<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                ______________

                                   Form 10-K

(Mark One)
[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2001

[_]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                         OF THE SECURITIES ACT OF 1934

                         Commission File Number 1-9307

                        Gundle/SLT Environmental, Inc.
            (Exact name of registrant as specified in its charter)

                Delaware
    (State or other Jurisdiction of                      22-2731074
     Incorporation or Organization)         (I.R.S. Employer Identification No.)

           19103 Gundle Road
             Houston, Texas                                77073
(Address of Principal Executive Offices)                 (Zip Code)


      Registrant's telephone number, including area code: (281) 443-8564

          Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of Each Exchange on
    Title of Each Class                                    Which Registered
----------------------------                           ------------------------
Common Stock, $.01 Par Value                            New York Stock Exchange

          Securities registered pursuant to Section 12(g) of the Act:

                                     None.

  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 [_].

  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]

  Based upon the February 25, 2002 New York Stock Exchange Closing price of
$5.16 per share the aggregate market value of the voting stock held by non-
affiliates of the Registrant was approximately $57,037,061.

  The number of shares outstanding of the issuer's common stock, $.01 par value,
as of February 25, 2002, was 11,053,694 shares.

  The Registrant's proxy statement to be filed in connection with the
Registrant's 2002 Annual Meeting of Stockholders is incorporated by reference
into Part III of this report.

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                                       1
<PAGE>

                         2001 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>                                                                                              <C>
                                                     PART I

Item 1.           Description of Business.....................................................      3
Item 2.           Properties..................................................................     10
Item 3.           Legal Proceedings...........................................................     11
Item 4.           Submission of Matters to a Vote of Security Holders.........................     11

                                                    PART II

Item 5            Market for the Registrant's Common Equity and Related Stockholder Matters...     12
Item 6.           Selected Financial Data.....................................................     12
Item 7.           Management's Discussion and Analysis of Results of Operations and
                  Financial Condition.........................................................     13
Item 7A.          Quantitative and Qualitative Disclosure about Market Risk...................     17
Item 8.           Consolidated Financial Statements and Supplementary Data....................     18
Item 9.           Changes in and Disagreements With Accountants on Accounting and Financial
                  Disclosure..................................................................     38

                                                    PART III

Item 10.          Directors and Executive Officers of the Registrant..........................     38
Item 11.          Executive Compensation......................................................     38
Item 12.          Security Ownership of Certain Beneficial Owners and Management..............     38
Item 13.          Certain Relationships and Related Transactions..............................     38

                                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K.............     38
</TABLE>

                                       2
<PAGE>

                              2001 ANNUAL REPORT
                                   FORM 10K

Information Relating to Forward-Looking Statements

     This Form 10-K contains certain forward-looking statements as such term is
defined in the Private Securities Litigation Reform Act of 1995, and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management, as well as assumptions made by and information
currently available to the Company's management. When used in this report, the
words, "anticipate", "believe", "estimate", "expect", "intend" and words or
phrases of similar import, as they relate to the Company or its subsidiaries or
Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitations, competitive market factors,
worldwide manufacturing capacity in the industry, general economic conditions
around the world, raw material pricing and supply, governmental regulation and
supervision, seasonality, distribution networks, and other factors described
herein. Based upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended.

                                    PART I

ITEM 1. Description of Business

General

     Gundle/SLT Environmental, Inc. (the "Company" or "GSE") is the world leader
in the manufacture and installation of geosynthetic lining products and services
for environmental protection and other uses. It is a Delaware corporation
headquartered in Houston, Texas.

     The Company manufactures, sells, and installs flexible geomembrane liners,
geonets, geosynthetic clay liners, concrete protection liners, and geocomposite
products made from specially formulated polyethylene resins. Its fabrication
department offers a variety of specialty products, such as manholes, sumps, pipe
penetration boots, floats, floating covers, and vertical membrane barrier wall
panels.  All of these products are sold and installed on a worldwide basis,
typically as part of geosynthetic containment systems. The Company's products
and other related geosynthetic products are used in containment systems for the
prevention of groundwater contamination, and for the confinement of water,
industrial liquids, solids and gases.  The company manufactures and sells
nonwoven textiles for use in its geocomposite products and as roll goods.

     The Company's products are installed by independent third parties and by
the Company's full-time field personnel, who are organized into close-knit
construction crews. Crewmembers are extensively trained in hot wedge and
extrusion welding techniques. Using the latest equipment, these crews install
liners in the field to make one continuous, seamless containment system. The use
of an extensive weld-seam quality assurance testing program, combined with our
manufacturing quality control program and high quality resin, enables the
Company to offer what it believes are the highest quality products and services.

     On February 4, 2002, GSE purchased all the outstanding stock of Serrot
International, Inc. ("Serrot") for $15,165,400, subject to adjustment upon the
final determination of Serrot's working capital as of February 4, 2002. Serrot
is an international provider of geosynthetic lining products and services for
environmental protection and other uses. Serrot's United States operations are
being moved to GSE's manufacturing plants. Serrot has two manufacturing
operations in Canada, one of which it owns 51%. Serrot's installation operations
in the United States, Germany and the United Kingdom are being combined with
GSE's installation operations in these countries. The acquisition is expected to
provide the combined organization the economies of scale required to meet the
demands of the market for cost efficiencies and responsiveness.

                                       3
<PAGE>

Company Products

     The Company's principal products-flexible liners-are manufactured from
specially formulated polyethylene and polypropylene resins with chemical
additives designed to resist weathering, ultraviolet degradation and chemical
exposure for extended time in exposed applications.  Either customers or third-
party engineering firms design the containment and confinement systems into
which the Company's products are installed.  These systems may include other
Company manufactured products consisting of drainage nets, geocomposites,
geotextiles,  geosynthetic clay liners, vertical barrier walls, specialty
concrete protection liners, and other companies' products.  Marketing efforts
for its products are carried on through a worldwide distribution organization
made up of internal sales, independent dealers, agents, and distributors.

     The Company's primary product is a smooth-finish, high density
polyethylene-HDPE-liner. The sale and installation of this product in 2001,
2000, and 1999 accounted for approximately 51%, 57%, and 54%, of total sales.
Its HDPE liner products come in thickness ranges from 20 to 240 mil (one mil
equals 1/1000/th/ of an inch), and seamless widths up to 34.5 feet. Liner width
dictates how many seams are required during installation, and seaming represents
the major technical difficulty for liner installers. The fewer the number of
seams, the less labor involved, and the less testing required.

     The Company manufactures very flexible polyethylene (VFPE) sheet products
(GSE UltraFlex(R)) from low-density resin. VFPE products are finding greater use
in landfill caps, mining heap leach pads, and floating covers where greater
flexibility is desired. Both VFPE and HDPE products are available with texturing
for use on sloping terrain, or where a high friction angle is required.

     Demand is increasing for products made using the Company's co-extrusion
manufacturing capability.  This manufacturing process produces products with
different layers made of various resin densities that become molecularly
integrated such that they cannot delaminate or separate.  One of the major
products created using this process is GSE White (R), the Company's patented
white-surface (reflective) product for use in landfills and waste containment
applications.  By reflecting radiant heat, the reflective surface reduces the
expansion and contraction (wrinkling and bridging) of the liner during
installation.  Its reflective nature protects subgrade soils from drying out and
cracking (desiccation).  Under identical exposure conditions, white-surfaced
liners recorded temperatures as much as 50% lower than standard black surface
liner.  The white-surface greatly improves detection of installation damage by
revealing scoring and abrasions as black marks exposed against the white
surface.

     Using this same co-extrusion technology, the Company received a patent for
GSE Conductive(R), its electrically conductive liner. This product incorporates
a conductive layer that allows for spark testing of 100% of the surface once the
liner is installed. The unique ability to electric spark test the entire surface
eliminates the need for flooding the containment system with water for leak
detection, which can be expensive and time consuming. This product is finding
greater use in waste containment lagoons and landfill sump applications.

     The Company offers different specifications of drainage net (GSE
HyperNet(R)) consisting of two sets of HDPE strands intertwined to form a
channel along which fluid is conveyed for drainage. This net can be bonded with
geotextiles on one or both sides to form GSE FabriNet(R) and GSE FabriCap, the
Company's geocomposite products. These products are used as drainage media for
primary leachate collection where the soil is placed directly on top of the
drainage layer. GSE FabriCap products are specifically designed for landfill
capping project applications requiring a load bearing drainage net.

     Another product manufactured and offered by the Company is its patented
geosynthetic clay liner (Gundseal(R)) that combines HDPE liners with highly
expansive sodium bentonite clay.  The sodium bentonite clay is adhered directly
to the liner, and has demonstrated its primary function of sealing small
punctures accidentally made in the overlaying liner.  When hydrated, the
bentonite material is itself a highly impermeable liner taking the place of up
to three feet of compacted clay ordinarily required as a subgrade layer.

                                       4
<PAGE>

     GSE Studliner(R), a specialty concrete protection liner product, is
fabricated in the Company's facility located in Rechlin, Germany. This product
is finding extensive use in tunnels, corrosive containment applications, and
protecting concrete piping, pilings, and foundations. The Company fabricates
products made from this material for many types of civil engineering
applications.

     The Company also offers a wide variety of specially fabricated products,
such as manholes, sumps, pipe penetration boots, floating booms, and vertical
membrane barrier wall panels. Its product lines include portable secondary
containment pads, temporary or daily landfill covers, and self-installed pond
and pit liners. Its HDPE piping division provides leachate collection and
transfer, landfill gas collection systems, ground water systems and landfill
closure process piping.

     The Company offers third-party products under non-exclusive agreements,
such as geogrids, HDPE piping, and geotextiles. Polypropylene products are
manufactured and sold by the Company's subsidiary in the United Kingdom, in
addition to products manufactured from polyethylene.

     The Company considers quality control and testing as critical to the
successful operation of its manufacturing and installation business.  At its in-
house laboratories, it conducts various quality control tests, as well as other
sophisticated physical and chemical property tests.  On-site testing of its
manufactured products is conducted continuously during the manufacturing
process.  Our laboratories monitor the quality of incoming raw materials, and
perform routine tests on all finished products. Certifications as to the quality
and test results are routinely furnished to customers as part of the quality
assurance program.

     The Company believes that its products made from HDPE and VFPE resins offer
several critically important physical advantages over other resin liner
products.  Those advantages include: chemical resistance to various acids,
alkalis, aromatic solvents and oils; puncture resistance and tendency to stretch
rather than tear under certain pressures; and relative impermeability.  These
characteristics are the reason that the Company's products represent a major
portion of the geosynthetic liner market, particularly in solid waste
applications.

     The Company offers geotextile products manufactured at its South Carolina
facility as a component of the composite drainage materials and roll goods
offered by the Company.

Services

     The Company often provides its customers with installation services.
Trained field personnel travel to the customers' job sites and install products.
Company trained crews are available in the United States, Canada, the United
Kingdom and central Europe. Inside the United States, a network of carefully
selected independent dealers also provides installation services. Outside the
United States, in addition to the Company's installation capabilities, a network
of qualified distributors and subcontractors provide installation services. Upon
request from a customer using third-party installers, the Company may furnish a
technical supervisor to monitor installation activities and provide quality
assurance.

     Sheeting products are field-joined using hot wedge or extrusion welders.
The computer controlled, self-propelled wedge welding equipment creates a dual
track seam resulting in a homogeneous bond created between the sheets. The
presence of an unwelded channel between the dual seams allows trained
technicians to perform 100% non-destructive quality control testing of the
welds. The extrusion welding equipment extrudes hot resin through the dual head
of the welder resulting in an integration of the hot resin with the sheet liner.
These two forms of seam formation are considered superior to other methods of
bonding, including gluing. The strength and adequacy of seam welds are tested by
some combination of the following test methods: (1) cutting samples from the
liner and destructively testing the weld seams; (2) pressure testing the air
channel created during the wedge welding process; (3) performing vacuum testing
for air tightness of the extrusion welds; and (4) electric spark testing of the
conductive liner.

Research and Development

                                       5
<PAGE>

     The Company's research and development efforts focus on new products, new
quality control procedures, and more efficient manufacturing and installation
techniques.  Expenditures in 2001 were $1,143,000 compared to $1,350,000 in 2000
and $1,616,000 in 1999.

Raw Materials

     The Company's high-grade polyethylene and polypropylene resins are
purchased from at least two primary suppliers at each manufacturing location.
These resins arrive ready for screening tests already formulated with Company
designated stabilizers and antioxidants. The Company consistently works with its
suppliers to ensure supply, pricing stability, quality and new product
development. Occasionally, resins are in short supply and subject to substantial
price fluctuations. The Company has not encountered any significant difficulty
to date in obtaining resins in sufficient quantities in response to market
demand to support its operations at current or expected near term future levels.
Any significant interruption in resin supplies or abrupt increase in prices
could have a material adverse impact on the Company's operations.

Applications

     This table describes the principal applications of the Company's products
for the past three years based on the sales and operating revenues for each
application. (See Note 19 to Consolidated Financial Statements for geographic
information.)

