SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended__________________
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from OCTOBER 1, 1997 to DECEMBER 31, 1997
Commission file number 0-9728
GST EQUIPMENT FUNDING, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 91-1785734
--------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
4001 Main Street, Vancouver, Washington 98663
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (360) 906-7100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K 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>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. /X/
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date: At
March 26, 1998, there were outstanding 100 shares of the Registrant's common
stock, $.01 par value per share.
<PAGE>
ITEM 1. BUSINESS.
OVERVIEW
GST Equipment Funding, Inc. ("GST Funding") is a special purpose
finance subsidiary of GST Telecommunications, Inc. ("GST"). GST Funding was
formed to issue its 13 1/4% Senior Secured Notes due 2007 (the "Secured Notes")
that were sold in a private placement in May 1997 (the "Secured Notes Offering")
and to purchase equipment with the proceeds of the Secured Notes Offering. GST
Funding acts as a purchasing agent for GST USA, Inc., a wholly owned subsidiary
of GST and the parent of GST Funding ("GST USA") and sells to GST USA the
equipment it purchases. Ultimately, such equipment is leased to the operating
subsidiaries of GST by GST USA. Of the $255.8 million of net proceeds from the
issuance of the Secured Notes, as of December 31, 1997 approximately $93.8
million had been used to purchase securities pledged to fund the first six
interest payments on the Secured Notes (the first such payment of $16.4 million
having been made in November 1997) and approximately $104.4 million had been
used to purchase telecommunications equipment ($41.5 million of which was used
to refinance intercompany indebtedness).
GST provides a broad range of integrated telecommunications products
and services, primarily to business customers located in the western continental
United States and Hawaii. As a facilities-based competitive local exchange
carrier, GST operates state-of-the-art, digital telecommunications networks that
represent an alternative to incumbent local exchange carriers. GST's full line
of products, which offer a "one-stop" solution to customers' telecommunications
services requirements, include long distance, Internet, data transmission and
private line services, and local dial tone services, which were recently
introduced.
GST's digital networks currently serve 40 markets in Arizona,
California, Hawaii, Idaho, New Mexico, Texas, Washington and Guam. In addition,
GST has networks under construction which, when completed, will serve two
additional markets and expand its regional footprint to Oregon. GST also
constructs, markets and manages longhaul fiber optic facilities, principally in
Arizona, California and Hawaii. GST's longhaul fiber optic facilities currently
extend approximately 700 route miles and an additional 1,600 route miles are
expected to become operational over the next 12 months.
ITEM 2. PROPERTIES.
GST Funding neither owns nor leases material properties.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which GST Funding is a
party. GST Funding knows of no threatened or pending material legal action
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not required.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
-1-
<PAGE>
There is no established public trading market for GST Funding's common
equity. All of the issued and outstanding shares of such common equity are owned
by GST USA.
ITEM 6. SELECTED FINANCIAL DATA.
Not required.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
GST Funding was formed on March 5, 1997 for the purpose of issuing the
Secured Notes and financing the purchase of telecommunications equipment. GST
Funding acts as purchasing agent for GST USA and sells to GST USA the equipment
it purchases with the proceeds from the Secured Notes Offering. GST Funding has
only a limited operating history.
As of December 31, 1997, GST Funding has purchased approximately $104.4
million of equipment and holds restricted investments of approximately $143.4
million restricted for the acquisition of equipment and the payment of interest.
All of such equipment has been sold to GST USA in exchange for intercompany
notes. Ultimately, such equipment is leased by GST USA to the various operating
subsidiaries of GST.
OPERATIONS
The operations of GST Funding are limited to (i) purchasing equipment,
(ii) selling equipment, (iii) receiving payments under intercompany notes, (iv)
making payments of interest and principal on the Secured Notes, and (v)
fulfilling its obligations under the indenture relating to the Secured Notes,
the pledge agreement relating to the security interest in the Secured Notes and
the registration rights agreement relating to the Secured Notes. GST Funding
satisfied its obligations under such registration rights agreement in November
1997, upon the consummation of an exchange offer for the Secured Notes.
