<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549


                                    FORM 10-K
               ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997     COMMISSION FILE NUMBER 033-80618

                       GS TECHNOLOGIES OPERATING CO., INC.
             (Exact name of registrant as specified in its charter)

                DELAWARE                                   43-1656035
    (State or other jurisdiction of            (IRS Employer Identification No.)
    incorporation or organization)


                           GS TECHNOLOGIES CORPORATION
             (Exact name of registrant as specified in its charter)

                DELAWARE                                  04-3204785
    (State or other jurisdiction of            (IRS Employer Identification No.)
    incorporation or organization)

         1901 ROXBOROUGH ROAD
               SUITE 200
       CHARLOTTE, NORTH CAROLINA                             28211
(Address of principal executive office)                    (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (704) 366-6901

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      None

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         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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<PAGE>   2
         As of March 10, 1998, 100 shares of GS Technologies Operating Co., Inc.
Common Stock, par value $.01 per share, were outstanding, all of which are owned
by GS Technologies Corporation. Also as of March 10, 1998, 100 shares of GS
Technologies Corporation Common Stock, par value $.01 per share, were
outstanding, all of which are owned by GS Industries, Inc.

         This document consists of 51 sequentially numbered pages. The exhibit
index can be found on page 46 of the sequential numbering system.

FORWARD-LOOKING STATEMENTS

         The forward-looking statements included in the "Business",
"Properties", "Legal Proceedings" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Words such as "expects", "anticipates", "believes" and "intends",
variations of such words and similar expressions are intended to identify such
forward-looking statements. Actual results could differ from those anticipated
in these forward-looking statements as a result of a number of factors
including, but not limited to, the factors discussed in such sections.
Forward-looking information provided by the Company in such sections pursuant to
the safe harbor established under the Private Securities Litigation Reform Act
of 1995 should be evaluated in the context of these factors.






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<PAGE>   3
                           FORM 10-K TABLE OF CONTENTS
                  (DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)

<TABLE>
<CAPTION>
PART I                                                                                   PAGE
                                                                                         ----
<S>           <C>                                                                        <C>
     Item 1:  Business.....................................................................4
     Item 2:  Properties..................................................................12
     Item 3:  Legal Proceedings...........................................................13
     Item 4:  Submission of Matters to a Vote of Security Holders.........................13

PART II
     Item 5:  Market for the Registrant's Common Equity and Related Stockholder
              Matters.....................................................................14
     Item 6:  Selected Financial Data.....................................................15
     Item 7:  Management's Discussion and Analysis of Financial Condition and
              Results of Operations.......................................................17
     Item 8:  Financial Statements and Supplementary Data.................................24
     Item 9:  hanges in and Disagreements with Accountants on Accounting and
              Financial Disclosure........................................................24

PART III
     Item 10: Directors and Executive Officers of the Registrant..........................25
     Item 11: Executive Compensation......................................................28
     Item 12: Security Ownership of Certain Beneficial Owners and Management..............37
     Item 13: Certain Relationships and Related Transactions..............................39

PART IV
     Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K............45

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
     STATEMENT SCHEDULES..................................................................50
      
SIGNATURES
</TABLE>




                                       3
<PAGE>   4
                                     PART I

ITEM 1:           BUSINESS

GENERAL

         GS Technologies Corporation (the "Company" or "GST") is a leading
producer of high carbon and special grade wire rod, grinding media, mill liners,
steel billets and certain high quality wire products. The Company believes its
leading position in these products is the result of its high product quality,
its position as one of the low cost producers in each of the product segments in
which it competes, its long-term relationships with customers and, in the case
of wire rod, the close proximity of its mini-mills to the wire drawing
facilities of many of its customers.

         The Company was incorporated in 1993 to effect the November 1993
acquisition of the business and net assets of Armco Worldwide Grinding Systems
("AWGS"), a division of Armco, Inc. ("Armco"). In August 1994, GS Technologies
Operating Co., Inc. ("GSTOC"), a wholly-owned subsidiary of GST, issued $125
million of 12% Senior Notes due 2004 (the "12% Notes"). These securities are
fully and unconditionally guaranteed by GST.

         In August 1995, GST was party to a merger transaction whereby it was
merged with a subsidiary of a new parent company, GS Industries, Inc. ( "GSI"),
resulting in all of the issued and outstanding common stock of GST being
converted into shares of common stock of GSI and GST becoming a wholly-owned
subsidiary of GSI.

         In October 1995, GSI through its wholly-owned subsidiary, GSTOC,
acquired all the common stock of Georgetown Industries, Inc. ("Georgetown")
which resulted in Georgetown and its subsidiaries becoming wholly-owned
subsidiaries of GSTOC. In connection with this acquisition, GSTOC issued an
additional $125 million of 12 1/4% Senior Notes due 2005 (the "12 1/4% Notes")
which are also fully and unconditionally guaranteed by GST.

         A portion of the total purchase price of $307.0 million for the
Georgetown acquisition was paid with a combination of subordinated
payment-in-kind notes (the "PIK Notes") and preferred stock of GSI. In April
1996, the preferred stock was exchanged, at GSI's option, into subordinated
notes, (the "Exchange Notes") equal to the liquidation value of the stock. The
PIK Notes and Exchange Notes bear annual interest rates escalating from 6.0% to
16.0% and are due October 5, 2006. Interest accretes semi-annually on April 5
and October 5 and is added to the carrying value of the notes which was $127.6
million as of December 31, 1997 including accrued interest. GSI is required to
use a portion of the proceeds of any equity offering to prepay a principal
amount of the PIK Notes and Exchange Notes then outstanding equal to not less
than 50% of the net cash proceeds.

         In May 1997, the Company sold its non-strategic operations, Georgetown
Wire Company, Inc. and Tree Island Industries, Ltd. (the "West Coast Wire
Business") for $56.0 million resulting in a loss on sale of $23.9 million. The
Company expects to realize future tax benefits of approximately $17.1 million
related to this sale.


                                       4
<PAGE>   5
The current operating structure of the Company is as follows:


                                    [CHART]


SIGNIFICANT 1997 EVENTS

         APPOINTMENT OF MARK G. ESSIG AS PRESIDENT AND CHIEF EXECUTIVE OFFICER
OF GSI. In late 1997, Mr. Essig was appointed President and Chief Executive
Officer of GSI and succeeded Mr. Roger R. Regelbrugge as CEO effective January
1, 1998. Mr. Regelbrugge will continue to serve as Chairman of GSI.

         Mr. Essig served in various capacities at AK Steel Corporation,
headquartered in Middletown, Ohio, and prior to that at Washington Steel
Corporation. Most recently, Mr. Essig was Executive Vice President at AK Steel
Corporation having joined that Company in 1992 as Vice President Employee
Relations and Assistant to the Chief Executive Officer. He became Vice President
of Sales and Marketing in 1993 and advanced to the position of Executive Vice
President in 1994. Prior to joining AK Steel, he served as Vice President of
Finance and Administration and later as Vice President and Chief Financial
Officer for Washington Steel Corporation in Washington, Pennsylvania.

         KANSAS CITY WORK STOPPAGE AND RATIFICATION OF NEW LABOR AGREEMENT. In
June 1997, the Company entered into a new 5 1/2 year labor agreement with the
United Steel Workers of America ("USWA") covering workers at the Kansas City
steel mill. The ratification of this contract occurred after a 10 week work
stoppage.

         During the work stoppage, the Kansas City facility was operated on a
limited basis using salaried employees and contract workers. As a result,
production levels were far below normal levels which had a significant adverse
impact on profitability for the second quarter. Combining the volume impact of
reduced production with higher costs incurred during the work stoppage and
additional expense recorded for improved pension benefits, management estimates
that the strike resulted in an impact on pre-tax earnings of $21.9 million.


                                       5
<PAGE>   6
         TEMPE RATIFICATION OF NEW LABOR AGREEMENT. The collective bargaining
agreement with employees at the Company's facility in Tempe, Arizona was due to
expire in November, 1997. The Company successfully negotiated a new contract
which extends until November 2003.

         GEORGETOWN WORK STOPPAGE AND RATIFICATION OF NEW LABOR AGREEMENT. The
Company's collective bargaining agreement at the Georgetown, South Carolina
facility expired on December 8, 1997. The Company and the USWA were unable to
agree on the terms of a new agreement and a work stoppage commenced on December
5, 1997. On January 7, 1998, the 580 employees covered by this agreement
ratified a new sixty-two month agreement and returned to work. Management
estimates that this four week work stoppage cost the Company approximately $6.8
million as the facility was operated at reduced levels with management personnel
and contract workers.

         CONCEPCION RATIFICATION OF NEW LABOR AGREEMENT. The collective
bargaining agreement with employees at the Company's facility in Concepcion,
Chile expired on December 31, 1997. The Company successfully negotiated a new
contract which extends until December 2002.

         SALE OF WEST COAST WIRE BUSINESS. When the West Coast Wire Business was
purchased by the Company in the late 1980's, the strategic intent was for these
wire operations to serve as a remote market outlet for wire rod from the
Georgetown mini-mill in times of cyclical wire rod demand troughs. It was
anticipated that the net selling prices to the Georgetown mini-mill would be
comparable to the available depressed prices in the local markets and still not
compromise the cost structure of the West Coast wire operations. As the
Georgetown mini-mill has significantly improved its product mix from that time,
the usefulness of the West Coast strategy has diminished. Even in poor market
conditions, management believes that the alternatives available to the
Georgetown mini-mill locally are more advantageous than shipping wire rod to the
West Coast Wire Business at prices that would remain in the range of prices that
the West Coast operations could receive from its normal suppliers.

         As a result of this change in strategy, the decision was made in 1996
to market the West Coast Wire Business to potential purchasers. In May 1997, the
sale was consummated. The gross proceeds of $56.0 million were used to reduce
the outstanding balance on the Revolving Credit Facility of GSTOC.

         SOUTH AMERICAN EXPANSION PLANS. The Company has begun capital projects
at its existing South American grinding media operations that will double the
Company's previous capacity within the region. This expansion will involve both
new equipment and improvements to existing facilities and is expected to come on
line primarily during 1998. The Company also signed a Letter of Intent with
Acindar, S. A., a leading long products steel producer in Argentina, to form a
joint venture which will produce grinding balls in Argentina.Additionally, the
Company has signed a Letter of Intent to form a joint venture with Cia. Electro
Metalurgica S. A., to build and operate a mill liner production facility in
Santiago, Chile.

PRODUCTS AND MARKETS

         WIRE ROD. The Company manufactures high carbon and special grade wire
rod at its Kansas City, Missouri and Georgetown, South Carolina mini-mills. The
Company sells the majority of its wire rod output to domestic wire drawers that
process wire rod into products for diverse end use applications, such as tire
bead and tire cord for the automotive industry, upholstery and bed springs 


                                       6
<PAGE>   7
for the furniture industry and wire rope and pre-stressed concrete strand ("PC
Strand") for the construction industry. In 1997, the Company shipped
approximately 1.3 million tons of wire rod of which 1.2 million tons were to
third party purchasers.

         End use applications of the Company's wire rod production were as
follows:

                             1997 WIRE ROD SHIPMENTS
                                   (BY MARKET)
<TABLE>
<CAPTION>
                                                          Percent of Total Sales
                                                          ----------------------
         <S>                                              <C>
         Furniture/Bedding...........................................27%
         Construction................................................22%
         Industrial..................................................20%
         Automotive..................................................18%
         Other.......................................................13%
                                                                    ---
             Total..................................................100%
                                                                    ---
</TABLE>

         The Company focuses on providing high quality, high carbon and special
grades of wire rod. These products generally command a higher selling price than
lower quality commodity grade wire rod products. High carbon wire rod has carbon
content greater than 0.45%. Wire drawn from high carbon steel is generally
stronger and is more suitable for demanding applications. Due to these
properties, it is used extensively by tire manufacturers to make tire cord and
tire bead and by the furniture industry to make upholstery and bed springs.

         The Company's wire rod shipments include shipments to a select group of
customers, reflecting the Company's strategy of maximizing production efficiency
through long-term strategic relationships. The Kansas City facility is a party
to a supply agreement with Leggett & Platt which requires Leggett & Platt to
purchase a specified percentage of its annual wire rod requirements at certain
of Leggett & Platt's facilities covered by the agreement. In 1997, Leggett &
Platt purchased approximately 256,000 tons, or 19.6% of the total wire rod
tonnage shipped by the Company. Approximately 29% of the Company's total
revenues for 1997 were derived from sales to the Company's five largest wire rod
customers (including Leggett & Platt).

         GRINDING MEDIA AND MILL LINERS. The Company manufactures and sells
grinding media and mill liners to the world mining industry (principally copper,
iron ore and gold mines) for use in the concentrator stage of mining operations.
In a typical open-pit mine configuration, the concentrator receives semi-crushed
rock from the ore deposit, grinds the rock into a fine powder, separates the
desired mineral from the waste rock for further processing at the smelter and
discharges the waste rock. Grinding media are high carbon steel balls and rods
used inside a rotating mill to grind semi-crushed rock from the mine. Mill
liners are the protective steel liners that shield the rotating mill from the
pulverizing action of the grinding media. Grinding media and mill liners are
consumed as ore is processed and must be continually replenished.

         Grinding media and mill liners are generally sold under contract. The
Company's grinding media contracts are generally one to three years in duration
and at fixed prices. In certain of the Company's contracts, raw material price
changes are passed through as price adjustments to the customer.


                                       7
<PAGE>   8
         The Company's principal customers for mineral processing products are
domestic and international mining companies. The following chart details
shipments of grinding media, exclusive of mill liners, categorized by mineral
processed, through both its consolidated subsidiaries and its joint ventures:

                          1997 GRINDING MEDIA SHIPMENTS
                                  (BY MINERAL)

<TABLE>
<CAPTION>
                                                                Percent of Total
                                                                ----------------
         <S>                                                    <C>
         Copper..............................................           47%
         Gold................................................           24%
         Iron Ore............................................           10%
         Other...............................................           19%
                                                                       ---
                  Total......................................          100%
                                                                       ---
</TABLE>

         The Company's mill liner shipments reflect a customer consumption
pattern similar to that of the grinding media shipments except that there is a
greater concentration of shipments to the copper industry. In 1997, the Company
shipped 454,000 tons of grinding media and mill liners from its consolidated
subsidiaries and 222,000 tons from joint ventures in which it participates.

         The market for the Company's grinding media products is geographically
diversified. The following table details shipments to different geographic
regions through both its consolidated subsidiaries and its joint ventures:

                          1997 GRINDING MEDIA SHIPMENTS
                                   (BY REGION)

<TABLE>
<CAPTION>
                                                                Percent of Total
                                                                ----------------
         <S>                                                    <C>
         United States.......................................           44%
         South America.......................................           22%
         Canada and Mexico...................................           13%
         Philippines, Australia..............................           16%
         Europe..............................................            5%
                                                                       ---
                  Total .....................................          100%
                                                                       ---
</TABLE>

         The Company has developed a network of international operations to
satisfy the worldwide demand for grinding media. In the United States, grinding
media is supplied from the Company's Kansas City mini-mill. In Chile, Peru and
Europe, grinding media is fabricated from purchased bars and sold by the
Company's foreign subsidiaries. In Canada, Mexico, the Philippines and
Australia, the Company has investments in joint ventures that primarily
fabricate grinding media from purchased bars and sell it to mines in those and
neighboring countries. Financial information related to the Company's domestic
and foreign subsidiaries is provided in Note 6 to the Company's Consolidated
Financial Statements.

         Management believes the outlook for growth in the grinding media and
the mill liner markets is attractive. The major factors impacting demand are (i)
the head grades, or mineral content of the ore deposit (the lower the head
grade, the greater the number of tons of ore deposit which must be ground to
extract the same amount of mineral), (ii) the hardness of the material being
ground (the harder the ore deposit, the more grinding that is required to reduce
it to powder), and (iii) macro-economic consumption of the mineral which leads
to increased mining activity. As 


                                       8
<PAGE>   9
richer ore deposits are depleted, mining companies must utilize lower quality
deposits (in terms of head grades and ore deposit hardness) for their mining
requirements or open new mines, resulting in increasing demand for grinding
media and mill liners. South America, where the Company currently has grinding
media operations, is particularly attractive due to significant mining expansion
in Chile and Peru.

         WIRE PRODUCTS. The Company is one of the leading domestic producers of
high quality wire products, which it manufactures at two facilities located in
Florida. The Company's wire products are primarily comprised of PC strand and
galvanized guy strand. PC Strand is sold to the construction industry for use in
highways, bridges, commercial buildings, parking structures and multi-family
buildings. Guy strand is sold to the electrical, telephone and CATV industries
for use as support systems for transmission lines. In 1997, the Company shipped
approximately 132,000 tons of wire products.

         BILLETS. Billets are semi-finished steel products that are subsequently
utilized by rolling mills for production of wire rod, bars and other finished
steel products. Georgetown has billet capacity in excess of the need for billets
for its own rolling mill and has sold billets to third party steel producers.
Subsequent to the combination of Georgetown and GST, a significant portion of
these excess billets are shipped to Kansas City where rolling capacity exceeds
billet production capability. In 1997, the Company shipped approximately 205,000
tons of billets of which only 45,000 tons were to third party purchasers.

COMPETITION

         WIRE ROD. The Company competes for wire rod business on the basis of
product quality and consistency, timely delivery, technical assistance and
price. The largest competing domestic producers of wire rod in the U.S. are
Co-Steel Raritan in Perth Amboy, New Jersey, North Star Steel Company in
Beaumont, Texas, and Rocky Mountain Steel (a division of Oregon Steel) in
Pueblo, Colorado. Several domestic producers are in the process of implementing
or are planning to make investments to start or expand production of wire rod.
Some of these are specifically targeting the high quality segment of the market.
Imports of wire rod constituted approximately 30% of the total market in 1997.

         GRINDING MEDIA. Domestically, the Company competes principally with
three grinding ball producers. Two of the competitors, Nucor Corp., and Border
Steel Co., have production operations in the West and Southwest and produce
grinding balls from facilities where scrap is the raw material. A third
competitor, North Star Steel Company, located in Minnesota, produces grinding
balls from bars and serves the iron ore mines in the upper Midwest. The Company
competes principally with one U.S. grinding rod producer and one Canadian
grinding rod producer for domestic sales of grinding rods. While factors such as
reliability of supply and service are important to customers, competition is
based primarily on a combination of price and product performance.
Internationally, the Company competes with many producers of forged and cast
grinding balls, nearly all of them indigenous to their respective local markets.

         WIRE PRODUCTS. The Company is a leading producer of both PC strand and
guy strand in the United States. The Company's main competitors for PC strand
sales include Insteel Industries, Inc. of Gallatin, Tennessee; Sumiden Wire
Products Corporation of Stockton, California; and American Spring Wire Corp. of
Bedford Heights, Ohio and Houston, Texas.


                                       9
<PAGE>   10
         The Company's main competitors for guy strand sales include Indiana
Steel and Wire Corp. of Muncie, Indiana; Bekaert Corporation of Van Buren,
Arkansas; Cal-Wire Stranding of Vernon, California; and National Strand
Products, Inc. of Houston, Texas. The Company's wire products operations compete
with numerous producers worldwide. Customers for wire products demand
competitive prices, good selection and quality service. Management believes that
the Company is competitive based on all of these criteria.

RAW MATERIALS

         The principal raw materials and commodities required in the Company's
manufacturing operations are steel scrap, DRI, steel bars, electricity and
natural gas. All of these raw materials except DRI, which the Company produces,
are purchased at prevailing market prices. Adequate sources of supply exist for
all of the Company's raw material requirements.

PATENTS AND LICENSES

         The Company owns numerous process and product patents, proprietary
expertise, and licenses which it believes are necessary for the operation of its
worldwide businesses. In its grinding media processing business, the Company
owns process and product patents on grinding rods, mill liners and process
equipment. The Company has proprietary processing and product know-how on
equipment used in manufacturing grinding balls. The Company also has a license
from the Dow Chemical Company to use certain proprietary technology to
manufacture and market mineral reagents for the mineral processing industry.

HUMAN RESOURCES

         The Company's worldwide operations are managed by a management team
based in its Charlotte, North Carolina headquarters. The Company and its
wholly-owned subsidiaries have approximately 2,600 employees, of whom
approximately 1,900 are hourly production employees. Approximately 63% of the
Company's employees are covered by collective bargaining agreements. See
"Business-Significant 1997 Events" for additional information.

RESEARCH AND DEVELOPMENT

         The Company focuses its research and development on improving the
quality and reducing the cost of its production processes, as well as on
specialized customer applications and enhanced technological support. Research
and development costs are recorded in cost of products sold when incurred.

CYCLICALITY

         Demand for the Company's products is cyclical in nature and sensitive
to general economic conditions. The Company's sales of wire rod and wire
products are affected by economic trends in the furniture, automotive and
construction industries, and the Company's sales of grinding media and mill
liners are affected by levels of mining activity.


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<PAGE>   11
ENVIRONMENTAL MATTERS

         The Company's U.S. facilities are subject to a broad range of federal,
state and local environmental requirements, including those governing discharges
to air and water, the handling and disposal of solid and hazardous wastes, and
the remediation of contamination associated with releases of hazardous
substances at Company facilities and associated offsite disposal locations.
Liabilities with respect to hazardous substance releases arise principally under
the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") and similar state laws, which impose strict, retroactive, joint and
several liability upon statutorily defined classes of "potentially responsible
parties" ("PRPs"). The Company's foreign facilities and joint ventures are
subject to varying degrees of environmental regulation in the jurisdictions in
which those facilities are located.

         Based on environmental reviews conducted by outside environmental
consultants in connection with the Georgetown acquisition and the AWGS
acquisition, and the continuing review of environmental requirements by the
Company, the Company believes that it is currently in substantial compliance
with environmental requirements. Nevertheless, as is the case with steel
producers in general, if a release of hazardous substances occurs on or from the
Company's properties or any associated offsite disposal locations, or if
contamination from prior activities is discovered at such properties or
locations, the Company may be held liable and may be required to pay the cost of
remedying the condition or satisfying third party damage claims, or both. The
Company devotes considerable resources to ensuring that its operations are
conducted in a manner that reduces such risks.

         The Company has several environmental issues currently under discussion
with various federal, state and local agencies. Some of these involve compliance
and/or remediation at certain properties. The Company is subject to consent
orders, administrative orders, permit renewals and negotiations and ongoing
inspection activities relating to certain of its properties and at off-site
locations.

         The Company records certain operating expenses for environmental
compliance, testing and other environmental related costs as expenses when
incurred. When it has been possible to determine reasonable estimates of
liabilities related to environmental issues, based upon information from
engineering and environmental specialists, the Company has made provisions and
accruals. There can be no assurance, however, that the cost of required remedial
activity or environmental compliance will not exceed the established reserves.
The Company believes, based upon information currently available to management,
that it will not require expenditures to maintain compliance with environmental
requirements which would have a material adverse effect on its consolidated
financial condition, results of operations or competitive position.

         For additional information regarding environmental matters, including
indemnifications, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Environmental Matters."


                                       11
<PAGE>   12
ITEM 2:           PROPERTIES

         The Company conducts its operations through domestic and international
facilities as subsidiaries and joint ventures. The following table provides
information regarding the Company's principal facilities:


                                     [CHART]


<TABLE>
<CAPTION>
              Location                          Square Feet              Products                 Own or Lease
---------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>                                <C>
CORPORATE HEADQUARTERS:
Charlotte, NC (1)                                   10,000                  N/A                       Lease
MANUFACTURING FACILITIES:
Kansas City, MO (1) (2)                          1,871,800       Wire rod & grinding media        Own and lease
Georgetown, SC (1)                                 496,700     Wire rod, DRI, steel billets            Own
Jacksonville, FL (1)                               264,000             Wire products                   Own
Sanderson, FL (1)                                  145,000             Wire products                   Own
Duluth, MN                                         335,900              Mill Liners                    Own
Tempe, AZ                                          241,950              Mill Liners                    Own
Concepcion, Chile                                   50,000            Grinding media                   Own
Arequipa, Peru                                      25,000            Grinding media                   Own
Lima, Peru                                          40,000            Grinding media                   Own
Cividale, Italy (3)                                 90,000                 Idle                        Own
Mezzomerico, Italy                                  68,000            Grinding media                   Own
JOINT VENTURES (MANUFACTURING LOCATIONS):
Kamloops, Canada                                    34,800            Grinding media                   Own
Guadalajara, Mexico                                 40,800            Grinding media                  Lease
Perth and Townsville, Australia                     54,100            Grinding media                   Own
Manila, Philippines                                 86,000            Grinding media                  Lease
Chimbote, Peru                                   5,776,000       Rebar, Flat Rolled Steel              Own
Convent, LA (4)                                  1,525,000                  DRI                        Own
Piombino, Italy (3)                                 44,000            Grinding media                  Lease
SALES AND OTHER OFFICES:
Minneapolis, MN                                     18,700                  N/A                        Own
Santiago, Chile                                      7,300                  N/A                        Own
</TABLE>


                                       12
<PAGE>   13
(1)      Subject to liens under existing debt.

(2)      748,000 square feet of such facility are leased at a nominal annual
         rental charge under multiple triple net leases with Armco with varying
         expiration dates.

(3)      In December 1996, the manufacturing assets from Cividale, Italy were
         transferred to the Piombino, Italy location. It is the Company's
         intention to sell the Cividale facility.

(4)      Construction at this facility was completed at the end of 1997 and
         production began in January 1998.

         The Company believes its facilities are properly maintained and
adequately equipped for the purposes for which they are used. Management
believes that, with its planned level of capital expenditures, the Company will
be able to accommodate its capacity needs for the immediate future in its
existing facilities.

ITEM 3:           LEGAL PROCEEDINGS

         The Company is a party to various legal proceedings that are considered
to be ordinary, routine litigation incidental to the Company's business and not
material to its consolidated financial position, results of operations or cash
flows. See "Business -- Environmental Matters" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Environmental
Matters" for additional information.

         In August 1996, Samsung America, Inc. ("Samsung") filed an action in
the Supreme Court of the State of New York seeking monetary damages against GSI,
the Company, its Peruvian subsidiary, Acerco, and Acerco's partners in the
Siderperu joint venture collectively, (the "Defendants"). Samsung seeks to
recover purported damages of $48.5 million and punitive damages of $10 million
and alleges that the Defendants failed to honor a written contract which
entitled Samsung to obtain an equity interest in Siderperu and to provide
certain distribution and trading services on an exclusive basis. In August 1997,
this action was dismissed by the Supreme Court of the State of New York for lack
of jurisdiction over the Defendants. Samsung has appealed the dismissal decision
to the 1st Department Appellate Division of the State of New York. The Company
believes that it has substantial and meritorious defenses and will defend itself
accordingly.

ITEM 4:           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.






                                       13
<PAGE>   14
                                     PART II

ITEM 5:           MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED 
                  STOCKHOLDER MATTERS

         All the outstanding common stock of GSTOC is owned by GST and all the
outstanding common stock of GST is owned by GSI. As a result, there is no
established public trading market for the common stock of GST and all per share
data is omitted. Since the outstanding common stock of GST was privately placed
in late 1993, there has been no trading activity in such stock.

         As of March 10, 1998, 100 shares of common stock of GST were
outstanding, all of which were owned by GSI, and there were 40 record holders of
the Common Stock of GSI.








                                       14
<PAGE>   15
ITEM 6:           SELECTED FINANCIAL DATA

         The following table sets forth selected historical financial data and
other operating data of the Company and its predecessor, AWGS for the five year
period ending December 31, 1997. The selected financial data for the four year
period ending December 31, 1997 have been derived from, and are qualified by
reference to, the audited financial statements of the Company included elsewhere
herein. The selected financial data of AWGS for the period from January 1, 1993
to November 11, 1993 and for the Company for the period from November 12, 1993
to December 31, 1993, are derived from the audited financial statements of AWGS
and the Company, respectively, which are not included herein. The selected
financial data for AWGS are not comparable in certain respects to the selected
financial data of the Company due to the effects of the AWGS acquisition and
certain sales or closings of businesses described in the notes hereto. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements, including the notes thereto.