               Sales and Operating Revenue by Market Application
                                (in thousands)

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                          -----------------------------------------------
                                                            2001     %       2000     %       1999     %
                                                          --------  ---    --------  ---    --------  ---
<S>                                                   <C>       <C>    <C>       <C>    <C>       <C>
    Solid Waste Containment............................   $116,968   67%   $130,917   69%   $116,075   65%
    Mining.............................................      8,768    5      19,896   10      17,371   10
    Hazardous Waste Containment........................      6,834    4       5,629    3      11,042    6
    Liquid Containment.................................     23,454   14      23,820   12      21,765   12
    Other Applications.................................     17,385   10      11,058    6      12,316    7
                                                          --------  ---    --------  ---    --------  ---
    Total Sales and Operating Revenue..................   $173,409  100%   $191,320  100%   $178,569  100%
                                                          ========  ===    ========  ===    ========  ===
</TABLE>

     Solid Waste Containment. This application includes liners for new
landfills, and new cells within existing landfills designed for the disposal or
storage of non-hazardous wastes. Included within this definition are products
used to cover (cap) lined and unlined landfills. Capping is required to prevent
rainwater from creating excessive leachate generation, which may then seep into
groundwater in unlined landfills. A secondary benefit derived from capping is
the collection of methane gas produced as waste decays.

     Mining. The mining industry uses our products for the containment and
confinement of chemicals used in mining gold, copper, and phosphate. These
minerals are dissolved or "leached" from the ore by chemical solutions that are
circulated through the ore-bearing crushed rock deposited on top of the liner
pad. The pad serves as the collection and drainage system for the mineral-
bearing solution. Leaching is a lower cost recovery technique permitting the
extraction of minerals from low-grade ore that previously was not processed. The
Company's products are also used to contain spent ore, tailings and chemical
solutions after the leaching process. Gypsum, a by-product of the phosphate
mining industry, is required to be stored on liners because of its acidic
nature.

     Hazardous Waste Containment. Synthetic liners are extensively used to
contain both solid and liquid hazardous waste and substances with the use of
liners in these applications mandated in the U.S. by the Hazardous and Solid
Waste Amendments of 1984.

     Liquid Containment. The Company's products are used in a wide range of
liquid containment applications including aquaculture ponds, tank linings,
irrigation canals, storm water runoff containment, organic waste from pig and
cattle feedlot operations and potable water reservoirs.

     Other Applications. The Company's products are used in various other
applications involving secondary containment and liquid confinement. These
applications are tunnel waterproofing, protection of concrete products

                                       6
<PAGE>

from corrosive chemicals and odor control through the use of floating covers. A
growing application is the use of its products to promote anaerobic digestion of
organic wastes and the capture of the resulting methane gas.

Marketing and Sales

     Marketing is a worldwide effort conducted by sales personnel located in the
United States, Spain, Canada, Germany, the United Kingdom, Italy, the
Netherlands, Thailand, Australia, Egypt, and the United Arab Emirates. The
Company's multi-tiered sales efforts are focused on engineers, general
contractors, facility owners, state and federal regulators and government
officials who are responsible for product specifications and the design and
awarding of contracts. A strong network of independent commercial agents,
dealers and distributors throughout the world work closely with the Company's
sales staff.

     Advertisements of the Company's products appear regularly in specialized
trade publications and on the Company's worldwide web site (www.gseworld.com).
The Company participates in trade shows, conducts industry seminars and makes
presentations to governmental administrators.  Efforts are ongoing to inform
engineers and regulators of the benefits to be derived from using our specialty
products.

     The Company sells its products in a very competitive market place.
Substantial quantities of its products are sold through the competitive bidding
process, whether in the United States or in foreign countries. The Company bids
either directly to the general contractor or owner, or through one of the
Company's independent distributors or dealers. The customers' bid proposals
establish the design and performance criteria for the products. The Company
negotiates the remainder of the contract terms where possible. In most cases,
the Company agrees to indemnify the site owner, general contractor and others
for certain damages resulting from the negligence of the Company and its
employees. The Company often is required to post bid and performance bonds or
bank guarantees. In all cases, the Company provides its customers with limited
material warranties on its products, and limited installation warranties for its
workmanship. These limited warranties may last up to 20 years, but are generally
limited to repair or replacement of defective liners or workmanship on a
prorated basis up to the dollar amount of the original contract.

     In some foreign contracts, the Company may be required to provide the
customer with specified contractual limited warranties as to material quality.
The Company's product warranty liability in many foreign countries is dictated
by local laws in addition to the warranty specified in the contracts. Several of
our foreign subsidiaries sell products and installation services under
competitively bid construction contracts.

     The enactment of numerous environmental laws with corresponding regulations
has enhanced the market for the Company's products. In the United States, the
Resource Conservation and Recovery Act of 1976, as amended (RCRA); Subtitle C-
Hazardous Waste Management; and Subtitle D-State or Regional Solid Waste Plans
provide the legal framework for the storage, treatment and disposal of hazardous
and non-hazardous wastes. Of particular importance to the Company has been the
impact of Subtitle D that regulates the disposal of municipal solid waste (MSW)
at roughly 2,300 U.S. landfills. State regulations adopted under this title
impose strict compliance standards with regard to groundwater protection, which
is exactly what the Company's products are designed to provide.

     Subtitle D regulations specify the use of a composite liner system
consisting of highly impermeable clay and a geomembrane liner. The liner must be
at least 30 mils thick. The United States Environmental Protection Agency (EPA)
took another step in its efforts to protect groundwater when it published a
presumptive remedy requiring the use of a "liner cap" in closed MSW landfills.
This liner cap is designed to prevent groundwater contamination and assist in
the containment of subterranean liquid waste plumes. The Company's products have
been installed in both applications in landfills located throughout the United
States.

                                       7
<PAGE>

     In 1980 the Comprehensive Environmental Response, Compensation and
Liability Act (Superfund) became law.  This law was in response to the dangers
of abandoned or uncontrolled hazardous waste sites.  Our products are used in
the cleanup work undertaken by owners, operators and waste generators that have
been compelled by the EPA or a state environmental protection agency to clean up
these sites.

     RCRA was amended in 1984 by the Hazardous and Solid Waste Amendments of
1984. These amendments require all new hazardous waste landfills to use
geosynthetic lining systems composed of two or more liners with leachate
collection and drainage systems above and between the liners. These same
amendments require surface impoundments or ponds used in the containment of
certain hazardous liquids to be double lined. The EPA also established
procedures for testing weld seams joining sections of liners. The Company
believes that since 1984, its products have been the most widely used in these
applications.

     Recently, EPA published regulations covering gypsum waste management
generated as a by-product of phosphate mining. Gypsum waste must now be stored
on synthetic lined containment systems. The EPA and the state agencies have also
adopted regulations controlling the handling and storage of hazardous
substances, specifically petroleum products and other chemicals contained in
tanks and lagoons. The Company's products are designed and used to directly
address these applications.

     Similar environmental laws and regulations exist in other countries,
particularly in the European Community, Japan and the Americas. As the world's
populations increase and industrial development continues, the demand for
enforcement of existing laws and the adoption of new laws to protect valuable
natural resources are expected to increase. The focus of current law is on those
projects involving intensive water use and activities that have an impact on
groundwater quality. These activities include agricultural irrigation, animal
feedlots and compounds, aquaculture facilities, industrial storm water runoff
containment areas, canals, mining leach pads and tunnels.

Customers

     The primary customers for the Company's products are domestic and
international, municipal and private companies engaged in waste management,
mining, water and wastewater treatment, aquaculture and other industrial
activities, including the engineering and civil works construction companies
serving these customers.  Within the last three years, the Company has sold more
than 3 billion square feet of products to customers in more than 70 countries.
The Company is a full service organization that strives to provide its customers
with a single source of geomembrane liners, related products and services for
environmental protection and other uses.

     During the years 2001, 2000 and 1999, no single customer accounted for more
than 10% of the Company's net sales.  In those same years, 54%, 55% and 53% of
the Company's net sales were to customers in the United States.  The Company
believes that the loss of any one customer would not have a material adverse
effect on the Company's financial position or results of operations. With the
acquisition of Serrot the Company expects to have one customer that will account
for approximately 15% of the Company's net sales.

Backlog

     As of December 31, 2001, the Company's backlog was $32.2 million compared
to $29.9 million at December 31, 2000. The Company anticipates that the majority
of the value of construction contracts and customer purchase orders included in
backlog at December 31, 2001 will be completed or filled prior to the end of
2002, subject to weather and other construction related delays. Contracts and
commitments for products and services are occasionally varied, modified, or
cancelled by mutual consent.

                                       8
<PAGE>

Seasonality and Other Business Conditions

     The greatest volume of product deliveries and installations typically occur
during the summer and fall, which results in seasonal fluctuations of revenue.
Often, scheduled deliveries are subject to delays at the customers' request to
correspond with customers' annual budgetary and permitting cycles. The Company
uses its manufacturing capacity at its various locations in an attempt to
mitigate the seasonal fluctuation on its manufacturing, delivery, and
installation schedules. (See Supplementary Data.)

Competition

     The Company believes that there are approximately 30 companies engaged in
the production of various synthetic geomembrane liners worldwide. These
companies offer the wide range of products identified in the section on Company
Products. The Company's competition is not limited to those companies that
manufacture polyethylene liners, but encompasses companies offering PVC,
Hypalon, and EPDM geomembranes. At least 12 of the companies manufacturing HDPE
liners compete directly with the Company in the United States.

     The principal resin types used in the products sold by the Company are
high-density polyethylene and very flexible polyethylene. In addition to HDPE
and VFPE products manufactured by its primary competitors, the Company's
products compete directly with flexible membrane liners manufactured from other
forms of resins. Other resins are: polyvinyl chloride (PVC), ethylene propylene
diene terpolymer (EPDM), scrim-reinforced chlorosulphonated polyethylene
(Hypalon), and polypropylene.

     The Company encounters competition in its other product lines in the United
States with two companies competing in the sale and installation of geosynthetic
clay liners.  In the drainage net market, six companies offer products that
directly compete with the Company's geonet product line.

     Competition is based on the performance of the lining systems, installation
capacity and pricing. Pricing remains very competitive with over-capacity in the
industry driving margins downward.  The Company believes it competes
successfully because it manufactures, sells and installs a wide range of high
quality, costs effective products and services and because of its strong
financial position.

Employees

     The Company had a total of 764 employees as of December 31, 2001, with 534
employed in the United States. The Serrot acquisition has added approximately
500 employees, with 450 employed in the United States. During peak construction
periods, the Company's workforce increases in all locations.  In the off-season
construction period, the Company maintains a nucleus of experienced employees
somewhat below the peak season staffing levels.  Some of the Company's full-time
employees in foreign locations are unionized, but the Company has never
experienced a strike or lockout.  The Company believes its employee relations
are satisfactory.

     The Company is firmly committed to a policy of Equal Employment Opportunity
and administers its personnel policies and conducts its employment practices in
a manner which treats each employee and applicant for employment on the basis of
merit, experience and other work-related criteria without regard to race, color,
religion, sex, national origin, ancestry, age, disability or any other protected
class under relevant state and federal laws.

Patents and Proprietary Information

     The Company has received patents from the U.S. Patent and Trademark Office
for its GSE White, GSE Conductive and GSE CurtainWall products, as well as its
FrictionFlex texturing process. Certain of these patents are either registered
or in the process of being registered in select foreign countries. It has
registered its new trademark and logo ("GSE") with the same patent office and
has registered this trademark in select foreign countries. The Company has other
patents, license-to-use patents (such as GundSeal), and pending applications.
Although in the aggregate GSE's patents are important in the operation of its
businesses, the loss, by expiration or otherwise, of any one patent or group of
patents would not materially effect its business.

                                       9
<PAGE>

ITEM 2. Properties

     The Company manufactures its products in nine locations around the world.
Seven of these operations use flat sheet extrusion and round die extrusion
manufacturing technologies to produce products. There are thirteen extrusion
lines for producing liner products, and four for the production of drainage net
products. The eighth operation located in South Carolina uses a needlepunched
nonwoven textile manufacturing line. The ninth operation, located in Barrie,
Canada manufactures geosynthetic clay lining products.

United States

     GSE Lining Technology, Inc. conducts U.S. operations at the Company's
headquarters located on a 21.5-acre tract of Company-owned land in an industrial
park in Houston, Texas. This location has 31,400 square feet of office space in
two buildings, housing administrative, sales, and installation functions. Here
the Company has two large manufacturing facilities servicing the U.S. and
foreign markets. One manufacturing facility is a 67,000 square foot building of
metal skin over steel frame construction that contains seven blown film round
die extrusion lines, and one geocomposite line. Fabrication is housed in a
12,000 square foot facility.

     The second manufacturing facility in Houston occupies 16.9 acres of
Company-owned land with 3,300 square feet of office space, and two buildings
with a total of 83,000 square feet for manufacturing operations. The
manufacturing buildings house a flat cast sheet-extrusion line, as well as a
geonet/geocomposite line and a texturing line. The flat sheet extruder is
considered the most precise method in the industry for manufacturing certain mil
thickness of sheeting.

