<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 333-33601-02
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GST USA, INC.
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(Exact name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
Delaware 83-0310464
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<S> <C>
(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or Organization) Number)
4001 Main Street, Vancouver, WA 98663
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(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (360) 356-7100
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N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q
WITH THE REDUCED DISCLOSURE FORMAT CONTEMPLATED THEREBY.
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during 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
--- ---
<PAGE> 2
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: At May 22,
2000, there were outstanding 20 shares of common stock, without par value, of
the Registrant.
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GST USA, INC.
INDEX
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PAGE(S)
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PART I: FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - March 31,
2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
- Three Months Ended March 31, 2000 and
1999 4
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
<CAPTION>
PART II: OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
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GST USA, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 2000 DECEMBER 31, 1999 (1)
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 42,196 $ 42,721
Restricted investments 17,615 19,828
Accounts receivable, net 41,141 45,244
Construction contracts receivable 30,704 26,823
Investments 910 46
Prepaid and other current assets 11,389 8,544
--------------------- -------------------
Total current assets 143,955 143,206
--------------------- -------------------
Restricted investments 3,412 9,848
Property and equipment 978,440 944,410
less accumulated depreciation (129,732) (112,363)
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848,708 832,047
Other assets 122,178 132,130
less accumulated amortization (51,193) (54,711)
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70,985 77,419
--------------------- -------------------
Total assets $ 1,067,060 $ 1,062,520
===================== ===================
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 17,178 $ 30,250
Accrued expenses 53,926 48,457
Payable to parent 358,718 360,118
Deferred revenue 9,864 10,066
Current portion of capital lease obligations 6,826 6,693
Current portion of long-term debt 18,215 17,466
--------------------- -------------------
Total current liabilities 464,727 473,050
--------------------- -------------------
Capital lease obligations, less current portion 14,241 16,813
Long-term debt, less current portion 989,040 974,483
Other liabilities 4,569 ---
Commitments, contingencies and subsequent events
Shareholder's deficit:
Common shares 134,996 78,462
Accumulated deficit (540,513) (480,288)
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(405,517) (401,826)
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Total liabilities and shareholder's deficit $ 1,067,060 $ 1,062,520
===================== ===================
</TABLE>
(1) The information in this column was derived from GST USA's audited financial
statements as of December 31, 1999.
See accompanying notes to condensed consolidated financial statements.
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GST USA, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------
2000 1999
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<S> <C> <C>
Revenues:
Telecommunications and other services $ 54,454 $ 48,724
Construction, facility sales and other 9,012 10,769
Product 205 1,082
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Total revenues 63,671 60,575
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Operating costs and expenses:
Network expenses 34,271 31,699
Facilities administration and maintenance 5,776 5,135
Cost of construction revenues 6,055 5,838
Cost of product revenues 305 695
Selling, general and administrative 34,102 26,944
Depreciation and amortization 21,861 16,971
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Total operating costs and expenses 102,370 87,282
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Loss from operations (38,699) (26,707)
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Other expenses (income):
Interest income (914) (3,858)
Interest expense, net of amounts capitalized 25,699 21,866
Other (3,259) 193
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21,526 18,201
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Loss before income taxes (60,225) (44,908)
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Income tax expense --- ---
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Net loss $ (60,225) $ (44,908)
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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GST USA, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------------------
2000 1999
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<S> <C> <C>
Operations:
Net loss $ (60,225) $ (44,908)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 21,211 18,225
Accretion and accrual of interest 14,818 11,789
Non-cash stock compensation and other expense 224 156
(Gain) loss on disposal of assets (1,274) 359
Changes in non-cash operating working capital:
Accounts receivable, net 3,690 (6,102)
Construction contracts receivable (3,881) ---
Prepaid, other current and other assets,
net (581) (6,554)
Accounts payable and accrued liabilities 6,030 4,823
Deferred revenue (34) 1,834
Deferred revenue from construction
contracts 4,569 ---
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Cash used in operations (15,453) (20,378)
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Investments:
Proceeds from sale of investments 56,580 ---
Purchase of property and equipment (47,431) (76,779)
Proceeds from sale of assets 5,966 ---
Purchase of other assets 240 (147)
Change in investments restricted for the
purchase of property and equipment 6,436 61,897
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Cash provided by (used in)
investing activities 21,791 (15,029)
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Financing:
Proceeds from long-term debt 1,309 316
Principal payments on long-term debt and capital
leases (6,275) (2,715)
Change in payable to parent (1,624) 1,055
Change in investments restricted to finance
interest payments (273) (785)
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Cash used in financing activities (6,863) (2,129)
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Decrease in cash and cash
equivalents (525) (37,536)
Cash and cash equivalents, beginning of period 42,721 85,884
-------------- ----------------
Cash and cash equivalents, end of period $ 42,196 $ 48,348
============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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GST USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BANKRUPTCY PROCEEDINGS
On May 17, 2000, GST Telecommunications, Inc. ("GST or the Company")
and its subsidiaries filed voluntary petitions for protection under Chapter 11
of the United States Bankruptcy Code in the District of Delaware. GST and its
subsidiaries (collectively the "Debtors") are currently operating as
debtors-in-possession under the supervision of the United States District Court
for the District of Delaware. The Chapter 11 cases have been consolidated for
the purpose of joint administration under Case No. 00-1982 (GMS).
