<PAGE>
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 September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to
Commission file number 0-9728
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GST EQUIPMENT FUNDING, INC.
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(Exact name of Registrant as Specified in its Charter)
Delaware 91-1785734
--------------------------------- ----------------------------
(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)
Registrant's Telephone Number, Including Area Code: (360) 356-7100
---------------
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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At November 10,
1999, there were outstanding 100 shares of common stock, $.01 par value per
share, of the Registrant.
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GST EQUIPMENT FUNDING, INC.
INDEX
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<CAPTION>
Page(s)
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PART I: FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
Balance Sheets - September 30, 1999 and December 31, 1998 2
Statements of Operations
- Three and Nine Months Ended September 30, 1999 and 1998 3
Statements of Cash Flows
- Nine Months Ended September 30, 1999 and 1998 4
Notes to Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (REDUCED DISCLOSURE
NARRATIVE) 5-6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 6
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 6
SIGNATURES 7
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GST EQUIPMENT FUNDING, INC.
Balance Sheets
September 30, 1999 and December 31, 1998
(In thousands, except share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, (1)
ASSETS 1999 1998
-------------------- -------------------
<S> <C> <C>
Current assets:
Cash........................................... $ 208 $ --
Restricted investments......................... 34,387 32,759
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34,595 32,759
-------------------- -------------------
Restricted investments............................. -- 17,244
Notes receivable from parent....................... 208,913 194,228
Interest receivable from parent.................... 13,275 4,812
Deferred financing costs, net...................... 7,453 8,187
-------------------- -------------------
229,641 224,471
-------------------- -------------------
$ 264,236 $ 257,230
==================== ===================
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accrued interest payable 14,630 5,852
Other payable to parent 1,244 1,037
-------------------- -------------------
15,874 6,889
-------------------- -------------------
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............................ (17,638) (15,659)
-------------------- -------------------
(16,638) (14,659)
-------------------- -------------------
$ 264,236 $ 257,230
==================== ===================
</TABLE>
(1) The information in this column was derived from GST Equipment Funding,
Inc.'s audited financial statements as of December 31, 1998.
See accompanying notes to financial statements.
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GST EQUIPMENT FUNDING, INC.
Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues:
Interest income $ 8,501 $ 7,632 $ 25,090 $ 21,017
------------- ------------ ------------ ------------
Total revenues 8,501 7,632 25,090 21,017
Operating costs and expenses:
Interest expense 9,023 9,023 27,069 27,080
------------- ------------ ------------ ------------
Loss before income taxes (522) (1,391) (1,979) (6,063)
------------- ------------ ------------ ------------
Income tax expense (benefit):
Current --- --- --- ---
Deferred --- --- --- ---
------------- ------------ ------------ ------------
--- --- --- ---
------------- ------------ ------------ ------------
Net loss $ (522) $ (1,391) $ (1,979) $ (6,063)
============= ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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GST EQUIPMENT FUNDING, INC.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------------------------
1999 1998
-------------------- -------------------
<S> <C> <C>
Operations:
Net loss.............................................. $ (1,979) $ (6,063)
Items not involving cash:
Amortization of deferred financing costs............ 734 745
Changes in non-cash operating working capital:
Interest receivable from parent..................... (8,463) (7,555)
Accrued interest payable............................ 8,778 8,778
Other payable to parent............................. 207 (133)
-------------------- -------------------
Cash used in operations..................... (723) (4,228)
-------------------- -------------------
Investing:
Change in investments restricted for
fixed asset purchases............................... -- 54,526
Notes receivable from parent.......................... (14,685) (67,079)
-------------------- -------------------
Cash used in investing activities........... (14,685) (12,553)
-------------------- -------------------
Financing:
Change in investments restricted for interest
payments............................................ 15,616 16,682
Deferred debt financing costs......................... -- (182)
-------------------- -------------------
Cash provided by
financing activities...................... 15,616 16,500
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Increase (decrease) in cash and
cash equivalents.......................... 208 (281)
Cash and cash equivalents, beginning of period............ -- 373
-------------------- -------------------
Cash and cash equivalents, end of period.................. $ 208 $ 92
==================== ===================
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 17,556 $ 17,556
</TABLE>
See accompanying notes to financial statements.
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GST EQUIPMENT FUNDING, INC.
Notes to Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements of GST Equipment Funding, Inc.
("GST Funding") 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 the GST
Funding's audited financial statements for the year ended December 31, 1998,
as included in GST Funding's Report on Form 10-K for the year ended December
31, 1998.
2. NET INCOME (LOSS) PER SHARE AND SHAREHOLDER'S EQUITY
GST Funding does not have equity instruments that are considered common
stock equivalents, and, as weighted average common shares total only 100 for
the periods presented, all of which are owned by GST USA, Inc. ("GST USA"),
income (loss) per share data is meaningless and is not presented in the
accompanying financial statements.
3. RECENT DEVELOPMENTS
Reference is made to "Recent Developments" in "Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
GST Funding's annual report on Form 10-K for the fiscal year ended December
31, 1998 in which GST Funding disclosed potential technical violations of
certain debt covenants. On September 16, 1999, GST Telecommunications, Inc.
("GST") received $30.0 million from Global Light Telecommunications, Inc. and
others in connection with the settlement of various lawsuits. See "Legal
Proceedings" in Part II: Other Information in GST's Form 10-Q for the period
ended September 30, 1999. As a result, GST Funding believes that there is
currently no basis on which the noteholders could declare a default under
the indentures relating to GST Funding's debt issuance.
ITEM 2: 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 $265.0
million in 13.25% Senior Secured Notes (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 September 30, 1999, GST Funding had purchased approximately $168.4
million of equipment and held restricted investments of approximately $34.4
million restricted for 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
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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.
ITEM 3: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE MARKET RISK
GST Funding has fixed income investments consisting of cash equivalents
and short-term investments in U.S. government debt instruments.
Interest income earned on GST Funding's investment portfolio is
affected by changes in the general level of U.S. interest rates. GST Funding
believes that it is not exposed to significant changes in fair value because
such investments are composed of Government debt instruments and the maturities
are short term. The fair value of each investment approximates amortized cost,
and long term securities have maturities of less than twelve months.
GST Funding does not use derivative financial instruments to manage its
interest rate risk. GST Funding's long-term debt had a book value of $265,000
and a market value of $267,650 at September 30, 1999.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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S I G N A T U R E S
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: NOVEMBER 15, 1999 GST EQUIPMENT FUNDING, INC.
----------------- (Registrant)
/s/ Daniel L. Trampush
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Daniel L. Trampush,
(Senior Vice President and Chief
Financial Officer)
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GST
FUNDING'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 208,000
<SECURITIES> 34,387,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,595,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 264,236,000
<CURRENT-LIABILITIES> 15,874,000
<BONDS> 265,000,000
1
0
<COMMON> 0
<OTHER-SE> (16,638,000)
<TOTAL-LIABILITY-AND-EQUITY> 264,236,000
<SALES> 0
<TOTAL-REVENUES> 25,090,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,069,000
<INCOME-PRETAX> (1,457,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,979,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,979,000)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
