##### Table of Contents



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2006
    
    Commission File Number 0-21054
 SYNAGRO TECHNOLOGIES, INC.
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    88-0219860
(IRS Employer
Identification No.)
 1800 BERING DRIVE, SUITE 1000
HOUSTON, TEXAS
(Address of principal executive offices)
    
    77057
(Zip Code)
 (713) 369-1700
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ
  CLASS
    
    OUTSTANDING AT AUGUST 8, 2006Common stock, par value $.002
    
    77,605,293




---



##### Table of Contents



SYNAGRO TECHNOLOGIES, INC.
 INDEX
  
 PAGEPART I  FINANCIAL INFORMATIONCondensed Consolidated Balance Sheets as of June 30, 2006 (Unaudited), and December 31, 2005 (Derived From Audited Financial Statements)
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited)
    
    4Condensed Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2006 (Unaudited)
    
    5Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (Unaudited)
    
    6Notes to Condensed Consolidated Financial Statements
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    35Item 4. Controls and Procedures
    
    36PART II  OTHER INFORMATION
    
    37Item 1. Legal Proceedings
    
    37Item 1A. Risk Factors
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    37Item 6. Exhibits
    
    37Certification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial Officer
 2




---



##### Table of Contents



SYNAGRO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
 June 30,
    
    
    December 31,2006
    
    
    2005(UNAUDITED)
    
    
    (DERIVEDFROMAUDITEDFINANCIALSTATEMENTS)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    14,030
    
    
    $
    18,571Restricted cash
    
    
    2,015
    
    
    
    2,444Accounts receivable, net
    
    
    69,260
    
    
    
    66,429Costs and estimated earnings in excess of billings
    
    
    5,282
    
    
    
    10,579Prepaid expenses and other current assets
    
    
    16,181
    
    
    
    15,168Total current assets
    
    
    106,768
    
    
    
    113,191Property, machinery & equipment, net
    
    
    241,840
    
    
    
    227,678Other Assets:Costs and estimated earnings in excess of billings
    
    
    2,837
    
    
    
    3,837Goodwill
    
    
    176,446
    
    
    
    176,196Restricted cash  construction fund
    
    
    
    
    
    
    406Restricted cash  debt service fund
    
    
    8,754
    
    
    
    7,304Other, net
    
    
    18,501
    
    
    
    14,694Total assets
    
    $
    555,146
    
    
    $
    543,306LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    1,105
    
    
    $
    1,776Current maturities of nonrecourse project revenue bonds
    
    
    3,480
    
    
    
    3,480Current maturities of capital lease obligations
    
    
    3,520
    
    
    
    3,175Accrued interest payable
    
    
    3,512
    
    
    
    962Accounts payable and accrued expenses
    
    
    48,801
    
    
    
    47,539Total current liabilities
    
    
    60,418
    
    
    
    56,932Long-Term Debt:Long-term debt obligations, net
    
    
    211,601
    
    
    
    212,488Nonrecourse project revenue bonds, net
    
    
    55,587
    
    
    
    55,575Capital lease obligations, net
    
    
    11,639
    
    
    
    11,888Total long-term debt
    
    
    278,827
    
    
    
    279,951Other long-term liabilities
    
    
    24,905
    
    
    
    22,269Total liabilities
    
    
    364,150
    
    
    
    359,152Commitments and ContingenciesStockholders Equity:Preferred stock, $.002 par value, 10,000,000 shares
authorized, none issued or outstanding
    
    
    
    
    
    
    Common stock, $.002 par value, 100,000,000 shares
authorized, 77,604,293 and 72,813,378 shares issued
and outstanding in 2006 and 2005, respectively
    
    
    155
    
    
    
    146Unearned restricted stock
    
    
    
    
    
    
    (404
    )Additional paid in capital
    
    
    200,935
    
    
    
    197,453Accumulated deficit
    
    
    (11,763
    )
    
    
    (13,525
    )Accumulated other comprehensive income
    
    
    1,669
    
    
    
    484Total stockholders equity
    
    
    190,996
    
    
    
    184,154Total liabilities and stockholders equity
    
    $
    555,146
    
    
    $
    543,306
  3




---



##### Table of Contents



SYNAGRO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    86,267
    
    
    $
    83,532
    
    
    $
    165,545
    
    
    $
    159,746Cost of services
    
    
    69,319
    
    
    
    66,561
    
    
    
    136,376
    
    
    
    130,737Gross profit
    
    
    16,948
    
    
    
    16,971
    
    
    
    29,169
    
    
    
    29,009Selling, general and administrative expenses (including $0.5 million and $1.3
million of share based compensation expense for three and six months ended
June 30, 2006, respectively, none in 2005)
    
    
    7,582
    
    
    
    5,390
    
    
    
    16,353
    
    
    
    11,559Transaction costs and expenses
    
    
    316
    
    
    
    1,517
    
    
    
    316
    
    
    
    1,517Stock option redemptions and transaction bonuses
    
    
    
    
    
    
    6,805
    
    
    
    
    
    
    
    6,805Gain on sale of assets
    
    
    (154
    )
    
    
    (129
    )
    
    
    (189
    )
    
    
    (205
    )Income from operations
    
    
    9,204
    
    
    
    3,388
    
    
    
    12,689
    
    
    
    9,333Other expense:Interest expense
    
    
    5,346
    
    
    
    6,086
    
    
    
    10,614
    
    
    
    12,601Interest income
    
    
    (137
    )
    
    
    
    
    
    
    (292
    )
    
    
    Debt extinguishment costs
    
    
    
    
    
    
    19,487
    
    
    
    
    
    
    
    19,487Other expense (income), net
    
    
    (350
    )
    
    
    62
    
    
    
    (671
    )
    
    
    59Total other expense, net
    
    
    4,859
    
    
    
    25,635
    
    
    
    9,651
    
    
    
    32,147Income (loss) before provision for income taxes
    
    
    4,345
    
    
    