<TABLE>
<CAPTION>
                                          AWGS                                       COMPANY
                                      -----------     -----------------------------------------------------------------------
                                         PERIOD          PERIOD
                                          FROM            FROM
                                      01/01/93 TO     11/12/93 TO
                                        11/11/93        12/31/93       1994          1995(1)         1996(1)         1997(1)
                                      -----------     -----------   ---------       ---------       ---------       ---------
<S>                                   <C>             <C>           <C>             <C>             <C>             <C>      
STATEMENT OF OPERATIONS DATA:
Net Sales(2)                           $ 355,819       $  51,975    $ 455,258       $ 539,749       $ 815,917       $ 809,734
Operating Costs and Expenses:
  Cost of Products Sold                  303,455          43,648      389,287         457,307         703,958         691,200
  Selling, General and
    Administrative Expenses               33,307           3,510       30,613          35,258          46,331          44,749
  Depreciation and Amortization            9,158             208        3,612          10,522          26,989          29,587
  Non-recurring Costs of
    Combining Operations(3)                                                             4,866                                
                                       ---------       ---------    ---------       ---------       ---------       ---------
Operating Profit (Loss)(4)                 9,899           4,609       31,746          31,796          38,639          44,198
Net Interest Expense                      (1,582)           (711)      (8,928)        (22,892)        (42,436)        (41,070)
Equity in Income of Joint
  Ventures                                 2,466             390        3,434           4,075           5,500           6,195
Fees from Joint Ventures                   1,493             161        1,410           1,357           2,399           2,743
Other, Net                                  (707)           (150)         200            (573)            190             904
                                       ---------       ---------    ---------       ---------       ---------       ---------

Income (Loss) Before Income
  Tax                                     11,569           4,299       27,862          13,763           4,292          12,970
Income Tax Provision(5)                   (2,663)         (1,753)     (12,372)         (7,025)         (3,815)         (6,523)
                                       ---------       ---------    ---------       ---------       ---------       ---------

Income from Continuing
  Operations Before Extraordinary
  Loss, Discontinued Operations
  and Cumulative Effect of
  Accounting Changes                   $   8,906       $   2,546    $  15,490       $   6,738       $     477       $   6,447
                                       =========       =========    =========       =========       =========       =========

Net Income (Loss)                      $ (98,931)(6)   $   2,546    $  13,470 (7)   $   6,129 (8)   $   6,435(9)    $ (16,116)(10)
                                       =========       =========    =========       =========       =========       =========

BALANCE SHEET DATA AT
  PERIOD END:
Total Assets                           $ 232,717       $ 189,683    $ 259,611       $ 715,200       $ 715,679       $ 646,277
Total Debt                                13,201          69,837      158,185         378,103         385,133         346,182
Mandatory Redeemable Class A
  Common Stock                                             2,700                                                             
Armco Investment/Stockholder's
  Equity (Deficit)                        10,874          13,956      (29,887)        106,609         112,761          95,161
</TABLE>


                                       15
<PAGE>   16
<TABLE>
<CAPTION>
<S>                                    <C>             <C>          <C>             <C>             <C>             <C>      
OTHER OPERATING DATA:
EBITDA                                 $  23,065       $   3,740    $  41,682       $  47,324       $  74,032       $  83,756
Net Cash Provided by (Used in):
  Operating Activities(12)               (25,748)        (18,371)      21,784           8,386          40,776          16,802
  Investing Activities(12)                (6,304)        (44,196)     (12,316)       (187,542)        (49,785)         21,877 (13)
  Financing Activities(12)                38,012          70,602        1,857         170,161           7,030         (40,078)(13)
Capital Expenditures(14)                   6,394           5,347       34,481          48,342          42,225          25,112
</TABLE>

--------------------
(1)      The Statement of Operations Data, Balance Sheet Data, and other
         operating Data have been restated to reflect the sale of the West Coast
         Wire Business. Accordingly, the results of operations, cash flows and
         net assets of this business have been classified as discontinued
         operations for all periods presented.

(2)      Net Sales for the period from January 1, 1993 through November 11, 1993
         include $22,403 of aggregate sales from operations which were
         discontinued in 1992 and prior years or held for sale.

(3)      Represents non-recurring charge for the costs of combining the
         operations of GST and Georgetown. See Note 1 to the Consolidated
         Financial Statements.

(4)      Operating Profit for the period from January 1, 1993 through November
         11, 1993 includes $3,919 of aggregate net operating profit from
         operations which were discontinued in 1992 and prior years or held for
         sale.

(5)      Income tax provision for AWGS represents foreign taxes only. AWGS had
         no domestic income tax provision due primarily to net operating loss
         carryforwards.

(6)      Reflects a charge of $107,615 for the cumulative effect of the adoption
         of SFAS No. 106 related to post-retirement benefits other than
         pensions.

(7)      Net of $2,020 non-cash after-tax write-off of debt issuance costs.

(8)      Includes net loss from discontinued operations of $609, net of related
         taxes.

(9)      Reflects effect of a change in accounting for spare parts and supplies
         inventories of $3,556, net of related taxes. See Note 3 to the
         Consolidated Financial Statements. Also includes net income from
         discontinued operations of $2,402, net of related taxes

(10)     Includes net income from discontinued operations of $1,402, net of
         related taxes, and loss on disposal of discontinued operations of
         $23,965, net of related taxes.

(11)     EBITDA is presented herein to provide additional information about the
         Company's ability to meet future debt service, capital expenditures and
         working capital requirements. EBITDA should not be considered as an
         alternative to net income, as an indicator of operating performance, or
         as an alternative to cash flows as a measure of liquidity, as such
         measures would be determined pursuant to generally accepted accounting
         principles. In addition, EBITDA should not be considered as an
         indicator that cash flow is sufficient for all of the Company's needs.

(12)     This cash flow information should be read in conjunction with
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operation."

(13)     Includes $56.0 million in proceeds from sale of the West Coast Wire
         Business which were used to pay off outstanding debt.

(14)     Excludes purchases of businesses and joint venture investments.




                                       16
<PAGE>   17
ITEM 7:           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS

         The following discussion provides an assessment of the Company's
financial condition, results of operations and liquidity and capital resources
and should be read in conjunction with the accompanying financial statements and
notes thereto included elsewhere herein. The results of operations for the three
years presented are not comparable due to the Georgetown acquisition on October
5, 1995.

RESULTS OF OPERATIONS (DOLLARS IN MILLIONS)

         The following table sets forth, for the years indicated, the Company's
selected income statement data:

<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED
                                                                DECEMBER 31,
                                                    ----------------------------------
                                                     1995          1996          1997
                                                    ------        ------        ------
<S>                                                 <C>           <C>           <C>   
Net Sales                                           $539.7        $815.9        $809.7
Cost of Products Sold                                457.3         704.0         691.2
Selling, General and Administrative Expenses          35.2          46.3          44.7
Depreciation and Amortization                         10.5          27.0          29.6
Non-recurring Costs of Combining Operations(1)         4.9
                                                    ------        ------        ------

Operating Profit                                      31.8          38.6          44.2
Net Interest Expense                                 (22.9)        (42.4)        (41.1)
Other Income(2)                                        4.9           8.1           9.9
                                                    ------        ------        ------
Income Before Income Tax                              13.8           4.3          13.0
Income Tax Provision                                  (7.1)         (3.8)         (6.5)
                                                    ------        ------        ------
Income from Continuing Operations Before
  Cumulative Effect of Accounting Change               6.7           0.5           6.5
Discontinued Operations                               (0.6)          2.3         (22.6)
Cumulative Effect of Accounting Change                               3.6
                                                    ------        ------        ------
Net Income                                          $  6.1        $  6.4        $(16.1)
                                                    ======        ======        ======

PERCENTAGE OF NET SALES:

Net Sales                                            100.0%        100.0%        100.0%
Cost of Products Sold                                 84.7          86.3          85.4
Selling, General and Administrative Expenses           6.5           5.7           5.5
Depreciation and Amortization                          1.9           3.3           3.7
Non-recurring Costs of Combining Operations(1)         0.9
                                                    ------        ------        ------

Operating Profit                                       6.0           4.7           5.4
Net Interest Expense and Capital Charge               (4.3)         (5.2)         (5.1)
Other Income(2)                                        0.9           1.0           1.3
                                                    ------        ------        ------
Income Before Income Tax                               2.6           0.5           1.6
Income Tax Provision                                  (1.4)         (0.4)         (0.8)
                                                    ------        ------        ------
Income from continuing Operations Before
  Cumulative Effect of Accounting Change               1.2           0.1           0.8
Discontinued Operations                               (0.1)          0.3          (2.8)
Cumulative Effect of Accounting Change                               0.4
                                                    ------        ------        ------
Net Income                                             1.1%          0.8%         (2.0%)
                                                    ======        ======        ======
</TABLE>

--------------------


                                       17
<PAGE>   18

(1)      Represents non-recurring charges for the costs of combining the
         operations of GST and Georgetown. See Note 9 to the Consolidated
         Financial Statements.

(2)      Other Income includes Equity in Income of Joint Ventures, Fees from
         Joint Ventures and Other, Net.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

         DISCONTINUED OPERATIONS. In May 1997, the Company sold its West Coast
Wire Business for approximately $56.0 million, resulting in an estimated loss on
disposition of $23.9 million, net of taxes. Accordingly, the results of
operations of this business have been reclassified as discontinued operations
and the following discussion excludes the tons shipped and other operating
results of this business for all periods presented.

         1997 WORK STOPPAGES. The Company's labor contracts for the Kansas City
and Georgetown mini-mills expired in March 1997 and December 1997, respectively.
When the Company and the USWA were unable to reach accord on the terms of new
contracts, the unions in each location stopped working. Management estimates
that the ten week work stoppage in Kansas City cost the Company approximately
$21.9 million in pre-tax earnings, primarily in the second quarter of 1997. The
Georgetown work stoppage, which occurred during the fourth quarter and lasted
four weeks, is estimated to have cost approximately $6.8 million in 1997 pre-tax
earnings.

         NET SALES. Net sales for the year ended December 31, 1997 were $809.7
million compared to $815.9 million for the year ended December 31, 1996, a
decrease of $6.2 million or 0.8%.

         Wire rod sales were up $27.3 million to $407.8 million in 1997 compared
to 1996 despite the impact of the 1997 strikes and subsequent ramp-up to
pre-work stoppage production levels. Wire rod volume in 1997 exceeded 1996
volume by approximately 21,600 tons. Additionally, wire rod selling prices
averaged $348 per ton in 1997 compared to $331 per ton in 1996.

         Grinding media sales were $269.7 million in 1997 compared to $268.7
million in 1996. Domestically, volume was down approximately 22,600 tons
reflecting lost volume during the Kansas City work stoppage . Internationally,
volume was up 23,400 tons resulting primarily from significant expansion in the
mining industry in South America where the Company has substantially increased
market share with several significant customers at slightly reduced prices.

         The Company's wire products sales were down $10.8 million in 1997
compared to 1996 reflecting increased competition from imports. Additionally,
the Company's sales of billets to third party purchasers were down $26.9 million
as the Company increased its internal consumption of billets. Of 205,000 tons
shipped, 160,000 tons were shipped to Kansas City for use in production.

         COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold as a
percent of net sales decreased to 85.4% in 1997 from 86.3% in 1996 resulting in
increased gross profit margin from 13.7% in 1996 to 14.6% in 1997. Wire rod
conversion costs for the full year 1997 were comparable to 1996, but reflected
significant spikes during the strikes at Kansas City and Georgetown which were
offset by continued production improvements and efficiencies in the non-work
stoppage quarters. Grinding media conversion costs were approximately 9% higher
in 1997 than in 1996 due to the effects of the work stoppage and resulting
decline in domestic volume.


                                       18
<PAGE>   19
         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense as a percent of sales decreased to 5.5% in 1997 from 5.7%
in 1996 as a result of the Company's 1997 cost reduction program.

         DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
for 1997 increased $2.6 million from 1996 to $29.6 million. This increase
results from capital additions and improvements.

         NET INTEREST EXPENSE. Net interest expense decreased to $41.1 million
for 1997 from $42.4 million for 1996 The decrease reflects a reduction in the
borrowings under the revolver as the proceeds from the sale of the West Coast
Wire Business were used to repay amounts outstanding. Of this total $1.7 million
represents amortization of debt issuance costs.

         OTHER INCOME. Other income, which is primarily equity income and fees
from joint ventures, increased to $9.9 million for 1997 compared to $8.1 million
for 1996 due primarily to inclusion in 1997 of a full year of equity earnings
and fees from the Siderperu investment made in March 1996 and to improvements in
Siderperu's operations since it has been managed by the Company.

         INCOME TAXES. Income taxes for 1997 were $6.5 million on pre-tax
earnings of $13 million, an effective tax rate of 50.3%. Income taxes for 1996
were $3.8 million on pre-tax earnings of $4.3 million, an effective rate of
88.9%. The effective tax rate for the company is high due to limitations on the
Company's ability to currently utilize foreign tax credits and due to the
non-deductibility of amortization and depreciation expense associated with the
Georgetown acquisition. The decrease in the effective rate in 1997 results from
a change in the mix of U.S. and foreign earnings.

         INCOME (LOSS) FROM CONTINUING OPERATIONS. As a result of the factors
discussed above, the Company had income from continuing operations of $6.4
million for 1997 compared to $0.4 million for 1996.

         NET INCOME (LOSS). After the $23.9 million loss on the disposal of the
West Coast Wire Business, the Company experienced a net loss for 1997 of $16.1
million compared to net income of $6.4 million for 1996 after the cumulative
effect of an accounting change which increased 1996 net income by $3.6 million.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

         NET SALES. Net sales for 1996 were $815.9 million compared to $539.7
million in 1995. The majority of this increase reflects the inclusion in 1995 of
only three months of operations of the Georgetown group of companies which were
acquired on October 5, 1995. Sales for the first three quarters of 1996 for the
Georgetown group were $248.7 million. The remainder of the increase results
primarily from the five week shutdown in Kansas City for the Rod Mill
Modernization in 1995 and the related decrease in 1995 wire rod volume.

         COST OF PRODUCTS SOLD AND GROSS MARGIN. Total cost of products sold as
a percent of sales increased to 86.3% in 1996 from 84.7% in 1995 with resulting
gross margins of 13.7% and 15.3%, respectively. The primary reason for the
decreased margins was a decrease in wire rod average 


                                       19
<PAGE>   20
selling prices by $23 per ton. The increase in total cost dollars from $457.3
million in 1995 to $704.0 million in 1996 reflects the additional three quarters
activity for the Georgetown group in 1996.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were up in total dollars from $35.2 million in 1995 to
$46.3 million for 1996 resulting from the full year inclusion of Georgetown
operations. However, as a percentage of net sales, selling, general and
administrative expenses were down from 6.5% in 1995 to 5.7% in 1996. This
decrease reflects the efficiencies resulting from the combination of the
companies which have been realized to date.

         DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to $27.0 million in 1996 compared to $10.5 million for 1995. The
Georgetown acquisition accounts for $12.6 million of this increase, with the
remainder resulting from capital additions and improvements.

         NET INTEREST EXPENSE. Net interest expense increased to $42.4 million
for 1996 from $22.9 million for 1995 resulting from debt incurred to effect the
Georgetown acquisition and borrowings related to the investment in Sidercorp. Of
this total, $1.8 million represents amortization of debt issuance costs.

         OTHER INCOME. Other income, primarily equity income and fees from joint
ventures, increased $3.2 million to $8.1 million for 1996 due, in part, to the
additional 1996 investments in joint ventures.

         INCOME TAXES. Income taxes for 1996 were $3.8 million compared to $7.0
million for 1995. The 1996 effective income tax rate was 88.9% compared to 51.0%
for 1995. The effective income tax rate increased primarily due to limitations
on the Company's ability to currently utilize foreign tax credits, the
nondeductibility of amortization and depreciation expense associated with the
Georgetown acquisition, and changes in the relative mix of U. S. and foreign
earnings.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1997, the Company had total cash and cash equivalents
of $3.4 million, a decrease of $4.3 million from December 31, 1996. Operating
activities provided $16.8 million of cash during 1997 composed primarily of a
net loss of $16.1 million, non-cash depreciation and amortization of $29.6
million, non-cash loss on disposal of discontinued operations of $23.9 million,
changes in deferred taxes using $9.3 million of cash and changes in current
assets and liabilities for the year using cash of $6.7 million. Cash of $6.7
million was used in operations to fund working capital needs. Net cash provided
by investing activities of $21.9 million consisted primarily of $56.0 million in
proceeds from the sale of the West Coast Wire Business, capital improvements of
$25.1 million and investments in joint ventures of $9.0 million. The Company had
net cash used in financing activities of $40.1 million from net repayments of
debt.

         While management believes that funds available from the Company's cash
flow from operations and credit facilities will be sufficient, in the aggregate,
to fund planned working capital and capital expenditure requirements for 1998,
management continues to evaluate alternative sources of funds. There are
fluctuations in the Company's working capital needs over the course of 


                                       20
<PAGE>   21
a year, generally influenced by various factors such as seasonality in some
product lines, inventory levels and the timing of raw material purchases. Due to
the cyclical nature of the Company's business, management believes that it is
important for the Company to maintain borrowing facilities in excess of working
capital requirements.

         Capital expenditures in the Company's business tend to vary from year
to year as the impact of major programs is concentrated in certain periods
followed by periods of maintenance spending. Management believes that this
pattern is typical of the industry. The high quality sector of the steel and
wire products industry is characterized by high levels of capital spending. The
focus of capital spending is growth in production, improvement in product
quality and reduction in product cost.

         The acquisition premium recorded as a result of the Georgetown
acquisition is being amortized over a period of forty years. Management believes
that the use of the forty-year amortization period is appropriate given the
expected longevity of the industry, Georgetown's leading market positions,
Georgetown's utilization of modern manufacturing technology, and the diversity
and lack of expected obsolescence of Georgetown's products.

         The Company's capital expenditures were $25.1 million in 1997. These
expenditures related primarily to the expansion in South America, adding an
additional line to the continuous castor in Georgetown and modernizing the
Duluth facility. The Company is committed to make additional equity investments
in the AIR joint venture of $5.6 million in 1998. See Note 6 to the Consolidated
Financial Statements.

         The Company manages its liquidity needs on a consolidated basis with
borrowings available under the Revolving Credit Facility (as defined below), a
revolving credit facility at MEI and various credit facilities available at its
international subsidiaries and joint ventures. See "Certain Relationships and
Related Transactions -- Description of Indebtedness." Management believes the
additional borrowing availability under the Credit Facilities (as defined below)
and the cash flows from operations will be sufficient to meet anticipated
capital expenditures and to make principal and interest payments on the
Company's indebtedness when due. The Company believes cash flows from operations
will continue to improve due to the ongoing benefits of its business strategy,
including its cost reduction program and capital investment projects.

         Borrowings under the Revolving Credit Facility bear interest at a
floating rate. Increases in prevailing rates could adversely affect the
Company's cash flow. See "Certain Relationships and Related Transactions --
Description of Indebtedness." To the extent that the interest rate on the
Revolving Credit Facility increases or the principal amount outstanding
increases, there will be corresponding increases in the Company's interest
obligations. Under the Revolving Credit Facility, the Company's availability is
$120.0 million (subject to a borrowing base limitation). As of December 31,
1997, the unused availability under the Revolving Credit Facility was $80.5
million, and $17.5 million of letters of credit were outstanding.

ENVIRONMENTAL MATTERS

         The Company has made, and will continue to make, capital expenditures
as necessary to comply with environmental requirements. Because environmental
requirements are subject to change and are becoming increasingly stringent, the
Company's capital expenditures for environmental compliance may increase in the
future. The Company has established reserves for 


                                       21
<PAGE>   22
certain future costs and liabilities associated with environmental matters. As
of December 31, 1997, the Company had recorded a reserve of approximately $2.7
million for environmental matters. The Company believes these reserves are
adequate in light of certain indemnifications described below. See Note 15 to
the Consolidated Financial Statements of the Company for additional information.
There can be no assurance, however, that future environmental costs and
liabilities will not exceed the established reserves. The Company believes,
based upon information currently available to management, that it will not
require expenditures to maintain compliance with environmental requirements
which would have a material adverse effect on its consolidated financial
condition or results of operations.

         As is the case with steel producers in general, if a release of
hazardous substances occurs on or from the Company's properties or any
associated offsite disposal locations, the Company may be held jointly and
severally liable under CERCLA, the Resource Conservation and Recovery Act
("RCRA"), or similar state or provincial requirements. The amount of any such
liability could be material. Although the Company endeavors to carefully manage
its wastes, because liability under CERCLA is strict and retroactive, it is
possible that in the future the Company or its subsidiaries may be identified as
a PRP with respect to various waste disposal sites. There can be no assurance
that future costs or damages associated with identified or unidentified sites
will not have a material adverse effect on the financial condition or results of
operations of the Company.

         The Company has from time to time been, and presently is, the subject
of administrative proceedings, litigation or investigations relating to
environmental matters. The Company's Kansas City mini-mill is subject to a
Consent Order regarding air emissions. The Georgetown mini-mill and DRI plant
are involved in an air emissions permit modification process and ongoing
discussions regarding compliance issues and inspections by the state
environmental agency. The Kansas City mini-mill is involved in a water discharge
permit renewal process with the state environmental agency. The Jacksonville
facility is subject to a Consent Order regarding soil and groundwater cleanup.
The Tempe, Arizona facility is involved in air emissions permit discussions.
Several of the Company's properties are listed in CERCLIS or equivalent
state/provincial lists. The Company through its operating units has been named
as a PRP at several off-site locations where wastes were sent. Through cost
sharing agreements, permits and consent orders the Company is addressing
requirements at these locations. Although the Company does not believe that
current proceedings, litigation or investigations will have a material adverse
effect on its consolidated financial condition or results of operations, there
can be no assurance that future costs or damages relating to such proceedings,
litigation or investigations will not exceed established reserves.

         Subject to certain limitations, the Company is indemnified for certain
environmental matters, including those referred to herein. Armco has indemnified
GST for matters including contamination at the inactive Ishpeming, Michigan
facility, and certain matters at the Kansas City facility and the Duluth
facility. Capitol Castings, Inc. has indemnified MEI for groundwater
contamination at the Tempe, Arizona facility, and Ivaco Inc. has indemnified the
Company for groundwater contamination and some soil contamination at the
Jacksonville facility. Although the Company believes such indemnifications are
adequate to cover these matters, if a matter is not fully covered by these
indemnities, or if the indemnitor fails to provide indemnification, the Company
may be responsible for such matters.


                                       22
<PAGE>   23
YEAR 2000

         The Company is currently in the process of assessing its business and
manufacturing systems for Year 2000 compliance. The Company is also in the
process of contacting its major suppliers of products and services in order to
assess these suppliers' efforts to address the Year 2000 problem.

         While some non-compliant systems are in the process of being replaced,
this effort has been part of capital expenditures under the Company's existing
business plan. Management believes that progress to-date is satisfactory, that
there are no significant Year 2000 problems, and management anticipates that no
material expenditures will be required.

TAX MATTERS

         The Company's Peruvian subsidiaries had received notice from the
Peruvian tax authorities of proposed tax assessments, for the years 1984 through
1990 relating to sales taxes, employer taxes and income taxes. During 1995,
Armco and the Company successfully resolved several of the proposed tax
assessments for a total payment of $140,000 (reimbursed by Armco). During 1996,
the Peruvian government issued a one-time amnesty program in order to allow
Peruvian companies to settle disputed tax claims. Under the tax amnesty program,
the Company settled all outstanding Peruvian tax assessments for a total payment
of $250,000. The Company has obtained a specific indemnity and has received
reimbursement from Armco for the full amount of tax assessments paid, without
regard to any deductible.

         Prior to 1997, the Company recorded deferred tax liabilities for U. S.
income tax and foreign withholding tax on the entire amount of unremitted
earnings of its foreign subsidiaries and joint ventures. Historically, foreign
country capital improvement projects and expansion plans have kept the foreign
subsidiaries and joint ventures from repatriating all of their unremitted
earnings. Projections for future years indicate this trend will continue.
Therefore, beginning in 1997, the deferred tax liabilities have been adjusted so
that U.S. income taxes and foreign withholding taxes are not provided on the
portion of foreign unremitted earnings that is expected to be invested abroad
indefinitely. The Company continues to provide taxes on the portion of the
foreign unremitted earnings that is expected to be repatriated. The Company
would be required to record additional tax if it received foreign dividends or
liquidation proceeds in excess of the amounts expected to be repatriated.

         The Company's federal income tax returns have included deductions for
certain net operating losses ("NOLs"), which deductions reduced its tax
liabilities in 1995 and prior years. The Company has recorded deferred tax
benefits for tax net operating losses generated in 1996 and 1997 which will be
used to offset future taxable income. The Company's tax returns are currently
under audit by the Internal Revenue Service ("IRS"). It is impossible to predict
with certainty the outcome of any potential IRS examinations, and thus no
assurance can be given that tax adjustments will not exceed reserves established
by the Company.


                                       23
<PAGE>   24
OTHER MATTERS

         In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which was effective for the
Company in 1996. This statement encourages, but does not require, companies to
adopt a method of accounting for stock compensation awards based on the
estimated fair value at the date the awards are granted. The Company has elected
to continue to follow existing standards and has disclosed in the Notes to the
consolidated financial statements the proforma effect on net income had expense
been recognized for options based on the new statement. See Note 13 to the
Consolidated Financial Statements for further discussion.

ITEM 8:           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Index to Consolidated Financial Statements which appears on page 50
herein.

ITEM 9:           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 
AND FINANCIAL DISCLOSURE

         None








                                       24
<PAGE>   25
                                    PART III

ITEM 10:          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Directors of GST and GSTOC are elected at their respective annual
meetings of stockholders to serve during the ensuing year or until a successor
is duly elected and qualified. Executive officers of GST and GSTOC are elected
annually by the Board of Directors of GST and GSTOC, respectively, to serve
during the ensuing year or until a successor is duly elected and qualified.
GST's and GSTOC's Boards of Directors currently consist of four members each. In
connection with the Georgetown acquisition, GSI, GECC, Leggett & Platt, the Bain
Funds ( as defined under Note (1) under "Security Ownership of Certain
Beneficial Owners and Management"), Mr. O'Malley, the Government of Kuwait (the
"GOK") and certain other stockholders of GSI (the "Stockholder Parties") entered
into the Second Amended and Restated Stockholders Agreement (the "Stockholders
Agreement") dated October 5, 1995. Under the Stockholders Agreement, the
Stockholder Parties agreed to vote all of their shares of Common Stock and to
take all other necessary actions (i) to allow the GOK to select two
representatives to the Board of Directors of GSI, so long as certain securities
issued in connection with the Georgetown acquisition are outstanding, and (ii)
to allow the holders of a majority of the shares held by the Bain Funds to
select the remaining representatives to the Board, so long as the Bain Funds and
certain other persons own at least 60% of the Common Stock which it purchased
pursuant to the Stock Purchase Agreement dated October 5, 1995. The following
table sets forth certain information with respect to the directors and executive
officers of GST and GSTOC.

<TABLE>
<CAPTION>
Name                       Age      Position
----                       ---      --------
<S>                        <C>      <C>
Roger R. Regelbrugge       67       Chairman and Director

Mark G. Essig              40       President, Chief Executive Officer and
                                    Director

Luis E. Leon               45       Senior Vice President - Finance and Administration,
                                    Chief Financial Officer, Treasurer and
                                    Assistant Secretary

Donald B. Daily            51       Senior Vice President - Steel Operations

David M. Yarborough        47       Senior Vice President - Mining Products

Walter Robertson, III      52       Senior Vice President - Commercial
</TABLE>


                                       25
<PAGE>   26
<TABLE>
<CAPTION>
Name                       Age      Position
----                       ---      --------
<S>                        <C>      <C>
David O. Shelley           48       Vice President and Controller

Benjamin C. Huselton       53       Vice President-Administration

George A. Goller           53       Vice President - Technology and Product
                                    Development

Paul B. Edgerley           42       Director

John J. O'Malley           50       Director
</TABLE>

ROGER R. REGELBRUGGE has been a Director and the Chairman of GST and GSTOC since
the Georgetown acquisition. From the Georgetown acquisition until the
appointment of Mr. Essig in January 1998, he also served as Chief Executive
Officer. Previously he served as Chairman and Chief Executive Officer of
Georgetown Industries, having joined Georgetown in 1974. He served as President
and Chief Executive Officer of Georgetown since 1977 and as a director of
Georgetown since 1975. Mr. Regelbrugge is a director and member of the Policy
and Planning Committee of the AISI, a director of the Steel Manufacturers
Association, a member of the Advisory Board of the Fuqua School of Management at
Duke University and a member of the Board of Trustees of Belmont Abbey College.