     Another manufacturing facility is on a 55 acres tract of Company owned land
in an industrial park in Kingstree, South Carolina. This location has 5,400
square feet of office space and 156,000 square feet for manufacturing and
warehousing operations. The building of metal skin over sheet frame construction
contains one 16 million pound needlepunched nonwoven manufacturing line with
room for expansion to two lines. The Company conducts business at this location
under the name GSE Nonwoven Technology Company, a division of GSE Lining
Technology, Inc.

     The Company's patented GundSeal products are manufactured on one production
line housed in a Company-owned 16,000 square foot building located in Spearfish,
South Dakota. The plant is located near the sources for clay (bentonite).

Canada

     Columbia Geosystems Ltd., conducts manufacturing operations on 9.66 acres
of Company owned land in Calgary, Canada. This location has a 37,000 square foot
office and manufacturing apace. Its products are manufactured on a round die
extrusion line located at this site. The Company owns a 51% interest in Bentofix
Technologies Inc., located in Barrie Canada. This 40,000 square foot leased
facility manufactures geosynthetic clay lining products sold exclusively to the
Company.

Germany

     GSE Lining Technology GmbH headquartered in Hamburg, Germany, manages the
Company's European operations. Its manufacturing facility is located in Rechlin,
Germany, on 8.2 acres owned by the Company. From this location, the Company
supplies its customers with products manufactured on a flat cast extrusion line
and two texturing lines. Operating at the same facility is a fabrication
department involved in fabricating products from GSE's Studliner sheeting. The
Company's staff in Hamburg can assist its customers in 21 languages.

                                       10
<PAGE>

United Kingdom

     The Company's operations in the United Kingdom are carried out by its
subsidiary, GSE Lining Technology Ltd., operating at a .75 acre leased facility
in Soham, England, just north of London. This location has 2,500 square feet of
office space and 10,652 square feet of manufacturing facilities. Its products
are manufactured on a round die extrusion line located on this site and one
texturing line. The Company's administrative, sales, and installation service
personnel are housed at this location. This facility manufacturers both
polyethylene and polypropylene geomembrane products.

Egypt

     The Company owns a 50% interest in two joint ventures, Hyma/GSE
Manufacturing Co. and Hyma/GSE Lining Technology Co., a manufacturing company
and a trading company. The manufacturing operations are located on a 1.1 acre
leased site outside of Cairo. Located on this site are two buildings totaling
34,262 square feet that house a flat sheet extrusion line. The trading company
operates out of a small leased facility in Nasr City, Cairo, and its staff sells
products manufactured by the Hyma/GSE Manufacturing Co., the Company, and other
subsidiaries of the Company.

Thailand

     GSE Lining Technology Company Ltd. headquartered in Bangkok, Thailand,
manages the Company's Thailand operations out of a leased facility. Its
manufacturing facility is located in Rayong, Thailand, on 8,000 square meters
leased by the Company. Its products are manufactured on two blown film round die
extrusion lines owned by the Company.

Other

     The Company's sales efforts in the United Arab Emirates, Oman, Bahrain,
Qatar, Kuwait and Yemen are conducted by GSE Gulf FZE located in leased
warehouse and sales facilities in the Jebel Ali Free Trade Zone in Dubai. This
40% owned joint-venture company warehouses select quantities of products in the
duty free trade zone.

     The Company's sales operation in Australia is carried out by GSE Australia
Pty Ltd. operating out of leased offices located in Moorebank, New South Wales.
It offers the full range of Company geomembranes and related products.



ITEM 3. Legal Proceedings.

     For information about various legal proceedings involving the Company, see
Note 17 of the Notes to Consolidated Financial Statements.

ITEM 4. Submission of Matters to a Vote of Security Holders.

     Not applicable.

                                       11
<PAGE>

                                    PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.

     The common stock of the Company trades on the New York Stock Exchange under
the symbol GSE.  The following table shows the quarterly range of high and low
sale prices for the stock through December 31, 2001.

<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                       ------------------------------------
                                                                                             2001                 2000
                                                                                       ----------------      --------------
                                                                                        High        Low      High      Low
                                                                                       -----       ----      ----      ----
   <S>                                                                                 <C>        <C>       <C>       <C>
   First Quarter.....................................................................   3.13       2.13      3.88      2.94
   Second Quarter....................................................................   2.75       2.25      4.00      2.75
   Third Quarter.....................................................................   3.60       2.55      4.06      3.00
   Fourth Quarter....................................................................   2.70       2.22      3.50      1.94
</TABLE>

     The approximate number of record holders of the Company's common stock at
February 14, 2002, was 290. Management estimates that the aggregate number of
beneficial holders exceeds 1,800.

     The Company does not currently intend to declare or pay dividends on its
Common Stock and expects to retain funds generated by operations for the
development and growth of the Company's business. The Company's future dividend
policy will be determined by the Company's Board of Directors on the basis of
various factors, including among other things, the Company's financial
condition, cash flows from operations, the level of its capital expenditures,
its future business prospects, the requirements of Delaware law and any
restrictions imposed by the Company's credit facilities. (See Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Liquidity and Capital Resources.)


Item 6. Selected Financial Data.
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                     -----------------------------------------------------
                                                                        2001       2000       1999       1998       1997
                                                                      --------   --------   --------   --------   --------
   <S>                                                               <C>         <C>        <C>        <C>       <C>
   INCOME STATEMENT DATA:
    Sales and operating revenue....................................   $173,409   $191,320   $178,569   $179,555   $199,318
     Gross profit..................................................     28,804     32,579     35,921     34,928     36,101
     Operating income..............................................      3,389      6,792      9,904      8,918     10,613
     Interest expense, net.........................................      1,248      1,354      1,716      2,357      2,191
     Income before income taxes....................................      2,600      5,965      8,461      6,932      7,846
     Net income....................................................      1,378      3,638      4,907      4,020      4,550
     Basic and diluted earnings per common share...................        .12        .31        .38        .30        .29
   BALANCE SHEET DATA:
     Working capital...............................................   $ 48,021   $ 51,949   $ 60,715   $ 59,569   $ 60,461
     Total assets..................................................    145,611    148,563    161,697    169,320    177,961
     Total debt....................................................     25,801     26,530     31,360     37,414     43,395
     Stockholders' equity..........................................     90,434     89,308     93,271     89,793     86,110
</TABLE>

                                       12
<PAGE>

ITEM 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.


Results of Operations

Year Ended December 31, 2001 Versus Year Ended December 31, 2000

  The Company's net sales and operating revenue of $173,409,000 decreased
$17,911,000, or more than 9%, in 2001 from the $191,320,000 reported in 2000. A
change in the U.S. dollar value of the Company's foreign entity functional
currencies reduced year 2001 sales and operating revenue by $2,510,000. Units
shipped decreased 5% in 2001 from 2000. Sales to the North American market were
$93,374,000 in 2001 compared with $106,717,000 in 2000. The decreased revenue
was caused by a 13 % decrease in units shipped as a result of a smaller North
American market. Sales and operating revenue in foreign markets were $80,035,000
in 2001 compared with $84,601,000 in 2000. When compared to 2000 foreign sales
were $2,510,000 lower in the year 2001 because of a drop in the dollar value of
local functional currencies. Foreign sales of GSE's products, in units, were up
1%, however, GSE installed fewer of its products in 2001 than in 2000.

  Gross profit was $28,804,000 in 2001 compared to $32,579,000 in 2000. A change
in U.S. dollar value of the Company's foreign entity functional currencies
reduced year 2001 gross profit by $470,000. In addition, reduced gross profit
resulted from profits lost on 5% lower units shipped plus the associated fixed
cost these sales would have absorbed. Accordingly, gross profit margin dropped
to 16.6% of sales in 2001 from 17.0% of sales in 2000. U.S. gross profit margin
was down two percentage points. This decrease was primarily due to the effects
of unabsorbed fixed costs associated with 13% lower North American product sales
and the startup cost of manufacturing new nonwoven products. Foreign operations
gross profit margin was up three percentage points. This increase was primarily
due to the effects of increased product sales and improved margins on
installation work in the U.K.

  Selling, general and administrative expenses of $24,090,000 were $355,000
lower in 2001 than in 2000. Expenses were down in the Company's foreign
operating units by $259,000. This decrease was primarily from the drop in the
dollar value of local foreign currencies. The Company's U.S. operation lowered
its costs $595,000, which was offset by a $500,000 increase in startup cost of
manufacturing nonwoven products.

  Interest expense was $405,000 lower in 2001 than in 2000. This reduction was
the result of a lower level of average debt outstanding.

  Interest income was $399,000 lower in 2001 than 2000. This reduction was the
result of lower average cash balances and lower interest rates on invested cash.

  The Company recorded a loss on foreign exchange of $243,000 compared to a gain
of $61,000 in the year 2000. This was primarily related to the change in rates
of the German Mark and the Euro.

  The Company recorded other income/(expense) of $702,000 in 2001 compared with
other income of $466,000 in 2000. This was primarily related to a reduction of
other expenses in the Company's UK operations.

  The Company's provision for income taxes was $1,222,000 in 2001 compared with
$2,327,000 in 2000. The tax provision in both years was provided at statutory
rates adjusted for permanent differences. The effective rate for 2001 was 47%
compared to 39% in 2000. This increase was heavily influenced by the Company's
lower profits in the U.S. and higher profits in Germany compared to the year
2000.


Year Ended December 31, 2000, Versus Year Ended December 31, 1999

                                       13
<PAGE>

     The Company's net sales and operating revenue of $191,320,000 increased
$12,751,000, or more than 7%, in 2000 from the $178,569,000 reported in 1999. A
change in the U.S. dollar value of the Company's foreign entity functional
currencies reduced year 2000 sales and operating revenue by $7,100,000. Units
shipped increased 2% in 2000 from 1999. Sales to the North American market were
$106,717,000 in 2000 compared with $96,551,000 in 1999. The increased revenue
came from price increases and favorable product mix of third-party products, as
units shipped of GSE products were down 2% from 1999. Sales and operating
revenue in foreign markets were $84,603,000 in 2000 compared with $82,018,000 in
1999. When compared to 1999 foreign sales were $7,100,000 lower in the year 2000
because of drops in the dollar value of local functional currencies. Sales of
GSE's products, in units, were up 5% in foreign markets.

     Gross profit was $32,579,000 in 2000 compared to $35,921,000 in 1999. A
change in U.S. dollar value of the Company's foreign entity functional
currencies reduced year 2000 gross profit by $800,000. Gross profit margin
dropped to 17% of sales in 2000 from 20% of sales in 1999. U.S. gross profit
margin was down two percentage points and foreign gross profit margin was down
five percentage points. This decrease in gross profit margin of three percentage
points was primarily due to competitive pressure not allowing for timely selling
price increases following cost increases in the Company's raw material,
polyethylene resin. Selling prices averaged 7% higher in year 2000 than in 1999.

     Selling, general and administrative expenses of $24,445,000 were $204,000
lower in 2000 than in 1999. Expenses were down in the Company's foreign
operating units by $329,000. This decrease was the net of lower foreign exchange
rates lowering costs by $1,000,000 offset by the added costs of operating in
Thailand in 2000. A small increase in the U.S. resulted from establishing a
nonwoven business in Kingstree, SC.

     Interest expense was $644,000 lower in 2000 than in 1999. This reduction
was the result of a lower level of average debt outstanding. A major portion of
this reduction came from the Company's repayment of $5,000,000 of its 11.17%
interest rate debt.

     The Company recorded other income of $466,000 in 2000 compared with other
income of $289,000 in 1999. In 2000 there was an increase of approximately
$77,000 in foreign exchange gains. Other income also benefited from a refund of
state taxes.

     The Company's provision for income taxes was $2,327,000 in 2000 compared
with $3,554,000 in 1999. The tax provision in both years was provided at
statutory rates adjusted for permanent differences. The effective rate for 2000
was 39% compared to 42% in 1999. This reduction was heavily influenced by the
Company's tax holiday in Thailand.

Liquidity and Capital Resources

     The Company's primary sources of liquidity in 2001 were internally
generated cash from operations and its credit line. Primary uses of cash were
capital expenditures and repayment of long term debt. Cash generated by
operations in 2001 was $15,788,000. Capital expenditures totaled $9,061,000. As
of December 31, 2001 the Company had working capital $48,021,000 of which
$16,163,000 was cash and cash equivalent investments. The Company's capital
structure consisted of $25,801,000 in debt and $90,434,000 in stockholders'
equity at December 31, 2001

     At December 31, 2001, the Company had credit facilities with two German
banks in the amount of EUR 5,625,000. These revolving credit facilities are
secured by property and plant in Germany, which also secures an installment
loan. These facilities mature in September, 2002, and bear interest at various
market rates. These credit facilities are used primarily to guarantee the
performance of European installation contracts and temporary working capital
requirements. At December 31, 2001, the Company had EUR 3,272,500 available
under these credit facilities with EUR 2,180,000 of bank guarantees outstanding.



