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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|(Mark One)
|----------
|[X]       

For the fiscal year ended December 31, 2003

|     |  |                                                                                
|---- |  | -------------------------------------------------------------------------------
|[  ] |  | 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
Incorporation or Organization) |  | 22-2731074
(I.R.S. Employer Identification No.)
|                                                                        |  |                                                
|19103 Gundle Road                                                       |  |                                                
|Houston, Texas
(Address of Principal Executive Offices)                 |  | 77073
(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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act). Yes [X] No [  ]

Based upon the February 24, 2004 New York Stock Exchange closing price of
$18.26 per share the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $127,624,527.

The number of shares outstanding of the issuers common stock, $.01 par
value, as of February 24, 2004, was 11,546,438 shares.

The Registrants proxy statement to be filed in connection with the
Registrants 2003 Annual Meeting of Stockholders is incorporated by reference
into Part III of this report.



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TABLE OF CONTENTS



|                                             |                                                                                                         |  |  |  |  |  |  | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                      
|                                             | ITEM 1. Description of Business                                                                        
|                                             | ITEM 2. Properties                                                                                     
|                                             | ITEM 3. Legal Proceedings                                                                              
|                                             | ITEM 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                     
|                                             | ITEM 5. Market for the Registrants Common Equity and Related Stockholder Matters                      
|                                             | ITEM 6. Selected Financial Data                                                                        
|                                             | ITEM 7. Managements Discussion and Analysis of Results of Operations and Financial Condition          
|                                             | ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk                                    
|                                             | ITEM 8. Consolidated Financial Statements and Supplementary Data                                       
|                                             | ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|                                             | ITEM 9A. Controls and Procedures                                                                       
|PART III                                    
|                                             | ITEM 10. Directors and Executive Officers of the Registrant                                            
|                                             | ITEM 11. Executive Compensation                                                                        
|                                             | ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                             | ITEM 13. Certain Relationships and Related Transactions                                                
|                                             | ITEM 14. Principal Accountant Fees and Services                                                        
|PART IV                                     
|                                             | ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                                  
|INDEX TO EXHIBITS                           
|Credit Agreement                            
|Subsidiaries                                
|Consent of Ernst & Young LLP                
|Certification of CEO Pursuant to Section 302
|Certification of CFO Pursuant to Section 302
|Certification of CEO Pursuant to Section 906
|Certification of CFO Pursuant to Section 906



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2003 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

|         |  |                                                                                                |  |  |    |      |  | 
|-------- |  | ---------------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|         |  |                                                                                                |  |  |    | Page
|         |  |                                                                                                |  |  |    |     
|         |  | 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                                            |  |  | 12 |     
|         |  | PART II                                                                                        |  |  |    |     
|Item 5.  |  | Market for the
Registrants Common Equity and Related Stockholder Matters                      |  |  | 12 |     
|Item 6.  |  | Selected Financial Data                                                                        |  |  | 13 |     
|Item 7.  |  | Managements Discussion and Analysis of Results of Operations and Financial Condition          |  |  | 13 |     
|Item 7A. |  | Quantitative and Qualitative Disclosure about Market Risk                                      |  |  | 19 |     
|Item 8.  |  | Consolidated Financial Statements and Supplementary Data                                       |  |  | 21 |     
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  |  | 42 |     
|Item 9A. |  | Controls and Procedures                                                                        |  |  | 43 |     
|         |  | PART III                                                                                       |  |  |    |     
|Item 10. |  | Directors and Executive Officers of the Registrant                                             |  |  | 43 |     
|Item 11. |  | Executive Compensation                                                                         |  |  | 45 |     
|Item 12. |  | Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters |  |  | 50 |     
|Item 13. |  | Certain Relationships and Related Transactions                                                 |  |  | 51 |     
|Item 14. |  | Principal Accountant Fees and Services                                                         |  |  | 52 |     
|         |  | PART IV                                                                                        |  |  |    |     
|Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  |  | 52 |     

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2003 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 Gundle/SLT Environmental, Inc. and its subsidiaries (the Company or GSE) 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.

Proposed Merger

On December 31, 2003, the Company entered into a Plan and Agreement of
Merger with GEO Holdings Corp. and its wholly-owned subsidiary, GEO Sub Corp.
GEO Holdings Corp. and GEO Sub Corp. are both Delaware corporations affiliated with Code, Hennessy & Simmons IV LP (CHS IV) and were organized to effect the merger. Except as contemplated by the terms of the merger agreement and the related
transactions, CHS IV does not have any relationship with the Company, its
affiliates or its Board of Directors. Pursuant to the merger
agreement, the Company agreed to merge with GEO Sub and become a wholly-owned
subsidiary of GEO Holdings. Immediately after the consummation of the merger
and related financial transactions, GEO Holdings will own 100% of the Companys
outstanding common stock. Immediately following the consummation of the merger
and related financing transactions, it is expected that the equity owners of
GEO Holdings will be CHS IV, certain of the Companys officers who will hold options to purchase shares of GEO Holdings
capital stock and certain co-investors. Any co-investors will not have been affiliated with
the Company, its affiliates or its Board of Directors prior to the merger, and
may own, collectively, up to 2% of GEO Holdings common stock. The merger is subject to various closing conditions. If all
conditions are satisfied, a closing later this year is anticipated, but cannot
be assured.




PART I




ITEM 1. Description of Business.

General

The Company is the world
leader in the manufacturing, marketing, and installation of geosynthetic lining
products and services for environmental protection and other uses. It is a
Delaware corporation headquartered in Houston, Texas. The purchase of Serrot
International, Inc. (Serrot) in February 2002 was a significant expansion for
the Company. Serrot was an international provider of geosynthetic lining
products and services for environmental protection and other uses.

The Company manufactures, sells, and installs flexible geomembrane liners,
drainage nets, geosynthetic clay liners, concrete protection liners, and
geocomposite products made from specially formulated polyethylene and
polypropylene 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 as roll goods and
for use in its geocomposite products.

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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. Crew members 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.

Within the last three years, the Company has sold more than three billion
square feet of products to customers in more than 90 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.

Products

The
Companys principal products - flexible geomembrane 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 2003,
2002, and 2001 accounted for approximately 56%, 57% and 51%, of total volume,
respectively. Its HDPE liner products come in thickness ranges from 20 to 240
mil (one mil equals 1/1000th 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 linear low density polyethylene
(LLDPE) liner (GSE UltraFlex®). LLDPE products are finding greater use in
landfill caps, mining heap leach pads, and floating covers where greater
flexibility is desired. Both LLDPE 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®, 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®, 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®) 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® 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.

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Another product manufactured and offered by the Company is its patented
geosynthetic clay liner (GundSeal®) 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. The
Company offers a patented geosynthetic clay liner (Bentofix®) that combines a
needle punched reinforced composite comprised of a uniform layer of granular
sodium bentonite encapsulated between a slit film woven and a virgin staple
fiber nonwoven geotextile. (Bentofix®) products are manufactured by the
Companys 51% owned affiliate, Bentofix Technologies, Inc. (Bentofix is a
registered trademark of Naue Fasertechnik GmbH Co. KG.)

GSE Studliner®, a specialty concrete protection liner product, is
fabricated in the Companys facility located in Rechlin, Germany and at a
third-party facility in the United States. This product is finding 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 offers nonwoven geotextile products manufactured at its South
Carolina facility as roll goods and as a component of the composite drainage
materials offered by the Company. Polypropylene products are manufactured and
sold by the Companys subsidiary in the United Kingdom, in addition to products
manufactured from polyethylene.

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 also include portable
secondary containment pads, temporary or daily landfill covers, and
self-installed pond and pit liners. All of these products are typically
installed as part of geosynthetic containment systems.

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. Its 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 LLDPE 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.

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, the United
Kingdom and Germany. Inside the United States, a network of independent
dealers also provides installation services. Outside the United States, in
addition to the Companys installation capabilities, a network of distributors
and independent installers 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.

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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
and services for the past three years based on the sales and operating revenues
for each application. (See Note 20 to Consolidated Financial Statements for
geographic information.)

Sales and Operating Revenue by Market Application
(in thousands)

|                                  |  |                         |         |   |  |      |     |   |  |      |         |   |  |  |     |   |  |   |         |  |  |  |     |  
|--------------------------------- |  | ----------------------- | ------- | - |  | ---- | --- | - |  | ---- | ------- | - |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                                  |  | Year Ended December 31,
|                                  |  |                        
|                                  |  | 2003                    |         | % |  | 2002 |     | % |  | 2001 |         | %
|                                  |  |                         |         |   |  |      |     |   |  |      |         |  
|Solid Waste Containment           |  | $                       | 174,899 |   |  |      | 64  | % |  | $    | 162,364 |   |  |  | 61  | % |  | $ | 116,968 |  |  |  | 67  | %
|Mining                            |  |                         | 17,369  |   |  |      | 6   |   |  |      | 14,276  |   |  |  | 5   |   |  |   | 8,768   |  |  |  | 5   |  
|Hazardous Waste Containment       |  |                         | 8,929   |   |  |      | 3   |   |  |      | 11,668  |   |  |  | 5   |   |  |   | 6,834   |  |  |  | 4   |  
|Liquid Containment                |  |                         | 43,159  |   |  |      | 16  |   |  |      | 45,774  |   |  |  | 17  |   |  |   | 23,454  |  |  |  | 14  |  
|Other Applications                |  |                         | 30,262  |   |  |      | 11  |   |  |      | 32,888  |   |  |  | 12  |   |  |   | 17,385  |  |  |  | 10  |  
|                                  |  |                         |         |   |  |      |     |   |  |      |         |   |  |  |     |   |  |   |         |  |  |  |     |  
|Total Sales and Operating Revenue |  | $                       | 274,618 |   |  |      | 100 | % |  | $    | 266,970 |   |  |  | 100 | % |  | $ | 173,409 |  |  |  | 100 | %
|                                  |  |                         |         |   |  |      |     |   |  |      |         |   |  |  |     |   |  |   |         |  |  |  |     |  

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 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.

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Marketing and Sales

Marketing is a worldwide effort conducted by sales personnel located in
the United States, Spain, Jordan, Germany, the United Kingdom, Italy, the
Netherlands, Russia, Turkey, Thailand, Australia, Egypt, and China. The
Companys multi-tiered sales efforts are focused on engineers, general
contractors and facility owners who are responsible for product specifications
and the design and awarding of contracts, and state and federal regulators and
government officials who establish permit specifications for geosynthetic
materials. 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 directly to the general contractor or owner, or 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. When
we install products, the Company sometimes 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 Plansprovide 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 Dthat 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 Dregulations 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.

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. The Companys 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.

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RCRA was amended 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.

On February 12, 2002, the EPA issued a final rule controlling concentrated
animal feeding operations (CAFOs) under the Clean Water Act. The final rule
will ensure that CAFOs take appropriate actions to manage manure that can cause
serious acute and chronic water quality problems. There are an estimated 15,500
CAFOs producing 300 million tons of waste annually. The Companys products are
specifically designed to address this issue.

The 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
population increases 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 extensive 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 control and wastewater treatment, aquaculture and agriculture,
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 three billion square feet of products to
customers in more than 90 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 2003 and 2002, one customer, Waste Management, Inc.,
accounted for 20% and 14% of sales and operating revenue. During the year 2001,
no single customer accounted for more than 10% of the Companys net sales. In
2003 and 2002, Company net sales of 59%, and 62%, respectively, were to
customers in the United States. The Company believes that the loss of Waste
Management, Inc. as a customer would have a material adverse effect on the
Companys consolidated financial position or results of operations.

Backlog

As of December 31, 2003, the Companys backlog was $40.3 million compared
to $44.1 million at December 31, 2002. The Company anticipates that the
majority of the value of construction contracts and customer purchase orders
included in backlog at December 31, 2003 will be completed or filled prior to
the end of 2004, subject to weather and other construction related delays.
Contracts and commitments for products and services are occasionally varied,
modified, or cancelled by mutual consent.

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
requests 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 impact of seasonal fluctuation on its manufacturing,
delivery, and installation schedules. (See Supplementary Data.)

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Competition

The Company believes that there are approximately 30 companies engaged in
the production of various synthetic geomembranes worldwide. These companies
offer the same or similar wide range of products that the Company offers.The
Companys competition is not limited to those companies that manufacture
polyethylene and polypropylene lining products, but encompasses companies
offering polyvinyl chloride (PVC), scrim-reinforced chlorosulphonated
polyethylene (Hypalon) products and ethylene propylene diene terpolymer (EPDM)
geomembranes. The principal resin types used in the products sold by the
Company are high-density polyethylene and linear low density polyethylene. At
least three of the companies manufacturing HDPE liners compete directly with
the Company in North America.

The Company encounters competition in its other product lines in the
United States with one company competing in the sale 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 capabilities, quality and pricing. Pricing remains very
competitive with excess capacity in the industry impacting margins. The
Company believes it competes successfully because it manufactures, sells and
installs a wide range of high quality, cost effective products and services,
and because of its strategically located manufacturing facilities and strong
financial position.

Employees

The Company had a total of 1,127 employees as of December 31, 2003, with
825 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. None of the Companys year-round employees
are unionized. From time to time, however, the Company has entered into
site-specific collective bargaining agreements with unions that apply to
specific projects. 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 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, Bentofix®, and smooth-edged
textured sheet), 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 affect its business.

Available Information

The Company, through its website www.gseworld.com, makes available free of
charge its reports on Forms 10-K, 10-Q and 8-K (and amendments thereto). These
reports are available on the Companys website on the same day such reports are
filed with or furnished to the U.S. Securities and Exchange Commission.

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ITEM 2. Properties.

The Company manufactures its products in nine locations around the world,
in close proximity to the Companys customers and resin suppliers. At these
locations are fourteen extrusion lines for producing liner products, three
lines for the production of geocomposite drainage net products, one needle
punched nonwoven textile manufacturing line, three lines for the production of
geosynthetic clay lining products, and five texturing lines.

United States

GSE Lining Technology, Inc. conducts U.S. operations at the Companys
headquarters located on a 41.5-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 drainage net 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
geocomposite drainage net 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-acre tract of Company owned-land
in an industrial park in Kingstree, South Carolina. This location has 5,400
square feet of office space and 178,500 square feet for manufacturing and
warehousing operations. The building of metal skin over sheet frame
construction contains one 16 million pound capacity needle punched nonwoven
manufacturing line and one geocomposite drainage net line.

The Companys patented GundSeal products are manufactured on one
production line housed in a Company-owned 22,000 square foot building with
1,800 square feet of office space on a 15.3-acre owned tract located in
Spearfish, South Dakota. The plant is located near the sources for clay
(bentonite).

The Company owns an industrial site in Pittsburgh, Pennsylvania, from
which it conducts installation services.

Canada

The Company owns a 51% interest in Bentofix Technologies, Inc., located in
Barrie Canada. BTI leases 2,000 square feet of office space and 60,000 square
feet for manufacturing geosynthetic clay lining products.

Germany

GSE Lining Technology GmbH, headquartered in Hamburg, Germany, manages the
Companys European operations. This location has 6,397 square meters for
manufacturing 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, three texturing lines, and a blown
film round die extrusion line. Operating at the same facility is a fabrication
department involved in fabricating Studliner sheeting products.

United Kingdom

The Companys operations in the United Kingdom are carried out by its
subsidiary, GSE Lining Technology Ltd., operating at a 0.75-acre owned facility
in Soham, England, just north of London. This location has 2,500 square feet
of leased office space, 11,652 square feet of leased warehouse space, and
10,652 of owned 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.

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Egypt

The Company owns two Egyptian companies, Hyma/GSE Manufacturing Co. and
Hyma/GSE Lining Technology Co. The manufacturing operations are located on a
1.1-acre leased site outside of Cairo, Egypt. Located on this site are two
buildings totaling 34,262 square feet that house an owned flat sheet extrusion
line and a leased blown film round die extrusion line. The Company has
acquired a 20,252 square meter tract of land with 1,440 square meters of
manufacturing space and 150 square meters of office space. The Company plans to
move its Egyptian manufacturing operations to this space in 2004. The trading
company operates out of a small leased facility in Nasr City, Cairo, and it
sells products manufactured by the Hyma/GSE Manufacturing Co., and other GSE
subsidiaries.

Thailand

GSE Lining Technology Company Ltd. headquartered in Bangkok, Thailand,
manages the Companys Thailand operations from an owned facility on leased
property. Its manufacturing facility is located in Rayong, Thailand, on 8,535
square meters of property leased by the Company. Its products are manufactured
on two blown film round die extrusion lines. This company also manages the
representative office in the Peoples Republic of China.

Australia

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.

On January 6, 2003, a judgment was entered against the company in the
United States District court for the Northern District of Texas for damages
arising out of the alleged patent infringement activities of Serrot
International, Inc. (Serrot) conducted prior to the acquisition of Serrot by
the company. The jury in Dallas determined that Serrot had willfully infringed
upon two patents held by Poly-America, L.P., one for the manufacturing process
and a second patent for the smooth edge textured sheet produced on round die
blown film manufacturing equipment. On August 28, 2003, the court issued an
opinion and order on post trial motions, including a reduced judgment in the
amount of $11,965,158, together with prejudgment interest in the sum of
$3,081,050, post-judgment interest at the rate of 1.29% per annum, and taxable
costs of the court. The court denied the request of Poly-America, L.P. for
treble damages and attorneys fees. The Company posted an amended $18,055,699
supersedeas appeal bond and entered into a Collateral Agreement with an
insurance company whereby the Company deposited funds equal to the bond amount.
The Collateral Agreement provides for interest on the deposited fund, which
interest accrues to the Companys benefit. On September 29, 2003, the Company
filed an appeal to the U.S. District Court of Appeals for the Federal Circuit
in Washington, D.C. and on December 16, 2003, filed its appeals brief. On the
advice of legal counsel, the Company anticipates a favorable ruling on its
appeal. However, such an outcome is not assured. No amount has been accrued
for this judgment.