MARK G. ESSIG was appointed President and Chief Executive Officer of GSI
effective January, 1998. He succeeds Mr. Regelbrugge as CEO. Prior to joining
GSI, Mr. Essig served in various capacities at AK Steel Corporation,
headquartered in Middletown, Ohio, and prior to that at Washington Steel
Corporation. Most recently, Mr. Essig was Executive Vice President, having
joined that Company in 1992 as Employee Relations and Assistant to the Chief
Executive Officer of AK Steel. He became Vice President of Sales and Marketing
of that company in 1993 and advanced to the position of Executive Vice President
in 1994. Prior to joining AK Steel he served as Vice President of Finance and
Administration and later as Vice President and Chief Financial Officer for
Washington Steel Corporation in Washington, Pennsylvania.

LUIS E. LEON has been Senior Vice President - Finance and Administration, Chief
Financial Officer and Treasurer of GST and GSTOC since February 1997. Mr. Leon
joined the Company in November 1994 as Vice President, Chief Financial Officer
and Treasurer. In October 1995, he was appointed Senior Vice President. From May
1991 to October 1994, Mr. Leon was Vice President, Chief Financial Officer and
Treasurer for Wyman-Gordon Company. From 1986 through May 1991, Mr. Leon served
as Corporate Treasurer for Milton Roy Company. Prior to joining Milton Roy
Company, Mr. Leon held various treasury and financial management positions with
Kerr-McGee Corporation, American Express Company, Money Order Division and
numerous banking positions with United Bank of Denver (now known as Norwest
Bank).

DONALD B. DAILY has been Senior Vice President - Steel Operations since February
1997. Mr. Daily has been President and Chief Executive Officer of Georgetown
Steel Corporation since 1993, and President and Chief Executive Officer of GST
Steel since September 1996. Mr. Daily joined Georgetown Steel as Vice President
of Operations in 1984 and was named Executive Vice President and General Manager
in 1988.


                                       26
<PAGE>   27
DAVID M. YARBOROUGH has been Senior Vice President-Mining Products since
February 1997. From October 1995 to February 1997, he served as Vice President -
Corporate Development of GST and GSTOC. From August 1993 until October 1995, Mr.
Yarborough provided project development services to Georgetown pursuant to an
agreement between Georgetown and GeoCapital Corporation of which he was
President. Prior to founding GeoCapital in 1992, Mr. Yarborough held various
management positions in steel and industrial equipment concerns.

WALTER ROBERTSON, III has been Senior Vice President-Commercial since February
1997. Until then he served as Vice President - Commercial of GST and GSTOC
beginning when he joined the Company in March 1996. Prior to joining the
Company, Mr. Robertson was President of American Steel and Wire, a subsidiary of
Birmingham Steel Corporation.

DAVID O. SHELLEY has been Vice President and Controller of GST and GSTOC since
November 1995 and Controller of GST and GSTOC since the Georgetown acquisition.
Mr. Shelley served as Controller of Georgetown from 1985 until the Georgetown
acquisition. Mr. Shelley joined Georgetown in 1974 and held various financial
positions prior to being named Controller. From 1970 to 1974, he served in
various financial positions at Georgetown Steel Corporation.

BENJAMIN C. HUSELTON has been Vice President-Administration of GST and GSTOC
since March 1997. Prior to that he had served as Vice President-Communications
and Vice President of GST and GSTOC since the Georgetown acquisition. From
November 1993 to the Georgetown acquisition, he was Vice President of Human
Resources and Business Systems and Assistant Secretary of GST and GSTOC. From
1991 to November 1993, Mr. Huselton was Vice President of Human Resources and
Administration for AWGS. From 1970 to 1991, Mr. Huselton served as a manager of
industrial relations and human resources in several Armco divisions, including
the Baltimore Works of Armco's Specialty Steel Division.

GEORGE A. GOLLER has been Vice President - Technology and Product Development of
GST and GSTOC since November 1995 and a Vice President of GST and GSTOC since
November 1993. From December 1990 to November 1993, Mr. Goller was Director of
Business Development for AWGS. From 1964 to 1992, Mr. Goller served in various
capacities with AWGS, including Metallurgy Coordinator at the Kansas City
mini-mill, Commercial Manager and Senior Product Engineer at the Ishpeming,
Michigan facility, and Director of the High Chrome Cast technical development
group.

PAUL B. EDGERLEY has been a Director of GST since July 1993 and served as Vice
President and Director from November 1993 until February 1997. Mr. Edgerley has
been a managing director of Bain since May 1993 and has been a general partner
of Bain Venture Capital since 1990. Mr. Edgerley was a principal of Bain Capital
Partners from 1988 through 1990. Mr. Edgerley is also a director of AMF Group,
Inc. and Steel Dynamics, Inc.

JOHN J. O'MALLEY has been a Director of GST and GSTOC since November 1993. Mr.
O'Malley has been an Executive Vice President of Bain since 1993. From 1991 to
1993, Mr. O'Malley was President and Chief Executive Officer of Robertson Ceco,
an international construction products and engineering company. From 1986 to
1991, he was Executive Vice President of HMK Group Inc., a diversified
manufacturing and services company. Mr. O'Malley is also a director of
Physio-Control International Corporation and Wesley Jessen Vision Care, Inc.


                                       27
<PAGE>   28
ITEM 11:          EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

         Set forth below is information for the fiscal years ended December 31,
1995, 1996 and 1997 with respect to compensation for services to the Company of
the following individuals: (1) the Chief Executive Officer of GST and GSTOC
during 1997, (2) the Chief Executive Officer of GST and GSTOC effective January
1, 1998, and (3) the four most highly compensated executive officers of GST and
GSTOC (other than the Chief Executive Officers) during 1997.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                       ANNUAL COMPENSATION
                                           ---------------------------------------------
                                                                                          LONG-TERM
                                                                      OTHER ANNUAL        COMPENSATION   ALL OTHER
NAME AND PRINCIPAL POSITION     YEAR       SALARY($)      BONUS($)    COMPENSATION($)(1)  OPTIONS(#)(2)  COMPENSATION($)(3)
---------------------------------------------------------------------------------------------------------------------------
<S>                             <C>        <C>            <C>         <C>                 <C>            <C>
Roger R. Regelbrugge            1997       $650,000       $694,950         $  9,754           25,000         $ 34,397
  Chairman and Director         1996       $612,500       $339,938         $  8,958               --         $ 34,397
                                1995       $143,548(4)    $113,372(4)      $  2,144          325,000         $ 58,313

Mark G. Essig                   1997(5)                                                      450,000
  President and Chief           1996
  Executive Officer             1995

Luis E. Leon                    1997       $245,000       $174,628         $ 12,329           20,000         $ 11,498
  Senior Vice President -       1996       $220,000       $ 81,400         $ 49,420               --         $ 57,019
  Finance and Administration,   1995       $195,000       $ 46,400         $  7,885               --         $  8,098
  Chief Financial Officer

Donald B. Daily                 1997       $275,000       $158,058         $ 19,105           20,000         $ 24,712
  Senior Vice President -       1996       $231,250       $ 69,998         $  5,981               --         $ 36,922
  Steel Operations              1995       $200,000       $302,899         $  6,348          120,000         $ 10,563

David M. Yarborough             1997       $227,500       $196,616         $ 56,155           20,000         $  3,238
  Senior Vice President-        1996       $190,000       $ 52,725         $  5,267               --         $  2,680
  Mining Products               1995(6)    $ 45,552       $ 18,995               --          100,000         $ 16,066

Walter Robertson, III           1997       $215,000       $ 92,668         $  8,657           20,000         $  3,052
  Senior Vice President-        1996(7)    $149,808       $ 90,000         $ 38,108           90,000         $ 87,326
  Commercial                    1995             --             --               --               --               --
</TABLE>

--------------------
(1)  Other annual compensation reflects certain incidental perquisites and
     benefits.

(2)  For additional information concerning the grant of options in 1997, see "--
     Stock Options" below.

(3)  Other compensation paid to Mr. Regelbrugge consists of $50,000 in 1995 paid
     in connection with his initial employment with the Company and certain life
     insurance premiums paid by the Company on Mr. Regelbrugge's behalf in the
     amount of $30,825 in 1997 and 1996 and a pro-rated amount of $8,313 for
     1995. See "--Mr. Regelbrugge's Employment Arrangements." The amounts shown
     for 1996 for Messrs. Leon, Daily and Robertson include reimbursement of
     certain relocation expenses of $49,519, $22,917 and $35,316, respectively.
     Mr. Daily's amount includes payment in lieu of vacation of $21,140 in 1997,
     $10,570 in 1996 and $7,687 in 1995. Mr. Robertson's amount also includes
     $50,000 in connection with his initial employment in 1996. Mr. Leon
     participates in a 401(k) plan with a Company match. The amounts related to
     this plan for 1997 and 1996 were $4,800 and $4,500, respectively. Mr. Leon
     also participates in a profit sharing plan and contributions on his behalf
     in 1997 and 1996 were $3,200 and $3,000, respectively.

(4)  Represents prorated amount for the portion of 1995 that follows the
     Georgetown acquisition, during which period Mr. Regelbrugge was Chairman
     and Chief Executive Officer of GST and GSTOC.

(5)  Mr. Essig joined the Company in January 1998.


                                       28
<PAGE>   29
(6)      Mr. Yarborough joined the Company in October 1995.

(7)      Mr. Robertson joined the Company in March 1996.

STOCK OPTIONS OF GSI

         The following table sets forth information regarding stock options in
the Common Stock granted during the Company's fiscal year ended December 31,
1997.

                              OPTION GRANTS IN 1997

<TABLE>
<CAPTION>
                                                                                            POTENTIAL REALIZABLE
                                                                                            VALUE AT ASSUMED
                                               INDIVIDUAL GRANTS                            ANNUAL RATES
                           --------------------------------------------------------         OF STOCK PRICE
                             NUMBER OF   PERCENT OF TOTAL                                   APPRECIATION FOR
                            SECURITIES   OPTIONS GRANTED   EXERCISE OR                      OPTION TERM (2)
                            UNDERLYING   TO EMPLOYEES IN    BASE PRICE   EXPIRATION         ---------------
       NAME                OPTIONS(#)(1)  FISCAL YEAR(%)   ($PER SHARE)      DATE         5%($)           10%($)
-----------------------------------------------------------------------------------    --------------------------
<S>                        <C>           <C>               <C>           <C>           <C>             <C>
Roger R. Regelbrugge(3)        25,000          2.71%          $7.00        09/01/07    $  260,623      $  414,999
Mark G. Essig(4)              450,000         48.81%          $7.00        12/31/07    $4,691,217      $7,469,978
Luis E. Leon                   20,000          2.17%          $7.00        09/01/07    $  208,499      $  331,999
Donald B. Daily                20,000          2.17%          $7.00        09/01/07    $  208,499      $  331,999
David M. Yarborough            20,000          2.17%          $7.00        09/01/07    $  208,499      $  331,999
Walter Robertson, III          20,000          2.17%          $7.00        09/01/07    $  208,499      $  331,999
</TABLE>

--------------------
(1)  Such options were granted on August 31, 1997 pursuant to a stock option
     agreement between GSI and the above named executives. The options vest and
     become exercisable at 5% per quarter beginning on September 30, 1997.

(2)  Represents the value of the options granted at the end of the option term
     if the market price of shares of Common Stock on the date of grant were to
     appreciate annually by 5% and 10%, respectively, based on the assumed fair
     market value of $6.40 per share as of the grant date.

(3)  Mr. Regelbrugge's 1997 options vest at the rate of 3.575% per month
     beginning on September 30, 1997.

(4)  Mr. Essig's options were granted on December 11, 1997 and vest and become
     excercisable at 5% per quarter beginning on March 31, 1998.

         The following table sets forth information concerning outstanding
options in the Common Stock held by Mr. Regelbrugge and the other named
executives during the Company's fiscal year ended December 31, 1997. No
executive officer exercised options during 1997.




                                       29
<PAGE>   30
        AGGREGATED OPTION EXERCISABLE IN 1997 AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                        NUMBER OF SECURITIES UNDERLYING    VALUE OF UNEXERCISED
                        UNEXERCISED OPTIONS AT             IN-THE-MONEY OPTIONS AT
                        DECEMBER 31, 1997(#)               DECEMBER 31, 1997 ($)(1)
                        ---------------------              ------------------------
        NAME            EXERCISABLE     UNEXERCISABLE      EXERCISABLE  UNEXERCISABLE
        ----            -----------     -------------      -----------  -------------
<S>                     <C>             <C>                <C>          <C>
Roger R. Regelbrugge      328,571           21,429              --            --
Mark G. Essig                  --          450,000              --            --
Luis E. Leon               92,000          108,000              --            --
Donald B. Daily            50,000           90,000              --            --
David Yarborough           42,000           78,000              --            --
Walt Robertson             20,000           90,000              --            --
</TABLE>

(1)      Year end value is based on an assumed fair market value of $6.40 per
         share, less the applicable aggregate option exercise price(s) of
         in-the-money options, multiplied by the number of unexercised
         in-the-money options which are exercisable and unexercisable,
         respectively.

MR. REGELBRUGGE'S EMPLOYMENT ARRANGEMENTS

         Mr. Regelbrugge and GSI are parties to an employment agreement (the
"Regelbrugge Agreement"), dated October 5, 1995 and amended on April 28, 1997,
pursuant to which Mr. Regelbrugge served as the Chairman and Chief Executive
Officer of GSI, GST and GSTOC until December 31, 1997. Subsequent to December
31, 1997, Mr. Regelbrugge will serve as Chairman through March 31, 1999. Mr.
Regelbrugge has also agreed to serve as a Director of GSI through December 31,
1999, or such alternate date as may be determined by the shareholders of GSI;
provided, however, that Mr. Regelbrugge will have no further obligation to serve
as a Director of GSI if a new chairman is designated prior to April 1, 1999.
Under the Regelbrugge Agreement currently in effect, Mr. Regelbrugge is entitled
to receive (i) a base salary at the annual rate of $650,000 through December 31,
1998, (ii) a base salary at the annual rate of $260,000 from January 1, 1999,
through March 31, 1999, (iii) a base salary at the annual rate of no less the
$200,000 from April 1, l999 through December 31, 1999, and (iv) an annual
incentive bonus based on the Company achieving certain performance targets.
Until March 31, 1999 Mr. Regelbrugge will not be required to devote more than
40% of his time and energy to the furtherance of the business of GSI, GST, GSTOC
and Georgetown. Commencing April 1, 1999 and continuing through December 31,
1999, Mr. Regelbrugge will not be required to devote more than ten days each
calendar quarter to the furtherance of the business of GSI, GST, GSTOC and
Georgetown. Beginning on January 1, 1998, Mr. Regelbrugge is entitled to advise
or work for another individual, firm or corporation provided that it does not
unreasonably interfere with his duties under the Regelbrugge Agreement and that
such other individual, firm or corporation is not directly in competition with
GSI and its subsidiaries within a specified territory. The Regelbrugge Agreement
also entitles Mr. Regelbrugge to certain privileges and benefits, including
participation in the Company's management employee benefit plans in effect from
time to time and in a supplemental executive retirement plan established and
maintained by GSI (the "GSI SERP"). The GSI SERP will provide Mr. Regelbrugge
with retirement benefits as described under Pension and Retirement Plans.


                                       30
<PAGE>   31
         Mr. Regelbrugge also has entered into a Stock Option Agreement dated
October 5, 1995 and amended on July 31, 1997 (the "1995 Stock Option Agreement")
and a Stock Option Agreement dated September 1, 1997 (the "1997 Stock Option
Agreement") with GSI. Pursuant to both the 1997 Stock Option Agreement and the
1995 Stock Option Agreement, he received options to purchase Common Stock. The
options granted under the 1995 Stock Option Agreement are non-qualified and
fully vested and exercisable. The options granted under the 1997 Stock Option
Agreement are non-qualified and become exercisable at the rate of 3.57143% on
the last day of each month beginning September 30, 1997, if Mr. Regelbrugge is
employed by the Company on such date, subject to the options becoming
exercisable at an earlier date upon the occurrence of certain change of control
transactions. Both the 1995 Stock Option Agreement and the 1997 Stock Option
Agreement provide for certain transfer restrictions with respect to the Option
Stock.

MR. ESSIG'S EMPLOYMENT ARRANGEMENTS

         Mr. Essig and GSI entered into an Employment Agreement (the "Essig
Agreement") which became effective on January 1, 1998 pursuant to which Mr.
Essig will serve as President and Chief Executive Officer of GSI, GST and GSTOC
until the Essig Agreement is terminated by either Mr. Essig or GSI by giving
sixty days prior written notice of termination or until Mr. Essig's death or his
involuntary termination of employment with or without good reason (as defined).
Under the Essig Agreement, Mr. Essig is entitled to receive (i) an annual base
salary at the rate of $550,000, (ii) a signing bonus of $1,000,000 payable in
three equal annual installments provided, however, that the second and third
installments will be due only if Mr. Essig's employment has not been terminated
for cause by GSI or terminated without good reason by Mr. Essig, (iii) an
additional signing bonus of $350,000 payable in 1998, subject to certain
conditions, and (iv) an annual incentive bonus based on the Company achieving
certain performance targets, with a minimum bonus for 1998 of $450,000. The
Essig Agreement prohibits Mr. Essig from engaging in certain competitive
activities generally and from using or disclosing certain "confidential" or
"proprietary" information during his term of employment and for a period of two
years after the termination of his employment. Additionally, the Essig Agreement
entitles Mr. Essig to reimbursement of expenses of relocation and certain other
perquisites and benefits, including participation in all the Company's benefit
plans applicable to the Company's executive officers generally and the GSI SERP.
The GSI SERP will provide Mr. Essig with retirement benefits as described under
Pension and Retirement Plans.

         In the event of Mr. Essig's termination of employment by GSI without
"cause" or by Mr. Essig with "good reason", Mr. Essig is, in general, entitled
to (a) a lump sum payment equal to twice the amount of his annual base salary
then in effect, (b) an annual incentive bonus for the calendar year of the
termination and for the ensuing calendar year payable when bonuses are paid to
other employees under the annual incentive bonus plan, (c) continued vesting
under the Essig Stock Option Agreement and under the GSI SERP for a period of
two years, and (d) continuation of certain benefits and other contract rights;
provided, however, if GSI gives Mr. Essig written notice on or before July 1,
200l, Mr. Essig's payments and other termination benefits will be modified in
certain respects based upon his length of service at termination and the time
periods of the competitive restrictions and prohibition against disclosure of
"confidential" or "Proprietary" information placed upon Mr. Essig following the
termination of his employment will be decreased from two years to one year. Mr.
Essig is also party to an Indemnification Agreement that is similar in content
and scope to that entered into by the other directors and officers of GSI.


                                       31
<PAGE>   32
         Mr. Essig has also entered into a stock option agreement (the "Essig
Stock Option Agreement") with GSI pursuant to which he received options to
purchase up to 450,000 shares of common stock at an exercise price of $7.00 per
share. The options are non-qualified and become vested and exercisable at the
rate of 5% on the last day of each calendar quarter, beginning with the quarter
ending March 31, 1998, if Mr. Essig is employed by the Company of such date,
subject to the options becoming exercisable at an earlier date upon the
occurrence of certain change of control transactions. Mr. Essig's options will
expire on the earlier of December 31, 2007 or the date of the termination of Mr.
Essig's employment with the Company for any reason other than death or
disability (as defined); provided, however, that Mr. Essig will have until the
tenth anniversary of the date of the Essig Stock Option Agreement to exercise
the options with respect to vested options.

         Mr. Essig is also party to an agreement which provides certain
protections in the event of severance upon a Change of Control of GSI (the
"Essig Change of Control Agreement"). The Essig Change of Control Agreement is
in lieu of any other severance agreement and provides for cash compensation and
continuance of fringe benefits for a period of two years in the event that in
anticipation of, or within two years following a Change of Control his
employment is terminated either by (x) the Company for any reason other than
"cause" (as defined in the Essig Change of Control Agreement), death or
disability, or (y) by Mr. Essig for good reason. If Mr. Essig should become
entitled to receive benefits thereunder, he will receive (i) a lump sum payment
equal to two times his annual base salary and, (ii) a lump sum payment
equivalent to an incentive bonus for two years following termination.

OTHER MANAGEMENT AGREEMENTS

         Mr. Leon has entered into a management agreement with the Company (the
"Management Agreement") pursuant to which Mr. Leon acquired shares of GSI Common
Stock and options to purchase Common Stock. The terms of of the Management
Agreement provides that (i) the Common Stock held by Mr. Leon is subject to
purchase by GSI and the Bain Funds, at their option, in the event the executive
is no longer employed by the Company as of a stated date, (ii) if Mr. Leon's
employment with the Company is terminated, the purchase price to GSI and the
Bain Funds for Mr. Leon's shares of Common Stock is either the original value or
the fair market value thereof, depending on whether the termination was for
"cause" or voluntary termination other than for "good reasons," and (iii) the
purchase option held by GSI and the Bain Funds terminates upon the first to
occur of (A) a sale of GSI, or (B) GSI becoming a reporting company under the
Securities Exchange Act of 1934 as a result of the registration of its common
equity securities thereunder and the Bain Funds and their affiliates
collectively ceasing to own at least 50% of the aggregate number of shares of
Common Stock held by the Bain Funds as of August 17, 1995. In addition, the
Management Agreement also provides for certain transfer restrictions with
respect to the Common Stock and options to purchase Common Stock granted to Mr.
Leon thereunder. The terms of the Management Agreement provides for certain
restrictions on Mr. Leon's ability to compete with the Company following his
termination of employment with the Company. The Management Agreement also
provides that Mr. Leon is entitled to receive a payment equal to two years' base
salary upon his termination of employment under certain circumstances prior to
GSI's completing a sale of its equity securities pursuant to a registration
statement filed under the Securities Act of 1933, and there are certain
variations in Mr. Leon's option terms. For additional information, see "-- Stock
Options", "Security Ownership of Certain Beneficial Owners and Management" and
"Certain Relationships and Related Transactions -- Certain Transactions."


                                       32
<PAGE>   33
         Messrs. Robertson and Yarborough have entered into separate stock
option agreements with the Company on terms that are generally similar to Mr.
Regelbrugge's Stock Option Agreement described above. Mr. Yarborough's stock
option agreement was entered into as of October 5, 1995, and Mr. Robertson's
stock option agreement was entered into as of February 28, 1996. Each of these
stock option agreements provide that (i) the options granted pursuant thereto
vest at a rate of 20% each year for the five years following the date of the
respective stock option agreement, and (ii) the purchase option held by GSI and
Bain does not terminate if the executive remains employed with the Company as of
a certain date, but instead terminates only upon the first to occur of (A) a
sale of GSI, or (B) GSI becoming a reporting company under the Securities
Exchange Act of 1934 as a result of the registration of its common equity
securities thereunder and the Bain Funds and their affiliates collectively
ceasing to own at least 50% of the aggregate number of shares of Common Stock
held by the Bain Funds as of the date of the stock option agreement.

         In accordance with the employment agreement with Mr. Robertson, in the
event Mr. Robertson is terminated during the four years following his employment
date (February 28, 1996) for any reason other than for cause, Mr. Robertson's
salary and benefits will be continued for two years. Such termination
compensation will be reduced from two years to one year after the completion of
four years of service, with the reduction occurring month by month during the
fifth year of employment.

         In accordance with the employment agreement with Mr. Yarborough, in the
event Mr. Yarborough's employment is terminated for any reason other than for
cause, Mr. Yarborough's salary and benefits will be continued for one year.

         Messrs. Leon, Daily, Yarborough, Robertson and other key executives are
also parties to agreements which provide certain protections upon a change of
control (the "Change of Control Agreements"). Such Change of Control Agreements
are in lieu of other severance agreements and provide for cash compensation and
continuation of fringe benefits for a period of two years following a Qualified
Termination, as defined in such agreements.

STOCK OPTIONS

         The 1997 stock options were issued in accordance with the GS
Industries, Inc. 1997 Stock Option Plan (the "Stock Option Plan") pursuant to
which certain executives received options to purchase common stock of GSI.

         Pursuant to the terms of the Stock Option Plan, the options are
non-qualified and become exercisable at the rate of 5% on the last day of each
quarter beginning September 30, 1997 if the executive is employed by the Company
on such date, subject to the options becoming exercisable at an earlier date
upon the occurrence of certain change of control transactions. The Stock Option
Plan further provides that (i) the shares of Common Stock issuable pursuant to
the options or issued pursuant thereto (the "Option Stock") are subject to
purchase first, by GSI at its option, and if GSI does not exercise such option
to purchase, then second, by the Bain Funds, at their option, in each case in
the event the executive is no longer employed by the Company. The purchase price
to GSI or the Bain Funds for the executive's Option Stock is either the original
value or the fair market value thereof, depending on whether the termination was
for "cause" or voluntary termination other than for "good reason", and (ii) the
respective purchase options held by GSI and the Bain Funds terminate upon the
first to occur of (A) a sale of GSI, or (B) GSI becoming a 


                                       33
<PAGE>   34
reporting company under the Securities Exchange Act of 1934 as a result of the
registration of its common equity securities thereunder and the Bain Funds and
their affiliates collectively ceasing to own at least 50% of the aggregate
number of shares of Common Stock held by the Bain Funds as of the date of the
Stock Option Agreement. The Stock Option Agreement also provides for certain
transfer restrictions with respect to the Option Stock.

PENSION AND RETIREMENT PLANS

         Messrs. Regelbrugge, Robertson, Daily, Yarborough and Essig are
participants in the GSI Employees Pension Plan (the "GSI Pension Plan") and
Messrs. Regelbrugge, Essig and Daily also are participants in the GSI SERP.

         The annual benefit under the GSI Pension Plan at normal retirement age
(age 65) generally is equal to the sum of (1) one percent of the average of the
five consecutive calendar years of Compensation (as defined below) that produce
the highest average (the "Average Compensation") for each year of benefit
service and (2) six-tenths of one percent of the Average Compensation in excess
of the covered compensation (which is the average Social Security wage base) for
each year of benefit service up to 35 years. For purposes of the GSI Pension
Plan, "Compensation" consists of all remuneration paid to the employee for
services rendered as reported or reportable on Form W-2 as "wages, tips or other
compensation" plus elective or salary reduction contributions to a cash or
deferred arrangement, cafeteria plan or tax-sheltered annuity, but excluding
reimbursements or other expense allowances, fringe benefits (cash and non-cash),
moving allowances and expenses, amounts designated by GSI as retirement-oriented
non-qualified deferred compensation and welfare benefits. Compensation under the
GSI Pension Plan may not, however, exceed the annual compensation limit imposed
by the Internal Revenue Code (the "Code"), which was $160,000 for 1997. Benefits
under the GSI Pension Plan currently are not offset by Social Security payments
or any other amounts. The maximum annual benefit limit payable under the GSI
Pension Plan for 1997 was $125,000.

         The annual benefit under the GSI SERP at normal retirement age (age 65)
is equal to the sum of: (1) 2.5 percent of the Average Compensation for each
year of benefit service up to 20, less (2) 2.5 percent of the annual primary
Social Security benefit for each year of benefit service up to 20, less (3) the
annual benefit payable under the GSI Pension Plan. The benefit payable under the
GSI SERP to Messrs. Regelbrugge and Daily will be further reduced by the annual
benefit value of the lump sum payment received by Messrs. Regelbrugge and Daily
from the GSI SERP on October 5, 1995. As of December 31, 1997, Mr. Regelbrugge
has 23 years of credited service under the GSI Pension Plan and 24 years of
service under the GSI SERP. Mr. Daily has 13 years of credited service under the
GSI Pension Plan and 24 years of service under the GSI SERP. The GSI SERP is an
unfunded obligation of GSI.

         Mr. Regelbrugge's retirement benefit under the GSI Pension Plan and the
GSI SERP will be the greater of (i) the amount determined by the continued
accrual of benefits under the above plans, or (ii) the actuarial adjusted
benefit that Mr. Regelbrugge would have received at age 65 adjusted for late
retirement. Mr. Regelbrugge's combined net annual benefit payable under these
plans at December 31, 1997 would be $222,000. In addition, Mr. Regelbrugge has
the option to receive the GSI SERP benefit in a lump sum amount upon his
retirement.


                                       34
<PAGE>   35
         Mr. Robertson and Mr. Yarborough participate in the GSI Pension Plan.
At December 31, 1997, Mr. Robertson and Mr. Yarborough had two years of credited
service.

