<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 March 31, 1999
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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 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
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(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 May 12, 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
ITEM 1. FINANCIAL STATEMENTS:
Balance Sheets - March 31, 1999 and December 31, 1998 2
Statements of Operations
- Three Months Ended March 31, 1999 and 1998 3
Statements of Cash Flows
- Three Months Ended March 31, 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
(In thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
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<S> <C> <C>
Current assets:
Cash................................... $ 306 $ --
Restricted investments................. 33,272 32,759
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33,578 32,759
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Restricted investments.................... 17,516 17,244
Notes receivable from parent.............. 194,228 194,228
Interest receivable from parent........... 12,217 4,812
Deferred financing costs, net............. 7,942 8,187
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231,903 224,471
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$ 265,481 $ 257,230
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LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accrued interest payable 14,630 5,852
Other payable to parent 1,344 1,037
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15,974 6,889
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Long-term debt............................ 265,000 265,000
Shareholder's deficit:
Common stock:
Authorized - 1,000 of $.01 par
common shares; issued and
outstanding - 100 shares........... -- --
Additional paid-in capital............. 1,000 1,000
Accumulated deficit.................... (16,493) (15,659)
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(15,493) (14,659)
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$ 265,481 $ 257,230
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</TABLE>
(1) The information in this column was derived from 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
ENDED MARCH 31,
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1999 1998
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<S> <C> <C>
Revenues:
Interest income........................ $ 8,189 $ 6,413
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Total revenues................. 8,189 6,413
Operating costs and expenses:
Interest expense....................... 9,023 9,034
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Loss before income taxes....... (834) (2,621)
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Income tax expense (benefit):
Current................................ -- --
Deferred............................... -- --
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-- --
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Net loss....................... $ (834) $ (2,621)
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</TABLE>
See accompanying notes to financial statements.
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GST EQUIPMENT FUNDING, INC.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------------
1999 1998
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<S> <C> <C>
Operations:
Net loss.......................................... $ (834) $ (2,621)
Items not involving cash:
Amortization of deferred financing costs........ 245 256
Changes in non-cash operating working capital:
Interest receivable from parent................. (7,405) (4,372)
Accrued interest payable........................ 8,778 8,778
Other payable to parent......................... 307 708
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Cash provided by operations................. 1,091 2,749
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Investing:
Change in investments restricted for
fixed asset purchases........................... -- 8,011
Notes receivable from parent...................... -- (11,279)
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Cash (used in) investing activities......... -- (3,268)
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Financing:
Change in investments restricted for interest
payments........................................ (785) 1,242
Deferred debt financing costs..................... -- (180)
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Cash (used in) provided by
financing activities................... (785) 1,062
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Increase in cash.......................... 306 543
Cash, beginning of period............................ -- 373
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Cash, end of period.................................. $ 306 $ 916
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</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 condensed financial statements.
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 March 31, 1999, GST Funding had purchased approximately $194.2
million of equipment and held restricted investments of approximately $50.8
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 principal on the Secured Notes, and (v)
fulfilling its obligations under the indenture relating to the
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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
GST, GST USA, GST Network Funding, Inc. and GST Funding (collectively,
the "GST Companies") are parties to certain indentures and have issued or
guaranteed notes governed by those indentures. In November 1998, the GST
Companies notified United States Trust Company of New York, as trustee under
the indentures, that certain actions by GST and its subsidiaries may not have
been in compliance with the technical requirements of certain restrictive
covenants contained in the indentures. In particular, the GST Companies
disclosed that a series of transactions involving Global may have resulted in
technical non-compliances with the indentures. The GST Companies are
currently conducting a review of the relevant transactions and intends to
vigorously pursue any necessary action to cure the potential non-compliances.
GST has initiated litigation against Global and others in an effort to cure
any technical covenant violations that may have resulted from the
transactions involving Global.
In February 1999, the trustee informed the note holders of the potential
violations. Pursuant to the definitions contained within the indentures of
each of the notes described above, no default has been declared and no event
of default has occurred. GST Funding has not classified the related debt
obligations as current in its consolidated financial statements because
management believes it is probable that, in the event that the holders
declared a default, GST Funding would be able to take corrective actions to
cure any objectively determinable violations within the prescribed grace
period.
While GST Funding believes that any non-compliances can be cured, GST
Funding cannot offer any assurance that the litigation will be successful or
that any other potential cures will be effected in a timely manner or be
sufficient. In the event that the GST Companies have violated its indentures
and does not cure the violations, the holders of the notes issued under the
indentures could demand repayment of the notes, discontinue disbursements of
cash proceeds of the most recent notes and assert other remedies against the
GST Companies. If any of these events occurred, the GST Companies would not
have sufficient liquid assets to repay the notes.
Other discussion of Liquidity and Capital Resources is omitted pursuant
to "General Instruction H(1)(a) and (b) of Form 10-Q."
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 predominantly short term. The fair value of each investment
approximates amortized cost, and long term securities have maturities of
fifteen months or less.
GST Funding does not use derivative financial instruments to manage its
interest rates. GST Funding's long-term debt had a book value of $265,000 and a
market value of $276,263 at March 31, 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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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: MAY 17, 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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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GST
FUNDING'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 306,569
<SECURITIES> 33,271,808
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,578,377
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 265,481,655
<CURRENT-LIABILITIES> 15,974,129
<BONDS> 265,000,000
1
0
<COMMON> 0
<OTHER-SE> (16,491,463)
<TOTAL-LIABILITY-AND-EQUITY> 265,481,655
<SALES> 0
<TOTAL-REVENUES> 8,188,988
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,022,659
<INCOME-PRETAX> (833,671)
<INCOME-TAX> 0
<INCOME-CONTINUING> (833,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (833,671)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