The Company and its directors have been named in three putative class
action lawsuits filed in January 2004 in the Delaware Court of Chancery
(Calhoun v. Gundle/SLT Environmental, Inc., et al,C.A. No. 153-N, Twist
Partners LLP v. Badawi, et al,C.A. No. 150-N, and Bell v. Gundle/SLT
Environmental, Inc., et al,C.A. No. 169-N) related to the proposed merger.
Code Hennessy & Simmons LLC, GEO Sub Corp. and GEO Holdings Corp. have also
been named in one or more of these cases. These complaints allege that the
Companys directors breached their fiduciary duties by allegedly failing to
auction the Company, to undertake an appropriate e valuation of the Company as
a merger/acquisition candidate, to act independently to protect its
stockholders, and to ensure that no conflicts of interest existed or that any
conflicts were resolved in the best interests of GSEs public shareholders.
The complaints seek, among other relief, to enjoin the merger or to rescind it
if approved by stockholders and consummated and to obtain unspecified damages
from the defendants. On February 10, 2004 the Delaware Court of Chancery
entered an order consolidating the three actions for all purposes and requiring
the plaintiffs to file a consolidated amended complaint as soon as practicable.

The Company and its directors believe these suits are without merit, and
intend to vigorously defend the litigation. These or similar lawsuits may
jeopardize the merger, since their existence could result in the failure of one
or more conditions precedent to GEO Holdings obligation to conclude the merger
and thus permit GEO Holdings to terminate the merger agreement and abandon the
merger should it desire to do so. If the merger is not enjoined, GEO Holdings
may elect to complete the merger; however, representatives of GEO Holdings have
advised the Company that GEO
Holdings has no intention of waiving any conditions that may not be satisfied
as a result of this pending litigation or otherwise waiving any of its rights
at this time.

On
January 14, 2004, the Company received a letter from Shire
Equipment Leasing Corporation (Shire) relating to litigation
instituted by Wembley, Ltd., the holder of 4,557,143 shares of our
common stock and the Companys largest stockholder. Wembley seeks a
declaratory judgment that neither Pro Air, Inc., which was declared
bankrupt in 2003, nor Shire, its assignee, ever acquired an ownership
interest in 1.1 million of these shares which are currently and have been
held of record continuously by Wembley. Shire disputes this contention and
indicates that it will seek recovery (a) against Wembley and, if
Wembley is unable to satisfy any such judgment, (b) against the
Company for as much as $200 million in alleged consequential damages
resulting from its and/or Pro Airs inability to own and sell the
Company shares, if and to the extent that the Company acted in
concert with Wembley to thwart the (allegedly) rightful
transfer of the Company shares to which Shire makes claim.

The
Company believes that this dispute is between Wembley and Shire.
Accordingly, should such a claim be forthcoming, the Company intends
to defend itself vigorously. Upon conclusion of the merger, the
Company expects to request all the Company stockholders to surrender
their certificates for cancellation in exchange for payment of the
merger consideration. The Company intends to pay the merger
consideration to whichever of the parties (Wembley or Shire) submits,
in the form required for good delivery,  the stock certificate in
controversy.

The Fort
Worth District Office of the Securities and Exchange Commission has
inquired of the Company about a sale of its common stock in late
September 2003 by a former non-U.S.-resident Company director. The
shares were sold through a brokerage account on which the Companys
president and chief executive officer was listed as a contact
person, without any beneficial or other interest. The sale was made
shortly before the Company announced it would not meet earnings
expectations. The chief executive officer has informed the Company
that he has no reason to believe that the non-resident former
director, who left the Board several years ago, possessed any
non-public information at the time of sale. The Company has voluntarily
produced information and documents in connection with the former
directors sale, as requested by the Securities and Exchange
Commission in November 2003 and January 2004. The Company has no
knowledge of any wrongdoing on its part or that of any affiliates,
officer or the former director and intends to continue to cooperate
fully in respect of this inquiry.

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The Company is involved in other 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.




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

The Company did not submit any matters to a vote of its security holders
during the fourth quarter of 2003.




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 March 5, 2004.

|               |  |               |       |      |  |      |       |     |  |                         |       |     |  |  |       |  |  |  |       |  |  |  |      | 
|-------------- |  | ------------- | ----- | ---- |  | ---- | ----- | --- |  | ----------------------- | ----- | --- |  |  | ----- |  |  |  | ----- |  |  |  | ---- | 
|               |  |               |       |      |  |      |       |     |  | Year Ended December 31,
|               |  | Through       |       |     
|               |  | March 5, 2004 |       | 2003 |  | 2002
|               |  |               |       |      |  |     
|               |  | High          |       | Low  |  | High |       | Low |  | High                    |       | Low
|               |  |               |       |      |  |      |       |     |  |                         |       |    
|First Quarter  |  |               | 19.00 |      |  |      | 15.30 |     |  |                         | 9.48  |     |  |  | 8.41  |  |  |  | 7.30  |  |  |  | 2.72 | 
|Second Quarter |  |               |      |      |  |      |      |     |  |                         | 15.64 |     |  |  | 9.15  |  |  |  | 8.95  |  |  |  | 6.20 | 
|Third Quarter  |  |               |      |      |  |      |      |     |  |                         | 18.25 |     |  |  | 12.50 |  |  |  | 8.58  |  |  |  | 6.76 | 
|Fourth Quarter |  |               |      |      |  |      |      |     |  |                         | 21.50 |     |  |  | 15.13 |  |  |  | 10.00 |  |  |  | 7.38 | 

The approximate number of record holders of the Companys common stock at
December 31, 2003 was 233. Management estimates that the aggregate number of
beneficial holders exceeds 1,700.

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.)

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

|                            |                                       |                            |         |                         |      |      |         |         |      |      |         |         |     |   |         |         |     |   |         |         |     | 
|--------------------------- | ------------------------------------- | -------------------------- | ------- | ----------------------- | ---- | ---- | ------- | ------- | ---- | ---- | ------- | ------- | --- | - | ------- | ------- | --- | - | ------- | ------- | --- | 
|                            |                                       |                            |         | Year Ended December 31,
|                            |                                       |                            |         |                        
|                            |                                       |                            |         | 2003                    |      | 2002 |         | 2001    |      | 2000 |         | 1999   
|                            |                                       |                            |         |                         |      |      |         |         |      |      |         |        
|INCOME STATEMENT DATA:      |                                       |                            |         |                         |      |      |         |         |      |      |         |         |     |   |         |         |     |   |         |        
|Sales and operating revenue |                                       | $                          | 274,618 |                         |      | $    | 266,970 |         |      | $    | 173,409 |         |     | $ | 191,320 |         |     | $ | 178,569 |        
|                            | Gross profit                          |                            |         | 59,159                  |      |      |         | 56,644  |      |      |         | 28,804  |     |   |         | 32,579  |     |   |         | 35,921  |    
|                            | Operating income                      |                            |         | 30,208                  |      |      |         | 24,233  |      |      |         | 3,389   |     |   |         | 6,792   |     |   |         | 9,904   |    
|                            | Interest expense, net                 |                            |         | 2,064                   |      |      |         | 2,379   |      |      |         | 1,248   |     |   |         | 1,354   |     |   |         | 1,716   |    
|                            | Income before income taxes            |                            |         | 31,519                  |      |      |         | 21,258  |      |      |         | 2,600   |     |   |         | 5,965   |     |   |         | 8,461   |    
|                            | Net income before extraordinary items |                            |         | 20,771                  |      |      |         | 12,890  |      |      |         | 1,378   |     |   |         | 3,638   |     |   |         | 4,907   |    
|                            | Extraordinary items                   |                            |         |                        |      |      |         | 25,966  |      |      |         |        |     |   |         |        |     |   |         |        |    
|                            | Net income                            |                            |         | 20,771                  |      |      |         | 38,856  |      |      |         | 1,378   |     |   |         | 3,638   |     |   |         | 4,907   |    
|                            | Basic earnings per common share       |                            |         |                         |      |      |         |         |      |      |         |         |     |   |         |         |     |   |         |         |    
|                            |                                       | Before extraordinary items |         |                         | 1.81 |      |         |         | 1.15 |      |         |         | .12 |   |         |         | .31 |   |         |         | .38 | 
|                            |                                       | Extraordinary items        |         |                         |     |      |         |         | 2.32 |      |         |         |    |   |         |         |    |   |         |         |    | 
|                            | Basic earnings per common share       |                            |         | 1.81                    |      |      |         | 3.47    |      |      |         | .12     |     |   |         | .31     |     |   |         | .38     |    
|                            | Diluted earnings per common share     |                            |         |                         |      |      |         |         |      |      |         |         |     |   |         |         |     |   |         |         |    
|                            |                                       | Before extraordinary items |         |                         | 1.72 |      |         |         | 1.11 |      |         |         | .12 |   |         |         | .31 |   |         |         | .38 | 
|                            |                                       | Extraordinary items        |         |                         |     |      |         |         | 2.23 |      |         |         |    |   |         |         |    |   |         |         |    | 
|                            | Diluted earnings per common share     |                            |         | 1.72                    |      |      |         | 3.34    |      |      |         | .12     |     |   |         | .31     |     |   |         | .38     |    
|BALANCE SHEET DATA:         |                                       |                            |         |                         |      |      |         |         |      |      |         |         |     |   |         |         |     |   |         |        
|                            | Working capital                       |                            | $       | 92,452                  |      |      | $       | 92,265  |      |      | $       | 48,021  |     |   | $       | 51,949  |     |   | $       | 60,715  |    
|                            | Total assets                          |                            |         | 213,503                 |      |      |         | 202,310 |      |      |         | 145,611 |     |   |         | 148,563 |     |   |         | 161,697 |    
|                            | Total debt                            |                            |         | 16,722                  |      |      |         | 21,602  |      |      |         | 25,801  |     |   |         | 26,530  |     |   |         | 31,360  |    
|                            | Stockholders equity                  |                            |         | 157,157                 |      |      |         | 132,431 |      |      |         | 90,434  |     |   |         | 89,308  |     |   |         | 93,271  |    

See Note 10 to the Notes to Consolidated Financial Statements and Item 7
(Managements Discussion and Analysis of Results of Operations and Financial
Condition) below for information relating to the Companys acquisition of
Serrot in February, 2002.




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

Proposed Merger

On December 31, 2003, the Company entered into a Plan and Agreement of
Merger (the Merger Agreement) with GEO Sub Corp., a Delaware corporation and
GEO Holdings Corp. (GEO Holdings), a Delaware corporation. GEO Sub Corp. is a
wholly-owned subsidiary of GEO Holdings, and GEO Holdings is a newly formed
entity controlled by CHS IV. Except as contemplated by the terms of the merger agreement and the related
transactions, CHS IV does not have any relationship with the Company, its
affiliates or its Board of Directors.

Under the Merger Agreement, each outstanding share of the Companys common
stock will be converted into the right to receive $18.50 in cash, without
interest. The Merger Agreement provides for the merger of GEO Sub Corp. with
and into the Company, with the Company as the surviving corporation. Upon
completion of the merger, all of the Companys outstanding stock, par value
$0.01 per share, will be owned by GEO Holdings.

A portion of certain of the Companys officers outstanding
options to acquire shares of the Companys common stock will be converted into
options to purchase shares of GEO Holdings estimated to represent approximately
8% of GEO Holdings fully-diluted shares immediately after completion of the
merger. All other outstanding options to purchase the Companys common stock
will be converted into cash in an amount equal to their in the money value.

Immediately following the consummation of the merger and related financing
transactions, it is expected that the equity owners of GEO Holdings will be CHS
IV, the identified officers who are converting options, and certain
co-investors. Any co-investors will not have been affiliated with the Company,
its affiliates or its Board of Directors prior to the merger, and may own,
collectively, up to 2% of GEO Holdings common stock.

The merger is conditioned upon GEO Holdings conclusion of certain related
financing arrangements, approval by the holders of the Companys common stock,
clearance under certain federal and foreign antitrust laws, and other customary
closing conditions. If all conditions are satisfied, a closing later this year
is anticipated, but cannot be assured. On December 31, 2003, the holder of
approximately 40% of the Companys common stock entered into a Voting Agreement
agreeing to support the proposed merger. See Item 3. Legal
Proceedings for a discussion of Wembley Ltd.s dispute with
Shire Equipment Leasing Corporation.

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Results of Operations

Year Ended December 31, 2003 Versus Year Ended December 31, 2002

The Companys sales and operating revenue of $274,618,000 increased
$7,648,000, or 2.9%, in 2003 from the $266,970,000 reported in 2002. A change
in the U.S. dollar value of the Companys foreign entity functional currencies
increased year 2003 sales and operating revenue by $10,378,000. Units shipped
also increased 4% in 2003 from 2002. Offsetting these increases were sales and
operating revenues of operations sold or discontinued in 2002 of $5,791,000 and
lower installation prices. Sales to the U.S. market were $161,112,000 in 2003,
compared with $165,680,000 in 2002. The decrease in U.S. revenues was primarily
the result of lower installation prices, and a 2% decrease in units shipped.
Sales and operating revenue in foreign markets were $113,506,000 in 2003,
compared with $101,290,000 in 2002. Foreign sales were $12,216,000 higher in
the year 2003 from the increase in the dollar value of local functional
currencies and from 10% more units shipped, mostly into lower price markets.
About one-half of the increased shipments resulted from the acquisition of the
remaining 50% of the Companys Egyptian joint ventures and the resulting
consolidation of this operation in January 2003.

Gross profit was $59,159,000 in 2003 compared to $56,644,000 in 2002. A
change in the U.S. dollar value of the Companys foreign entity functional
currencies increased year 2003 gross profit by $2,359,000. Gross profit in
2002 included $745,000 from operations sold or discontinued during that year.
Gross profit as a percentage of sales was 21.5% in 2003 compared to 21.2% in
2002. U.S. 2003 gross profit of $31,566,000 was virtually the same as the year
2002. Foreign gross profit was $27,593,000 compared to $25,115,000 in 2002.
Foreign gross profit included $2,359,000 of benefit from the changes in U.S.
dollar value of foreign entity functional currency.

Selling, general and administrative (SG&A) expenses of $28,951,000 were
$243,000 lower in 2003 than in 2002. The change in U.S. dollar value of
foreign functional currencies increased SG&A expenses by $1,081,000. Last
years amount included $1,924,000 in operations sold or discontinued. The net
increase was beneficially influenced by continued synergy benefits of the
Serrot International, Inc. (Serrot) acquisition in 2002.

Interest expense of $2,573,000 was $342,000 lower in 2003 than in 2002.
This decrease was the result of reductions of term debt throughout 2003.

Interest income was $27,000 lower in 2003 than 2002. This decrease was
primarily the result of lower yields on invested cash.

The Company recorded a gain on foreign exchange of $212,000 compared to a
gain of $1,687,000 in the year 2002. The 2002 gain was primarily on Euro notes
from the Companys European subsidiaries acquired with the Serrot acquisition
whose balances were lowered in 2003.

The Company recorded other income of $3,296,000 in 2003, primarily from
gains recognized on the sale of assets acquired in the Serrot acquisition of
$3,414,000. Other expenses of $1,967,000 in 2002 were from a loss of $483,000
from its equity interest in Egypt, write off of equipment held for resale in
the amount of $600,000, letter of credit and loan commitment fees of $230,000,
and $1,278,000 of net costs associated with the early extinguishment of debt.
These 2002 expenses were offset by gains from the sale of assets of
approximately $600,000.

Earnings were reduced for minority interest of $133,000 in 2003. This was
the minority owners 49% share of earnings of the Companys Canadian joint
venture.

The Companys provision for income taxes was $10,748,000 in 2003 compared
with $8,368,000 in 2002. The tax provision in both years was provided at
statutory rates adjusted for permanent differences. The effective rate for 2003
was 34% compared to 39% in 2002. The 2003 lower rate included the benefits of
foreign entity tax differentials created by the benefits of dividends from
foreign operations, exchange losses on U.S. dollar accounts in foreign
operations, and a Serrot acquisition tax settlement.

14



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##### Table of Contents



Year Ended December 31, 2002 Versus Year Ended December 31, 2001

The Companys sales and operating revenue of $266,970,000 increased
$93,561,000, or 54%, in 2002 from the $173,409,000 reported in 2001. A change
in the U.S. dollar value of the Companys foreign entity functional currencies
increased year 2002 sales and operating revenue by $7,708,000. Units shipped
increased 52% in 2002 from 2001. Increased volume resulted from the acquisition
of Serrot on February 4, 2002. Sales to the U.S. market were $165,680,000 in
2002 compared with $93,136,000 in 2001. The increased revenue was the result of
a 75% increase in units shipped. Sales and operating revenue in foreign markets
were $101,290,000 in 2002 compared with $80,273,000 in 2001. Foreign units
shipped were up 34% in 2002 compared to 2001.

Gross profit was $56,644,000 in 2002 compared to $28,804,000 in 2001. A
change in U.S. dollar value of the Companys foreign entity functional
currencies increased year 2002 gross profit by $904,000. In addition, increased
gross profit resulted from more units shipped at marginal cost. On February 4,
2002, the Company purchased Serrot and relocated Serrots U.S. production into
GSEs U.S. plants reducing the Companys fixed cost per unit. The spreading of
GSEs fixed cost by consolidating U.S. production and improved margins in
foreign locations increased gross profit margin to 21.2% of sales in 2002 from
16.6% of sales in 2001. U.S. gross profit margin was up over two percentage
points. This increase was primarily due to the effects of reduced fixed costs
per unit associated with the 52% increase in units shipped from consolidated
production facilities. Foreign operations gross profit margin was up six
percentage points. This increase was primarily due to the effects of increased
product sales and improved installation margins.

Selling, general and administrative expenses of $29,194,000 were
$5,104,000 higher in 2002 than in 2001. An increase of $360,000 was due to an
increase in the dollar value of local foreign currencies. The Companys North
American operations increased its costs $3,103,000 due to the addition of
Serrots U.S. business. Expenses increased $2,001,000 in the Companys foreign
operating units primarily due to the cost of operating duplicate operations
acquired with the Serrot acquisition in Europe.

Expenses related to the Serrot acquisition include expenses the Company
incurred to relocate inventory and equipment from facilities acquired from
Serrot to its locations in Houston, Texas, and Kingstree, South Carolina,
certain legal and professional costs, exit costs related to the closing of the
plant in Calgary, and bonuses paid for the attainment of synergy savings during
2002. For the year, the Company incurred $981,000 to relocate equipment,
non-recurring legal and professional costs of $336,000, $700,000 for the
Calgary exit costs and $1,200,000 for the synergy bonus.

Interest expense of $2,915,000 was $1,206,000 higher in 2002 than in 2001.
This increase was the result of refinancing the Companys debt to acquire
Serrot, increasing available credit lines and the inclusion of $695,000 of
amortization of financing cost associated with the refinancing.

