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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

For the fiscal year ended December 31, 2003

Commission File Number 1-9307

Gundle/SLT Environmental, Inc.

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

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

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

None.

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

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

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

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

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

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

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2003 FORM 10-K ANNUAL REPORT

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2003 ANNUAL REPORT
FORM 10K

Information Relating to Forward-Looking Statements

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

Proposed Merger

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

PART I

ITEM 1. Description of Business.

General

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

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

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

     Within the last three years, the Company has sold more than three billion square feet of products to customers in more than 90 countries. The Company is a full service organization that strives to provide its customers with a single source of geomembrane liners, related products and services for environmental protection and other uses.

Products

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

     The Company’s primary product is a smooth-finish, high density polyethylene (HDPE) liner. The sale and installation of this product in 2003, 2002, and 2001 accounted for approximately 56%, 57% and 51%, of total volume, respectively. Its HDPE liner products come in thickness ranges from 20 to 240 mil (one mil equals 1/1000th of an inch), and seamless widths up to 34.5 feet. Liner width dictates how many seams are required during installation, and seaming represents the major technical difficulty for liner installers. The fewer the number of seams, the less labor involved, and the less testing required.

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

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

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

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

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     Another product manufactured and offered by the Company is its patented geosynthetic clay liner (GundSeal®) that combines HDPE liners with highly expansive sodium bentonite clay. The sodium bentonite clay is adhered directly to the liner, and has demonstrated its primary function of sealing small punctures accidentally made in the overlaying liner. When hydrated, the bentonite material is itself a highly impermeable liner taking the place of up to three feet of compacted clay ordinarily required as a subgrade layer. The Company offers a patented geosynthetic clay liner (Bentofix®) that combines a needle punched reinforced composite comprised of a uniform layer of granular sodium bentonite encapsulated between a slit film woven and a virgin staple fiber nonwoven geotextile. (Bentofix®) products are manufactured by the Company’s 51% owned affiliate, Bentofix Technologies, Inc. (Bentofix is a registered trademark of Naue Fasertechnik GmbH Co. KG.)

     GSE Studliner®, a specialty concrete protection liner product, is fabricated in the Company’s facility located in Rechlin, Germany and at a third-party facility in the United States. This product is finding use in tunnels, corrosive containment applications, and protecting concrete piping, pilings, and foundations. The Company fabricates products made from this material for many types of civil engineering applications.

     The Company offers nonwoven geotextile products manufactured at its South Carolina facility as roll goods and as a component of the composite drainage materials offered by the Company. Polypropylene products are manufactured and sold by the Company’s subsidiary in the United Kingdom, in addition to products manufactured from polyethylene.

     The Company also offers a wide variety of specially fabricated products, such as manholes, sumps, pipe penetration boots, floating booms, and vertical membrane barrier wall panels. Its product lines also include portable secondary containment pads, temporary or daily landfill covers, and self-installed pond and pit liners. All of these products are typically installed as part of geosynthetic containment systems.

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

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

Services

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

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

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Raw Materials

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

Applications

     This table describes the principal applications of the Company’s products and services for the past three years based on the sales and operating revenues for each application. (See Note 20 to Consolidated Financial Statements for geographic information.)

Sales and Operating Revenue by Market Application
(in thousands)

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

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

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

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

     Other Applications. The Company’s products are used in various other applications involving secondary containment and liquid confinement. These applications are tunnel waterproofing, protection of concrete products from corrosive chemicals and odor control through the use of floating covers. A growing application is the use of its products to promote anaerobic digestion of organic wastes and the capture of the resulting methane gas.

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Marketing and Sales

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

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

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

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

     The enactment of numerous environmental laws with corresponding regulations has enhanced the market for the Company’s products. In the United States, the Resource Conservation and Recovery Act of 1976, as amended (RCRA); Subtitle C-Hazardous Waste Management; and Subtitle D-State or Regional Solid Waste 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. The Company’s products are used in the cleanup work undertaken by owners, operators and waste generators that have been compelled by the EPA or a state environmental protection agency to clean up these sites.

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

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

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

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

Customers

     The primary customers for the Company’s products are domestic and international, municipal and private companies engaged in waste management, mining, water control and wastewater treatment, aquaculture and agriculture, and other industrial activities, including the engineering and civil works construction companies serving these customers. Within the last three years, the Company has sold more than three billion square feet of products to customers in more than 90 countries. The Company is a full service organization that strives to provide its customers with a single source of geomembrane liners, related products and services for environmental protection and other uses.