     In January 2002, the Company arranged an additional EUR 2,550,000 credit
line with a German bank to guarantee the performance of German installation
contracts and temporary working capital requirements. This facility bears
interest at market rates and is supported by a corporate guarantee.

                                       14
<PAGE>

     On February 4, 2002, the Company entered into a note agreement with a
lender in the amount of $25,000,000. This 3-year term facility is secured by the
Company's Houston, TX and Kingstree, SC, real properties and all of the
Company's equipment at these locations. The promissory note requires monthly
payments of approximately $520,000 including interest at the rate of 9.22% and
matures on February 5, 2005 with a balloon payment equal to the unpaid principal
balance plus accrued and unpaid interest. The terms of the note place various
restrictions on the Company's ability to pay dividends or make certain other
payments, incur additional debt, consolidate or merge into another corporation
or sell assets and make capital expenditures. The note also requires the Company
to maintain certain financial ratios and specified levels of consolidated net
worth.

     On February 4, 2002, the Company entered into a 3-year credit agreement
with Bank of America, N.A., as agent, to borrow up to $55,000,000 on a revolving
basis. The amount of borrowings allowed under the credit agreement is determined
by the amount of eligible receivable and inventory amounts that make up the
borrowing base. Loans made pursuant to the credit agreement bear interest, at
the Company's option, at the bank's prime rate or the reserve adjusted LIBOR
plus an applicable margin based on the ratio, from time-to-time, of the
Company's EBITDA (as defined in the credit agreement) to certain "fixed
charges," including principal paid on funded debts, cash interest expense,
dividends, stock repurchases and certain other distributions made, cash amount
of taxes paid and net capital expenditures made from time-to-time. The
applicable margin for prime rate loans may vary between 0% and .25% per annum,
and the applicable margin for LIBOR based loans may vary between 2% and 2.75%
per annum. Fees will be payable from time-to-time with respect to letters of
credit issued pursuant to the credit agreement at a rate equal to the margin
payable with respect to LIBOR based revolving loans. An annual commitment fee of
3/8% is payable on any unused portion of the facility. The terms of the credit
agreement place various restrictions on the Company's ability to pay dividends
or make certain other payments, incur additional debt, consolidate or merge into
another corporation or sell assets and to make capital expenditures. The credit
agreement also requires the Company to maintain certain financial ratios and
specified levels of consolidated net worth.

     The Company's lining operations are subject to seasonal fluctuation with
the greatest volume of product deliveries and installations typically occurring
in the summer and fall months. In particular,

     Sources of Liquidity

     On February 4, 2002, the Company issued $25,000,000 of long term notes and
arranged a line of credit of up to $55,000,000. On February 4, 2002, the Company
paid in full $20,000,000 of 7.34% long term debt and $15,165,400 (subject to
adjustment upon the final determination of Serrot's working capital at the
closing date) for the purchase of all of the outstanding stock of Serrot
International, Inc. The Company also paid approximately $4,000,000 of closing
costs related to the acquisition. To complete the acquisition the Company used
$8,700,000 of its cash and borrowed $5,500,000 under its line of credit. On
February 4, 2002, the Company's borrowing base under the line of credit was
approximately $29,100,000 of which the Company could have borrowed $17,800,000.

     The Company estimates it will cost $10,000,000 for severance, and
relocating personnel, inventory and equipment during fiscal year 2002 related to
the acquisition. Nevertheless, management expects the acquisition will be
accretive and will add approximately $25,000,000 in equity to the balance sheet.
Management believes significant savings will result from plant consolidations,
sales and marketing consolidations, and administrative cost savings on a
combined basis.

     The Company expects to rely upon internally generated cash flow and its
line of credit to maintain liquidity in the foreseeable future, as cash flow
from operations is expected to be positive and adequate to fulfill cash
requirements in 2002 and 2003. The Company will use its line of credit for
seasonal working capital requirements and to maintain liquidity for short term
imbalances. The Company's operating results and liquidity are reduced in the
first quarter as both product deliveries and installations are at their lowest
levels due to the inclement weather experienced in the Northern Hemisphere.

     Our long term obligations consist primarily of the $25,000,000 of long term
notes and are payable as described in Note 8 - Long Term Debt.

Critical Accounting Policies and Estimates

                                       15
<PAGE>

     The Company's discussion and analysis of financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. On an on-going basis, management evaluates estimates,
including those related to bad debts, materials and supplies obsolescence,
investments, intangible assets and goodwill, income taxes, financing operations,
workers' insurance, pensions and other post-retirement and employment benefits
and contingent liabilities. Estimates are based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from the estimates estimate used in
preparing the consolidated financial statements contained herein.

     The Company believes the following are its most critical accounting
policies. These policies require significant judgmental estimates used in the
preparation of its consolidated financial statements, based on historical
experience and assumptions related to certain factors including competitive
market factors, worldwide manufacturing capacity in the industry, general
economic conditions around the world and governmental regulation and
supervision.

     Allowance for doubtful accounts - The Company closely monitors its
customer's accounts on a regular basis, including an analysis of past due
accounts. The Company provides for potential doubtful accounts as a percentage
of sales and operating revenues based on historical experience and past due
accounts.

     Warranty Reserve - The Company's products carry specified limited
warranties as to quality and workmanship. The Company established a reserve for
potential warranty claims based on history of claims experience.

     Revenue recognition and job loss accrual - Revenues from installation
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to total estimated cost for each contract. The
Company's installation projects are reviewed for profitability on a monthly
basis. When it has been determined that a project will generate a loss for the
Company, the Company estimates that loss and books a reserve for the total
expected loss on the job.

     Goodwill impairment - The Company reviews the carrying value of goodwill
when facts and circumstances suggest an other than temporary decline in the
recorded value. Effective January 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangibles. As a
result of the statement the Company will no longer amortize goodwill but will
perform an initial test of impairment and then assess goodwill for impairment at
least annually thereafter.

ITEM 7 A. Quantitative and Qualitative Disclosures about Market Risk.

     The Company's exposure to interest rate market risk is limited to credit
facilities that bear interest at floating rates. As of December 31, 2001, there
was $5,000,000 outstanding under the Company's revolving credit facilities. A
change in interest rates would have no material impact on the Company's
earnings.

     The Company routinely enters into fixed price contracts with commencement
of performance dates spread throughout the year. Due to the nature of the
construction business into which our products are sold, the Company has limited
contractual means of passing through resin price increases. The Company believes
that it successfully manages this risk by:

          a)  setting expiration dates on bids,
          b)  negotiating delays in announced resin price increases,
          c)  carrying inventory to meet expected demand and
          d)  planning and staying informed on economic factors influencing
              resin prices.

     The Company does not enter into purchase contracts for the future delivery
of raw materials.

                                       16
<PAGE>

ITEM 8. Consolidated Financial Statements and Supplementary Data.

                        REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Gundle/SLT Environmental, Inc.

     We have audited the accompanying consolidated balance sheets of Gundle/SLT
Environmental, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2001. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gundle/SLT
Environmental, Inc. and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

                                                               ERNST & YOUNG LLP

Houston, Texas
January 28, 2002

                                       17
<PAGE>

                        GUNDLE/SLT ENVIRONMENTAL, INC.

                          CONSOLIDATED BALANCE SHEETS
                                (in thousands)

<TABLE>
<CAPTION>
                                            ASSETS

                                                                                               December 31,
                                                                                        -------------------------
                                                                                            2001             2000
                                                                                        --------         --------
<S>                                                                                     <C>              <C>
Current assets:
  Cash and cash equivalents.....................................................        $ 16,163         $ 11,270
  Accounts receivable:
     Trade, net.................................................................          44,356           49,288
     Other......................................................................           1,062            1,319
  Contracts in progress.........................................................           1,977            2,525
  Inventory.....................................................................          17,151           17,830
  Deferred income taxes.........................................................           4,006            5,189
  Prepaid expenses and other....................................................           1,609              961
                                                                                        --------         --------
          Total current assets..................................................          86,324           88,382
Property, plant and equipment, net..............................................          33,355           32,689
Excess of purchase price over fair value of net assets acquired, net............          22,205           23,638
Deferred income taxes...........................................................             777              941
Other assets....................................................................           2,950            2,913
                                                                                        --------         --------
                                                                                        $145,611         $148,563
                                                                                        ========         ========

                                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities......................................        $ 26,351         $ 27,831
  Advance billings on contracts in progress.....................................           1,139            1,722
  Current portion of long-term debt.............................................           5,268            5,341
  Short-term debt...............................................................           5,154              534
  Income taxes payable..........................................................             391            1,005
                                                                                        --------         --------
          Total current liabilities.............................................          38,303           36,433
Deferred income taxes...........................................................           1,145            1,743
Long-term debt..................................................................          15,379           20,655
Other liabilities...............................................................             350              424
Stockholders' equity:
  Preferred stock, $1.00 par value, 1,000,000 shares authorized, no
     shares issued or outstanding...............................................              --               --
  Common stock, $.01 par value, 30,000,000 shares authorized, 18,109,923 and
18,103,695 shares issued........................................................             183              181
  Additional paid-in capital....................................................          69,378           69,364
  Retained earnings.............................................................          60,293           58,915
  Accumulated other comprehensive income........................................          (2,242)          (2,048)
                                                                                        --------         --------
                                                                                         127,612          126,412
  Treasury stock at cost, 7,066,262 shares and 7,040,562 shares.................         (37,178)         (37,104)
                                                                                        --------         --------
          Total stockholders' equity............................................          90,434           89,308
                                                                                        --------         --------
                                                                                        $145,611         $148,563
                                                                                        ========         ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       18
<PAGE>

                         GUNDLE/SLT ENVIRONMENTAL, INC.

                       CONSOLIDATED STATEMENTS OF INCOME
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                  ----------------------------------------------
                                                                    2001               2000               1999
                                                                  --------           --------           --------
<S>                                                               <C>                <C>                <C>
Sales and operating revenue.............................          $173,409           $191,320           $178,569
Cost of products and services...........................           144,605            158,741            142,648
                                                                  --------           --------           --------
Gross profit............................................            28,804             32,579             35,921
Selling, general and administrative expenses............            24,090             24,445             24,649
Amortization of goodwill................................             1,325              1,342              1,368
                                                                  --------           --------           --------
Operating income........................................             3,389              6,792              9,904
Other expenses:
  Interest expense......................................             1,709              2,114              2,758
  Interest income.......................................              (461)              (760)            (1,042)
  Foreign exchange (gain) loss..........................               243                (61)                16
  Other (income) expense, net...........................              (702)              (466)              (289)
                                                                  --------           --------           --------
Income before income taxes..............................             2,600              5,965              8,461
Provision for income taxes..............................             1,222              2,327              3,554
                                                                  --------           --------           --------
Net income..............................................          $  1,378           $  3,638           $  4,907
                                                                  ========           ========           ========
Basic and diluted earnings per common share.............          $   0.12           $   0.31           $   0.38
                                                                  ========           ========           ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       19
<PAGE>

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                (in thousands)

<TABLE>
<CAPTION>
                                                                             Accumulated
                                       Common Stock   Additional                Other                    Treasury Stock
                                      --------------    Paid-in   Retained  Comprehensive   Unearned    -----------------
                                      Shares  Amount    Capital   Earnings      Income    Compensation  Shares    Amount     Total
                                      ------  ------  ----------  --------      ------    ------------  ------  ---------  ---------
<S>                                  <C>      <C>     <C>         <C>       <C>          <C>            <C>     <C>        <C>
Balance at December 31, 1998          18,092    $181     $69,374   $50,370       $    832        $(130)  4,965   $(30,834)  $89,793
  Net income........................      --      --          --     4,907             --           --      --         --     4,907
  Cumulative translation
    adjustment......................      --      --          --        --           (205)          --      --         --      (205)
                                                                                                                            -------
        Comprehensive Income........      --      --          --        --             --           --      --         --     4,702
                                                                                                                            -------
  Restricted stock grant............      --      --         (30)       --             --          130      34         --       100
  Purchases under the Employee
    Stock Purchase Plan.............       4                  14        --             --           --      --         --        14
  Treasury stock purchases..........      --                                           --                  329     (1,338)   (1,338)
                                      ------    ----     -------   -------       --------        -----  ------   --------   -------
Balance at December 31, 1999........  18,096     181      69,358    55,277            627        $  --   5,328    (32,172)   93,271
  Net income........................      --      --          --     3,638             --           --      --         --     3,638
  Gain from swap (see note 2).......      --      --          --        --         (1,750)          --      --         --    (1,750)
  Cumulative translation
    Adjustment......................      --      --          --        --           (925)          --      --         --      (925)
                                                                                                                            -------
        Comprehensive Income........      --      --          --        --             --           --      --         --       963
                                                                                                                            -------
  Restricted stock grant............      --      --         (19)       --             --           --      35         --       (19)
  Purchases under the Employee                                          --
    Stock Purchase Plan.............       8      --          25                       --           --      --         --        25
  Treasury stock purchases..........      --      --          --        --             --           --   1,678     (4,932)   (4,932)
                                      ------    ----     -------   -------       --------        -----  ------   --------   -------
Balance at December 31, 2000........  18,104     181      69,364    58,915         (2,048)       $  --   7,041    (37,104)   89,308
  Net income........................      --      --          --     1,378             --           --      --         --     1,378

