GUNDLE SLT ENVIRONMENTAL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2002

[ ] 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 22-273107
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

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

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

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

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
---------------------------- ------------------------
Common Stock, $.01 Par Value New York Stock Exchange

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

None.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].

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

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

Based upon the February 21, 2003 New York Stock Exchange Closing price of
$9.05 per share the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $103,379,562.

The number of shares outstanding of the issuer's common stock, $.01 par
value, as of February 21, 2003, was 11,423,156 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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1

2002 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PAGE
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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............................... 20
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure............................................................................. 40

PART III

Item 10. Directors and Executive Officers of the Registrant..................................... 41
Item 11. Executive Compensation................................................................. 41
Item 12. Equity Compensation Plans.............................................................. 41
Item 13. Certain Relationships and Related Transactions......................................... 41
Item 14. Controls and Procedures................................................................ 41

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 41

2

2002 ANNUAL REPORT
FORM 10K

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

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

PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

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

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

RECENT DEVELOPMENT

In January 2003, GSE purchased the shareholdings of its joint-venture
partners in Hyma/GSE Manufacturing Co. and Hyma/GSE Lining Technology Co.
located in Cairo, Egypt, for $4 million and agreed to purchase a blown-film
manufacturing line in 12 months for $950,000.

3

COMPANY 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 2002, 2001, and 2000
accounted for approximately 61%, 51%, and 57% of total sales, 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(R)). 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(R), the Company's patented
white-surface (reflective) product for use in landfills and waste containment
applications. By reflecting radiant heat, the reflective surface reduces the
expansion and contraction (wrinkling and bridging) of the liner during
installation. Its reflective nature protects subgrade soils from drying out and
cracking (desiccation). Under identical exposure conditions, white-surfaced
liners recorded temperatures as much as 50% lower than standard black surface
liner. The white-surface greatly improves detection of installation damage by
revealing scoring and abrasions as black marks exposed against the white
surface.

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

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

Another product manufactured and offered by the Company is its patented
geosynthetic clay liner (GundSeal(R)) that combines HDPE liners with highly
expansive sodium bentonite clay. The sodium bentonite clay is adhered directly
to the liner, and has demonstrated its primary function of sealing small
punctures accidentally made in the overlaying liner. When hydrated, the
bentonite material is itself a highly impermeable liner taking the place of up
to three feet of compacted clay ordinarily required as a subgrade layer. The
Company offers a patented geosynthetic clay liner (Bentofix(R)) 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(R)) products are manufactured by the
Company's 51% owned affiliate, Bentofix Technologies, Inc. (Bentofix is a
registered trade mark of Naue Fasertechnik GmbH Co. KG).

4

GSE Studliner(R), 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 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. Our laboratories monitor the quality of incoming raw materials, and
perform routine tests on all finished products. Certifications as to the quality
and test results are routinely furnished to customers as part of the quality
assurance program.

The Company believes that its products made from HDPE and 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 central
Europe. Inside the United States, a network of carefully selected independent
dealers also provides installation services. Outside the United States, in
addition to the Company's installation capabilities, a network of qualified
distributors and 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.

5

RAW MATERIALS

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

APPLICATIONS

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

SALES AND OPERATING REVENUE BY MARKET APPLICATION
(in thousands)

YEAR ENDED DECEMBER 31,
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2002 % 2001 % 2000 %
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Solid Waste Containment ................ $ 162,364 61% $ 116,968 67% $ 130,917 69%
Mining ................................. 14,276 5 8,768 5 19,896 10
Hazardous Waste Containment ............ 11,668 5 6,834 4 5,629 3
Liquid Containment ..................... 45,774 17 23,454 14 23,820 12
Other Applications ..................... 32,888 12 17,385 10 11,058 6
------------ ------------ ------------ ------------ ------------ --------
Total Sales and Operating Revenue ...... $ 266,970 100% $ 173,409 100% $ 191,320 100%
============ ============ ============ ============ ============= ========

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.

6

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, 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. The Company
often is required to post bid and performance bonds or bank guarantees. In all
cases, the Company provides its customers with limited material warranties on
its products, and limited installation warranties for its workmanship. These
limited warranties may last up to 20 years, but are generally limited to repair
or replacement of defective liners or workmanship on a prorated basis up to the
dollar amount of the original contract.

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

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

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

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

7

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, 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.

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 70 countries. The Company is a full service organization that strives
to provide its customers with a single source of geomembrane liners, related
products and services for environmental protection and other uses.

During the year 2002, one customer, Waste Management, Inc., accounted for
14% of sales and operating revenue. During the years 2001 and 2000, no single
customer accounted for more than 10% of the Company's net sales. In 2002 and
2001, Company net sales of 60%, and 54%, 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, 2002, the Company's backlog was $44.1 million compared to
$32.2 million at December 31, 2001. The Company anticipates that the majority of
the value of construction contracts and customer purchase orders included in
backlog at December 31, 2002 will be completed or filled prior to the end of
2003, subject to weather and other construction related delays. Contracts and
commitments for products and services are occasionally varied, modified, or
cancelled by mutual consent.

8

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.)

COMPETITION

The Company believes that there are approximately 30 companies engaged in
the production of various synthetic geomembrane liners worldwide. These
companies offer the wide range of products identified in the section on Company
Products. The Company's competition is not limited to those companies that
manufacture polyethylene 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
capacity 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 1,080 employees as of December 31, 2002, with 791
employed in the United States. During peak construction periods, the Company's
workforce increases in all locations. In the off-season construction period, the
Company maintains a nucleus of experienced employees somewhat below the peak
season staffing levels. Some of the Company's full-time employees in foreign
locations are unionized, but the Company has never experienced a strike or
lockout. The Company believes its employee relations are satisfactory.

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

PATENTS AND PROPRIETARY INFORMATION

The Company has received patents from the U.S. Patent and Trademark Office
for its GSE White, GSE Conductive and GSE CurtainWall products, as well as its
FrictionFlex texturing process. Certain of these patents are either registered
or in the process of being registered in select foreign countries. It has
registered its trademark and logo ("GSE") with the same patent office and has
registered this trademark in select foreign countries. The Company has other
patents, license-to-use patents (such as GundSeal and Bentofix(R)), 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.

9

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.

ITEM 2. PROPERTIES

The Company manufactures its products in nine locations around the world. At
these locations are fifteen extrusion lines for producing liner products, three
lines for the production of geocomposite drainage net products, one
needlepunched nonwoven textile manufacturing line, three lines for the
production of geosynthetic clay lining products and four texturing lines.

Serrot's United States operations have been moved to GSE's manufacturing
plants. Serrot had two manufacturing operations in Canada, one of which it owned
51%. The other Canadian manufacturing plant has been closed and the equipment
moved to GSE's facility in Houston, Texas. Serrot's installation operations in
the United States and Germany were combined with GSE's installation operations
in these countries.

UNITED STATES

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

Another manufacturing facility is on a 55 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 needlepunched 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 16,000 square foot building located in Spearfish,
South Dakota. The plant is located near the sources for clay (bentonite).

The Company owns two small industrial sites, one in Reno, Nevada and the
second in Pittsburgh, Pennsylvania, from which it conducts installation
services.

CANADA

The Company owns a 51% interest in Bentofix Technologies Inc., located in
Barrie Canada. This 40,000 square foot leased facility manufactures geosynthetic
clay lining products sold mostly to the Company.

The Company also owns an industrial site in Calgary, Canada that is held for
sale.