Interest income was $75,000 higher in 2002 than 2001. This increase was
primarily the result of interest received on notes receivable purchased with
the Serrot acquisition as interest on surplus cash balances was lower.

The Company recorded a gain on foreign exchange of $1,687,000 compared to
a loss of $243,000 in the year 2001. The gain was primarily on Euro notes from
the Companys European subsidiaries acquired with the Serrot acquisition.

The Company recorded other expense of $1,967,000 in 2002 compared with
other income of $702,000 in 2001. The Company recorded a loss of $483,000 from
its 50% equity interest in Egypt compared to earnings of $126,000 in 2001. This
loss was the result of bad debt provisions recorded in Egypt. The Company also
wrote off $600,000 of equipment held for resale. Other expenses also included
letter of credit and loan commitment fees of $230,000, and $1,278,000 of net
costs associated with the early extinguishment of debt. These expenses were
offset by gains from the sale of assets of approximately $600,000.

Earnings were reduced for minority interest of $316,000 in 2002. This was
the minority owners share of earnings of the Companys Canadian joint venture
acquired with Serrot.

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The Companys provision for income taxes was $8,368,000 in 2002 compared
with $1,222,000 in 2001. The tax provision in both years was provided at
statutory rates adjusted for permanent differences. The effective rate for 2002
was 39% compared to 47% in 2001. The higher prior years rate was caused by
the Companys lower profit in the U.S., higher profits in Germany and the
non-amortization provisions of goodwill in accordance with SFAS 142 for book
purposes in 2002.

The extraordinary gain from the Serrot acquisition of $25,966,000
represents the excess of the fair value of assets acquired from Serrot of
$55,820,000 over the purchase price of $11,969,000 after allocation of
$17,885,000 to Serrots long-lived assets net of their associated tax benefits
under the purchase method of accounting.

Liquidity and Capital Resources

Overview

The Companys primary sources of liquidity in 2003 were cash generated
from operations and cash on hand. At December 31, 2003, the Company had working
capital of $92,452,000 of which $47,899,000 was cash and cash equivalent
investments. The Companys operating results and liquidity are normally reduced
in the first quarter as both product deliveries and installations are at their
lowest levels due to inclement weather experienced in the Northern Hemisphere.
The Company believes that it has sufficient funds (on hand and expected from
future operations) and adequate financial resources available to meet its
anticipated liquidity needs including anticipated requirements for working
capital, capital expenditures, and debt service in 2004.

Total capitalization as of December 31, 2003 was $173,879,000, consisting
of total debt of $16,722,000 and equity of $157,157,000. The
debt-to-capitalization ratio at December 31, 2003 was 10% compared to 14% at
the end of fiscal year 2002. The decrease in the debt-to-capitalization ratio
was primarily the result of net earnings during fiscal year 2003 and a decrease
in total debt of $4,880,000.

In January 2003, the Company purchased the remaining 50% of its Egyptian
joint ventures for a price of $3,792,000, net of acquired cash. The Company
also agreed to purchase a second geomembrane manufacturing line, previously
under lease to the joint venture, for $950,000 that will be completed in the
first quarter of 2004. In December 2003, the Company entered into an agreement
to purchase real property and a manufacturing facility in Egypt for $855,000.

The Companys capital expenditure budget for 2004 is $7,700,000, which
includes commitments of $3,060,000 to expand or upgrade manufacturing
facilities in Egypt and Thailand (including the $950,000 purchase of a second
geomembrane manufacturing line). The Company believes the Middle East and Far
East, as well as Eastern Europe, are markets with growth opportunities because
of population growth, increased living standards and adoption of environmental
legislation. The $3,060,000 of commitments are expected to be funded with cash
on hand or through local foreign borrowings.

On January 6, 2003, a judgment was entered against the Company in the
United States District court for the Northern District of Texas for damages
arising out of the alleged patent infringement activities of Serrot conducted
prior to the acquisition of Serrot by the Company. The jury in Dallas
determined that Serrot had willfully infringed upon two patents held by
Poly-America, L.P., one for the manufacturing process and a second patent for
the smooth edge textured sheet produced on round die blown film manufacturing
equipment. On August 28, 2003, the court issued an opinion and order on post
trial motions, including a reduced judgment in the amount of $11,965,158,
together with prejudgment interest in the sum of $3,081,050, post-judgment
interest at the rate of 1.29% per annum, and taxable costs of the court. The
court denied the request of Poly-America, L.P. for treble damages and
attorneys fees. The Company posted an amended $18,055,699 supersedeas appeal
bond and entered into a Collateral Agreement with an insurance company whereby
the Company deposited funds equal to the bond amount. The Collateral Agreement
provides for interest on the deposited fund, which interest accrues to the
Companys benefit. On September 29, 2003, the Company filed an appeal to the
U.S. District Court of Appeals for the Federal Circuit in Washington, D.C. and
on December 16, 2003, filed its appeals brief. On the advice of legal counsel,
the Company anticipates a favorable ruling on its appeal. However, such an
outcome is not assured. No amount has been accrued for this judgment.

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The Company has a stock repurchase plan with 1,596,643 shares still
authorized. The repurchase program is inactive.

Credit Facilities

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. As of December 31,
2003, the Company had $18,853,000 available under this credit agreement.

At December 31, 2003, the Company had five local foreign credit
facilities. It had credit facilities with two German banks in the amount of
EUR 5,100,000. These revolving credit facilities are secured by a corporate
guarantee 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, 2003, the
Company had EUR 3,064,000 available under these credit facilities with EUR
2,036,000 of bank guarantees outstanding. The Company had two credit
facilities with an Egyptian bank in the amount of £E 15,000,000. These credit
facilities bear interest at various market rates and are primarily for cash
management purposes. At December 31, 2003, the Company had £E 15,000,000
available under these credit facilities. The Company had a credit facility
with a Canadian bank in the amount of Canadian Dollar 500,000 that bears
interest at market rate, secured by working capital. At December 31, 2003, the
Company had the full amount available under this line.

At December 31, 2003, the Companys balance outstanding under a note
agreement entered into on February 4, 2002 was $16,722,000. This three-year
term loan, originally in the amount of $25,000,000, was paid on January 20,
2004. This debt was paid off to decrease interest expense and remove the
restrictive covenants of the note.

Sources and Uses of Cash

Cash provided by operating activities during 2003 was $16,845,000 compared
to $36,626,000 in the prior year. The decrease was primarily from restricting
$18,056,000 of cash as security for the supersedeas appeal bond in the
Poly-America case.

Cash used by investing activities during 2003 was $6,610,000, compared to
$6,048,000 in the prior year. Cash of $6,824,000 was used for capital
expenditures and the proceeds from fixed assets sold were $4,006,000. The
Company expended net cash of $3,792,000 for the 50% Egyptian joint
venture-interest in 2003.

Cash used in financing activities during 2003 was $4,693,000 compared to
$4,843,000 in the prior year, primarily for scheduled debt repayments.

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##### Table of Contents



Contractual Obligations and Commercial Commitments

The following table represents information, as of December 31, 2003,
concerning the Companys unconditional obligations and commitments to make
future payments under contracts with remaining terms in excess of one year,
such as debt and lease agreements, and under contingent commitments.

|                                  |  |       |            |                    |  |           |           |           |  |               |            |  |  |   |         |  |  |   |         | 
|--------------------------------- |  | ----- | ---------- | ------------------ |  | --------- | --------- | --------- |  | ------------- | ---------- |  |  | - | ------- |  |  | - | ------- | 
|Contractual Cash                  |  |       |            |                    |  |           |           |           |  |               |            |  |  |   |         |  |  |   |         | 
|Obligations                       |  | Total |            | Less Than One Year |  | 1-3 Years |           | 4-5 Years |  | After 5 Years
|                                  |  |       |            |                    |  |           |           |           |  |              
|Long-term Debt                    |  | $     | 16,722,000 | (1)                |  | $         | 4,914,000 |           |  | $             | 11,808,000 |  |  |   |        |  |  |   |        | 
|Operating Leases                  |  |       | 1,541,000  |                    |  |           | 694,000   |           |  |               | 842,000    |  |  | $ | 5,000   |  |  |   |        | 
|Purchase Obligations(2)           |  |       | 3,060,000  |                    |  |           | 3,060,000 |           |  |               |           |  |  |   |        |  |  |   |        | 
|Other Long-Term                   |  |       |            |                    |  |           |           |           |  |               |            |  |  |   |         |  |  |   |         | 
|Liabilities                       |  |       |            |                    |  |           |           |           |  |               |            |  |  |   |         |  |  |   |         | 
|Reflected in the
Balance Sheet(3) |  |       | 1,189,000  |                    |  |           | 180,000   |           |  |               | 540,000    |  |  |   | 360,000 |  |  | $ | 109,000 | 
|                                  |  |       |            |                    |  |           |           |           |  |               |            |  |  |   |         |  |  |   |         | 
|Total                             |  | $     | 22,512,000 |                    |  | $         | 8,848,000 |           |  | $             | 13,190,000 |  |  | $ | 365,000 |  |  | $ | 109,000 | 

|                  |  |       |           |                    |  |           |           |           |  |               |           |  |  |  |   |  |  |  |   | 
|----------------- |  | ----- | --------- | ------------------ |  | --------- | --------- | --------- |  | ------------- | --------- |  |  |  | - |  |  |  | - | 
|Other Commercial  |  |       |           |                    |  |           |           |           |  |               |           |  |  |  |   |  |  |  |   | 
|Obligations       |  | Total |           | Less Than One Year |  | 1-3 Years |           | 4-5 Years |  | After 5 Years
|                  |  |       |           |                    |  |           |           |           |  |              
|Letters of Credit |  | $     | 2,038,000 |                    |  | $         | 2,038,000 |           |  |               |          |  |  |  |  |  |  |  |  | 
|Bank Guarantees   |  |       | 5,353,000 |                    |  | $         | 2,926,000 |           |  | $             | 2,427,000 |  |  |  |  |  |  |  |  | 
|                  |  |       |           |                    |  |           |           |           |  |               |           |  |  |  |   |  |  |  |   | 
|Total             |  | $     | 7,391,000 |                    |  | $         | 4,964,000 |           |  | $             | 2,427,000 |  |  |  |  |  |  |  |  | 



|(1) |  | Paid off in full on January 20, 2004.                                                                                                                                                                                                                                  
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents commitments to purchase a machine in Egypt for $950,000,
to construct a building in Egypt for $684,000, and the remaining
estimated costs to expand the plant in Thailand of $1,426,000. The
costs for the Thailand plant may be terminated without penalty.
|   
|(3) |  | Represents estimated payments due for the German pension
obligation, more fully described in Note 16 of the Notes to the
Consolidated Financial Statements.                                                                                                            

Critical Accounting Policies and Estimates

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, inventory obsolescence,
investments, intangible assets and goodwill, income taxes, financing
operations, workers compensation insurance, pension 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 used in preparing the consolidated
financial statements contained herein.

The Company believes the following are its most critical accounting
policies. Senior management of the Company has discussed the development and
selection of these policies and related disclosure with the audit committee.
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. There have been
no significant changes to the Companys critical accounting estimates during
any of the periods in the three years ended December 31, 2003.

Allowance for doubtful accounts The Company establishes reserves for
doubtful accounts on a case-by-case basis when it is believed that the required
payment of specific amounts owed to the Company is unlikely to occur. The
Company derives a majority of its revenue from sales and services to domestic
and international municipal and private companies engaged in waste management,
mining, water and wastewater treatment, aquaculture and other industrial
activities. The Company has receivables from customers in various countries.
The Company generally does not require collateral or other security to support
customer receivables. If the customers financial condition were to deteriorate
or
their access to freely convertible currency was restricted, resulting in
impairment of their ability to make the required payments, additional
allowances may be required.

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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. The Company
has no assurance that historical trends will continue and if trends are
different than the estimates used, it could have an effect on the Companys
results of operations and financial position.

Revenue recognition and job loss accrual For products sold directly to
customers, the Company recognizes revenues when products are shipped, title and
risk of loss passes to the buyer, the Company has no further obligation to the
buyer, and collectibility is reasonably assured. For installation contracts,
revenues are recognized on the percentage of completion method in accordance
with the American Institute of Certified Public Accountants Statement of
Position (SOP) 81-1 Accounting for Performance of Construction-Type and
Certain Production-Type Contracts. The Company recognizes revenue on signed
contracts and approved change orders. The Company does not recognize revenues
on claims until claims are approved in writing and collectibility of such
claims are assured. Percentage of completion is measured on the percentage of
costs incurred to total estimated costs 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 performs a test for impairment of
goodwill annually as of October 1, as prescribed by adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangibles.Fair
value of the Companys reporting units is based on estimated discounted cash
flows. Changes in assumptions used in the fair value calculation could result
in an estimated reporting unit fair value that is below the carrying value,
which may give rise to an impairment of goodwill. In addition to the annual
review, the Company also tests for impairment should an event occur or
circumstances change that may indicate a reduction in the fair value of a
reporting unit below its carrying value.

Property, plant and equipment The Company determines the carrying value
of property, plant and equipment based on the Companys accounting policies,
which incorporate estimates, assumptions and judgments relative to capitalized
costs, useful lives and salvage value of the asset. The Company reviews
property, plant and equipment for impairment when events or changes in
circumstances indicate the carrying value of such assets may be impaired. Asset
impairment evaluations are based on estimated undiscounted cash flows for the
assets being evaluated. The estimates, assumptions and judgments used in the
application of property and equipment and asset impairment accounting policies
reflect both historical experience and expectations regarding future industry
conditions and operations. Using different estimates, assumptions and
judgments, especially those involving the useful lives of the plants and
expectations regarding future industry conditions and operations, would result
in different carrying values of assets and results of operations.

Contingent liabilities The Company establishes reserves for estimated
loss contingencies when the Company believes a loss is probable and the amount
of the loss can be reasonably estimated. Revisions to contingent liabilities
are reflected in income in the period in which the different facts or
information becomes known or circumstances change that affect previous
assumptions with respect to the likelihood or amount of loss. Reserves for
contingent liabilities are based upon the Companys assumptions and estimates
regarding the probable outcome of the matter. Should the outcome differ from
the assumptions and estimates, revisions to the estimated reserves for
contingent liabilities would be required.




ITEM 7A. 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, 2003,
there was no balance outstanding under the Companys revolving credit
facilities. A change in interest rates would have no material impact on the
Companys earnings because the Company does not anticipate significant
borrowings under these credit facilities.

The Company operates outside of the United States through foreign
subsidiaries in Germany, England, Australia and Egypt that use a foreign
currency as there functional currency. Foreign subsidiaries may enter into
sales, installation or purchase contracts that are denominated in currencies
different than the subsidiaries functional currency. The Company recognizes
that its international operations are subject to the risk of foreign currency
fluctuations not present in domestic operations. As a result, the Companys
financial results could be significantly affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in the foreign
markets in which the Company distributes or installs its products. However,
currency losses from sales, installation or purchase obligation in non
functional currencies have not been material to the Companys operations as a
whole.

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The Company does financing transactions with and between its foreign
subsidiaries from time to time, and foreign operations pay dividends to their
U.S. parent. These transactions are normally in the currency of the lending or
dividend paying entity and involve foreign currency risk.

The Company has generally not entered into hedging transactions to
mitigate the effect of changes in currency exchange rates on the Companys
financial results.

The Company translates its non U.S. dollar functional currency
subsidiaries into U.S. dollars each month based on the current exchange rates.
Any change in the exchange rates has an impact on the Companys consolidated
financial statements. When the U.S. dollar strengthens vs. the foreign
currency being translated the consolidated results are negatively impacted, and
when the U.S. dollar weakens versus the foreign currency the Company
consolidated results favorably impacted.

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 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.

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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. as of December 31, 2003 and 2002, and the related
consolidated statements of income, stockholders equity and cash flows for each
of the three years in the period ended December 31, 2003. Our audits also
included the financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedules are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements and schedules 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. at December 31, 2003 and 2002, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003, 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.

As discussed in Note 2 to the consolidated financial statements, in the
year ended December 31, 2002, the Company changed its method of accounting and
reporting goodwill to conform to Statement of Financial Accounting Standards
142  Goodwill and Other Intangible Assets.