         The following table shows the projected annual benefits payable for a
single life annuity as of December 31, 1997 upon retirement at age 65 based on
different levels of compensation and years of credited service under the GSI
Pension Plan.

<TABLE>
<CAPTION>
                                          GSI PENSION PLAN TABLE*
                                             YEARS OF SERVICE
                --------------------------------------------------------------------------
COMPENSATION        15              20              25              30              35
------------    ----------      ----------      ----------      ----------      ----------
<C>             <C>             <C>             <C>             <C>             <C>       
 $  125,000     $   24,300      $   36,400      $   45,500      $   54,600      $   63,700
    150,000         33,300          44,400          55,500          66,800          77,700
    175,000         35,700          47,600          59,500          71,400          83,300
    200,000         35,700          47,600          59,500          71,400          83,300
    300,000         35,700          47,600          59,500          71,400          83,300
    500,000         35,700          47,600          59,500          71,400          83,300
    750,000         35,700          47,600          59,500          71,400          83,300
    900,000         35,700          47,600          59,500          71,400          83,300
  1,000,000         35,700          47,600          59,500          71,400          83,300
</TABLE>

--------------------
*Figures in table do not reflect amounts payable under the GSI SERP.

         If employment were continued until normal retirement age of 65 at their
1997 rates of pay, Messrs. Robertson and Yarborough would receive yearly
pensions of $44,400 and $33,800, respectively, under the GSI Pension Plan and
Mr. Daily would receive a combined yearly benefit of $153,400 under the GSI
Pension Plan and the GSI SERP.

         Mr. Leon participates in the GST non-qualified Supplement Retirement
Plan (the "GST SERP") which provides a retirement benefit equal to 25% of the
participant's average annual compensation (last five years average base
compensation, including bonuses) less any amounts payable under any other
retirement plan maintained by GST. The GST SERP is an unfunded obligation of
GST. Participants under the GST SERP receive full benefits after attaining age
62 and the completion of five years of service. Participants who have completed
five years of service but have not attained age 62 may elect early retirement
starting at age 55. The amount of such early retirement benefit shall be 25% of
the participant's average annual compensation multiplied by the ratio of the
participant's years of service (and any fractions thereof) at his or her early
retirement date over the lessor of the participants years of service at age 62
or 15 years of service. If benefit payments commence prior to age 62, the amount
payable shall be the actuarial equivalent of the benefit that would be payable
at age 62.

         The following table shows the projected annual benefits payable for a
single life annuity as of December 31, 1997 upon retirement at the normal
retirement age of 62 based on different levels of average annual compensation
and benefit service for the GST SERP. As of December 31, 1997, Mr. Leon had 3
years of credited service under the GST SERP.


                                       35
<PAGE>   36
<TABLE>
<CAPTION>
                              GST COMBINED PENSION AND SERP TABLE
                                        YEARS OF SERVICE
                ----------------------------------------------------------------
COMPENSATION        5            10            15            20            25
------------    --------      --------      --------      --------      --------
<S>             <C>           <C>           <C>           <C>           <C>     
 $  125,000     $ 31,250      $ 31,250      $ 31,250      $ 31,250      $ 31,250
    150,000       37,500        37,500        37,500        37,500        37,500
    175,000       43,750        43,750        43,750        43,750        43,750
    200,000       50,000        50,000        50,000        50,000        50,000
    225,000       56,250        56,250        56,250        56,250        56,250
    250,000       62,500        62,500        62,500        62,500        62,500
    275,000       68,750        68,750        68,750        68,750        68,750
    300,000       75,000        75,000        75,000        75,000        75,000
    400,000      100,000       100,000       100,000       100,000       100,000
    500,000      125,000       125,000       125,000       125,000       125,000
</TABLE>

         If employment were continued until normal retirement age of 62 at his
1997 rate of compensation, Mr. Leon would receive a yearly pension of $81,600
under the GST SERP.

         Mr. Leon also participates in the GS Technologies Retirement and
Savings Plan. This plan has two components, a defined contribution profit
sharing component under Section 401(a) of the Code and a cash or deferred
arrangement that qualifies under Section 401(k) of the Code. Annual
contributions for profit sharing are made at the rate of 2% of a participants'
compensation. Compensation for the profit sharing component of this plan is
limited to a maximum compensation level in 1997 of $160,000. The Company's
contribution in 1997 for Mr. Leon under this plan was $3,200. The Section 401(k)
portion of the plan allows for a tax-deferred contribution by the executive up
to the maximum allowed by the Code ($9,500 in 1997). The executive may also make
after-tax voluntary contributions. The Company will make a matching contribution
in an amount equal to fifty percent of the tax-deferred and after-tax
contributions of the executive up to a maximum of 3% of the executive's base
compensation, excluding bonuses and limited to $4,800 in 1997.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         During 1997, compensation decisions for executive officers and
directors of GST and GSTOC were made by GSI's Compensation Committee which
consisted of Messrs. Regelbrugge, O'Malley, Al-Gabandi and Haas. Mr.
Regelbrugge, Chairman and Chief Executive Officer (until December 31, 1997), did
not participate in decisions regarding his compensation. There were no fees paid
to the directors of GST or GSTOC during 1997.

         No executive officer employed by the Company serves or served on the
compensation committee of another entity during 1997 and, except as described
below, no executive officer of the Company serves or served as a director of
another entity who has or had an executive officer serving on the Board of
Directors of the Company.

         Mr. Edgerley is a managing director of Bain which is the management
company for certain of the Bain Funds. Mr. Edgerley is also a limited partner of
Bain Capital Partners IV, L.P., the general partner of certain of the Bain
Funds. Mr. O'Malley is an executive vice president of Bain. Bain received
certain fees from the Company in 1993, 1994, 1995, 1996 and 1997 and, it is


                                       36
<PAGE>   37
expected, will continue to receive such fees from GSI in 1998. See "Certain
Relationships and Related Transactions".

ITEM 12:          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         All of the outstanding common stock of GSTOC is owned by GST and all of
the outstanding common stock of GST is owned by GSI. The table below sets forth
certain information regarding ownership of GSI's Common Stock (and thereby
proportionate beneficial ownership of GST and GSTOC) as of March 1, 1998 by (i)
each person or entity who beneficially owns five percent or more of the Common
Stock, (ii) each director of GST and GSTOC, (iii) each executive officer of GST
and GSTOC included in the Summary Compensation Table above, and (iv) all current
directors and executive officers of GST and GSTOC as a group. Except as
otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to the securities beneficially owned by
it or him as set forth opposite its or his name. There is no established public
trading market for the Common Stock.

<TABLE>
<CAPTION>
                                                      NUMBER OF               PERCENTAGE
                                                      SHARES OF              OF SHARES OF
         NAME AND ADDRESS                             COMMON STOCK           COMMON STOCK
         ----------------                             ------------           ------------
         <S>                                          <C>                    <C>

         PRINCIPAL STOCKHOLDERS:

         Bain Funds(1)                                11,741,917.93              57.58%
         c/o Bain Capital, Inc.
         Two Copley Place
         Boston, Massachusetts 02116

         General Electric Capital Corporation          3,986,692.90              19.55%
         190 South LaSalle Street
         Suite 2740
         Chicago, Illinois 60603

         Leggett & Platt, Incorporated                 1,993,346.45               9.77%
         No. 1 Leggett Road
         Carthage, Missouri 64836

         Robert A. Cushman                             1,166,854.00(2)(3)         5.45%
         64 Yorkshire Drive
         Wexford Plantation
         Hilton Head Island, SC 29928
</TABLE>


                                       37
<PAGE>   38
<TABLE>
         <S>                                          <C>                        <C>
         DIRECTORS AND EXECUTIVE OFFICERS:

         Mark G. Essig                                    22,500.00(2)            *
         Roger R. Regelbrugge                            333,035.72(2)            1.59%
         Luis E. Leon                                     98,555.56(2)            *
         Donald B. Daily                                  51,000.00(2)            *
         David M. Yarborough                              43,000.00(2)            *
         Walter Robertson III                             39,000.00(2)            *
         Paul B. Edgerley (1)                         11,741,917.93              57.58%
         John J. O'Malley                                 66,666.67               *
         All current directors and executive
         officers as a group (11 persons)(1)          13,150,294.31(2)           61.48%
</TABLE>

--------------------
*        Less than 1%.

(1)      Includes 5,132,861.12 shares of Common Stock held by Bain Capital Fund
         IV, L.P. ("Bain IV"), 5,874,068.04 shares of Common Stock held by Bain
         Capital Fund IV-B, L.P. ("Bain IV-B"), 468,835.44 shares of Common
         Stock held by BCIP Associates ("BCIP"), and 266,153.33 shares of Common
         Stock held by BCIP Trust Associates, L.P. ("BCIP Trust" and,
         collectively with Bain IV, Bain IV-B and BCIP, the "Bain Funds"). Mr.
         Edgerley is a director and executive officer of GSI and Mr. O'Malley is
         a director of GSI. Mr. Edgerley is a managing director of Bain Capital
         Investors, Inc., which is the general partner of Bain Capital Partners
         IV, L.P., which is the general partner of Bain Capital Fund IV, L.P.
         and Bain Capital Fund IV-B, L.P. Mr. Edgerley is a limited partner of
         Bain Capital Partners IV, L.P. Accordingly, Mr. Edgerley may be deemed
         to beneficially own shares owned by the Bain Funds, although Mr.
         Edgerley disclaims beneficial ownership of any such shares. Mr.
         O'Malley is an Executive Vice President of Bain.

(2)      Includes the following shares of Common Stock that may be acquired by
         the person(s) indicated upon the exercise of outstanding stock options
         that are either currently exercisable or will become exercisable on or
         before May 31, 1998:

<TABLE>
                  <S>                                                           <C>
                  Robert A. Cushman                                             1,016,854.00
                  Mark G. Essig                                                    22,500.00
                  Roger R. Regelbrugge                                            333,035.72
                  Luis E. Leon                                                     93,000.00
                  Donald B. Daily                                                  51,000.00
                  David M. Yarborough                                              43,000.00
                  Walter Robertson III                                             39,000.00
                  All current directors and executive officers as a group         997,677.70
</TABLE>

(3)      Includes 150,000 shares held by the Cushman Trust.

         Prior to consummation of the Georgetown acquisition, the authorized
capital stock of GSI was increased to include 3,000,000 shares of Class P Common
Stock and 1,000 shares of Preferred Stock. In connection with the Georgetown
acquisition, the Bain Funds, GECC, Leggett & Platt, certain members of
management and certain other existing stockholders of GSI purchased shares of
Class P Common Stock for $30 million in cash. In addition, GSI issued to the GOK
approximately 4% of its outstanding Common Stock and Class P Common Stock as
well as a combination of pay-in-kind subordinated notes and preferred stock (the
"Seller Securities"). As of March 6, 1996, the Class P Common Stock was
converted by GSI into shares of Common Stock at a rate of 1.2222 shares of
Common Stock for each share of Class P Common Stock. In April 1996, the
preferred stock was converted into exchange notes of GSI.


                                       38
<PAGE>   39
         See "Certain Relationship and Related Transactions - Description of
Indebtedness - Note Guarantees" for a description of the pledge of all
outstanding shares of common stock of GSTOC to secure the 12% Note Guarantee (as
defined).

ITEM 13:          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN TRANSACTIONS

         GSI, GST and GSTOC have entered into a Management Services Agreement
pursuant to which GSI provides certain consolidated administrative services to
GST and GSTOC, is reimbursed for its actual out-of-pocket expenses and is
entitled to receive an annual fee. In addition, GSI, GST and GSTOC have entered
into a Tax Sharing Agreement providing for the allocation of tax obligations
among GSI's consolidated group.

         The Bain Funds, GECC, Leggett & Platt, Mr. John J. O'Malley, and
certain other stockholders of GSI entered into a Stock Purchase Agreement with
GST dated as of November 12, 1993 (the "Stock Purchase Agreement") pursuant to
which such persons purchased from GST the shares of Class P Common Stock held by
them for $8.10 per share, the shares of Class A Common Stock held by them for
$8.10 per share and the shares of Common Stock held by them for $.10 per share.
Pursuant to the Recapitalization, the Class A Common Stock and Class P Common
Stock of GST were reclassified as Common Stock of GST. Pursuant to the GST
Merger, the common stock of GST held by the parties described above was
converted into GSI Common Stock. The Bain Funds, GECC, Leggett & Platt and Mr.
O'Malley received $36,105, $12,041, $6,136 and $245, respectively, as a result
of the distribution made by the Company pursuant to the Recapitalization. Mr.
Paul B. Edgerley is a managing director of Bain, which is the general partner of
certain Bain Funds, and are limited partners of Bain Capital Fund IV, L.P., the
general partner of certain of the Bain Funds. Mr. O'Malley is an executive vice
president of Bain.

         In connection with the Georgetown acquisition, GSI, GECC, Leggett &
Platt, the Bain Funds, Mr. O'Malley, the GOK, which was then Georgetown's sole
stockholder, and certain other stockholders of GSI entered into the Stockholders
Agreement. The parties to the Stockholders Agreement have agreed to vote their
GSI Common Stock and to take all other necessary actions (i) to allow the GOK to
select two representatives to the Board of GSI, so long as the Seller Securities
are outstanding, and (ii) to allow the holders of a majority of the shares held
by the Bain Funds to select the remaining representatives to the Board, so long
as the Bain Funds and certain other persons own at least 60% of the GSI Common
Stock which it purchased pursuant to the Stock Purchase Agreement. Pursuant to
the Stockholders Agreement, GECC and Leggett & Platt may not sell, transfer or
otherwise dispose of any GSI Common Stock without the prior written consent of
the Bain Funds, except pursuant to certain participation rights, transfers among
affiliates, a public sale or a sale of GSI. The holders of GSI Common Stock also
have the right to participate in transfers of GSI Common Stock by the Bain Funds
and certain other persons or GECC (other than to affiliates of each). The Bain
Funds have a first offer right with respect to the transfer of GSI Common Stock
by GECC. Such restrictions on transfer, participation rights and first offer
rights terminate upon the earlier of the date on which such shares are
transferred in a public sale, the consummation of a sale of GSI or the
consummation of a public offering. The Stockholders Agreement grants to the
parties thereto preemptive rights to purchase securities issued or sold by GSI.
Such preemptive rights terminate upon the effectiveness of a registration
statement filed by GSI with the Commission with respect to an offering of GSI
Common Stock to the public. The 


                                       39
<PAGE>   40
Bain Funds, GECC, Leggett & Platt and certain other stockholders of GSI have
also agreed that, so long as the Seller Securities are outstanding, they will
not transfer any of the shares of GSI Common Stock, except for certain permitted
transfers.

         In connection with the Georgetown acquisition, GSI, Leggett & Platt,
GECC, the Bain Funds, the GOK, Messrs. O'Malley, Leon, certain members of GSI
management, and certain other stockholders of GSI entered into a Registration
Agreement (the "Registration Agreement"). Under the Registration Agreement, the
holders of a majority of GSI Common Stock held by the Bain Funds may at any time
request registration under the 1933 Act of all or part of such GSI Common Stock.
Subject to certain conditions, the Bain Funds may request three long-form
registrations at GSI's expense, and any number of short-form registrations at
GSI's expense. If the GSI Common Stock is publicly traded on any national
securities exchange or quoted on the NASDAQ System, subject to certain
conditions, the holders of a majority of the GSI Common Stock issued to GECC may
request one long-form registration at GSI's expense. Whenever GSI proposes to
register any of its securities under the 1933 Act (other than pursuant to a
registration requested pursuant to the Registration Agreement), the holders of
GSI Common Stock issued to the parties to the Registration Agreement may require
GSI, subject to certain limitations, to include all or any portion of their GSI
Common Stock in such registration at GSI's expense.

         Also in connection with the Georgetown acquisition, as of October 5,
1995, GSI entered into a series of stock purchase agreements with Bain, GECC,
Leggett & Platt and Mr. Leon among others, providing for the purchase by them of
Class P Common Stock of GSI for $30 million in cash. Such Class P Common Stock
was converted by the Company to GSI Common Stock as of March 6, 1996. See
"Security Ownership of Certain Beneficial Owners and Management."

         The Company's Kansas City operations and Leggett & Platt entered into a
Rod Supply Agreement dated November 12, 1993 and amended on August 2, 1994
pursuant to which Leggett & Platt agreed to purchase from the Kansas City
mini-mill 90% of the first 200,000 tons of wire rod and 60% of the remaining
wire rod consumed by three Leggett & Platt wire mills located in the central
United States each year. Leggett & Platt is not required to purchase more than
250,000 tons of wire rod per year, and the Kansas City mini-mill is not required
to supply more than 300,000 tons per year, pursuant to the Rod Supply Agreement.
The agreement terminates on December 31, 2000. Leggett & Platt has the option to
extend the agreement for a period of five years. Leggett & Platt purchased $83.2
million of wire rod in 1997 representing 10% of the Company's total net sales.

         Bain, the management company for certain of the Bain Funds, received
from the Company an annual fee in 1997 for professional services rendered in the
aggregate amount of $900,000. Bain is expected to continue to receive annual
fees and expenses from the Company for professional services performed on an
annual basis. Professional services rendered by Bain as described above include
management consulting, advisory services and support, negotiation and analysis
of financing alternatives, acquisitions and dispositions and other services
agreed upon by the Company and Bain. The fees received for the professional
services rendered are at least as favorable to the Company as those which could
be negotiated with an unaffiliated third party.

         GECC is the agent and one of the lenders under the Revolving Credit
Facility and the Term Loan Facility. As of December 31, 1997, the weighted
average interest rate under the Revolving Credit Facility was 8.9%. See "--
Description of Indebtedness."


                                       40
<PAGE>   41
DESCRIPTION OF INDEBTEDNESS

         CREDIT FACILITIES

         The Credit Facilities consist of: (i) the Revolving Credit Facility of
up to $120 million established by GSTOC and its operating subsidiaries and
secured by accounts receivable, inventory and other current assets and (ii) a
$50 million Term Loan Facility established by GSTOC and its subsidiaries and
secured by the property, plant and equipment and other noncurrent assets of
GSTOC and its subsidiaries (the "Credit Facilities")

         The Revolving Credit Facility will mature on September 30, 2001.
Outstanding amounts under the Revolving Credit Facility may not exceed the
lesser of (i) $120 million or (ii) the sum of 85% of eligible accounts
receivable and 65% of eligible inventories (the "Borrowing Base"). As of
December 31, 1997, the Borrowing Base was approximately $120.5 million.
Outstanding borrowings under the Revolving Credit Facility bear interest at
varying margins over the Base Rate (as defined in the agreements) or at varying
margins over the London Interbank Offered Rate ("LIBOR"). Outstanding borrowings
under the Term Loan Facility will bear interest at either (i) fixed margins over
the Base Rate or (ii) fixed margins over LIBOR. The Credit Facilities contain
customary non-financial covenants including, among others, maintenance of
properties, maintenance of adequate insurance, restrictions or the sale and
disposition of assets, restrictions on liens and compliance with pension and
environmental laws and regulations. The Credit Facilities also contain certain
customary financial covenants and events of default. The lenders' commitment to
make any loans under the Credit Facilities is subject to certain customary
conditions.

         MEI FACILITIES

         In addition to the Credit Facilities, MEI is party to a credit
agreement that provides an unsecured revolving credit facility (the "MEI
Revolver") and an unsecured term loan facility (the "MEI Term Loan" and
collectively with the MEI Revolver, the "MEI Facilities"). The MEI Revolver has
a maximum availability of $9 million and will mature on June 30, 1999. The MEI
Revolver bears interest at varying margins over LIBOR, the domestic CD rate or
at the Reference Rate, (as defined in the agreements). The MEI Term Loan is $8
million and will mature on December 31, 2000. The MEI Term Loan bears interest
at varying margins over LIBOR, the domestic CD rate or at the Reference Rate.
The MEI Facilities contain a negative pledge on all MEI assets. The MEI
Facilities also include certain customary financial covenants, including a
current ratio requirement, a fixed charge coverage ratio, a debt to tangible net
worth ratio and a tangible net worth requirement. The lender's commitment to
make any loans under the MEI Facilities is subject to customary conditions.

         THE NOTES

         GSTOC has issued $125 million of 12-1/4% Senior Notes due 2005 under an
Indenture dated as of October 5, 1995 (the "12-1/4% Note Indenture") between
GSTOC, GST and State Street Bank and Trust Company, as successor trustee (the
"Trustee"). GSTOC has also issued $125 million of 12% Senior Notes due 2004
under an Indenture dated as of August 30, 1994 (as amended to date, the "12%
Note Indenture") between GSTOC, GST and the Trustee. The 12-1/4% Notes and the
12% Notes are herein referred to collectively as the "Notes".


                                       41
<PAGE>   42
         The terms of the Notes include those stated in the respective
Indentures and those made part of the Indentures by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in effect on
the date of the respective Indentures. The Notes are subject to all such terms,
and holders of the Notes are referred to the Indentures and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of the
Indentures does not purport to be complete and is qualified in its entirety by
reference to the respective Indentures, including the definitions therein of
certain terms used below. Capitalized terms used herein and not otherwise
defined shall have the meanings as defined in each of the Indentures.

         TERMS OF THE 12 1/4% NOTES. The 12-1/4% Notes are general, unsecured
obligations of GSTOC, limited to $125 million aggregate principal amount.
Payment of the 12-1/4% Notes are fully and unconditionally guaranteed by a
guarantee of GST (the "12-1/4% Note Guarantee"). The 12-1/4% Notes bear interest
at a rate equal to 12-1/4% per annum from October 5, 1995 or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semi-annually on April 1 and October 1 of each year, commencing April 1,
1996, to the Person in whose name the 12-1/4% Note (or any predecessor 12-1/4%
Note) is registered at the close of business on the preceding March 15 or
September 15, as the case may be. The 12-1/4% Notes will bear interest on
overdue principal and premium, if any, and, to the extent permitted by law,
overdue interest at a rate equal to 14-1/4% per annum. Interest on the 12-1/4%
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
The 12-1/4% Notes will mature on October 1, 2005 and were issued in
denominations of one thousand dollars and integral multiples thereof. The
12-1/4% Notes will rank pari passu with all existing and future unsecured and
unsubordinated indebtedness of GSTOC, including the 12% Notes.

         OPTIONAL REDEMPTION. Except as set forth in the next paragraph, the
12-1/4% Notes are not redeemable prior to October 1, 2000. On or after such
date, the 12-1/4% Notes will be subject to redemption, at the option of GSTOC,
in whole or in part, at any time prior to maturity, upon not less than 30 nor
more than 60 days' notice mailed to each Holder of 12-1/4% Notes to be redeemed,
in amounts of one thousand dollars or an integral multiple thereof, at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to but excluding the Redemption Date (subject to the right
of Holders of record on the relevant regular Record Date to receive interest due
on an Interest Payment Date that is on or prior to the Redemption Date), if
redeemed during the twelve-month period beginning October 1 of the years
indicated:

<TABLE>
<CAPTION>
         YEAR                                          REDEMPTION PRICE
         ----                                          ----------------
         <S>                                           <C>
         2000...............................................106.125%
         2001...............................................104.083
         2002...............................................102.042
         2003 and thereafter ...............................100.000
</TABLE>

         At any time prior to October 1, 1998, GSTOC may redeem up to $40
million aggregate principal amount of the 12-1/4% Notes with the net proceeds of
one or more Public Offerings of common stock of GSI, GST or GSTOC upon not less
than 30 nor more than 60 days' notice mailed within 30 days of the consummation
of such Public Offering to each Holder of 12-1/4% Notes to be redeemed, in
amounts of one thousand dollars or an integral multiple thereof, at a Redemption
Price of 110% of the principal amount thereof plus accrued interest thereon to
but excluding the 


                                       42
<PAGE>   43
Redemption Date (subject to the right of Holders of record on the relevant
regular Record Date to receive amounts due on an Interest Payment Date that is
on or prior to the Redemption Date).

         TERMS OF THE 12% NOTES. The 12% Notes are general, unsecured (as to
GSTOC) obligations of GSTOC, limited to $125 million aggregate principal amount.
Payment of the 12% Notes are fully and unconditionally guaranteed by a guarantee
of GST (the "12% Note Guarantee" and collectively with the 12-1/4% Note
Guarantee, the "Note Guarantees"). The 12% Notes bear interest at a rate equal
to 12% per annum from August 30, 1994 or from the most recent Interest Payment
Date to which interest has been paid or provided for, payable semi-annually on
March 1 and September 1 of each year, commencing March 1, 1995, to the Person in
whose name the 12% Note (or any predecessor 12% Note) is registered at the close
of business on the preceding February 15 or August 15, as the case may be. The
12% Notes will bear interest on overdue principal and premium, if any, and, to
the extent permitted by law, overdue interest at a rate equal to 14% per annum.
Interest on the 12% Notes will be computed on the basis of a 360-day year of
twelve 30-day months. The 12% Notes will mature on September 1, 2004 and were
issued in denominations of one thousand dollars and integral multiples thereof.
The 12% Notes will rank pari passu with all existing and future unsecured and
unsubordinated indebtedness of GSTOC, including the 12-1/4% Notes.

         OPTIONAL REDEMPTION. The 12% Notes are currently not redeemable prior
to September 1, 1999. On or after such date, the 12% Notes will be subject to
redemption, at the option of GSTOC, in whole or in part, at any time prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
holder of 12% Notes to be redeemed, in amounts of one thousand dollars or an
integral multiple thereof, at the following Redemption Prices (expressed as
percentages of principal amount) plus accrued interest to but excluding the
Redemption Date (subject to the right of Holders of record on the relevant
regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), if redeemed during the twelve-month period
beginning September 1 of the years indicated:

<TABLE>
<CAPTION>
         YEAR                                          REDEMPTION PRICE
         ----                                          ----------------
         <S>                                           <C>
         1999............... .................................106%
         2000.................................................104
         2001.................................................102
         2002 and thereafter .................................100
</TABLE>

         CERTAIN COVENANTS. The 12-1/4% Note Indenture and the 12% Note
Indenture contain certain covenants that restrict: the incurrence of additional
indebtedness; investments; the issuance of preferred stock; the repurchase of
stock and the making of certain other Restricted Payments (as defined in such
indentures); certain transactions with affiliates and related persons;
dispositions of assets; the incurrence of liens; the issuance or disposition of
certain capital stock; the incurrence of restrictions concerning distributions
by and transfers to Restricted Subsidiaries; certain sale and leaseback
transactions; and certain mergers, consolidations and sales of assets.
Additionally, such indentures provide that in the event of a Change of Control
and subject to certain conditions, each holder of the Notes will have the right
to require GSTOC to repurchase such holder's Notes at a purchase price equal to
101% of the principal amount thereof plus accrued interest to the redemption
date.


                                       43
<PAGE>   44
         EVENTS OF DEFAULT. Each of the 12-1/4% Note Indenture and 12% Note
Indenture provides that an Event of Default is: default in payment when due of
principal (or premium, if any); default for 30 days in payment of interest on
any of the 12-1/4% Notes or 12% Notes, as the case may be; default in the
payment of principal and interest on Notes required to be purchased pursuant to
an Offer to Purchase when due and payable; failure to comply with certain
covenants of the applicable indenture; failure by GSTOC or GST for 60 days after
notice to perform any of its other agreements in the applicable indenture or the
Notes; default under the terms of certain instruments evidencing or securing
certain debt by GST or any Restricted Subsidiary having an outstanding principal
amount of $10 million individually or in the aggregate which default results in
the acceleration of the payment of such indebtedness or constitutes the failure
to pay such indebtedness when due; the rendering of a final judgment against GST
or any Restricted Subsidiary in an amount in excess of $10 million which remains
undischarged or unstayed for a period of 60 days; certain events of bankruptcy,
insolvency or reorganization; and the cessation of effectiveness of the Note
Guarantees or a finding that such guarantees are unenforceable or invalid.

         NOTE GUARANTEES

         The 12-1/4% Note Guarantee and the 12% Note Guarantee by GST constitute
the unconditional guarantee to each Holder of a 12-1/4% Note and 12% Note,
respectively, of the payment of the principal of (and premium, if any) and
interest on such Note when and as due and payable, whether at the stated
maturity, by acceleration, call for redemption, purchase or otherwise. In case
of the failure of GSTOC to make any such payment, GST will cause such payment to
be made. There can be no assurance that GST will be able to make such payment.

