
------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - accounts payable and other accrued liabilities $ 11
Payable to Predecessor Company stockholders 240
Commitments and contingencies
Stockholders' equity:
New common stock - authorized 32,000,000 shares of
$.01 par value; issued 23,034,415 upon reorganization 230
Additional paid-in capital (230)
------
Total stockholders' equity -
------
Total liabilities and stockholders' equity $ 251
------
------
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED APRIL 30,
---------------------
1996 1995
---- ----
Operating revenues $ - $ -
Operating expenses - general and
administrative expenses 226 315
---- ----
Operating loss from continuing operations (226) (315)
---- ----
Other income:
Interest income, net 24 33
Other, net - 330
---- ----
Total other income 24 363
---- ----
Net income (loss) $(202) $ 48
---- ----
---- ----
Earnings (loss) per common share $(.01) $ -
---- ----
---- ----
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
NEW ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
----- ------- --------
Balance, April 30, 1994 $230 $(230) $ -
Net income - - 48
Increase in payable to
Predecessor Company stockholders - - (48)
---- ----- -----
Balance, April 30, 1995 $230 $(230) $ -
Net loss - - (202)
Reduction of payable to
Predecessor Company stockholders - - 202
---- ----- -----
Balance, April 30, 1996 $230 $(230) $ -
---- ----- -----
---- ----- -----
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED APRIL 30,
-------------------
1996 1995
---- ----
Cash flows from operating activities:
Income (loss) from continuing operations $(202) $ 48
Adjustments to reconcile income (loss)
to net cash used by operating activities:
Payment to Predecessor Company stockholders (344) -
Changes in assets and liabilities:
Prepaid expenses and other assets 342 (320)
Accounts payable and other accrued liabilities - (126)
----- -----
Net cash used by operating activities (204) (398)
----- -----
Net decrease in cash and cash equivalents (204) (398)
Cash and cash equivalents at beginning of period 327 725
----- -----
Cash and cash equivalents at end of period $ 123 $ 327
----- -----
----- -----
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) CHAPTER 11 REORGANIZATION
On April 1, 1991 (the "Petition Date"), Metro Airlines, Inc. ("Metro") and
two of its subsidiaries, Metroflight, Inc. ("Metroflight") and Metro Leasing,
Inc. ("Metro Leasing") (collectively, the "Debtors"), filed voluntary petitions
in the United States Bankruptcy Court for the Northern District of Texas, Dallas
Division (the "Bankruptcy Court") for reorganization under Chapter 11 of the
United States Bankruptcy Code (the "Code"). As used in these consolidated
financial statements, unless the context indicates otherwise, the term "Company"
refers to Metro and its subsidiaries.
Through December 11, 1992, each of the Debtors was operated as a debtor-in-
possession pursuant to the Code, which protects the Company from its creditors
pending the negotiation, filing and confirmation of a plan of reorganization.
The unsecured creditors of Metro and Metroflight formed a committee (the
"Creditors Committee") which was appointed by the United States Trustee to
represent the interests of such creditors in the bankruptcy proceedings.
On May 14, 1992, the Company and its Creditors Committee filed with the
Bankruptcy Court their Joint Plan of Reorganization, which plan was amended on
June 12, 1992, August 3, 1992 and November 25, 1992 (the "Plan"). On December
11, 1992, the Bankruptcy Court entered an order confirming the Plan, which
became effective on December 22, 1992.
Closing of the Plan and commencement of distributions to certain creditors
and stockholders did not occur as scheduled on March 22, 1993 because the
Company did not have sufficient cash to make the required cash payments. The
shortfall in cash was primarily due to two conditions: (1) adverse operating
results during the quarter ended January 31, 1993 and (2) adverse or incomplete
resolution of certain contingencies in connection with the Asset Sale and
Settlement. The Company therefore proposed certain post-confirmation
modifications (the "Plan Modification") to the Plan.
