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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 0-9728
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GST EQUIPMENT FUNDING, INC.
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(Exact name of Registrant as Specified in its Charter)
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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)
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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 May 22,
2000, 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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PAGE(s)
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PART I: FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS:
Balance Sheets - March 31, 2000 and December 31, 1999 2
Statements of Operations
- Three Months Ended March 31, 2000 and 1999 3
Statements of Cash Flows
- Three Months Ended March 31, 2000 and 1999 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 7
SIGNATURES 8
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GST EQUIPMENT FUNDING, INC.
Balance Sheets
(In thousands, except share amounts)
(Unaudited)
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MARCH 31, DECEMBER 31, (1)
ASSETS 2000 1999
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Current assets--
Restricted investments.................................. $ 17,465 $ 17,192
Notes receivable from parent................................ 223,806 223,806
Interest receivable from parent............................. 14,287 5,715
Deferred financing costs, net............................... 6,965 7,210
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$ 262,523 $ 253,923
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LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities--
Accrued interest payable................................ $ 14,630 $ 5,852
Long-term debt.............................................. 265,000 265,000
Commitments, contingencies and subsequent events
Shareholder's deficit:
Common stock:
Authorized - 1,000 of $.01 par
common shares; issued and
outstanding - 100 shares........................... --
Additional paid-in capital.............................. 5,068 17,713
Note receivable from parent............................. (4,068) (16,713)
Accumulated deficit..................................... (18,107) (17,929)
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(17,107) (16,929)
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$ 262,523 $ 253,923
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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, 1999.
See accompanying notes to financial statements.
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GST EQUIPMENT FUNDING, INC.
Statements of Operations
(In thousands)
(Unaudited)
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THREE MONTHS
ENDED MARCH 31,
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2000 1999
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Revenues--
Interest income $ 8,845 $ 8,189
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Total revenues 8,845 8,189
Operating costs and expenses--
Interest expense 9,023 9,023
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Loss before income taxes (178) (834)
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Income tax expense (benefit):
Current --- ---
Deferred --- ---
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--- ---
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Net loss $ (178) $ (834)
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See accompanying notes to financial statements.
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GST EQUIPMENT FUNDING, INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
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THREE MONTHS
ENDED MARCH 31,
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2000 1999
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Operations:
Net loss....................................................... $ (178) $ (834)
Items not involving cash--
Amortization of deferred financing costs.................... 245 245
Changes in non-cash operating working capital:
Interest receivable from parent............................. (8,572) (7,405)
Accrued interest payable 8,778 8,778
Other payable to parent..................................... -- 307
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Cash provided by operations........................ 273 1,091
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Financing--
Change in investments restricted for interest
payments.................................................... (273) (785)
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Cash used in financing activities.................. (273) (785)
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Increase in cash and
cash equivalents................................. -- 306
Cash and cash equivalents, beginning of period..................... -- --
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Cash and cash equivalents, end of period........................... $ -- $ 306
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Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ -- $ --
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See accompanying notes to financial statements.
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GST EQUIPMENT FUNDING, INC.
Notes to Financial Statements
(Unaudited)
1. BANKRUPTCY PROCEEDINGS AND LETTER OF INTENT
On May 17, 2000, GST Telecommunications, Inc. ("GST or the Company")
(including all of 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 Equipment Funding, Inc.
would receive any distribution upon the subsequent liquidation of GST
Equipment Funding, Inc. and the interest of both secured and unsecured
creditors may be substantially impaired.
2. 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 GST Funding's audited
financial statements for the year ended December 31, 1999, as included
in GST Funding's Report on Form 10-K for the year ended December 31,
1999.
3. NET INCOME (LOSS) PER SHARE AND SHAREHOLDER'S DEFICIT
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"), loss per share data is meaningless and is not presented in
the accompanying financial statements.
4. IMPAIRMENT OF ASSETS
Due to the event described in Note 1 and the potential disposition of
substantially all of GST's assets, GST Funding 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 the Long-Lived Assets to be disposed of." If it is
determined that an impairment did occur, GST Funding believes that it
will have a material affect on that period's 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, 2000, GST Funding had purchased approximately $168.4
million of equipment and held restricted investments of approximately $17.5
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.
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RECENT DEVELOPMENTS
As of May 13, 2000, GST USA completed the assumption of GST
Funding's 13.25% Senior Secured Notes due 2007. This assumption was required
by the indentures governing the Secured 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 the
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 Bankrupcy 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. However, 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 its 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 funding would
receive any distribution upon the subsequent liquidation of GST funding and the
interest of both secured and unsecured creditors may be substantially impaired.
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.
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.
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 $198,750 at March 31, 2000.
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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
Reference is made to the report on Form 8-K filed as of
May 24, 2000, on which GST reported the following:
On May 17, 2000, we filed a voluntary petition for
bankruptcy under Chapter 11 of the United States
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
our 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, and our receipt of a commitment for
Debtor-In-Possession financing for up to $50 million in
cash and the potential for up to an additional $75
million in cash (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. Our plan is 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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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.
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Date: June 22, 2000 GST EQUIPMENT FUNDING, INC.
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/s/ Donald A. Bloodworth
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Donald A. Bloodworth,
(Senior Vice President and Chief Financial Officer)
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