10

GERMANY

GSE Lining Technology GmbH headquartered in Hamburg, Germany, manages the
Company's European operations. The Company's staff in Hamburg can assist its
customers in 21 languages. Its manufacturing facility is located in Rechlin,
Germany, on 8.2 acres owned by the Company. From this location, the Company
supplies its customers with products manufactured on a flat cast extrusion line,
two 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 .75 acre owned/leased
facility in Soham, England, just north of London. This location has 2,500 square
feet of office space and 10,652 square feet of manufacturing facilities. Its
products are manufactured on a round die extrusion line located on this site and
one texturing line. The Company's administrative, sales, and installation
service personnel are housed at this location. This facility manufacturers both
polyethylene and polypropylene geomembrane products.

EGYPT

The Company owns 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 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 8,000
square meters of property leased by the Company. Its products are manufactured
on two blown film round die extrusion lines owned by the Company. This company
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.
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. The court entered judgment in the amount of $12,232,000 together with
reasonable attorneys' fees and prejudgment interest at the rate provided by law.
The Company posted a $14,678,000 supersedeas appeal bond issued by Westchester
Fire Insurance Company and entered into a Collateral Agreement with Westchester
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. The Company has filed the appropriate motions to overturn
the jury's verdict and if not successful will file an appeal to the Court of
Appeals sitting in Washington, D.C. 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.

11

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 2002.

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 February 1, 2003.

YEAR ENDED DECEMBER 31,
THROUGH -------------------------------------------------
FEBRUARY 1, 2003 2002 2001
----------------------- ----------------------- -----------------------
HIGH LOW HIGH LOW HIGH LOW
---------- ---------- ---------- ---------- ---------- ----------

First Quarter ...... 9.05 8.58 7.30 2.72 3.13 2.13
Second Quarter ..... - - 8.95 6.20 2.75 2.25
Third Quarter ...... - - 8.58 6.76 3.60 2.55
Fourth Quarter ..... - - 10.00 7.38 2.70 2.22

The approximate number of record holders of the Company's common stock at
February 1, 2003, was 266. Management estimates that the aggregate number of
beneficial holders exceeds 1,500.

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.)

12

ITEM 6. SELECTED FINANCIAL DATA.
(in thousands, except per share amounts)

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------

INCOME STATEMENT DATA:
Sales and operating revenue ..................... $ 266,970 $ 173,409 $ 191,320 $ 178,569 $ 179,555
Gross profit ................................... 56,644 28,804 32,579 35,921 34,928
Operating income ............................... 24,233 3,389 6,792 9,904 8,918
Interest expense, net .......................... 2,379 1,248 1,354 1,716 2,357
Income before income taxes ..................... 22,536 2,600 5,965 8,461 6,932
Net income before extraordinary items .......... 13,657 1,378 3,638 4,907 4,020
Extraordinary items ............................ 25,199 -- -- -- --
Net income ..................................... 38,856 1,378 3,638 4,907 4,020
Basic earnings per common share
Before extraordinary items .................. 1.22 .12 .31 .38 .30
Extraordinary items ......................... 2.25 -- -- -- --
Basic earnings per common share ................ 3.47 .12 .31 .38 .30

Diluted earnings per common share
Before extraordinary items .................. 1.17 .12 .31 .38 .30
Extraordinary items ......................... 2.17 -- -- -- --
Diluted earnings per common share .............. 3.34 .12 .31 .38 .30

BALANCE SHEET DATA:
Working capital ................................ $ 92,265 $ 48,021 $ 51,949 $ 60,715 $ 59,569
Total assets ................................... 202,310 145,611 148,563 161,697 169,320
Total debt ..................................... 21,602 25,801 26,530 31,360 37,414
Stockholders' equity ........................... 132,431 90,434 89,308 93,271 89,793

See Note 8 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.

RESULTS OF OPERATIONS

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

The Company's net sales and operating revenue of $266,970,000 increased
$93,561,000, or more than 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 International, Inc. (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 sales were $7,708,000 higher in the year 2002
because of an increase in the dollar value of local functional currencies.
Foreign sales of GSE's products, in units, 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 location 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.

13

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 which will not exist in 2003.

Non-recurring costs 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 subsidiary acquired with the Serrot acquisition.

The Company recorded other expense of $689,000 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 last year. This loss was the result of
bad debt provisions recorded in Egypt. The Company also wrote off equipment held
for resale resulting in an earnings reduction of $600,000. The company also
incurred letter of credit and loan commitment fees of $230,000 classified as
other expenses.

Earnings were reduced for minority interest of $316,000 in 2002. This was
primarily due to the earnings of the 49% ownership in a Canadian joint venture
interest acquired with the Serrot acquisition.

The Company's provision for income taxes was $8,879,000 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 years rate was heavily
influenced by the Company's lower profit in the U. S. and 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.

The extraordinary loss for extinguishment of debt results from refinancing
the Company's long-term notes on February 4, 2002, to acquire Serrot. The
Company paid $900,000 after-tax make-whole cost to retire its $20,000,000
balance of 7.34% notes with two lenders, offset by $133,000 after-tax deferred
interest income from closing out a prior cross-currency swap and deferred debt
issue cost related to this financing.

14

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

The Company's net sales and operating revenue of $173,409,000 decreased
$17,911,000, or more than 9%, in 2001 from the $191,320,000 reported in 2000. A
change in the U.S. dollar value of the Company's foreign entity functional
currencies reduced year 2001 sales and operating revenue by $2,510,000. Units
shipped decreased 5% in 2001 from 2000. Sales to the North American market were
$93,374,000 in 2001 compared with $106,717,000 in 2000. The decreased revenue
was caused by a 13% decrease in units shipped as a result of a smaller North
American market. Sales and operating revenue in foreign markets were $80,035,000
in 2001 compared with $84,603,000 in 2000. When compared to 2000, foreign sales
were $2,510,000 lower in the year 2001 because of a drop in the dollar value of
local functional currencies. Foreign sales of GSE's products, in units, were up
1%; however, GSE installed fewer of its products in 2001 than in 2000.

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

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

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

Interest income was $299,000 lower in 2001 than 2000. This reduction was the
result of lower average cash balances and lower interest rates on invested cash.

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity in 2002 were cash on hand, cash
generated from operations, and borrowings under its $55,000,000 credit
agreement, described below. At December 31, 2002, the Company had working
capital of $92,265,000 of which $42,264,000 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.
Nevertheless, 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 2003.

15

Total capitalization as of December 31, 2002 was $154,033,000, consisting of
total debt of $21,602,000 and equity of $132,431,000. The debt-to-capitalization
ratio at December 31, 2002 was 14% compared to 22.2% at the end of fiscal year
2001. The decrease in the debt-to-capitalization ratio was primarily the result
of net earnings during fiscal year 2002 and a decrease in total debt of
$4,199,000.

In January 2003, the Company purchased the remaining 50% of its Egyptian
joint venture for a price of $4,000,000. The Company also has a commitment to
purchase a second geomembrane manufacturing line, currently under lease to the
joint venture at the end of calendar year 2003 for $950,000.

The Company has a contract to sell its Calgary Canada facility, closed on
December 31, 2002, for approximately $2,000,000. The sale is expected to be
completed in 2003. The Company expects to receive $1,200,000 after costs of
closing the plant.

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. The court entered
judgment in the amount of $12,232,000 together with reasonable attorneys' fees
and prejudgment interest at the rate provided by law. The Company posted a
$14,678,000 supersedeas appeal bond issued by Westchester Fire Insurance Company
and entered into a Collateral Agreement with Westchester 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.
The Company has filed the appropriate motions to overturn the jury's verdict. If
not successful at the trial court level the Company will file an appeal to the
Court of Appeals sitting in Washington, D.C. 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 has a stock repurchase plan with 1,619,643 shares still
authorized. The repurchase program is inactive.