    (22,247
    )
    
    
    3,038
    
    
    
    (22,814
    )Provision (benefit) for income taxes
    
    
    1,822
    
    
    
    (8,348
    )
    
    
    1,276
    
    
    
    (8,575
    )Net income (loss) before preferred stock dividends
    
    
    2,523
    
    
    
    (13,899
    )
    
    
    1,762
    
    
    
    (14,239
    )Preferred stock dividends
    
    
    
    
    
    
    7,315
    
    
    
    
    
    
    
    9,587Net income (loss) applicable to common stock
    
    $
    2,523
    
    
    $
    (21,214
    )
    
    $
    1,762
    
    
    $
    (23,826
    )Earnings (loss) per share:Basic net earnings (loss) per share
    
    $
    0.03
    
    
    $
    (0.84
    )
    
    $
    0.02
    
    
    $
    (1.05
    )Diluted net earnings (loss) per share
    
    $
    0.03
    
    
    $
    (0.84
    )
    
    $
    0.02
    
    
    $
    (1.05
    )Weighted average shares outstanding:Weighted average shares outstanding for basic earnings per share calculation
    
    
    75,214,144
    
    
    
    25,334,290
    
    
    
    74,075,233
    
    
    
    22,691,916Effect of dilutive stock options
    
    
    1,322,275
    
    
    
    
    
    
    
    668,080
    
    
    
    Effect of dilutive restricted stock
    
    
    62,728
    
    
    
    
    
    
    
    31,364
    
    
    
    Weighted average shares outstanding for diluted earnings per share
    
    
    76,599,147
    
    
    
    25,334,290
    
    
    
    74,774,667
    
    
    
    22,691,916
  4




---



##### Table of Contents



SYNAGRO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
 AccumulatedUnearned
    
    
    Additional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Restricted
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Total
    
    
    Income(Loss)BALANCE, January 1,
2006
    
    
    72,813,378
    
    
    $
    146
    
    
    $
    (404
    )
    
    $
    197,453
    
    
    $
    (13,525
    )
    
    $
    484
    
    
    $
    184,154Reclassification of
unearned restricted
stock due to
adoption of
accounting
principle
    
    
    
    
    
    
    
    
    
    
    404
    
    
    
    (404
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in other
comprehensive
income related to
change in the fair
value of
derivatives, net of
tax of $793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,185
    
    
    
    1,185
    
    
    $
    1,185Common stock cash
dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,703
    )
    
    
    
    
    
    
    
    
    
    
    (13,703
    )
    
    
    Stock dividends
    
    
    284,806
    
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of options.
    
    
    189,444
    
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    Issuance of
restricted stock
    
    
    321,154
    
    
    
    
    
    
    
    
    
    
    
    327
    
    
    
    
    
    
    
    
    
    
    
    327
    
    
    
    Forfeiture of
restricted stock
    
    
    (4,489
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vesting of
restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    108
    
    
    
    Issuance of common
shares, net of
issuance costs of
$748
    
    
    4,000,000
    
    
    
    8
    
    
    
    
    
    
    
    15,844
    
    
    
    
    
    
    
    
    
    
    
    15,852
    
    
    
    Share based
compensation on
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    823
    
    
    
    
    
    
    
    
    
    
    
    823
    
    
    
    Net income
applicable to common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,762
    
    
    
    
    
    
    
    1,762
    
    
    
    1,762BALANCE, June 30, 2006
    
    
    77,604,293
    
    
    $
    155
    
    
    $
    
    
    
    $
    200,935
    
    
    $
    (11,763
    )
    
    $
    1,669
    
    
    $
    190,996
    
    
    $
    2,947
  5




---



##### Table of Contents



SYNAGRO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
 Six Months Ended June 30,2006
    
    
    2005Cash flows from operating activities:Net income (loss) applicable to common stock
    
    $
    1,762
    
    
    $
    (23,826
    )Adjustments to reconcile net income applicable to common stock to net cash provided (used) by operating activities:Preferred stock dividends and warrant accretion
    
    
    
    
    
    
    9,587Bad debt expense
    
    
    300
    
    
    
    302Depreciation and amortization
    
    
    11,333
    
    
    
    10,665Amortization and write-off of debt financing costs
    
    
    711
    
    
    
    4,919Provision (benefit) for deferred income taxes
    
    
    1,203
    
    
    
    (8,575
    )Shared based compensation expense
    
    
    1,258
    
    
    
    Tax benefit from exercise of stock options
    
    
    
    
    
    
    339Gain on sale of property, machinery and equipment
    
    
    (189
    )
    
    
    (205
    )(Increase) decrease in the following, net:Accounts receivable
    
    
    (3,131
    )
    
    
    (4,185
    )Costs and estimated earnings in excess of billings
    
    
    6,297
    
    
    
    (209
    )Prepaid expenses and other current assets
    
    
    (210
    )
    
    
    681Increase (decrease) in the following, net:Accrued interest payable
    
    
    2,550
    
    
    
    (3,439
    )Accounts payable and accrued expenses and other long-term liabilities
    
    
    (729
    )
    
    
    (10,933
    )Net cash provided (used) by operating activities
    
    
    21,155
    
    
    
    (24,879
    )Cash flows from investing activities:Purchase of businesses
    
    
    (249
    )
    
    
    (253
    )Purchases of property, machinery and equipment
    
    
    (24,209
    )
    
    
    (9,777
    )Proceeds from sale of property, machinery and equipment
    
    
    627
    
    
    
    986Facility construction funded by restricted cash
    
    
    
    
    
    
    (1,648
    )Decrease in restricted cash for facility construction
    
    
    
    
    
    
    1,648Increase in other restricted cash accounts
    
    
    (615
    )
    
    
    (2,323
    )Other
    
    
    
    
    
    
    4Net cash used by investing activities
    
    
    (24,446
    )
    
    
    (11,363
    )Cash flows from financing activities:Payments of debt
    
    
    (3,174
    )
    