         The 12-1/4% Note Guarantee ranks pari passu with all existing and
future unsecured and unsubordinated indebtedness of GST, including the 12% Note
Guarantee. GST is entitled to incur additional secured and unsecured
indebtedness in the future provided certain financial and other conditions are
met.

         The 12-1/4% Note Guarantee will be effectively subordinated to (a) all
existing and future secured indebtedness of GSTOC and GST as to the assets
securing such indebtedness and (b) all existing and future indebtedness of GST's
subsidiaries other than GSTOC and of GSTOC's subsidiaries as to the assets and
cash flow of those subsidiaries. As of December 31, 1997, the Company had
approximately $96 million of such indebtedness and would have been entitled to
incur additional secured and unsecured indebtedness in the future provided
certain financial and other conditions are met. Unlike the 12-1/4% Note
Guarantee, the 12% Note Guarantee is secured by a pledge of all of the capital
stock of GSTOC and MEI and 65% of the capital stock of "Inversiones en Molienda,
S.A. ("IMSA").




                                       44
<PAGE>   45
                                     PART IV

ITEM 14:          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                  ON FORM 8-K

         The exhibits and other documents filed as a part of this Annual Report
on Form 10-K, including those exhibits which are incorporated by reference
herein, are:

(a)(1)   FINANCIAL STATEMENTS

The following financial statements are filed as part of this report:

<TABLE>
<CAPTION>
                                                                                PAGE
                                                                                ----
<S>                                                                             <C>
Report of Independent Accountants ..............................................F-1

Consolidated Balance Sheets of the Company as of December 31, 1996
and 1997 .......................................................................F-2

Consolidated Income Statements for the Years Ended
December 31, 1995, 1996 and 1997................................................F-3

Consolidated Statements of Cash Flows for the Years Ended
December 31 1995, 1996 and 1997.................................................F-4

Consolidated Statement of Changes in Stockholder's Equity (Deficit) of the 
Company for the Years Ended December 31, 1995, 1996 and 1997....................F-5

Notes to Consolidated Financial Statements......................................F-6

Report of Independent Accountants...............................................F-29

Consolidated Balance Sheet of SiderCorp at December 31, 1997....................F-30

Consolidated Statement of Income of SiderCorp for the Year
Ended December 31, 1997.........................................................F-31

Consolidated Statement of Changes in Stockholders' Equity of SiderCorp
for the Year Ended December 31, 1997............................................F-32

Consolidated Statement of Cash Flows of SiderCorp for the
Year Ended December 31, 1997....................................................F-33

Notes to Consolidated Financial Statements of SiderCorp.........................F-35
</TABLE>


                                       45
<PAGE>   46
(a)(2)   FINANCIAL STATEMENT SCHEDULES

The following consolidated financial statement schedules of the Company are
included in this Annual Report on Form 10-K:

<TABLE>
<CAPTION>
                                                                                PAGE
                                                                                ----
<S>                                                                             <C>
Report of Independent Accountants...............................................S-1

Schedule I Condensed Financial Information of the Parent Company................S-2

Schedule II Valuation and Qualifying Accounts and Reserves......................S-6
</TABLE>

(a)(3)   EXHIBITS

         Exhibits required in connection with this Annual Report on Form 10-K
are listed below. Certain of such exhibits, which have heretofore been filed
with the Commission and which are designated by reference to their exhibit
numbers in prior filings, are incorporated herein as exhibits by such reference
and made a part hereof.

EXHIBIT NO.       DESCRIPTION

   3.1            Amended and Restated Certificate of Incorporation of GST, as
                  amended (1)

   3.2            By-laws of GST (1)

   3.3            Amendment to By-laws of GST dated April 1, 1996 (1)

   3.4            Certificate of Incorporation of GSTOC (1)

   3.5            By-laws of GSTOC (4)

   3.6            Amendment to By-laws of GSTOC dated April 1, 1996 (1)

   4.1            Indenture between GSTOC, GST and Shawmut Bank Connecticut,
                  National Association, and State Street Bank and Trust Company,
                  successor trustee, as Trustee, relating to the 12% Notes
                  (including the form of 12% Note) (4)

   4.2            Form of Pledge Agreement between GSTOC, GST and Shawmut Bank
                  Connecticut, National Association, and State Street Bank and
                  Trust Company, successor trustee, as Collateral Trustee,
                  relating to the 12% Notes (1)

   4.3            First Supplemental Indenture dated October 5, 1995 among
                  GSTOC, GST and Shawmut Bank Connecticut, National Association,
                  and State Street Bank and Trust Company, successor trustee, as
                  Trustee, relating to the 12% Notes (3)


                                       46
<PAGE>   47

   4.4            Second Supplemental Indenture dated August 15, 1996 among
                  GSTOC, GST and Fleet National Bank (formerly Shawmut Bank
                  Connecticut, National Association), and State Street Bank and
                  Trust Company, successor trustee, as Trustee, relating to the
                  12% Notes

   4.5            Indenture between GSTOC, GST and Shawmut Bank Connecticut,
                  National Association, and State Street Bank and Trust Company,
                  successor trustee, as Trustee, relating to the 12 1/4% Notes
                  (including the form of 12 1/4% Note) (3)

   4.6            Loan Agreement dated October 5, 1995 among GSTOC, GECC and the
                  Lenders named therein (3)

   4.7            Amendment No. 1, dated July 8, 1996, to Loan Agreement dated
                  October 5, 1995 among GSTOC, GECC and the Lenders named
                  therein

   4.8            Amendment No. 2, dated December 20, 1996, to Loan Agreement
                  dated October 5, 1995 among GSTOC, GECC and the Lenders named
                  therein

   4.9            Loan Agreement dated as of October 5, 1995 among Tree Island
                  Industries, Ltd., the Lenders named therein and GECC (3)

   10.1           Stock Purchase Agreement dated as of September 30, 1993 and
                  amended and restated as of November 11, 1993 by and among
                  Armco, GSTOC, GST and Inversiones En Molienda, S.A. (1)

   10.2           Agreement dated as of November 12, 1993 by and between GST and
                  Armco (1)

   10.3           Agreement and Plan of Merger dated as of November 11, 1993 by
                  and between GSTOC and GS Merger Corp. (1)

   10.4           Stock Purchase Agreement dated as of November 12, 1993 by and
                  among GST and the Persons set forth on the Schedule attached
                  thereto (1)

   10.5           Second Amended and Restated Stockholders Agreement dated as of
                  October 5, 1995 by and among GSI, GECC, Leggett & Platt and
                  each of the Persons listed on Schedule I attached thereto (4)

   10.6           Second Amended and Restated Registration Agreement dated as of
                  October 5, 1995 by and among GSI, Leggett & Platt, GECC and
                  the Persons listed on Schedule A and Schedule B attached
                  thereto (4)

   10.7           GS Technologies Non-Qualified Deferred Compensation Plan dated
                  November 11, 1993 (1)

   10.8           Merger Agreement dated as of August 21, 1995 among Georgetown,
                  GSI, GST, GSTOC and GI Merger Corp. (2)

   10.9           GS Technologies Pension Plan (1)


                                       47
<PAGE>   48
   10.10          GS Technologies Retirement and Savings Plan (1)

   10.11          Rod Supply Agreement dated November 12, 1993, as amended on
                  August 2, 1994, between GST and Leggett & Platt (confidential
                  treatment has been requested for certain portions of this
                  agreement) (1)

   10.12          Purchase Agreement relating to Instapanel Sale dated July 28,
                  1994 between MolyCop Chile S.A., GST, Grupo Imsa S.A. de C.V.
                  and Industria Procesadora de Acerco S.A. (1)

   10.13          Form of Stock Option Agreement (1)

   10.14          Form of GS Technologies Excess Retirement Plan (1)

   10.15          Form of GS Technologies Supplemental Retirement Plan (1)

   10.16          Partnership Agreement relating to MolyCop Canada (1)

   10.17          Purchase Agreement dated as of May 31, 1994 by and among MEI,
                  GST, Stelco Erie Corporation and Stelco (1)

   10.18          Form of Amended and Restated Management Agreement dated as of
                  August 17, 1995 among GSI, GST and Messrs. Leon and Concha (4)

   10.19          Stock Purchase Agreement dated as of August 21, 1995 among
                  GSI, GST, GSTOC and the Government of Kuwait (2)

   10.20          First Amendment dated as of October 5, 1995 to Stock Purchase
                  Agreement dated as of August 21, 1995 among GSI, GST, GSTOC
                  and the Government of Kuwait (3)

   10.21          Stock Redemption Agreement dated as of October 5, 1995 between
                  Georgetown, the Government of Kuwait, Waccamaw Corporation and
                  Western Lumber Company, Inc. (4)

   10.22          Transfer Restriction Agreement dated as of October 5, 1995 by
                  and among GSI and stockholders thereof (4)

   10.23          Investor Stock Purchase Agreement dated as of October 5, 1995
                  among GSI, GSTOC, Bain Funds, GECC, Leggett & Platt, Randolph
                  Street Partners and James Haas (4)

   10.24          Executive Stock Purchase Agreement dated as of October 5, 1995
                  among GSI, GST and the Persons named on the schedule attached
                  thereto (4)

   10.25          Executive Stock Purchase Agreement dated as of October 5, 1995
                  among GSI, GST and Messrs. Wieland, Leon, Burnsworth and
                  Shelley (4)


                                       48
<PAGE>   49
   10.26          Amended and Restated Employment Agreement dated October 5,
                  1995 between GSI and Roger R. Regelbrugge (4)

   10.27          Stock Option Agreement dated October 5, 1995 between GSI and
                  Roger R. Regelbrugge (4)

   10.28          Agreement dated January 19, 1994 between Georgetown and Roger
                  R. Regelbrugge (4)

   10.29          Amended and Restated Pension Plan and Trust of Georgetown
                  dated as of May 1, 1993, as amended through October 5, 1995 
                  (4)

   10.30          Management Services Agreement dated as of October 5, 1995
                  among GSI, GST, GSTOC and certain subsidiaries named 
                  therein (3)

   10.31          Amended and Restated Management Services Agreement dated as of
                  August 14, 1996 among GSI, GST and GSTOC and certain
                  subsidiaries named therein

   10.32          Tax Sharing Agreement dated as of October 5, 1995 among GSI,
                  GST, GSTOC and certain subsidiaries named therein (3)

   10.33          Purchase Agreement for sale of West Coast Wire Business (5)

   10.34          Amendment dated April 28, 1997 to Employment Agreement date of
                  October 5, 1995 between GSI and Roger R. Regelbrugge (6)

   10.35          Amendment dated July 31, 1997 to Stock Option Agreement dated
                  October 5, 1995 between GSI and Roger R. Regelbrugge (6)

   10.36          1997 Stock Option Plan

   10.37          Essig Employment Agreement dated December 11, 1997

   10.38          Essig Stock Option Agreement dated December 11, 1997

   10.39          Form of Change of Control Agreement between GSI and each of
                  Messrs. Essig, Daily, Yarborough, Leon and Robertson dated
                  December 11, 1997

   21.1           List of  Subsidiaries of GST and GSTOC

   27.1           Financial Data Schedule (for SEC use only.)

--------------------
(1)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-1 (File No. 33-80618).

(2)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-1 (File No. 33-95278).

(3)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     for the quarter ended September 30, 1995 (File No. 33-80618).


                                       49
<PAGE>   50
(4)  Incorporated by reference to the Registrant's Annual Report on Form 10-K
     for the year ended December 31, 1995 (File No. 33-80618).

(5)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1997.

(6)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     for the quarter ended June 30, 1997

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
         <S>                                                                                  <C>
         Report of Independent Accountants....................................................F-1

           Consolidated Balance Sheets of the Company as of December 31, 1996
           and 1997...........................................................................F-2

           Consolidated Income Statements for the Years Ended December 31, 1995,
           1996 and 1997......................................................................F-3

           Consolidated Statements of Cash Flows for the Years Ended December 31,
           1995, 1996 and 1997................................................................F-4

           Consolidated Statement of Changes in Stockholder's Equity (Deficit) of the
           Company for the Years Ended December 31, 1995, 1996 and 1997.......................F-5

         Notes to Consolidated Financial Statements...........................................F-6

         INDEX TO FINANCIAL STATEMENTS OF SIDERCORP S. A. AND SUBSIDIARY
                       (AN UNCONSOLIDATED EQUITY INVESTEE)

         Report of Independent Accountants....................................................F-29

           Consolidated Balance Sheet of SiderCorp at December 31, 1997.......................F-30

           Consolidated Statement of Income of SiderCorp for the Year
           Ended December 31, 1997............................................................F-31

           Consolidated Statement of Changes in Stockholders' Equity of SiderCorp
           for the Year Ended December 31, 1997...............................................F-32

           Consolidated Statement of Cash Flows of SiderCorp for the
           Year Ended December 31, 1997.......................................................F-33

         Notes to Consolidated Financial Statements of SiderCorp..............................F-35
</TABLE>


                                       50
<PAGE>   51
               INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
         <S>                                                                                  <C>
         Report of Independent Accountants....................................................S-1

         Schedule I Condensed Financial Information of the Parent Company.....................S-2

         Schedule II Valuation and Qualifying Accounts and Reserves...........................S-6
</TABLE>


         (b) REPORTS ON FORM 10-K

             No reports on Form 8-K were filed during the quarter ended
             December 31, 1997.






                                       51
<PAGE>   52
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To The Board of Directors and
  Stockholder of GS Technologies Corporation
 
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholder's equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of GS Technologies Corporation and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for the
years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
As discussed in Note 3 to the financial statements, GS Technologies Corporation
changed its method of accounting for spare parts and supplies inventories during
1996.
 
Price Waterhouse LLP
 
Charlotte, North Carolina
February 20, 1998

                                      F-1
<PAGE>   53
 
                          GS TECHNOLOGIES CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1996           1997
                                                              ------------   ------------
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................    $  7,747       $  3,362
  Receivables less allowance of $1,828 and $1,838...........     106,314         94,768
  Receivable from related party (Note 14)...................       6,991          6,484
                                                                --------       --------
          Total receivables.................................     113,305        101,252
                                                                --------       --------
  Inventories (Note 3)......................................     128,976        144,063
  Net assets of discontinued operations.....................      75,265
  Prepaid expenses and other current assets.................       4,190          6,495
  Deferred tax benefit......................................       8,469          1,023
                                                                --------       --------
          Total current assets..............................     337,952        256,195
Investments in joint ventures (Note 6)......................      31,097         41,639
Properties, net (Note 7)....................................     263,402        260,957
Acquisition premium (Note 2)................................      62,324         60,713
Other assets................................................      20,904         26,773
                                                                --------       --------
          Total assets......................................    $715,679       $646,277
                                                                ========       ========

                          LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Notes payable (Note 10)...................................    $ 15,717       $ 10,794
  Current portion of long-term debt (Note 10)...............         862            500
  Income taxes payable (Notes 2 and 12).....................                      1,261
  Payables and accrued liabilities (Note 8).................     151,426        138,099
                                                                --------       --------
          Total current liabilities.........................     168,005        150,654
Long-term debt (Note 10)....................................     368,554        334,888
Post retirement benefit obligations other than pensions
  (Note 11).................................................      25,793         26,848
Deferred income taxes payable (Note 12).....................      17,489          7,098
Other long-term liabilities.................................      23,077         31,628
Commitments and contingencies (Note 15)
                                                                --------       --------
          Total liabilities.................................     602,918        551,116
                                                                --------       --------
Stockholder's equity (Note 13):
  Common Stock, $.01 par value, 1,000 shares authorized, and
     100 shares issued and outstanding at December 31, 1996
     and 1997...............................................           1              1
  Additional paid in capital................................     132,166        132,166
  Accumulated deficit.......................................     (17,729)       (33,845)
  Cumulative translation adjustment.........................      (1,677)        (3,161)
                                                                --------       --------
          Total stockholder's equity........................     112,761         95,161
                                                                --------       --------
          Total liabilities and stockholder's equity........    $715,679       $646,277
                                                                ========       ========
</TABLE>
 
          See accompanying notes to consolidated financial statements


                                      F-2
<PAGE>   54

                          GS TECHNOLOGIES CORPORATION
 
                         CONSOLIDATED INCOME STATEMENTS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                            ------------------------------------------
                                                            DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                                1995           1996           1997
                                                            ------------   ------------   ------------
<S>                                                         <C>            <C>            <C>
Net sales.................................................    $465,503       $719,865       $726,495
Net sales -- related party (Note 14)......................      74,246         96,052         83,239
                                                              --------       --------       --------
                                                               539,749        815,917        809,734
                                                              --------       --------       --------
Operating costs and expenses:
  Cost of products sold...................................     457,307        703,958        691,200
  Selling, general and administrative expenses............      35,258         46,331         44,749
  Depreciation and amortization...........................      10,522         26,989         29,587
  Non-recurring costs of combining operations (Note 9)....       4,866
                                                              --------       --------       --------
                                                               507,953        777,278        765,536
                                                              --------       --------       --------
Operating profit..........................................      31,796         38,639         44,198
                                                              --------       --------       --------
Other income (expenses):
  Interest income.........................................         271            925            986
  Interest expense........................................     (23,163)       (43,361)       (42,056)
  Equity in income of joint ventures (Note 6).............       4,075          5,500          6,195
  Fees from joint ventures (Note 6).......................       1,357          2,399          2,743
  Other, net..............................................        (573)           190            904
                                                              --------       --------       --------
                                                               (18,033)        34,347        (31,228)
Income from continuing operations before income tax and
  cumulative effect of accounting change..................      13,763          4,292         12,970
Income tax provision (Notes 2 and 12).....................       7,025          3,815          6,523
                                                              --------       --------       --------
Income from continuing operations before cumulative effect
  of accounting change....................................       6,738            477          6,447
                                                              --------       --------       --------
Discontinued operations (Note 4):
  Income (loss) from discontinued operations, net of
     taxes................................................        (609)         2,402          1,402
  Loss on disposal of discontinued operations, net of
     taxes................................................                                   (23,965)
                                                              --------       --------       --------
Income (loss) before cumulative effect of accounting
  change..................................................       6,129          2,879        (16,116)
Cumulative effect of change in accounting for spare parts
  and supplies inventories, net of taxes (Note 3).........                      3,556
                                                              --------       --------       --------
Net income (loss).........................................    $  6,129       $  6,435       $(16,116)
                                                              ========       ========       ========
</TABLE>
 
          See accompanying notes to consolidated financial statements


                                      F-3
<PAGE>   55

                          GS TECHNOLOGIES CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                          YEAR ENDED
                                                          ------------------------------------------
                                                          DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                              1995           1996           1997
                                                          ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>
Operating activities:
  Net income (loss)....................................    $   6,129      $   6,435      $ (16,116)
  Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Cumulative effect of accounting change............                      (3,556)
     Depreciation and amortization.....................       10,522         26,989         29,587
     Loss on disposal of discontinued operations.......                                     23,965
     Net cash from discontinued operations.............           50          7,843         (3,095)
     (Gain) loss on disposal of fixed assets...........        3,106            110            (40)
     Deferred income taxes.............................        4,551          3,091         (9,321)
     Equity in income of joint ventures................       (4,075)        (5,500)        (6,195)
     Dividends from joint ventures.....................        1,969          4,519          3,640
     Post retirement benefit obligations accrued in
       excess of cash paid.............................        1,813          1,524          1,055
     Changes in operating assets and liabilities:
       Receivables.....................................       (4,930)        (4,379)        12,053
       Inventories.....................................       (7,139)         2,902        (15,087)
       Payables and accrued liabilities................       (1,252)         5,106        (12,302)
       Income taxes....................................       (6,987)        (1,972)         7,638
       Other...........................................        4,629         (2,336)         1,020
                                                           ---------      ---------      ---------
          Net cash provided by operating activities....        8,386         40,776         16,802
                                                           ---------      ---------      ---------
Investing activities:
  Purchase of GII, net of cash acquired................     (145,508)
  Proceeds from disposal of discontinued operations....                                     55,998
  Purchase of properties...............................      (48,342)       (42,225)       (25,112)
  Investment in joint ventures.........................                     (11,484)        (9,049)
  Cash received from Armco, net........................        1,308
  Proceeds from disposals of properties................        5,000          3,924             40
                                                           ---------      ---------      ---------
          Net cash provided by (used in) investing
            activities.................................     (187,542)       (49,785)        21,877
                                                           =========      =========      =========
Financing activities:
  Borrowings under long-term debt arrangements.........      268,280        223,684        200,339
  Repayments of long-term debt.........................      (97,983)      (227,195)      (235,494)
  Proceeds from (payments on) notes payable, net.......      (13,994)        10,541         (4,923)
  Distributions to stockholders........................       (5,543)
  Debt issuance costs..................................      (10,599)
  Contribution from GSI................................       30,000
                                                           ---------      ---------      ---------
          Net cash provided by (used in) financing
            activities.................................      170,161          7,030        (40,078)
                                                           ---------      ---------      ---------
Effect of exchange rate changes on cash................          (33)          (563)        (2,986)
                                                           ---------      ---------      ---------
Net decrease in cash and cash equivalents..............       (9,028)        (2,542)        (4,385)
Cash and cash equivalents:
  Beginning of period..................................       19,317         10,289          7,747
                                                           ---------      ---------      ---------
  End of period........................................    $  10,289      $   7,747      $   3,362
                                                           =========      =========      =========
Supplemental disclosure of cash flow information
  Non-cash equity contributions from GSI...............    $ 102,000
  Non-cash portion of GII purchase price...............    $ 102,000
  Cash paid during the period for interest.............    $  19,188      $  45,230      $  39,057
  Cash paid during the period for taxes................    $  12,625      $   1,082      $   6,613
</TABLE>
 
          See accompanying notes to consolidated financial statements

                                      F-4
<PAGE>   56
                          GS TECHNOLOGIES CORPORATION
 
      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                    RETAINED
                                 COMMON STOCK        ADDITIONAL     EARNINGS     CUMULATIVE         TOTAL
                             ---------------------    PAID IN     (ACCUMULATED   TRANSLATION    STOCKHOLDER'S
                                SHARES      AMOUNT    CAPITAL       DEFICIT)     ADJUSTMENT    EQUITY (DEFICIT)
                             ------------   ------   ----------   ------------   -----------   ----------------
<S>                          <C>            <C>      <C>          <C>            <C>           <C>
Balance at
  December 31, 1994........    16,691,667   $  167   $       --   $    (30,293)   $      239   $        (29,887)
                             ============   ======   ==========   ============    ==========   ================
Reduction of outstanding
  shares (Note 1)..........   (16,691,567)    (166)         166
Contribution by GSI
  (Note 1).................                             132,000                                         132,000
Net income.................                                              6,129                            6,129
Cumulative translation
  adjustment...............                                                           (1,633)            (1,633)
                             ------------   ------   ----------   ------------    ----------   ----------------
Balance at
  December 31, 1995........           100        1      132,166        (24,164)       (1,394)           106,609
                             ------------   ------   ----------   ------------    ----------   ----------------
Net Income.................                                              6,435                            6,435
Cumulative translation
  adjustment...............                                                             (283)              (283)
                             ------------   ------   ----------   ------------    ----------   ----------------
Balance at
  December 31, 1996........           100        1      132,166        (17,729)       (1,677)           112,761
                             ------------   ------   ----------   ------------    ----------   ----------------
Net income (loss)..........                                            (16,116)                         (16,116)
Cumulative translation
  adjustment...............                                                           (1,484)            (1,484)
                             ------------   ------   ----------   ------------    ----------   ----------------
Balance at
  December 31, 1997........           100   $    1   $  132,166   $    (33,845)   $   (3,161)  $         95,161
                             ============   ======   ==========   ============    ==========   ================
</TABLE>
 
          See accompanying notes to consolidated financial statements


                                      F-5
<PAGE>   57

                          GS TECHNOLOGIES CORPORATION
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
1. ORGANIZATION AND BUSINESS
 
BUSINESS
 
GS Technologies Corporation (the "Company" or "GST") is a leading producer
of high carbon and special grade wire rod, grinding media, mill liners, steel
billets and certain high quality wire products.
 
The Company's high carbon and special grade wire rod is sold primarily to
domestic wire rod drawers that process wire rod into products for diverse end
use applications such as tire cord and tire bead for the automotive industry,
upholstery and bed springs for furniture and wire rope and pre-stressed concrete
strand ("PC strand") for the construction industry.
 
Grinding media are high carbon steel balls and rods used inside a rotating
mill to grind semi-crushed rock as a step in processing various kinds of ore.
Mill liners are protective steel liners that shield the rotating mill from the
pulverizing activity of the grinding media. Grinding media and mill liners are
consumed as ore is processed and must be continually replenished.
 
The Company conducts it operations through several domestic and
international facilities.
 
OWNERSHIP
 
The Company was incorporated in 1993 to affect the acquisition of certain
operations and accounts of certain operating units and wholly-owned subsidiaries
of Armco, Inc. ("Armco") and investments in certain joint ventures.
 
SIGNIFICANT DEVELOPMENTS
 
In August 1994, GS Technologies Operating Company, Inc. ("GSTOC"), a
wholly-owned subsidiary of the Company, issued $125.0 million of Senior Notes
(the "12% Notes"). The proceeds of the offering were used to repay outstanding
debt of $54.9 million and to pay a distribution of $65.0 million of which $61.2
million was to the Company's stockholders and $3.8 million was in lieu of
dividends to Armco pursuant to the terms of a warrant agreement and to partially
fund debt issuance costs of $6.9 million. The Company paid $45.0 million of the
Distribution in August 1994 and in October 1994 the Board of Directors declared
a dividend of $20.0 million of which $14.5 million was paid in November 1994 and
$5.5 million was paid in January 1995. The 12% Notes are due September 1, 2004
and are fully and unconditionally guaranteed by the Company. Interest is payable
semi-annually at an annual rate of 12%.
 
In May 1994, the Company acquired the remaining fifty percent partnership
interest of ME International ("MEI") for $10.7 million. MEI is now a
wholly-owned subsidiary of GST.
 
THE GEORGETOWN ACQUISITION
 
In August 1995, the Company was party to a merger transaction whereby it
was merged with a subsidiary of a new parent company, GS Industries, Inc.
("GSI") resulting in all of the issued and outstanding common stock of the
Company being converted into shares of common stock of GSI and the Company
becoming a wholly owned subsidiary of GSI. In October 1995, GSI and the Company,
through it's wholly owned subsidiary, GSTOC, acquired Georgetown Industries,
Inc. ("GII") and GII and it's subsidiaries are now wholly owned subsidiaries of
GSTOC. The results of GII's operations have been consolidated with those of the
Company since the date of acquisition.



                                      F-6
<PAGE>   58

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)

GSI's common stockholders and certain members of management purchased stock of
GSI for $30.0 million in cash. GSI purchased a portion of the GII common stock
with approximately 4% of its common stock and a combination of payment-in-kind
("PIK") subordinated notes and preferred stock of GSI which together with the
common stock had a fair market value of approximately $102.0 million. The PIK
subordinated notes and preferred shares are unsecured obligations of GSI and are
not guaranteed by any of GSI's subsidiaries. In April 1996, the preferred stock
was exchanged, at the Company's option, into subordinated notes (the "Exchange
Notes") equal to the liquidation value of the stock including dividends through
the date of exchange. The $30.0 million in cash and the common stock of GII
acquired by GSI were contributed to the Company and were in turn contributed to
GSTOC. GSTOC used the $30.0 million in cash, proceeds from a $125.0 million
public senior note offering (the "12 1/4% Notes") and proceeds from borrowings
under its credit facilities to acquire the remaining GII common stock. The total
consideration was $307.0 million of which $205.0 million was cash and $102.0
million was the fair value of the securities described above.
 
The 12 1/4% Notes were issued by GSTOC on October 5, 1995 and are due on
October 1, 2005. Interest is payable semi-annually at an annual rate of 12 1/4%.
GSTOC replaced it's existing credit facility with a new facility currently
providing up to $120.0 million in aggregate availability secured by the
Company's current assets and entered into a new $50.0 million term loan facility
secured by property, plant and equipment. Proceeds from these facilities were
used to complete the acquisition and to refinance GSTOC indebtedness.
 
The acquisition was recorded in accordance with the purchase method of
accounting. Accordingly, the purchase price plus costs were allocated to the
assets acquired and liabilities assumed based on their fair values at the date
of acquisition.
 