Credit Facilities

On February 4, 2002, the Company entered into a note agreement with a lender
in the amount of $25,000,000. This 3-year term facility is secured by the
Company's Houston, TX, and Kingstree, SC, real properties and all of the
Company's equipment at these locations. The promissory note requires monthly
payments of approximately $520,000 including interest at the rate of 9.22% and
matures on February 5, 2005 with a balloon payment equal to the unpaid principal
balance plus accrued and unpaid interest. The terms of the note place various
restrictions on the Company's ability to pay dividends or make certain other
payments, incur additional debt, consolidate or merge into another corporation
or sell assets and make capital expenditures. The note also requires the Company
to maintain certain financial ratios and specified levels of consolidated net
worth. At December 31, 2002, the Company's balance outstanding under the note
was $21,204,000.

16

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, 2002, the Company
had $20,628,000 available under this credit agreement.

At December 31, 2002, the Company had credit facilities with three German
banks in the amount of EUR 7,650,000. 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, 2002, the Company had EUR 4,861,000 available under these credit
facilities with EUR 2,789,000 of bank guarantees outstanding.

Sources and Uses of Cash

Cash provided by operating activities during 2002 was $36,626,000, compared
to $15,788,000 in the prior year. The increase was primarily the result of cash
flow from operations of $27,189,000 and the reduction of net operating assets
$9,437,000.

Cash used by investing activities during 2002 was $6,048,000, compared to
$9,061,000 in the prior year. Cash of $6,016,000 was used for capital
expenditures net of the proceeds from fixed assets sold compared to $9,061,000
last year. The Company's purchase of Serrot provided $775,000 of cash and
$957,000 of cash was included in the sale of an Irish joint venture.

Cash used in financing activities during 2002 was $4,843,000, compared to
$731,000 in the prior year. Net cash repayments under debt agreements, cash
proceeds from stock option exercises and a company stock purchase plan increased
$1,412,000 partially offsetting the increased debt repayments and financing
fees.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table represents information 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 $ 21,602,000 $ 4,690,000 $ 16,912,000 -- --
Operating Leases 1,670,000 629,000 932,000 $ 109,000 --
--------------- -------------------- --------------- --------------- ---------------
Total $ 23,272,000 $ 5,319,000 $ 17,844,000 $ 109,000 --

Other Commercial
Obligations Total Less Than One Year 1-3 Years 4-5 Years After 5 Years
- -------------------- --------------- -------------------- --------------- --------------- ---------------

Letters of Credit $ 1,468,000 $ 1,468,000 -- -- --
Bank Guarantees 4,301,000 2,135,000 $ 1,649,000 $ 517,000 --
--------------- -------------------- --------------- --------------- ---------------
Total $ 5,769,000 $ 3,603,000 $ 1,649,000 $ 517,000 --

17

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, 2002.

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.

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

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

Goodwill impairment - The Company 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.

18

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 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company's exposure to interest rate market risk is limited to credit
facilities that bear interest at floating rates. As of December 31, 2002, 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 this credit
facility.

The Company routinely enters into fixed price contracts with commencement of
performance dates spread throughout the year. Due to the nature of the
construction business into which our products are sold, the Company has limited
contractual means of passing through resin price increases. The Company believes
that it successfully manages this risk by:
a) setting expiration dates on bids,
b) negotiating delays in announced resin price increases,
c) carrying inventory to meet expected demand and
d) planning and staying informed on economic factors influencing
resin prices.

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

19

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, 2002 and 2001, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2002. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and 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, 2002 and 2001, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2002, 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, 2003

20

GUNDLE/SLT ENVIRONMENTAL, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)

DECEMBER 31,
---------------------------
2002 2001
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 42,264 $ 16,163
Accounts receivable:
Trade, net ........................................................... 51,669 44,356
Other ................................................................ 4,046 1,062
Contracts in progress ................................................... 2,043 1,977
Inventory ............................................................... 27,352 17,151
Deferred income taxes ................................................... 9,366 4,006
Prepaid expenses and other .............................................. 5,260 1,609
------------ ------------
Total current assets ............................................ 142,000 86,324
Property, plant and equipment, net ........................................ 33,011 33,355
Excess of purchase price over fair value of net assets acquired,
net ...................................................................... 22,529 22,205
Deferred income taxes ..................................................... 545 777
Other assets .............................................................. 4,225 2,950
------------ ------------
$ 202,310 $ 145,611
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities ................................ $ 37,920 $ 26,351
Advance billings on contracts in progress ............................... 5,173 1,139
Current portion of long-term debt ....................................... 4,690 5,268
Short-term debt ......................................................... -- 5,154
Income taxes payable .................................................... 1,952 391
------------ ------------
Total current liabilities ....................................... 49,735 38,303
Deferred income taxes ..................................................... 252 1,145
Long-term debt ............................................................ 16,912 15,379
Minority interest ......................................................... 1,614 --
Other liabilities ......................................................... 1,366 350
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,
18,437,156 and 18,109,923 shares issued ................................ 184 183
Additional paid-in capital .............................................. 70,763 69,378
Retained earnings ....................................................... 99,149 60,293
Accumulated other comprehensive income .................................. (487) (2,242)
------------ ------------
169,609 127,612
Treasury stock at cost, 7,066,261 shares and 7,066,262 shares ........... (37,178) (37,178)
------------ ------------
Total stockholders' equity ...................................... 132,431 90,434
------------ ------------
$ 202,310 $ 145,611
============ ============

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

21

GUNDLE/SLT ENVIRONMENTAL, INC.

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

YEAR ENDED DECEMBER 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------

Sales and operating revenue .......................... $ 266,970 $ 173,409 $ 191,320
Cost of products and services ........................ 210,326 144,605 158,741
----------- ----------- -----------
Gross profit ......................................... 56,644 28,804 32,579
Selling, general and administrative expenses ......... 29,194 24,090 24,445
Amortization of goodwill ............................. -- 1,325 1,342
Nonrecurring charges - Serrot acquisition ............ 3,217 -- --
----------- ----------- -----------
Operating income ..................................... 24,233 3,389 6,792
Other expenses:
Interest expense ................................... 2,915 1,709 2,114
Interest income .................................... (536) (461) (760)
Foreign exchange (gain) loss ....................... (1,687) 243 (61)
Other (income) expense, net ........................ 689 (702) (466)
Minority interest .................................. 316 -- --
----------- ----------- -----------
Income before income taxes ........................... 22,536 2,600 5,965
Provision for income taxes ........................... 8,879 1,222 2,327
----------- ----------- -----------
Net income before extraordinary items, net of tax .... 13,657 1,378 3,638
Extraordinary gain - Serrot acquisition .............. 25,966 -- --
Extraordinary loss - extinguishment of debt .......... (767) -- --
----------- ----------- -----------
Net income ........................................... $ 38,856 $ 1,378 $ 3,638
=========== =========== ===========

Basic earnings per common share:
Before extraordinary items, net of tax ............. 1.22 0.12 0.31
Extraordinary gain - Serrot acquisition ............ 2.23 -- --
Extraordinary loss - extinguishment of debt ........ (0.07) -- --
----------- ----------- -----------
Basic earnings per common share ...................... $ 3.47 $ 0.12 $ 0.31
=========== =========== ===========

Diluted earnings per common share:
Before extraordinary items, net of tax ............. 1.17 0.12 0.31
Extraordinary gain - Serrot acquisition ............ 2.23 -- --
Extraordinary loss - extinguishment of debt ........ (0.06) -- --
----------- ----------- -----------
Diluted earnings per common share .................... $ 3.34 $ 0.12 $ 0.31
=========== =========== ===========

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

22

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------------- PAID IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME
---------- ---------- ---------- ---------- -------------

Balance at December 31, 1999 18,096 181 69,358 55,277 627
Net income ...................... -- -- -- 3,638 --
Gain from swap (see note 2) ..... -- -- -- -- (1,750)
Cumulative translation
adjustment ..................... -- -- -- -- (925)