    
    (202,666
    )Proceeds from debt
    
    
    
    
    
    
    189,900Net increase in bank revolver borrowings
    
    
    
    
    
    
    19,600Net decrease in book overdrafts
    
    
    (379
    )
    
    
    (1,539
    )Debt issuance costs
    
    
    (334
    )
    
    
    (7,650
    )Dividends on common stock
    
    
    (13,703
    )
    
    
    Proceeds from equity offering, net
    
    
    15,852
    
    
    
    37,641Proceeds from exercise of options
    
    
    488
    
    
    
    1,676Net cash provided (used) in financing activities
    
    
    (1,250
    )
    
    
    36,962Net increase (decrease) in cash and cash equivalents
    
    
    (4,541
    )
    
    
    720Cash and cash equivalents, beginning of period
    
    
    18,571
    
    
    
    326Cash and cash equivalents, end of period
    
    $
    14,030
    
    
    $
    1,046Schedule of non-cash transactions:Capital lease agreements entered into for operating and transportation equipment
    
    $
    1,711
    
    
    $
    
  6




---



##### Table of Contents



SYNAGRO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED
 (1) Basis of Presentation
 General
    2006 Secondary Equity Offering
  2005 Recapitalization
   7




---



##### Table of Contents



Accounting Pronouncements
    Use of Estimates
  Allowance for Doubtful Accounts
 Loss Contracts
 Long Term Construction Contracts
 Property and Equipment/Long-Lived Assets
 8




---



##### Table of Contents



Goodwill
 Purchase Accounting
 Income Taxes
 Legal and Contingency Accruals
 Derivatives
 Self-Insurance Reserves
  (2) Costs and Estimated Earnings in Excess of Billings
  June 30,
    
    
    December 31,2006
    
    
    2005(in thousands)Costs and estimated earnings on contracts in progress
    
    $
    56,938
    
    
    $
    51,709Less  Billings to date
    
    
    (48,819
    )
    
    
    (37,293
    )Costs and estimated earnings in excess of billings on uncompleted contracts
    
    $
    8,119
    
    
    $
    14,416Current assets
    
    $
    5,282
    
    
    $
    10,579Non current assets
    
    
    2,837
    
    
    
    3,837Total
    
    $
    8,119
    
    
    $
    14,416
 9




---



##### Table of Contents



(3) Long-Term Debt Obligations
  JUNE 30,
    
    
    DECEMBER 31,2006
    
    
    2005(in thousands)$305 million senior credit facility Term loans
    
    $
    210,000
    
    
    $
    210,000Notes payable to former owners
    
    
    2,706
    
    
    
    4,257Other notes payable
    
    
    
    
    
    
    7Total debt
    
    
    212,706
    
    
    
    214,264Less: Current maturities
    
    
    (1,105
    )
    
    
    (1,776
    )Long-term debt, net of current maturities
    
    $
    211,601
    
    
    $
    212,488
 Senior Credit Facility
   (i)
    
    Revolving Loan (Revolver) up to $95.0 million outstanding at anytime;(ii)
    
    Term B Loans (which, once repaid, may not be reborrowed) of $210.0 million, including
$30.0 million that was borrowed December 2005; and(iii)
    
    Letters of Credit up to $50.0 million as a subset of the Revolving Loan. At June 30,
2006, the Company had approximately $34.0 million of Letters of Credit outstanding.
  Eurodollar
    
    Base RateRevolver
    
    
    8.10
    %
    
    
    10.00
    %Term
    
    
    7.34
    %
    
    
    9.50
    %
  1 2
  10




---



##### Table of Contents



Derivatives and Hedging Activities
      11




---



##### Table of Contents



(4) Nonrecourse Project Revenue Bonds
 June 30,
    
    
    December 31,2006
    
    
    2005(in thousands)Maryland Energy Financing Administration Limited Obligation Solid Waste
Disposal Revenue Bonds, 1996 series Term revenue bond due 2010 at stated interest rate of 6.30%
    
    $
    16,295
    
    
    $
    16,295Term revenue bond due 2016 at stated interest rate of 6.45%
    
    
    22,360
    
    
    
    22,36038,655
    
    
    
    38,655California Pollution Control Financing Authority Solid Waste Revenue Bonds Series 2002A  Revenue bonds due 2008 to 2024 at stated interest rates of
4.375% to 5.50%, net of discount of $273 and $285, respectively
    
    
    19,802
    
    
    
    19,790Series 2002B  Revenue bonds due 2006 at stated interest rate of 4.25%
    
    
    610
    
    
    
    61020,412
    
    
    
    20,400Total nonrecourse project revenue bonds
    
    
    59,067
    
    
    
    59,055Less: Current maturities
    
    
    (3,480
    )
    
    
    (3,480
    )Nonrecourse project revenue bonds, net of current maturities
    
    $
    55,587
    
    
    $
    55,575Amounts recorded in other assets as restricted cash  debt service fund
    
    $
    8,754
    
    
    $
    7,304
 Maryland Project Revenue Bonds
    12




---



##### Table of Contents



Sacramento Project Bonds
       13




---



##### Table of Contents



(5) Commitments and Contingencies
 Litigation
  Reliance Insurance
    Design and Build Contract Risk
  Other
  14




---



##### Table of Contents



Self-Insurance
  (6) Earnings Per Common Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands except share data)Net income (loss) applicable to common stock:Net income (loss) before preferred stock dividends
    
    $
    2,523
    
    
    $
    (13,899
    )
    
    $
    1,762
    
    
    $
    (14,239
    )Preferred stock dividends
    
    
    
    
    
    
    7,315
    
    
    
    
    
    
    
    9,587Net income (loss) applicable to common stock
    
    $
    2,523
    
    
    $
    (21,214
    )
    
    $
    1,762
    
    
    $
    (23,826
    )Earnings (loss) per share:Basic earnings (loss) per share
    
    $
    0.03
    
    
    $
    (0.84
    )
    
