<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 June 30, 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
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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
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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 August 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
ITEM 1. FINANCIAL STATEMENTS:
Balance Sheets - June 30, 1999 and December 31, 1998 2
Statements of Operations
- Three and Six Months Ended June 30, 1999 and 1998 3
Statements of Cash Flows
- Six Months Ended June 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
(In thousands, except share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, (1)
ASSETS 1999 1998
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<S> <C> <C>
Current assets:
Cash ................................................. $ 208 $ --
Restricted investments ............................... 33,851 32,759
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34,059 32,759
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Restricted investments ................................... -- 17,244
Notes receivable from parent ............................. 208,913 194,228
Interest receivable from parent .......................... 5,310 4,812
Deferred financing costs, net ............................ 7,697 8,187
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221,920 224,471
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$ 255,979 $ 257,230
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LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accrued interest payable ............................. 5,852 5,852
Other payable to parent .............................. 1,243 1,037
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7,095 6,889
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Long-term debt ........................................... 265,000 265,000
Shareholder's deficit:
Common stock:
Authorized - 1,000 of $.01 par
common shares; issued and
outstanding - 100 shares ......................... -- --
Additional paid-in capital ........................... 1,000 1,000
Accumulated deficit .................................. (17,116) (15,659)
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(16,116) (14,659)
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$ 255,979 $ 257,230
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(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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues:
Interest income .............. $ 8,400 $ 6,972 $ 16,589 $ 13,385
-------- -------- -------- --------
Total revenues ........... 8,400 6,972 16,589 13,385
Operating costs and expenses:
Interest expense ............. 9,023 9,023 18,046 18,057
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Loss before income taxes.. (623) (2,051) (1,457) (4,672)
-------- -------- -------- --------
Income tax expense................. - - - -
-------- -------- -------- --------
Net loss ................. $ (623) $ (2,051) $ (1,457) $ (4,672)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to financial statements.
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GST EQUIPMENT FUNDING, INC.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
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1999 1998
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<S> <C> <C>
Operations:
Net loss ......................................... $ (1,457) $ (4,672)
Items not involving cash:
Amortization of deferred financing costs ....... 490 500
Changes in non-cash operating working capital:
Interest receivable from parent ................ (498) (1,094)
Other payable to parent ........................ 206 3,751
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Cash used in operations ................ (1,259) (1,515)
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Investing:
Change in investments restricted for
fixed asset purchases .......................... -- 37,717
Notes receivable from parent ..................... (14,685) (50,128)
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Cash used in investing activities ...... (14,685) (12,411)
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Financing:
Change in investments restricted for interest
payments ....................................... 16,152 17,703
Deferred debt financing costs .................... -- (182)
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Cash provided by
financing activities ................. 16,152 17,521
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Increase in cash and
cash equivalents ..................... 208 3,595
Cash and cash equivalents, beginning of period ....... -- 373
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Cash and cash equivalents, end of period ............. $ 208 $ 3,968
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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.
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 June 30, 1999, GST Funding had purchased approximately $168.4 million
of equipment and held restricted investments of approximately $33.9 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 rates. GST Funding's investments had a book value of $265,000 and a
market value of $280,900 at June 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: AUGUST 16, 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 JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 208,000
<SECURITIES> 38,851,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,059,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 255,979,000
<CURRENT-LIABILITIES> 7,095,000
<BONDS> 265,000,000
0
0
<COMMON> 1
<OTHER-SE> (16,116,000)
<TOTAL-LIABILITY-AND-EQUITY> 255,979,000
<SALES> 0
<TOTAL-REVENUES> 16,589,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,046,000
<INCOME-PRETAX> (1,457,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,457,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,457,000)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