LIQUIDITY AND CAPITAL RESOURCES
On May 13, 1997, GST Funding completed the Secured Notes Offering,
consisting of $265.0 million in Secured Notes. Of the $255.8 million of net
proceeds from the issuance of the Secured Notes, as of December 31, 1997
approximately $93.8 million had been used to purchase securities pledged to fund
the first six interest payments on the Secured Notes (the first such payment of
$16.4 million having been made in November 1997) and approximately $104.4
million had been used to purchase telecommunications equipment ($41.5 million of
which was used to refinance intercompany indebtedness). The indenture governing
the Secured Notes includes restrictive covenants which, among other items, limit
or restrict additional indebtedness incurred by GST Funding and GST, investment
in certain subsidiaries and the payment of dividends.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
-2-
<PAGE>
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Not required.
ITEM 11. EXECUTIVE COMPENSATION.
Not required.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Not required.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not required.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements: see the Index to Financial Statements.
(2) Financial Statement Schedules: Not applicable.
(3) Exhibits:
*3(a) Certificate of Incorporation of GST Funding.
*3(b) By-Laws of GST Funding.
*4(a) Indenture dated as of May 13, 1997, by and among GST Funding, GST, GST
USA and United States Trust Company of New York.
*10(a) Collateral Pledge and Security Agreement dated as of May 13, 1997, by
and among GST Funding, United States Trust Company of New York and the
holders of the Notes as defined therein.
**27 Financial Data Schedule.
- -----------------------
* Incorporated by reference to GST Funding's Registration Statement on
Form S-4 (No. 333-33601).
** Filed herewith.
(b) Reports on Form 8-K: None.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Vancouver, State of Washington, on the 26th day of March, 1998.
GST EQUIPMENT FUNDING, INC.
By: /S/ JOHN WARTA
-----------------------
John Warta,
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Warta, Stephen Irwin, Daniel
Trampush and Clifford V. Sander his true and lawful attorney-in-fact, each
acting alone, with full power of substitution and resubstitution for him and in
his name, place and stead, in any and all capacities to sign any and all
amendments to this report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes, each acting alone, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed by the following persons in the
capacities on March 26, 1998.
SIGNATURE TITLE
--------- -----
/S/ JOHN WARTA
- ---------------------- Chairman of the Board, Chief Executive Officer
(John Warta) (Principal Executive Officer) and Director
/S/ DANIEL L. TRAMPUSH
- ----------------------- Vice President and Chief Financial Officer (Principal
(Daniel L. Trampush) Financial Officer)
/S/ CLIFFORD V. SANDER
- ----------------------- Vice President, Treasurer and Assistant Secretary
(Clifford V. Sander) (Principal Accounting Officer) and Director
/S/ STEPHEN IRWIN
- ----------------------- Senior Vice President, Secretary and Director
(Stephen Irwin)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
GST EQUIPMENT FUNDING, INC.
Independent Auditors' Report.................................................F-2
Balance Sheets at December 31, 1997, and
September 30, 1997.........................................................F-3
Statements of Operations for the
three-month period ended December 31, 1997
and the period from March 5, 1997 (date of inception)
to September 30, 1997......................................................F-4
Statements of Shareholders' (Deficit) Equity
at December 31, 1997 and the period from March 5, 1997
(date of inception) to September 30, 1997..................................F-5
Statements of Cash Flows for the
three-month period ended December 31, 1997
and the period from March 5, 1997 (date of inception)
to September 30, 1997......................................................F-6
Notes to Financial Statements................................................F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
GST Equipment Funding, Inc.:
We have audited the accompanying balance sheets of GST Equipment Funding, Inc.