Comprehensive Income ......... -- -- -- -- --

Restricted stock grant .......... -- -- (19) -- --
Purchases under the
Employee Stock Purchase Plan ... 8 -- 25 -- --
Treasury stock purchases ........ -- -- -- -- --
---------- ---------- ---------- ---------- -------------
Balance at December 31, 2000 18,104 181 69,364 58,915 (2,048)
Net income ...................... -- -- -- 1,378 --
Cumulative translation
adjustment ..................... -- -- -- -- (194)

Comprehensive Income ......... -- -- -- -- --

Purchases under the
Employee Stock Purchase Plan .. 6 2 14 -- --
Treasury stock purchases ....... -- -- -- -- --
---------- ---------- ---------- ---------- -------------
Balance at December 31, 2001 18,110 183 $ 69,378 $ 60,293 $ (2,242)
Net Income ...................... -- -- -- 38,856 --
Cumulative translation
adjustment ..................... -- -- -- -- 1,755

Comprehensive Income ......... -- -- -- -- --

Exercise of stock options ......... 317 1 1,362 -- --
Purchases under the Employee
Stock Purchase Plan ............ 10 -- 23 -- --
Treasury stock purchases ........ -- -- -- -- --
---------- ---------- ---------- ---------- -------------
Balance at December 31, 2002 18,437 $ 184 $ 70,763 $ 99,149 $ (487)
========== ========== ========== ========== =============

TREASURY STOCK
------------------------
SHARES AMOUNT TOTAL
---------- ---------- ---------

Balance at December 31, 1999 ...... 5,328 (32,172) 93,271
Net income ...................... -- -- 3,638
Gain from swap (see note 2) ..... -- -- (1,750)
Cumulative translation
adjustment ..................... -- -- (925)
---------
Comprehensive Income ......... -- -- 963
---------
Restricted stock grant .......... 35 -- (19)
Purchases under the
Employee Stock Purchase Plan ... -- -- 25
Treasury stock purchases ........ 1,678 (4,932) (4,932)
---------- ---------- ---------
Balance at December 31, 2000 7,041 (37,104) 89,308
Net income ...................... -- -- 1,378
Cumulative translation
adjustment ..................... -- -- (194)
---------
Comprehensive Income ......... -- -- 1,184
---------
Purchases under the
Employee Stock Purchase Plan .... -- -- 16
Treasury stock purchases ....... 25 (74) (74)
---------- ---------- ---------
BALANCE AT DECEMBER 31, 2001 7,066 $ (37,178) $ 90,434
Net Income ...................... -- -- 38,856
Cumulative translation
adjustment ..................... -- -- 1,755
---------
Comprehensive Income ......... -- -- 40,611
---------
Exercise of stock options ......... -- -- 1,363
Purchases under the Employee
Stock Purchase Plan ............ -- -- 23
Treasury stock purchases ........ -- -- --
---------- ---------- ---------
Balance at December 31, 2002 7,066 $ (37,178) $ 132,431
========== ========== =========

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

23

GUNDLE/SLT ENVIRONMENTAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

YEAR ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------

Cash flows from operating activities:
Net income .................................................... $ 38,856 $ 1,378 $ 3,638
Adjustments to reconcile net income to cash provided
by (used in) operating activities:
Depreciation ................................................ 7,916 8,164 7,955
Amortization of goodwill .................................... -- 1,325 1,342
Amortization of debt issuance costs ......................... 695 20 83
Minority interest ........................................... 316 -- --
Deferred income taxes ....................................... 5,955 974 (1,311)
(Gain) on sale of assets .................................... (850) (82) (138)
(Gain) on sale of joint venture interest .................... (51) -- --
(Gain) on purchase of Serrot ................................ (25,966) -- --
(Gain) on hedge ............................................. (290) -- --
Equity in affiliates and other .............................. 608 (229) (492)
Increase (decrease) in cash due to changes in assets and
Liabilities, net of acquisition:
Accounts receivable, net .................................. 16,335 4,695 2,671
Costs and estimated earnings in excess of billings on
contracts in progress .................................... 1,450 472 (189)
Inventory ................................................. (2,957) 138 1,682
Prepaid expenses and other, net ........................... 189 (851) 1,316
Accounts payable and accrued liabilities .................. (8,863) 1,518 (1,043)
Advance billings on contracts in progress ................. 3,199 (573) (644)
Income taxes payable ...................................... 84 (1,161) (1,187)
--------- --------- ---------
Net cash provided by operating activities ............... 36,626 15,788 13,683
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment .................... (7,315) (9,558) (10,083)
Proceeds from the sale of assets .............................. 1,299 497 143
Cash acquired from acquisition of business, net of payments ... 775 -- --
Sale of joint venture interest, net of cash sold .............. (957) -- --
Other ......................................................... 150 -- --
--------- --------- ---------
Net cash used for investing activities ................. (6,048) (9,061) (9,940)
--------- --------- ---------
Cash flows from financing activities:
Revolver ...................................................... (5,000) 5,000 --
Payment of financing fees ..................................... (2,037) -- --
Repayments of long-term debt .................................. (24,363) (5,674) (5,248)
Proceeds of new debt .......................................... 25,128 -- 534
Proceeds from the exercise of stock options and purchases
under the employee stock purchase plan ....................... 1,429 17 25
Repurchase of common stock .................................... -- (74) (4,932)
--------- --------- ---------
Net cash used by financing activities .................. (4,843) (731) (9,621)
Effect of exchange rate changes on cash ......................... 366 (1,103) 275
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............ 26,101 4,893 (5,603)
Cash and cash equivalents at beginning of year .................. 16,163 11,270 16,873
--------- --------- ---------
Cash and cash equivalents at end of year ........................ $ 42,264 $ 16,163 $ 11,270
========= ========= =========

Supplemental Cash Flow Disclosure:
Cash paid for interest .......................................... $ 2,306 $ 2,227 $ 2,930
========= ========= =========
Cash paid for income taxes ...................................... $ 3,433 $ 1,404 $ 4,795
========= ========= =========

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

24

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 2002, 2001 and 2000 was
$4,945,000, $2,569,000, and $3,022,000, 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, 2002, 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.

25

Net income for the three years in the period ended December 31, 2002,
adjusted for goodwill amortization, was as follows:

YEAR ENDED DECEMBER 31,
---------------------------------
2002 2001 2000
--------- --------- ---------

Reported net income before extraordinary items ................................. $ 13,657 $ 1,378 $ 3,638
Goodwill amortization, net of tax .............................................. -- 800 810
--------- --------- ---------
Adjusted net income before extraordinary items ................................. 13,657 2,178 4,448
Extraordinary items, net of tax ................................................ 25,199 -- --
--------- --------- ---------
Adjusted net income ............................................................ $ 38,856 $ 2,178 $ 4,448
========= ========= =========
Basic earnings per common share:
Reported basic earnings per common share before extraordinary items .......... $ 1.22 $ 0.12 $ 0.31
Goodwill amortization ........................................................ -- 0.07 0.07
--------- --------- ---------
Adjusted basic earnings per common share before extraordinary items .......... 1.22 0.19 0.38
Extraordinary items .......................................................... 2.25 -- --
--------- --------- ---------
Adjusted basic earnings per common share ....................................... $ 3.47 $ 0.19 $ 0.38
========= ========= =========

Diluted earnings per common share:
Reported diluted earnings per common share before extraordinary items ........ $ 1.17 $ 0.12 $ 0.31
Goodwill amortization ........................................................ -- 0.07 0.07
--------- --------- ---------
Adjusted diluted earnings per common share before extraordinary items ........ 1.17 0.19 0.38
Extraordinary items .......................................................... 2.17 -- --
--------- --------- ---------
Adjusted diluted earnings per common share ..................................... $ 3.34 $ 0.19 $ 0.38
========= ========= =========

Revenue and cost recognition --

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

Cost of sales includes all direct material and labor costs, and indirect
costs such as indirect labor, depreciation, insurance, supplies, tools, 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 costs and income and are recognized in the period in
which the revisions are determined.