    $
    0.02
    
    
    $
    (1.05
    )Diluted earnings (loss) per share
    
    $
    0.03
    
    
    $
    (0.84
    )
    
    $
    0.02
    
    
    $
    (1.05
    )Weighted average shares outstanding for basic earnings per share
    
    
    75,214,144
    
    
    
    25,334,290
    
    
    
    74,075,233
    
    
    
    22,691,916Effect of dilutive stock options
    
    
    1,322,275
    
    
    
    
    
    
    
    668,080
    
    
    
    Effect of dilutive restricted stock
    
    
    62,728
    
    
    
    
    
    
    
    31,364
    
    
    
    Weighted average shares outstanding for diluted earnings per share
    
    
    76,599,147
    
    
    
    25,334,290
    
    
    
    74,774,677
    
    
    
    22,691,916
  (7) Condensed Consolidating Financial Statements
  15




---



##### Table of Contents



CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2006
(Dollars in thousands)
 NON-GUARANTOR
    
    
    GUARANTORPARENT
    
    
    SUBSIDIARIES
    
    
    SUBSIDIARIES
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDASSETSCurrent Assets:Cash and cash equivalents
    
    $
    13,833
    
    
    $
    35
    
    
    $
    162
    
    
    $
    
    
    
    $
    14,030Restricted cash
    
    
    
    
    
    
    1,205
    
    
    
    810
    
    
    
    
    
    
    
    2,015Accounts receivable, net
    
    
    
    
    
    
    67,418
    
    
    
    1,880
    
    
    
    (38
    )
    
    
    69,260Prepaid expenses and other current assets
    
    
    2,998
    
    
    
    18,454
    
    
    
    11
    
    
    
    
    
    
    
    21,463Total current assets
    
    
    16,831
    
    
    
    87,112
    
    
    
    2,863
    
    
    
    (38
    )
    
    
    106,768Property, machinery & equipment, net
    
    
    
    
    
    
    203,598
    
    
    
    38,242
    
    
    
    
    
    
    
    241,840Other Assets:Goodwill
    
    
    
    
    
    
    176,446
    
    
    
    
    
    
    
    
    
    
    
    176,446Investments in subsidiaries
    
    
    113,279
    
    
    
    
    
    
    
    
    
    
    
    (113,279
    )
    
    
    Intercompany
    
    
    288,213
    
    
    
    
    
    
    
    
    
    
    
    (288,213
    )
    
    
    Restricted cash  construction fund
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted cash  debt service fund
    
    
    
    
    
    
    7,021
    
    
    
    1,733
    
    
    
    
    
    
    
    8,754Other, net
    
    
    10,725
    
    
    
    7,831
    
    
    
    2,782
    
    
    
    
    
    
    
    21,338Total assets
    
    $
    429,048
    
    
    $
    482,008
    
    
    $
    45,620
    
    
    $
    (401,530
    )
    
    $
    555,146LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    1,105
    
    
    $
    
    
    
    $
    
    
    
    $
    1,105Current maturities of nonrecourse project
revenue bonds
    
    
    
    
    
    
    2,870
    
    
    
    610
    
    
    
    
    
    
    
    3,480Current maturities of capital lease obligations
    
    
    
    
    
    
    3,520
    
    
    
    
    
    
    
    
    
    
    
    3,520Accrued interest payable
    
    
    3,200
    
    
    
    222
    
    
    
    90
    
    
    
    
    
    
    
    3,512Accounts payable and accrued expenses
    
    
    
    
    
    
    48,597
    
    
    
    242
    
    
    
    (38
    )
    
    
    48,801Total current liabilities
    
    
    3,200
    
    
    
    56,314
    
    
    
    942
    
    
    
    (38
    )
    
    
    60,418Long-Term Debt:Long-term debt obligations, net
    
    
    210,000
    
    
    
    1,601
    
    
    
    
    
    
    
    
    
    
    
    211,601Nonrecourse project revenue bonds, net
    
    
    
    
    
    
    35,785
    
    
    
    19,802
    
    
    
    
    
    
    
    55,587Intercompany
    
    
    
    
    
    
    287,983
    
    
    
    230
    
    
    
    (288,213
    )
    
    
    Capital lease obligations, net
    
    
    
    
    
    
    11,639
    
    
    
    
    
    
    
    
    
    
    
    11,639Total long-term debt
    
    
    210,000
    
    
    
    337,008
    
    
    
    20,032
    
    
    
    (288,213
    )
    
    
    278,827Other long-term liabilities
    
    
    24,852
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    24,905Total liabilities
    
    
    238,052
    
    
    
    393,375
    
    
    
    20,974
    
    
    
    (288,251
    )
    
    
    364,150Stockholders Equity:Capital
    
    
    201,090
    
    
    
    36,339
    
    
    
    23,553
    
    
    
    (59,892
    )
    
    
    201,090Accumulated deficit
    
    
    (11,763
    )
    
    
    52,294
    
    
    
    1,093
    
    
    
    (53,387
    )
    
    
    (11,763
    )Accumulated other comprehensive income
    
    
    1,669
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,669Total stockholders equity
    
    
    190,996
    
    
    
    88,633
    
    
    
    24,646
    
    
    
    (113,279
    )
    
    
    190,996Total liabilities and stockholders equity
    
    $
    429,048
    
    
    $
    482,008
    
    
    $
    45,620
    
    
    $
    (401,530
    )
    
    $
    555,146
 16




---



##### Table of Contents



CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2005
(Dollars in thousands)
 NON-GUARANTOR
    
    
    GUARANTORPARENT
    
    
    SUBSIDIARIES
    
    
    SUBSIDIARIES
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDASSETSCurrent Assets:Cash and cash equivalents
    
    $
    18,233
    
    
    $
    34
    
    
    $
    304
    
    
    $
    
    
    
    $
    18,571Restricted cash
    
    
    
    
    
    
    1,679
    
    
    
    765
    
    
    
    
    