The Plan Modification was confirmed by the Bankruptcy Court on December 16,
1993 and the Plan became effective on December 28, 1993 (the "Effective Date"),
on which date the remaining contingencies in connection with the Asset Sale and
Settlement were resolved with the Company receiving $3.9 million of the funds
held in escrow (see Note 3).
The Plan called for the payment of approximately $4.5 million in cash,
including interest from March 22, 1993 to the date of payment, in satisfaction
of unsecured claims against Metroflight. The Plan also provided for the
cancellation of approximately $22.8 million in unsecured claims against Metro in
exchange for the issuance of approximately 99% of the common stock of the
Reorganized Company to the holders of such claims. The remaining 1% of the
common stock of the Reorganized Company was issued to the holders of the
Predecessor Company's common stock on December 28, 1993. As used herein, the
term "Predecessor
F-6
<PAGE>
Company" refers to the Company prior to December 28, 1993 and the term
"Reorganized Company" refers to the Company after December 28, 1993.
The stockholders of the Predecessor Company are also entitled to receive a
special payment of 27 cents per share of the Predecessor Company's stock (the
"Settlement Payment Right"), payable after all senior claims are paid. The Plan
calls for partial payment of the Settlement Payment Right to be made at such
time as the Reorganized Company has sufficient cash, after deducting certain
reserves, to pay at least 50%, or approximately $775,000, of the total
Settlement Payment Right, which is approximately $1,550,000. The Company
currently does not have sufficient resources to require such a payment.
However, in connection with the settlement of certain litigation (see Note 3),
the Company agreed to make an initial partial distribution of the Settlement
Payment Right. Such distribution, which totalled approximately $344,000, was
made in February 1996. For purposes of establishing the liability associated
with the Settlement Payment Right, the Company recorded a payable to Predecessor
Company stockholders with a corresponding charge to the Predecessor Company
stockholders' accounts in an amount equal to the net assets of the Reorganized
Company as of the Effective Date. The payable is adjusted as subsequent income
or losses are incurred since such income or losses increase or reduce the net
assets available for payment of the Settlement Payment Right. Since the
Effective Date, this payable has been reduced by the cumulative net loss
incurred from the Effective Date through April 30, 1996. The payable has not
been reduced by reserves for future administrative expenses or costs of
litigation.
The Company accounted for transactions related to the reorganization
proceedings in accordance with Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code," issued by the American
Institute of Certified Public Accountants in November 1990 ("SOP 90-7"). In
connection with its emergence from bankruptcy, the Company adopted fresh start
reporting in accordance with SOP 90-7 and reflected the effects of such adoption
in its consolidated balance sheet as of December 28, 1993.
The Company currently has no ongoing operations. The Company's current
activities consist of implementing the Plan and pursuing certain claims (see
Note 3). It is anticipated that the Company will be liquidated after all claims
have been pursued and realized to the extent possible.
F-7
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Metro and its
wholly owned subsidiaries, Metroflight and Metro Leasing.
As a result of the appointment of a trustee to manage the liquidation of
Metro Express, Inc. ("Metro Express") under Chapter 7 of the Code, Metro Express
is no longer considered an affiliated company for financial statement purposes
(see Note 3). Accordingly, the accounts of Metro Express have been excluded
from the accompanying consolidated financial statements.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
FEDERAL INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("Statement 109"), ACCOUNTING FOR INCOME
TAXES. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share is computed by dividing net income (loss) for the
period by 23,034,415 shares, the number of shares of new common stock issued to
creditors and Predecessor Company stockholders under the Plan.
(3) DISCONTINUED OPERATIONS
Metro acquired the outstanding common stock of Metro Express effective
April 30, 1984. Metro Express operated as a regional airline at Atlanta under
coordinated services and code-sharing agreements with Eastern Air Lines, Inc.
