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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, 1997
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
(972) 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 / /
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 / /
As of April 30, 1997, 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 former 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 1998. 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." Metroflight and Metro Leasing were dissolved in June 1996 as
they had 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 former 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 was allowed in the amount of approximately $5,411,000. During
fiscal 1997 the Company received a partial interim distribution of
approximately $352,000 from the estate of Metro Express. On July 1, 1997,
the Company received a final distribution of approximately $246,000 from the
estate of Metro Express.
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 currently operates
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, 1997, the Company employed 3 persons on a 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 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 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, 1997.
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, 1997, 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, 1997, the Company had cash and cash equivalents on hand
of approximately $310,000, compared to $123,000 at April 30, 1996.
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During the third quarter of fiscal 1997, the Company received a partial
interim distribution of approximately $352,000 from the estate of Metro
Express, the Company's former subsidiary that is being liquidated by a
trustee in Chapter 7 bankruptcy proceedings. On July 1, 1997, the Company
received a final distribution of approximately $246,000 from its unsecured
claim in the Metro Express liquidation. 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.
During the second quarter of fiscal 1997, the Company received a refund
of approximately $31,500 of federal fuel taxes paid in a prior year. The
refund was recorded as an offset to general and administrative expenses when
received.
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, 1997. The payable has not been reduced by reserves for future
administrative expenses or future costs of litigation.
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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 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 1998. 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 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, 1997........ F-2
Consolidated Statements of Operations for the years
ended April 30, 1997 and 1996........................ F-3
Consolidated Statements of Stockholders' Equity
for the years ended April 30, 1997 and 1996.......... F-4
Consolidated Statements of Cash Flows for the years
ended April 30, 1997 and 1996........................ 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, 1997, the directors and executive officer of the Company
were as follows:
Age as
of June 30, Director
Name Position 1997 Since
---- -------- ----------- --------
Glenn S. Koach Chairman of the Board and Director 42 1992
Brian K. Miller President and 38 -
Chief Executive Officer,
Secretary and Treasurer
Hal N. Carr Director 76 1987
Lawrence C. Levey Director 64 1992
Thomas J. Ryan, III Director 55 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 also employed as Vice President and Chief Financial Officer of
Lone Star Airlines, a regional airline based in Fort Worth, Texas.
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 1, 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.
-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, 1997
and 1996:
<TABLE>
<CAPTION>
Summary Compensation Table
- -------------------------------------------------------------------------------------------------------------------------
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 1997 26,350 - - - - - -
President and CEO 1996 19,900 - - - - - -
</TABLE>
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, 1997, 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.
AMOUNT AND
NAME AND ADDRESS NATURE OF PERCENT
OF TITLE OF BENEFICIAL OF
BENEFICIAL OWNER CLASS OWNERSHIP(1) CLASS(2)
---------------- ----- ------------ --------
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)
- ------------
(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, 1997.
(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, 1997.
-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, 1997 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
--------- ----- ----
Chairman of the Board
- ----------------------------
Glenn S. Koach
/s/ BRIAN K. MILLER President, July 29, 1997
- ---------------------------- Treasurer and Secretary
Brian K. Miller Principal Financial Officer
/s/ HAL N. CARR Director July 29, 1997
- ----------------------------
Hal N. Carr
/s/ LAWRENCE C. LEVEY Director July 29, 1997
- ----------------------------
Lawrence C. Levey
/s/ THOMAS J. RYAN, III Director July 29, 1997
- ----------------------------
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, 1997, and the results of
their operations and their cash flows for the years ended April 30, 1997 and
1996, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
July 3, 1997
F-1
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
ASSETS
APRIL 30, 1997
--------------
Current assets:
Cash and cash equivalents $ 310
Prepaid expenses and other 117
-------
Total assets $ 427
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - accounts payable and other accrued liabilities $ 5