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

Deferred costs --

Debt issuance costs are capitalized and amortized 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
7).

Income taxes --

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

26

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, 2002 and 2001, the Company did
not have any foreign exchange derivative instruments not qualifying as
accounting hedges.

Stock options --

The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
stock options. See Note 12 for disclosures required by Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation".

Use of estimates --

The preparation of financial statements in conformity with 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.

27

Reclassifications --

The accompanying consolidated financial statements for 2000 and 2001 contain
certain reclassifications to conform to the presentation used in 2002.

Accounting Changes --

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

In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", and the accounting and reporting provisions of Accounting
Principals Board Opinion ("APB") No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
retains the fundamental provisions of SFAS No. 121 for recognition and
measurement of long-lived asset impairment and for the measurement of long-lived
assets to be disposed of by sale and the basic requirements of APB No. 30. In
addition to these fundamental provisions, SFAS No. 144 provides guidance for
criteria for classifying assets to be disposed of as held for sale. The
statement is effective for fiscal years beginning after December 15, 2001, and
the Company adopted the new standard as of January 1, 2002. The adoption of this
statement had no material effect on the Company's consolidated financial
position or results of operations.

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
item in APB 30. The statement is effective for fiscal years beginning after May
15, 2002 with early adoption encouraged. The Company will adopt SFAS 145
effective January 1, 2003. Management does not expect adoption of the statement
to have a material effect on the Company's consolidated financial position or
results of operations.

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 will adopt SFAS 146 effective with disposal activities initiated
after December 31, 2002. Management does not expect adoption of this statement
to have a material effect on the Company's consolidated financial position or
results of operations.

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. Management does
not expect that the adoption of this Interpretation will have a material impact
on the Company's consolidated financial statements or disclosures.

28

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which is effective for fiscal years
ended after December 15, 2002. SFAS 148 amends SFAS 123, "Accounting for
Stock-Based Compensation." To permit two additional transition methods for a
voluntary change to the fair value method of accounting for stock-based employee
compensation from the intrinsic method under APB 25, "Accounting for Stock
Issued to Employees", and does not permit the prospective method of transition
under SFAS 123. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim financial
statements concerning the method of accounting used for stock-based employee
compensation and the effects of that method on reported results of operations.
Under SFAS 148, pro forma disclosure will be required in a specific tabular
format in the "Summary of Significant Accounting Policies." The Company has
adopted the disclosure requirements of this statement effective December 16,
2002. The adoption had no effect on the Company's consolidated financial
position or results of operations. The Company continues to account for its
stock-based compensation plans under APB 25.

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 loss and loss per share would have been increased to the following
pro forma amounts (in millions except per share amounts):

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
------------ ------------ ------------

Net income applicable to common stockholders
As reported..................................... $ 38,856 $ 1,378 $ 3,638
Total stock-based employee compensation expense
under fair value based method for all awards,
net of tax.................................... $ 1,021 321 $ 492
------------ ------------ ------------
Pro forma net loss applicable to common
stockholders.................................. $ 37,835 $ 1,057 $ 3,146
============ ============ ============
Basic earnings per share
As reported.................................... $ 3.47 $ 0.12 $ 0.31
Pro forma...................................... $ 3.38 $ 0.10 $ 0.26
Diluted earnings per share
As reported.................................... $ 3.34 $ 0.12 $ 0.31
Pro forma...................................... $ 3.25 $ 0.10 $ 0.26

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 ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000
------------ ------------ ------------

Dividend yield.................................... 0.00% 0.00% 0.00%
Expected price volatility......................... 70.0% 45.0% 49.0%
Risk-free interest rate........................... 3.50% 4.80% 5.30%

Expected life of options (in years)............... 6 6 6
Weighted-average fair value of options granted.... $ 5.86 $ 1.35 $ 1.14

29

(3) TRADE RECEIVABLES --

Trade receivables consisted of the following at December 31:

2002 2001
----------- -----------
(in thousands)

Direct sales ........................... $ 35,190 $ 26,421
Contracts:
Completed ............................ 13,852 13,534
In progress .......................... 8,990 7,303
Retainage ............................ 1,381 1,586
----------- -----------
59,413 48,844
Allowance for doubtful accounts ........ (7,744) (4,488)
----------- -----------
$ 51,669 $ 44,356
=========== ===========

(4) ACCOUNTING FOR INSTALLATION CONTRACTS --

The following summarizes installation contracts in progress at December 31:

2002 2001
----------- -----------
(in thousands)

Costs incurred on contracts in progress $ 55,998 $ 42,002
Estimated earnings, net of losses ...... 9,004 5,903
----------- -----------
65,002 47,905
Less -- billings to date ............. 68,132 47,067
----------- -----------
$ (3,130) $ 838
=========== ===========
Included in the accompanying balance
sheet under the following captions:
Contracts in progress ................ $ 2,043 $ 1 ,977
Advance billings ..................... (5,173) (1,139)
----------- -----------
$ (3,130) $ 838
=========== ===========

(5) INVENTORY --

Inventory consisted of the following at December 31:

2002 2001
----------- -----------
(in thousands)

Raw materials and supplies ............. $ 7,588 $ 4,625
Finished goods ......................... 19,764 12,526
----------- -----------
$ 27,352 $ 17,151
=========== ===========

(6) PROPERTY, PLANT AND EQUIPMENT --

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

USEFUL
LIVES 2002 2001
YEARS (in thousands)
---------- ----------- -----------

Land ................................... $ 3,286 $ 3,173
Buildings and improvements ............. 10-15 20,996 19,067
Machinery and equipment ................ 3-12 79,594 75,159
Furniture and fixtures ................. 3-5 1,286 1,055
----------- -----------
105,162 98,454
Less -- accumulated depreciation ....... (72,151) (65,099)
----------- -----------
$ 33,011 $ 33,355
=========== ===========

30

(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --

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

2002 2001
----------- -----------
(in thousands)

Trade accounts payable ................. $ 15,188 $ 14,204
Self-insurance reserves ................ 3,937 3,270
Compensation and benefits .............. 5,975 3,520
Taxes, other than income ............... 2,042 1,257
Accrued merger cost .................... 1,997 --
Accrual for cost of closing Canadian
plant ................................. 700 --
Other accrued liabilities .............. 8,081 4,100
----------- -----------
$ 37,920 $ 26,351
=========== ===========

(8) LONG-TERM DEBT --

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

2002 2001
----------- -----------
(in thousands)

9.22% Notes due February 5, 2005, with
monthly payment of principal and
interest of approximately $520,000 and
a balloon payment ..................... $ 21,204 --

7.34% Notes due August 1, 2005, with
required annual principal payments of
$5,000,000 beginning August 1, 2001,
interest payable semi-annually at
7.34% ................................. -- $ 20,000

8% Promissory Note due December 31,
2004, with required annual principal
and interest payments of $206,000 on
December 31 ........................... 367 531

Installment loans, denominated in Euros,
due September, 2002, with required
semi-annual principal and interest
payments, interest rates ranging from
7.5% to 8.0% secured by property
and plant ............................. -- 116

8% mortgage note due March 2003, with
monthly payments of principal and
interest of $16,513 (Canadian dollars)
secured by land and buildings in
Canada ................................ 31 --
----------- -----------
21,602 20,647
Less -- current maturities ............. (4,690) (5,268)
----------- -----------
$ 16,912 $ 15,379
=========== ===========

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

31

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, 2002, the Company had $20,628,000 available under this credit
agreement.