ERNST & YOUNG LLP

Houston, Texas
January 28, 2004

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GUNDLE/SLT ENVIRONMENTAL, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)

|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |         |     |        |         | 
|-------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------- | ------------------------------------ | --- | ------------ | ------- | ------- | --- | ------ | ------- | 
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     | December 31,
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |             
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     | 2003         |         | 2002   
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     |                                                                                                |                                                                                                     |            | ASSETS                               |     |              |         |         |     |        |         | 
|Current assets:                                                      |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     | Cash and cash equivalents                                                                      |                                                                                                     | $          | 47,899                               |     |              | $       | 42,264  |    
|                                                                     | Accounts receivable:                                                                           |                                                                                                     |            |                                      |     |              |         |         |    
|                                                                     |                                                                                                |                                                                                                     | Trade, net |                                      |     | 44,750       |         |         |     | 51,669 |        
|                                                                     |                                                                                                |                                                                                                     | Other      |                                      |     | 1,810        |         |         |     | 4,046  |        
|                                                                     | Contracts in progress                                                                          |                                                                                                     |            | 711                                  |     |              |         | 2,043   |    
|                                                                     | Inventory                                                                                      |                                                                                                     |            | 33,231                               |     |              |         | 27,352  |    
|                                                                     | Deferred income taxes                                                                          |                                                                                                     |            | 5,587                                |     |              |         | 9,366   |    
|                                                                     | Prepaid expenses and other                                                                     |                                                                                                     |            | 604                                  |     |              |         | 5,260   |    
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     |                                                                                                |                                                                                                     |            | Total current assets                 |     |              | 134,592 |         |     |        | 142,000 | 
|Property, plant and equipment, net                                   |                                                                                                |                                                                                                     | 33,131     |                                      |     |              | 33,011  |        
|Excess of purchase price over fair value of net assets acquired, net |                                                                                                |                                                                                                     | 23,365     |                                      |     |              | 22,529  |        
|Deferred income taxes                                                |                                                                                                |                                                                                                     | 2,127      |                                      |     |              | 545     |        
|Restricted cash                                                      |                                                                                                |                                                                                                     | 18,056     |                                      |     |              |        |        
|Other assets                                                         |                                                                                                |                                                                                                     | 2,232      |                                      |     |              | 4,225   |        
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     |                                                                                                | $                                                                                                   | 213,503    |                                      |     | $            | 202,310 |        
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |         |    
|                                                                     |                                                                                                |                                                                                                     |            | LIABILITIES AND STOCKHOLDERS EQUITY |     |              |         |         |     |        |         | 
|Current liabilities:                                                 |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     | Accounts payable and accrued liabilities                                                       |                                                                                                     | $          | 33,013                               |     |              | $       | 37,920  |    
|                                                                     | Advance billings on contracts in progress                                                      |                                                                                                     |            | 2,781                                |     |              |         | 5,173   |    
|                                                                     | Current portion of long-term debt                                                              |                                                                                                     |            | 4,914                                |     |              |         | 4,690   |    
|                                                                     | Income taxes payable                                                                           |                                                                                                     |            | 1,432                                |     |              |         | 1,952   |    
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     |                                                                                                |                                                                                                     |            | Total current liabilities            |     |              | 42,140  |         |     |        | 49,735  | 
|Deferred income taxes                                                |                                                                                                |                                                                                                     |           |                                      |     |              | 252     |        
|Long-term debt                                                       |                                                                                                |                                                                                                     | 11,808     |                                      |     |              | 16,912  |        
|Minority interest                                                    |                                                                                                |                                                                                                     | 1,209      |                                      |     |              | 1,614   |        
|Other liabilities                                                    |                                                                                                |                                                                                                     | 1,189      |                                      |     |              | 1,366   |        
|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,
18,619,668 and 18,437,156 shares issued |            |                                      | 186 |              |         |         | 184 |       
|                                                                     | Additional paid-in capital                                                                     |                                                                                                     |            | 72,756                               |     |              |         | 70,763  |    
|                                                                     | Retained earnings                                                                              |                                                                                                     |            | 119,920                              |     |              |         | 99,149  |    
|                                                                     | Accumulated other comprehensive income                                                         |                                                                                                     |            | 1,870                                |     |              |         | (487    | )  
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     |                                                                                                |                                                                                                     | 194,732    |                                      |     |              | 169,609 |        
|                                                                     | Treasury stock at cost, 7,089,261 shares and 7,066,261 shares                                  |                                                                                                     |            | (37,575                              | )   |              |         | (37,178 | )  
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     |                                                                                                |                                                                                                     |            | Total stockholders equity           |     |              | 157,157 |         |     |        | 132,431 | 
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |        
|                                                                     |                                                                                                | $                                                                                                   | 213,503    |                                      |     | $            | 202,310 |        
|                                                                     |                                                                                                |                                                                                                     |            |                                      |     |              |         |         |    

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

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GUNDLE/SLT ENVIRONMENTAL, INC.

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

|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |       |      | 
|-------------------------------------------- | ---------------------------- | --------------------------------------- | ------- | ----------------------- | ---- | ---- | ------- | ------ | ---- | - | ------- | ----- | ---- | 
|                                             |                              |                                         |         | Year Ended December 31,
|                                             |                              |                                         |         |                        
|                                             |                              |                                         |         | 2003                    |      | 2002 |         | 2001  
|                                             |                              |                                         |         |                         |      |      |         |       
|Sales and operating revenue                  |                              | $                                       | 274,618 |                         |      | $    | 266,970 |        |      | $ | 173,409 |      
|Cost of products and services                |                              |                                         | 215,459 |                         |      |      | 210,326 |        |      |   | 144,605 |      
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Gross profit                                 |                              |                                         | 59,159  |                         |      |      | 56,644  |        |      |   | 28,804  |      
|Selling, general and administrative expenses |                              |                                         | 28,951  |                         |      |      | 29,194  |        |      |   | 24,090  |      
|Amortization of goodwill                     |                              |                                         |        |                         |      |      |        |        |      |   | 1,325   |      
|Expenses related to the Serrot acquisition   |                              |                                         |        |                         |      |      | 3,217   |        |      |   |        |      
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Operating income                             |                              |                                         | 30,208  |                         |      |      | 24,233  |        |      |   | 3,389   |      
|Other expenses:                              |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|                                             | Interest expense             |                                         |         | 2,573                   |      |      |         | 2,915  |      |   |         | 1,709 |     
|                                             | Interest income              |                                         |         | (509                    | )    |      |         | (536   | )    |   |         | (461  | )   
|                                             | Foreign exchange (gain) loss |                                         |         | (212                    | )    |      |         | (1,687 | )    |   |         | 243   |     
|                                             | Other (income) expense, net  |                                         |         | (3,296                  | )    |      |         | 1,967  |      |   |         | (702  | )   
|                                             | Minority interest            |                                         |         | 133                     |      |      |         | 316    |      |   |         |      |     
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Income before income taxes                   |                              |                                         | 31,519  |                         |      |      | 21,258  |        |      |   | 2,600   |      
|Provision for income taxes                   |                              |                                         | 10,748  |                         |      |      | 8,368   |        |      |   | 1,222   |      
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Net income before extraordinary items        |                              |                                         | 20,771  |                         |      |      | 12,890  |        |      |   | 1,378   |      
|Extraordinary gain  Serrot acquisition      |                              |                                         |        |                         |      |      | 25,966  |        |      |   |        |      
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Net income                                   |                              | $                                       | 20,771  |                         |      | $    | 38,856  |        |      | $ | 1,378   |      
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Basic earnings per common share:             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|                                             |                              | Before extraordinary items, net of tax  |         | $                       | 1.81 |      |         | $      | 1.15 |   |         | $     | 0.12 | 
|                                             |                              | Extraordinary gain  Serrot acquisition |         |                         |     |      |         |        | 2.32 |   |         |       |     | 
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Basic earnings per common share              |                              | $                                       | 1.81    |                         |      | $    | 3.47    |        |      | $ | 0.12    |      
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Diluted earnings per common share:           |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|                                             |                              | Before extraordinary items, net of tax  |         | $                       | 1.72 |      |         | $      | 1.11 |   |         | $     | 0.12 | 
|                                             |                              | Extraordinary gain  Serrot acquisition |         |                         |     |      |         |        | 2.23 |   |         |       |     | 
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      
|Diluted earnings per common share            |                              | $                                       | 1.72    |                         |      | $    | 3.34    |        |      | $ | 0.12    |      
|                                             |                              |                                         |         |                         |      |      |         |        |      |   |         |      

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

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##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)

|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |        |        |       | 
|---------------------------- | ------------------------------------------------ | -------------------- | -------------------- | --- | ------------ | - | ---------- | - | -------- | - | ------------- | ----- | ------ | - | -------------- | ------ | ------ | - | ------ | ----- | ----------- | - | ----- | -- | - | - | ------- | ---- | - | - | ------- | ------ | ------ | ----- | 
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       | Accumulated |   |       |    |   |   |         |      |   |   |         |        |       
|                             |                                                  |                      |                      |     | Common Stock |   | Additional |   |          |   |               |       | Other  |   | Treasury Stock |        |        |   |       
|                             |                                                  |                      |                      |     |              |   | Paid in    |   | Retained |   | Comprehensive |       |        |   |                |        |       
|                             |                                                  |                      |                      |     | Shares       |   | Amount     |   | Capital  |   | Earnings      |       | Income |   | Shares         |        | Amount |   | Total 
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |       
|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 | 
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |       
|                             | Restricted stock grant                           |                      |                      |    |              |   |            |  |          |   |               |       |        |   |                |       |        |   |        |      |             |   |       |    |   |   |         |     |   |   |         |       |       
|                             | 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  |       
|                             | Net Income                                       |                      |                      |    |              |   |            |  |          |   |               |      |        |   |                | 38,856 |        |   |        |      |             |   |       |   |   |   |         |     |   |   |         | 38,856 |       
|                             | Cumulative translation
adjustment                |                      |                      |    |              |   |            |  |          |   |               |      |        |   |                |       |        |   |        | 1,755 |             |   |       |   |   |   |         |     |   |   |         | 1,755  |       
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |       
|                             |                                                  | Comprehensive Income |                      |     |             |   |            |   |         |   |               |       |       |   |                |        |       |   |        |       |            |   |       |    |  |   |         |      |  |   |         |        | 40,611 |      
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |       
|                             | Exercise of stock options                        |                      |                      | 317 |              |   |            | 1 |          |   |               | 1,362 |        |   |                |       |        |   |        |      |             |   |       |   |   |   |         |     |   |   |         | 1,363  |       
|                             | Purchases under the Employee
Stock Purchase Plan |                      |                      | 10  |              |   |            |  |          |   |               | 23    |        |   |                |       |        |   |        |      |             |   |       |   |   |   |         |     |   |   |         | 23     |       
|                             | Treasury stock purchases                         |                      |                      |    |              |   |            |  |          |   |               |      |        |   |                |       |        |   |        |      |             |   |       |   |   |   |         |     |   |   |         |       |       
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |       
|Balance at December 31, 2002 |                                                  |                      | 18,437               |     |              |   | 184        |   |          |   | 70,763        |       |        |   | 99,149         |        |        |   | (487   | )     |             |   | 7,066 |    |   |   | (37,178 | )    |   |   | 132,431 |       
|                             | Net Income                                       |                      |                      |    |              |   |            |  |          |   |               |      |        |   |                | 20,771 |        |   |        |      |             |   |       |   |   |   |         |     |   |   |         | 20,771 |       
|                             | Cumulative translation
adjustment                |                      |                      |    |              |   |            |  |          |   |               |      |        |   |                |       |        |   |        | 2,357 |             |   |       |   |   |   |         |     |   |   |         | 2,357  |       
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |       
|                             |                                                  | Comprehensive Income |                      |     |             |   |            |   |         |   |               |       |       |   |                |        |       |   |        |       |            |   |       |    |  |   |         |      |  |   |         |        | 23,128 |      
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |       
|                             | Exercise and extension of stock
options          |                      |                      | 178 |              |   |            | 2 |          |   |               | 1,970 |        |   |                |       |        |   |        |      |             |   |       |   |   |   |         |     |   |   |         | 1,972  |       
|                             | Purchases under the Employee
Stock Purchase Plan |                      |                      | 4   |              |   |            |  |          |   |               | 23    |        |   |                |       |        |   |        |      |             |   |       |   |   |   |         |     |   |   |         | 23     |       
|                             | Treasury stock purchases                         |                      |                      |    |              |   |            |  |          |   |               |      |        |   |                |       |        |   |        |      |             |   |       | 23 |   |   |         | (397 | ) |   |         | (397   | )     
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |       
|Balance at December 31, 2003 |                                                  |                      | 18,619               |     |              | $ | 186        |   |          | $ | 72,756        |       |        | $ | 119,920        |        |        | $ | 1,870  |       |             |   | 7,089 |    |   | $ | (37,575 | )    |   | $ | 157,157 |       
|                             |                                                  |                      |                      |     |              |   |            |   |          |   |               |       |        |   |                |        |        |   |        |       |             |   |       |    |   |   |         |      |   |   |         |       

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

24



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##### Table of Contents



GUNDLE/SLT ENVIRONMENTAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |        |       |        |        |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------------------- | ------ | ----------------------- | ------ | ------- | ------- | ------ | ------ | ------ | ----- | ------ | ------ | -
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        | Year Ended December 31,
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                        
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        | 2003                    |        | 2002    |         | 2001  
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |       
|Cash flows from operating activities:          |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|                                               | Net income                                                                                       |                                                                                           | $                                                                           | 20,771                                    |        |                         | $      | 38,856  |         |        | $      | 1,378  |      
|                                               | Adjustments to reconcile net income to cash provided
by operating activities:                    |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |        |      
|                                               |                                                                                                  | Depreciation                                                                              |                                                                             |                                           | 8,503  |                         |        |         | 7,916   |        |        |        | 8,164 |       
|                                               |                                                                                                  | Amortization of goodwill                                                                  |                                                                             |                                           |       |                         |        |         |        |        |        |        | 1,325 |       
|                                               |                                                                                                  | Amortization of non-compete agreement                                                     |                                                                             |                                           | 106    |                         |        |         |        |        |        |        |      |       
|                                               |                                                                                                  | Amortization of debt issuance costs                                                       |                                                                             |                                           | 679    |                         |        |         | 695     |        |        |        | 20    |       
|                                               |                                                                                                  | Minority interest                                                                         |                                                                             |                                           | 133    |                         |        |         | 316     |        |        |        |      |       
|                                               |                                                                                                  | Deferred income taxes                                                                     |                                                                             |                                           | 1757   |                         |        |         | 5,955   |        |        |        | 974   |       
|                                               |                                                                                                  | (Gain) on sale of assets                                                                  |                                                                             |                                           | (3,431 | )                       |        |         | (850    | )      |        |        | (82   | )     
|                                               |                                                                                                  | (Gain) on sale of joint venture interest                                                  |                                                                             |                                           |       |                         |        |         | (51     | )      |        |        |      |       
|                                               |                                                                                                  | (Gain) on purchase of Serrot                                                              |                                                                             |                                           |       |                         |        |         | (25,966 | )      |        |        |      |       
|                                               |                                                                                                  | (Gain) on hedge                                                                           |                                                                             |                                           |       |                         |        |         | (290    | )      |        |        |      |       
|                                               |                                                                                                  | Equity in affiliates and other                                                            |                                                                             |                                           | (934   | )                       |        |         | 608     |        |        |        | (229  | )     
|                                               |                                                                                                  | Increase (decrease) in cash due to changes in assets and
Liabilities, net of acquisition: |                                                                             |                                           |        |                         |        |         |         |        |        |        |       |       
|                                               |                                                                                                  |                                                                                           | Accounts receivable, net                                                    |                                           |        | 14,148                  |        |         |         | 16,335 |        |        |       | 4,695  |       
|                                               |                                                                                                  |                                                                                           | Costs and estimated earnings in excess of billings on
contracts in progress |                                           |        | 1,476                   |        |         |         | 1,450  |        |        |       | 472    |       
|                                               |                                                                                                  |                                                                                           | Inventory                                                                   |                                           |        | (2,847                  | )      |         |         | (2,957 | )      |        |       | 138    |       
|                                               |                                                                                                  |                                                                                           | Prepaid expenses and other, net                                             |                                           |        | 1,140                   |        |         |         | 189    |        |        |       | (851   | )     
|                                               |                                                                                                  |                                                                                           | Accounts payable and accrued liabilities                                    |                                           |        | (3,915                  | )      |         |         | (8,863 | )      |        |       | 1,518  |       
|                                               |                                                                                                  |                                                                                           | Advance billings on contracts in progress                                   |                                           |        | (2,592                  | )      |         |         | 3,199  |        |        |       | (573   | )     
|                                               |                                                                                                  |                                                                                           | Income taxes payable                                                        |                                           |        | (93                     | )      |         |         | 84     |        |        |       | (1,161 | )     
|                                               |                                                                                                  |                                                                                           | Cash restricted for supersedeas bond                                        |                                           |        | (18,056                 | )      |         |         |       |        |        |       |       |       
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |        |      
|                                               |                                                                                                  |                                                                                           |                                                                             | Net cash provided by operating activities |        |                         | 16,845 |         |         |        | 36,626 |        |       |        | 15,788 |  
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|Cash flows from investing activities:          |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|                                               | Additions to property, plant and equipment                                                       |                                                                                           |                                                                             | (6,824                                    | )      |                         |        | (7,315  | )       |        |        | (9,558 | )    
|                                               | Proceeds from the sale of assets                                                                 |                                                                                           |                                                                             | 4,006                                     |        |                         |        | 1,299   |         |        |        | 497    |      
|                                               | Acquisition of business, net of cash acquired                                                    |                                                                                           |                                                                             | (3,792                                    | )      |                         |        | 775     |         |        |        |       |      
|                                               | Sale of joint venture interest, net of cash sold                                                 |                                                                                           |                                                                             |                                          |        |                         |        | (957    | )       |        |        |       |      
|                                               | Other                                                                                            |                                                                                           |                                                                             |                                          |        |                         |        | 150     |         |        |        |       |      
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |        |      
|                                               |                                                                                                  |                                                                                           |                                                                             | Net cash used for investing activities    |        |                         | (6,610 | )       |         |        | (6,048 | )      |       |        | (9,061 | )
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|Cash flows from financing activities:          |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|                                               | Revolver                                                                                         |                                                                                           |                                                                             |                                          |        |                         |        | (5,000  | )       |        |        | 5,000  |      
|                                               | Payment of financing fees                                                                        |                                                                                           |                                                                             |                                          |        |                         |        | (2,037  | )       |        |        |       |      
|                                               | Repayments of long-term debt                                                                     |                                                                                           |                                                                             | (4,941                                    | )      |                         |        | (24,363 | )       |        |        | (5,674 | )    
|                                               | Proceeds of new debt                                                                             |                                                                                           |                                                                             |                                          |        |                         |        | 25,128  |         |        |        |       |      
|                                               | Proceeds from the exercise of stock options and purchases
under the employee stock purchase plan |                                                                                           |                                                                             | 645                                       |        |                         |        | 1,429   |         |        |        | 17     |      
|                                               | Repurchase of common stock                                                                       |                                                                                           |                                                                             | (397                                      | )      |                         |        |        |         |        |        | (74    | )    
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|                                               |                                                                                                  |                                                                                           |                                                                             | Net cash used by financing activities     |        |                         | (4,693 | )       |         |        | (4,843 | )      |       |        | (731   | )
|Effect of exchange rate changes on cash        |                                                                                                  |                                                                                           | 93                                                                          |                                           |        |                         | 366    |         |         |        | (1,103 | )     
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|Net increase in cash and cash equivalents      |                                                                                                  |                                                                                           | 5,635                                                                       |                                           |        |                         | 26,101 |         |         |        | 4,893  |       
|Cash and cash equivalents at beginning of year |                                                                                                  |                                                                                           | 42,264                                                                      |                                           |        |                         | 16,163 |         |         |        | 11,270 |       
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|Cash and cash equivalents at end of year       |                                                                                                  | $                                                                                         | 47,899                                                                      |                                           |        |                         | 42,264 |         |         | $      | 16,163 |       
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |        |      
|Supplemental Cash Flow Disclosure:             |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |       
|Cash paid for interest                         |                                                                                                  | $                                                                                         | 1,901                                                                       |                                           |        | $                       | 2,306  |         |         | $      | 2,227  |       
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |        |      
|Cash paid for income taxes                     |                                                                                                  | $                                                                                         | 5,369                                                                       |                                           |        | $                       | 3,433  |         |         | $      | 1,404  |       
|                                               |                                                                                                  |                                                                                           |                                                                             |                                           |        |                         |        |         |         |        |        |        |      