    
    
    2,444Accounts receivable, net
    
    
    
    
    
    
    65,534
    
    
    
    942
    
    
    
    (47
    )
    
    
    66,429Prepaid expenses and other current assets
    
    
    3,019
    
    
    
    22,601
    
    
    
    127
    
    
    
    
    
    
    
    25,747Total current assets
    
    
    21,252
    
    
    
    89,848
    
    
    
    2,138
    
    
    
    (47
    )
    
    
    113,191Property, machinery & equipment, net
    
    
    
    
    
    
    202,775
    
    
    
    24,903
    
    
    
    
    
    
    
    227,678Other Assets:Goodwill
    
    
    
    
    
    
    176,196
    
    
    
    
    
    
    
    
    
    
    
    176,196Investments in subsidiaries
    
    
    100,258
    
    
    
    
    
    
    
    
    
    
    
    (100,258
    )
    
    
    Intercompany
    
    
    288,422
    
    
    
    
    
    
    
    
    
    
    
    (288,422
    )
    
    
    Restricted cash    construction fund
    
    
    
    
    
    
    
    
    
    
    406
    
    
    
    
    
    
    
    406Restricted cash    debt service fund
    
    
    
    
    
    
    5,587
    
    
    
    1,717
    
    
    
    
    
    
    
    7,304Other, net
    
    
    7,089
    
    
    
    8,583
    
    
    
    2,859
    
    
    
    
    
    
    
    18,531Total assets
    
    $
    417,021
    
    
    $
    482,989
    
    
    $
    32,023
    
    
    $
    (388,727
    )
    
    $
    543,306LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    1,776
    
    
    $
    
    
    
    $
    
    
    
    $
    1,776Current maturities of nonrecourse project
revenue bonds
    
    
    
    
    
    
    2,870
    
    
    
    610
    
    
    
    
    
    
    
    3,480Current maturities of capital lease obligations
    
    
    
    
    
    
    3,175
    
    
    
    
    
    
    
    
    
    
    
    3,175Accrued interest payable
    
    
    664
    
    
    
    206
    
    
    
    92
    
    
    
    
    
    
    
    962Accounts payable and accrued expenses
    
    
    
    
    
    
    46,737
    
    
    
    849
    
    
    
    (47
    )
    
    
    47,539Total current liabilities
    
    
    664
    
    
    
    54,764
    
    
    
    1,551
    
    
    
    (47
    )
    
    
    56,932Long-Term Debt:Long-term debt obligations, net
    
    
    210,000
    
    
    
    2,488
    
    
    
    
    
    
    
    
    
    
    
    212,488Nonrecourse project revenue bonds, net
    
    
    
    
    
    
    35,785
    
    
    
    19,790
    
    
    
    
    
    
    
    55,575Intercompany
    
    
    
    
    
    
    288,395
    
    
    
    27
    
    
    
    (288,422
    )
    
    
    Capital lease obligations, net
    
    
    
    
    
    
    11,888
    
    
    
    
    
    
    
    
    
    
    
    11,888Total long-term debt
    
    
    210,000
    
    
    
    338,556
    
    
    
    19,817
    
    
    
    (288,422
    )
    
    
    279,951Other long-term liabilities
    
    
    22,203
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    22,269Total liabilities
    
    
    232,867
    
    
    
    393,386
    
    
    
    21,368
    
    
    
    (288,469
    )
    
    
    359,152Commitments and ContingenciesStockholders Equity:Capital
    
    
    197,195
    
    
    
    36,339
    
    
    
    9,841
    
    
    
    (46,180
    )
    
    
    197,195Accumulated earnings (deficit)
    
    
    (13,525
    )
    
    
    53,264
    
    
    
    814
    
    
    
    (54,078
    )
    
    
    (13,525
    )Accumulated other comprehensive loss
    
    
    484
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    484Total stockholders equity
    
    
    184,154
    
    
    
    89,603
    
    
    
    10,655
    
    
    
    (100,258
    )
    
    
    184,154Total liabilities and stockholders equity
    
    $
    417,021
    
    
    $
    482,989
    
    
    $
    32,023
    
    
    $
    (388,727
    )
    
    $
    543,306
 17




---



##### Table of Contents



CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2006
(DOLLARS IN THOUSANDS)
 NON-GUARANTOR
    
    
    GUARANTORPARENT
    
    
    SUBSIDIARIES
    
    
    SUBSIDIARIES
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDRevenue
    
    $
    
    
    
    $
    85,005
    
    
    $
    1,299
    
    
    $
    (37
    )
    
    $
    86,267Cost of services
    
    
    
    
    
    
    68,605
    
    
    
    751
    
    
    
    (37
    )
    
    
    69,319Gross Profit
    
    
    
    
    
    
    16,400
    
    
    
    548
    
    
    
    
    
    
    
    16,948Selling, general and administrative expenses
    
    
    
    
    
    
    7,580
    
    
    
    2
    
    
    
    
    
    
    
    7,582Transaction fees and expenses
    
    
    316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316Gain on sale of assets
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    
    
    
    
    (154
    )Income from operations
    
    
    (316
    )
    
    
    8,974
    
    
    
    546
    
    
    
    
    
    
    
    9,204Other (income) expense:Interest expense, net
    
    
    4,278
    
    
    
    645
    
    
    
    286
    
    
    
    
    
    
    
    5,209Intercompany interest (income) expense
    
    
    (5,970
    )
    
    
    5,970
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings of subs
    
    
    (1,527
    )
    
    
    
    
    
    
    
    
    
    
    1,527
    
    
    
    Other expense, net
    
    
    (350
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (350
    )Total other expense, net
    
    
    (3,569
    )
    
    
    6,615
    
    
    
    286
    
    
    
    1,527
    
    
    
    4,859Income (loss) before provision (benefit) for income
taxes
    
    
    3,253
    
    
    
    2,359
    
    
    
    260
    
    
    
    (1,527
    )
    