On February 4, 2002, the Company purchased all of the outstanding stock of
Serrot International, Inc. for a pre-adjustment price of $15,165,400. In
addition the Company estimated it would cost $12,000,000 for financing,
severance, and relocating personnel, inventory and equipment. To finance the
acquisition, the Company had to pay off its 7.34% notes with two lenders in the
amount of $20,000,000 plus $1,500,000 of pre-tax make-whole cost to extinguish
the debt. The Company recognized an after-tax extraordinary loss on the
extinguishment of debt of approximately $767,000. 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.

In January 2002, the Company arranged an additional EUR 2,550,000 credit
line with a German bank to guarantee the performance of German installation
contracts and temporary working capital requirements. This facility bears
interest at market rates and is supported by a corporate guarantee. The Company
has credit facilities with three German banks to support its European cash
management and bank guarantee requirements in the amount of EUR 7,650,000. 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 German installation contracts and temporary working
capital requirements. At December 31, 2002, the Company had EUR 4,861,000
available under these credit facilities with EUR 2,789,000 of bank guarantees
outstanding.

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

YEAR ENDING
DECEMBER 31,
------------
2003.................................... $ 4,690
2004.................................... 5,104
2005.................................... 11,808
----------
$ 21,602
==========

(9) BUSINESS COMBINATION --

On February 4, 2002, the Company completed the purchase of all the
outstanding stock of Serrot International, Inc. (SII) from Waste Management
Holdings, Inc. (WMI) at an adjusted purchase cost of $11,966,000, which included
$338,000 of debt assumed. SII was also an international manufacturer and
installer of geomembrane liner systems. The purchase excluded SII's roofing
materials business, all of its U.S. manufacturing plants and certain other
assets. The total cost of the acquisition is expected to be $16,398,000, which
includes the purchase price and after tax costs associated with severance, legal
and closing a SII 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 SII's long-lived assets net of their
associated tax benefits. The negative goodwill was recognized as an
extraordinary gain for the year ended December 31, 2002.

32

In conjunction with the purchase, the Company established a pre-tax
liability of $7,700,000 million for estimated severance, legal fees, and other
costs associated with the involuntary termination of 150 SII employees and the
closing of a SII plant. Through December 31, 2002, approximately $5,700,000
million of these costs have been paid.

The costs summarized as follows (in thousands):

LIABILITY RECORDED PAID IN PAYABLE IN
WITH PURCHASE 2002 2003 & 2004
------------------ --------- -------------

Involuntary termination costs $ 5,534 $ 4,856 $ 678
Other costs $ 2,166 $ 847 $ 1,319

The purchase price included, at estimated fair value after the allocation
of negative goodwill to long-lived assets, current assets of $66,599,000,
current liabilities of $22,815,000, deferred tax liabilities of $3,710,000, and
minority interest of $1,804,000. The excess of the estimated fair value of net
assets after the allocation of negative goodwill to long-lived assets over the
purchase price was $25,966,000, which has been accounted for as an extraordinary
gain in the year ended December 31, 2002.

Unaudited pro forma combined operating results of the Company and SII
assuming the merger was completed as of January 1, 2002 and 2001, respectively,
are summarized as follows:

YEAR ENDED DECEMBER 31,
-------------------------
2002 2001
---------- -----------
Sales & Operating Revenue $ 275,653 $ 331,217
Net Income $ 11,727 $ (1,808)
Basic Earnings Per Share $ 1.05 $ (.16)
Diluted Earnings Per Share $ 1.01 $ (.16)

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 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.

(10) 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 $21,602,000 and $20,647,000 of
fixed-rate debt instruments at December 31, 2002 and 2001 with fair values of
approximately $23,408,000 and $19,146,000, 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.

33

(11) 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,
----------------------------------
2002 2001 2000
---------- ---------- ----------

Weighted average common shares outstanding...... 11,197 11,045 11,903
Dilutive securities-- stock options............. 451 49 --
---------- ---------- ----------
Weighted average common shares outstanding assuming full dilution... 11,648 11,094 11,903
========== ========== ==========

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.

(12) 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, 2002, stockholders' equity included
1,380,357 shares repurchased under the plan at an aggregate cost of $4,354,289.

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, 2002 and 2001, 62,931 and 52,898 shares, respectively, had been
issued under this plan.

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

In 1995, the Company's board of directors adopted the 1995 Incentive Stock
Plan (the "1995 Employee Plan"). The 1995 Employee Plan, as subsequently amended
and restated in 2001, permits the grant of up to 2,400,000 stock 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.

34

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
----------------------------- -----------------------------
SHARES OPTION SHARES OPTION
UNDER PRICE UNDER PRICE
OPTION PER SHARE OPTION PER SHARE
---------- --------------- ---------- ---------------

OUTSTANDING AT
DECEMBER 31, 1999 95,400 $5.25 TO $11.13 45,000 $6.25 TO $11.63
Granted ......... -- -- -- --
Exercised ....... -- -- -- --
Cancelled ....... (17,400) $8.25 to $8.25 (30,000) $8.25 to $11.63
---------- --------------- ---------- ---------------
OUTSTANDING AT
DECEMBER 31, 2000 78,000 $5.25 TO $11.13 15,000 $6.25 TO $7.00
Granted ......... -- -- -- --
Exercised ....... -- -- -- --
Cancelled ....... -- -- -- --
---------- --------------- ---------- ---------------
OUTSTANDING AT
DECEMBER 31, 2001 78,000 $5.25 TO $11.13 15,000 $6.25 TO $7.00
Granted ......... -- -- --
Exercised ....... (20,000) $5.25 to $7.62 -- $6.25 to $7.00
Cancelled ....... (1,000) $7.62 to $7.62 -- --
---------- --------------- ---------- ---------------
OUTSTANDING AT
DECEMBER 31, 2002 57,000 $5.25 TO $11.13 15,000 $6.25 TO $7.00
========== =============== ========== ===============
OPTIONS EXERCISABLE 57,000 $5.25 TO $11.13 15,000 $6.25 TO $7.00
========== =============== ========== ===============
OPTIONS AVAILABLE
FOR FUTURE GRANTS. -0- -0-
========== ==========

1995 EMPLOYEE PLAN 1996 DIRECTOR PLAN
---------------------------- ---------------------------
SHARES OPTION SHARES OPTION
UNDER PRICE UNDER PRICE
OPTION PER SHARE OPTION PER SHARE
---------- -------------- --------- ---------------

OUTSTANDING AT
DECEMBER 31, 1999 945,950 $3.75 TO $9.00 52,000 $3.81 TO $7.00
Granted ......... 421,500 $2.32 to $3.56 12,000 $2.88 to $2.88
Exercised ....... -- -- -- --
Cancelled ....... (141,750) $3.75 to $6.50 (16,000) $3.81 to $7.00
---------- -------------- --------- ---------------
OUTSTANDING AT
DECEMBER 31, 2000 1,225,700 $2.32 TO $9.00 48,000 $2.88 TO $7.00
Granted ......... 398,000 $2.63 to $2.63 10,000 $2.65 to $2.65
Exercised ....... -- -- -- --
Cancelled ....... (49,500) $2.32 to $4.00 (8,000) $6.50 to $7.00
---------- -------------- --------- ---------------
OUTSTANDING AT
DECEMBER 31, 2001 1,574,200 $2.32 TO $9.00 50,000 $2.65 TO $5.81
Granted ......... 275,500 $8.85 to $8.85 10,000 $8.95 to $8.95
Exercised ....... (291,200) $2.31 to $6.50 (6,000) $4.87 to $4.87
Cancelled ....... (20,000) $2.63 to $2.31 (2,000) $4.87 to $4.87
---------- -------------- --------- ---------------
OUTSTANDING AT
DECEMBER 31, 2002 1,538,500 $2.32 TO $9.00 52,000 $2.65 TO $8.95
========== ============== ========= ===============
OPTIONS EXERCISABLE 1,066,500 $2.32 TO $9.00 42,000 $2.65 TO $5.81
========== ============== ========= ===============
OPTIONS AVAILABLE
FOR FUTURE GRANTS. 281,654 42,000
========== =========

All outstanding options were priced between $2.32 and $11.13 per share at
December 31, 2002. The weighted average of the remaining contractual life for
the outstanding options at December 31, 2002, was 4.7 years. The weighted
average price of options outstanding during 2002, 2001 and 2000 was $5.47,
$3.65, and $5.24, respectively.