     During the years 2003 and 2002, one customer, Waste Management, Inc., accounted for 20% and 14% of sales and operating revenue. During the year 2001, no single customer accounted for more than 10% of the Company’s net sales. In 2003 and 2002, Company net sales of 59%, and 62%, respectively, were to customers in the United States. The Company believes that the loss of Waste Management, Inc. as a customer would have a material adverse effect on the Company’s consolidated financial position or results of operations.

Backlog

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

Seasonality and Other Business Conditions

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

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Competition

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

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

     Competition is based on the performance of the lining systems, installation capabilities, quality and pricing. Pricing remains very competitive with excess capacity in the industry impacting margins. The Company believes it competes successfully because it manufactures, sells and installs a wide range of high quality, cost effective products and services, and because of its strategically located manufacturing facilities and strong financial position.

Employees

     The Company had a total of 1,127 employees as of December 31, 2003, with 825 employed in the United States. During peak construction periods, the Company’s workforce increases in all locations. In the off-season construction period, the Company maintains a nucleus of experienced employees somewhat below the peak season staffing levels. None of the Company’s year-round employees are unionized. From time to time, however, the Company has entered into site-specific collective bargaining agreements with unions that apply to specific projects. The Company has never experienced a strike or lockout. The Company believes its employee relations are satisfactory.

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

Patents and Proprietary Information

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

Available Information

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

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ITEM 2. Properties.

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

United States

     GSE Lining Technology, Inc. conducts U.S. operations at the Company’s headquarters located on a 41.5-acre tract of Company-owned land in an industrial park in Houston, Texas. This location has 31,400 square feet of office space in two buildings, housing administrative, sales, and installation functions. Here the Company has two large manufacturing facilities servicing the U.S. and foreign markets. One manufacturing facility is a 67,000 square foot building of metal skin over steel frame construction that contains seven blown film round die extrusion lines and one geocomposite drainage net line. Fabrication is housed in a 12,000 square foot facility.

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

     Another manufacturing facility is on a 55-acre tract of Company owned-land in an industrial park in Kingstree, South Carolina. This location has 5,400 square feet of office space and 178,500 square feet for manufacturing and warehousing operations. The building of metal skin over sheet frame construction contains one 16 million pound capacity needle punched nonwoven manufacturing line and one geocomposite drainage net line.

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

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

Canada

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

Germany

     GSE Lining Technology GmbH, headquartered in Hamburg, Germany, manages the Company’s European operations. This location has 6,397 square meters for manufacturing located in Rechlin, Germany, on 8.2 acres owned by the Company. From this location, the Company supplies its customers with products manufactured on a flat cast extrusion line, three texturing lines, and a blown film round die extrusion line. Operating at the same facility is a fabrication department involved in fabricating Studliner sheeting products.

United Kingdom

     The Company’s operations in the United Kingdom are carried out by its subsidiary, GSE Lining Technology Ltd., operating at a 0.75-acre owned facility in Soham, England, just north of London. This location has 2,500 square feet of leased office space, 11,652 square feet of leased warehouse space, and 10,652 of owned manufacturing facilities. Its products are manufactured on a round die extrusion line located on this site and one texturing line. The Company’s administrative, sales, and installation service personnel are housed at this location. This facility manufacturers both polyethylene and polypropylene geomembrane products.

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Egypt

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

Thailand

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

Australia

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

ITEM 3. Legal Proceedings.

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

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

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

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

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

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

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

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

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

PART II

ITEM 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

     The common stock of the Company trades on the New York Stock Exchange under the symbol GSE. The following table shows the quarterly range of high and low sale prices for the stock through March 5, 2004.

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

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

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

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

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

Proposed Merger

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

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

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

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

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

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Results of Operations

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

     The Company’s sales and operating revenue of $274,618,000 increased $7,648,000, or 2.9%, in 2003 from the $266,970,000 reported in 2002. A change in the U.S. dollar value of the Company’s foreign entity functional currencies increased year 2003 sales and operating revenue by $10,378,000. Units shipped also increased 4% in 2003 from 2002. Offsetting these increases were sales and operating revenues of operations sold or discontinued in 2002 of $5,791,000 and lower installation prices. Sales to the U.S. market were $161,112,000 in 2003, compared with $165,680,000