GS TECHNOLOGIES OPERATING CO INC
10-Q, 1997-08-11
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)
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<PAGE>   1

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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




         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 [ ]

         There were 100 shares of GS Technologies Operating Co., Inc. Common
Stock, par value $.01 per share, outstanding at August 8, 1997. There were 100
shares of GS Technologies Corporation Common Stock, par value $.01 per share,
outstanding at August 8, 1997.

         This document consists of 16 sequentially numbered pages.


================================================================================

<PAGE>   2



PART I. FINANCIAL INFORMATION (UNAUDITED)

GS Technologies Corporation (the "Company" or "GST"), a wholly-owned subsidiary
of GS Industries ("GSI"), is the largest producer of steel wire rod in North
America and of grinding media and mill liners for the worldwide mining industry
as well as a leading producer of certain wire products for the U.S. and export
markets. GST has fully and unconditionally guaranteed two series of Senior notes
totaling $250 million aggregate principal amount issued by its wholly-owned
subsidiary, GS Technologies Operating Co., Inc. ("GSTOC").

INDEX

    ITEM                                                                 PAGE 
                                                                              
    (1)      Unaudited Consolidated Financial Statements of the               
             Company                                                         
                                                                             
             Unaudited Consolidated Statements of Operations for              
             the Three Months and Six Months ended June 30, 1996              
             and June 30, 1997                                             3  
                                                                              
             Unaudited Consolidated Balance Sheets as of December             
             31, 1996 and June 30, 1997                                    4  
                                                                              
             Unaudited Consolidated Statements of Cash Flows for             
             the Six Months ended June 30, 1996 and June 30, 1997          5   
                                                                              
             Notes to Unaudited Consolidated Financial Statements          6  
                                                                         
    (2)      Management's Discussion and Analysis of Financial
             Condition and Results of Operations                          11


                                       2
<PAGE>   3

                           GS TECHNOLOGIES CORPORATION
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                               Three Months Ended             Six Months Ended
                                       ------------------------------   -----------------------------
                                       June 30, 1996    June 30, 1997   June 30, 1996   June 30, 1997
                                       -------------    -------------   -------------   -------------

<S>                                       <C>             <C>             <C>             <C>      
Net sales                                 $ 213,132       $ 184,515       $ 404,713       $ 393,398

Operating costs and expenses:
     Cost of products sold                  184,347         168,693         353,528         345,682
     Selling, general and
       administrative expenses               12,044          12,104          23,396          23,654
     Depreciation and amortization            6,821           7,695          13,276          14,904
                                          ---------       ---------       ---------       ---------
                                            203,212         188,492         390,200         384,240
                                          ---------       ---------       ---------       ---------

Operating profit (loss)                       9,920          (3,977)         14,513           9,158

Other income (expense):
     Interest expense, net                  (10,389)        (10,398)        (20,825)        (20,598)
     Equity in income of
        joint ventures                          981           1,423           1,850           3,239
     Fees from joint ventures                   681             558           1,238           1,445
     Other, net                                  34             234              46             620
                                          ---------       ---------       ---------       ---------
                                             (8,693)         (8,183)        (17,691)        (15,294)
                                          ---------       ---------       ---------       ---------

Income (loss) from continuing
 operations before income taxes
 and cumulative effect of
 accounting change                            1,227         (12,160)         (3,178)         (6,136)

Income tax (provision) benefit                 (521)          6,199           1,721           3,128
                                          ---------       ---------       ---------       ---------


Income (loss) from continuing
 operations before cumulative
 effect of accounting change                    706          (5,961)         (1,457)         (3,008)


Discontinued operations (Note 4):
  Income from discontinued
   operations, net of taxes                     153                             109             445
  Loss on disposal of discontinued
    operations, net of taxes                                                                (23,008)
                                          ---------       ---------       ---------       ---------
                                                153                                         (22,563)
                                          ---------       ---------       ---------       ---------
Income (loss) before cumulative
  effect of accounting change                   859          (5,961)         (1,348)        (25,571)

Cumulative effect of change in
  accounting for spare parts
  inventories, net of taxes (Note 5)                                          3,556
                                          ---------       ---------       ---------       ---------

Net income (loss)                         $     859       $  (5,961)      $   2,208       $ (25,571)
                                          =========       =========       =========       =========
</TABLE>



           See notes to unaudited consolidated financial statements


                                       3
<PAGE>   4

                           GS TECHNOLOGIES CORPORATION
                      UNAUDITED CONSOLIDATED BALANCE SHEETS

                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                             December 31,      June 30,
                                                                                 1996            1997
                                                                              ---------       ---------
<S>                                                                           <C>             <C>      
ASSETS
Current assets:
   Cash and cash equivalents                                                  $   7,747       $   6,209
   Receivables less allowance for doubtful accounts                             106,314          94,357
   Receivable from related party                                                  6,991           3,958
                                                                              ---------       ---------
      Total receivables                                                         113,305          98,315
                                                                              ---------       ---------
   Inventories                                                                  128,976         128,574
   Net assets of discontinued operations                                         75,265
   Prepaid expenses and other current assets                                      4,190           7,508
   Recoverable income taxes                                                       5,902           8,088
   Deferred tax benefit                                                           2,092           2,441
                                                                              ---------       ---------
     Total current assets                                                       337,477         251,135

Investments in joint ventures                                                    31,097          32,249
Properties, net                                                                 263,402         261,346
Acquisition premium                                                              62,324          61,519
Other assets                                                                     20,904          19,027
                                                                              ---------       ---------
     Total assets                                                             $ 715,204       $ 625,276
                                                                              =========       =========


LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
   Notes payable                                                              $  15,717       $  15,480
   Current portion of long-term debt                                                862             787
   Payables and accrued liabilities                                             150,951         140,701
                                                                              ---------       ---------
     Total current liabilities                                                  167,530         156,968

Long-term debt                                                                  368,554         317,494
Post retirement benefit obligations other than pensions                          25,793          26,359
Deferred income taxes payable                                                    17,489          11,265
Other long-term liabilities                                                      23,077          24,987
Commitments and contingencies (Note 9)
                                                                              ---------       ---------
     Total liabilities                                                          602,443         537,073
                                                                              ---------       ---------

Stockholder's equity:
   Common Stock, $.01 par value, 1,000 shares authorized, and 100 shares
      issued and outstanding at December 31, 1996 and June
      30, 1997                                                                        1               1
   Additional paid in capital                                                   132,166         132,166
   Retained earnings (accumulated deficit)                                      (17,729)        (43,300)
   Cumulative translation adjustment                                             (1,677)           (664)
                                                                              ---------       ---------
     Total stockholder's equity                                                 112,761          88,203
                                                                              ---------       ---------
     Total liabilities and stockholder's equity                               $ 715,204       $ 625,276
                                                                              =========       =========
</TABLE>


            See notes to unaudited consolidated financial statements


                                       4
<PAGE>   5

                           GS TECHNOLOGIES CORPORATION
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                                  Six Months ended
                                                                             -------------------------
                                                                              June 30,       June 30,
                                                                               1996            1997
                                                                             ---------       ---------
<S>                                                                          <C>             <C>       
OPERATING ACTIVITIES:
   Net income (loss)                                                         $   2,208       $ (25,571)
   Adjustments to reconcile net income (loss) to net cash provided by
    operating activities:
     Cumulative effect of accounting change                                     (3,556)
     Depreciation and amortization                                              13,276          14,904
     Loss on disposal of discontinued operations (non-cash)                                     23,008
     Net cash from discontinued operations                                       2,785          (2,138)
     (Gain) loss on disposal of fixed assets                                        17            (158)
     Deferred income taxes                                                       1,515          (6,573)
     Equity in income of joint ventures                                         (1,850)         (3,239)
     Dividends from joint ventures                                               3,439           1,922
     Post retirement benefit obligations accrued in excess of cash paid            955             566
     Changes in operating assets and liabilities:
         Receivables                                                               345          14,990
         Inventories                                                             9,265             402
         Payables and accrued liabilities                                       (5,125)        (10,725)
         Income taxes                                                            1,208          (1,711)
         Other                                                                  (1,199)            897
                                                                             ---------       ---------
           Net cash provided by operating activities                            23,283           6,574
                                                                             ---------       ---------

INVESTING ACTIVITIES:
   Proceeds from disposal of discontinued operations                                            57,024
   Purchase of properties                                                      (26,118)        (12,165)
   Proceeds from disposal of fixed assets                                          950             514
   Investment in joint ventures                                                (11,166)           (497)
                                                                             ---------       ---------
           Net cash provided by (used in) investing activities                 (36,334)         44,876
                                                                             ---------       ---------

FINANCING ACTIVITIES:
   Proceeds from (payments on) notes payable, net                               15,925            (237)
   Borrowings under revolving credit facility                                  118,746          93,597
   Repayments on revolving credit facility                                    (120,515)       (145,609)
   Repayments on long-term debt                                                   (250)           (250)
                                                                             ---------       ---------
           Net cash provided by (used in) financing activities                  13,906         (52,499)
                                                                             ---------       ---------

Effect of exchange rate changes on cash                                            197            (489)
                                                                             ---------       ---------

Net increase (decrease) in cash and cash equivalents                             1,052          (1,538)

CASH AND CASH EQUIVALENTS:
   Beginning of period                                                          10,289           7,747
                                                                             ---------       ---------
   End of period                                                             $  11,341       $   6,209
                                                                             =========       =========
</TABLE>


            See notes to unaudited consolidated financial statements


                                       5
<PAGE>   6

                           GS TECHNOLOGIES CORPORATION
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars in thousands)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of GS Technologies
Corporation (the "Company" or "GST") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, these statements reflect all adjustments (which include only
normal recurring adjustments unless otherwise noted herein) necessary for a fair
presentation.

2. FINANCIAL STATEMENT NOTES

Reference is made to the Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
for a summary of significant accounting policies and other information, the
substance of which has not changed materially as of June 30, 1997, unless
otherwise noted herein.

3. THE GEORGETOWN ACQUISITION

In August, 1995, all of the issued and outstanding common stock of the Company
was converted into shares of common stock of GS Industries, Inc. ("GSI") and the
Company became a wholly-owned subsidiary of GSI. In October, 1995, GSI and the
Company, through its wholly-owned subsidiary, GS Technologies Operating Co.,
Inc. ("GSTOC"), acquired Georgetown Industries, Inc. ("GII") and GII and its
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.

The acquisition was recorded in accordance with the purchase method of
accounting. Accordingly, the purchase price plus direct costs were allocated to
the assets acquired and liabilities assumed based on preliminary estimates of
fair values at the date of acquisition, October 5, 1995. During 1996, as a
result of the recognition of previously unrecorded deferred tax assets, the
resolution of certain contingent liabilities and an increase in the recorded
value of certain fixed assets based on a formal appraisal, the allocation of the
purchase price was finalized. As a result, the value of identifiable assets
acquired was increased by approximately $26.9 million, with a resulting decrease
to the acquisition premium.