On May 17, 2000, the Debtors also commenced ancillary proceedings under
the Companies' Creditors Arrangement Act in Canada in the Ontario Superior Court
of Justice.
Under these proceedings, substantially all liabilities, litigation and
claims against the Debtors in existence at the filing date are stayed unless the
stay is modified or lifted or payment has been otherwise authorized by the
court.
GST has obtained a commitment letter which will provide them, subject
to satisfying certain conditions, debtor-in-possession financing for $50
million and the potential for up to an additional $75 million in cash. This
debtor-in-possession financing is subject to certain restrictions and is also
contingent on court approval.
On May 16, 2000, GST signed a letter of intent with Time Warner
Telecom, Inc. for the sale of substantially all of GST's assets for $450 million
in cash. On June 12, 2000, GST announced that the letter of intent with Time
Warner Telecom, Inc. for the sale of substantially all of GST's assets would not
be proceeding. On June 13, 2000, GST, with approval of the bankruptcy court,
opened the bidding procedures in an auction format for substantially all of its
assets. Qualified buyers must submit their bids prior to July 31, 2000, with an
auction occurring on August 4, 2000. If such a sale is consummated, it is highly
unlikely that the current equity security holders of GST USA would receive any
distribution upon the subsequent liquidation of GST USA and the interest of both
secured creditors and unsecured creditors may be substantially impaired.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. However,
certain information or footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed, or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the statements
include all adjustments necessary (which are of a normal and recurring nature)
for the fair presentation of the results of the interim periods presented. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full fiscal year or for subsequent
periods. These financial statements should be read in conjunction with GST USA's
audited consolidated financial statements for the fiscal year ended December 31,
1999 as included in GST USA's annual report on Form 10-K.
3. BASIC AND DILUTED NET LOSS PER SHARE
GST USA does not have any equity instruments that are considered
common stock equivalents, and, as weighted average common shares total only 20
at both March 31, 2000 and December 31, 1999, all of which are owned by GST,
income (loss) per share data is meaningless and is not presented in the
accompanying condensed consolidated financial statements.
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GST USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. SUPPLEMENTAL CASH FLOW INFORMATION
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<CAPTION>
THREE MONTHS
ENDED MARCH 31,
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2000 1999
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<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,731 $ 3,538
Cash paid for income taxes --- ---
Supplemental schedule of non-cash investing and
financing activities:
Disposition of subsidiary:
Assets (4,182) ---
Liabilities (266) ---
Amounts in accounts payable and accrued
liabilities for the purchase of fixed
assets at end of period 15,345 20,027
Assets acquired through capital leases 820 3,289
</TABLE>
5. ACCRUED SEVERANCE
In the fourth quarter of 1998, GST USA accrued $1,113 in
severance-related costs. The balance of the accrual at March 31, 2000 is for one
employee and is included in accrued expenses on the accompanying condensed
consolidated financial statements. The following table details activity related
to the severance accrual.