as of December 31, 1997 and September 30, 1997, and the related statements of
operations, shareholder's deficit, and cash flows for the three-month period
ended December 31, 1997 and for the period from March 5, 1997 (date of
inception) to September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GST Equipment Funding, Inc. as
of December 31, 1997 and September 30, 1997, and the results of its operations
and cash flows for the three-month period ended December 31, 1997 and the period
from March 5, 1997 (date of inception) to September 30, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Portland, Oregon
February 25, 1998
F - 2
<PAGE>
GST EQUIPMENT FUNDING, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1997 1997
------ ---- ----
Current assets:
<S> <C> <C>
Cash ............................................................. $ 373 $ 1,003
Restricted investments............................................ 30,656 48,964
------------- -------------
31,029 49,967
------------- -------------
Restricted investments.................................................. 112,719 121,711
Notes receivable from parent............................................ 109,164 91,274
Interest receivable from parent......................................... 2,670 3,655
Deferred financing costs, net........................................... 8,994 9,182
------------- -------------
233,547 225,822
------------- -------------
$ 264,576 $ 275,789
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accrued interest payable.......................................... 5,852 13,460
Accrued income taxes payable to parent............................ - 2,680
Other payable to parent........................................... 1,260 1,905
------------- -------------
7,112 18,045
------------- -------------
Long-term debt.......................................................... 265,000 265,000
Shareholder's deficit:
Common stock:
Authorized - 1,000 of $.01 par common shares;
issued and outstanding - 100 shares...................... - -
Additional paid-in capital........................................ 1,000 1,000
Accumulated deficit............................................... (8,536) (8,256)
------------- -------------
(7,536) (7,256)
------------- -------------
$ 264,576 $ 275,789
============= =============
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE>
GST EQUIPMENT FUNDING, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
THREE-MONTH MARCH 5, 1997
PERIOD (DATE OF
ENDED INCEPTION) TO
DECEMBER 31, SEPTEMBER 30,
1997 1997
---- ----
Revenues:
<S> <C> <C>
Interest income............................................. $ 6,059 $ 8,248
---------- -------
Total revenues.................................. 6,059 8,248
---------- -------
Operating costs and expenses:
Interest expense............................................ 9,019 13,824
---------- -------
Loss before income taxes........................ (2,960) (5,576)
---------- -------
Income tax expense (benefit):
Current ................................................... (2,680) 2,680
Deferred ................................................... - -
-------- --------
(2,680) 2,680
-------- --------
Net loss........................................ $ (280) $(8,256)
======== = ========
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE>
GST EQUIPMENT FUNDING, INC.
STATEMENTS OF SHAREHOLDER'S DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1997
AND THE PERIOD FROM MARCH 5, 1997 (DATE OF
INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, at date of inception............ 100 $ - $ 1 $ - $ 1
Capital investment by parent............. - - 999 - 999
Net loss .............................. - - - (8,256) (8,256)
------- ------ ------ -------- -------
Balance, September 30, 1997.............. 100 - 1,000 (8,256) (7,256)
Net loss .............................. - - - (280) (280)
------- ------ ------ --------- --------
Balance, December 31, 1997............... 100 $ - $1,000 $ (8,536) $(7,536)
====== ====== ====== ======== =========
</TABLE>
See accompanying notes to financial statements.
F - 5
<PAGE>
GST EQUIPMENT FUNDING, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
THREE-MONTH MARCH 5, 1997
PERIOD (DATE OF
ENDED INCEPTION) TO
DECEMBER 31, SEPTEMBER 30,
1997 1997
---- ----
Operations:
<S> <C> <C>
Net loss ...................................................... $ (280) $ (8,256)
Items not involving cash:
Amortization of deferred financing costs.................. 241 364
Changes in non-cash operating working capital:
Interest receivable from parent................................ 985 (3,655)
Accrued interest payable....................................... (7,608) 13,460
Accrued income taxes payable to parent......................... (2,680) 2,680
Other payable to parent........................................ (645) 1,905
------------ -------------
Cash (used in) provided by operations........... (9,987) 6,498
------------ -------------
Investing:
Change in investments restricted for
fixed asset purchases..................................... 12,217 (74,701)
Notes receivable from parent................................... (17,890) (91,274)
------------ -------------
Cash used in investing activities............... (5,673) (165,975)
------------ -------------
Financing:
Proceeds from issuance of long-term debt....................... - 265,000
Change in investments restricted for interest
payments ................................................ 15,083 (95,974)
Deferred debt financing costs.................................. (53) (9,546)
Proceeds from investment by parent............................. - 1,000
------------ -------------
Cash provided by financing activities........... 15,030 160,480
------------ -------------
(Decrease) increase in cash and cash
equivalents............................... (630) 1,003
Cash and cash equivalents, beginning of period....................... 1,003 -
------------ ------------
Cash and cash equivalents, end of period............................. $ 373 $ 1,003
============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ 16,386 $ -
</TABLE>
See accompanying notes to financial statements.