  Cumulative translation
    adjustment......................      --      --          --                     (194)          --      --         --      (194)
                                                                                                                            -------
        Comprehensive Income........      --      --          --        --             --           --      --         --     1,184
                                                                                                                            -------
  Purchases under the Employee                                          --
    Stock Purchase Plan.............       6       2          14                       --           --      --         --        16
  Treasury stock purchases..........      --      --          --        --             --           --      25        (74)      (74)
                                      ------    ----     -------   -------       --------        -----  ------   --------   -------
Balance at December 31, 2001........  18,110    $183     $69,378   $60,293       $ (2,242)       $  --   7,066   $(37,178)  $90,434
                                      ======    ====     =======   =======       ========        =====  ======   ========   =======
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       20
<PAGE>

                        GUNDLE/SLT ENVIRONMENTAL, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                                  Year Ended December 31,
                                                                                            -----------------------------------
                                                                                              2001         2000         1999
                                                                                            --------     --------     --------
<S>                                                                                         <C>          <C>          <C>
Cash flows from operating activities:
  Net income                                                                                $  1,378     $  3,638     $  4,907
  Adjustments to reconcile net income to cash provided
     by (used in) operating activities:
     Depreciation.................................................................             8,164        7,955        8,186
     Amortization of goodwill.....................................................             1,325        1,342        1,368
     Amortization of debt issuance costs..........................................                20           83           90
     Amortization of unearned compensation........................................                --           --           39
     Deferred income taxes........................................................               974       (1,311)        (369)
     Gain on sale of assets.......................................................               (82)        (138)        (111)
     Equity in affiliates and other...............................................              (229)        (492)        (274)
     Increase (decrease) in cash due to changes in assets and liabilities:
       Accounts receivable, net...................................................             4,695        2,671       (9,677)
       Costs and estimated earnings in excess of billings on contracts in
         progress.................................................................               472         (189)        (768)
       Inventory..................................................................               138        1,682       (1,502)
       Prepaid expenses and other, net............................................              (851)       1,316          (66)
       Accounts payable and accrued liabilities...................................             1,518       (1,043)      (1,597)
       Advance billings on contracts in progress..................................              (573)        (644)         544
       Income taxes payable.......................................................            (1,161)      (1,187)        (797)
                                                                                            --------     --------     --------
          Net cash (used in) provided by operating activities.....................            15,788       13,683          (27)
                                                                                            --------     --------     --------
Cash flows from investing activities:
  Additions to property, plant and equipment......................................            (9,558)     (10,083)      (5,286)
  Proceeds from the sale of equipment.............................................               497          143          264
                                                                                            --------     --------     --------
          Net cash  used for investing activities.................................            (9,061)      (9,940)      (5,022)
Cash flows from financing activities:
  Repayments of long-term debt....................................................           (10,828)      (5,248)      (5,863)
  Proceeds of short-term debt.....................................................            10,155          534           --
  Proceeds from the exercise of stock options and purchases under the employee
    stock purchase plan...........................................................                17           25           14
  Repurchase of common stock......................................................               (74)      (4,932)      (1,338)
                                                                                            --------     --------     --------
          Net cash used by financing activities..................................               (731)      (9,621)      (7,187)
Effect of exchange rate changes on cash...........................................            (1,103)         275         (290)
                                                                                            --------     --------     --------
Net increase (decrease) in cash and cash equivalents..............................             4,893       (5,603)     (12,526)
Cash and cash equivalents at beginning of year....................................            11,270       16,873       29,399
                                                                                            --------     --------     --------
Cash and cash equivalents at end of year..........................................          $ 16,163     $ 11,270     $ 16,873
                                                                                            ========     ========     ========
Cash paid for interest............................................................          $  2,227     $  2,390     $  2,934
                                                                                            ========     ========     ========
Cash paid for income taxes........................................................          $  1,404     $  4,795     $  4,478
                                                                                            ========     ========     ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       21
<PAGE>

                        GUNDLE/SLT ENVIRONMENTAL, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of presentation --

Organization --

  Gundle/SLT Environmental, Inc. (the "Company"), a Delaware corporation, was
incorporated in August 1986, and through its wholly owned subsidiaries is
primarily engaged in the manufacture, sale and installation of polyethylene
lining systems.

(2) Summary of significant accounting policies --

Consolidation --

  The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Investments in partially owned
entities in which ownership ranges from 20 to 50 percent are accounted for using
the equity method. All material intercompany balances and transactions have been
eliminated.

Cash Equivalents --

  The Company considers all highly liquid short-term investments with an
original maturity of three months or less to be cash equivalents.

Inventory --

  Inventory is stated at the lower of cost or market. Cost, which includes
material, labor and overhead, is determined by the weighted average cost method,
which approximates the first in, first out cost method.

Property, plant and equipment --

  Costs of additions and major improvements are capitalized, whereas maintenance
and repairs which do not improve or extend the life of the asset are charged to
expense as incurred. When items are retired or otherwise disposed of, income is
charged or credited for the difference between net book value and proceeds
realized thereon. Interest costs incurred in construction of assets are
capitalized and depreciated over the useful life of the asset. Depreciation is
computed using the straight-line method, based on the estimated useful lives of
the assets. Total repairs and maintenance expense during 2001, 2000 and 1999 was
$2,569,000, $3,022,000 and $2,577,000, respectively.

Excess of purchase price over fair value of net assets acquired --

  The excess of the aggregate price paid by the Company in the acquisition of
businesses, accounted for as a purchase, over the fair market value of the net
assets acquired is amortized on a straight-line basis over periods not exceeding
40 years. The carrying value of the excess of purchase price over fair value of
net assets acquired is reviewed if the facts and circumstances suggest that it
may be impaired. If this review indicates that the carrying value will not be
recoverable, determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, it is reduced to the discounted
cash flow value. As of December 31, 2001 and 2000, accumulated amortization was
$16,416,000 and $15,091,000, respectively.

                                       22
<PAGE>

Revenue and cost recognition --

  The Company recognizes revenue upon shipment of product to the customer except
when work is being performed under an installation contract. Revenues from
installation contracts are recognized on the percentage-of-completion method
measured by the percentage of costs incurred to total estimated costs for each
contract.

  Cost of sales includes all direct material and labor costs, and indirect costs
such as indirect labor, depreciation, insurance, supplies, tools and repairs.

  Provisions for the total estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined.

  Selling, general and administrative costs are charged to expense as incurred.

Deferred costs --

  Debt issuance costs are capitalized and amortized using the effective interest
rate method over the period the related debt is anticipated to be outstanding.

Warranty Costs --

  The Company's products are sold and installed with specified limited
warranties as to material quality and workmanship and may extend up to 20 years.
Provision for warranty costs are made based on the Company's claims experience.
The reserve for these costs is included in the self-insurance reserve (see Note
7).

Income taxes --

  The Company follows the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
differences between the financial statements and income tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Foreign currency translation --

  Results of operations for foreign subsidiaries with functional currencies
other than the U.S. dollar are translated using average exchange rates during
the year. Assets and liabilities of these foreign subsidiaries are translated
using the exchange rates in effect at the balance sheet date and the resulting
translation adjustments are recognized as a separate component of stockholders'
equity. Gains and losses arising from foreign currency transactions are
recognized in income as incurred.

  In connection with contracts performed outside of the United States, the
Company routinely bids fixed-price contracts denominated in currencies different
than the functional currency of the applicable subsidiary performing the work.
The Company recognizes that such bidding practices, in the context of
international operations, are subject to the risk of foreign currency
fluctuations not present in domestic operations. Losses related to these
contracts are included in cost of sales and have not been significant.

Foreign exchange contracts --

  The Company occasionally enters into forward contracts and cross currency
swaps in its management of foreign currency exposures. As a matter of policy,
the Company does not speculate in financial markets and therefore, does not hold
these contracts for trading purposes. The Company utilizes what it considers
straightforward instruments to accomplish its objectives.

                                       23
<PAGE>

  The Company was using a cross currency principal and interest rate swap to
effectively convert a portion of its U.S. dollar denominated debt into Deutsche
Marks. The objective of this hedging strategy was the management of the foreign
currency exchange risk associated with its net investment in Germany and was
based on the projected foreign currency cash flows from Germany over the ten-
year life of the contract. The Company's investment in Germany and the foreign
currency portion of its swap were adjusted each period to reflect current
foreign exchange rates with the gains and losses recorded in the equity section
of the balance sheet. The differential paid or received on the interest rate
component was recognized as an adjustment to interest expense.

  On April 7, 2000, the Company terminated the above derivative financial
instrument. The Company received $2,100,000 as the termination value of this
instrument. The purpose of the initial transaction was to hedge a portion of the
Company's net investment in Germany, which has since been reduced by more than
the face amount of the instrument.

  The Company has elected to treat the portion of the termination value related
to the interest swap as deferred interest income to be amortized over the
remaining term of the hedge, consistent with pretermination treatment. The
after-tax portion related to the investment component will remain in other
comprehensive income until the Company's net investment in Germany is less than
zero. The full termination value was subject to income taxes in 2000.

Stock options --

  The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
stock options. See Note 11 for disclosures required by Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation".

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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Supplier/sources of supply --

  The Company currently purchases its raw material (polyethylene resins) from at
least two suppliers at each location. Polyethylene resins are occasionally in
short supply and are subject to substantial price fluctuation in response to
market demand. The Company has not encountered any significant difficulty to
date in obtaining raw materials in sufficient quantities to support its
operations at current or expected near-term future levels. However, any
disruption in raw material supply or abrupt increases in raw material prices
could have an adverse effect upon the Company's operations.

Reclassifications --

  The accompanying consolidated financial statements for 1999 and 2000 contain
certain reclassifications to conform with the presentation used in 2001.

Accounting Changes --

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001.  Under
the new rules, goodwill will no longer be amortized but will be subject to
annual impairment tests in accordance with the statements.  Other intangible
assets will continue to be amortized over their useful lives.

  In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
and the accounting and reporting provisions of Accounting Principles Board
Opinion ("APB") No. 30, Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for recognition and measurement of
long-lived asset impairment and for the measurement of long-lived assets to be
disposed of by sale and the basic requirements of APB No. 30. In addition to
these fundamental provisions, SFAS No. 144 provides guidance for determining
whether long-lived assets should be tested for impairment and specific criteria
for classifying assets to be disposed of as held for sale. The statement is
effective for fiscal years beginning after December 15, 2001, and we have
adopted the new standard as of January 1, 2002. The adoption of this new
standard will not have a material effect on our consolidated financial position
or results of operations.

                                       24
<PAGE>

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the statement is expected to result in an
increase in net income of $800,000 per year. During 2002, the Company will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002. The Company has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.

(3) Trade receivables --

  Trade receivables consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                                                                 2001      2000
                                                                                                               -------   -------
                                                                                                                 (in thousands)
<S>                                                                                                            <C>        <C>
Direct sales................................................................................................   $26,421   $25,648
Contracts:
  Completed.................................................................................................    13,534    18,667
  In progress...............................................................................................     7,303     8,062
  Retainage.................................................................................................     1,586     1,676
                                                                                                               -------   -------
                                                                                                                48,844    54,053
Allowance for doubtful accounts.............................................................................    (4,488)   (4,765)
                                                                                                               -------   -------
                                                                                                               $44,356   $49,288
                                                                                                               =======   =======
</TABLE>

(4) Accounting for installation contracts --

  The following summarizes installation contracts in progress at December 31:

<TABLE>
<CAPTION>
                                                                                                                 2001     2000
                                                                                                               -------   -------
                                                                                                                 (in thousands)
<S>                                                                                                          <C>        <C>
Costs incurred on contracts in progress....................................................................    $42,002   $50,341
Estimated earnings, net of losses..........................................................................      5,903     8,913
                                                                                                               -------   -------
                                                                                                                47,905    59,254
  Less -- billings to date.................................................................................     47,067    58,451
                                                                                                              --------   -------
                                                                                                              $    838   $   803
                                                                                                              ========   =======
Included in the accompanying balance sheet under the following captions:
  Contracts in progress....................................................................................   $  1,977   $ 2,525
  Advance billings.........................................................................................     (1,139)   (1,722)
                                                                                                              --------   -------
                                                                                                              $    838   $   803
                                                                                                              ========   =======
</TABLE>

(5) Inventory --

  Inventory consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                                                                 2001      2000
                                                                                                               -------   -------
                                                                                                                (in thousands)
<S>                                                                                                           <C>       <C>
Raw materials and supplies..................................................................................  $  4,625   $ 5,875
Finished goods..............................................................................................    12,526    11,955
                                                                                                              --------   -------
                                                                                                              $ 17,151   $17,830
                                                                                                              ========   =======
</TABLE>