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

The estimated fair value of stock options issued in 2002, 2001 and 2000 was
$1,674,000, $552,000, and $495,000, respectively.

Paid-in capital was increased $447,000 for tax benefits of exercised stock
options in 2002. No options were exercised in 2001.

35

(13) INCOME TAXES --

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

YEAR ENDED DECEMBER 31,
-------------------------------------
2002 2001 2000
---------- ---------- ----------
(IN THOUSANDS)

Domestic.................................................................. $ 9,893 $ (251) $ 5,793
Foreign................................................................... 12,643 2,851 172
---------- ---------- ----------
Total........................................................... $ 22,536 $ 2,600 $ 5,965
======== ========== ==========

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

YEAR ENDED DECEMBER 31,
-------------------------------------
2002 2001 2000
---------- ---------- ----------
(IN THOUSANDS)

Current expense (benefit):
U.S.
Federal............................................................. $ (3,183) $ (963) $ 2,368
State............................................................... (362) (21) 246
---------- ---------- ----------
Total U.S...................................................... (3,545) (984) 2,614
Foreign................................................................ 4,104 1,457 977
---------- ---------- ----------
Total current.................................................. 559 473 3,591
Deferred expense (benefit):
U.S.
Federal............................................................. 7,375 (277) (452)
State............................................................... 632 (24) (38)
---------- ---------- ----------
Total U.S...................................................... 8,007 (301) (490)
Foreign................................................................ (198) 1,050 (774)
---------- ---------- ----------
Total deferred................................................. 7,809 749 (1,264)
---------- ---------- ----------
Total provision for income taxes after extraordinary items..... 8,368 1,222 2,327
Tax benefit of extraordinary items included above.............. 511 -- --
---------- ---------- ----------
Total provision for income taxes before extraordinary items.... $ 8,879 $ 1,222 $ 2,327
========== ========== ==========

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,
-------------------------------------
2002 2001 2000
---------- ---------- ----------
(IN THOUSANDS)

Tax provision at statutory rate........................................... $ 7,888 $ 884 $ 2,028
Add (deduct):
Amortization of goodwill................................................ - 286 368
Meals and entertainment disallowance.................................... 534 269 365
Foreign Sales Corporation benefit....................................... - - (360)
Taxable differential for foreign subsidiaries........................... (39) 240 107
State income taxes...................................................... 222 (30) 137
Foreign earnings........................................................ 150 - -
Other, net.............................................................. 124 (427) (318)
---------- ---------- ----------
$ 8,879 $ 1,222 $ 2,327
========== ========== ==========

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

2002 2001
---------- ----------
(in thousands)

Deferred tax assets:
Accrued expenses..................................................................... $ 7,553 $ 3,854
Foreign currency hedge .............................................................. -- 637
Excess of tax basis over book basis.................................................. 2,131
--
Other................................................................................ 227 292
---------- ----------
9,911 4,783
---------- ----------
Deferred tax liabilities:
Excess of tax depreciation over book depreciation.................................... -- 917
Long-term contracts................................................................. 252 228
---------- ----------
252 1,145
---------- ----------
Total deferred tax asset..................................................... $ 9,659 $ 3,638
========== ==========

36

Undistributed retained earnings of the Company's foreign subsidiaries
amounted to approximately $15,310,000 at December 31, 2002. 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.

(14) 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
$575,000, $495,000, and $477,000 to the plan during the years ended December 31,
2002, 2001 and 2000, respectively. Under the terms of the plan, contributions to
the plan may be discontinued at any time.

(15) PENSION PLAN --

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

The Company has adopted FAS 132, "Employers' Accounting for Pensions;"
however, to the extent pension costs under German law exceed amounts computed
under FAS 132, those additional amounts are recorded by the Company. Pension
expense for the years ended December 31, 2002, 2001, and 2000 was $165,000,
$70,000, and $24,000 respectively. The actuarial present value of accumulated
benefits was $1,365,000, and $1,005,000 as of December 31, 2002 and December 31,
2001, respectively. The projected benefit obligation for service rendered to
date, net of unrecognized prior service cost, was $1,365,000, and $1,005,000, as
of December 31, 2002 and 2001, respectively.

The computation assumed a discount rate on benefit obligations of 6%, annual
salary increases of 2% and annual benefit increases of 2% for 2002 and a
discount rate on benefit obligations of 7%, annual salary increases of 2% and
annual benefit increases of 2% for 2001.

(16) 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 2002, one customer accounted for 14% of
sales and operating revenue. During 2001 and 2000, no single customer accounted
for 10% or greater of total net sales.

(17) COMMITMENTS AND CONTINGENCIES --

Product warranties and insurance coverage --

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

37

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.

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 International, Inc.
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. The court entered judgment in the amount of $12,232,000 together with
reasonable attorneys' fees and prejudgment interest at the rate provided by law.
The Company posted a $14,678,000 supersedeas appeal bond issued by Westchester
Fire Insurance Company and entered into a Collateral Agreement with Westchester
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. The Company has filed appropriate motions to overturn the
jury's verdict. If not successful at the trial court the Company will file an
appeal to the Court of Appeals sitting in Washington, D.C. 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 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.

(18) 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 a non-recurring expense in the Company's consolidated statement of
operations. Through December 31, 2002, no amounts had been paid to employees
whose employment is being terminated as a result of this plan. The Company
anticipates that substantially all amounts will be paid by the end of the first
quarter of 2003.

38

(19) SUBSEQUENT EVENTS --

On January 24, 2003, the Company completed the acquisition of the
outstanding stock of Hyma/GSE Manufacturing Co. S.A.E. and Hyma/GSE Lining
Technology Co. S.A.E. from its joint venture partners in Cairo, Egypt, for $4
million. In addition, the Company agreed to purchase a blown film round die
extrusion manufacturing line in 12 months time at a price of $950,000. It has
committed to relocating the manufacturing equipment to another location within
24 months from the date of closing.

See Note 17 for disclosure related to the January 6, 2003, judgment entered
against the Company for damages arising out of the alleged patent infringement
activities of Serrot International, Inc. conducted prior to the acquisition of
Serrot by the Company.

(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 ENDED
----------------------------------
2002 2001 2000
---------- ---------- ----------

Sales to unaffiliated customers (based on the geographic location of the
customer):
United States................................................... $ 165,680 $ 93,136 $ 105,659
Europe.......................................................... 63,745 51,979 49,007
Latin & South America........................................... 10,704 9,339 16,095
Far East/Pacific Rim............................................ 11,650 10,966 14,278
Other........................................................... 15,191 7,989 6,281

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

Long lived assets (principally property, plant and equipment):
United States................................................... $ 23,984 $ 23,875 $ 22,365
Germany......................................................... 3,534 3,084 3,764
Thailand........................................................ 4,094 4,693 4,100
Other........................................................... 1,399 1,703 5,263

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

39

GUNDLE/SLT ENVIRONMENTAL, INC.