The following represents the pro forma results of the Company and it's
subsidiaries as if the Georgetown acquisition and related transactions described
above had occurred on January 1, 1995 after giving effect to certain pro forma
adjustments, which include depreciation, amortization and interest expense:
 
<TABLE>
<CAPTION>
                                                               PRO FORMA
                                                           -----------------
                                                              YEAR ENDED
                                                           DECEMBER 31, 1995
                                                           -----------------
                                                              (UNAUDITED)
<S>                                                        <C>
Net sales................................................      $827,428
Net income...............................................      $ 13,179
</TABLE>
 
The pro forma results of operations presented above are not necessarily
indicative of the results that actually would have been obtained if the
Georgetown acquisition and related transactions had occurred on January 1, 1995
and are not intended to be a projection of future results or trends.



                                      F-7
<PAGE>   59

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The following summarizes the significant policies applied in the
preparation of the accompanying financial statements.
 
PRINCIPLES OF CONSOLIDATION
 
The consolidated financial statements include the accounts of all majority
owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated. Investments in unconsolidated affiliates in which the Company
has a 20% or more ownership position are accounted for using the equity method
of accounting.
 
USE OF ESTIMATES
 
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
REVENUE RECOGNITION
 
Sales and related cost of products sold are recognized upon shipment of
products to customers.
 
STATEMENT OF CASH FLOWS
 
For purposes of reporting cash flows, cash and cash equivalents include
demand deposits and cash equivalents which are highly liquid instruments with
maturities of three months or less at the time of purchase.
 
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows", cash flows from the Company's operations in foreign
countries are calculated based on their reporting currencies. As a result,
amounts related to assets and liabilities reported in the statement of cash
flows will not necessarily agree to changes in the corresponding balances on the
balance sheet. The effect of exchange rate changes on cash balances held in
foreign currencies is reported below cash flows from financing activities.
 
INVENTORIES
 
Inventories are valued at the lower of FIFO (first-in, first-out) and/or
average cost or market for all operating subsidiaries except the Italian
operations for which inventories are valued on the LIFO (last-in, first-out)
method.
 
PROPERTIES
 
Properties are recorded at cost. Maintenance and repairs are expensed in
the year incurred. Expenditures which result in betterments or extensions of the
useful lives of assets are capitalized and depreciated over the remaining lives
of such assets. Depreciation expense is computed using the straight-line method
over the estimated useful lives of the assets, as follows:
 
<TABLE>
<S>                                                             <C>
Leasehold improvements......................................      10
Machinery and equipment.....................................    4-20
Buildings and improvements..................................    4-30
</TABLE>



                                      F-8
<PAGE>   60

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
Assets under capital leases are amortized over the life of the lease.
Leasehold improvements are capitalized and amortized over the lesser of their
estimated useful lives or the life of the related lease.
 
ACQUISITION PREMIUM, OTHER ASSETS AND IDENTIFIABLE INTANGIBLE ASSETS
 
The acquisition premium represents the excess cost over fair value of net
assets acquired, and is being amortized on a straight-line basis over forty
years.
 
Other assets include debt issuance costs of $13.6 million and $11.9 million
at December 31, 1996 and 1997, respectively, which are amortized over the lives
of the corresponding debt agreements. Amortization of these costs aggregated
$0.9 million, $1.8 million and $1.7 million for the years ended December 31,
1995, 1996 and 1997, respectively, and is included in interest expense.
 
Identifiable intangible assets resulting from certain acquisitions are
being amortized on a straight-line basis over periods ranging from five to
seventeen years. Identifiable intangible assets, net of related amortization, of
$4.4 million and $4.6 million at December 31, 1996 and 1997, respectively, are
classified as other assets in the accompanying balance sheets.
 
The Company continually monitors conditions that may affect the carrying
value of its tangible and intangible assets. When conditions indicate potential
impairment of an intangible asset, the Company will undertake necessary market
studies and re-evaluate projected future cash flows associated with the
intangible asset. To the extent projected future cash flows, not discounted for
the time value of money, are less than the carrying value of the intangible
asset, the impaired asset is written down to its net realizable value.
 
INCOME TAXES
 
Since the merger with GSI, the Company is included in the GSI consolidated
U.S. federal income tax return and is party to a tax sharing agreement with GSI.
The tax sharing agreement provides among other things that the accounting for
U.S. federal and combined state income taxes for financial reporting purposes is
calculated as though the Company were filing separate U.S. federal and combined
state income tax returns. Payments by the Company to GSI are made at such times
as would be made to the federal and state governments had the Company been
filing separate tax returns. Non-combined state and foreign taxes are recorded
and paid directly to the appropriate governmental agencies.
 
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which is
an asset and liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the expected future tax
consequences, utilizing current tax rates, of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Deferred tax
assets are recognized, net of any valuation allowance, for the estimated future
tax effects of deductible temporary differences and tax operating loss and
credit carryforwards. Deferred tax expense reflects changes in the deferred tax
asset and liability balances.
 
Through the end of 1996, the Company provided deferred tax liabilities for
the tax effect of repatriating all unremitted earnings of foreign subsidiaries
and joint ventures. During 1997, management determined that a portion of the
unremitted earnings of the foreign subsidiaries and joint ventures will remain
invested in the foreign operations indefinitely. This change was based upon
expected opportunities to use these funds in expansion and capital improvement
projects undertaken by the foreign subsidiaries and joint ventures and the
historical percentage of earnings repatriated.



                                      F-9
<PAGE>   61

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
The Company continues to provide U.S. federal income tax and foreign
withholding tax liabilities on the portion of the unremitted earnings of foreign
subsidiaries and joint ventures that is expected to be repatriated. Receipt of
foreign dividends or liquidation proceeds in excess of the anticipated
repatriation amount would be subject to additional U.S. income tax and foreign
withholding tax.
 
ENVIRONMENTAL EXPENDITURES
 
Environmental expenditures by the Company are expensed or capitalized
depending upon their future economic benefit. Expenditures which improve a
property as compared with the condition of the property when originally
constructed or acquired and which prevent future environmental contamination are
capitalized. Expenditures which return a property to its condition at the time
of acquisition are expensed. Liabilities are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.
 
FOREIGN CURRENCY TRANSLATION
 
Assets and liabilities of the Company's foreign subsidiaries are translated
at the period-end exchange rate. Revenues and expenses are translated at an
average rate of exchange in effect during the period. Translation adjustments
are reported as a separate component of stockholder's equity.
 
EARNINGS PER SHARE
 
Earnings per share amounts are not presented as the Company's common stock
is not publicly traded.
 
CONCENTRATION OF CREDIT RISK
 
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable. To
minimize this risk, ongoing credit evaluations of customers' financial condition
are performed although collateral is generally not required. In addition, the
Company maintains allowances for potential credit losses.
 
RECLASSIFICATIONS
 
Certain amounts previously reported have been reclassified to conform to
the current year presentation.
 
3. INVENTORIES
 
Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1996            1997
                                                             ------------    ------------
<S>                                                          <C>             <C>
Inventories at FIFO and average cost:
  Finished and semi-finished.............................      $ 63,465        $ 81,871
  Raw materials..........................................        61,154          60,870
                                                               --------        --------
          Total..........................................       124,619         142,741
                                                               --------        --------
Inventories at LIFO:
  Finished and semi-finished.............................         4,658           1,382
  Adjustment to state inventories at LIFO value..........          (301)            (60)
                                                               --------        --------
          Total..........................................         4,357           1,322
                                                               --------        --------
                                                               $128,976        $144,063
                                                               ========        ========
</TABLE>



                                      F-10
<PAGE>   62

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
The carrying value of inventories approximates replacement cost.
 
Effective January 1, 1996, the Company changed its method of accounting for
spare parts and supplies at one of its major facilities from expensing them at
time of purchase to inventorying them and charging them to expense in the period
in which they are used. This method is consistent with the Company's practice at
its other operations and with prevailing industry practice and in management's
opinion, results in a better matching of costs with related revenues. The effect
of the change was to increase net income for the year ended December 31, 1996 by
$3.6 million, net of taxes of $2.4 million. Proforma results for the year ended
December 31, 1995 would not have been materially different from historical
results had this new method been employed.
 
4. DISCONTINUED OPERATIONS
 
In May 1997, the Company sold Georgetown Wire Company, Inc. and Tree Island
Industries, Ltd. (the "West Coast Wire Business") for approximately $56.0
million, resulting in an estimated loss on disposition of $23.9 million, net of
taxes. Accordingly, the results of operations, cash flows and net assets of this
business have been classified as discontinued operations for all periods
presented. The Company has recorded a net tax benefit of $17.1 million on the
transaction; of this amount, $15.4 million was recorded as a deferred tax asset
in connection with finalizing the purchase accounting. The remaining tax benefit
of $1.7 million has been netted against the loss from discontinued operations.
The West Coast Wire Business had combined annual sales of $124.3 million and net
earnings of $2.4 million in 1996.
 
5. SUMMARIZED FINANCIAL INFORMATION OF GSTOC
 
The 12% Notes and the 12 1/4% Notes were issued by GSTOC and are unconditionally
guaranteed by the Company. Pursuant to Securities and Exchange Commission
disclosure requirements, summarized financial information for GSTOC is provided
below. Summarized financial information follows:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1996            1997
                                                             ------------    ------------
<S>                                                          <C>             <C>
Current assets...........................................      $266,105        $191,164
Noncurrent assets........................................       321,132         337,626
                                                               --------        --------
          Total assets...................................      $587,237        $528,790
                                                               ========        ========
Current liabilities......................................      $110,017        $100,405
Noncurrent liabilities...................................       401,844         371,485
                                                               --------        --------
          Total liabilities..............................       511,861         471,890
                                                               --------        --------
Stockholder's equity.....................................        75,376          56,900
                                                               --------        --------
          Total liabilities and equity...................      $587,237        $528,790
                                                               ========        ========
</TABLE>

                                      F-11
<PAGE>   63

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                            ------------------------------------------
                                                            DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                                1995           1996           1997
                                                            ------------   ------------   ------------
<S>                                                         <C>            <C>            <C>
Net Sales.................................................    $372,669       $638,359       $618,664
Cost of products sold.....................................     329,348        569,139        544,954
Selling, general & administrative expenses................      16,202         24,026         24,629
Depreciation and amortization.............................       6,976         23,365         25,761
Costs of combining operations.............................       4,866
                                                              --------       --------       --------
  Operating profit........................................      15,277         21,829         23,320
Interest expense..........................................     (21,000)       (39,950)       (39,434)
Fees from joint ventures..................................       1,357          3,132          3,636
Interest income and other, net............................         841            386            322
                                                              --------       --------       --------
Income (loss) from continuing operations before income tax
  and cumulative effect of accounting change..............      (3,525)       (14,603)       (12,156)
Income tax (expense) benefit..............................          24          6,256          3,910
                                                              --------       --------       --------
Income (loss) from continuing operations and cumulative
  effect of accounting change.............................      (3,501)        (8,347)        (8,246)
Discontinued operations:
  Income (loss) from discontinued operations..............        (609)         2,402          1,402
  Loss on disposal of discontinued operations.............                                   (23,965)
Cumulative effect of change in accounting for spare parts
  and supplies inventories................................                      3,556
                                                              --------       --------       --------
          Net income (loss)...............................    $ (4,110)      $ (2,389)      $(30,809)
                                                              ========       ========       ========
</TABLE>


6. INVESTMENTS IN JOINT VENTURES
 
Investments in associated companies (joint ventures, partnerships, and companies
in which there is a 20% or more interest, but not control) accounted for using
the equity method are as follows:
 
<TABLE>
<CAPTION>
                                                                       INVESTMENT AMOUNT
                                                                  ---------------------------
                                                       PERCENT    DECEMBER 31,   DECEMBER 31,
                                                      OWNERSHIP       1996           1997
                                                      ---------   ------------   ------------
<S>                                                   <C>         <C>            <C>
Donhad Pty. Ltd
  (Australia).......................................    40.0%       $ 6,383        $ 5,965
Moly-Cop Canada
  (Canada)..........................................    50.0%         4,577          3,985
GST Philippines
  (Philippines).....................................    37.5%           106            121
SIMEC-Moly-Cop
  (Mexico)..........................................    50.0%         2,481          2,495
Sidercorp, S.A
  (Peru)............................................    33.3%        12,213         14,827
American Iron Reduction LLC
  ("AIR") (U.S.)....................................    50.0%         5,001         13,553
Lucchini Siderurgica, SpA
  (Italy and Sweden)................................    49.0%           336            693
                                                                    -------        -------
                                                                    $31,097        $41,639
                                                                    =======        =======
</TABLE>



                                      F-12
<PAGE>   64

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
Aggregate summarized balance sheets and results of operations of associated
companies accounted for using the equity method are as follows:
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                                  1995
                                                              ------------
                                                                FOREIGN
                                                              ------------
<S>                                                           <C>
Net sales...................................................    $  123,688
Operating profit............................................        10,054
Net income..................................................         8,471
</TABLE>
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1996
                                                            AND THE YEAR THEN ENDED
                                                         ------------------------------
                                                         FOREIGN      U.S.      TOTAL
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Current Assets.........................................  $138,514   $  1,842   $140,356
Properties.............................................    88,016     48,079    136,095
Total Assets...........................................   249,860     62,652    312,512
Current Liabilities....................................    67,611                67,611
Total Liabilities......................................   175,524     57,652    233,176
Net Sales..............................................   237,265               237,265
Operating Profit.......................................    32,069                32,069
Net Income.............................................    14,284                14,284
</TABLE>
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1997
                                                            AND THE YEAR THEN ENDED
                                                         ------------------------------
                                                         FOREIGN      U.S.      TOTAL
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Current Assets.........................................  $193,270   $ 11,740   $205,010
Properties.............................................   129,539    190,492    320,031
Total Assets...........................................   352,232    212,179    564,411
Current Liabilities....................................   124,657      1,007    125,664
Total Liabilities......................................   275,028    184,915    459,943
Net Sales..............................................   284,179               284,179
Operating Profit.......................................    38,377                38,377
Net Income.............................................    18,698                18,698
</TABLE>
 
In March 1996, the Company's Peruvian subsidiary, Acerco S. A., and two joint
venture partners through Sidercorp S.A. ("Sidercorp"), acquired approximately
ninety-six percent of the outstanding common stock of Empresa Siderurgica del
Peru S.A., ("Siderperu"). Each of the joint venture partners made an initial
investment of $11.1 million and owns one-third of the outstanding capital stock
of Sidercorp. Under the terms of the acquisition, Acerco is the operating
partner of Siderperu. Also, in connection with the acquisition, Siderperu
entered into a Technical Assistance Agreement with each of Acerco and GST and
entered into a Steel Bar Supply Agreement with Acerco and the Company's Chilean
subsidiary, MolyCop Chile S.A.


                                      F-13
<PAGE>   65

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
In June 1996, the Company entered into an agreement to form a new Italian joint
venture called GSI Lucchini SpA. The joint venture, 49% owned by the Company,
manufactures and sells grinding media. Manufacturing assets and spare parts
inventory from the Company's Cividale forged ball plant were sold to the joint
venture and the new facility commenced operations in March 1997. Operations at
the Cividale facility ceased at the end of October, 1996.
 
The Company, through GSTOC, and Birmingham Steel are each 50% shareholders
in a joint venture, American Iron Reduction LLC, (AIR) which has recently
completed the construction of a Direct Reduced Iron (DRI) facility in Convent,
Louisiana. This DRI facility is expected to produce approximately 1.2 million
metric tons of DRI annually. DRI is a substitute for steel scrap used in the
Company's steel making facilities. The Company made an initial non-cash equity
contribution of $5.0 million, cash contributions of $8.6 million during 1997 and
is committed to make additional equity investments of approximately $5.6 million
in 1998. Under certain circumstances, the Company may be required to make an
additional equity contribution of $7.5 million. The Company also entered into a
DRI purchase agreement with AIR to purchase up to 600,000 metric tons of DRI
annually. The construction and long-term financing was obtained by AIR on a
non-recourse basis to GSTOC and the Company.
 
The Company's recorded investment in equity companies is approximately $1.8
million less than its share of the underlying equity of the associated companies
at December 31, 1997. The difference results from the 1993 acquisition and is
being amortized over approximately 10 years, which is the estimated weighted
average life of the related assets.
 
All of the joint ventures are invoiced technical service fees pursuant to
technology and management support agreements. These amounts are included in the
accompanying income statements as a separate component of other income.
 

7. PROPERTIES
 
Properties consist of the following:
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,    DECEMBER 31,
                                                                    1996            1997
                                                                ------------    ------------
<S>                                                             <C>             <C>
     Land and leaseholds....................................      $ 13,255        $ 13,895
     Buildings and improvements.............................        47,623          49,421
     Machinery and equipment................................       237,614         256,102
     Construction in progress...............................         3,989           7,388
                                                                  --------        --------
                                                                   302,481         326,806
     Less accumulated depreciation..........................       (39,079)        (65,849)
                                                                  --------        --------
                                                                  $263,402        $260,957
                                                                  ========        ========
</TABLE>
 
To participate in certain local government sponsored programs, the Kansas City
operations structured an arrangement with the city government of Kansas City,
Missouri whereby GSTOC purchased certain industrial revenue bonds and leases the
project equipment through November 1, 1999. At any time during the term of the
lease, the Kansas City operations, pursuant to a purchase option, can fully
extinguish the lease obligation with the bonds and reacquire legal title to the
project equipment.
 
The Company capitalized $0.9 million in interest during 1996 and none in 1997.


                                      F-14
<PAGE>   66

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
8. PAYABLES AND ACCRUED LIABILITIES
 
Payables and accrued liabilities consist of the following:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1996           1997
                                                              ------------   ------------
<S>                                                           <C>            <C>
Trade payables..............................................    $ 94,679       $ 86,015
Salaries and wages..........................................      14,269         12,936
Accrued interest payable....................................       9,639         10,509
Other.......................................................      32,839         28,639
                                                                --------       --------
                                                                $151,426       $138,099
                                                                ========       ========
</TABLE>
 
9. NON-RECURRING COSTS OF COMBINING OPERATIONS
 
The Company recorded a pre-tax charge of $4.9 million in the fourth quarter
of 1995 for the costs of combining the operations of GST and GII. This charge
included costs for the relocation of the corporate headquarters to Charlotte,
North Carolina, severance costs, relocation costs for transferring employees and
the estimated costs associated with closing a subsidiary.
 

10. SHORT-TERM AND LONG-TERM DEBT
 
Short-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                           DECEMBER 31,          DECEMBER 31,
                                               1996                  1997                   1997
              INTERNATIONAL                OUTSTANDING    OUTSTANDING   AVAILABILITY    AVERAGE RATE
              -------------                ------------   -----------   -------------   ------------
<S>                                        <C>            <C>           <C>             <C>
Chile....................................    $    --        $ 3,752        $18,800         10.15%
Peru (Adesur)............................         --          2,316          3,200          8.27%
Peru (Acerco)............................     10,946          4,646          1,328          8.47%
Europe...................................      4,771             80          3,563         11.80%
                                             -------        -------        -------
          Total..........................    $15,717        $10,794        $26,891
                                             =======        =======        =======
</TABLE>
 
International borrowing arrangements are outstanding under several
uncollateralized credit lines in Chile and Peru, and collateralized and
uncollateralized short-term credit lines in Europe. The borrowings are utilized
for general corporate purposes and working capital requirements. In accordance
with the senior note indenture limitations, these credit lines are limited to
85% of accounts receivable and 65% of inventory. These lines may be unsecured or
secured by accounts receivable, inventory and other current assets.

                                      F-15
<PAGE>   67

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1996            1997
                                                             ------------    ------------
<S>                                                          <C>             <C>
12% Senior notes due September 1, 2004, unsecured and
  guaranteed by the Company, interest payable
  semi-annually..........................................      $125,000        $125,000
12 1/4% Senior notes due October 1, 2005, unsecured and
  guaranteed by the Company, interest payable
  semi-annually..........................................       125,000         125,000
$50,000 Long-term note due in quarterly installments to
  September 30, 2002, secured by certain property, plant
  and equipment of GSTOC, GSC and FWC. Interest payable
  monthly/quarterly at the Company's option based upon
  fixed margin over LIBOR or the prime rate (8.5% at
  December 31, 1997).....................................        49,375          48,875
$120,000 Revolving credit facility due September 30,
  2001, secured by accounts receivable, inventory and
  other current assets of GSTOC and subsidiaries,
  interest payable monthly/quarterly at the Company's
  option based upon varying margin over LIBOR or the
  prime rate (8.9% at December 31, 1997).................        61,109          22,058
$8,000 Unsecured MEI term note due in quarterly
  installments commencing March 31, 1999 to December 31,
  2000, interest payable quarterly based upon varying
  margins over LIBOR or the prime rate (6.9% at December
  31, 1997)..............................................         8,000           8,000
$9,000 Unsecured MEI revolving credit agreement due June
  30, 1999, interest payable quarterly based upon varying
  margins over LIBOR or the prime rate (8.5% at December
  31, 1997)..............................................            81           4,381
Long-term note due in annual installments to July 31,
  1999, secured by certain property, plant and equipment
  of MEI, interest has been imputed at 5%................           690

Unsecured Acerco S.A. long-term note due on August 8,
  2000. Interest payable based on a fixed rate over the
  one year LIBOR rate (8.12% at December 31, 1997).......                         2,026
Other....................................................           161              48
                                                               --------        --------
                                                                369,416         335,388
Less current portion.....................................          (862)           (500)
                                                               --------        --------
                                                               $368,554        $334,888
                                                               ========        ========
</TABLE>

                                      F-16
<PAGE>   68

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
The fair value of the 12% Notes and the 12 1/4% Notes is $136.7 million
and $139.7 million, respectively, based on the market trading price at December
31, 1997. The carrying value of all other long-term debt approximates fair
value.
 
The Revolving Credit Facility provides for up to $120.0 million inclusive
of letters of credit, limited by a borrowing base to specified percentages of
eligible accounts receivable and inventories of GSTOC and subsidiaries. At
December 31, 1997, $17.5 million of letters of credit were outstanding, and
unused availability under the facility at December 31, 1997 was $80.5 million.
The facility requires payment of a commitment fee on the unused portion of the
line of credit.
 
The unsecured MEI revolving credit agreement permits borrowings on the
revolving line of credit up to $9.0 million. Unused availability under the
facility was $4.6 million at December 31, 1997. An annual commitment fee is due
on the unused balance of the revolving line of credit.
 
Several of the debt agreements require the Company to comply with certain
covenants; the Company is in compliance with these covenants at December 31,
1997.
 
The aggregate maturities of long-term debt at December 31, 1997 are as
follows:
 
<TABLE>
<S>                                                           <C>
1998........................................................  $    500
1999........................................................     8,881
2000........................................................     6,574
2001........................................................    22,558
2002........................................................    46,875
Thereafter..................................................   250,000
                                                              --------
                                                              $335,388
                                                              ========
</TABLE>
 
11. EMPLOYEE BENEFIT PLANS
 
DEFINED BENEFIT PENSION PLANS
 
The Company has several qualified non-contributory employee pension plans
covering most employees. Plans covering most salaried employees provide benefits
based on employees' years of service and compensation. Defined benefit plans
covering most hourly employees provide benefits based on employees' years of
service. The weighted average discount rate used in developing the actuarial
present values of benefit obligations was 7.75% at December 31, 1996 and 7.50%
at December 31, 1997. The expected long-term rate of return on plan assets was
9.5% for 1996 and 1997. As part of the acquisition agreement, Armco retained the
pension liability for all retirees as of November 11, 1993 as well as the
accrued pension liability as of the November, 1993 acquisition for all Armco
employees employed by GSTOC. The Company established new and different pension
plans for the employees and did not retain any liability for service prior to
the November, 1993 acquisition.
 
Assets of the qualified defined benefit plans are administered by a trustee and
consist primarily of units of certain collective trust funds, and diversified
mutual funds.


                                      F-17
<PAGE>   69

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
In accordance with GII's union contract, GII committed to accrue (until December
1996) a fixed amount per hour worked to provide increased retirement benefits
for the steel division union employees, to periodically amend the union
employees' pension plan (the "Union Plan") and to contribute the accrued amount
to the Union Plan's trust to provide for the increased benefits. The amount
charged against income was $1.2 million during 1996 and $1.2 million was accrued
for these increased benefits at December 31, 1996.
 
The net periodic pension cost of the Company's plans at the dates noted was as
follows:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                --------------------------------------------
                                                DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                    1995            1996            1997
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>
Service cost................................      $ 3,357         $ 3,630         $ 3,728
Interest cost on projected benefit
  obligations...............................        2,336           3,020           3,852
Actual return on plan assets................       (5,259)         (4,201)         (8,004)
Net amortization and deferral...............        2,735           1,416           5,983
                                                  -------         -------         -------
                                                  $ 3,169         $ 3,865         $ 5,559
                                                  =======         =======         =======
</TABLE>
 
The following table sets forth the combined qualified defined benefit plans'
funded status and amounts recognized in the accompanying balance sheets at:
 
<TABLE>
<CAPTION>
                                   PLANS WHOSE ASSETS EXCEED        PLANS WHOSE ACCUMULATED
                                      ACCUMULATED BENEFITS           BENEFITS EXCEED ASSETS
                                  ----------------------------    ----------------------------
                                  DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                      1996            1997            1996            1997
                                  ------------    ------------    ------------    ------------
<S>                               <C>             <C>             <C>             <C>
Actuarial present value of
  accumulated benefit
  obligation:
  Vested......................      $(33,135)       $(10,564)             --        $(39,642)
  Non-vested..................        (2,874)         (1,197)             --          (5,182)
                                    --------        --------        --------        --------
Accumulated benefit
  obligations.................       (36,009)        (11,761)             --         (44,824)
Effect of actuarial
  projections.................        (5,231)         (5,528)             --               0
                                    --------        --------        --------        --------
Projected benefit
  obligations.................       (41,240)        (17,289)             --         (44,824)
Plans' assets at fair market
  value.......................        42,748          16,992              --          37,492
                                    --------        --------        --------        --------
Funded status.................         1,508            (297)             --          (7,332)
Unrecognized net (gain) loss
  due to past experience
  different from
  assumptions.................        (2,363)         (2,837)             --           9,471
                                    --------        --------        --------        --------
(Accrued) prepaid pension
  cost........................      $   (855)       $ (3,134)             --        $  2,139
                                    ========        ========        ========        ========
Additional minimum
  liability...................            --              --              --        $ (9,471)
Offsetting intangible asset...            --              --              --           9,471
                                    --------        --------        --------        --------
Net...........................            --              --              --              --
                                    ========        ========        ========        ========
</TABLE>
 
With respect to the accrued pension expense, $2.7 million and $12.2 million were
recorded in noncurrent liabilities at December 31, 1996 and 1997, respectively.
At December 31, 1996 and 1997, $1.7 million and $11.2 million were recorded in
prepaid expenses.

The assets and liabilities of the ME International Pension Plan for the United
Steelworkers of America Local 1028 Employees Plan were transferred to the United
Steelworkers multi-employer plan as of December 31, 1997.
 
The Company's funding policy is to meet or exceed the minimum amount required
under ERISA.


                                      F-18
<PAGE>   70

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
     Additionally, the Company has Supplemental Retirement Plans which cover
certain key executives. These plans are defined benefit pension plans and are
not intended to be qualified plans under the Internal Revenue Code. Benefits
payable under these plans are not funded; rather, the liability for future plan
benefits is recorded on the balance sheet and amounted to $0.4 million and $0.6
million at December 31, 1996 and 1997, respectively.
 
DEFINED CONTRIBUTION PLANS
 
The Company's subsidiaries have various defined contribution plans which cover
substantially all of the salaried and hourly employees. The Company recorded
expense related to those plans of $0.8 million, $0.5 million and $0.5 million
for the years ended December 31, 1995, 1996 and 1997, respectively.
 
POST RETIREMENT BENEFITS OTHER THAN PENSIONS
 
The Kansas City operations provide certain health care, life and other post
retirement benefits other than pensions ("OPEB") to current and future hourly
union retirees and certain salaried retirees hired prior to January 1, 1990.
Armco retained the liability for post retirement benefits for all Armco retirees
as of the November, 1993 acquisition. Benefit expense begins to accrue on the
date of hire. The life insurance plan is non-contributory and covers retirees
only. The Company's policy is to fund benefits payable under these plans as the
obligations become due.
 