F - 6
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
GST Equipment Funding, Inc. (the Company) was formed on March 5, 1997.
The Company is a wholly-owned subsidiary of GST USA, Inc. (GST USA),
which is a wholly-owned subsidiary of GST Telecommunications, Inc.
(GST).
The Company's operations are limited to (i) purchasing equipment, (ii)
selling equipment to GST USA, (iii) receiving payments under
Intercompany Notes, and (iv) making payments of interest and principal
on senior secured notes.
RESTRICTED INVESTMENTS
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES.
The Company classifies its restricted investments, consisting at
December 31, 1997 of $143,375 in U.S. Treasury securities as
available-for-sale and held-to-maturity. Held-to-maturity investments,
recorded at amortized cost, totaling $80,891 and $95,974 at December
31, 1997 and September 30, 1997, respectively, and maturing between
three months and three years, are restricted for interest payments.
Available-for-sale investments, totaling $62,484 and $74,701 at
December 31, 1997 and September 30,, 1997, respectively, and maturing
between two months and one year, are restricted for equipment
purchases. Available-for-sale securities are recorded at amortized cost
which approximates the market value of such securities at December 31,
1997 and September 30, 1997.
DEFERRED FINANCING COSTS
Deferred financing costs, consisting of legal, accounting and
underwriting fees related to the May 13, 1997 debt offering, and are
being amortized to interest expense over the life of the related notes.
Amounts amortized totaled $241 and $364 for the three-month period
ended December 31, 1997 and for the period from March 5, 1997 (date of
inception) to September 30, 1997, respectively.
(Continued)
F - 7
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred income taxes
reflect the future tax consequences of differences between the tax
bases of assets and liabilities and their financial reporting amounts
at each year-end. 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 the tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be
realized.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, short-term
borrowings, accounts payable and accrued liabilities approximate fair
values due to the short maturity of those instruments.
The carrying amount of the Company's long-term debt approximates its
fair value. The fair value of the Company's long-term debt was
determined based on quoted market prices for similar issues or on
current rates available to the Company for debt of the same remaining
maturities and similar terms.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
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 the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in the accompanying financial
statements for September 30, 1997 to conform with the December 31, 1997
presentation.
(Continued)
F - 8
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(2) FINANCING ARRANGEMENTS
LONG-TERM DEBT
The Company's long-term debt consists of the following at December 31,
1997 and September 30, 1997:
Senior secured notes, interest at 13.25%,
due May 1, 2007.........................$ 265,000
=========
ISSUANCE OF SENIOR SECURED NOTES
The Company completed a private placement (the 1997 Offering) under an
indenture (the Indenture) dated May 13, 1997, of $265,000 of Senior
Secured Notes (the Secured Notes). The Secured Notes bear interest at
13.25% payable in semi-annual installments commencing November 1, 1997.
Net proceeds from the 1997 Offering totaled approximately $255,800,
$93,790 of which were set aside to fund the first six scheduled
interest payments. The remainder of the net proceeds is restricted to
the purchase and installation of telecommunications equipment. Pursuant
to the Indenture, all purchased equipment will be sold to GST USA for
use in its telecommunications operations (see note 3). The Secured
Notes are secured by a first priority security interest in the
equipment and the restricted investment securities held for the payment
of interest. The Secured Notes are subject to certain debt covenants.