4. DISCONTINUED OPERATIONS

On May 14, 1997, the Company sold Georgetown Wire Company, Inc. and Tree Island
Industries, Ltd. (the "West Coast Wire Business") for approximately $55.9
million, resulting in an estimated loss on disposition of $23.0 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 $16.7 million on the
transaction. $15.4 million of the tax benefit relates to the difference between
the book and tax basis of the business sold. This amount was recorded as a
deferred tax asset in connection with finalizing the purchase accounting (see
Note 3). The remaining tax benefit of $1.3 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.


                                       6
<PAGE>   7

                           GS TECHNOLOGIES CORPORATION
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                             (Dollars in thousands)

5. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                December 31,      June 30,
                                                                    1996            1997
                                                                 ---------       ---------
<S>                                                              <C>             <C>      
         Inventories at FIFO and average cost:
              Finished and semi-finished                         $  63,465       $  71,981
              Raw materials                                         61,154          54,525
                                                                 ---------       ---------
                   Total                                           124,619         126,506
                                                                 ---------       ---------

         Inventories at LIFO:
              Finished and semi-finished                             4,658           2,133
              Adjustment to state inventories at LIFO value           (301)            (65)
                                                                 ---------       ---------
                   Total                                             4,357           2,068
                                                                 ---------       ---------
                                                                 $ 128,976       $ 128,574
                                                                 =========       =========
</TABLE>

The carrying value of inventories approximates replacement cost.

Effective January 1, 1996, the Company changed its method of accounting for
spare parts and supplies 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 prevailing industry practice and in management's
opinion, results in a better matching of costs with related revenues. The effect
to the change was to increase net income for the six months ended June 30, 1996
by $3.6 million, net of applicable taxes of $2.4 million.

6. INVESTMENT IN JOINT VENTURES

In March 1996, the Company's Peruvian subsidiary, Acerco, and two joint venture
partners acquired, through Sidercorp S.A. ("Sidercorp"), approximately
ninety-six percent of the outstanding common stock of Empresa Siderugica 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 manages the operations
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.

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's new facility which commenced operations in March 1997. Operations at
the Cividale facility ceased at the end of October 1996.

The Company and Birmingham Steel are fifty-fifty shareholders in a joint
venture, American Iron Reduction LLC, (AIR) which is currently constructing a
Direct Reduced Iron (DRI) facility. This DRI facility is expected to produce
approximately 1.2 million metric tons of DRI annually and construction is
expected to be completed by the end of 1997. 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 and is committed to make additional
equity investments of up to $22.5 million, primarily during 1997. The Company
also entered into a DRI purchase agreement with AIR to purchase up to 600,000
tons of DRI annually. The financing was obtained on a non-recourse basis to
GSTOC and the Company.

All of the joint ventures are charged 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
<PAGE>   8

                           GS TECHNOLOGIES CORPORATION
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                             (Dollars in thousands)

7. PAYABLES AND ACCRUED LIABILITIES

Payables and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                   December 31,         June 30,
                                      1996                1997
                                    --------            --------
<S>                                 <C>                 <C>     
Trade payables                      $ 91,652            $ 82,008
Salaries and wages                    14,269              14,293
Accrued interest payable               9,639              10,061
Other                                 35,391              26,251
                                    --------            --------
                                    $150,951            $132,613
                                    ========            ========
</TABLE>

8. SHORT-TERM DEBT

Short-term debt consists of $7.7 million, $5.2 million and $2.6 million in
short-term revolving credit facilities in Peru, Chile and Italy, respectively.

9. COMMITMENTS AND CONTINGENCIES

LITIGATION 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. 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 effect the financial position or results of
operations of the Company.

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, 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 $250 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.


                                       8
<PAGE>   9

                           GS TECHNOLOGIES CORPORATION
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                             (Dollars in thousands)

Based upon reviews of the varying requirements, the Company believes 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 a
manner that reduces such risks.

The Company has several environmental issues currently under discussion with
various federal and local agencies, some of which involve compliance and/or
remediation at certain properties. 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 June 30, 1997, $2.3 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.

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 November 1997 and March 1999. 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 now returned to full
production. Management estimates that the work stoppage cost the Company
approximately $21.9 million in pre-tax earnings during the quarter ended June
30, 1997 in lost volume, production inefficiencies and increased pension
benefits.

10. 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), and other joint venture
interests around the world.

<TABLE>
<CAPTION>
                                                June 30, 1997 and the Six Months ended
                                                            June 30, 1997
                                        -----------------------------------------------------
                                          United           South        Europe
                                          States          America      and Other      Total
                                          ------          -------      ---------      -----
<S>                                     <C>             <C>            <C>          <C>      
Net sales                               $ 335,613       $ 49,608       $ 8,177      $ 393,398
Operating profit                            4,604          4,393           161          9,158
Equity in income of joint ventures          1,526          1,597           116          3,239
Net income (loss)                         (29,906)         4,096           239        (25,571)
Identifiable assets                       538,594         63,401        15,193        617,188
Total liabilities                         479,327         41,844         7,814        528,985
Net assets                                 59,267         21,557         7,379         88,203

<CAPTION>
                                                    Six Months ended June 30, 1996
                                        -----------------------------------------------------
                                          United           South        Europe
                                          States          America      and Other      Total
                                          ------          -------      ---------      -----
<S>                                     <C>             <C>            <C>          <C>      
Net sales                               $ 350,198       $ 41,531       $12,984      $ 404,713
Operating profit                            9,483          4,319           711         14,513
Equity in income of joint ventures          1,549           (442)          743          1,850
Net income (loss)                          (1,080)         2,324           964          2,208
</TABLE>



                                       9
<PAGE>   10

                           GS TECHNOLOGIES CORPORATION
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                             (Dollars in thousands)

11. SUMMARIZED FINANCIAL INFORMATION OF GSTOC

GS Technologies Operating Co., Inc. and its subsidiaries ("GSTOC") is a
wholly-owned subsidiary of the Company. GSTOC has issued Senior Notes
unconditionally guaranteed by the Company. Accordingly, summarized financial
information for GSTOC on a stand alone basis is provided below.