The following table sets forth the OPEB plans' obligations:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1996           1997
                                                              ------------   ------------
<S>                                                           <C>            <C>
Accumulated post retirement benefit obligation:
  Fully eligible active plan participants...................    $ (3,452)      $ (3,325)
  Retirees..................................................      (3,198)        (4,347)
  Other active plan participants............................     (13,138)       (16,017)
  Unrecognized net gain.....................................      (6,005)        (3,159)
                                                                --------       --------
  Accumulated post retirement benefit obligation ("APBO")...    $(25,793)      $(26,848)
                                                                ========       ========
</TABLE>
 
The APBO is recorded as a long-term obligation in the accompanying balance
sheets. The discount rate assumed in determining the APBO for both salaried and
hourly plans was 7.75% at December 31, 1996 and 7.50% at December 31, 1997.
 
Net periodic post retirement benefit cost included the following components:
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED
                                                    ------------------------------------------
                                                    DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                        1995           1996           1997
                                                    ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>
Service cost......................................     $  581         $  469         $  528
Interest cost.....................................      1,453          1,445          1,664
Actuarial gain....................................        (54)          (390)          (237)
                                                       ------         ------         ------
Net periodic post retirement benefit cost.........     $1,980         $1,524         $1,955
                                                       ======         ======         ======
</TABLE>
 
Increases in the Company's health care costs for salaried employees are limited
to the increase in the Consumer Price Index ("CPI"). Accordingly, health care
costs in excess of the CPI limit will be borne by the salaried participants. The
assumed annual increase in the CPI was 3% at December 31, 1997.

                                      F-19
<PAGE>   71

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
The Company's health care costs for hourly union employees are subject to future
changes in health care costs. Future health care costs are assumed to increase
7% to 10% in 1997 and descend to 5% by 1999 to 2002. A one percent increase in
the assumed health care trend rate in each year would increase the APBO at
December 31, 1996 and 1997 approximately $3.2 million and $2.9 million,
respectively and the net periodic post retirement benefit expense by $0.3
million in 1997.
 
12. INCOME TAXES
 
TAX EXPENSE
 
Total income tax expense (benefit) was allocated as follows:
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED
                                                    ------------------------------------------
                                                    DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                        1995           1996           1997
                                                    ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>
Income from continuing operations.................     $7,025         $3,815         $6,523
Income (loss) from discontinued operations........       (307)            98             97
Loss on disposal of discontinued operations.......                                   (1,704)
Cumulative effect of change in accounting.........                    $2,444
                                                       ------         ------         ------
                                                       $6,718         $6,357         $4,916
                                                       ======         ======         ======
</TABLE>
 
The provision (benefit) for income taxes attributable to income from continuing
operations consists of the following components:
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED
                                                    ------------------------------------------
                                                    DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                        1995           1996           1997
                                                    ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>
Current
  Federal.........................................     $1,175
  State and Local.................................        380         $  514         $  140
  Foreign.........................................      1,653          3,097          3,657
                                                       ------         ------         ------
     Total current................................      3,208          3,611          3,797
                                                       ------         ------         ------
Deferred
  Federal.........................................      1,304            283            308
  State and Local.................................        812         (1,214)          (388)
  Foreign.........................................      1,701          1,135          2,806
                                                       ------         ------         ------
     Total deferred...............................      3,817            204          2,726
                                                       ------         ------         ------
     Total income tax expense.....................     $7,025         $3,815         $6,523
                                                       ======         ======         ======
</TABLE>

                                      F-20
<PAGE>   72

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
TAX RATES
 
Differences between income taxes computed using the U.S. federal income tax
statutory rate of 35% and income tax expense recorded by the Company are
attributable to the following:
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                --------------------------------------------
                                                DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                    1995            1996            1997
                                                ------------    ------------    ------------
<S>                                             <C>             <C>             <C>
Income tax expense using the US statutory
  rate......................................      $ 4,817         $ 1,502         $ 4,540
Difference in rates on earnings of foreign
  subsidiaries and joint ventures...........       (1,569)            212          (1,789)
Unremitted earnings of foreign subsidiaries
  and joint ventures........................        2,300           4,711           3,725
State income taxes, net.....................          594            (455)           (161)
Change in valuation allowance...............                       (2,065)
Other.......................................          883             (90)            208
                                                  -------         -------         -------
          Total.............................      $ 7,025         $ 3,815         $ 6,523
                                                  =======         =======         =======
</TABLE>
 
DEFERRED TAXES
 
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax net
operating loss ("NOL"), credit carryovers and certain adjustments related to the
purchase price reallocation (see Note 1).
 
Deferred tax liabilities (assets) are comprised of the following:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1996            1997
                                                             ------------    ------------
<S>                                                          <C>             <C>
Inventory................................................      $  3,184        $  3,826
Basis in foreign subsidiaries............................                        15,285
Intangibles..............................................         1,290           1,422
Properties...............................................        44,492          45,184
                                                               --------        --------
Gross deferred tax liabilities...........................        48,966          65,717
                                                               --------        --------
Long-term employee health obligations....................        (9,543)         (9,999)
NOL, AMT credit and ITC credit carryovers................       (20,144)        (52,695)
Book liabilities not currently deductible for tax........        (3,828)         (2,713)
Deferred compensation and other employee benefits........        (2,721)         (1,679)
Basis in foreign subsidiaries............................        (2,343)
Vacation accrual.........................................        (1,636)         (1,667)
Other, net...............................................          (131)            201
                                                               --------        --------
Gross deferred tax assets................................       (40,346)        (68,552)
                                                               --------        --------
Deferred tax asset valuation allowance...................           400           8,910
                                                               --------        --------
          Net deferred tax liability.....................      $  9,020        $  6,075
                                                               ========        ========
</TABLE>


                                      F-21
<PAGE>   73

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
The net change in the valuation allowance for deferred tax assets for the year
ended December 31, 1997 was an increase of $8.5 million. Management has
determined based upon the Company's expectations for the future that taxable
income of the Company will, more likely than not, be sufficient to recognize the
gross deferred tax assets, as adjusted for the valuation allowance.
 
At December 31, 1997, the Company has NOL carryforwards for U.S. federal income
tax purposes of approximately $123.0 million which are available to offset
future federal taxable income and will begin to expire in 2010. In addition, the
Company has alternative minimum tax credit carryforwards of approximately $5.7
million which are available to reduce future U.S. federal regular income taxes
over an indefinite period.
 
The Company's foreign subsidiary in Italy has a foreign tax loss carryforward of
approximately $0.8 million at December 31, 1996 and 1997. The carryforward is
available to reduce future taxable income of the subsidiary through 1998. A
valuation allowance of $0.4 million at December 31, 1996 and 1997 has been
provided on the tax loss carryforward. Pursuant to the Purchase and Sale
Agreement, any tax benefit realized from the tax loss carryforward will be
shared equally with Armco. To the extent a net tax benefit is recognized in
excess of the subsidiary's remaining net deferred tax asset, the benefit will be
allocated first as a purchase price adjustment which will reduce other
noncurrent intangible assets. Any remaining tax benefit recognized will reduce
income tax expense.
 
Deferred tax expense has been provided for the portion of the unremitted
earnings of foreign subsidiaries and joint ventures that the Company anticipates
will be repatriated. Provision has not been made for U.S. income tax or foreign
withholding tax on approximately $9.8 million of unremitted earnings of foreign
subsidiaries and joint ventures, as those earnings are considered to be invested
indefinitely. Such earnings could become taxable upon the sale or liquidation of
these foreign operations or upon the remittance of dividends in excess of the
percentage the Company has estimated to be repatriated. Determination of the
amount of unrecognized deferred U.S. income tax associated with these earnings
is not practicable because such amounts depend on the Company's future ability
to claim foreign tax credits which cannot currently be predicted. Foreign
withholding taxes of approximately $0.3 million would be payable upon the
remittance of the portion of unremitted earnings considered to be invested
indefinitely.
 
13. CLASS A COMMON STOCK AND STOCKHOLDERS' EQUITY
 
STOCK OPTIONS -- GSI
 
The GSI Board of Directors has granted stock options of GSI to certain officers
and employees which provide the option to purchase common stock of GSI. These
options consist of two general types. Time Options vest over a five year period
from the date of the grant; however, vesting is accelerated upon the occurrence
of an Acceleration Event, as defined. Target Options vest after a specified
period of time unless there is an Acceleration Event or an Exercise Event, as
defined. Upon the occurrence of an Acceleration Event or Exercise Event, all or
some portion of the target options granted become immediately exercisable
depending on achievements of predetermined investor return multiples. Those not
currently exercisable remain outstanding through the original vesting date.
 
Both types of options are non-qualified, have anti-dilution provisions, and have
been granted at exercise prices not less than 100% of the fair market value of
the stock at the date of option grant.


                                      F-22
<PAGE>   74

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
Stock option activity was as follows:
 
<TABLE>
<CAPTION>
                                                   TIME        TARGET      AVERAGE OPTION
                                                  OPTIONS      OPTIONS     PRICE PER SHARE
                                                 ---------    ---------    ---------------
<S>                                              <C>          <C>          <C>
Outstanding at December 31, 1993.............      644,123    1,932,368         $ .10
Options granted..............................    1,203,384       93,087         $5.63
                                                 ---------    ---------
Outstanding at December 31, 1994.............    1,847,507    2,025,455         $1.95
Options granted..............................      995,000                      $9.00
Options cancelled............................      (44,377)     (52,942)        $1.51
                                                 ---------    ---------
Outstanding at December 31, 1995.............    2,798,130    1,972,513         $3.43
                                                 ---------    ---------
Options granted..............................       90,000                      $9.00
Options cancelled............................     (170,368)     (58,163)        $3.99
Options exercised............................       (5,857)                     $ .10
                                                 ---------    ---------
Outstanding at December 31, 1996.............    2,711,905    1,914,350         $3.51
                                                 ---------    ---------
Options granted..............................      922,000                      $7.00
Options cancelled............................      (74,133)                     $6.82
                                                 ---------    ---------
Outstanding at December 31, 1997.............    3,559,772    1,914,350         $4.06
                                                 =========    =========
Exercisable at December 31, 1994.............      323,954           --         $3.20
Exercisable at December 31, 1995.............      956,555      519,489         $2.61
Exercisable at December 31, 1996.............    1,542,079    1,276,143         $2.72
Exercisable at December 31, 1997.............    2,084,752    1,318,754         $3.30
</TABLE>
 
At December 31, 1997 there were 350,785 options outstanding which have been
approved by the Board of Directors, but not yet granted. Exercise prices have
not been determined for these options.
 
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS 123), "Accounting for Stock-Based
Compensation." This standard defines a fair value based method of accounting for
an employee stock option or similar equity instrument. This statement gives
entities a choice to recognize related compensation expense by adopting the new
fair value method or to continue to measure compensation using the intrinsic
value approach under Accounting Principles Board (APB) Opinion No. 25, the
former standard. If the former standard for measurement is elected, SFAS 123
requires supplemental disclosure to show the effect of using the new measurement
criteria. The Company has elected to continue using the measurement prescribed
by APB Opinion No. 25.
 
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Assuming any
compensation expense for the GSI options would reduce net income of GSI, the
Company's pro forma information follows:
 
<TABLE>
<CAPTION>
                                                          1995      1996       1997
                                                         ------    ------    --------
<S>                                                      <C>       <C>       <C>
Pro forma net income after adjustment for stock
  option expense.....................................    $6,074    $6,040    $(16,633)
</TABLE>
 
The weighted Black-Scholes value of options granted during 1995, 1996 and 1997
was $1.52, $1.52, and $2.39. Value was estimated using an expected life of 6
years, no dividends, volatility of .27, and risk-free interest rates of 6%, 6.2%
and 6.2% in 1995, 1996 and 1997.

MANAGEMENT COMMON STOCK
 
The terms of some management agreements include call provisions whereby the GSI
shares held by certain members of management may be purchased, by either GSI or
other shareholders, at either unrecovered original cost or fair market value,
depending on the event of termination as defined. At December 31, 1997, 870,682
shares of common stock of GSI were held, directly or beneficially, by members of
management.

                                      F-23
<PAGE>   75

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
14. RELATED PARTY TRANSACTIONS
 
TRANSITION SERVICES AND OTHER ANCILLARY AGREEMENTS
 
Effective January 1, 1996, the officers, directors and management employees
of GST were transferred from GST to GSI. The cost and expenses of this
management group are charged to GST under a management services agreement and
included in selling, general and administrative expenses. This charge amounted
to $13.4 million and $11.8 million in 1996 and 1997, respectively, and is
comparable to the cost incurred directly by GST in 1995.
 
Certain agreements were entered into as part of the Purchase and Sale
Agreement between the Company and Armco. The Company leases certain facilities
from Armco at its Kansas City operations for which it pays a nominal rental and
the associated property taxes, maintenance and utilities. The Company and Armco
also agreed to share in any net tax benefit that might be realized in
conjunction with the usage of the Ardel (Belgium) and GST Europa SpA (Italy) net
operating loss carryforwards existing at the acquisition date.
 
TRANSACTIONS AMONG STOCKHOLDERS/SIGNIFICANT CUSTOMER
 
Certain stockholders of GSI are party to other transactions with the
Company. General Electric Capital Corporation acted as an agent in placement of
certain of the Company's existing domestic debt. Bain Capital provides certain
management support services for which it receives a fee not to exceed $1.0
million annually, exclusive of out-of-pocket expenses.
 
One stockholder of GSI is a major customer of the Company's Kansas City
wire rod operation. Sales to this customer for the years ended December 31,
1995, 1996 and 1997 comprised 13.8%, 11.8% and 10.3% of the Company's
consolidated sales, respectively. Trade accounts receivable as of December 31,
1996 and December 31, 1997 include $7.0 million and $6.5 million, respectively,
due from such stockholder. The Company and the stockholder have entered into a
contract for the Company to supply a substantial portion of stockholder's wire
rod needs through December 31, 2000. This contract is renewable if certain
conditions are present.
 
15. COMMITMENTS AND CONTINGENCIES
 
LITIGATION AND OTHER CONTINGENCIES
 
In August 1996, Samsung America, Inc. ("Samsung") filed an action in the
Supreme Court of the state of New York seeking monetary damages against GSI, the
Company, its Peruvian subsidiary, Acerco, and Acerco's partners in the Siderperu
joint venture, collectively, ("the Defendants"). Samsung seeks to recover
purported damages of $48.5 million and punitive damages of $10.0 million and
alleges that the Defendants failed to honor a written contract which entitled
Samsung to obtain an equity interest in Siderperu and to provide certain
distribution and trading services on an exclusive basis. In August 1997, the
action was dismissed from the Supreme Court of the State of New York. Samsung
has appealed the dismissal decision to the 1st Department Appellate Division of
the State of New York. The Company believes that it has substantial and
meritorious defenses and will defend itself accordingly.

There are various claims pending involving the Company arising out of the normal
course of business. In management's opinion, the ultimate liability resulting
therefrom will not materially affect the financial position or results of
operations of the Company.

                                      F-24
<PAGE>   76

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
INDEMNIFICATIONS FROM ARMCO
 
As part of the Purchase and Sale Agreement with Armco, the Company has been
indemnified by Armco for known environmental matters and known quantified income
tax issues related to periods prior to November 12, 1993. The Company has also
been indemnified against all unknown other pre-closing environmental matters or
conditions for a period of six years from closing. Armco's indemnity covers 100%
of the first $10.0 million subject to an aggregate deductible of $0.3 million
and a fifty-fifty sharing for aggregate claims between $10.0 million and $15.0
million with a maximum cap of $12.5 million. Management of the Company is not
aware of any current information which would indicate that Armco will not be
able to satisfy its obligation to the Company under these indemnifications.
 
ENVIRONMENTAL MATTERS
 
The Company's U.S. facilities are subject to a broad range of federal,
state and local environmental requirements, including those governing discharges
to the air and water, the handling and disposal of solid and hazardous wastes
and the remediation of contamination associated with releases of hazardous
substances at Company facilities and associated offsite disposal locations.
Liabilities with respect to hazardous substance releases arise principally under
the federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and similar state laws, which impose strict, retroactive, joint and
several liability upon statutorily defined classes of "potentially responsible
parties." The Company's foreign facilities and joint ventures are subject to
varying degrees of environmental regulation in the jurisdictions in which those
facilities are located.
 
Based on the continuing review of environmental requirements, the Company
believes that it is currently in compliance with environmental requirements.
Nevertheless, as is the case with steel producers in general, if a release of
hazardous substances occurs on or from the Company's properties or any
associated offsite disposal locations, or if contamination from prior activities
is discovered at such properties or locations, the Company may be held liable
and may be required to pay the cost of remedying the condition or satisfying
third party damage claims. The amount of any such liability could be material.
The Company devotes considerable resources to ensuring that its operations are
conducted in a manner that reduces such risks.
 
The Company has several environmental issues currently under discussion
with various federal and local agencies, some of these involve compliance and/or
remediation at certain properties. During 1996 and 1997, the Company spent $0.2
million and $0.1 million, respectively, on environmental matters.
 
The Company records certain operating expenses for environmental
compliance, testing and other environmental related costs as expenses when
incurred. When it has been possible to determine reasonable estimates of
liabilities related to environmental issues, based upon information from
engineering and environmental specialists, the Company has made provisions and
accruals. At December 31, 1997, $2.7 million was accrued for environmental
related issues. The Company believes, based upon information currently available
to management, that it will not require expenditures to maintain compliance with
environmental requirements which would have a material adverse effect on its
financial condition, results of operations or competitive position.

                                      F-25
<PAGE>   77

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
PERU TAX CONTINGENCIES
 
The Company's Peruvian subsidiaries had received various notices of
proposed tax assessments from the Peruvian tax authorities for the years 1985
through 1991, the balances of which aggregated $16.9 million as of December 31,
1994. Due to the large number of unsettled tax cases throughout the Peruvian tax
system, the Government of Peru issued a one-time amnesty program in October
1996. The Company has elected to participate in the amnesty program and has
settled all remaining proposed Peruvian tax assessments, including interest and
penalties, for a payment of approximately $0.3 million. The amounts paid for
resolution of the tax assessments were reimbursed in full by Armco under the
indemnification provisions of the agreement between Armco and the Company.
 
LABOR RELATIONS
 
A significant portion of the Company's employees are covered by collective
bargaining agreements negotiated with various unions. These agreements expire at
various times between April 1998 and November 2003. In the course of previous
contract negotiations, the Company has on occasion been affected by work
stoppages.
 
The collective bargaining agreement at the Kansas City facility expired on
March 31, 1997 and the Company and the United Steel Workers of America ("USWA")
were unable to agree on terms of a new labor agreement. A work stoppage at this
facility commenced on April 2, 1997. On June 13, 1997, the 650 employees covered
by this collective bargaining agreement ratified a new five and one-half year
agreement and returned to work. This facility has returned to full production.
 
The collective bargaining agreement with employees at the Company's
facility in Tempe, Arizona was due to expire in November, 1997. The Company has
successfully negotiated a new contract which extends until November, 2003.
 
The Company's collective bargaining agreement at the Georgetown, South
Carolina facility was due to expire on December 8, 1997. The Company and the
USWA were unable to agree on the terms of a new agreement and a work stoppage
commenced on December 5, 1997. On January 7, 1998, the 580 employees covered by
this agreement ratified a new sixty-two month agreement and returned to work.
 
The collective bargaining agreement with employees at the Company's
facility in Concepcion, Chile was due to expire on December 31, 1997. The
Company successfully negotiated a new contract which extends until December,
2002.
 
COMMITMENTS
 
The Kansas City operations have entered a ten year agreement, expiring in
2004, with a third party which will staff and manage its computer operations for
$0.9 million per year.
 
Rent expense under operating leases was $0.7 million, $4.1 million and $2.4
million for the years ended December 31, 1995, 1996 and 1997, respectively. The
Company has future minimum noncancelable operating lease commitments of the
following at December 31, 1997:
 
<TABLE>
<S>                                                           <C>
1998........................................................  $2,250
1999........................................................   1,762
2000........................................................   1,313
2001........................................................     839
2002........................................................     746
Thereafter..................................................     756
</TABLE>

                                      F-26
<PAGE>   78

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
16. GEOGRAPHIC INFORMATION
 
Financial information, by geographic region for the Company is presented below.
United States includes GSTOC and MEI. South America is principally comprised of
the Company's operations in Chile and Peru. Europe and Other includes the
Company's operations in Europe (principally Italy), Canada and other joint
venture interests around the world (Note 6).
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 1995 AND
                                                             THE YEAR ENDED DECEMBER 31, 1995
                                                         -----------------------------------------
                                                          UNITED     SOUTH     EUROPE
                                                          STATES    AMERICA   AND OTHER    TOTAL
                                                         --------   -------   ---------   --------
<S>                                                      <C>        <C>       <C>         <C>
Net sales..............................................  $430,165   $76,496    $33,088    $539,749
Equity in income of joint ventures.....................     2,875        --      1,200       4,075
Operating profit.......................................    23,610     6,936      1,250      31,796
Net income (loss)......................................      (178)    4,451      1,856       6,129
Identifiable assets....................................   645,189    45,545     24,466     715,200
Total liabilities......................................   564,407    28,127     16,057     608,591
Net assets.............................................    80,782    17,418      8,409     106,609
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 1996 AND
                                                             THE YEAR ENDED DECEMBER 31, 1996
                                                         -----------------------------------------
                                                          UNITED     SOUTH     EUROPE
                                                          STATES    AMERICA   AND OTHER    TOTAL
                                                         --------   -------   ---------   --------
<S>                                                      <C>        <C>       <C>         <C>
Net sales..............................................  $704,425   $86,203    $25,289    $815,917
Equity in income of joint ventures.....................     3,421     1,068      1,011       5,500
Operating profit.......................................    28,413     8,177      2,049      38,639
Net income (loss)......................................    (1,652)    6,054      2,033       6,435
Identifiable assets....................................   637,500    57,536     20,643     715,679
Total liabilities......................................   553,217    36,526     13,175     602,918
Net assets.............................................    84,283    21,010      7,468     112,761
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 1997 AND
                                                             THE YEAR ENDED DECEMBER 31, 1997
                                                         -----------------------------------------
                                                          UNITED     SOUTH     EUROPE
                                                          STATES    AMERICA   AND OTHER    TOTAL
                                                         --------   -------   ---------   --------
<S>                                                      <C>        <C>       <C>         <C>
Net sales..............................................  $690,758   $106,664   $12,312    $809,734
Equity in income of joint ventures.....................     2,679     3,003        513       6,195
Operating profit.......................................    33,657     9,982        559      44,198
Net income (loss)......................................   (27,014)    9,478      1,420     (16,116)
Identifiable assets....................................   567,521    67,020     11,736     646,277
Total liabilities......................................   507,444    39,695      3,977     551,116
Net assets.............................................    60,077    27,325      7,759      95,161
</TABLE>

                                      F-27
<PAGE>   79

                          GS TECHNOLOGIES CORPORATION
         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                 (DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
 
17. SELECTED QUARTERLY FINANCIAL DATA -- UNAUDITED (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                          1996                                1997
                                            ---------------------------------   ---------------------------------
                                            1(ST)    2(ND)    3(RD)    4(TH)    1(ST)    2(ND)    3(RD)    4(TH)
                                            ------   ------   ------   ------   ------   ------   ------   ------
<S>                                         <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Net sales.................................  $191.6   $213.1   $205.0   $206.2   $208.9   $184.5   $216.9   $199.4
Operating profit (loss)...................     4.6      9.9      9.5     14.6     13.1     (4.0)    18.3     16.8
Income (loss) from continuing
  operations..............................    (2.3)     0.7      0.4      1.6      3.0     (6.0)     5.2      4.3
Discontinued operations...................    (0.0)     0.2      0.7      1.5    (22.6)
Income (loss) before cumulative effect of
  accounting change.......................    (2.3)     0.9      1.1      3.1    (19.6)    (6.0)     5.2      4.3
Cumulative effect of change in accounting
  for spare parts and supplies (Note 3)...     3.6
                                            ------   ------   ------   ------   ------   ------   ------   ------
Net income (loss).........................     1.3      0.9      1.1      3.1    (19.6)    (6.0)     5.2      4.3
</TABLE>


18. AUDITED FINANCIAL STATEMENTS OF SIDER CORP S.A. AND SUBSIDIARY

The financial statements of Sider Corp S.A. and Subsidiary are included in the
Company's Form 10-K filing because this unconsolidated equity investee meets the
Security and Exchange Commission's definition of significance. These financial
statements were prepared in conformity with accounting principals generally
accepted in Peru. Generally accepted accounting principals in Peru provide for
the periodic write-up of fixed assets to appraised fair market values and do not
require recording deferred income tax assets.


                                      F-28


<PAGE>   80

  (The accounting principles referred to are those generally accepted in Peru)



REPORT OF INDEPENDENT AUDITORS


To the Stockholders and Board
of Directors of Sider Corp S.A.


We have audited the accompanying consolidated balance sheet of SIDER CORP S.A.
AND SUBSIDIARY (Empresa Siderurgica del Peru S.A. - SIDERPERU) as of December
31, 1997 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the year then ended, expressed in United
States currency (U.S. dollars). The preparation of these financial statements is
the responsibility of the Company's Management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Company's Management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sider Corp S.A. and
subsidiary at December 31, 1997, and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in Peru and the foreign currency translation procedures as
described in Note 2 to these financial statements.

January 30, 1998.


/s/ Hansen-Holm, Alonso & Co.
-----------------------------
  Antonio Alonso (Partner)
Peruvian Public Accountant
   Matriculation No.134



                                      F-29
<PAGE>   81

                          SIDERCORP S.A. AND SUBSIDIARY
           CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 (Note 2.a)
                                (In U.S. dollars)

<TABLE>
<CAPTION>
                           ASSETS                                        LIABILITIES AND STOCKHOLDERS' EQUITY
                           ------                                        ------------------------------------
<S>                                                <C>             <C>                                                  <C>    
 Current assets:                                                   Current liabilities:

    Cash and cash investments (Note 3)            $ 54,971,477        Revolving credit                                  $ 26,805,039
                                                   -----------                                                           -----------
    Trade accounts receivable (Note 4)              22,082,754        Current portion, long-term debt (Note 10)            9,071,944
                                                   -----------                                                           -----------
    Other accounts receivable:                                        Trade accounts payable                              57,032,762
       Interest receivable                              89,677                                                           -----------
       Other miscellaneous receivable (Note 5)       8,301,188        Other accounts payable:
                                                   -----------          Other miscellaneous payables (Note 8)              4,530,060
                                                                        Interest  payable                                  7,880,738
                                                     8,390,865          Provision for employees' severance indemnities       183,277
                                                   -----------          Other current liabilities (Note 9)                 5,552,838
                                                                                                                         -----------
    Inventories:
       Finished goods                               10,916,461                                                            18,146,913
       Work in process                               7,620,994                                                           -----------
       Raw materials                                22,497,815            
       Supplies and others                          13,441,982        Total current liabilities                          111,056,658
                                                   -----------
                                                                   Long-term debt (Note 10)                              109,435,962
                                                    54,477,252
                                                   -----------
 Prepaid expenses and taxes:                                       Deferred  income (Note 11)                             19,481,989
    Expenses                                         2,988,586                                                           -----------
    Income taxes                                     2,646,970
                                                   -----------            Total liabilities                              239,974,609
                                                                                                                         -----------
                                                     5,635,556
                                                   -----------     Minority interest (Note 12)                             3,263,405
                                                                                                                         -----------
            Total current assets                   145,557,904
                                                                   Stockholders' equity:

                                                                      Common stock                                        33,441,757
 Prepaid expenses                                    1,624,175        Retained earnings                                    9,751,523
 Fixed assets (Note 6)                             116,735,489                                                           -----------
 Goodwill (Note 7)                                  22,513,726
                                                   -----------            Total stockholders' equity                      43,193,280
                                                                                                                         -----------
           Total assets                           $286,431,294
                                                   ===========            Total liabilities and stockholders' equity    $286,431,294
                                                                                                                         ===========
                                                               
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                      F-30
<PAGE>   82

                         SIDER CORP S.A. AND SUBSIDIARY
                   CONSOLIDATED STATEMENT OF INCOME (Note 2.a)
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                                (In U.S. dollars)

<TABLE>
 <S>                                                        <C>
Net sales                                                   $ 160,891,951
Cost of sales                                                (121,937,749)
                                                            -------------

       Gross margin                                            38,954,202
                                                            -------------
Operating (expenses) income:
   Sales and administrative expenses                           (7,629,932)
   Depreciation                                                (5,096,556)
   Amortization                                                  (592,782)
   Other (expense) income, net                                   (461,107)
                                                            -------------
                                                              (13,780,377)
                                                            -------------

       Operating income                                        25,173,825
                                                            -------------
Other (expense) income:
   Technical fee expense                                       (1,683,183)
   Gain on sale of fixed assets                                 2,865,474
                                                            -------------
                                                                1,182,291
                                                            -------------
Financial (expense) income:
   Interest expense                                           (16,381,032)
   Interest income                                              4,183,698
                                                            -------------
                                                              (12,197,334)
                                                            -------------

       Income before income tax                                14,158,782

Income tax (Note 13)                                             (934,457)
                                                            -------------

       Net income before minority interest                     13,224,325

Minority interest                                                (744,266)
                                                            -------------

       Net income                                           $  12,480,059
                                                            =============
</TABLE>

                     The accompanying notes are an integral
                        part of the financial statements.