(6) Property, plant and equipment --

  Property, plant and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                                             Useful lives    2001       2000
                                                                                             ------------  --------   --------
                                                                                                Years        (in thousands)
                                                                                             ------------
<S>                                                                                          <C>           <C>        <C>
Land.......................................................................................                $  3,173   $  3,146
Buildings and improvements.................................................................         10-15    19,067     16,932
Machinery and equipment....................................................................          3-12    75,159     71,261
Furniture and fixtures.....................................................................           3-5     1,055        823
                                                                                                           --------   --------
                                                                                                             98,454     92,162
Less -- accumulated depreciation...........................................................                 (65,099)   (59,473)
                                                                                                           --------   --------
                                                                                                           $ 33,355   $ 32,689
                                                                                                           ========   ========
</TABLE>

                                       25
<PAGE>

(7) Accounts payable and accrued liabilities --

    Accounts payable and accrued liabilities consisted of the following at
December 31:

<TABLE>
<CAPTION>
                                                                                                 2001      2000
                                                                                               -------   -------
                                                                                                (in thousands)
     <S>                                                                                       <C>       <C>
     Trade accounts payable.................................................................   $14,204   $13,196
     Self-insurance reserves................................................................     3,270     3,256
     Compensation and benefits..............................................................     3,520     4,630
     Accrued construction costs.............................................................        85       241
     Taxes, other than income...............................................................     1,257     1,086
     Other accrued liabilities..............................................................     4,015     5,422
                                                                                               -------   -------
                                                                                               $26,351   $27,831
                                                                                               =======   =======
</TABLE>

(8) Long-term debt --

    Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                                                 2001       2000
                                                                                               -------    -------
                                                                                                (in thousands)
     <S>                                                                                       <C>        <C>
     7.34% Notes due August 1, 2005, with required annual principal
       payments of $5,000,000 beginning August 1, 2001, interest
       payable semi-annually at 7.34%.......................................................   $20,000    $25,000
     8% Promissory Note due December 31, 2004, with required annual
       principal and interest payments of $206,000 on December 31...........................       531        682
     Installment loans, denominated in Euros, due September, 2002, with required
       semi-annual principal and interest payments, interest rates ranging from
       7.5%  to 8.0% secured by property and plant..........................................       116        314
                                                                                               -------    -------
                                                                                                20,647     25,996
       Less -- current maturities...........................................................    (5,268)    (5,341)
                                                                                               -------    -------
                                                                                               $15,379    $20,655
                                                                                               =======    =======
</TABLE>

  The Company entered into a $25,000,000 multi-currency revolving credit
facility (the "Revolver") with Bank of America, N.A. (formerly NationsBank of
Texas, N.A.) as agent, on July 27, 1995. The Revolver, as amended, matures on
September 30, 2002, and bears interest, at the Company's option, at the bank's
prime rate or the reserve adjusted LIBOR plus an applicable margin based on the
ratio of funded debt to total capitalization. An annual commitment fee of up to
3/8% is payable on any unused portion of the facility. Under the terms of the
revolving line of credit agreement, the Company is required to maintain certain
financial ratios and a specific level of consolidated tangible net worth. As of
December 31, 2001, the balance outstanding under the Revolver was $5,000,000.
Letters of credit were also issued under this facility totaled $1,268,000
reducing the balance available to $18,732,000. The letters of credit primarily
secure performance of self-insurance programs. This facility was terminated on
February 4, 2002.

  The Company has credit facilities with two German banks to support its
European cash management and bank guarantee requirements in the amount of EUR
5,625,000. These revolving credit facilities are secured by property and plant
in Germany which also secures an installment loan. These facilities mature in
September, 2002, and bear interest at various market rates. These credit
facilities are used primarily to guarantee the performance of German
installation contracts and temporary working capital requirements. At December
31, 2001, the Company had EUR 3,272,500 available under these credit facilities
with EUR 2,180,000 of bank guarantees outstanding.

  In January 2002, the Company arranged an additional EUR 2,550,000 credit line
with a German bank to guarantee the performance of German installation contracts
and temporary working capital requirements.  This facility bears interest at
market rates and is supported by a corporate guarantee.

                                       26
<PAGE>

  On July 27, 1995, the Company entered into note agreements (the "7.34% Notes")
with two lenders, in the aggregate amount of $25,000,000, which matures on
August 1, 2005. The 7.34% Notes, which are unsecured, require semiannual
interest payments at a rate of 7.34% that began February 1, 1996, and annual
principal payments of $5,000,000 that began August 1, 2001. The terms of the
7.34% Notes place various restrictions on the Company's ability to pay dividends
or make certain other payments, incur additional debt, consolidate or merge into
another corporation or sell assets unless certain other criteria are met. The
7.34% Notes also require the Company to maintain certain financial ratios and a
specified level of consolidated net worth.  These notes were paid off on
February 4, 2002.

  Summarized below are the maturities of long-term debt of the Company during
the next five years and thereafter (in thousands) (as of December 31, 2001)

  Year Ending
  December 31,
  -----------
     2002............................................................     5,268
     2003............................................................     5,188
     2004............................................................     5,191
     2005............................................................     5,000
     2006............................................................        --
     Thereafter......................................................        --
                                                                        -------
                                                                        $20,647
                                                                        =======

  On February 4, 2002, the Company entered into a note agreement with one lender
in the amount of $25,000,000. This 3-year term facility is secured by the
Company's Houston, TX and Kingstree, SC, real properties and all of the
Company's equipment at these locations. The promissory note requires monthly
payments of approximately $520,000 including interest at the rate of 9.22% and
matures on February 5, 2005 with a balloon payment equal to the unpaid principal
balance plus accrued and unpaid interest. The terms of the note place various
restrictions on the Company's ability to pay dividends or make certain other
payments, incur additional debt, consolidate or merge into another corporation
or sell assets and make capital expenditures. The note also requires the Company
to maintain certain financial ratios and specified level of consolidated net
worth.

  On February 4, 2002, the Company entered into a 3-year credit agreement with
Bank of America, N.A., as agent, to borrow up to $55,000,000 on a revolving
basis. The amount of borrowings allowed under the credit agreement is determined
by the amount of eligible receivable and inventory amounts that make up the
borrowing base. Loans made pursuant to the credit agreement bear interest, at
the Company's option, at the bank's prime rate or the reserve adjusted LIBOR
plus an applicable margin based on the ratio, from time-to-time, of the
Company's EBITDA(as defined in the credit agreement) to certain "fixed charges,"
including principal paid on funded debts, cash interest expense, dividends,
stock repurchases and certain other distributions made, cash amount of taxes
paid and net capital expenditures made from time-to-time. The applicable margin
for prime rate loans may vary between 0% and .25% per annum, and the applicable
margin for LIBOR based loans may vary between 2% and 2.75% per annum. Fees will
be payable from time-to-time with respect to letters of credit issued pursuant
to the credit agreement at a rate equal to the margin the payable with respect
to LIBOR based revolving loans. An annual commitment fee of 3/8% is payable on
any unused portion of the facility. The terms of the credit agreement place
various restrictions on the Company's ability to pay dividends or make certain
other payments, incur additional debt, consolidate or merge into another
corporation or sell assets and to make capital expenditures. The credit
agreement also requires the Company to maintain certain financial ratios and
specified levels of consolidated net worth.

  In January 2002, the Company arranged an additional EUR 2,550,000 credit line
with a German bank to guarantee the performance of German installation contracts
and temporary working capital requirements. This facility bears interest at
market rates and is supported by a corporate guarantee.

                                       27
<PAGE>

  On February 4, 2002, the Company purchased all of the outstanding stock of
Serrot International, Inc. for $15,165,400. In addition the Company estimates it
will cost $12,500,000 for financing, severance, and relocating personnel,
inventory and equipment. To finance the acquisition, the Company had to pay off
its 7.34% notes with two lenders in the amount of $20,000,000 plus $1,500,000 of
make-whole cost. To complete the acquisition and to refinance the 7.34% notes
the Company entered into the 3-year term facility and the credit agreement
described above.

  Summarized below are the maturities of new long-term debt of the Company
during the next five years and thereafter (in thousands).

  Year Ending
  December 31,
  ------------
    2002.......................................................     3,709
    2003.......................................................     4,636
    2004.......................................................     5,067
    2005.......................................................    12,235
    2006.......................................................        --
    Thereafter.................................................        --
                                                                  -------
                                                                  $25,647
                                                                  =======
(9) Financial instruments --

Fair value of financial instruments --

  The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and debt instruments. The book
values of cash and cash equivalents, trade receivables and trade payables and
floating-rate debt instruments are considered to be representative of their
respective fair values. The Company had $20,647,000 and $25,996,000 of fixed-
rate debt instruments at December 31, 2001and 2000 with fair values of
approximately $19,146,000 and $25,936,000, respectively. The fair value of long-
term debt was estimated based on quoted market prices for these or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities. The difference between the fair value and the carrying
value represents the theoretical net discount or premium the Company would
receive or have to pay to retire all debt at such date.

(10)  Per share information --

  The following table sets forth the weighted average shares for the computation
of basic and diluted earnings per share (in thousands):

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                               -----------------------
                                                                                2001     2000    1999
                                                                               -------  ------  ------
   <S>                                                                          <C>     <C>     <C>
   Weighted average common shares outstanding................................   11,045  11,903  12,931
   Dilutive securities -- stock options......................................       49      --      --
                                                                                ------  ------  ------
   Weighted average common shares outstanding assuming full dilution.........   11,094  11,903  12,931
                                                                                ======  ======  ======
</TABLE>

(11)    Stockholders' equity --

  On September 18, 1998, the Company's board of directors adopted a stock
repurchase plan under which the company was authorized to repurchase up to
1,000,000 shares of its outstanding common stock in open market transactions
depending on market conditions. This amount was increased to 3,000,000 as of
December 31, 2000. As of December 31, 2001, stockholders' equity included
1,380,357 shares repurchased under the plan at an aggregate cost of $4,354,289.

  On June 5, 2000 the Company repurchased a block of 717,800 shares directly
from an institutional holder at a cost of $2,174,938.

                                       28
<PAGE>

  The Company's board of directors adopted a qualified employee stock purchase
plan on October 16, 1991, effective January 1, 1992. The plan as subsequently
amended and restated authorizes the issuance of up to 100,000 shares of common
stock for purchase by participating employees, as defined in the plan, at a 15%
discount from the market price through December 1, 2006. As of December 31, 2001
and 2000, 52,898 and 46,670 shares, respectively, had been issued under this
plan.

  In 1986, the Company's board of directors adopted an employee stock option
plan (the "1986 Employee Plan"). This Plan, as amended, permitted up to 850,000
stock options to be granted. The plan permitted the grant of both "incentive"
and "non-qualified" stock options to employees of the Company. Each option is
exercisable for a period of up to ten years after it is granted. Unless the
terms of the option specify otherwise, options may be exercised in respect of
33-1/3%, 66-2/3% and 100% of the shares covered, upon the third, fourth and
fifth anniversaries of the date of grant. The option price cannot be less than
the fair market value of the shares on the date the option is granted.

  In 1995, the Company's board of directors adopted the 1995 Incentive Stock
Plan (the "1995 Employee Plan"). The 1995 Employee Plan, as subsequently amended
and restated in 2001, permits the grant of up to 2,400,000 stock. This
authorized amount has been reduced by any options exercised or outstanding under
the 1986 Employee Plan. The 1995 Employee Plan provides for the grant of (i)
non-qualified stock options, (ii) incentive stock options, (iii) shares of
restricted stock, (iv) shares of phantom stock, and (v) stock bonuses
(collectively, "Incentive Awards"). In addition, the 1995 Employee Plan permits
the grant of cash bonuses payable when a participant is required to recognize
income for federal income tax purposes in connection with the vesting of shares
of restricted stock or the grant of a stock bonus. Key employees, including
officers (whether or not they are directors), of the Company and its
subsidiaries are eligible to participate in the 1995 Employee Plan. Each non-
qualified stock option issued under the 1995 Employee Plan is granted for a
period up to seven years after it is granted and may be exercised in respect of
50% and 100% of the shares covered upon the first and second anniversaries of
the date of grant. The option price cannot be less than the fair market value of
the shares on the date the option is granted.

  During 1988, the Company's board of directors adopted a director stock option
plan (the "1988 Director Plan"), which permits the grant of up to 75,000
"non-qualified" stock options to non-employee directors. The terms of this plan
are substantially the same as those of the 1986 Employee Plan. This Plan was
terminated in December 1995 and subsequently replaced by the 1996 Non-Qualified
Stock Option Plan for Non-Employee Directors.

  During 1996, the Company's board of directors adopted the 1996 Non-Qualified
Stock Option Plan for Non-Employee Directors (the "1996 Director Plan"). The
1996 Director Plan authorizes an aggregate of 100,000 shares, of non-qualified
stock options to be issued to non-employee directors. The 1996 Director Plan
provides for the automatic annual grant to each non-employee director of a five
year option to purchase 2,000 shares of common stock at an exercise price equal
to the market price on the date of grant. The options will be granted
immediately following each annual meeting of stockholders, with each option to
vest and become exercisable in its entirety one year from the date of grant.
This Plan replaces the 1988 Director Plan.