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

25



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##### Table of Contents



GUNDLE/SLT ENVIRONMENTAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Nature of business 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 net 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 2003, 2002 and 2001 was $4,345,000, $4,945,000, and $2,569,000,
respectively. Excess of purchase price over fair value of net assets acquired  Prior to the adoption of Financial Accounting Standards Board SFAS No.
142, Goodwill and Other Intangible Assets, 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 was amortized
on a straight-line basis over periods not exceeding 40 years. During the
second quarter of 2002, the Company completed its implementation of SFAS 142
and performed the initial test of impairment of goodwill on its reporting unit.
The test was applied utilizing the estimated fair value of the reporting unit
as of January 1, 2002 and was determined based on estimated discounted cash
flow. There was no goodwill impairment in the Companys reporting unit upon the
adoption of SFAS 142. As of October 1, 2003, the Company performed its annual impairment test as
required by SFAS 142. The annual impairment test resulted in no goodwill
impairment in the Companys reporting unit. Net income for the three years in the period ended December 31, 2003,
adjusted for goodwill amortization, was as follows: 26




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##### Table of Contents



Year Ended December 31,2003
    
    2002
    
    2001Reported net income before extraordinary items
    
    $
    20,771
    
    
    $
    12,890
    
    
    $
    1,378Goodwill amortization, net of tax
    
    
    
    
    
    
    
    
    
    
    800Adjusted net income before extraordinary items
    
    $
    20,771
    
    
    
    12,890
    
    
    
    2,178Extraordinary items, net of tax
    
    
    
    
    
    
    25,966
    
    
    
    Adjusted net income
    
    $
    20,771
    
    
    $
    38,856
    
    
    $
    2,178Basic earnings per common share:Reported basic earnings per common share before extraordinary items
    
    $
    1.81
    
    
    $
    1.15

    
    
    $
    0.12Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.07Adjusted basic earnings per common share before extraordinary items
    
    
    1.81
    
    
    
    1.15
    
    
    
    0.19Extraordinary items
    
    
    
    
    
    
    2.32
    
    
    
    Adjusted basic earnings per common share
    
    $
    1.81
    
    
    $
    3.47
    
    
    $
    0.19Diluted earnings per common share:Reported diluted earnings per common share before extraordinary items
    
    $
    1.72
    
    
    $
    1.11
    
    
    $
    0.12Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    0.07Adjusted diluted earnings per common share before extraordinary items
    
    
    1.72
    
    
    
    1.11
    
    
    
    0.19Extraordinary items
    
    
    
    
    
    
    2.23
    
    
    
    Adjusted diluted earnings per common share
    
    $
    1.72
    
    
    $
    3.34
    
    
    $
    0.19
 Revenue and cost recognition  For products sold directly to customers, the Company recognizes revenues
when products are shipped, title and risk of loss passes to the buyer, the
Company has no further obligation to the buyer, and collectibility is
reasonably assured. For installation contracts, revenues are recognized on the
percentage of completion method in accordance with the American Institute of
Certified Public Accountants Statement of Position (SOP) 81-1 Accounting for
Performance of Construction-Type and Certain Production-Type Contracts. The
Company recognizes revenue on signed contracts and approved change orders. The
Company does not recognize revenues on claims until claims are approved in
writing and collectibility of such claims are assured. Percentage of
completion is measured on 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,
repairs, and shipping and handling. 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 projected costs and income and are
recognized in the period in which the revisions are determined. The Company establishes reserves for doubtful accounts on a case-by-case
basis when it is believed that the required payment of specific amounts owed to
the Company is unlikely to occur. The Company derives a majority of its revenue
from sales and services to domestic and international municipal and private
companies engaged in waste management, mining, water and wastewater treatment,
aquaculture and other industrial activities. The Company has receivables from
customers in various countries. The Company generally does not require
collateral or other security to support customer receivables. If the customers
financial condition were to deteriorate or their access to freely convertible
currency was restricted, resulting in impairment of their ability to make the
required payments, additional allowances may be required. Selling, general and administrative costs are charged to expense as
incurred. Deferred costs  Debt issuance costs are capitalized and amortized to interest expense
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 8). 27




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##### Table of Contents



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s international operations expose the Company to foreign
exchange risk. This risk is primarily associated with employee compensation
costs denominated in currencies other than the U.S. dollar and with purchases
from foreign suppliers. The Company uses a variety of techniques to minimize
exposure to foreign exchange risk, including forward contracts and cross
currency swap derivative instruments. As a matter of policy, the Company does
not speculate in financial markets, and therefore does not hold these contracts
for trading purposes. Foreign exchange derivative instruments, specifically foreign exchange
forward contracts, may be used to minimize foreign exchange risk in instances
where the primary strategy is not attainable. A foreign exchange forward
contract obligates the Company to exchange predetermined amounts of specified
foreign currencies at specified exchange rates on specified dates or to make an
equivalent U.S. dollar payment equal to the value of such exchange. Gains and losses on foreign exchange derivative instruments that qualify
as accounting hedges are deferred as other comprehensive income and recognized
when the underlying foreign exchange exposure is realized. Gains and losses on
foreign exchange derivative instruments that do not qualify as hedges for
accounting purposes are recognized currently based on the change in market
value of the derivative instruments. At December 31, 2003 and 2002, the Company
did not have any foreign exchange derivative instruments not qualifying as
accounting hedges. Use of estimates  The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 and
polypropylene 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. 28




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##### Table of Contents



Reclassifications  The accompanying consolidated financial statements for 2001 and 2002
contain certain reclassifications to conform to the presentation used in 2003. Accounting Changes  In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections.
This statement eliminates the requirement under SFAS 4 to aggregate and
classify all gains and losses from extinguishment of debt as an extraordinary
item, net of related income tax effect. This statement also amends SFAS 13 to
require certain lease modifications with economic effects similar to
sale-leaseback transactions to be accounted for in the same manner as
sale-leaseback transactions. In addition, SFAS 145 requires reclassification
of gains and losses in all prior periods presented in comparative financial
statements related to debt extinguishment that do not meet the criteria for
extraordinary items in APB 30. The statement is effective for fiscal years
beginning after May 15, 2002, with early adoption encouraged. The Company
adopted SFAS 145 effective January 1, 2003. The adoption of the statement
resulted in the reclassification of the 2002 extraordinary loss on
extinguishment of debt of $1,278,000 from extraordinary loss to loss on
extinguishment of debt. In July 2002, the FASB issued SFAS 146, Obligations Associated with
Disposal Activities,which is effective for disposal activities initiated after
December 31, 2002, with early application encouraged. SFAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs in a Restructuring).Under this
statement, a liability for a cost associated with an exit or disposal activity
would be recognized and measured at its fair value when it is incurred rather
than at the date of commitment to an exit plan. Also, severance pay would be
recognized over time rather than up front provided the benefit arrangement
requires employees to render service beyond a minimum retention period, which
would be based on the legal notification period, or if there is no such
requirement, 60 days, thereby allowing a liability to be recorded over the
employees future service period. The Company adopted SFAS 146 effective with
disposal activities initiated after December 31, 2002. The adoption had no
effect on the Companys results of operation or financial position. In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The Interpretation requires certain
guarantees to be recorded at fair value and also requires a guarantor to make
certain disclosures regarding guarantees. The Interpretations initial
recognition and initial measurement provisions are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective the Companys first quarter of 2003. The adoption
had no effect on the Companys results of operation or financial position. In January 2003, FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46) which requires consolidation of variable
interest entities, as defined. FIN 46, as revised, is applicable to financial
statements of companies that have interests in special purpose entities, as
defined, during 2003. FIN 46 is applicable to the financial statements of
companies that have interest in all other types of entities, in the first
quarter of 2004. However, disclosures are required currently if the Company
expects to consolidate any variable interest entities. The Company does not
currently believe that any material entities will be consolidated with the
Company as a result of FIN 46. 29




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##### Table of Contents



In May 2003, the FASB issued Statement No. 150 (FAS 150), Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. FAS 150 establishes standards for how an issuer classifies and
measures in its statement of financial position certain financial instruments
with characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption had no effect on the Companys results of operation or financial
position. Stock-Based Compensation- In accordance with the provisions of SFAS 123, Accounting for Stock-based
Compensation,the Company has elected to follow the Accounting Principles Board
Opinion (APB) 25, Accounting for Stock Issued to Employees,and related
interpretations in accounting for its employee stock-based compensation plans.
Under APB 25, if the exercise price of employee stock options equals or exceeds
the fair value of the underlying stock on the date of grant, no compensation
expense is recognized. Had compensation expense been determined consistent with SFAS 123, the
Companys net income and income per share would have been increased to the
following pro forma amounts (in millions except per share amounts): Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001Net income applicable to common stockholdersAs reported
    
    $
    20,771
    
    
    $
    38,856
    
    
    $
    1,378Total stock-based employee compensation expense
under fair value based method for all awards, net
of tax
    
    
    759
    
    
    
    1,021
    
    
    
    321Pro forma net loss applicable to common stockholders
    
    $
    20,012
    
    
    $
    37,835
    
    
    $
    1,057Basic earnings per shareAs reported
    
    $
    1.81
    
    
    $
    3.47
    
    
    $
    0.12Pro forma
    
    $
    1.74
    
    
    $
    3.38
    
    
    $
    0.10Diluted earnings per shareAs reported
    
    $
    1.72
    
    
    $
    3.34
    
    
    $
    0.12Pro forma
    
    $
    1.66
    
    
    $
    3.25
    
    
    $
    0.10
 The fair value of each option grant under the Company plans for the three
years ended December 31, was estimated using the Black-Scholes options pricing
model using the following weighted-average assumptions: Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected price volatility
    
    
    40.0
    %
    
    
    70.0
    %
    
    
    45.0
    %Risk-free interest rate
    
    
    3.1
    %
    
    
    3.5
    %
    
    
    4.8
    %Expected life of options (in years)
    
    
    5
    
    
    
    6
    
    
    
    6Weighted-average fair value of options granted
    
    $
    5.73
    
    
    $
    5.86
    
    
    $
    1.35
 30




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##### Table of Contents



(3) Proposed Merger On December 31, 2003, the Company entered into a Plan and Agreement of
Merger with GEO Holdings Corp. and its wholly-owned subsidiary, GEO Sub Corp.
GEO Holdings Corp. and GEO Sub Corp. are both Delaware corporations affiliated with Code, Hennessy & Simmons IV LP (CHS IV) and were organized to effect the merger. Except as contemplated by the terms of the merger agreement and the related
transactions, CHS IV does not have any relationship with the Company, its
affiliates or its Board of Directors. Pursuant to the merger
agreement, the Company agreed to merge with GEO Sub and become a wholly-owned
subsidiary of GEO Holdings. Immediately after the consummation of the merger
and related financing transactions, GEO Holdings will own 100% of the Companys
outstanding common stock. Immediately following the consummation of the merger
and related financing transactions, it is expected that the equity owners of
GEO Holdings will be CHS IV, certain of the Companys officers who will hold options to purchase shares of GEO Holdings
capital stock and certain co-investors. Any co-investors will not have been affiliated with
the Company, its affiliates or its Board of Directors prior to the merger, and
may own, collectively, up to 2% of GEO Holdings common stock. The merger is subject to various closing conditions. If all
conditions are satisfied, a closing later this year is anticipated, but can not
be assured. (4) Trade receivables  Trade receivables consisted of the following at December 31: 2003
    
    2002(in thousands)Direct sales
    
    $
    32,486
    
    
    $
    35,190Contracts:Completed
    
    
    11,431
    
    
    
    13,852In progress
    
    
    4,801
    
    
    
    8,990Retainage
    
    
    488
    
    
    
    1,38149,206
    
    
    
    59,413Allowance for doubtful accounts
    
    
    (4,456
    )
    
    
    (7,744
    )$
    44,750
    
    
    $
    51,669
 (5) Accounting for installation contracts  The following summarizes installation contracts in progress at December
31: 2003
    
    2002(in thousands)Costs incurred on contracts in progress
    
    $
    23,864
    
    
    $
    55,998Estimated earnings, net of losses
    
    
    3,564
    
    
    
    9,00427,428
    
    
    
    65,002Less  billings to date
    
    
    29,498
    
    
    
    68,132$
    (2,070
    )
    
    $
    (3,130
    )Included in the accompanying balance sheet under the following captions:Contracts in progress
    
    $
    711
    
    
    $
    2,043Advance billings
    
    
    (2,781
    )
    
    
    (5,173
    )$
    (2,070
    )
    
    $
    (3,130
    )
 (6) Inventory  Inventory consisted of the following at December 31: 2003
    
    2002(in thousands)Raw materials and supplies
    
    $
    6,197
    
    
    $
    7,588Finished goods
    
    
    27,034
    
    
    
    19,764$
    33,231
    
    
    $
    27,352
 31




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##### Table of Contents



(7) Property, plant and equipment  Property, plant and equipment consisted of the following at December 31: Useful
    
    2003
    
    2002livesYears
    
    (in thousands)Land
    
    
    
    
    
    $
    3,939
    
    
    $
    3,286Buildings and improvements
    
    
    10-15
    
    
    
    22,846
    
    
    
    20,996Machinery and equipment
    
    
    3-12
    
    
    
    81,062
    
    
    
    79,594Furniture and fixtures
    
    
    3-5
    
    
    
    1,282
    
    
    
    1,286109,129
    
    
    
    105,162Less  accumulated depreciation
    
    
    
    
    
    
    (75,998
    )
    
    
    (72,151
    )$
    33,131
    
    
    $
    33,011
 (8) Accounts payable and accrued liabilities  Accounts payable and accrued liabilities consisted of the following at
December 31: 2003
    
    2002(in thousands)Trade accounts payable
    
    $
    15,981
    
    
    $
    15,188Self-insurance reserves
    
    
    4,033
    
    
    
    3,937Compensation and benefits
    
    
    5,636
    
    
    
    5,975Taxes, other than income
    
    
    1,458
    
    
    
    2,042Accrued merger cost
    
    
    498
    
    
    
    1,997Accrual for cost of closing Canadian plant
    
    
    
    
    
    
    700Other accrued liabilities
    
    
    5,407
    
    
    
    8,081$
    33,013
    
    
    $
    37,920
 (9) Long-term debt  Long-term debt consisted of the following at December 31: 2003
    
    2002(in thousands)9.22% Notes due February 5, 2005, with monthly payment of principal and interest of approximately
$520,000 and a balloon payment
    
    $
    16,722
    
    
    $
    21,2048% Promissory Note due December 31, 2004, with required annual
principal and interest payments of $206,000 on December 31
    
    
    
    
    
    
    3678% mortgage note due March 2003, with monthly payments of principal
and interest of $16,513 (Canadian dollars) secured by land and buildings in Canada
    
    
    
    
    
    
    3116,722
    
    
    
    21,602Less  current maturities
    
    
    (4,914
    )
    
    
    (4,690
    )$
    11,808
    
    
    $
    16,912
 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 levels
of consolidated net worth. On January 20, 2004, the Company paid off its 9.22%
term notes due February 5, 2005. Payment of $17,498,000 included accrued
interest of $85,400 and a prepayment fee of $690,600. Deferred financing costs
of $735,000 will be expensed in 2004 as a result of the debt pay-off. 32




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##### Table of Contents



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. This $55,000,000 credit
facility replaced the Companys $25,000,000 multi-currency revolving credit
facility. As of December 31, 2003, the Company had $18,853,000 available under
this credit agreement. To finance the Serrot acquisition in February 2002, 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 pre-tax make-whole cost to extinguish the debt. The Company
recognized a loss on the extinguishment of debt of approximately $1,278,000
reported as Other Expense. The Company entered into the 3-year term facility
and the credit agreement described above to complete the acquisition and to
refinance the 7.34% notes. At December 31, 2003, the Company had five local foreign credit
facilities. It had credit facilities with two German banks in the amount of
EUR 5,100,000. These revolving credit facilities are secured by a corporate
guarantee 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, 2003, the
Company had EUR 3,064,000 available under these credit facilities with EUR
2,036,000 of bank guarantees outstanding. The Company had two credit
facilities with an Egyptian bank in the amount of EGP (Egyptian Pounds)
15,000,000. These credit facilities bear interest at various market rates and
are primarily for cash management purposes. At December 31, 2003, the Company
had EGP 15,000,000 available under these credit facilities. The Company had a
credit facility with a Canadian bank in the amount of Canadian dollar 500,000
that bears interest at market rate, secured by working capital. At December
31, 2003, the Company had the full amount available under this line. Summarized below are the maturities of long-term debt of the Company
during the next five years and thereafter (in thousands) and represents the
maturities on the note agreement, which was prepaid in full on January 20,
2004. Year EndingDecember 31,2004
    
    $
    4,9142005
    
    
    11,8082006
    
    
    
 33




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##### Table of Contents



(10) Business combination  On February 4, 2002, the Company completed the purchase of all the
outstanding stock of Serrot International, Inc. (Serrot) from Waste Management
Holdings, Inc. (WMI) at an adjusted purchase cost of $11,966,000, which
included $338,000 of debt assumed. Serrot was also an international
manufacturer and installer of geomembrane liner systems. The purchase excluded
Serrots roofing materials business, all of its U.S. manufacturing plants and
certain other assets. The total cost of the acquisition was $16,398,000, which
includes the purchase price and after tax costs associated with severance,
legal and closing a Serrot plant. The Company recorded the transaction using
the purchase method of accounting resulting in the recognition of $25,966,000
of negative goodwill representing the excess fair value of the assets acquired
over the purchase cost after its allocation to Serrots long-lived assets. The
gain is not tax affected due to the gain being a permanent difference. The
results of operations of Serrot are included in the Companys consolidated
results of operations from the date of acquisition. The negative goodwill was
recognized as an extraordinary gain for the year ended December 31, 2002. In conjunction with the purchase, the Company established a pre-tax
liability of $7,700,000 for estimated severance, legal fees, and other costs
associated with the involuntary termination of 150 Serrot employees and the
closing of a Serrot plant. Through December 31, 2003, approximately $7,202,000
of these costs have been paid. The costs summarized as follows (in thousands): Liability recorded
    