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Accrual at December 31, 1998 $1,113
Payments (737)
Adjustments (61)
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Accrual at March 31, 2000 $315
=========
</TABLE>
6. CAPITALIZATION OF INTEREST
GST USA capitalized interest of $5,700 and $7,600 as a part of property
and equipment for the three months ended March 31, 2000 and 1999, respectively.
7. DEBT SERVICE REQUIREMENTS
At March 31, 2000, GST USA had $1,028,322 of indebtedness outstanding.
As a result of filing for protection under bankruptcy law, GST USA is not
permitted to make any payments of the debt service requirements. All of these
obligations are subject to discharge in bankruptcy upon the completion of all
proceedings.
8. IMPAIRMENT OF ASSETS
Due to the event described in Note 1 and the potential disposition of
substantially all of GST's assets, GST USA is considering if an impairment
of assets has occurred during the three months ended June 30, 2000 under SFAS
No. 121 "Accounting for the Impairment of Long-Lived assets and for Long-Lived
Assets to be disposed of." If it is determined that an impairment did occur, GST
USA believes that it will have a material effect on that period's financial
statements.
9. ADOPTION OF NEW ACCOUNTING STANDARD
In June 1999, the Financial Accounting Standards Board (the "FASB")
issued Interpretation No. 43,(FIN 43) "Real Estate Sales, an interpretation of
FASB Statement No. 66." The interpretation is effective for sales of real
estate with property improvements or integral equipment entered into after June
30, 1999. Under this interpretation, conduit is considered integral equipment
and dark fiber will likely be considered integral equipment. Accordingly, title
must transfer to a lessee in order for a lease transaction to be accounted for
as a sales-type lease. For contracts entered into after June 30, 1999,
sales-type lease accounting will no longer be appropriate for conduit and dark
fiber leases and, therefore, these transactions will be accounted for as
operating leases unless title transfers to the lessee.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." This interpretation clarifies the application of Opinion No. 25
for the following issues: a) the definition of employee for purposes of applying
Opinion No. 25, b), the criteria for determining whether a plan qualifies as a
noncompensatory plan c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and d) the accounting for
an exchange of stock compensation awards in a business combination. Generally,
this interpretation is effective July 1, 2000. We do not expect the adoption of
this interpretation to have a material effect on our financial position or
results of operations.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report contains "forward-looking statements" within the
meaning of the securities laws. These forward-looking statements are subject to
a number of risks and uncertainties, many of which are beyond our control. All
statements included in this Quarterly Report, other than statements of
historical facts, are forward-looking statements, including the statements
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" regarding our strategy, future operations, financial position,
projected costs, prospects, plans and objectives of management.
Certain statements contained in this Quarterly Report, including
without limitation, statements containing the words "will," "anticipate,"
"believe," "intend," "estimate," "expect," "project" and words of similar
import, constitute forward-looking statements, although not all forward-looking
statements contain such identifying words. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors
include, among others, the following:
- the uncertainity of our future as a result of filing for
protection under bankruptcy law;
- the significant amount of our indebtedness;
- our limited operating history and expectation of operating losses;
- the availability and terms of the significant additional capital
required to fund our expansion;
- the extensive competition we expect to face in each of our
markets;
- our dependence on sophisticated information and processing
systems;
- our ability to manage growth;
- our ability to access markets and obtain any required governmental
authorizations, franchises and permits, in a timely manner, at
reasonable costs and on satisfactory terms and conditions;
- technological change; and
- changes in, or the failure to comply with, existing government
regulations.
All forward-looking statements speak only as of the date of this
Quarterly Report. We do not undertake any obligation to update or revise
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Although we believe that our plans,
intentions and expectations reflected in or suggested by the forward-looking
statements made in this Quarterly Report are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements.
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<PAGE> 10
OVERVIEW
We are a facilities-based integrated communications provider, or ICP,
offering a broad range of telecommunications products and services, primarily
to business customers located in California and other western states. We own
and operate a converged network capable of carrying both voice and data
traffic--offering our customers an alternative to incumbent local exchange
carriers. Our current products include data transport, high-speed Internet
access, voice services (including a bundled offering of local and long distance
services), and wholesale services, including dark fiber and conduit rights.