("Eastern"). As a result of Eastern's shutdown, Metro Express ceased operations
on January 19, 1991. On February 7, 1991, Metro Express filed a voluntary
petition in the Bankruptcy Court seeking to be liquidated under Chapter 7 of the
Code. The Bankruptcy Court has appointed a trustee to manage Metro Express'
liquidation. In February 1995, Metro's administrative claim in the Metro
Express bankruptcy was allowed in the amount of approximately $330,000. This
amount was received by the Company in June 1995. Metro's unsecured claim in the
Metro Express bankruptcy has been allowed in the
F-8
<PAGE>
approximate amount of $5,411,000, but the Company is unable to determine the
ultimate amount, if any, that might be recovered from the liquidation of Metro
Express. Accordingly, no receivable has been recorded in the accompanying
financial statements for the unsecured claim. The ultimate distribution is
likely to be only a small percentage of the allowed claim.
On February 12, 1991, Metro completed the sale of all of the outstanding
stock of Aviation Associates, Inc. ("AAI") to Aeroflight Holdings, Inc. ("AHI"),
a newly-formed company owned by two former officers and directors of Metro.
AAI, which was acquired by the Company in October 1985, operated as a regional
airline in the Caribbean. The sales price was $6,500,000, of which $4,000,000
was paid by cancellation of loans and deposits made by the purchasers to Metro
during fiscal 1991, and $2,500,000 was in the form of a promissory note payable
in ten years, or earlier under certain circumstances, bearing interest at prime
rate, and secured by the stock of AAI.
In connection with the sale of AAI to AHI, Metro indemnified AHI for
certain tax liabilities. AHI asserted claims under the indemnification of up to
approximately $2.4 million and offset all interest payments due Metro against
those alleged claims. In February 1994, AHI filed suit against Metro in its
Bankruptcy Court to seek to collect amounts it claimed were due under the
indemnification. Metro disputed AHI's indemnification claims and, prior to
AHI's bankruptcy filing, made demand on AHI to pay amounts the Company believed
were in default on the note. As a result of disputes between the parties
concerning the indemnification claims and the uncertainty surrounding collection
of the promissory note from AHI, Metro fully reserved the balance of the note
receivable and incurred a charge of $2,287,000 for the write-off of the note in
the period ended December 28, 1993. In May 1994, AAI and AHI filed a disclosure
statement in connection with a proposed plan of reorganization. On July 17,
1994, AAI ceased operations. In February 1995, the Company reached an agreement
for a settlement with AHI and its principals, who are also Predecessor Company
stockholders. Under the terms of the settlement, which was approved by the
Bankruptcy Court, all litigation between the parties has been dismissed and all
claims of the Company and AHI against each other have been released. In
addition, the Settlement Payment Right due the two former officers and directors
of Metro has been reduced by 15%, or approximately $100,000. Further, the terms
of the settlement provide that the Company make an initial partial distribution
of the Settlement Payment Right. Such distribution, which totalled
approximately $344,000, or $.06 per share of the Predecessor Company's stock,
was made in February 1996.
Metroflight previously operated scheduled passenger service using the name
American Eagle under a coordinated service agreement with American Airlines,
Inc. ("American"). Metroflight's affiliation with American was established
under and governed by certain code-sharing and other services agreements, as
amended (the "American Agreements").
On November 25, 1992, the Company entered into agreements to sell
substantially all of the assets of Metroflight to Simmons Airlines, Inc.
("Simmons"), an affiliate of American, and to settle all litigation between
Metro, Metroflight and American (the "Asset Sale and Settlement"). On December
11, 1992, the Bankruptcy Court entered an order confirming the Company's
reorganization plan, which was based upon the Asset Sale and Settlement. The
Asset Sale and Settlement was completed on December 22, 1992.