    Paid in
    
    Payable inwith purchase
    
    2002 & 2003
    
    2004Involuntary
termination costs
    
    $
    5,534
    
    
    $
    5,400
    
    
    $
    134Other costs
    
    $
    2,166
    
    
    $
    1,802
    
    
    $
    364
 The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the acquisition date of February 4, 2002
(in thousands): Cash
    
    $
    12,406Accounts receivable, net
    
    
    31,940Inventory
    
    
    6,013Deferred tax asset
    
    
    18,366Other current assets
    
    
    1,963Real estate held for sale
    
    
    1,281Accounts payable and
accrued liabilities
    
    
    (20,821
    )Severance and merger costs accrual
    
    
    (7,700
    )Long term debt
    
    
    (337
    )Deferred tax liability
    
    
    (3,710
    )Minority interest
    
    
    (1,804
    )Negative
goodwill (recorded as extraordinary gain)
    
    
    (25,966
    )Cash paid
for acquisition
    
    $
    11,631
 Unaudited pro forma combined operating results of the Company and Serrot
assuming the merger was completed as of January 1, 2002, are summarized as
follows: Year ended December 31, 2002Sales & Operating Revenue
    
    $
    275,653Net Income Before Extraordinary Items
    
    $
    10,960Basic Earnings Per Share Before Extraordinary Items
    
    $
    .98Diluted Earnings Per Share Before Extraordinary
Items
    
    $
    .94
 The pro forma information includes adjustments for changes to interest
costs related to new financing obtained in conjunction with the acquisition and
decreased depreciation expense of acquired property and equipment as a result
of the allocation of negative goodwill to long-lived assets. The pro forma
information excludes an 34




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##### Table of Contents



extraordinary gain of $25,966,000 resulting from excess negative goodwill. The pro forma
information is not necessarily indicative of the results of operations had the
transaction been effected on the assumed date or the results of operations for
any future periods. (11) 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 $16,722,000 and $21,602,000 of
fixed-rate debt instruments at December 31, 2003 and 2002 with fair values of
approximately $17,825,335 and $23,408,000, 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. The Company retired
this debt in full on January 20, 2004, with a payment of $17,498,000. (12) Per share information  The following table sets forth the weighted average shares for the
computation of basic and diluted earnings per share (in thousands): Year Ended December 31,2003
    
    2002
    
    2001Weighted average common shares outstanding
    
    
    11,497
    
    
    
    11,197
    
    
    
    11,045Dilutive securities  stock options
    
    
    601
    
    
    
    451
    
    
    
    49Weighted average common shares outstanding assuming full dilution
    
    
    12,098
    
    
    
    11,648
    
    
    
    11,094
 Stock options whose exercise price was greater than the average market
price of the Companys stock during the year are not included in the
calculation of weighted average common shares outstanding assuming full
dilution because the effect of including those shares would be anti-dilutive. (13) 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, 2003, stockholders equity included
1,404,357 shares repurchased under the plan at an aggregate cost of $4,751,000. 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, 2003 and 2002, 67,193 and 62,931 shares, respectively, had been
issued under this plan. During January 2004, the Company issued an additional
2,031 shares under this plan. After this issuance of shares, the employee
stock purchase plan was terminated. 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. 35




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##### Table of Contents



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
awards. 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. The stock option activity under each plan is set forth below: 1986 Employee Plan
    
    1988 Director Plan
    
    1995 Employee Plan
    
    1996 Director PlanWeighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedShares
    
    Average
    

    Shares
    
    Average
    
    Shares
    
    Average
    
    Shares
    
    AverageUnder
    
    Option Price
    
    Under
    
    Option Price
    
    Under
    
    Option Price
    
    Under
    
    Option PriceOption
    
    Per Share
    
    Option
    
    Per Share
    
    Option
    
    Per Share
    
    Option

    
    Per ShareOutstanding at
December 31, 2000
    
    
    78,000
    
    
    $
    7.17
    
    
    
    15,000
    
    
    $
    6.75
    
    
    
    1,225,700
    
    
    $
    5.12
    
    
    
    48,000
    
    
    $
    4.73Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    398,000
    
    
    $
    2.63
    
    
    
    10,000
    
    
    $
    2.65Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,500
    )
    
    $
    3.40
    
    
    
    (8,000
    )
    
    $
    6.88Outstanding at
December 31, 2001
    
    
    78,000
    
    
    $
    7.17
    
    
    
    15,000
    
    
    $
    6.75
    
    
    
    1,574,200
    
    
    $
    3.43
    
    
    
    50,000
    
    
    $
    3.97Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    275,500
    
    
    $
    8.85
    
    
    
    10,000
    
    
    $
    8.95Exercised
    
    
    (20,000
    )
    
    $
    5.73
    
    
    
    
    
    
    
    

    
    
    
    (291,200
    )
    
    $
    4.29
    
    
    
    (6,000
    )
    
    $
    4.87Cancelled
    
    
    (1,000
    )
    
    $
    7.62
    
    
    
    
    
    
    
    
    
    
    
    (20,000
    )
    
    $
    2.39
    
    
    
    (2,000
    )
    
    $
    4.87Outstanding at
December 31, 2002
    
    
    57,000
    
    
    $
    7.67
    
    
    
    15,000
    
    
    $
    6.75
    
    
    
    1,538,500
    
    
    $
    4.26
    
    
    
    52,000
    
    
    $
    4.79Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    $
    13.00Exercised
    
    
    (2,000
    )
    
    $
    7.62
    
    
    
    (5,000
    )
    
    $
    7.00
    
    
    
    (155,250
    )
    
    $
    3.15
    
    
    
    (16,000
    )
    
    $
    5.08Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,000
    )
    
    $
    3.20
    
    
    
    
    
    
    
    Outstanding at
December 31, 2003
    
    
    55,000
    
    
    $
    7.67
    
    
    
    10,000
    
    
    $
    6.63
    
    
    
    1,372,250
    
    
    $
    4.39
    
    
    
    46,000
    
    
    $
    6.47Options exercisable
    
    
    55,000
    
    
    $
    7.67
    
    
    
    10,000
    
    
    $
    6.63
    
    
    
    1,235,000
    
    
    $
    3.90
    
    
    
    36,000
    
    
    $
    4.66Options available
for future grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292,654
    
    
    
    
    
    
    
    32,000
 All outstanding options were priced between $2.32 and $11.13 per share at
December 31, 2003. The weighted average of the remaining contractual life for
the outstanding options at December 31, 2003, was 3.76 years. The weighted
average price of options outstanding during 2003, 2002 and 2001 was $4.59,
$5.47, and $3.65, respectively. 36




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##### Table of Contents



The Company applies APB Opinion 25 and related Interpretations in
accounting for its stock-based compensation plans. In 2003, compensation
expense of $386,000 has been recognized under the 1995 Employee Plan for the
extension of certain options expiration dates. In 2002 and 2001, no
compensation expense has been recognized for its 1996 Director Plan and
unrestricted stock options from the 1995 Employee Plan. The estimated fair value of stock options issued in 2003, 2002 and 2001
was $57,261, $1,674,000, and $552,000 respectively. Paid-in capital was increased $940,000 for tax benefits of exercised stock
options in 2003. (14) Income taxes  Domestic and foreign income/(loss) before income taxes and extraordinary
items were as follows: Year Ended December 31,2003
    
    2002
    
    2001(in thousands)Domestic
    
    $
    16,698
    
    
    $
    8,615
    
    
    $
    (251
    )Foreign
    
    
    14,821
    
    
    
    12,643
    
    
    
    2,851Total
    
    $
    31,519
    
    
    $
    21,258
    
    
    $
    2,600
 The provision (benefit) for income taxes before extraordinary items
consisted of the following: Year Ended December 31,2003
    
    2002
    
    2001(in thousands)Current expense (benefit):U.S.Federal
    
    $
    5,166
    
    
    $
    (3,183
    )
    
    $
    (963
    )State
    
    
    912
    
    
    
    (362
    )
    
    
    (21
    )Total U.S
    
    
    6,078
    
    
    
    (3,545
    )
    
    
    (984
    )Foreign
    
    
    2,712
    
    
    
    4,104
    
    
    
    1,457Total current
    
    
    8,790
    
    
    
    559
    
    
    
    473Deferred expense (benefit):U.S.Federal
    
    
    666
    
    
    
    7,375
    
    
    
    (277
    )State
    
    
    371
    
    
    
    632
    
    
    
    (24
    )Total U.S
    
    
    1,037
    
    
    
    8,007
    
    
    
    (301
    )Foreign
    
    
    921
    
    
    
    (198
    )
    
    
    1,050Total deferred
    
    
    1,958
    
    
    
    7,809
    
    
    
    749Total provision for income taxes before extraordinary items
    
    $
    10,748
    
    
    $
    8,368
    
    
    $
    1,222
 A reconciliation between the provision for income taxes before
extraordinary items and income taxes computed by applying the statutory rate is
as follows: Year Ended December 31,2003
    
    2002
    
    2001(in thousands)Tax provision at statutory rate
    
    $
    11,078
    
    
    $
    7,440
    
    
    $
    884Add (deduct):Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    286Meals and entertainment disallowance
    
    
    532
    
    
    
    534
    
    
    
    269Foreign exchange loss on U.S. dollar amounts
in foreign operations that have U.S. dollar
functional currency
    
    
    (868
    )
    
    
    
    
    
    
    Taxable differential for foreign subsidiaries
    
    
    (680
    )
    
    
    (39
    )
    
    
    240State income taxes
    
    
    835
    
    
    
    222
    
    
    
    (30
    )Foreign earnings
    
    
    
    
    
    
    150
    
    
    
    Other, net
    
    
    (149
    )
    
    
    61
    
    
    
    (427
    )$
    10,748
    
    
    $
    8,368
    
    
    $
    1,222
 37




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##### Table of Contents



The tax effects of temporary differences that gave rise to the deferred
tax assets and liabilities were as follows at December 31: 2003
    
    2002(in thousands)Deferred tax assets:Accrued expenses
    
    $
    5,289
    
    
    $
    7,553Foreign tax credit
    
    
    1,280
    
    
    
    166Excess of tax basis over book basis
    
    
    1,145
    
    
    
    2,131Other
    
    
    
    
    
    
    617,714
    
    
    
    9,911Deferred tax liabilities:Long-term contracts
    
    
    
    
    
    
    252
    
    
    
    252Total deferred tax asset
    
    $
    7,714
    
    
    $
    9,659
 Undistributed retained earnings of the Companys foreign subsidiaries
amounted to approximately $12,169,000 at December 31, 2003. Provision for U.S.
federal and state income taxes has not 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. For earnings not considered to be
indefinitely reinvested, the Company has determined that any U.S. income tax
will be offset by a corresponding foreign tax credit, and therefore no
provision has been provided on these amounts. (15) 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
$626,000, $575,000, and $495,000 to the plan during the years ended December
31, 2003, 2002 and 2001, respectively. Under the terms of the plan,
contributions to the plan may be discontinued at any time. (16) 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
obligations were reduced in 2003 resulting in a reduction of the accrual of
expense of $481,000. Pension expense for the years ended December 31, 2002, and
2001 was $165,000, and $70,000 respectively. The actuarial present value of
accumulated benefits was $1,189,000, and $1,366,000, as of December 31, 2003
and December 31, 2002, respectively. The projected benefit obligation for
service rendered to date, net of unrecognized prior service cost, was
$1,189,000, and $1,366,000, as of December 31, 2003 and 2002, respectively. The computation assumed a discount rate on benefit obligations of 5.25%,
annual salary increases of 2% and annual benefit increases of 2% for 2003 and a
discount rate on benefit obligations of 6%, annual salary increases of 2% and
annual benefit increases of 2% for 2002. (17) 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 2003 and 2002, one
customer accounted for 20% and 14% of sales and operating revenue,
respectively. During 2001, no single customer accounted for 10% or greater of
total net sales. 38




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##### Table of Contents



The Company establishes reserves for doubtful accounts on a case-by-case
basis when it is believed that the required payment of specific amounts owed to
the Company is unlikely to occur. The Company derives a majority of its revenue
from sales and services to domestic and international municipal and private
companies engaged in waste management, mining, water and wastewater treatment,
aquaculture and other industrial activities. The Company has receivables from
customers in various countries. The Company generally does not require
collateral or other security to support customer receivables. If the customers
financial condition were to deteriorate or their access to freely convertible
currency was restricted, resulting in impairment of their ability to make the
required payments, additional allowances may be required. (18) 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 accrues a warranty reserve based on estimates for
warranty claims. This estimate is based on historical claims history and
current business activities and is accrued as a cost of sales in the period
such business activity occurs. The table below reflects a summary of activity
of the Companys continuing operations for warranty obligations through
December 31, 2003 (in thousands): Balance at December 31, 2002
    
    $
    3,583Application/reduction of warranty obligations
    
    
    (396
    )Provision/addition of warranty obligations
    
    
    431Balance at December 31, 2003
    
    $
    3,618
 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 contractors 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. Bonding  Bank Guarantees  The Company, in some direct sales and installation contracting situations,
is required to post performance bonds or bank guarantees as part of the
contractual guarantee for its performance. The performance bonds or bank
guarantees can be in the full amount of the contracts. To date the Company has
not received any claims against any of the posted securities, most of which
terminate at the final completion date of the contracts. 39




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Litigation and claims  On January 6, 2003, a judgment was entered against the company in the
United States District court for the Northern District of Texas for damages
arising out of the alleged patent infringement activities of Serrot conducted
prior to the acquisition of Serrot by the Company. The jury in Dallas
determined that Serrot had willfully infringed upon two patents held by
Poly-America, L.P., one for the manufacturing process and a second patent for
the smooth edge textured sheet produced on round die blown film manufacturing
equipment. On August 28, 2003, the court issued an opinion and order on post
trial motions, including a reduced judgment in the amount of $11,965,158,
together with prejudgment interest in the sum of $3,081,050, post-judgment
interest at the rate of 1.29% per annum, and taxable costs of the court. The
court denied the request of Poly-America, L.P. for treble damages and
attorneys fees. The Company posted an amended $18,055,699 supersedeas appeal
bond and entered into a Collateral Agreement with an insurance company whereby
the Company deposited funds equal to the bond amount. The amount has been
recorded as Restricted Cash. The Collateral Agreement provides for interest on
the deposited fund, which interest accrues to the Companys benefit. On
September 29, 2003, the Company filed an appeal to the U.S. District Court of
Appeals for the Federal Circuit in Washington, D.C. and on December 16, 2003,
filed its appeals brief. On the advice of legal counsel, the Company
anticipates a favorable ruling on its appeal. However, such an outcome is not
assured. No amount has been accrued for this judgment. The Company and its directors have been named in three putative class
action lawsuits filed in January 2004 in the Delaware Court of Chancery
(Calhoun v. Gundle/SLT Environmental, Inc., et al,C.A. No. 153-N, Twist
Partners LLP v. Badawi, et al,C.A. No. 150-N, and Bell v. Gundle/SLT
Environmental, Inc., et al,C.A. No. 169-N) related to the proposed merger.
Code Hennessy & Simmons LLC, GEO Sub Corp., and GEO Holdings Corp. have also
been named in one or more of these cases. These complaints allege that the
Companys directors breached their fiduciary duties by allegedly failing to
auction the Company, to undertake an appropriate evaluation of the Company as a
merger/acquisition candidate, to act independently to protect its stockholders,
and to ensure that no conflicts of interest existed or that any conflicts were
resolved in the best interests of GSEs public shareholders. The complaints
seek, among other relief, to enjoin the merger or to rescind it if approved by
stockholders and consummated and to obtain unspecified damages from the
defendants. On February 10, 2004 the Delaware Court of Chancery entered an
order consolidating the three actions for all purposes and requiring the
plaintiffs to file a consolidated amended complaint as soon as practicable. The Company and its directors believe these suits are without merit, and
intend to vigorously defend the litigation. These or similar lawsuits may
jeopardize the merger, since their existence could result in the failure of one
or more conditions precedent to GEO Holdings obligation to conclude the merger
and thus permit GEO Holdings to terminate the merger agreement and abandon the
merger should it desire to do so. If the merger is not enjoined, GEO Holdings
may elect to complete the merger; however, representatives of GEO Holdings have
advised the Company that GEO Holdings has no intention of waiving any
conditions that may not be satisfied as a result of this pending litigation or
otherwise waiving any of its rights at this time. On
January 14, 2004, the Company received a letter from Shire
Equipment Leasing Corporation (Shire) relating to litigation
instituted by Wembley, Ltd., the holder of 4,557,143 shares of our
common stock and the Companys largest stockholder. Wembley seeks a
declaratory judgment that neither Pro Air, Inc., which was declared
bankrupt in 2003, nor Shire, its assignee, ever acquired an ownership
interest in 1.1 million of these shares which are currently and have been
held of record continuously by Wembley. Shire disputes this contention and
indicates that it will seek recovery (a) against Wembley and, if
Wembley is unable to satisfy any such judgment, (b) against the
Company for as much as $200 million in alleged consequential damages
resulting from its and/or Pro Airs inability to own and sell the
Company shares, if and to the extent that the Company acted in
concert with Wembley to thwart the (allegedly) rightful
transfer of the Company shares to which Shire makes claim. The
Company believes that this dispute is between Wembley and Shire.
Accordingly, should such a claim be forthcoming, the Company intends
to defend itself vigorously. Upon conclusion of the merger, the
Company expects to request all the Company stockholders to surrender
their certificates for cancellation in exchange for payment of the
merger consideration. The Company intends to pay the merger
consideration to whichever of the parties (Wembley or Shire) submits,
in the form required for good delivery,  the stock certificate in
controversy. The Fort
Worth District Office of the Securities and Exchange Commission has
inquired of the Company about a sale of its common stock in late
September 2003 by a former non-U.S.-resident Company director. The
shares were sold through a brokerage account on which the Companys
president and chief executive officer was listed as a contact
person, without any beneficial or other interest. The sale was made
shortly before the Company announced it would not meet earnings
expectations. The chief executive officer has informed the Company
that he has no reason to believe that the non-resident former
director, who left the Board several years ago, possessed any
non-public information at the time of sale. The Company has voluntarily
produced information and documents in connection with the former
directors sale, as requested by the Securities and Exchange
Commission in November 2003 and January 2004. The Company has no
knowledge of any wrongdoing on its part or that of any affiliates,
officer or the former director and intends to continue to cooperate
fully in respect of this inquiry. The Company is involved in other 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. 40




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##### Table of Contents



(19) Plant Closing  In September 2002, the Company committed to a restructuring plan involving
the closure of its Calgary plant and relocation of its main production line to
Houston. The Company established a liability of $700,000 for the costs of
closure, primarily the estimated severance-related costs associated with the
involuntary termination of 41 employees pursuant to this plan. The charge was
reported as an expense in the Companys 2002 consolidated statement of
operations. All amounts have been paid as of December 31, 2003. (20) 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.
 Years Ended2003
    
    2002
    
    2001Sales to unaffiliated customers (based on the geographic location of the customer):United States
    
    $
    161,112
    
    
    $
    165,680
    
    
    $
    93,136Europe
    
    
    61,181
    
    
    
    63,745
    
    
    
    51,979Latin & South America
    
    
    15,430
    
    
    
    10,704
    
    
    
    9,339Far East/Pacific Rim
    
    
    15,683
    
    
    
    11,650
    
    
    
    10,966Africa and Middle East
    
    
    13,794
    
    
    
    8,655
    
    
    
    7,473Other
    
    
    7,418
    
    
    
    6,536
    
    
    
    516Only 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. Year 2003 includes the
effects of the acquisition of the Egyptian joint venture interest. Prior to 2003, Egypt
was accounted for under the equity method.Long lived assets (principally property, plant and equipment):United States
    
    $
    20,553
    
    
    $
    23,984
    
    
    $
    23,875Germany
    
    
    5,049
    
    
    
    3,534
    
    
    
    3,084Thailand
    
    
    4,681
    
    
    
    4,094
    
    
    
    4,693Other
    
    
    2,848
    
    
    
    1,399
    
    
    
    1,703Only long-lived assets in the United States, Germany and Thailand accounted for more
than 10% of total long-lived assets.
 41




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GUNDLE/SLT ENVIRONMENTAL, INC. SUPPLEMENTARY DATA Consolidated quarterly financial data (Unaudited)  Unaudited quarterly information for fiscal 2003 and 2002 is as follows (in
thousands, except per share amounts): 2003
    
    2002Quarter
    
    QuarterFirst
    
    Second
    
    Third
    
    Fourth
    
    First
    
    Second
    
    Third
    
    FourthNet sales
    
    $
    39,119
    
    
    $
    86,880
    
    
    $
    92,651
    
    
    $
    55,968
    
    
    $
    38,730
    
    
    $
    81,932
    
    
    $
    93,957
    
    
    $
    52,351Gross profit
    
    
    4,850
    
    
    
    19,591
    
    
    
    21,033
    
    
    
    13,685
    
    
    
    6,121
    
    
    
    19,484
    
    
    
    21,227
    
    
    
    9,812Income (loss) before income taxes.
    