                                       29
<PAGE>

The stock option activity under each plan is set forth below:

<TABLE>
<CAPTION>
                            1986 Employee Plan         1988 Director Plan          1995 Employee Plan         1996 Director Plan
                         -------------------------  -------------------------  --------------------------  ------------------------
                          Shares       Option        Shares       Option         Shares        Option       Shares       Option
                          Under         Price        Under         Price         Under         Price        Under        Price
                          Option      Per Share      Option      Per Share       Option      Per Share      Option     Per Share
                         --------  ---------------  --------  ---------------  ----------  --------------  --------  --------------
<S>                      <C>       <C>              <C>       <C>              <C>         <C>             <C>       <C>
Outstanding at
 December 31, 1998       151,400   $5.25 to $15.63   45,000   $6.25 to $11.63    959,450   $4.00 to $9.00   40,000   $4.88 to $7.00
   Granted............                                                           416,000   $3.75 to $3.75   12,000   $3.81 to $3.81
   Exercised..........
   Cancelled..........   (56,000)  $5.25 to $15.63                              (429,500)  $4.00 to $6.50
                         -------   ---------------                             ---------   --------------
Outstanding at
 December 31, 1999....    95,400   $5.25 to $11.13   45,000   $6.25 to $11.63    945,950   $3.75 to $9.00   52,000   $3.81 to $7.00
   Granted............                                                           421,500   $2.32 to $3.56   12,000   $2.88 to $2.88
   Exercised..........
   Cancelled..........   (17,400)   $8.25 to $8.25  (30,000)  $8.25 to $11.63   (141,750)  $3.75 to $6.50  (16,000)  $3.81 to $7.00
                         -------   ---------------  -------   ---------------  ---------   --------------  -------   --------------
Outstanding at
 December 31, 2000....    78,000   $5.25 to $11.13   15,000    $6.25 to $7.00  1,225,700   $2.32 to $9.00   48,000   $2.88 to $7.00
   Granted............                                                           398,000   $2.63 to $2.63   10,000   $2.65 to $2.65
   Exercised..........
   Cancelled..........                                                           (49,500)  $2.32 to $4.00   (8,000)  $6.50 to $7.00
                         -------                    -------                    ---------   --------------  -------   --------------
Outstanding at
 December 31, 2001....    78,000   $5.25 to $11.13   15,000    $6.25 to $7.00  1,574,200   $2.32 to $9.00   50,000   $2.65 to $5.81
                         =======   ===============  =======   ===============  =========   ==============  =======   ==============
Options exercisable       78,000   $5.25 to $11.13   15,000    $6.25 to $7.00    983,450   $2.32 to $9.00   40,000   $2.88 to $5.81
                         =======   ===============  =======   ===============  =========   ==============  =======   ==============
Options available
   for future grants..         0                          0                      536,154                    50,000
                         =======                    =======                    =========                   =======
</TABLE>

          Substantially all outstanding options were priced between $2.32 and
     $11.13 per share at December 31, 2001. The weighted average of the
     remaining contractual life for the outstanding options at December 31,
     2001, was 4.99 years. The weighted average price of options outstanding
     during 2001, 2000 and 1999 was $3.65, $5.24 and $6.38, respectively.

          The Company applies APB Opinion 25 and related Interpretations in
     accounting for its stock-based compensation plans. Accordingly, no
     compensation expense has been recognized for its 1996 Director Plan and
     unrestricted stock options from the 1995 Employee Plan.

          Pro forma information regarding net income and earnings per share is
     required by FASB Statement No. 123, "Accounting for Stock-Based
     Compensation". Statement 123 also requires that the information be
     determined as if the Company has accounted for its employee stock options
     granted subsequent to December 31, 1994, under the fair value method of
     that Statement. The fair value for these options was estimated at the date
     of grant using a Black-Scholes option pricing model with the following
     weighted-average assumptions for 2001, 2000 and 1999, respectively: risk-
     free interest rates of 4.8%, 5.3% and 6.5%; a dividend yield of 0%;
     volatility factors of the expected market price of the Company's common
     stock of 45%, 49% and 60% and a weighted-average expected life of the
     option of 5 to 7 years.

          The Black-Scholes option valuation model was developed for use in
     estimating the fair value of traded options which have no vesting
     restrictions and are fully transferable. In addition, option valuation
     models require input of highly subjective assumptions including the
     expected stock price volatility. Because the Company's employee stock
     options have characteristics significantly different from those of traded
     options, and because changes in the subjective input assumptions can
     materially affect the fair value estimate in management's opinion, the
     existing models do not necessarily provide a reliable single measure of the
     fair value of its employee stock options.

                                       30
<PAGE>

  For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):

<TABLE>
<CAPTION>
                                                                                               Year Ended December 31,
                                                                                              -------------------------
                                                                                               2001     2000     1999
                                                                                              ------   ------   ------
<S>                                                                                           <C>      <C>      <C>
Net income
  As reported...............................................................................   $1,378   $3,638   $4,907
  Pro forma.................................................................................    1,057    3,143    4,649
Basic and diluted earnings per share
  As reported...............................................................................      .12      .31      .38
  Pro forma.................................................................................      .10      .26      .36
</TABLE>

  The estimated fair value of stock options issued in 2001, 2000 and 1999 was
$552,000 and $495,000, $444,000, respectively.

(12)    Income taxes --

  Domestic and foreign income/(loss) before income taxes were as follows:

<TABLE>
<CAPTION>
                                                                                               Year Ended December 31,
                                                                                              --------------------------
                                                                                                2001      2000     1999
                                                                                               ------    ------   ------
                                                                                                    (in thousands)
<S>                                                                                           <C>       <C>      <C>
Domestic....................................................................................   $ (251)   $5,793   $4,107
Foreign.....................................................................................    2,851       172    4,354
                                                                                               ------    ------   ------
          Total.............................................................................   $2,600    $5,965   $8,461
                                                                                               ======    ======   ======
</TABLE>

  The provision (benefit) for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                                                                               Year Ended December 31,
                                                                                             ----------------------------
                                                                                               2001      2000      1999
                                                                                              ------   -------    ------
                                                                                                   (in thousands)
<S>                                                                                          <C>       <C>       <C>
Current expense (benefit):
  U.S.
     Federal...............................................................................   $ (963)  $ 2,368    $2,025
     State.................................................................................      (21)      246       181
                                                                                              ------   -------    ------
          Total U.S........................................................................     (984)    2,614     2,206
  Foreign..................................................................................    1,457       977     2,214
                                                                                              ------   -------    ------
          Total current....................................................................      473     3,591     4,420
Deferred expense (benefit):
  U.S.
     Federal...............................................................................     (277)     (452)     (356)
     State.................................................................................      (24)      (38)     (138)
                                                                                              ------   -------    ------
          Total U.S........................................................................     (301)     (490)     (494)
  Foreign..................................................................................    1,050      (774)     (372)
                                                                                              ------   -------    ------
          Total deferred...................................................................      749    (1,264)     (866)
                                                                                              ------   -------    ------
          Total provision for income taxes.................................................   $1,222   $ 2,327    $3,554
                                                                                              ======   =======    ======
</TABLE>

  A reconciliation between the provision for income taxes and income taxes
computed by applying the statutory rate is as follows:

<TABLE>
<CAPTION>
                                                                                                Year Ended December 31,
                                                                                              ----------------------------
                                                                                                2001      2000      1999
                                                                                               ------    ------    ------
                                                                                                    (in thousands)
<S>                                                                                           <C>       <C>       <C>
Tax provision (benefit) at statutory rate...................................................   $  884    $2,028    $2,877
Add (deduct):
  Amortization of goodwill..................................................................      286       368       388
  Meals and entertainment disallowance......................................................      269       365       350
  Foreign Sales Corporation benefit.........................................................        -      (360)     (170)
  Taxable differential for foreign subsidiaries.............................................      240       107       243
  State income taxes........................................................................      (30)      137        98
  Other, net................................................................................     (427)     (318)     (232)
                                                                                               ------    ------    ------
                                                                                               $1,222    $2,327    $3,554
                                                                                               ======    ======    ======
</TABLE>

                                       31
<PAGE>

  The tax effects of temporary differences that gave rise to the deferred tax
assets and liabilities were as follows at December 31:

<TABLE>
<CAPTION>
                                                                                                                  2001     2000
                                                                                                                ------   ------
                                                                                                                (in thousands)
<S>                                                                                                            <C>      <C>
Deferred tax assets:
  Accrued expenses...........................................................................................   $3,854   $4,046
  Loss carryforward..........................................................................................        -      915
  Foreign currency hedge.....................................................................................      637      713
  Other......................................................................................................      292      456
                                                                                                                ------   ------
                                                                                                                 4,783    6,130
                                                                                                                ------   ------
Deferred tax liabilities:
  Excess of tax depreciation over book depreciation..........................................................      917    1,478
  Long-term contracts........................................................................................      228      265
  Other......................................................................................................       --       --
                                                                                                                ------   ------
                                                                                                                 1,145    1,743
                                                                                                                ------   ------
          Total deferred tax asset...........................................................................   $3,638   $4,387
                                                                                                                ======   ======
</TABLE>

  Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $5,361,000 at December 31, 2001.  Provision for U.S. federal and
state income taxes not has been provided for earnings considered to be
indefinitely reinvested. Upon distribution of those earnings in the form of
dividends or otherwise, the Company would be subject to both U.S. income taxes
(subject to an adjustment for foreign tax credits) and withholding taxes payable
to the various foreign countries. Determination of the amount of unrecognized
deferred U.S. income tax liability is not practicable because of the
complexities associated with its hypothetical calculation.

(13) Employee benefit plans --

  The Company has a defined contribution employee benefit plan under which
substantially all U.S. employees are eligible to participate. The Company
matches a portion of the employees' contributions. The Company contributed
$495,000, $477,000 and $472,000 to the plan during the years ended December 31,
2001, 2000 and 1999, respectively. Under the terms of the plan, contributions to
the plan may be discontinued at any time.

(14) Pension plan --

  The Company's German subsidiary has an unfunded pension plan providing
benefits to three former employees. The plan provides fixed minimum pension
payments at retirement age. There are no assets held in outside funds.

  The Company has adopted FAS 132, "Employers' Accounting for Pensions";
however, to the extent pension costs under German law exceed amounts computed
under FAS 132, those additional amounts are recorded by the Company. Pension
expense for the years ended December 31, 2001, 1999, and 1998 was $70,000,
$24,000, and $84,000 respectively. The actuarial present value of accumulated
benefits was $1,005,000 and $1,014,000 as of December 31, 2001 and December 31,
2000, respectively. The projected benefit obligation for service rendered to
date, net of unrecognized prior service cost, was $1,005,000 and $1,014,000 as
of December 31, 2001 and 2000, respectively.

  The computation assumed a discount rate on benefit obligations of 7% annual
salary increases of 2% and annual benefit increases of 2% for 2001 and 2000.

(15) Concentration of credit risk --

  Accounts receivable, as financial instruments, could potentially subject the
Company to concentrations of credit risk. The Company continuously evaluates the
creditworthiness of its customers and may require customers to provide letters
of credit to guarantee payments. During 2001, 2000 and 1999, no single customer
accounted for 10% or greater of total net sales.

                                       32
<PAGE>

(16) Research and development costs --

  Research and development costs are charged to expense as incurred. The amounts
of research and development and quality control expenditures during the years
ended December 31, 2001, 2000 and 1999 were $1,143,000, $1,350,000 and
$1,616,000 respectively.

(17) Commitments and contingencies --

Product warranties and insurance coverage --

  The Company's products are sold and installed with specified limited
warranties as to material quality and workmanship. These limited warranties may
last for up to 20 years, but are generally limited to repair or replacement by
the Company of the defective liner or the dollar amount of the contract
involved, on a prorated basis. The Company may also indemnify the site owner or
general contractor for other damages resulting from negligence of the Company's
employees. The Company often is required to post bid and performance bonds or
bank guarantees covering the full amount of an installation contract.

  Although the Company is not exposed to the type of potential liability that
might arise from being in the business of handling, transporting or storing
hazardous waste or materials, the Company could be susceptible to liability for
environmental damage or personal injury resulting from defects in the Company's
products or negligence by Company employees in the installation of its lining
systems. Such liability could be substantial because of the potential that
hazardous or other waste materials might leak out of their containment system
into the environment. The Company maintains liability insurance, which includes
contractors pollution liability coverage in amounts which it believes to be
prudent. However, there is no assurance that this coverage will remain available
to the Company. While the Company's claims experience to date may not be a
meaningful measure of its potential exposure for product liability, the Company
has experienced no material losses from defects in products and installations.

Litigation and claims --

  The Company is involved in litigation arising in the ordinary course of
business, which in the opinion of management, will not have a material adverse
effect on the Company's financial position or results of operations.

Operating Leases --

  The Company leases certain equipment through operating lease arrangements of
varying terms. Annual rental expense under the terms of non-cancelable operating
leases is less than 1% of consolidated revenues.

Subsequent events --

  On February 4, 2002, the Company acquired all of the issued and outstanding
stock of Serrot International, Inc. The acquired company is involved in
litigation arising in the ordinary course of business, as well as has asserted
claims arising in the ordinary course of business, which in the opinion of
management, will not have a material adverse effect on the Company's financial
position or results of operations.