<TABLE>
<CAPTION>
                                   December 31,             June 30,
                                       1996                   1997
                                     --------               --------
<S>                                  <C>                    <C>     
Current assets                       $274,130               $175,749
Noncurrent assets                     313,107                322,058
                                     --------               --------

     Total assets                    $587,237               $497,807
                                     ========               ========

Current liabilities                  $110,017               $ 97,261
Noncurrent liabilities                401,844                349,879
                                     --------               --------
     Total liabilities                511,861                447,140

Stockholder's equity                   75,376                 50,667
                                     --------               --------

      Total                          $587,237               $497,807
                                     ========               ========
</TABLE>

<TABLE>
<CAPTION>
                                              Three Months Ended                Six Months Ended
                                       -------------------------------   ------------------------------
                                       June 30, 1996     June 30, 1997   June 30, 1996    June 30, 1997
                                       -------------     -------------   -------------    -------------

<S>                                       <C>              <C>              <C>              <C>      
Net sales                                 $ 166,889        $ 136,003        $ 316,755        $ 300,700
Cost of products sold                       149,449          131,558          286,461          274,222
Selling, general and
  administrative expenses                     6,652            6,843           13,384           13,358
Depreciation and amortization                 5,918            6,733           11,475           13,015
                                          ---------        ---------        ---------        ---------

     Operating profit (loss)                  4,870           (9,131)           5,435              105

Interest expense                             (9,658)          (9,816)         (19,347)         (19,573)
Fees from joint ventures                        811              898            1,703            1,947
Other, net                                      (67)             (76)             (98)             300
                                          ---------        ---------        ---------        ---------
Loss from continuing
 operations before income tax and
 cumulative effect of accounting
 change                                      (4,044)         (18,125)         (12,307)         (17,221)
Income tax benefit                            1,921            6,049            5,538            5,747
                                          ---------        ---------        ---------        ---------

Loss from continuing
 operations before cumulative
 effect of accounting change                 (2,123)         (12,076)          (6,769)         (11,474)

Discontinued operations:
  Income from discontinued
   operations, net of taxes                     153                               109              445
   Loss on disposal of discontinued
     operations, net of taxes                                                                  (23,008)
Cumulative effect of change in
  accounting, net of taxes                                                      3,556
                                          ---------        ---------        ---------        ---------
Net loss                                  $  (1,970)       $ (12,076)       $  (3,104)       $ (34,037)
                                          =========        =========        =========        =========
</TABLE>


                                       10
<PAGE>   11


                           GS TECHNOLOGIES CORPORATION
       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

The following discussion and analysis is provided to increase understanding of,
and should be read in conjunction with, the unaudited consolidated financial
statements and accompanying notes. All amounts and percentages are presented net
of discontinued operations unless otherwise noted.

The forward-looking statements included in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" 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 pursuant to the safe harbor established under the
Private Securities Litigation Reform Act of 1995 should be evaluated in the
context of these factors.


                          SUMMARY STATEMENTS OF INCOME
                        (Dollars in thousands, unaudited)


<TABLE>
<CAPTION>
                                                  Three Months Ended                 Six Months Ended
                                            ------------------------------    ------------------------------
                                            June 30, 1996    June 30, 1997    June 30, 1996    June 30, 1997
                                            -------------    -------------    -------------    -------------
<S>                                            <C>              <C>              <C>              <C>      
Net sales                                      $ 213,132        $ 184,515        $ 404,713        $ 393,398
Cost of products sold                            184,347          168,693          353,528          345,682
Selling, general and administrative
  expenses                                        12,044           12,104           23,396           23,654
Depreciation and amortization                      6,821            7,695           13,276           14,904
                                               ---------        ---------        ---------        ---------
Operating profit (loss)                            9,920           (3,977)          14,513            9,158
Net interest expense (1)                         (10,389)         (10,398)         (20,825)         (20,598)
Other income (2)                                   1,696            2,215            3,134            5,304
Income (loss) from continuing operations           
  before income tax                                1,227          (12,160)          (3,178)          (6,136)
Income tax (provision) benefit                      (521)           6,199            1,721            3,128
                                               ---------        ---------        ---------        ---------
Income (loss) from continuing operations             706           (5,961)          (1,457)          (3,008)
Income from discontinued operations,
  net of taxes                                       153                               109              446
Loss on disposal of discontinued
  operations, net of taxes                                                                          (23,008)
Cumulative effect of accounting change,
  net of taxes                                                                       3,556
                                               ---------        ---------        ---------        ---------
Net income (loss)                              $     859        $  (5,961)       $   2,208        $ (25,571)
                                               =========        =========        =========        =========
</TABLE>

(1) - Net interest expense includes interest income, interest expense and
      amortization of debt-issuance costs.

(2) - Other income includes equity in income of joint ventures, fees from
      joint ventures, minority interest and other, net.

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996.

DISCONTINUED OPERATIONS. On May 14, 1997, the Company sold its West Coast Wire
Business for approximately $55.9 million, resulting in an estimated loss on
disposition of approximately $23.0 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.


                                       11
<PAGE>   12

NET SALES. Net sales decreased $11.3 million from $404.7 million in the first
half of 1996 to approximately $393.4 million for the first half of 1997. Results
were significantly impacted by a work stoppage at the Company's Kansas City
facility. The work stoppage began on April 2, 1997 and ended with the successful
ratification of a new five and one-half year agreement on June 13, 1997.
Estimates indicate the work stoppage cost the Company approximately $21.9
million in pretax earnings during the quarter ended June 30, 1997 in lost
volume, increased pension benefits and production inefficiencies, as the Kansas
City management team maintained production at reduced levels.