Payable to Predecessor Company stockholders 422
Commitments and contingencies
Stockholders' equity:
New common stock - authorized 32,000,000 shares of
$.01 par value; issued and outstanding 23,034,415 shares 230
Additional paid-in capital (230)
-------
Total stockholders' equity -
-------
Total liabilities and stockholders' equity $ 427
-------
-------
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,
--------------------
1997 1996
---- ----
Operating revenues $ - $ -
Operating expenses -
Recovery of receivable previously
written off (352) -
General and administrative expenses 177 226
----- ------
Operating income (loss) 175 (226)
----- ------
Other income:
Interest income 6 24
Other, net 1 -
----- ------
Total other income 7 24
----- ------
Net income (loss) $ 182 $ (202)
----- ------
----- ------
Earnings (loss) per common share $ .01 $ (.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, 1995 $230 $(230) $ -
Net loss - - (202)
Reduction of payable to
Predecessor Company stockholders - - 202
---- ----- --------
Balance, April 30, 1996 $230 $(230) $ -
Net income - - 182
Increase in payable to
Predecessor Company stockholders - - (182)
---- ----- --------
Balance, April 30, 1997 $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,
--------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $182 $(202)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Payment to Predecessor Company stockholders - (344)
Changes in operating assets and liabilities:
Prepaid expenses and other assets 11 342
Accounts payable and other accrued liabilities (6) -
---- -----
Net cash provided (used) by operating activities 187 (204)
---- -----
Net increase (decrease) in cash and cash equivalents 187 (204)
Cash and cash equivalents at beginning of period 123 327
---- -----
Cash and cash equivalents at end of period $310 $ 123
---- -----
---- -----
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, 1997. The payable has not been reduced by
reserves for future administrative expenses or future 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
Cash equivalents of approximately $309,000 at April 30, 1997 consist of
money market accounts with an initial term of less than three months.
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
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. 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(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 total amount of $5,411,000. During fiscal 1997, the Company
received a partial interim distribution of approximately $352,000 from the
estate of Metro Express. No receivable has been recorded in the accompanying
financial statements for the balance of the unsecured claim. See Note 7.
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 $3.9 million from
the Escrows and Simmons and American receiving the remaining balance of the
funds in the Escrows.
(4) CAPITAL STOCK
In connection with the confirmation of the Plan, as modified, the
Predecessor Company's existing common stock and Class B common stock were
cancelled. In accordance with the Plan, 22,804,071 shares of new common
stock were issued to creditors holding allowed unsecured claims against
Metroflight and 230,344 shares of new common stock were issued to holders on
the Effective Date of the Predecessor Company's common stock and Class B
common stock.
(5) INCOME TAXES
The differences between federal income taxes attributable to continuing
operations computed utilizing the U.S. federal income tax rate of 34% and the
federal income tax expense (benefit) reflected in the consolidated statements
of operations are as follows (in thousands):
Year Ended April 30,
1997 1996
---- ----
Taxes at statutory rate.................................$ 62 $(68)
Utilization of net operating loss carryforward.......... (62) -
Losses for which no benefit is available................ - 68
---- ----
$ - $ -
---- ----
---- ----
F-10
<PAGE>
The tax effect of the temporary difference that gives rise to the
deferred tax asset at April 30, 1997 is as follows (in thousands):
Deferred tax asset - net operating loss
and tax credit carryforwards $ 3,451
Less valuation allowance (3,451)
-------
Net deferred tax asset $ -
-------
-------
The valuation allowance decreased $219,000 during the year ended April 30,
1997. 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, 1997, the Company had net operating loss carryforwards of
$7,996,000 expiring in fiscal 2001 and tax credit carryforwards of $734,000
which began expiring 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, 1997, the Company had no
noncancelable operating leases with initial or remaining terms in excess of
one year.
Rental expense under operating leases was $1,150 and 1,350 in fiscal
years 1997 and 1996, respectively.
(7) SUBSEQUENT EVENT
On July 1, 1997, the Company received a final distribution from the
liquidation of Metro Express of approximately $246,000. Such distribution
was recorded as income when received.
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.(a) 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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 1997 AND ITS CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE FISCAL YEAR THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 310
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 427
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 427
<CURRENT-LIABILITIES> 5
<BONDS> 0
0
0
<COMMON> 230
<OTHER-SE> (230)
<TOTAL-LIABILITY-AND-EQUITY> 427
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 177
<OTHER-EXPENSES> (352)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 182
<INCOME-TAX> 0
<INCOME-CONTINUING> 182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