SUPPLEMENTARY DATA

CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) --

Unaudited quarterly information for fiscal 2002 and 2001 is as follows (in
thousands, except per share amounts):

2002 2001
------------------------------------------- ------------------------------------------
QUARTER QUARTER
------------------------------------------- ------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
-------- -------- -------- -------- -------- -------- -------- --------

Net sales ....................... $ 38,730 $ 81,932 $ 93,957 $ 52,351 $ 23,544 $ 47,019 $ 57,340 $ 45,506
Gross profit .................... 6,121 19,484 21,227 9,812 2,068 7,872 10,943 7,921
Income (loss) before income taxes (2,743) 9,278 14,595 1,406 (4,799) 1,458 4,697 1,243
Net income (loss) before
extraordinary items ............ (1,591) 5,382 8,887 979 (2,784) 846 2,765 550
Extraordinary gain - Serrot
acquisition .................... 24,667 (368) 4,124 (2,457) -- -- -- --
Extraordinary loss -
extinguishment of debt ......... (767) -- -- -- -- -- -- --
Net income (loss) .............. 22,295 5,054 12,986 (1,479) (2,784) 846 2,765 550
Basic earnings (loss) per Common
Share .......................... 2.02 .45 1.15 (.13) (.26) .08 .25 .05
Diluted earnings (loss) per
Common Share ................... 2.02 .43 1.11 (.13) (.26) .08 .25 .05

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 BALANCE
BEGINNING CHARGED WRITE- AT END
DESCRIPTION OF YEAR TO EXPENSE OFFS OF YEAR
- ------------------------------------------------------------- ---------- ----------- -------- --------

December 31, 2000
Allowance for doubtful accounts............................. $ 5,254 $ 984 $ 1,473 $ 4,765
========== =========== ======== ========

December 31, 2001
Allowance for doubtful accounts............................. $ 4,765 $ 1,662 $ 1,939 $ 4,488
========== =========== ======== ========

December 31, 2002
Allowance for doubtful accounts............................. $ 4,488 $ 9,054 $ 5,798 $ 7,744
========== =========== ======== ========

Year 2002 additions charged to expense and write-offs include $7,850 and $4,249,
respectively, acquired with the Serrot acquisition.

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

Not applicable.

40

PART III

Part III (Items 10 through 11 and 13) is omitted since the Company expects
to file with the Securities and Exchange Commission within 120 days following
December 31, 2002, definitive proxy materials pursuant to Regulation 14A under
the Securities Exchange Act of 1934 involving the annual election of directors
and certain other matters. If for any reason such a statement is not so filed,
this Report will be appropriately amended.

ITEM 12. EQUITY COMPENSATION PLANS.

The Company has several equity compensation plans described in Note 12. All
of the Company's plans have been approved by security holders.

Number of securities
remaining available for
Number of securities to be Weighted-average future issuance under equity
issued upon exercise of exercise price of compensation plans
outstanding options, outstanding options (excluding securities
Plan Category warrants and rights warrants and rights reflected in first column)
- -----------------------------------------------------------------------------------------------------------------------

Equity compensation plans
approved by security holders 1,662,006 $ 5.47 323,654
- -----------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Total 1,662,006 $ 5.47 323,654
- -----------------------------------------------------------------------------------------------------------------------

ITEM 14. CONTROLS AND PROCEDURES.

As of December 31, 2002, 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 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,
2002. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to December 31, 2002.

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 40)

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.

41

(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)
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-A to the
Registrant's 2002 Annual Report on Form 10-K)
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-B to the Registrant's
2002 Annual Report on Form 10-K)
4-C -- Promissory note dated as of February 4, 2002, between
Registrant and Transamerica Equipment Financial Services
Corporation (incorporated by reference to Exhibit 4-C to the
Registrant's 2002 Annual Report on Form 10-K)
10-B -- Registrant's 1986 stock option plan (Exhibit 10.11 to
Registrant's Registration Statement No. 33-44306 is
incorporated herein by reference)
10-G -- Registrant's 1995 Incentive Stock Plan as Amended and
Restated May 3, 2001, (incorporated by reference to 4.1 of the
Registrant's Registration Statement number 333-63466)
10-I -- Employment Agreement dated March 10, 1997, between Roger J.
Klatt and the Company (incorporated by reference to Exhibit of
the same number in Registrant's 1997 Annual Report on Form
10-K)
10-J -- Registrant's 1996 Nonqualified Stock Option Plan for
Non-Employee Directors (Exhibit 4.1 to Registrant's Report on
Form S-8 No. 333-23299 is incorporated herein by reference)
10-L -- Amendment dated June 4, 1998, to the Employment Agreement
dated March 10, 1997, between Roger J. Klatt and the Company
(incorporated by reference to Exhibit of the same Number in
Registrant's 1998 Annual Report on Form 10-K)
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)
21 -- Subsidiaries
23 -- Consent of Independent Auditors-- Ernst & Young LLP
99.1 -- Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
Samir T. Badawi
99.2 -- Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
Roger J. Klatt

42

(b) Reports on Form 8-K -- One report on Form 8-K dated December 23, 2002,
was filed during the quarter ended December 31, 2002, regarding the jury verdict
returned against Serrot International, Inc. in a patent infringement proceeding
brought by Poly-America, Inc.

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

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

43

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 27th day of
February, 2003.

GUNDLE/SLT ENVIRONMENTAL, INC.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 27th day of February, 2003.

SIGNATURE TITLE
- ---------------------------------------- ----------------------------------------------

/s/ SAMIR T. BADAWI Director, Chairman of the Board and
- ---------------------------------------- Principal Executive Officer
Samir T. Badawi

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

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

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

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

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

/s/ EDWARD T. SHEEHAN Director
- ----------------------------------------
Edward T. Sheehan

44

INDEX TO 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)
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-A to the
Registrant's 2002 Annual Report on Form 10-K)
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-B to the Registrant's
2002 Annual Report on Form 10-K)
4-C -- Promissory note dated as of February 4, 2002, between
Registrant and Transamerica Equipment Financial Services
Corporation. (incorporated by reference to Exhibit 4-C to the
Registrant's 2002 Annual Report on Form 10-K)
10-B -- Registrant's 1986 stock option plan (Exhibit 10.11 to
Registrant's Registration Statement No. 33-44306 is
incorporated herein by reference)
10-G -- Registrant's 1995 Incentive Stock Plan as Amended and
Restated May 3, 2001, (incorporated by reference to 4.1
of the Registrant's Registration Statement number
333-63466)
10-I -- Employment Agreement dated March 10, 1997, between Roger J.
Klatt and the Company (incorporated by reference to Exhibit of
the same number in Registrant's 1997 Annual Report on Form
10-K)
10-J -- Registrant's 1996 Nonqualified Stock Option Plan for
Non-Employee Directors (Exhibit 4.1 to Registrant's Report on
Form S-8 No. 333-23299 is incorporated herein by reference)
10-L -- Amendment dated June 4, 1998, to the Employment Agreement
dated March 10, 1997, between Roger J. Klatt and the Company
(incorporated by reference to Exhibit of the same Number in
Registrant's 1998 Annual Report on Form 10-K)
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)
21 -- Subsidiaries
23 -- Consent of Independent Auditors-- Ernst & Young LLP
99.1 -- Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
Samir T. Badawi
99.2 -- Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
Roger J. Klatt

45

CERTIFICATIONS

I Samir T. Badawi, certify that:

1. I have reviewed this annual report on Form 10-K of Gundle/SLT
Environmental, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or person's
performing the equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date February 27, 2003
-----------------
/S/ Samir T. Badawi
-------------------
Samir T. Badawi
President &
Chief Executive Officer

46

CERTIFICATIONS

I Roger J. Klatt, certify that:

1. I have reviewed this annual report on Form 10K of Gundle/SLT
Environmental, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or person's
performing the equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date February 27, 2003
-----------------
/S/ Roger J. Klatt
------------------
Roger J. Klatt
Chief Financial Officer

47