Wire rod sales were up $7.1 million in the first six months of 1997 to $191.1
million. The lost wire rod volume from the work stoppage at Kansas City,
estimated to be approximately 82,000 tons, was offset by increased wire rod
volume at the Georgetown, South Carolina facility. The first quarter 1996 volume
was lower than usual due to a shut-down for installation of a new coil conveyor
system at the Georgetown facility. Additionally, average wire rod selling prices
increased $6 per ton for the first six months of 1997 over the comparable period
of 1996.

Compared to the first half of 1996, grinding media sales were down $.2 million
to $98.0 million reflecting the combination of an increase in volume of 7,200
tons offset by a decrease in average selling prices for the first half of 1997
of approximately $14 per ton. The reduction in grinding media sales prices
domestically is related to pricing arrangements based on the Company's cost of
raw materials. Raw materials cost were less than the prior periods, therefore,
the selling price was also reduced; however, margins were maintained and in some
cases improved. Internationally the Company substantially increased its market
share with several significant customers, this increased volume was at slightly
reduced prices but increased the Company value added margins. The lost grinding
media volume from the Kansas City second quarter work stoppage, estimated at
approximately 13,000 tons, was offset by increased first quarter volumes from
the Kansas City facility of 6,600 tons and increased volumes during the first
half of 1997 from the Company's South American operations of 13,600 tons.

Sales of wire products decreased $3.3 million to $44.0 million due to decreased
volume of 5,600 tons, partially offset by a six month to six month increase in
average selling price of $9 per ton.

Mill liner sales increased $2.2 million to $36.7 million due largely to
favorable product mix resulting in an increase in average selling price of $75
per ton.

COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold as a percent of
net sales increased to 87.9% in 1997 from 87.4% in 1996 resulting in decreased
gross margin from 12.6% in 1996 to 12.1% in 1997. Wire rod conversion costs at
the Kansas City facility were up approximately 10.6% and conversion costs for
the production of domestic grinding media in Kansas City were up 29%. These
increases reflect the reduction in volume and the production inefficiencies
resulting from the work stoppage. These increases were partially offset by wire
rod conversion cost reductions at the Georgetown facility which were down 1.9%
and by an 11.1% reduction in the cost of producing international grinding media.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percent of sales for the six months have increased
from 5.8% in 1996 to 6.0% in 1997 due to the decrease in sales and certain one
time strike related costs.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for the
first six months increased by $1.6 million to 14.9 million. This increase
results from capital additions and improvements.

NET INTEREST EXPENSE. The decrease in net interest expense of $.2 million for
the first six months reflects, for a portion of the second quarter, the
repayment of debt with proceeds from the sale of the West Coast Wire Business.

OTHER INCOME. Other income, which is primarily equity income and fees from joint
ventures, increased to $5.3 million for 1997 compared to $3.1 million for 1996
due primarily to inclusion in 1997 of a full six months 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 TAX PROVISION/BENEFIT. The Company recorded an income tax benefit of $3.1
million on a pre-tax loss from continuing operations of $6.1 million for the
first six months of 1997. This compares to an income tax benefit of $1.7 million
on a pre-tax loss from continuing operations of $3.2 million for the first six
months of 1996. Taxes remain high due primarily to limitations on the Company's
current ability to utilize foreign tax credits and the nondeductibility of
amortization expense associated with the premium recorded in connection with the
GII acquisition. Income taxes recorded in connection with the loss on
discontinued operations of $1.3 million represent the net tax benefit expected
to be realized in excess of the amount recorded as a deferred tax asset in the
purchase accounting associated with the GII acquisition.



                                       12
<PAGE>   13


INCOME (LOSS) FROM CONTINUING OPERATIONS. As a result of the factors discussed
above, the Company had a loss from continuing operations of $3.0 million for the
first six months of 1997 compared to a loss from continuing operations of $1.5
million for the first six months of 1996.

NET INCOME (LOSS). After the loss on the disposal of the West Coast Wire
Business, the Company experienced a net loss for the first six months of 1997 of
$25.6 million compared to net income of $2.2 million for the first six months of
1996 after the cumulative effect of an accounting change which increased 1996
net income by $3.6 million.

THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996.

NET SALES. Net sales for the second quarter of 1997 were $184.5 million compared
to $213.1 million for the second quarter of 1996. As discussed above, the
decrease is primarily related to the Kansas City work stoppage.

Wire rod sales for 1997 were down $11.9 million to $84.9 million from the same
three months of 1996. The lost wire rod volume from the work stoppage at Kansas
City, estimated to be 82,000 tons, was partially offset by an increase in
average wire rod selling prices of $16 per ton. With improvements in wire rod
production efficiencies, the Company was capable of having increased volumes for
the quarter of approximately 37,000 tons over the same three months of 1996 if
the work stoppage had not commenced at Kansas City.

A net $5.9 million decrease in grinding media sales results from the combination
of a decrease in domestic volume of 13,000 tons (due to the work stoppage), an
increase in foreign volume of 5,000 tons and a decrease in average selling
prices of $29 per ton. The reduction in grinding media sales prices domestically
is related to pricing arrangements based on the Company's cost of raw materials.
Raw materials cost were less than the prior periods, therefore, the selling
price was also reduced; however, margins were maintained and in some cases
improved. Internationally the Company substantially increased its market share
with several significant customers, this increased volume was at slightly
reduced prices but increased the Company value added margins.