The Indenture provides that GST USA will assume and become a direct
obligor on the Secured Notes and GST will guarantee the Secured Notes
on May 13, 2000, or earlier if permitted by the terms of their existing
debt. Once assumed the Secured Notes will be secured senior
indebtedness of GST USA. The note guarantee will be senior unsecured
indebtedness of GST.
The Secured Notes are redeemable at the option of GST USA, in whole or
in part, at any time, on or after May 1, 2002, initially at 106.625% of
their principal amount, plus accrued and unpaid interest, declining
ratably to 100% on or after May 1, 2004. If on May 13, 2000, GST USA is
prohibited from assuming all of the Secured Notes, the Company will
redeem the portion of the Secured Notes that cannot be assumed at 101%
of their principal amount plus accrued interest at the date of
redemption.
(Continued)
F - 9
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(3) RELATED PARTY TRANSACTIONS
The Company acts as a purchasing agent for GST USA and sells to GST USA the
equipment it purchases with the proceeds from the 1997 Offering. The note
receivable from parent of $109,164 and $91,274 at December 31, 1997 and
September 30, 1997, respectively, represents equipment purchases for GST USA
and compounded interest. The note receivable is guaranteed by GST and bears
interest at 15.25%, compounded semiannually on May and November 1, and is
payable in full on May 13, 2000. Interest income earned on the note
receivable from parent totalled $3,838 and $3,543 for the periods ended
December 31, 1997 and September 30, 1997, respectively.
The payable to parent of $1,260 and $1,905 at December 31, 1997 and
September 30, 1997, respectively, consists of cash advances from GST USA for
the purchase of equipment and the payment of expenses related to the May
Offering.
(4) INCOME TAXES
The provision for income taxes differs from the "expected" amount computed
by applying the U.S. federal corporate rate as follows:
FOR THE PERIOD ENDED
------------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1997
---- ----
Computed "expected" income tax
benefit................................$(1,007) $(1,896)
Effect of change in valuation allowance..... (1,673) 4,576
------- -------
Actual tax expense (benefit)................$(2,680) $ 2,680
======= =======
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1997 and September 30,
1997, are derived primarily from interest expense not currently deductible
for tax purposes. Gross deferred tax assets and liabilities amount to
$2,903 and $-0- at December 31, 1997, respectively, and $4,576 and $-0-,
respectively, at September 30, 1997.
(Continued)
F - 10
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
The valuation allowance for deferred tax assets as of December 31, 1997
and September 30, 1997 was $2,903 and $4,576, respectively. The net change
in the total valuation allowance for the periods ended December 31, 1997
and September 30, 1997, was a decrease of $1,673 and an increase of
$4,576, respectively.
The Company files consolidated income tax returns with its parent
corporation. However, income tax expense (benefit) is computed as if the
Company filed on a single entity basis. The tax related balance due to the
parent corporation as of December 31, 1997 and September 30, 1997 was $-0-
and $2,680, respectively.
F - 11
<PAGE>
EXHIBIT INDEX
EXHIBIT
*3(a) Certificate of Incorporation of GST Funding.
*3(b) By-Laws of GST Funding.
*4(a) Indenture dated as of May 13, 1997, by and among GST Funding, GST, GST
USA and United States Trust Company of New York.
*10(a) Collateral Pledge and Security Agreement dated as of May 13, 1997, by
and among GST Funding, United States Trust Company of New York and the
holders of the Notes as defined therein.
**27 Financial Data Schedule.
- ------------------------
* Incorporated by reference to GST Funding's Registration Statement on
Form S-4 (No. 333-33601).
** Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-K for the three month transition period ended December 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 372,834
<SECURITIES> 30,655,740
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,028,574
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 264,574,818
<CURRENT-LIABILITIES> 7,111,895
<BONDS> 265,000,000
<COMMON> 1
0
0
<OTHER-SE> (7,537,078)
<TOTAL-LIABILITY-AND-EQUITY> 264,574,818
<SALES> 0
<TOTAL-REVENUES> 6,058,580
<CGS> 0
<TOTAL-COSTS> 0
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