                                      F-31
<PAGE>   83

                         SIDER CORP S.A. AND SUBSIDIARY
      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Note 2.a)
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                                (In U.S. dollars)

<TABLE>
<CAPTION>
                                                                               Retained earnings
                                                        --------------------------------------------------------------

                                                                       Currency
                                        Common           Legal       translation      Accumulated
                                         stock          reserve       adjustment         results              Total
                                      ----------       ---------    -------------     -------------       ------------
<S>                                   <C>              <C>          <C>               <C>                 <C>
Balance at December 31, 1996          $33,441,757            --        $(316,084)      $  3,131,005       $  2,814,921

    Adjustment                               --              --             --             (269,278)          (269,278)

    Advance payment of dividends             --              --             --           (4,615,385)        (4,615,385)

    Net income for the year                  --              --             --           12,480,059         12,480,059

    Translation adjustment                   --              --         (658,794)              --             (658,794)

    Legal assignation                        --        $5,052,071           --           (5,052,071)              --   
                                      -----------      ----------      ---------       ------------       ------------

Balance at December 31, 1997          $33,441,757      $5,052,071      $(974,878)      $  5,674,330       $  9,751,523
                                      ===========      ==========      =========       ============       ============
</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                      F-32
<PAGE>   84

                         SIDER CORP S.A. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 FOR THE YEAR ENDED DECEMBER 31, 1997 (Note 2.a)
                                (In U.S. dollars)

<TABLE>

<S>                                                                           <C>       
 OPERATING ACTIVITIES:

     Net income                                                               $ 12,480,059
     Adjustments to reconcile net income to cash flows provided by
         operating activities:
         Adjustment                                                               (269,278)
         Depreciation                                                            5,096,556
         Amortization of goodwill                                                  592,782
         Translation adjustment                                                   (658,794)
         Net changes in assets and liabilities:
            Trade accounts receivable                                           (2,910,329)
            Interest income receivable                                             (54,537)
            Other miscellaneous receivables                                     (6,798,665)
            Inventories                                                        (10,148,831)
            Prepaid expenses and taxes                                          (4,985,559)
            Trade accounts payable                                              26,036,333
            Other miscellaneous payables                                         1,564,378
            Interest payable                                                     1,231,980
            Provision for employees' severance indemnities                          (6,358)
            Other liabilities                                                   (5,092,178)
                                                                              ------------

                  Net cash provided by operating activities                     16,077,559
                                                                              ------------

 INVESTING ACTIVITIES:
    Acquisition of fixed assets                                                (21,985,956)
    Deferred income (Notes 6 and 10, proceeds regarding a sale of
        assets accompanied by a leaseback)                                      19,481,989
    Decrease of fixed assets, net cost                                             798,157
    Goodwill adjustments                                                            77,105
                                                                              ------------

                  Net cash used in investing activities                         (1,628,705)
                                                                              ------------

</TABLE>

                                                               (to be continued)

                                      F-33


<PAGE>   85

                                                                     (continued)

<TABLE>

<S>                                                                           <C>       
 FINANCING ACTIVITIES:

    Revolving credit, net                                                       25,685,249
    Long-term debt, net                                                         (7,489,696)
    Minority interest                                                             (402,849)
    Advance payment of dividends                                                (4,615,385)
                                                                              ------------

                  Net cash provided by financing activities                     13,177,319
                                                                              ------------

                  Net increase in cash                                          27,626,173

 CASH AT BANKS AT BEGINNING OF YEAR                                             27,345,304
                                                                              ------------

 CASH AT BANKS AT END OF YEAR                                                 $ 54,971,477
                                                                              ============
</TABLE>



                     The accompanying notes are an integral
                        part of the financial statements.


                                      F-34

<PAGE>   86

                         SIDER CORP S.A. AND SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 1997
                                (In U.S.dollars)

1.      ECONOMIC ACTIVITY OF THE COMPANY

        On March 21st., 1996, the Consortium formed by Acerco S.A., Wiese
        Inversiones Financieras S.A. and Stanton Capital Funding Ldc., each
        acquired a one third equity share in Sider Corp S.A., which
        simultaneously acquired 96.46% of Siderperu's common shares from the
        Peruvian Government.

        Sider Corp S.A. was incorporated in March 1996 to represent and control
        the above mentioned majority interest in the capital stock of Empresa
        Siderurgica del Peru S.A. - SIDERPERU (the Subsidiary, SIDERPERU),
        incorporated in 1971 and manufacturies and trading sales steel and steel
        related products.

        Inversiones Cofide S.A., is the entity representing the Peruvian
        Government. Pursuant to the right established by the Peruvian Government
        for employees participation, Siderperu's employees acquired the balance
        of 3.54% of Siderperu's share capital. Sider Corp S.A. however,
        currently owns 97.05% of Siderperu's share capital, after purchasing a
        portion of the employees' shares during 1996 and 1997.

2.      ACCOUNTING POLICIES AND/OR PRACTICES

        The following is a summary of the significant accounting policies and/or
        practices followed by the Company in the preparation and presentation of
        the consolidated financial statements:

        a.  Currency translation and consolidation basis of financial statements

            The statutory books and accounts of the Company are maintained in
            Peruvian currency (Nuevo sol, S/.); the related statutory
            consolidated financial statements are restated for inflation in
            accordance with Peruvian generally accepted accounting principles
            (Peruvian GAAP). The functional currency of the Company is the
            United States dollar. Based on the currency translation approach
            described below, the net exchange adjustment in U.S. dollars
            arising from translation is included in stockholders' equity
            under the caption "Translation adjustment".


                                      F-35
<PAGE>   87

               The translation of the consolidated financial statements into
               U.S. dollars was accomplished by translating the balance sheet in
               nuevos soles at December 31, 1997. Accordingly, inventories,
               prepaid expenses, fixed assets, goodwill, deferred income, common
               stock and retained earnings (except the results of operations for
               the period) were translated at the historical exchange rate in
               effect at the dates of acquisition or inception. All other assets
               and liabilities have been translated into U.S.dollars at the
               exchange rate at December 31, 1997 (S/.2.73 = US$1). The
               statement of income has been translated at historical monthly
               average rates of exchange, in effect during the year, except for
               depreciation and amortization, which were translated on the basis
               of the initial balance sheet aforementioned at the historical
               exchange rates in effect on the dates of acquisition or inception
               of fixed assets and goodwill, respectively.

               The consolidated financial statements comprise the accounts of
               separate entities Sider Corp S.A. and Subsidiary. All significant
               intercompany transactions have been eliminated.

               The statement of cash flows excludes the transaction related to
               the DRI plant for US$20,000,000 which is a non cash item, is
               presented in Machinery and equipment and its related lease
               obligation is presented in Long-term debt on the balance sheet.

        b.     Inventories

               Inventories are stated at cost, as determined in Note 2.a, which
               does not exceed market value. Cost is determined following the
               average cost method, except for inventories in transit which are
               valued on the basis of specific cost of acquisition.

        c.     Fixed assets

               Corresponds to fixed assets accounted for at cost, as determined
               in Note 2.a, at the rescue value established by an appraisal of
               an independent specialist as of December 31, 1994, before the
               privatization.

               Assets under capital lease obligations are accounted as fixed
               assets.

               Maintenance and repair expense is charged to the results of
               operations as incurred. Replacements and improvements are
               considered additions to fixed assets.

        d.     Depreciation

               Depreciation of fixed assets is computed based on historical
               cost, as determined in Note 2.a, following the straight-line
               method and based on estimated useful lives of 


                                      F-36
<PAGE>   88

               the respective assets. Depreciation is charged directly to the
               results of the period; therefore, it is not included in
               determining the cost of production.

               Based on a technical appraisal performed by independent
               specialist, in connection with the acquisition, the estimated
               useful lives of fixed assets were reassessed as of January 1st.,
               1996 and for subsequent periods, for statutory financial purposes
               only.

        e.     Amortization of goodwill

               Goodwill represents the excess cost over the fair value of assets
               acquired and is being amortized over forty years.

        f.     Provision for employees' severance indemnities

               These are severance indemnities payable which are accrued in full
               based on Peruvian labor regulations, and correspond to accrued
               liabilities for November and December 1997.

        g.     Income tax

               Provision for income tax payable was computed in accordance with
               Peruvian income tax regulations.

        h.     U.S. currency transactions

               Foreign currency balances expressed in U.S.dollars as of December
               31, 1997, are as follows:


<TABLE>
<S>                                                             <C>
                  Assets:

                      Cash and cash investments                 $ 54,419,731
                      Trade accounts receivable                   22,063,131
                      Interest  receivable                            89,677
                      Other miscellaneous receivable                  15,000
                                                                ------------
                                                                  76,587,539
                                                                ------------

                  Liabilities:
                      Revolving credit                            22,275,905
                      Trade accounts payable                      61,850,775
                      Other miscellaneous payable                    230,989
                      Interest payable                             6,785,462
                      Long-term debt                             118,507,906
                                                                ------------
                                                                 209,651,037
                                                                ------------

                         Net liabilities                        $133,063,498
                                                                ============
</TABLE>


                                      F-37
<PAGE>   89

3.      CASH AND CASH INVESTMENTS

         Comprises:

<TABLE>
<S>                                                    <C>  
            Petty cash                                 $     2,297
            Cash in bank accounts                        7,850,889
            Cash collateral (Note 10)                   12,917,837
            Cash in term deposits                       33,995,660
            Other                                          204,794
                                                       -----------

                                                       $54,971,477
                                                       ===========
</TABLE>

4.      TRADE ACCOUNTS RECEIVABLE

        Includes primarily accounts and notes receivable of US$17,004,000 and
        US$5,059,000, respectively, which are guaranteed by bank collateral 
        letters.

5.      OTHER MISCELLANEOUS RECEIVABLES

        Includes loans to shareholders of Sider Corp S.A. for US$7,384,615 which
        will be cancelled by subsequent dividends from SIDERPERU; and loans to
        employees of US$845,713, pursuant to a labor agreement from the former
        administration.

6.      FIXED ASSETS

        Comprises the following:

<TABLE>
<S>                                                         <C>         
             Cost:

                Land and improvements                       $  1,314,886
                Buildings and improvements                    27,421,545
                Machinery and equipment                      185,374,321
                Furniture and fixtures                         2,118,147
                Construction in progress                      30,725,052
                                                            ------------

                                                             246,953,951
                                                            ------------

             Accumulated depreciation                        130,218,462
                                                            ------------

             Net value                                      $116,735,489
                                                            ============
</TABLE>


                                      F-38
<PAGE>   90

        In 1996, taking into consideration the significant improvement realized
        through comprehensive maintenance and refurbishing of most processes,
        the Company reevaluated the useful lives of fixed assets supported
        additionally by a technical appraisal prepared by independent
        specialist. As a result, new estimated useful lives were assigned and
        have been applied since January 1st., 1996 for statutory purposes. These
        new lives resulted in the following depreciation rates: buildings and
        improvements, 1.5 and 3 percent (with 15 years remaining life);
        machinery and equipment, 5 percent; and furniture and fixtures 5
        percent.

        On December 30, 1997, Sider Corp S.A. entered into a sale leaseback
        transaction where machinery and equipment were sold to a local bank for
        US$20,000,000 under a capital lease arrangement. Accordingly, the fixed
        assets and related lease obligation (See Note 10), are reported on the
        Company's balance sheet. Additionally, Sider Corp S.A. executed a rental
        contract for the use of this asset by SIDERPERU for a four-year term
        renewable up to fourteen years for equal monthly installments of
        US$496,797.

7.      GOODWILL

        Results from the purchase price paid for the acquisition of SIDERPERU's
        common shares, being higher than the fair value of those shares at the
        date of acquisition. As of December 31, 1997 comprises the following:

<TABLE>
<S>                                                                    <C>         
            Goodwill                                                   $ 23,711,274
            Allocation effect of subsequent purchases                      (167,089)
                                                                       ------------

                                                                         23,544,185

            Less accumulated amortization                                (1,030,459)
                                                                       ------------

                                                                       $ 22,513,726
                                                                       ============
</TABLE>


                                      F-39
<PAGE>   91

8.      OTHER MISCELLANEOUS PAYABLE

        Comprises:

<TABLE>
<S>                                                                <C>       
           Other taxes payable                                     $2,531,437
           Vacations, salaries and other personnel payables         1,670,512
           Deposits by customers                                      163,770
           Other accounts payable                                      25,473
           Attorneys fees                                             138,868
                                                                   ----------

                                                                   $4,530,060
                                                                   ==========
</TABLE>

9.      OTHER CURRENT LIABILITIES

        Comprises:

<TABLE>

<S>                                                                <C>       
           Labor contingencies and downsizing reserves             $1,040,836
           Legal and tax contingencies reserve                        716,291
           Blast furnace maintenance reserve                        1,299,403
           Electricity (monthly reserve)                              839,702
           Technical services provision                                52,894
           Personnel services provision                               165,941
           Freight services provision                                 111,091
           Other provisions                                         1,227,048
           Sundry                                                      99,632
                                                                   ----------

                                                                   $5,552,838
                                                                   ==========
</TABLE>


10. LONG - TERM DEBT

        Corresponds mainly to financing from Inversiones Cofide S.A., as
        representative of Peruvian State for the acquisition of common shares of
        Empresa Siderurgica del Peru S.A. - SIDERPERU (Note 3); loans in foreign
        currency from Corporacion Andina de Fomento (CAF) for the Fluids
        Distribution and Treatment Project; and leased obligation from local
        bank per leaseback of capital asset (See Note 6). They are summarized as
        follows:


                                      F-40
<PAGE>   92

<TABLE>
<CAPTION>
                                                                                    Current          Non current
                                                                                    portion            portion
                                                                                  ----------         -----------
<S>                                                                               <C>                <C>
         
         Inversiones Cofide S.A. (*)
         -   Loan of US$86,788,111, due annually through 
             March 2004, at an annual effective rate of 9.5%                      $3,498,618         $ 83,289,493

         Corporacion Andina de Fomento
         -   Loan (French francs equivalent to US$946,818) 
             due semi-annually through August 1999, at annual 
             effective rate of 10.065%                                               473,409             473,409

         -   Loan of US$199,834, due semi-annually through August 1999, at
             current rate during the payment period (in August, 
             annual rate was 7.875%)                                                  99,917              99,917

         Leased obligation
         -   Leaseback liability, due monthly through 
             December 2001, at annual effective rate of 9.27%                      5,000,000          15,000,000

         Local banks (at variable rates)
         -   Loan due on March 1999                                                       --           2,004,234
         -   Loan due on February 1999                                                    --           4,679,260
         -   Loan due on a renewable year basis                                           --           3,889,649
                                                                                  ----------        ------------

                                                                                  $9,071,944        $109,435,962
                                                                                  ==========        ============
</TABLE>


       (*)     The Company granted to the Government in guarantee for this loan
               164,322,621 common shares of SIDERPERU; additionally, a local
               bank granted to this Government's financial entity a bank
               collateral letter for US$25,835,675, equivalent to 20% of the
               nominal loan balance.

11.    DEFERRED INCOME

       Corresponds to the higher amount established between the capital asset
       value of US$20,000,000, as disclosed in Note 6, and its related original
       net cost book value of US$518,011. This deferred income will be applied
       to the results of operations over the four-year term established in the
       corresponding leaseback arrangement.



                                      F-41
<PAGE>   93

12.     MINORITY INTEREST

        Corresponds to 2.95% of SIDERPERU's share capital, and with a
        participation in retained earnings as follows:

<TABLE>
           <S>                                                    <C>
           Common stock                                          $3,183,702
           Retained earnings                                         79,703
                                                                 ----------

                                                                 $3,263,405
                                                                 ==========
</TABLE>

13.     TAX SITUATION

        In accordance with current tax legislation, the Company computes its
        provision for income tax based on taxable income. SIDERPERU's tax loss
        carryforward as of December 31, 1997 is S/.213,703,260 (equivalent to
        US$78,279,582 at that date) and will be used to offset the resulting
        taxable income for the year 1998; the loss carryforwards expire at the
        end of 1998 and any remaining amounts cannot be utilized.

14.     ENVIRONMENTAL MATTERS

        The Code of Environmental and Natural Resources was issued, by
        Legislative Decree No. 611 on September 8, 1990. This decree establishes
        that all projects of labor and/or activity that could cause damages to
        the environment, require a study on the environmental impact and are
        subject to approval by competent authority. A study for SIDERPERU was
        completed and approved by competent authority, on a prebid basis,
        providing a ten-year period for compliance with reasonable standards.

15.     LEGAL RESPONSIBILITIES FOR CONTINGENCIES

        The purchase-sale contract of SIDERPERU's share capital, between
        Inversiones Cofide S.A. and Sider Corp S.A., established a maximum limit
        of responsibilities for Sider Corp S.A. of up to US$5,000,000 for legal,
        commercial, labor contingencies and concepts regarding environmental
        problems but excluding tax situations. Inversiones Cofide S.A. will,
        therefore, indemnify Sider Corp S.A. for any amounts above the
        US$5,000,000 limit and will be responsible for any payment in excess of
        that amount. This indemnification extends for eight years from transfer
        (March 21, 1996). As of December 31, 1997, US$1,835,554 was reported to
        ICSA as applicable indemnities under the US$5 million limit.

        Likewise, this contract establishes that Inversiones Cofide S.A. will
        assume any taxable debt incurred prior to this closing date, 
        inclusively.


                                      F-42
<PAGE>   94

16.     AGREEMENT OF JURIDICAL STABILITY

        On March 21st., 1996, Sider Corp S.A. suscribed with the Peruvian State
        an agreement of juridical stability for a ten year-period in conformity
        with Legislative Decrees Nos.662 and 757. This agreement relates to the
        investment made on March 21st., 1996 for US$33,428,936 at Sider Corp
        S.A. and establishes, mainly, for Sider Corp S.A.'s shareholders (as
        investors) and Sider Corp S.A. (as recipient of investors'
        contributions) the following:

        -   Stability in the tax regime on income tax and nonwithholding is 
            applicable on dividends.
        -   Stability in the labor regime on hiring personnel.
        -   Stability in the regime on exports promotion.

17.     INVESTMENT COMMITMENT

        In accordance with the purchase-sale contract of SIDERPERU's share
        capital, Sider Corp S.A. has an investment commitment with the Peruvian
        government to make a minimum investment over a four - year period for
        the expansion and modernization of SIDERPERU's manufacturing processes,
        for an amount of US$30 million. During 1996 and 1997 the investment
        amounts were approximately US$3 and US$27 million, respectively.


                               ------------------


                                      F-43

<PAGE>   95

                       REPORT OF INDEPENDENT ACCOUNTS ON
                         FINANCIAL STATEMENTS SCHEDULES
 
To the Board of Directors
  of GS Technologies Corporation
 
Our audits of the consolidated financial statements referred to in our report
dated February 20, 1998 appearing on page F-1 of this Annual Report on Form 10-K
also included an audit of the Financial Statement schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth herein when
read in conjunction with the related consolidated financial statements.
 
Price Waterhouse LLP
Charlotte, North Carolina
February 20, 1998


                                       S-1
<PAGE>   96
 
                                                                      SCHEDULE 1
 
                          GS TECHNOLOGIES CORPORATION
 
             CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
                                 BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1996           1997
                                                              ------------   ------------
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................    $    637       $     15
  Other receivables.........................................         135             63
  Receivable from affiliates
  Recoverable income taxes..................................       6,606            137
  Deferred Income Taxes.....................................                        853
                                                                --------       --------
          Total current assets..............................       7,378          1,068
Investment in consolidated subsidiaries.....................     123,525        111,155
Investment in joint ventures................................       8,970          8,585
                                                                --------       --------
          Total assets......................................    $139,873        120,808
                                                                ========       ========
                          LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Current portion of long-term debt
  Payables and accrued liabilities..........................       4,025          2,971
                                                                --------       --------
          Total current liabilities.........................       4,025          2,971
Long-term debt
Deferred income taxes payable...............................      21,692         19,109
Other long-term liabilities.................................       1,395          3,567
                                                                --------       --------
          Total liabilities.................................      27,112         25,647
                                                                --------       --------
Stockholder's equity
  Common Stock, $.01 par value, 1,000 shares authorized, and
     100 shares issued and outstanding at December 31, 1996
     and 1997...............................................           1              1
  Additional paid-in capital................................     132,166        132,166
  Retained earnings (accumulated deficit)...................     (17,729)       (33,845)
  Cumulative translation adjustment.........................      (1,677)        (3,161)
                                                                --------       --------
          Total stockholder's equity........................     112,761         95,161
                                                                --------       --------
          Total liabilities and stockholder's equity........    $139,873        120,808
                                                                ========       ========
</TABLE>
 
                  See notes to Condensed Financial Information
 
                                       S-2
<PAGE>   97
 
                                                                      SCHEDULE I
 
                          GS TECHNOLOGIES CORPORATION
 
             CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
                            STATEMENTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                          DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                              1995           1996           1997
                                                          ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>
Equity in income of consolidated subsidiaries..........     $ 6,484        $10,385        $(12,093)
Equity in income of joint ventures.....................       2,875          3,421           1,530
Other, net.............................................        (120)        (1,853)         (1,262)
                                                            -------        -------        --------
Income before income tax...............................       9,239         11,953         (11,825)
Income tax provision...................................      (3,110)        (5,518)         (4,291)
                                                            -------        -------        --------
          Net income...................................     $ 6,129        $ 6,435        $(16,116)
                                                            =======        =======        ========
</TABLE>
 
                  See notes to Condensed Financial Information
 
                                       S-3
<PAGE>   98
 
                                                                      SCHEDULE I
 
                          GS TECHNOLOGIES CORPORATION
             CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
                            STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                        DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                            1995            1996            1997
                                                        ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>
OPERATING ACTIVITIES:
  Net income........................................      $  6,129        $  6,435        $(16,116)
  Adjustment to reconcile net income to net cash
     provided by (used in) operating activities:
     Equity in income of consolidated
       subsidiaries.................................        (6,484)        (10,385)         12,093
     Equity in income of joint ventures.............        (2,875)         (3,421)         (1,530)
     Dividends from joint ventures..................         1,228           3,141           1,018
     Deferred income taxes..........................         1,386          10,085          (3,436)
     Changes in operating assets and liabilities:
       Receivables..................................                           913             272
       Payables and accrued liabilities.............        (1,048)         (5,289)             79
       Income taxes.................................           632          (6,606)          6,469
       Other........................................                         1,506             498
                                                          --------        --------        --------
       Net cash provided by (used in) operating
          activities................................        (1,032)         (3,621)           (653)
                                                          --------        --------        --------
INVESTING ACTIVITIES:
  Investment in consolidated subsidiaries...........       (30,000)        (11,849)        (10,730)
  Dividends received from consolidated
     subsidiaries...................................                        16,778          10,761
  Cash received from Armco, net.....................         1,922                              --
  Change in receivable/payable to affiliates........        (1,767)          1,727              --
                                                          --------        --------        --------
     Net cash provided by (used in) investing
       activities...................................       (29,845)          6,656              31
                                                          --------        --------        --------
FINANCING ACTIVITIES:
  Repayments of long-term debt......................                        (2,400)             --
  Issuance of stock.................................                                            --
  Distributions to stockholders.....................        (5,543)                             --
  Distributions to warrantholder....................                                            --
  Contribution from GSI.............................        30,000                              --
                                                          --------        --------        --------
     Net cash provided by (used in) financing
       activities...................................        24,457          (2,400)             --
                                                          --------        --------        --------
Net increase (decrease) in cash and cash
  equivalents.......................................        (6,420)            635            (622)
CASH AND CASH EQUIVALENTS:
  Beginning of period...............................         6,422               2             637
                                                          --------        --------        --------
  End of period.....................................      $      2        $    637        $     15
                                                          ========        ========        ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Non-cash equity contributions from GSI............      $102,000
  Non-cash investment in subsidiaries...............      $102,000        $ 22,300
</TABLE>
 
                  See notes to Condensed Financial Information
 
                                       S-4
<PAGE>   99
 
                                                                      SCHEDULE I
 
                          GS TECHNOLOGIES CORPORATION
             NOTES TO SCHEDULE 1 -- CONDENSED FINANCIAL INFORMATION
                             OF THE PARENT COMPANY
                             (DOLLARS IN THOUSANDS)
 
NOTE 1  BASIS OF PRESENTATION
 
The accompanying condensed financial information has been presented
pursuant to Rule 5-04(c) of Regulation S-X. The notes to the audited
consolidated financial statements contained elsewhere in this Form 10-K reflect
all disclosures required by generally accepted accounting principles. Such
information has not been separately disclosed in this schedule.
 
NOTE 2 RESTRICTED ASSETS
 
GST owns 100% of the common stock of GS Technologies Operating Co., Inc.
("GSTOC"). Inversiones en Molienda (Chile) ("Inversiones"), Acerco S.A. (Peru),
GST Europa SpA (Italy), ME International ("MEI"), and other various joint
ventures and subsidiaries.
 
At December 31, 1997 and 1996, GSTOC and MEI, had long-term debt
instruments that contained various covenants which, among other things, restrict
the payment of dividends to GST. There were no restrictions for dividend
payments from the other subsidiaries to GST.
 
                                       S-5
<PAGE>   100
 
                                                                     SCHEDULE II
 
                          GS TECHNOLOGIES CORPORATION
                   VALUATION AND QUALIFYING ACCOUNTS RESERVES
 
<TABLE>
<CAPTION>
                                                              ADDITIONS
                                                       -----------------------
                                          BALANCE AT                CHARGED TO                BALANCE AT
                                          BEGINNING    CHARGED TO     OTHER                     END OF
DESCRIPTION                               OF PERIOD     EXPENSE      ACCOUNTS    DEDUCTIONS     PERIOD
-----------                               ----------   ----------   ----------   ----------   ----------
<S>                                       <C>          <C>          <C>          <C>          <C>
Year ended December 31, 1996
  Allowance for doubtful accounts.......    $2,382        $367                     $(921)       $1,828
Year ended December 31, 1997
  Allowance for doubtful accounts.......    $1,828        $457                     $(447)       $1,838
</TABLE>
 
                                       S-6

<PAGE>   101

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 10th day of March,
1998.


                                             GS Technologies Corporation and
                                             GS Technologies Operating Co., Inc.


                                             By: /s/ Luis E. Leon
                                                 -------------------------------
                                                 Luis E. Leon, Senior Vice
                                                 President-Finance and 
                                                 Administration, Chief Financial
                                                 Officer and Treasurer


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
registrant and in the capacities and on the dates indicated.


Signatures                          Title                                  Date

/s/ Mark G. Essig                   Chief Executive Officer (Principal
----------------------------        Executive Officer), President and Director
Mark G. Essig


/s/ Roger R. Regelbrugge            Chairman and Director
----------------------------
Roger R. Regelbrugge


/s/ Luis E. Leon                    Senior Vice President - Finance
----------------------------        and Administration, Chief
Luis E. Leon                        Financial Officer and Treasurer
                                    (Principal Financial Office)


/s/ David O. Shelley                Vice President and Controller
----------------------------        (Principal Accounting Officer)
David O. Shelley


/s/ Paul B. Edgerley                Director
----------------------------        
Paul B. Edgerley


/s/ John J. O'Malley                Director
----------------------------        
John J. O'Malley



<PAGE>   102

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
SECTION 12 OF THE ACT.


No annual report or proxy soliciting materials has been provided to security
holders as of the date of filing of this annual report on Form 10-K. The
Company may subsequently provide an annual report to security holders and will
provide the Commission with copies of any such report. The Company does not
plan to send a proxy statement, form of proxy or other proxy soliciting
material to its security holders during 1998.