    
    4,345Provision (benefit) for income taxes
    
    
    730
    
    
    
    982
    
    
    
    110
    
    
    
    
    
    
    
    1,822Net income (loss) before preferred stock dividends
    
    
    2,523
    
    
    
    1,377
    
    
    
    150
    
    
    
    (1,527
    )
    
    
    2,523Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) applicable to common stock
    
    $
    2,523
    
    
    $
    1,377
    
    
    $
    150
    
    
    $
    (1,527
    )
    
    $
    2,523
 CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006
(DOLLARS IN THOUSANDS)
 NON-GUARANTOR
    
    
    GUARANTORPARENT
    
    
    SUBSIDIARIES
    
    
    SUBSIDIARIES
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDRevenue
    
    $
    
    
    
    $
    163,106
    
    
    $
    2,510
    
    
    $
    (71
    )
    
    $
    165,545Cost of services
    
    
    
    
    
    
    135,000
    
    
    
    1,447
    
    
    
    (71
    )
    
    
    136,376Gross Profit
    
    
    
    
    
    
    28,106
    
    
    
    1,063
    
    
    
    
    
    
    
    29,169Selling, general and administrative expenses
    
    
    
    
    
    
    16,348
    
    
    
    5
    
    
    
    
    
    
    
    16,353Transaction fees and expenses
    
    
    316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316Gain on sale of assets
    
    
    
    
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    (189
    )Income from operations
    
    
    (316
    )
    
    
    11,947
    
    
    
    1,058
    
    
    
    
    
    
    
    12,689Other (income) expense:Interest expense, net
    
    
    8,559
    
    
    
    1,187
    
    
    
    576
    
    
    
    
    
    
    
    10,322Intercompany interest (income) expense
    
    
    (12,433
    )
    
    
    12,432
    
    
    
    1
    
    
    
    
    
    
    
    Equity in loss of subs
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    (691
    )
    
    
    Other expense, net
    
    
    (671
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (671
    )Total other expense, net
    
    
    (3,854
    )
    
    
    13,619
    
    
    
    577
    
    
    
    (691
    )
    
    
    9,651Income (loss) before provision (benefit) for income
taxes
    
    
    3,538
    
    
    
    (1,672
    )
    
    
    481
    
    
    
    691
    
    
    
    3,038Provision (benefit) for income taxes
    
    
    1,776
    
    
    
    (702
    )
    
    
    202
    
    
    
    
    
    
    
    1,276Net income (loss) before preferred stock dividends
    
    
    1,762
    
    
    
    (970
    )
    
    
    279
    
    
    
    691
    
    
    
    1,762Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) applicable to common stock
    
    $
    1,762
    
    
    $
    (970
    )
    
    $
    279
    
    
    $
    691
    
    
    $
    1,762
 18




---



##### Table of Contents



CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2005
(DOLLARS IN THOUSANDS)
 NON-GUARANTOR
    
    
    GUARANTORPARENT
    
    
    SUBSIDIARIES
    
    
    SUBSIDIARIES
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDRevenue
    
    $
    
    
    
    $
    82,444
    
    
    $
    1,088
    
    
    $
    
    
    
    $
    83,532Cost of services
    
    
    
    
    
    
    65,975
    
    
    
    586
    
    
    
    
    
    
    
    66,561Gross Profit
    
    
    
    
    
    
    16,469
    
    
    
    502
    
    
    
    
    
    
    
    16,971Selling, general and administrative expenses
    
    
    
    
    
    
    5,226
    
    
    
    2
    
    
    
    
    
    
    
    5,228Transaction fees and expenses
    
    
    1,517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,517Stock option redemptions and transaction bonuses
    
    
    6,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,805Gain on sale of assets
    
    
    
    
    
    
    (129
    )
    
    
    
    
    
    
    
    
    
    
    (129
    )Amortization
    
    
    
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    162Income from operations
    
    
    (8,322
    )
    
    
    11,210
    
    
    
    500
    
    
    
    
    
    
    
    3,388Other (income) expense:Interest expense, net
    
    
    5,008
    
    
    
    768
    
    
    
    310
    
    
    
    
    
    
    
    6,086Interest expense  debt extinguishment costs
    
    
    19,487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,487Intercompany interest (income) expense
    
    
    (6,497
    )
    
    
    6,497
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings of subs
    
    
    (2,508
    )
    
    
    
    
    
    
    
    
    
    
    2,508
    
    
    
    Other expense, net
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    62Total other expense, net
    
    
    15,490
    
    
    
    7,327
    
    
    
    310
    
    
    
    2,508
    
    
    
    25,635Income (loss) before provision (benefit) for income
taxes
    
    
    (23,812
    )
    
    
    3,883
    
    
    
    190
    
    
    
    (2,508
    )
    
    
    (22,247
    )Provision (benefit) for income taxes
    
    
    (9,913
    )
    
    
    1,498
    
    
    
    67
    
    
    
    
    
    
    
    (8,348
    )Net income (loss) before preferred stock dividends
    
    
    (13,899
    )
    
    
    2,385
    
    
    
    123
    
    
    
    (2,508
    )
    
    
    (13,899
    )Preferred stock dividends
    
    
    7,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,315Net income (loss) applicable to common stock
    
    $
    (21,214
    )
    
    $
    2,385
    
    
    $
    123
    
    
    $
    (2,508
    )
    
    $
    (21,214
    )
 CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2005
(DOLLARS IN THOUSANDS)
 NON-GUARANTOR
    
    
    GUARANTORPARENT
    
    
    SUBSIDIARIES
    
    
    SUBSIDIARIES
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDRevenue
    
    $
    
    
    
    $
    157,598
    
    
    $
    2,148
    
    
    $
    
    
    
    $
    159,746Cost of services
    
    
    
    
    
    
    129,590
    
    
    
    1,147
    
    
    
    
    
    
    
    130,737Gross Profit
    
    
    
    
    
    
    28,008
    
    
    
    1,001
    
    
    