Sales of wire products decreased approximately $2.7 million due to a 4,300 ton
decrease in volume, due primarily to competition from imports. Sales of mill
liners were up $2.1 million due to a $64 per ton increase in average selling
price, resulting primarily from product mix.

COST OF PRODUCTS SOLD AND GROSS MARGIN. Cost of products sold as a percent of
net sales increased from 86.5% in 1996 to 91.4% in 1997 resulting in a decrease
in gross margin from 13.5% to 8.6% quarter to quarter. The decrease results from
production inefficiencies and reduced volumes associated with the work stoppage
which caused a 56% increase in wire rod conversion costs at the Kansas City
facility and a 71% increase in conversion costs for the production of domestic
grinding media as compared to the first quarter.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percent of net sales increased to 6.6% for the
second quarter of 1997 from 5.6% for the second quarter of 1997 due to the
decrease in sales and one time certain strike related costs.

OTHER INCOME. Other income increased $.5 million due primarily to improvements
in the operations of Siderperu since it has been managed by the Company.

INCOME TAX PROVISION/BENEFIT. The Company recorded an income tax benefit of $6.2
million on a pre-tax loss from continuing operations of $12.2 million for the
second quarter of 1997. This compares to an income tax provision of $.5 million
on pre-tax earnings of $1.2 million for the second quarter of 1996. Taxes remain
high due primarily to limitations on the Company's current ability to utilize
foreign tax credits and the non-deductibility of amortization expense associated
with the GII acquisition premium.

NET INCOME (LOSS). As a result of the factors discussed above, the Company had a
net loss of $5.9 million for the three months ended June 30, 1997 compared to
net income of $.8 million for the same period of 1996.


                                       13
<PAGE>   14

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997, the Company had total cash and cash equivalents of $6.2
million, a decrease of $1.5 million from December 31, 1996. Operating activities
provided $6.6 million of cash during the six months ended June 30, 1997. Changes
in operating assets and liabilities provided $3.9 million of cash comprised
principally of a decrease in accounts receivable ($15.0 million) offset by a
decrease in payables and accrued liabilities ($10.7 million). Cash of $57.0
million was generated from the sale of the West Coast Wire Business of which
$52.4 was used for net repayment of debt. Additionally, $12.2 was used to
purchase properties.

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 the remainder
of 1997. There are fluctuations in the Company's working capital needs over the
course of a year, generally influenced by various factors such as seasonality,
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.

The Company currently intends to make an equity investment of up to $22.5
million, primarily during 1997, in American Iron Reduction LLC, a joint venture
to build and operate a scrap substitute facility.

The Company will manage its liquidity needs on a consolidated basis with
borrowings that will be available under the Company's Revolving Credit Facility,
a revolving credit facility at MEI and various credit facilities available at
its international subsidiaries and joint ventures. 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 through the term of the Company's capital investment
program 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 planned 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. 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 $145 million (subject to a borrowing
base limitation). As of June 30, 1997, the availability under the Revolving
Credit Facility was $72.1 million, of which $5.9 million was outstanding. At
June 30, 1997, $24.6 million of letters of credit were outstanding.

The acquisition premium recorded as a result of the GII 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 position, Georgetown's utilization of
modern manufacturing technology, and the diversity and lack of expected
obsolescence of Georgetown's products.

ENVIRONMENTAL AND TAX CONTINGENCIES AND INDEMNIFICATION

Note 9 to the Company's Unaudited Consolidated Financial Statements is herein
incorporated by reference.


                                       14
<PAGE>   15

PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         Note 9 to the Company's Unaudited Consolidated Financial Statements is
         herein incorporated by reference.





ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits filed herewith:

                  Exhibit No.             Description
                  -----------             -----------

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

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

                  27       Financial Data Schedule




         (b)      No reports on Form 8-K were filed during the quarter ended
                  June 30, 1997.



                                       15
<PAGE>   16


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on the 11th day of August, 1997.


                                               GS Technologies Corporation
                                                           and
                                           GS Technologies Operating Co., Inc.
                                                        (Registrant)


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



                                       16


<PAGE>   1
                                                                   EXHIBIT 10.34

                        AMENDMENT TO EMPLOYMENT AGREEMENT


THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made as of the 28th
day of April, 1997, by and between GS INDUSTRIES, INC., a Delaware corporation
("Employer"), GEORGETOWN STEEL CORPORATION, a Delaware corporation
("Georgetown") and ROGER R. REGELBRUGGE ("Employee").

                                    RECITAL:

         Employee, Employer and Georgetown Industries, Inc. (which was merged
into Georgetown on December 31, 1996) entered into that certain Employment
Agreement dated October 5, 1995 (the "Employment Agreement") which the parties
desire to amend as hereafter set forth.

         NOW, THEREFORE, the parties hereby stipulate and agree that the
Employment Agreement is amended as follows:

         1. Paragraph 1 of the Employment Agreement is hereby amended to provide
that Employee shall continue to serve as Chairman and Chief Executive Officer
through December 31, 1997 or such earlier date as the Board of Directors of
Employer designates his successor as Chief Executive Officer. Subsequent to the
date that a new CEO is designated, Employee agrees to serve as Chairman of the
Board through March 31, 1999, or such earlier date as the Board of Directors
designates a new Chairman of the Board. Employee agrees to serve as a director
of Employer through December 31, 1999 or such earlier date as may be determined
by the shareholders of Employer; provided, that Employee shall have no further
obligation to serve as a director of Employer if a new Chairman of the Board is
designated prior to April 1, 1999. Subsequent to the Transition Date (as defined
below), Employee's duties for Employer shall not


<PAGE>   2



be inconsistent with the duties normally associated with Chairman of the Board,
director and senior executive consultant.