    
    (2,644
    )
    
    
    12,103
    
    
    
    17,202
    
    
    
    4,858
    
    
    
    (4,021
    )
    
    
    9,278
    
    
    
    14,595
    
    
    
    1,406Net income (loss) before
extraordinary
items
    
    
    (1,718
    )
    
    
    7,867
    
    
    
    11,180
    
    
    
    3,442
    
    
    
    (2,358
    )
    
    
    5,382
    
    
    
    8,887
    
    
    
    979Extraordinary gain  Serrot
acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,667
    
    
    
    (368
    )
    
    
    4,124
    
    
    
    (2,457
    )Net income (loss)
    
    
    (1,718
    )
    
    
    7,867
    
    
    
    11,180
    
    
    
    3,442
    
    
    
    22,295
    
    
    
    5,054
    
    
    
    12,986
    
    
    
    (1,479
    )Basic earnings (loss) per Common
Share
    
    
    (.15
    )
    
    
    .68
    
    
    
    .97
    
    
    
    .31
    
    
    
    2.02
    
    
    
    .45
    
    
    
    1.15
    
    
    
    (.13
    )Diluted earnings (loss) per Common
Share
    
    
    (.14
    )
    
    
    .65
    
    
    
    .92
    
    
    
    .29
    
    
    
    2.02
    
    
    
    .43
    
    
    
    1.11
    
    
    
    (.13
    )
 The above data should be read in conjunction with the consolidated financial
statements and notes thereto. SCHEDULE II GUNDLE/SLT ENVIRONMENTAL, INC. VALUATION AND QUALIFYING ACCOUNTS
(in thousands) Balance at
    
    Additions
    
    
    
    
    
    BalanceBeginning
    
    Charged
    
    Write-
    
    at EndDescription
    
    of Year
    
    to Expense
    
    Offs
    
    of YearDecember 31, 2001Allowance for doubtful accounts
    
    $
    4,765
    
    
    $
    1,662
    
    
    $
    1,939
    
    
    $
    4,488December 31, 2002Allowance for doubtful accounts
    
    $
    4,488
    
    
    $
    9,054
    
    
    $
    5,798
    
    
    $
    7,744December 31, 2003Allowance for doubtful accounts
    
    $
    7,744
    
    
    $
    1,201
    
    
    $
    4,489
    
    
    $
    4,456
 Year 2002 additions charged to expense and write-off include $7,859 and $4,249,
respectively, acquired with the Serrot acquisition. Year 2003 additions charged to expense include $1,141, acquired with the
Egyptian acquisition. Year 2003 write-offs include $3,661 of fully reserved receivables acquired
with the Serrot acquisition in 2002. 
 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 42




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ITEM 9A. Controls and Procedures. As of December 31, 2003, an evaluation was performed under the supervision
and with the participation of the Companys management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures.
Based on that evaluation, the Companys Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures were effective as of December 31, 2003. During the quarter ended
December 31, 2003, there were no changes in the Companys internal controls
over financial reporting that have materially affected or are reasonably likely
to materially affect internal controls over financial reporting. 
 PART III 
 ITEM 10. Directors and Executive Officers of the Registrant. The names, ages and positions of the Companys directors and executive officers
are set forth below: DirectorName
    
    Age
    
    Position
    
    SinceSamir T. Badawi.
    
    
    64
    
    
    President, Chief Executive Officer and Director
    
    
    1995James R. Burke.
    
    
    66
    
    
    Director
    
    
    1996Bruce Cummings.
    
    
    64
    
    
    Director

    
    
    2000James R. Gibbs.
    
    
    58
    
    
    Director
    
    
    2000T. William Porter.
    
    
    62
    
    
    Director
    
    
    1988Edward T. Sheehan.
    
    
    61
    
    
    Director
    
    
    1998Roger J. Klatt.
    
    
    65
    
    
    Executive Vice President, Treasurer, Assistant Secretary and
Chief Financial Officer
    
    
    Ernest C. English, Jr.
    
    
    51
    
    
    Vice President and General Manager of North America Operations
    
    
    Gerald E. Hersh.
    
    
    60
    
    
    Vice President and General Manager of U.S. Installation
Operations
    
    
    James T. Steinke.
    
    
    57
    
    
    Vice President and General Manager of Asia/Pacific Operations
    
    
    Paul A. Firrell.
    
    
    37
    
    
    Vice President and General Manager of Europe / Middle East /Africa
Operations
    
    
    
 Samir T. Badawihas served as Chairman of the board of directors of Gundle/SLT
Environmental, Inc. since July 1995. From May 1998 to present he has served in
the position of chief executive officer and president. He is president of
Wembley Ltd. (Wembley), GSEs largest stockholder. During the period 1993 to
1995, he served as chairman of SLT Environmental, Inc. and advisor to a group
of private investors. For a period of 23 years prior to October 1993, he
worked for Ernst & Young, as managing partner in their practice in the Middle
East as well as served the firm in the U.S. and Europe. James R. Burkehas been CEO of Access Oil Tools, Inc. since April 2000. Prior
to joining Access Oil Tools, Mr. Burke was an independent consultant from July
1998 to April 2000. He was president of the products and equipment division of
Weatherford Enterra, Inc. from January 1996 until July 1998. Bruce Cummingshas been president of Elben L.L.C., a company that provides
corporate finance advisory work, since February 1999. Mr. Cummings was
managing director of Salomon Smith Barney from 1987 to February 1999. He was
senior vice president of E. F. Hutton & Co., Inc. from 1984 to 1987. 43




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James R. Gibbsis chairman of the board, president and chief executive officer
of Frontier Oil Corporation. He assumed the position of chief executive
officer in April 1992, and the position of chairman in April 1999. Mr. Gibbs
is a member of the board of directors of Smith International, Inc., a director
of Veritas GCS Inc., and an advisory director of Frost National Bank, N.A. T. William Porteris the chairman of Porter & Hedges, L.L.P., a Houston law
firm that serves as the companys principal outside counsel, and has been a
partner of that firm since its formation in 1981. Mr. Porter is also a
director of U.S. Concrete, Inc. Edward T. Sheehanhas been chief executive officer of Clean Earth, Inc., since
September 2002. From July 1999 to August 2002, he served as a consultant. He
served as chairman of the board and chief executive officer of United Road
Services, Inc. from October 1997 to June 1999. Mr. Sheehan was president of
United Waste Systems, Inc. from December 1992 to August 1997, and chief
operating officer of United Waste Systems, Inc. from 1994 to August 1997. He
was senior vice president and chief financial officer of Clean Harbors, Inc., a
publicly held environmental services company, from September 1990 to April
1992. From 1966 to 1990 he held several different financial management
positions with the General Electric Company. Audit Committee Financial Expert The Companys board of directors has determined that James R. Gibbs is its
audit committees financial expert. Mr. Gibbs satisfies the independence
requirements of the New York Stock Exchange listing standards. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act requires the Companys
executive officers, directors and stockholders who own more than 10% of the
outstanding common stock to file reports of ownership and change of ownership
with the Commission. Based solely on information furnished to us and contained
in reports filed with the Securities and Exchange Commission as well as any
written representations that no reports were required, the Company believes
that all Section 16(a) reporting requirements were fully met during the 2003
reporting year. Code Of Ethics The Company has adopted a code of ethics that applies to all its
employees, including its principal executive officer, principal financial
officer and principal accounting officer. 44




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##### Table of Contents



ITEM 11. Executive Compensation. The following tables, charts, and narrative show all compensation awarded,
paid to or earned by each individual who was either the chief executive officer
at any time during the period, or at December 31, 2003 one of the other highly
compensated executive officers. Summary Compensation Table Long-TermAnnual Compensation
    
    CompensationSecuritiesUnderlying
    
    All OtherName and Principal Position
    
    Year
    
    Salary
    
    Bonus
    
    Other(1)
    
    Options (#)
    
    Compensation(2)Samir T. Badawi
President and Chief Executive Officer
    
    
    2003
    
    
    $
    412,000
    
    
    $
    331,660
    
    
    
    
    
    
    
    
    
    
    $
    32,5052002
    
    
    $
    400,000
    
    
    $
    522,306
    
    
    
    
    
    
    
    65,000
    
    
    $
    21,4822001
    
    
    $
    368,000
    
    
    $
    71,000
    
    
    
    
    
    
    
    125,000
    
    
    $
    23,442Roger J. Klatt
Executive Vice President and Chief
Financial Officer
    
    
    2003
    
    
    $
    257,500
    
    
    $
    148,063
    
    
    
    
    
    
    
    
    
    
    $
    27,6822002
    
    
    $
    250,000
    
    
    $
    233,173
    
    
    
    
    
    
    
    30,000
    
    
    $
    19,6322001
    
    
    $
    231,000
    
    
    $
    43,100
    
    
    
    
    
    
    
    55,000
    
    
    $
    20,438Ernest C. English, Jr.
Vice President and General Manager
of North America Operations
    
    
    2003
    
    
    $
    184,000
    
    
    $
    71,977
    
    
    
    
    
    
    
    
    
    
    $
    6,0602002
    
    
    $
    175,000
    
    
    $
    109,030
    
    
    
    
    
    
    
    15,000
    
    
    $
    5,5372001
    
    
    $
    162,000
    
    
    $
    10,864
    
    
    
    
    
    
    
    23,000
    
    
    $
    5,243Paul A. Firrell
Vice President and General Manager
of Europe/Middle East/Africa
Operations
    
    
    2003
    
    
    $
    214,308
    (3)
    
    $
    55,291
    (3)
    
    
    
    
    
    
    
    
    
    $
    21,106
    (3)2002
    
    
    $
    203,593
    (3)
    
    $
    56,802
    (3)
    
    
    
    
    
    
    15,000
    
    
    $
    21,058
    (3)2001
    
    
    $
    185,734
    (3)
    
    $
    42,347
    (3)
    
    
    
    
    
    
    20,000
    
    
    $
    19,999
    (3)Gerald E. Hersh
Vice President and General Manager
of U.S. Installation Operations
    
    
    2003
    
    
    $
    179,000
    
    
    $
    65,563
    
    
    
    
    
    
    
    
    
    
    $
    13,0612002
    
    
    $
    170,000
    
    
    $
    115,881
    
    
    
    
    
    
    
    15,000
    
    
    $
    9,6312001
    
    
    $
    162,000
    
    
    $
    40,946
    
    
    
    
    
    
    
    23,000
    
    
    $
    10,878James T. Steinke
Vice President and General Manager
of Asia/Pacific Operations
    
    
    2003
    
    
    $
    146,000
    (4)
    
    $
    75,008
    
    
    
    
    
    
    
    
    
    
    $
    10,2702002
    
    
    $
    141,800
    (4)
    
    $
    71,411
    
    
    
    
    
    
    
    15,000
    
    
    $
    9,6842001
    
    
    $
    133,400
    (4)
    
    $
    8,613
    
    
    
    
    
    
    
    20,000
    
    
    $
    8,838
   (1)
    
    Because the value of any additional benefits did not exceed 10% of annual
compensation, amounts are omitted.(2)
    
    The Company paid life and disability insurance premiums for 2003, 2002
and 2001 for Mr. Badawi in the amounts of $2,772, $2,772, and $2,772; for
Mr. Klatt in the amounts of $9,055, $7,908, and $8,266; for Mr. English in
the amounts of $661, $565, and $493; for Mr. Firrell in the amounts of
$1,518, $1,495 and $1,429, based on an exchange rate equal to 1.7859 as of
December 31, 2003; for Mr. Hersh in the amounts of $2,227, $1,434, and
$1,413; and for Mr. Steinke in the amounts of $4,202, $5,570, and $3,572.The Company made contributions to retirement plans for 2003, 2002 and 2001
for Mr. Badawi in the amounts of $29,733, $18,710, and $20,670; for Mr.
Klatt in the amounts of $18,627, $11,724, and $12,172; for Mr. English in
the amounts of $5,399, $4,972, and $4,750; for Mr. Firrell in the amounts of
$19,588, $19,563 and $18,570, based on an exchange rate equal to 1.7859 as
of December 31, 2003; for Mr. Hersh in the amounts of $10,834, $8,197, and
$9,465; and for Mr. Steinke in the amounts of $6,068, $5,570, and $5,265.(3)
    
    Based on an exchange rate equal to 1.7859 as of December 31, 2003.(4)
    
    Excludes foreign services payments of $29,200, $27,800 and 26,400 in
2003, 2002 and 2001, respectively. 45




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Option Grants in Last Fiscal Year No options for Company common stock were granted in fiscal year 2003 to
the Companys executives listed above in the Summary of Compensation Table. Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values The following table provides information on the exercise of options to
purchase the Companys common stock in 2003 by the executives listed above in
the Summary Compensation Table and the value of unexercised in-the-money
Company options at December 31, 2003. Shares
    
    
    
    
    
    Number of SecuritiesAcquired
    
    
    
    
    
    Underlying Unexercised
    
    Value ($) of Unexercisedon
    
    
    
    
    
    Options
    
    In-The-Money OptionsExercise
    
    
    
    
    
    at 12/31/03 (#)
    
    at 12/31/03 (1)of Options
    
    Value(#)
    
    Realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableSamir T. Badawi
    
    
    2,000
    
    
    $
    9,850
    
    
    
    427,500
    
    
    
    32,500
    
    
    $
    6,436,125
    
    
    $
    313,625Roger J. Klatt
    
    
    
    
    
    
    
    
    
    
    331,000
    
    
    
    15,000
    
    
    
    4,688,350
    
    
    
    144,750Ernest C. English, Jr.
    