    
    
    
    
    29,009Selling, general and administrative expenses
    
    
    
    
    
    
    11,351
    
    
    
    10
    
    
    
    
    
    
    
    11,361Transaction fees and expenses
    
    
    1,517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,517Stock option redemptions and transaction bonuses
    
    
    6,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,805Gain on sale of assets
    
    
    
    
    
    
    (205
    )
    
    
    
    
    
    
    
    
    
    
    (205
    )Amortization
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    
    
    
    
    198Income from operations
    
    
    (8,322
    )
    
    
    16,664
    
    
    
    991
    
    
    
    
    
    
    
    9,333Other (income) expense:Interest expense, net
    
    
    10,242
    
    
    
    1,738
    
    
    
    621
    
    
    
    
    
    
    
    12,601Interest expense  debt extinguishment costs
    
    
    19,487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,487Intercompany interest (income) expense
    
    
    (12,681
    )
    
    
    12,681
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings of subs
    
    
    (1,595
    )
    
    
    
    
    
    
    
    
    
    
    1,595
    
    
    
    Other expense, net
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    59Total other expense, net
    
    
    15,453
    
    
    
    14,478
    
    
    
    621
    
    
    
    1,595
    
    
    
    32,147Income (loss) before provision (benefit) for income
taxes
    
    
    (23,775
    )
    
    
    2,186
    
    
    
    370
    
    
    
    (1,595
    )
    
    
    (22,814
    )Provision (benefit) for income taxes
    
    
    (9,535
    )
    
    
    821
    
    
    
    139
    
    
    
    
    
    
    
    (8,575
    )Net income (loss) before preferred stock dividends
    
    
    (14,240
    )
    
    
    1,365
    
    
    
    231
    
    
    
    (1,595
    )
    
    
    (14,239
    )Preferred stock dividends
    
    
    9,587
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,587Net income (loss) applicable to common stock
    
    $
    (23,827
    )
    
    $
    1,365
    
    
    $
    231
    
    
    $
    (1,595
    )
    
    $
    (23,826
    )
 19




---



##### Table of Contents



CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2006
(DOLLARS IN THOUSANDS)
 NON-GUARANTOR
    
    
    GUARANTORPARENT
    
    
    SUBSIDIARIES
    
    
    SUBSIDIARIES
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDCash flows from operating activities:Net income (loss) applicable to common stock
    
    $
    1,762
    
    
    $
    (970
    )
    
    $
    279
    
    
    $
    691
    
    
    $
    1,762Adjustments to reconcile net income applicable to
common stock to net cash provided by operating
activities:Bad debt expense
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    300Depreciation and amortization expense
    
    
    
    
    
    
    10,796
    
    
    
    537
    
    
    
    
    
    
    
    11,333Amortization of debt financing costs
    
    
    699
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    711Provision (benefit) for deferred income taxes
    
    
    1,462
    
    
    
    (461
    )
    
    
    202
    
    
    
    
    
    
    
    1,203Share based compensation
    
    
    
    
    
    
    1,258
    
    
    
    
    
    
    
    
    
    
    
    1,258Gain on sale of property, machinery and
equipment
    
    
    
    
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    (189
    )(Increase) decrease in the following, net:Accounts receivable
    
    
    
    
    
    
    (2,193
    )
    
    
    (938
    )
    
    
    
    
    
    
    (3,131
    )Cost in excess of billings
    
    
    
    
    
    
    6,297
    
    
    
    
    
    
    
    
    
    
    
    6,297Prepaid expenses and other current assets
    
    
    37
    
    
    
    (363
    )
    
    
    116
    
    
    
    
    
    
    
    (210
    )Equity in earnings
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    (691
    )
    
    
    Increase (decrease) in the following, net:Accrued interest payable
    
    
    2,536
    
    
    
    (525
    )
    
    
    539
    
    
    
    
    
    
    
    2,550Intercompany advances  trade
    
    
    (12,433
    )
    
    
    12,432
    
    
    
    1
    
    
    
    
    
    
    
    Accounts payable and accrued expenses and other
long term liabilities
    
    
    (1,146
    )
    
    
    1,564
    
    
    
    (1,147
    )
    
    
    
    
    
    
    (729
    )Net cash (used in) provided by operating activities
    
    
    (6,392
    )
    
    
    27,946
    
    
    
    (399
    )
    
    
    
    
    
    
    21,155Cash flows from investing activities:Purchase of business
    
    
    
    
    
    
    (249
    )
    
    
    
    
    
    
    
    
    
    
    (249
    )Purchase of property, machinery & equipment
    
    
    
    
    
    
    (10,410
    )
    
    
    (13,799
    )
    
    
    
    
    
    
    (24,209
    )Proceeds from sale of property, machinery & equipment
    
    
    
    
    
    
    627
    
    
    
    
    
    
    
    
    
    
    
    627(Increase) decrease in other restricted cash accounts
    
    
    
    
    
    
    (959
    )
    
    
    344
    
    
    
    
    
    
    
    (615
    )Net cash used in investing activities
    
    
    
    
    
    
    (10,991
    )
    
    
    (13,455
    )
    
    
    
    
    
    
    (24,446
    )Cash flows from financing activities:Payments of debt
    
    
    
    
    
    
    (3,174
    )
    
    
    
    
    
    
    
    
    
    
    (3,174
    )Intercompany notes with subsidiaries
    
    
    13,780
    
    
    
    (13,780
    )
    
    
    
    
    
    
    
    
    
    
    Capital contributions
    
    
    (13,712
    )
    
    
    
    
    
    
    13,712
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (334
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (334
    )Decrease in book overdraft
    
    
    (379
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (379
    )Common stock dividends
    
    
    (13,703
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,703
    )Proceeds from equity offering
    
    
    15,852
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,852Exercise of options
    
    
    488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    488Net cash (used in) provided by financing activities
    
    
    1,992
    
    
    
    (16,954
    )
    