As an ICP, we have one reportable operating segment. While our chief
decision-maker monitors the revenue streams of various services, operations are
managed and financial performance is evaluated based upon the delivery of
multiple services over common network and facilities. The various revenue
streams generate many shared expenses. As a result, we believe that any
allocation of the expenses to multiple revenue streams would be impractical and
arbitrary. For that reason, we do not currently make such allocations
internally. Furthermore, substantially all of our revenue is attributable to
customers in the United States and all significant operating assets are located
within the United States.
The chief decision-maker does, however, monitor revenue streams
consolidated at a more detailed level than those depicted in our historical
general purpose financial statements. The following table presents revenues by
service type (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2000 1999
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<S> <C> <C>
Local service............ $ 20,204 $ 18,990
Long distance
services............. 14,188 17,674
Data services............ 6,689 4,331
Internet services........ 1,239 2,514
Long-haul services....... 11,725 4,231
Product.................. 205 1,075
Other.................... 409 991
Construction and facility
sales................ 9,012 10,769
--------------- ---------------
Total revenues..... $ 63,671 $ 60,575
=============== ===============
</TABLE>
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RECENT DEVELOPMENTS
As of May 13, 2000, GST USA completed the assumption of GST Equipment
Funding, Inc.'s 13 1/4% Senior Secured Notes due 2007. This assumption was
required by the indentures governing the 13 1/4% Notes.
On May 17, 2000, GST and its subsidiaries filed voluntary petitions for
protection under Chapter 11 of the United States Bankruptcy Code in the District
of Delaware. GST and its subsidiaries are currently operating as
debtors-in-possession under the supervision of the United States District Court
for the District of Delaware. The Chapter 11 cases have been consolidated for
the purpose of joint administration under Case No. 00-1982 (GMS).
On May 17, 2000, the Debtors also commenced ancillary proceedings under
the Companies' Creditors Arrangement Act in Canada in the Ontario Superior Court
of Justice.
Under these proceedings, substantially all liabilities, litigation and
claims against the Debtors in existence at the filing date are stayed unless the
stay is modified or lifted or payment has been otherwise authorized by court.
GST has obtained a commitment letter which will provide them, subject
to satisfying certain conditions, debtor-in-possession financing for $50 million
in cash and the potential for up to an additional $75 million in cash. This
debtor-in-possession financing is subject to certain restrictions and is also
contingent on court approval. On May 26, 2000, the Bankruptcy Court entered an
order approving the initial $30 million of this financing.
Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and shareholders may be substantially altered. At this time, it is not
possible to predict the outcome of the Chapter 11 cases in general or the
effects of the such cases on its business, or on the interests of creditors and
shareholders. Management believes that it is highly unlikely that current equity
security holders will receive any distribution under any reorganization or
liquidation of GST and its subsidiaries.
On May 16, 2000, GST signed a letter of intent with Time Warner
Telecom, Inc. for the sale of substantially all of GST's assets for $450 million
in cash. On June 12, 2000, GST announced that the letter of intent with Time
Warner Telecom, Inc. for the sale of substantially all of GST's assets would not
be proceeding. On June 13, 2000, GST, with approval of the bankruptcy court,
opened the bidding procedures in an auction format for substantially all of its
assets. Qualified buyers must submit there bids prior to July 31, 2000, with an
auction occurring on August 4, 2000. If such a sale is consummated, it is highly
unlikely that the current equity security holders of GST USA would receive any
distribution upon the subsequent liquidation of GST USA and the interest of both
secured creditors and unsecured creditors may be substantially impaired.
RESULTS OF OPERATIONS
Revenues. Total revenues for the three months ended March 31, 2000
increased $3.1 million, or 5.1%, to $63.7 million from $60.6 million for the
three months ended March 31, 1999.
Telecommunications and other services revenues for the three months
ended March 31, 2000 increased $5.7 million, or 11.8%, to $54.5 million from
$48.7 million for the three months ended March 31, 1999. The increase in
telecommunications and other services revenues resulted from increased local,
data and long-haul services. We bundle these products to provide better access
and services to our customers. Excluding divested properties, telecommunications
and other services revenues for the three months ended March 31, 2000 increased
$9.9 million over the three months ended March 31, 1999. Reciprocal
compensation, which we recognize based on interconnection agreements and other
agreements with ILECs, totaled $4.2 million for the three months ended March 31,
2000 compared to $.7 million for the three months ended March 31, 1999.