         2. Paragraph 2 of the  Employment  Agreement is deleted in its entirety
and the following is substituted in lieu thereof:

                  2. Employer agrees to pay Employee an annual salary of Six
         Hundred Fifty Thousand Dollars (650,000.00) payable in equal monthly
         payments through the twelfth (12th) full calendar month following the
         date (the "Transition Date") that the Board of Directors of Employer
         notifies Employee that he is not required to devote more than forty
         percent (40%) of his time and energy to the furtherance of the
         businesses of Employer, GST, GSTOC and Georgetown (the "Full Payment
         Period"). Effective the first day of the month following the Full
         Payment Period and continuing through March 31, 1999, Employer shall
         pay Employee an annual salary of Two Hundred Sixty Thousand Dollars
         ($260,000.00) payable in equal monthly installments of Twenty-One
         Thousand Six Hundred Sixty-Six and 67/100 Dollars ($21,666.67).
         Employer agrees to pay Employee a monthly salary of no less than
         Sixteen Thousand Six Hundred Sixty-Six and 67/100 Dollars ($16,666.67)
         commencing April 1, 1999 through December 31, 1999.

         3. Through December 31, 1999, Employee shall be entitled to continue to
receive all of the benefits set forth in paragraph 3 of the Employment Agreement
including, but not limited to (i) an incentive bonus pursuant to the Employer's
Annual Incentive Program and (ii) benefits under the Parent SERP or their
equivalent; provided, that Employer may provide Employee with reasonably
equivalent non-employee benefits in the event that Employee's participation in
any such benefits is denied or restricted under the terms of Employer's plans or
insurance policies by virtue of his work schedule on and after the Transition
Date. In the event that any such benefits shall be taxable to Employee other
than as such benefits would be taxable if Employee received the benefits as a
full-time employee of the Company, Employer shall gross up its payments to
Employee hereunder to cover such tax.

                                        2

<PAGE>   3



         All of the payments to Employee under paragraph 2 of this Amendment
shall be "base salary" under Employer's Annual Incentive Program and Employer
agrees that Employee's "Individual Multiplier Factor" under the Annual Incentive
Plan shall continue to be six (6) through December 31, 1999.

         4. Paragraph 3(b) of the Employment Agreement is hereby amended to
provide that reimbursement to Employee for accrued and unused vacation time will
be made on the basis of Employee's rate of annual compensation in effect as of
the time the right to the vacation accrued.

         5. Paragraph 4 of the Employment Agreement is deleted in its entirety
and the following is substituted in lieu thereof:

                  4. If Employee becomes disabled during the term of the
         Employment Agreement such that he is unable to perform his duties
         hereunder, he shall continue to receive the salary and benefits
         hereunder until the earlier of (i) his death or (ii) December 31, 1999;
         provided the Employer shall be entitled to a credit to the extent of
         any payments to Employee under any disability insurance plan provided
         by Employer.

         6. Paragraph 5 of the Employment Agreement is deleted in its entirety
and the following is substituted in lieu thereof:

                  5. Through the Transition Date, Employee shall devote his
         entire time and energy to the furtherance of the business of Employer,
         GST, GSTOC and Georgetown and shall not, in any advisory or other
         capacity, work for any other individual, firm or corporation without
         first having obtained the written consent of Employer thereto.
         Commencing on the Transition Date and continuing through March 31,
         1999, Employee shall not be required to devote more than forty percent
         (40%) of his time and energy to the furtherance of the businesses of
         Employer, GST, GSTOC and Georgetown. Commencing April 1, 1999 and
         continuing through December 31, 1999, Employee shall not be required to
         devote more than ten days (10) each calendar quarter to the furtherance
         of the businesses of Employer, GST, GSTOC and Georgetown. Commencing on
         the Transition Date Employee shall be entitled to advise or work for
         another individual, firm or corporation provided that it does not
         unreasonably interfere with his duties under this Agreement and that
         such other individual, firm or corporation is not directly in
         competition with Employer and its subsidiaries in the Territory.
         Anything in

                                        3

<PAGE>   4



         the foregoing to the contrary notwithstanding, it is stipulated and
         agreed that Employee shall be deemed a "full-time" employee of Employer
         for the purposes of determining Employee's eligibility for benefits
         through December 31, 1999.

         7. Paragraph 8 of the Employment Agreement is amended to provide that
the term of the Employment Agreement as amended herein is extended to December
31, 1999.

         8. Employee agrees that neither the changes in his duties and
responsibilities nor the provision of equivalent benefits as contemplated in
this Amendment shall constitute Good Reason as defined in paragraph (d) of the
Severance Letter referred to in paragraph 16 of the Employment Agreement or in
paragraph 2(a) of the Stock Option Agreement dated October 5, 1995 between
Employer and Employee.

         9. Employee agrees that as of January 1, 2000, he will have retired as
an employee of Employer and Georgetown and they shall have no further obligation
to Employee for compensation or benefits or for severance payments; provided,
that Employee shall not hereby waive his rights to:

                  a.       compensation accrued through December 31, 1999 and
                           unpaid;

                  b.       unreimbursed expenses;

                  c.       benefits under Employer's Supplemental Executive
                           Retirement Plan (SERP);

                  d.       benefits under Employer's Pension Plan and Trust;

                  e.       benefits under Employer's Retirement Savings Plan;

                  f.       rights under the Stock Option Agreement dated October
                           5, 1995;

                  g.       COBRA rights; and

                  h.       Employee's right to indemnification from Employer and
                           its subsidiaries.

                                        4

<PAGE>   5


         10. Except as expressly set forth herein, all of the terms and
conditions of the Employment Agreement shall continue in full force and effect.

         IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.