                                       33
<PAGE>

(18) Subsequent Events --

  On February 4, 2002, the Company completed the acquisition of all of the
outstanding stock of Serrot International, Inc. from Waste Management Holdings,
Inc. for $15,165,400.  This amount is subject to adjustment based on final
determination of working capital on the date of closing.  In addition to the
purchase price, the Company estimates it will incur approximately $12,500,000 of
additional costs of financing, severance, and relocating personnel, inventory
and equipment. To finance this transaction the Company paid in full its 7.34%
notes in the amount of $21,500,000 including make whole costs. The Company
arranged new financing of up to $80,000,000 as described in Note 8, Long Term
Debt. This acquisition will increase the Company's equity by approximately
$25,000,000 resulting from unallocated negative goodwill after the write off of
all of Serrot's long-term assets.


(19) Segment Information --

  The Company operates exclusively in the geosynthetic liner market.
Substantially all sales and operating revenues result from the sale and
installation of the Company's manufactured products. These products are
manufactured and sold in various locations throughout the world using similar
raw materials (polyethylene resin), production processes (flat or round die
extrusion) and distribution channels (product and installation sales made
directly to customers or through representatives of the Company).

  Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information allows the aggregation of an
enterprise's segments if they are similar. The Company operates in different
geographic areas, however, the Company has reviewed the aggregation criteria and
determined that the Company operates as one segment based on the high degree of
similarity of the following aspects of the Company's operations:

  -  nature of the products and services,
  -  raw materials and production processes used,
  -  customers and markets served,
  -  methods used to distribute products and services,
  -  effects of regulatory influences on the market, and the economic
characteristics of the products and services in different geographical areas.

<TABLE>
<CAPTION>
                                                                                                       Years Ended
                                                                                               ----------------------------
                                                                                                2001       2000      1999
                                                                                               -------   --------   -------
<S>                                                                                            <C>       <C>        <C>
Sales to unaffiliated customers (based on the geographic location of
the customer):
  United States.............................................................................   $93,136   $105,659   $94,767
  Europe....................................................................................    51,979     49,007    51,256
  Latin & South America.....................................................................     9,339     16,095     8,923
  Far East/Pacific Rim......................................................................    10,966     14,278    13,496
  Other.....................................................................................     7,989      6,281    10,127

Only sales to one country, the United States, accounted for more than 10% of total sales.
Sales into other countries, accounting for less than 10% of total sales, have been
aggregated into geographic regions for this presentation.

Long lived assets (principally property, plant and equipment):
  United States.............................................................................    23,875     22,365    23,368
  Germany...................................................................................     3,084      3,764     4,729
  Thailand..................................................................................     4,693      4,100        --
  Other.....................................................................................     1,703      5,263     5,319

Only long-lived assets in the United States, Germany and Thailand accounted for more than
10% of total long-lived assets.
</TABLE>

                                       34
<PAGE>

                        GUNDLE/SLT ENVIRONMENTAL, INC.

                              SUPPLEMENTARY DATA

Consolidated quarterly financial data (Unaudited) --

   Unaudited quarterly information for fiscal 2001 and 2000 is as follows (in
                     thousands, except per share amounts):


<TABLE>
<CAPTION>
                                                           2001                                     2000
                                          ---------------------------------------  ---------------------------------------
                                                          Quarter                                  Quarter
                                          ---------------------------------------  ---------------------------------------
                                           First      Second    Third     Fourth    First      Second    Third     Fourth
                                          --------   --------  --------  --------  --------   --------  --------  --------
<S>                                       <C>        <C>       <C>       <C>       <C>        <C>       <C>       <C>
Net sales...............................   $23,544    $47,019   $57,340   $45,506   $29,881    $57,388   $59,982   $44,069
Gross profit............................     2,068      7,872    10,943     7,921     3,742     11,766    11,018     6,053
Income (loss) before income taxes.......    (4,799)     1,458     4,697     1,243    (3,241)     5,388     4,800      (982)
Net income (loss).......................    (2,784)       846     2,765       550    (1,880)     3,125     2,993      (600)
Basic and diluted earnings (loss) per
  Common share..........................      (.26)       .08       .25       .05      (.16)       .26       .26      (.05)
</TABLE>

  The above data should be read in conjunction with the consolidated financial
                         statements and notes thereto.

                                       35
<PAGE>

                                                                     SCHEDULE II

                        GUNDLE/SLT ENVIRONMENTAL, INC.

                       VALUATION AND QUALIFYING ACCOUNTS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                        Balance at  Additions               Balance
                                                                        Beginning    Charged                at End
                     Description                                         of Year    to Expense  Write-offs  of Year
                     -----------                                        ----------  ----------  ----------  -------
   <S>                                                                  <C>         <C>         <C>         <C>
   December 31, 1999
     Allowance for doubtful accounts...........................           $4,955      $1,195      $  896    $5,254
                                                                          ======      ======      ======   =======
   December 31, 2000
     Allowance for doubtful accounts...........................           $5,254      $  984      $1,473    $4,765
                                                                          ======      ======      ======    ======
   December 31, 2001
     Allowance for doubtful accounts...........................           $4,765      $1,662      $1,939    $4,488
                                                                          ======      ======      ======    ======
</TABLE>

ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.

  Not applicable.

                                   PART III

  Part III (Items 10 through 13) is omitted since the Company expects to file
with the Securities and Exchange Commission within 120 days following December
31, 2001, definitive proxy materials pursuant to Regulation 14A under the
Securities Exchange Act of 1934 involving the annual election of directors and
certain other matters. If for any reason such a statement is not so filed, this
Report will be appropriately amended.

                                    PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

  (a)(1) Financial statements (see financial statements at pages 17-36)

  (a)(2) Supplementary data (see page 37)

  (a)(3) Financial schedule (see page 38)

   Schedule II -- Valuation and Qualifying Accounts

  Schedules not listed above are omitted since the information required to be
submitted has been included in the financial statements or the notes thereto, or
the schedules are not required.

                                       36
<PAGE>

     (a)(3) Exhibits:

<TABLE>
<CAPTION>
               Exhibit
                 No.
               -------
               <S>       <C>
                2-A   -- Stock Purchase Agreement, dated as of January 22, 2002, between
                         Waste Management Holdings, Inc. and the Registrant (incorporated by
                         reference to exhibit 2.1 to the Registrant's Current Report on Form
                         8-K filed January 23, 2002).
                3-A   -- Articles of Incorporation as amended (Exhibits 3.1, 3.2 and 3.3 to
                         Registrant's Registration Statement No. 33-9809 are incorporated
                         herein by reference).
                3-B   -- Bylaws (Exhibit 3.4 to Registrant's Registration Statement No. 33-
                         9809 is incorporated herein by reference).
                4-A   -- Credit Agreement dated as of February 4, 2002, between the
                         Registrant, and certain of its subsidiaries, the financial
                         institutions named therein, and Bank of America, N. A., as agent
                         (incorporated by reference to exhibit 4.1 to the Registrant's Current
                         Report on Form 8-K filed February 14, 2002).
                4-B   -- Loan and Security Agreement dated as of February 4, 2002, between
                         Registrant and certain of its subsidiaries, and Transamerica
                         Equipment Financial Services Corporation (incorporated by reference
                         to exhibit 4.2 to the Registrant's Current Report on Form 8-K
                         filed February 14, 2002).
                4-C   -- Promissory note dated as of February 4, 2002, between Registrant and
                         Transamerica Equipment Financial Services Corporation (incorporated
                         by reference to exhibit 4.3 to the Registrant's Current Report on
                         Form 8-K filed February 14, 2002.
               10-B   -- Registrant's 1986 stock option plan (Exhibit 10.11 to Registrant's
                         Registration Statement No. 33-44306 is incorporated herein by
                         reference).
               10-G   -- Registrant's 1995 Incentive Stock Plan as Amended and Restated May
                         3, 2001, (Incorporated by reference to 4.1 of the Registrant's
                         Registration Statement number 333-63466)
               10-I   -- Employment Agreement dated March 10, 1997, between Roger J. Klatt
                         And the Company. (Incorporated by reference to Exhibit of the same
                         Number in Registrant's 1997 Annual Report on Form 10-K)
               10-J   -- Registrant's 1996 Nonqualified Stock Option Plan for Non-Employee
                         Directors (Exhibit 4.1 to Registrant's Report on Form S-8 No. 333-
                         23299 is incorporated herein by reference).
               10-L   -- Amendment dated June 4, 1998, to the Employment Agreement dated
                         March 10, 1997, between Roger J. Klatt and the Company.
                         (Incorporated By reference to Exhibit of the same Number in
                         Registrant's 1998 Annual Report on Form 10-K)
               21     -- Subsidiaries.
               23     -- Consent of Independent Auditors -- Ernst & Young LLP.
</TABLE>

     (b)  Reports on Form 8-K -- GSE filed two reports on Form 8-K after the
quarter ended December 31, 2001, but prior to the filing of this Form 10-K. One
report on Form 8-K, dated January 23, 2002, reported that GSE had entered into
an agreement to acquire the stock of Serrot International, Inc. The other report
on Form 8-K , dated February 14, 2002, reported the completion of the Serrot
acquisition, the related financial statements of the business acquired and the
pro forma financial information of GSE reflecting the Serrot acquisition.

     (c)  Exhibits (see Item (a)(3), above).

     (d)  Additional financial statements (see Items (a)(1) and (a)(2) above).

                                       37
<PAGE>

                                  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 28/th/ day of
February, 2002.

                                    GUNDLE/SLT ENVIRONMENTAL, INC.

                                    By /s/  SAMIR T. BADAWI
                                       -----------------------------------
                                            Samir T. Badawi, President

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 28/th/ day of February, 2002.

<TABLE>
<CAPTION>
            Signature                                      Title
          ----------------                     ------------------------------------
<S>                                            <C>
      /s/ SAMIR T. BADAWI                      Director, Chairman of the Board and
---------------------------------
          Samir T. Badawi                      Principal Executive Officer

      /s/ ROGER J. KLATT                       Principal Financial and Accounting Officer
---------------------------------
          Roger J. Klatt

      /s/ JAMES R. BURKE                       Director
---------------------------------
          James R. Burke

      /s/ BRUCE CUMMINGS                       Director
---------------------------------
          Bruce Cummings

      /s/ JAMES R. GIBBS                       Director
---------------------------------
          James R. Gibbs

      /s/ T. WILLIAM PORTER                    Director
---------------------------------
           T. William Porter

      /s/ EDWARD T. SHEEHAN                    Director
---------------------------------
           Edward T. Sheehan
</TABLE>

                                       38
<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
  Exhibit
    No.
  -------
  <S>         <C>
    2-A       --   Stock Purchase Agreement, dated as of January 22, 2002, between
                   Waste Management Holdings, Inc. and the Registrant
                   (incorporated by reference to exhibit 2.1 to the Registrant's Current
                   Report on Form 8-K filed January 23, 2002).
    3-A       --   Articles of Incorporation as amended (Exhibits 3.1, 3.2 and 3.3 to
                   Registrant's Registration Statement No. 33-9809 are incorporated
                   herein by reference).
    3-B       --   Bylaws (Exhibit 3.4 to Registrant's Registration Statement No.
                   33-9809 is incorporated herein by reference).
    4-A       --   Credit Agreement dated as of February 4, 2002, between the Registrant,
                   and certain of its subsidiaries, the financial institutions named
                   therein, and Bank of America, N. A., as agent.
    4-B       --   Loan and Security Agreement dated as of February 4, 2002, between
                   Registrant and certain of its subsidiaries, and Transamerica Equipment
                   Financial Services Corporation.
    4-C       --   Promissory note dated as of February 4, 2002, between Registrant and
                   Transamerica Equipment Financial Services Corporation.
   10-B       --   Registrant's 1986 stock option plan (Exhibit 10.11 to Registrant's
                   Registration Statement No. 33-44306 is incorporated herein by
                   reference).
   10-G       --   Registrant's 1995 Incentive Stock Plan as Amended and Restated
                   May 3, 2001, (Incorporated by reference to 4.1 of the Registrant's
                   Registration Statement number 333-63466)
   10-I       --   Employment Agreement dated March 10, 1997, between Roger J. Klatt
                   and the Company. (incorporated by reference to Exhibit of the same
                   number in Registrant's 1997 Annual Report on Form 10-K)
   10-J       --   Registrant's 1996 Nonqualified Stock Option Plan for Non-Employee
                   Directors (Exhibit 4.1 to Registrant's Report on Form S-8 No.
                   333-23299 is incorporated herein by reference).
   10-L       --   Amendment dated June 4, 1998, to the Employment Agreement dated
                   March 10, 1997, between Roger J. Klatt and the Company. (incorporated
                   By reference to Exhibit of the same Number in Registrant's 1998
                   Annual Report on Form 10-K)
   21         --   Subsidiaries.
   23         --   Consent of Independent Auditors -- Ernst & Young LLP.
</TABLE>

                                       39