Construction, facility sales and other revenue for the three months
ended March 31, 2000 decreased $1.8 million, to $9.0 million from $10.8 million
for the three months ended March 31, 1999. The decrease in construction,
facility sales and other revenue was attributable to a reduction in segment
completions on several agreements to sell, construct or lease conduit and fiber
to other carriers. Management estimates that construction revenue will continue
to decline over the remaining quarters in 2000 and beyond due to construction
delays and to the implementation of FIN 43. As noted in footnote 9 of Item 1,
under FIN 43, sales-type lease treatment will no longer be appropriate for
conduit and dark fiber leases entered into after June 30, 1999. Our construction
revenue for the three months ended March 31, 2000 was not affected by the
application of FIN 43. Our construction revenue for future quarters will be
affected due to the signing of a conduit lease in January 2000, which has not
yet been completed to date. If FIN 43 had been applied retroactively to
contracts already consummated prior to June 30, 1999, GST USA would have
recorded operating lease revenue of approximately $.7 million and $0 for the
three months ended March 31, 2000 and 1999 respectively, instead of the amounts
recorded as construction, facility sales and other revenue in those respective
periods.
Product revenue for the three months ended March 31, 2000 decreased
$.9 million, or 81.1%, to $.2 million from $1.1 million in the three months
ended March 31, 1999. The decrease in product revenue was due to the
divestitures of Texas-based Action Telcom's (Action Telcom) product sales
division relating to long distance interconnection equipment,
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<PAGE> 12
in October 1999, and Action Telcom's product sales division relating to network
analysis management system in March 2000.
Operating Expenses. Total operating expenses for the three months
ended March 31, 2000 increased $15.1 million, or 17.3%, to $102.4 million from
$87.3 million for the three months ended March 31, 1999.
Network expenses, which include direct local and long distance circuit
costs, increased $2.6 million, or 8.1%, to $34.3 million, or 62.9% of
telecommunications services revenues for the three months ended March 31, 2000
compared to $31.7 million, or 65.1% of telecommunications services revenues for
the three months ended March 31, 1999. The decrease in network expenses as a
percentage of revenue resulted from an increase in revenues for traffic carried
on our network as a percentage of total telecommunications services revenues.
Facilities administration and maintenance expenses for the three
months ended March 31, 2000 increased $.6 million, or 12.5%, to $5.8 million,
or 10.6% of telecommunications services revenues compared to $5.1 million, or
10.5% of telecommunications services revenues for the three months ended March
31, 1999.
Cost of construction revenues for the three months ended March 31,
2000 was $6.1 million, an increase of $.2 million over the three months ended
March 31, 1999.
Cost of product revenues for the three months ended March 31, 2000
decreased $.4 million, or 56.1%, to $.3 million from $.7 million for March 31,
1999. For the three months ended March 31, 2000, cost of product revenues was
148.8% of product revenues compared to 64.2% for the three months ended March
31, 1999.
Selling, general and administrative expenses for the three months
ended March 31, 2000 increased $7.2 million, or 26.6%, to $34.1 million from
$26.9 million for the three months ended March 31, 1999. The increase is
primarily due to: (1) increased bonuses related to our Variable Incentive Plan;
(2) increased severance related to a reduction in force; and (3) increased
consulting costs related to a proposed change in strategy and executive
recruitment for our new Chief Financial Officer and our search for a new Chief
Executive Officer. In addition we have had increased litigation costs relating
to matters which have been previously disclosed. As a percentage of total
revenues, selling, general and administrative expenses for the three months
ended March 31, 2000 were 53.6%, compared to 44.5% for the three months ended
March 31, 1999. GST USA has the intention of implementing an Employee Retention
Plan (the "Plan") subject to approval by the bankruptcy court. The Plan was
developed to create an incentive and reward for certain of its employees to
stay with GST USA during the Chapter 11 process. If this Plan is approved it
may cause an increase in selling general and administrative costs for the
remainder of 2000.