F-9
<PAGE>
Pursuant to the agreements for the Asset Sale and Settlement, Simmons
acquired Metroflight's assets for $10 million in cash, subject to certain
adjustments. Simmons also acquired the prepetition claims of certain of the
Company's creditors, which claims were recorded as liabilities of approximately
$32 million on the Company's books, and forgave those claims against the
Company. In addition, the American Agreements were terminated and American paid
$4 million in cash to settle all litigation with Metro and Metroflight.
As a result of the Asset Sale and Settlement, Metroflight, which accounted
for substantially all of the Company's consolidated revenues, ceased operations
on December 22, 1992. Since that date, the Company's operations have primarily
been limited to implementation of the Company's reorganization plan and
liquidation of the remaining assets.
Under the terms of the Asset Sale and Settlement, a portion of the proceeds
totalling $11 million was placed in two escrow accounts (the "Escrows"). Prior
to December 28, 1993, approximately $4.6 million had been disbursed to the
Company from the Escrows. Disputes arose with respect to the balance of the
funds in the Escrows and certain other funds held by Simmons in connection with
the Asset Sale and Settlement. The disputes were resolved on December 28, 1993
with the Company receiving $3.9 million from the Escrows and Simmons and
American receiving the remaining balance of the funds in the Escrows.
(4) CAPITAL STOCK
In connection with the confirmation of the Plan, as modified, the
Predecessor Company's existing common stock and Class B common stock were
cancelled. In accordance with the Plan, 22,804,071 shares of new common stock
were issued to creditors holding allowed unsecured claims against Metroflight
and 230,344 shares were issued to holders on the Effective Date of the
Predecessor Company's common stock and Class B common stock.
(5) INCOME TAXES
The differences between federal income taxes attributable to continuing
operations computed utilizing the U.S. federal income tax rate of 34% and the
federal income tax expense (benefit) reflected in the consolidated statements of
operations are as follows (in thousands):
Year Ended April 30,
1996 1995
---- ----
Taxes at statutory rate $(68) $ 16
Losses for which no benefit is available 68 -
Change in valuation allowance - (16)
---- ----
$ - $ -
---- ----
---- ----
F-10
<PAGE>
The tax effect of the temporary difference that gives rise to the deferred
tax asset at April 30, 1996 is as follows (in thousands):
Deferred tax asset - net operating loss
and tax credit carryforwards $ 3,670
Less valuation allowance (3,670)
-------
Net deferred tax asset $ -
-------
-------
The valuation allowance increased $68,000 during the year ended April 30,
1996. In assessing the realizability of the deferred tax asset, management
considers whether it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The ultimate realization of the
deferred tax asset is dependent upon the generation of future taxable income
during the period in which the temporary difference becomes deductible. Due to
the Company's inability to generate revenues and the uncertainties surrounding
receipts of income from other sources, management is unable to conclude that it
is more likely than not that the deferred tax asset will be realized.
At April 30, 1996, the Company had net operating loss carryforwards of
$8,177,000 expiring in fiscal 2001 and tax credit carryforwards of $890,000
which expire beginning in fiscal 1996.
(6) LEASES
Leases for all aircraft and facilities formerly used in the Company's
operations were terminated effective December 22, 1992 in connection with the
Asset Sale and Settlement. At April 30, 1996, the Company had no noncancelable
operating leases with initial or remaining terms in excess of one year.
Rental expense under operating leases was $1,350 and $1,100 in fiscal years
1996 and 1995, respectively.
F-11
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF METRO AIRLINES, INC.
Percent of
Name State of Incorporation Shares Held
---- ---------------------- -----------
Metroflight, Inc.(a) Delaware 100%
Metro Leasing, Inc. Delaware 100%
Metro Express, Inc.(b) Delaware 100%
- ----------------------
(a)Metroflight, Inc. And Metro Leasing, Inc. were dissolved in June 1996.
(b)Metro Express, Inc. filed a petition to be liquidated under Chapter 7 of
the Code in February 1991. A court-appointed trustee is currently administering
the liquidation of Metro Express, Inc.
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