                               GS INDUSTRIES, INC.


                               By: /s/ Paul B. Edgely
                                   -----------------------------------------
                               Title:
                                     ---------------------------------------


                               GEORGETOWN STEEL CORPORATION

                               By:
                                   -----------------------------------------
                               Title:
                                     ---------------------------------------


                               /s/ Roger R. Regelbrugge
                               --------------------------------------------
                               Roger R. Regelbrugge


                                        5





<PAGE>   1
                                                                   EXHIBIT 10.35

                    FIRST AMENDMENT TO STOCK OPTION AGREEMENT


         THIS FIRST AMENDMENT TO STOCK OPTION AGREEMENT, dated as of July 31,
1997 (this "Amendment"), among GS Industries, Inc., a Delaware corporation (the
"Company"), and Roger R. Regelbrugge ("Executive").

                                   WITNESSETH:

         WHEREAS, the Company and Executive are parties to that certain Stock
Option Agreement dated as of October 5, 1995 (the "Agreement") (All capitalized
terms used but not defined herein shall have the meaning assigned to such terms
in the Agreement); and

         WHEREAS, the original intent of each of the Company and Executive in
entering into the Agreement was that Executive would be provided with certain
participation rights with respect to the Option Shares being granted to
Executive by the Company pursuant to the Agreement;

         WHEREAS, such participation rights were inadvertently omitted from the
Agreement, and the parties hereto desire to amend the Agreement to provide for
these participation rights for Executive from the Company;

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the receipt and legal sufficiency of which are hereby
acknowledged, the parties agree as follows:

         1. AMENDMENT. Effective as of the date hereof, the Agreement is hereby
amended to insert the following new Section 6A immediately after the end of
Section 6 of the Agreement:

                  "6A. PARTICIPATION RIGHTS.

                  (a) At least 30 days prior to any sale or exchange ( a
         "Transfer") of Common Stock by an Investor (other than a Transfer among
         the Investors or their affiliates or to an employee of the Company or
         its Subsidiaries), such Investor (the "Transferring Stockholder") will
         deliver a written notice (the "Sale Notice") to the Company and the
         holders of Executive Stock and Option Shares (the "Other
         Stockholders"), specifying in reasonable detail the identity of the
         prospective transferee(s) and the terms and conditions of the Transfer.
         The Other Stockholders may elect to participate in the contemplated
         Transfer by delivering written notice to the Transferring Stockholder
         within 30 days after delivery of the Sale Notice. If any Other
         Stockholders have elected to participate in such Transfer, the
         Transferring Stockholder and such Other Stockholders will be entitled
         to sell in the contemplated Transfer, at the same price and on the same
         terms, a number of shares of Common Stock equal to the product of (i)
         the quotient determined by dividing the number of shares of Common
         Stock (including vested time option shares but not including any other
         unexercised stock options) owned by such person by the aggregate



<PAGE>   2


         number of shares of Common Stock (including any vested time options
         which are entitled to participation rights under other agreements with
         the Company but not including any other unexercised stock options owned
         by the Transferring Stockholder, the Other Stockholders and other
         stockholders participating in such sale) and Class P Common Stock, par
         value $.01 per share, of the Company, and (ii) the number of shares of
         Common Stock to be sold in the contemplated Transfer.

                  (b) The Transferring Stockholder will use reasonable efforts
         to obtain the agreement of the prospective transferee(s) to the
         participation of the Other Stockholders in any contemplated Transfer,
         and the Transferring Stockholder will not Transfer any of its
         securities to the prospective transferee(s) unless (i) the prospective
         transferee(s) agrees to allow the participation of the Other
         Stockholders or (ii) the Transferring Stockholder agrees to purchase
         the number of securities from the Other Stockholders which the Other
         Stockholders would have been entitled to sell pursuant to the last
         sentence of paragraph (a) above."

         2. MISCELLANEOUS. The Agreement is, and shall be, in full force and
effect and is hereby ratified and confirmed in all respects except that on and
after the date of this Amendment all references in the Agreement to "this
Agreement", "hereto", "hereof", "hereunder" or words of like import referring to
the Agreement shall mean the Agreement as amended by this Amendment.

         IN WITNESS WHEREOF, the parties have executed this Amendment on the day
and year first above written.

                                  GS INDUSTRIES, INC.


                                  By: /s/ Paul B. Edgely
                                     --------------------------------
                                  Name:
                                  Title:


                                  /s/ Roger R. Regelbrugge
                                  -----------------------------------
                                  Roger R. Regelbrugge









<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             APR-01-1997
<PERIOD-END>                               JUN-30-1997
<CASH>                                           6,209
<SECURITIES>                                         0
<RECEIVABLES>                                   98,315<F1>
<ALLOWANCES>                                         0
<INVENTORY>                                    128,574
<CURRENT-ASSETS>                               251,135
<PP&E>                                         261,346<F1>
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                                 625,276
<CURRENT-LIABILITIES>                          156,968
<BONDS>                                        317,494
                                0
                                          0
<COMMON>                                             1
<OTHER-SE>                                      88,202
<TOTAL-LIABILITY-AND-EQUITY>                   625,276
<SALES>                                        184,515
<TOTAL-REVENUES>                               184,515
<CGS>                                          168,693
<TOTAL-COSTS>                                   19,799
<OTHER-EXPENSES>                                (2,215)
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              10,398
<INCOME-PRETAX>                                (12,160)
<INCOME-TAX>                                     6,199
<INCOME-CONTINUING>                             (5,961)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    (5,961)
<EPS-PRIMARY>                                        0
<EPS-DILUTED>                                        0
<FN>
<F1>Amounts presented are net.
</FN>
        

</TABLE>


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