    
    
    
    
    
    
    
    
    
    105,000
    
    
    
    7,500
    
    
    
    1,523,885
    
    
    
    72,375Paul A. Firrell
    
    
    30,000
    
    
    
    186,224
    
    
    
    42,000
    
    
    
    7,500
    
    
    
    573,825
    
    
    
    72,375Gerald E. Hersh
    
    
    10,000
    
    
    
    43,750
    
    
    
    111,500
    
    
    
    7,500
    
    
    
    1,608,760
    
    
    
    72,375James T. Steinke
    
    
    2,000
    
    
    
    14,750
    
    
    
    82,500
    
    
    
    7,500
    
    
    
    1,154,150
    
    
    
    72,375
   (1)
    
    Based upon the $18.50 value of GSEs common stock pursuant to the Merger
Agreement dated December 31, 2003. Board Compensation The Company does not pay directors who are also officers additional
compensation for their service as directors. Compensation paid to all
non-employee directors during 2003 for service in all board capacities
aggregated $166,000. In 2003, compensation for non-employee directors included
the following:  
    
    an annual retainer of $20,000 paid in quarterly installments;  
    
    $1,250 for each board meeting attended;  
    
    $750 per committee meeting attended; and  
    
    $750 for each meeting at which they preside. In May of each year, the Company grants each director an option to
purchase 2,000 shares of common stock. The exercise price equals the fair
market value of the shares at the date of grant. The options have a five year
life and vest one year after the date of grant. If the proposed merger with
affiliates of Code Hennessy & Simmons LLC is completed, the Company will not
make these annual grants in 2004. See discussion of the proposed merger under
Item 7 of this report. 46




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##### Table of Contents



Employment Security Agreements Three executive officers of the Company, Mr. Badawi, president and chief
executive officer, Mr. Klatt, executive vice president and chief financial
officer, and Mr. Firrell, managing director of GSE Lining Technology Ltd. and
GSE Lining Technology GmbH, have the benefit of employment agreements. Mr. Badawi is employed under an executive employment agreement approved on
September 18, 2002. In general, if in the event prior to change in control Mr.
Badawi is discharged without cause, disability, or by resignation for good
reason, he is entitled to benefits of:  
    
    a sum payable pro rata over a period of 18 months equal to
the sum of (A) the lesser of (1) one and one-half times the Base
Salary in effect during the current year and (2) the aggregate
amount of Base Salary that would be due under the remaining term of
the employment period without the application of any automatic
extension, and (B) one and one-half times the Bonus paid for the
immediate preceding full year. If after a change in control, Mr. Badawis employment is terminated by the
Company without cause, or due to his disability, or by resignation for good
reason, he is entitled to benefits of:  
    
    a payment in lump sum equal to the sum of (A) three times the
base salary in effect on the date of termination and (B) three times
the highest bonus received in any one of the three years preceding
the date of termination. In the event it is deemed that he has received an excess parachute
payment (as defined in Section 280G(b) of the Code) which is subject to the
excise taxes imposed by Section 4999 of the Code, the Company shall make an
Additional Payment to employee equal to: (i) all excise taxes payable by
employee, plus (ii) all additional excise taxes and federal or state income
taxes to the extent such taxes are imposed in respect of the additional
payment. The agreement provides for severance protection for prior to change of
control situations by (1) payment of his base salary in accordance with regular
payroll procedures due through the date of termination, (2) payment of a pro
rata bonus for the period through the date of termination, (3) all benefits
under the Companys benefit plans and programs shall be continued for a period
of the lesser of 18 months or the remainder of the automatic extension with
insurance premiums to be paid by him at the same rate paid by employees who
have not been terminated. After change of control situations, his benefit
protection is extended for a period of three years. The term of the agreement commenced on January 1, 2002, and extends for a
period of three years. The agreement and his employment period automatically
extend for successive 12 month terms unless either the Company or he provides
written notice of the intent not to extend the employment period not less than
30 days prior to the expiration of the then current employment period. Mr.
Badawis employment shall cease and shall not extend past the last day of the
month in which he attains age 70. Mr. Klatt is employed under an employment security agreement entered into
on March 10, 1997, as amended. In general, in the event of Mr. Klatts
discharge without cause, or resignation for good reason after a change in
control, he is entitled to benefits of:  
    
    a lump sum payment, cash amount equal to the sum of three
times the highest rate of base salary in effect during the
current year or any of the three years preceding the termination
date; and  
    
    three times the greater of (A) the maximum award he would
have been eligible to receive under the bonus plan in the year of
termination, (B) the largest award earned under the bonus plan in
any of the three years preceding the termination date, (C) 40% of
his base salary at the termination date, or (D) $100,000. 47




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##### Table of Contents



The agreement provides for severance protection benefits and change of
control benefits, including:  
    
    the right of Mr. Klatt for a period of 12 months following the
appointment of a new president and chief executive officer to determine
his compatibility or ability to maintain (in his sole discretion) a
good working relationship with the new president and chief executive
officer. In general, in the event that this latter employment security provision is
exercised by Mr. Klatt, he is entitled to benefits of:  
    
    a lump sum, cash amount equal to the sum of one and one-half times
the highest annual rate of base salary in effect during the current
year or any of the two years preceding the termination date, and  
    
    one and one-half times the greater of (A) the largest award earned
under GSEs bonus plan in any of the three years preceding the
termination date or (B) the target award he would have been entitled to
receive under the bonus plan in the current year regardless of any
limitation otherwise applicable to the bonus plan. The term of the agreement expires on December 31, 2005, and will be
automatically extended on each December 31 for a one year period from such date
unless GSE gives notice of termination pursuant to the agreement through age
70. Mr. Firrell is employed under an employment service agreement entered into
on January 1, 1997, with GSE Lining Technology Ltd. The agreement provides for
12 months base salary severance protection (excluding any bonus or other
benefits) payable in 12 equal installments. The term of the agreement
continues unless GSE or Mr. Firrell give notice of termination pursuant to the
agreement. Compensation Committee Interlocks and Insider Participation The members of the compensation committee, Messrs. Cummings, Porter and
Sheehan, are not current or former officers or employees of the Company. There
are no compensation committee interlocks between the Company and other entities
involving the Companys executive officers and board members who serve as
executive officers or board members of the other entities. Report of the Compensation Committee on Executive Compensation GSEs executive compensation program is designed to align total compensation
with shareholder interests. The program:  
    
    rewards executives for sound business management and
improvement in shareholder value;  
    
    balances its components so that both short and
longer-term operating and strategic objectives are
recognized; and  
    
    attracts, motivates, and retains executives necessary
for the long term success of GSE. The program consists of three different compensation components base
salary; variable cash bonuses; and long-term incentive awards (stock options). The Company uses external surveys to set competitive compensation levels
(salary ranges) for its executives (including the chief executive officer).
Salary ranges for the Companys executives are established based on similar
positions in other comparably situation companies of similar size and
complexity. In the course of considering annual executive salary increases,
appropriate consideration is given to the credentials, experience and
responsibilities of the individual senior executives and the Companys
performance. Should the compensation committee be persuaded that an executive
has not met expectations for a protracted period, a recommendation of the board
of directors that the executive be terminated would be a more likely
eventuality than a reduction in his base compensation. Using the criteria set
forth above, the compensation committee authorized pay increases for executive
officers for 2003. 48




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##### Table of Contents



The board approved a $432,000 base salary for Mr. Badawi while serving as
president and chief executive officer for 2004. His base salary was based on
recommendations of the committee without Mr. Badawis participation. The
Companys annual bonuses are intended to reflect a policy of requiring a
minimum level of company financial performance for the year before any bonuses
are earned by senior executives. Bonuses for achieving higher levels of
performance are directly related to the level achieved. While development of
any business involves factors other than profitability, the emphasis of the
compensation committee in recent years (with board concurrence) has been on
encouraging management to maintain the Companys profitability. For 2003,
bonuses were based upon a combination of objective and subjective criteria with
the following bonuses paid to senior officers:  
    
    Mr. Badawi - $331,660  
    
    Mr. Klatt - $148,063  
    
    Mr. English - $71,977  
    
    Mr. Firrell - £55,291  
    
    Mr. Hersh - $65,563  
    
    Mr. Steinke - $75,008 The following members of the compensation committee have furnished the preceding report: Edward T. Sheehan  Chairman
Bruce Cummings
T. William Porter Stockholder Return Performance Presentation The following graph illustrates the yearly percentage change in the
cumulative total stockholder return on the Companys common stock, compared
with the cumulative total return on the Standard and Poors 500 Stock Index
(S&P 500) and the S&P 500 Building Products Index for the five years ended
December 31, 2003. (PERFORMANCE GRAPH) 12/31/98
    
    12/31/99
    
    12/31/00
    
    12/31/01
    
    12/31/02
    
    12/31/03S&P
    
    
    100
    
    
    
    121
    
    
    
    110
    
    
    
    97
    
    
    
    75.5
    
    
    
    97Building Products
    
    
    100
    
    
    
    78.5
    
    
    
    73
    
    
    
    70
    
    
    
    65
    
    
    
    89Company
    
    
    100
    
    
    
    87.5
    
    
    
    51.5
    
    
    
    65
    
    
    
    221
    
    
    
    519
 49




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##### Table of Contents



In all cases, the cumulative total return assumes, as contemplated by the
Securities and Exchange Commission rules, that any cash dividends on the common
stock of each entity included in the data presented above were reinvested in
that security. 
 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Equity Compensation Plans The Company has several equity compensation plans described in Note 12 to
its Consolidated Financial Statements. All of the Companys plans have been
approved by security holders. Number of securitiesremaining available forfuture issuance underNumber of securities to
    
    Weighted-average
    
    equity compensationbe issued upon exercise
    
    exercise price of
    
    plans (excludingof outstanding options,
    
    outstanding options
    
    securities reflected inPlan Category
    
    warrants and rights
    
    warrants and rights
    
    first column)Equity compensation
plans approved by
security holders
    
    
    1,483,250
    
    
    $
    4.59
    
    
    
    324,654Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,483,250
    
    
    $
    4.59
    
    
    
    324,654
 Beneficial Ownership The following table shows, as of December 31, 2003, the number of the
Companys shares of common stock beneficially owned by directors and executive
officers, individually and as a group. Beneficial Ownership onName
    
    December 31, 2003(1)(2)(3)
    
    PercentSamir T. Badawi
    
    
    5,051,143
    (4)
    
    
    42.1
    %James R. Burke
    
    
    14,000
    
    
    
    *Bruce Cummings
    
    
    8,000
    
    
    
    *James R. Gibbs
    
    
    8,000
    
    
    
    *T. William Porter
    
    
    12,000
    
    
    
    *Edward T. Sheehan
    
    
    14,000
    
    
    
    *Roger J. Klatt
    
    
    389,067
    
    
    
    3.3
    %Ernest C. English, Jr.
    
    
    114,435
    
    
    
    1
    %Paul A. Firrell
    
    
    50,500
    
    
    
    *Gerald E. Hersh
    
    
    136,652
    
    
    
    1.2
    %James T. Steinke
    
    
    92,116
    
    
    
    *All directors and executive
officers as a group (11 persons)
    
    
    5,889,913
    
    
    
    46.2
    %
  *
    
    Less than 1%  (1)
    
    Includes shares underlying outstanding stock options, as follows: Mr.
Klatt-346,000, Mr. English-112,500, Mr. Firrell-49,500, Mr. Hersh- 119,000 and
Mr. Steinke-90,000.  (2)
    
    Each person has sole voting and investment power with respect to the
shares listed, except as otherwise specified.  (3)
    
    Includes shares underlying outstanding stock options, as follows: Mr.
Badawi 460,000; Mr. Burke 10,000; Mr. Cummings 8,000; Mr. Gibbs 8,000; Mr.
Porter 10,000; and Mr. Sheehan 10,000.  (4)
    
    As a representative of Wembley Ltd., Mr. Badawi may be deemed to own
beneficially 4,557,143 shares owned by Wembley. He disclaims any
beneficial ownership in such shares. 50




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##### Table of Contents



Other Security Ownership The following table shows the name and address of each person known to the
Company to own more than 5% of the Companys common stock as of December 31,
2003. Name and Address of Beneficial Owners
    
    Amount Owned
    
    Percent of ClassWembley Ltd.
Columbus Centre Building
Road Town, Tortola
British Virgin Islands
    
    
    4,557,143
    (1)
    
    
    39.5
    %GEO Holdings Corp. (2)
    
    
    4,557,143
    
    
    
    39.5
    %Code Hennessy & Simmons IV LP (2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %CHS Management IV LP (2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Code Hennessy & Simmons LLC(1) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Daniel J. Hennessy (2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Marcus J. George(2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Brian P. Simmons(2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Peter M. Gotsch(2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Thomas J. Formolo(2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Jon S. Vesely(2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Andrew W. Code(2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %Michael L. Keesey(2) (3)
    
    
    4,557,143
    
    
    
    39.5
    %10 South Wacker Drive, Suite 3175
Chicago, Illinois 60606
    
    
    4,557,143
    
    
    
    39.5
    %E. Lisk
Wyckoff, Jr. (4)
10 Longacre Lane
Old Lyme, Connecticut 06371
    
    
    4,557,143
    
    
    
    39.5
    %Grace & White
515 Madison Ave., Suite 1700
New York, New York 10022
    
    
    901,541
    
    
    
    7.8
    %Dimensional
Fund Advisors, Inc. (5)
1299 Ocean Avenue
Santa Monica, California 90401
    
    
    791,812
    
    
    
    6.9
    %
  (1)
    
    See discussion of pending matter with Shire Equipment Leasing Corporation under Item 3. Legal Proceedings.  (2)
    
    Each of these entities and persons may be deemed to have acquired
beneficial ownership pursuant to the terms of the Voting Agreement, dated
as of December 31, 2003, between GEO Holdings and Wembley Ltd. Each of
these entities and persons disclaims any beneficial ownership of the
4,557,143 shares covered by the Voting Agreement, and all share the
address of 10 South Wacker Drive, Suite 3175, Chicago, Illinois 60606  (3)
    
    Affiliate of GEO Holdings Corp. and/or Code Hennessy & Simmons LLC.  (4)
    
    Includes Wembley Ltd.s shares. Mr. Wyckoff, as director of Wembley Ltd., may be deemed
to own beneficially the 4,557,143 shares owned by Wembley. Mr. Wyckoff disclaims any such beneficial ownership.  (5)
    
    Dimensional Fund Advisors, Inc., a registered investment advisor, is
deemed to have beneficial ownership of 791,812 shares of common stock of
GSE as of December 31, 2003, all of which are held by investment
companies, commingled group trusts and separate accounts for which Dimensional
Fund Advisors, Inc. serves as investment advisor or manager.
Dimensional Fund Advisors, Inc. disclaims beneficial ownership of all these shares. 
 ITEM 13. Certain Relationships and Related Transactions. Porter & Hedges, L.L.P. serves as the Companys principal outside counsel.
T. William Porter, a Company director, is a founding partner and chairman of
Porter & Hedges, L.L.P. 51




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##### Table of Contents



ITEM 14. Principal Accountant Fees and Services. Audit Fees. Fees paid to Ernst & Young LLP, as our independent auditors
for fiscal 2003 and 2002, were $278,270 during fiscal 2003 and $229,352 during
fiscal 2002 for its independent audit of our annual financial statements,
review of the financial statements contained in our quarterly reports on Form
10-Q and assistance regarding other SEC filings. All of the audit services
provided to us by Ernst & Young LLP during fiscal 2003 and fiscal 2002 were
pre-approved by the Audit Committee. Audit-Related Fees. Fees paid to Ernst & Young LLP were $51,740 during
fiscal 2003 and $22,500 during fiscal 2002 for other services that are
reasonably related to its audit and review of our financial statements,
including reviews of internal control design and operation and assistance in
evaluating the requirements of the Sarbanes-Oxley Act of 2002, and limited
scope audit of our U.S. benefit plans, and assistance with sell-side due
diligence. All of the audit-related services provided to us by Ernst & Young
LLP during fiscal 2003 and fiscal 2002 were pre-approved by the Audit
Committee. Tax Fees.Fees paid to Ernst & Young LLP were $163,891 during fiscal 2003
and $61,207 during fiscal 2002 for its professional services related to federal
and state tax compliance, tax advice and tax planning. All of these services
are permitted non-audit services. All of the tax-related services provided to
us by Ernst & Young LLP for fiscal 2003 that required pre-approval were
pre-approved by the Audit Committee. All Other Fees.Except as described above, we did not pay Ernst & Young
LLP any other fees during fiscal 2003 and fiscal 2002. The Companys audit committee has a policy to pre-approve all audit and
legally permitted non-audit services, including tax services, provided by the
independent auditors. The audit committee procedures implementing this policy
require the audit firm to submit a written pre-approval request for each of its
particular services. The audit committee chairman must give his written
pre-approval of the particular service before the audit firm commences any
related work. The audit committee chairman reports his decisions on the
independent auditors request for pre-approval of services to the full audit
committee at each audit committee meeting. The Companys audit committee does
not recognize any de minimus exceptions to its audit and non-audit services
pre-approval requirements. All 2003 services required to be pre-approved have
been pre-approved as described above. 
 PART IV 
 ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)(1) Financial statements and supplementary data (see financial
statements at pages 20-40) (a)(2) Financial schedule (see page 41) 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. 52




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##### Table of Contents



(a)(3) Exhibits: Exhibit No.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)2-B
    
    
    
    Plan and Agreement of Merger of GEO Sub Corp. and the Registrant dated as
of December 31, 2003 among GEO Sub Corp., GEO Holdings Corp. and the
Registrant (incorporated by reference to Exhibit 2.1 to the Registrants
Current Report on Form 8-K filed January 5, 2004)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
report on Form 10-Q for the period ended June 30, 1998)10-K
    
    
    
    Employment Agreement approved September 18, 2002, between Samir
T. Badawi and the Company (incorporated by reference to Exhibit 10-K
to the Registrants report on Form 10-Q for the period ended
September 30, 2002)14-A
    
    
    
    Registrants Policy Statement of Domestic & International Business
Ethics and Responsibilities.21
    
    
    
    Subsidiaries23
    
    
    
    Consent of Independent Auditors  Ernst & Young LLP31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)31.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)32.1
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of Samir T. Badawi32.2
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of Roger J. Klatt
  (b)
    
    Reports on Form 8-K. One report on Form 8K was filed on December 31,
2003, regarding the Plan and Agreement of Merger with GEO Holdings Corp. and
its wholly owned subsidiary, GEO Sub Corp.(c)
    
    Exhibits (see Item (a)(3), above).(d)
    
    Additional financial statements (see Items (a)(1) and (a)(2) above). 53




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##### Table of Contents



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
8th day of
March, 2004. GUNDLE/SLT ENVIRONMENTAL, INC.By
    
    /s/     SAMIR T. BADAWISamir 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 8th day of March, 2004. Signature
    
    Title/s/ SAMIR T. BADAWI

Samir T. Badawi
    
    Director, Chairman of the Board and
Principal Executive Officer/s/ ROGER J. KLATT

Roger J. Klatt
    
    Principal Financial and Accounting Officer/s/ JAMES R. BURKE

James R. Burke
    
    Director/s/ BRUCE CUMMINGS
Bruce Cummings
    
    Director/s/ JAMES R. GIBBS

James R. Gibbs
    
    Director/s/ T. WILLIAM PORTER

T. William Porter
    
    Director/s/ EDWARD T. SHEEHAN

Edward T. Sheehan
    
    Director
 54




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNo.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)2-B
    
    
    
    Plan and Agreement of Merger of GEO Sub Corp. and the Registrant dated as
of December 31, 2003 among GEO Sub Corp., GEO Holdings Corp. and the
Registrant (incorporated by reference to Exhibit 2.1 to the Registrants
Current Report on Form 8-K filed January 5, 2004)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
report on Form 10-Q for the period ended June 30, 1998)10-K
    
    
    
    Employment Agreement approved September 18, 2002, between Samir
T. Badawi and the Company (incorporated by reference to Exhibit
10-K to the Registrants Report on Form 10-Q for the period ended14-A
    
    
    
    Registrants Policy of Domestic & International Business Ethics
and Responsibilities21
    
    
    
    Subsidiaries23
    
    
    
    Consent of Independent Auditors  Ernst & Young LLP31.1
    
    
    
    Certification of Chief Executive
Officer pursuant to Rule 13a - 14(a)31.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a  14(a)32.1
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of Samir T. Badawi32.2
    
    
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of Roger J. Klatt
 55