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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
[ X ] 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 000-22330
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GST NETWORK FUNDING, INC.
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(Exact name of Registrant as Specified in its Charter)
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Delaware 13-4001870
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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 NETWORK FUNDING, INC.
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INDEX
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PAGE(S)
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
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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 NETWORK 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--
Cash and cash equivalents...................... $ 1,884 $ ---
Restricted investments............................. 3,412 9,848
Notes receivable from parent....................... 319,636 319,336
Commitment fees receivable from parent............. 26,930 24,942
Interest receivable from parent.................... 17,675 6,851
Deferred financing costs, net...................... 8,907 9,182
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$ 378,444 $ 370,159
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LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accrued liabilities $ 12 $ 18
Accrued income taxes payable to parent 27,203 22,827
Other payable to parent --- 4,306
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27,215 27,151
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Long-term debt..................................... 364,762 355,587
Commitments, contingencies and subsequent events
Shareholder's deficit:
Common stock:
Authorized - 1,000 of $.01 par
common shares; issued and
outstanding - 100 shares................... -- --
Additional paid-in capital..................... 2,000 2,000
Accumulated deficit............................ (15,533) (14,579)
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(13,533) (12,579)
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$ 378,444 $ 370,159
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(1) The information in this column was derived from GST Network Funding, Inc.'s
audited financial statements as of December 31, 1999.
See accompanying notes to financial statements.
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GST NETWORK 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 $ 10,884 $ 5,488
Commitment fee income 1,988 3,618
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Total revenues 12,872 9,106
Operating costs and expenses--
Interest expense 9,450 8,963
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Income before income taxes 3,422 143
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Income tax expense:
Current 4,376 3,096
Deferred --- ---
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Net loss $ (954) $ (2,953)
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See accompanying notes to financial statements.
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GST NETWORK 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.............................................. $ (954) $ (2,953)
Items not involving cash:
Amortization of deferred financing costs............ 275 276
Accretion of interest............................... 9,175 8,282
Changes in non-cash operating working capital:
Commitment fee receivable from parent............... (1,988) (3,618)
Interest receivable from parent..................... (10,824) (3,241)
Other accrued liabilities........................... (6) (6)
Accrued interest payable............................ -- 405
Accrued income taxes payable to parent 4,376 3,096
Other payable to parent............................. (4,306) 49
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Cash provided by (used in) operations....... (4,252) 2,290
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Investing:
Change in investments restricted for fixed assets
purchases........................................... 6,436 61,959
Notes receivable from parent.......................... (300) (64,249)
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Cash provided by (used in) investing activities 6,136 (2,290)
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Increase in cash and
cash equivalents.......................... 1,884 --
Cash and cash equivalents, beginning of period............ -- --
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Cash and cash equivalents, end of period.................. $ 1,884 $ --
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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 NETWORK 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 Network Funding, Inc. would receive any
distribution upon the subsequent liquidation of GST Network 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 Network Funding, Inc. ("GST
Network") 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 Network's audited financial statements for
the year ended December 31, 1999, as included in GST Network's Report on
Form 10-K for the year ended December 31, 1999.
3. NET LOSS PER SHARE AND SHAREHOLDER'S DEFICIT
GST Network 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 Network 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 Network 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 Network was formed on April 16, 1998 for the purpose of issuing
$500.0 million principle amount at maturity of 10.5% Senior Secured Discount
Notes (the "Senior Secured Notes") and financing the purchase of
telecommunications equipment. GST Network acts as purchasing agent for GST USA
and sells to GST USA the equipment it purchases with the proceeds from the
Senior Secured Notes Offering. GST Network has only a limited operating history.
As of March 31, 2000, GST Network had purchased approximately $303.3
million which are of equipment and held restricted investments of approximately
$3.4 million which are restricted for the purchase of equipment. 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
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 Bankruptcy 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 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 Network would
receive any distribution upon the subsequent liquidation of GST Network and the
interest of both secured and unsecured creditors may be substantially impaired.
OPERATIONS
The operations of GST Network are limited to (i) purchasing equipment,
(ii) selling equipment to GST USA, (iii) receiving payments under intercompany
notes, (iv) making payments of interest and principal on the Senior Secured
Notes, and (v) fulfilling its obligations under the indenture relating to the
Senior Secured Notes, the pledge agreement relating to the security interest in
the Senior Secured Notes and the registration rights agreement relating to the
Senior Secured Notes. GST Network satisfied its obligations under such
registration rights agreement in September 1999, upon the consummation of an
exchange offer for the Senior Secured Notes.
ITEM 3: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE MARKET RISK
GST Network has fixed income investments consisting of cash equivalents
and short-term investments in U.S. government debt instruments.
Interest income earned on GST Network's investment portfolio is
affected by changes in the general level of U.S. interest rates. GST Network
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 three months.
GST Network does not use derivative financial instruments to manage its
interest rate risk. GST Network's long-term debt had a book value of $364,762
and a market value of $205,000 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 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 NETWORK 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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