Depreciation and amortization for the three months ended March 31,
2000 increased $4.9 million, or 28.8%, to $21.9 million from $17.0 million for
the three months ended March 31, 1999. The increase is attributable to
newly-constructed networks and related equipment being placed into service and
to the amortization of intangible assets related to our acquisitions.
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<PAGE> 13
Depreciation and amortization expense was 34.3% of total revenue for the three
months ended March 31, 2000 compared to 28.0% for the three months ended March
31, 1999.
Other Expenses/Income. For the three months ended March 31, 2000, we
recorded net other expense of $21.5 million, compared to net other expense of
$18.2 million for the three months ended March 31, 1999.
Net Loss. Net loss for the three months ended March 31, 2000 increased
$15.3 million, or 34.1%, to $60.2 million from $44.9 million for the three
months ended March 31, 1999.
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<PAGE> 14
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE MARKET RISK-We have fixed income investments consisting of
cash equivalents, short-term investments in U.S. government debt
instruments, certificates of deposit and commercial paper.
Interest income earned on our investment portfolio is affected by
changes in the general level of U.S. interest rates. We believe that
we are not exposed to significant changes in fair value because such
investments are classified as available-for-sale and held-to-maturity and are
recorded at amortized cost. The fair value of each investment approximates
its amortized cost, and long-term securities have maturities of less than two
years.
The following table provides information about our risk exposure
associated with changing interest rates. Currently, we do not use
derivative financial instruments to manage our interest rate risk.
<TABLE>
<CAPTION>
EXPECTED MATURITY
(In thousands of dollars)
---------------------------------------------------------------------------------------------------
Market
Value at
March 31,
2000 2001 2002 2003 2004 Thereafter Total 2000 (1)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt:
Fixed rate $ 1,077,448 (2) $ 1,077,448 $ 675,499
Average interest rate 12.275%
Variable rate $ 14,499 $ 19,951 $ 20,695 $ 21,590 $ 11,791 $ 4,691 $ 93,217
Average interest rate
(LIBOR plus) 3.25% 3.28% 3.34% 3.34% 3.21% 3.14%
Capital Leases:
Fixed rate $ 5,071 $ 3,209 $ 1,850 $ 1,844 $ 1,978 $ 7,115 $ 21,067
Average interest rate 11.89% 11.89% 11.89% 11.89% 11.89% 11.89%
</TABLE>
(1) Based on quoted market prices at March 31, 2000
(2) Includes $163.4 million of unaccreted discount
MARKET PRICE RISK - Our risk exposure associated with market price is
limited to our long-term debt that is publicly traded. These bonds are
recorded at book value, which could vary from current market prices.
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<PAGE> 15
Part II - Other Information
Item 1. Legal Proceedings.
Pursuant to Section 362 of the U.S. Bankruptcy Code, all pending
litigation against us will be subject to an automatic stay.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Reference is made to the report on Form 8-K filed as of May 24, 2000,
on which the Company reported the following:
On May 17, 2000, we filed a voluntary petition for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court of
the District of Delaware. Pursuant to the bankruptcy filing, we have remained in
possession of our assets and properties, and our business and affairs will
continue to be managed by our directors and officers, subject in each case to
the supervision of the Bankruptcy Court.
On May 17, 2000, we issued a press release, addressing its voluntary
petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, our letter
of intent with Time Warner Telecom, Inc. for the sale of substantially all of
our assets, our receipt of a commitment for Debtor-In-Possession financing
for up to $50 million and the potential for up to an additional $75 million
(subject to certain restrictions and court approval) to continue day-to-day
operations.
We have postponed our annual shareholders' meeting that had been
scheduled for June 8, 2000. We plan to hold an annual shareholders' meeting in
the course of our restructuring. On May 24, 2000, we issued a press release
regarding this matter.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of
the undersigned thereunto duly authorized.
Date: June 22, 2000 GST USA, INC.
(Registrant)
/s/ Donald A. Bloodworth
-------------------------------------------
Donald A. Bloodworth,
(Senior Vice President and Chief
Financial Officer)
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