    
    13,712
    
    
    
    
    
    
    
    (1,250
    )Net increase (decrease) in cash and cash equivalents
    
    
    (4,400
    )
    
    
    1
    
    
    
    (142
    )
    
    
    
    
    
    
    (4,541
    )Cash and cash equivalents, beginning of period
    
    
    18,233
    
    
    
    34
    
    
    
    304
    
    
    
    
    
    
    
    18,571Cash and cash equivalents, end of period
    
    $
    13,833
    
    
    $
    35
    
    
    $
    162
    
    
    $
    
    
    
    $
    14,030
 20




---



##### Table of Contents



CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2005
(DOLLARS IN THOUSANDS)
 NON-GUARANTOR
    
    
    GUARANTORPARENT
    
    
    SUBSIDIARIES
    
    
    SUBSIDIARIES
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDCash flows from operating activities:Net income (loss) applicable to common stock
    
    $
    (23,826
    )
    
    $
    1,364
    
    
    $
    231
    
    
    $
    (1,595
    )
    
    $
    (23,826
    )Adjustments to reconcile net income applicable to
common stock to net cash provided by operating
activities:Preferred stock dividends
    
    
    9,587
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,587Bad debt expense
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    302Depreciation and amortization expense
    
    
    
    
    
    
    10,131
    
    
    
    534
    
    
    
    
    
    
    
    10,665Amortization and write-off of debt financing costs
    
    
    4,905
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    4,919Provision (benefit) for deferred income taxes
    
    
    (9,535
    )
    
    
    821
    
    
    
    139
    
    
    
    
    
    
    
    (8,575
    )Tax benefit from exercise of stock options
    
    
    339
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339Gain on sale of property, machinery and
equipment
    
    
    
    
    
    
    (205
    )
    
    
    
    
    
    
    
    
    
    
    (205
    )Equity in earnings
    
    
    (1,595
    )
    
    
    
    
    
    
    
    
    
    
    1,595
    
    
    
    (Increase) decrease in the following, net:Accounts receivable
    
    
    
    
    
    
    (3,929
    )
    
    
    (256
    )
    
    
    
    
    
    
    (4,185
    )Cost in excess of billings
    
    
    
    
    
    
    (209
    )
    
    
    
    
    
    
    
    
    
    
    (209
    )Prepaid expenses and other current assets
    
    
    237
    
    
    
    552
    
    
    
    (108
    )
    
    
    
    
    
    
    681Increase (decrease) in the following, net:Accrued interest payable
    
    
    (3,640
    )
    
    
    231
    
    
    
    (30
    )
    
    
    
    
    
    
    (3,439
    )Intercompany advances  trade
    
    
    (12,681
    )
    
    
    12,681
    
    
    
    
    
    
    
    
    
    
    
    Accounts payable and accrued expenses and other
long term liabilities
    
    
    1,946
    
    
    
    (12,824
    )
    
    
    (55
    )
    
    
    
    
    
    
    (10,933
    )Net cash (used in) provided by operating activities
    
    
    (34,263
    )
    
    
    8,915
    
    
    
    469
    
    
    
    
    
    
    
    (24,879
    )Cash flows from investing activities:Purchase of business
    
    
    
    
    
    
    (253
    )
    
    
    
    
    
    
    
    
    
    
    (253
    )Purchase of property, machinery & equipment
    
    
    
    
    
    
    (8,588
    )
    
    
    (1,189
    )
    
    
    
    
    
    
    (9,777
    )Proceeds from sale of property, machinery & equipment
    
    
    
    
    
    
    986
    
    
    
    
    
    
    
    
    
    
    
    986Facility construction funded by restricted cash
    
    
    
    
    
    
    
    
    
    
    (1,648
    )
    
    
    
    
    
    
    (1,648
    )Decrease in restricted cash for facility construction
    
    
    
    
    
    
    
    
    
    
    1,648
    
    
    
    
    
    
    
    1,648Increase in other restricted cash accounts
    
    
    
    
    
    
    (1,088
    )
    
    
    (1,235
    )
    
    
    
    
    
    
    (2,323
    )Other
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Net cash used in investing activities
    
    
    
    
    
    
    (8,939
    )
    
    
    (2,424
    )
    
    
    
    
    
    
    (11,363
    )Cash flows from financing activities:Payments of debt
    
    
    (197,066
    )
    
    
    (1,600
    )
    
    
    (4,000
    )
    
    
    
    
    
    
    (202,666
    )Proceeds from debt
    
    
    189,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189,900Net increase in bank revolver borrowings
    
    
    19,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,600Decrease in book overdrafts
    
    
    (1,539
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,539
    )Debt issuance costs
    
    
    (7,650
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,650
    )Proceeds from equity offering
    
    
    37,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,641Intercompany notes with subsidiaries
    
    
    (1,639
    )
    
    
    1,639
    
    
    
    
    
    
    
    
    
    
    
    Capital contributions
    
    
    (6,047
    )
    
    
    
    
    
    
    6,047
    
    
    
    
    
    
    
    Exercise of options
    
    
    1,676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,676Net cash provided by financing activities
    
    
    34,876
    
    
    
    39
    
    
    
    2,047
    
    
    
    
    
    
    
    36,962Net increase in cash and cash equivalents
    
    
    613
    
    
    
    15
    
    
    
    92
    
    
    
    
    
    
    
    720Cash and cash equivalents, beginning of period
    
    
    99
    
    
    
    21
    
    
    
    206
    
    
    
    
    
    
    
    326Cash and cash equivalents, end of period
    
    $
    712
    
    
    $
    36
    
    
    $
    298
    
    
    $
    
    
    
    $
    1,046
 21




---



##### Table of Contents



(8) Segment Information
    RESIDUALS
    
    
    
    
    
    
    ENGINEERINGMANAGEMENT
    
    
    RAIL
    
    
    FACILITIES
    
    
    CORPORATE/OPERATIONS
    
    
    TRANSPORTATION
    
    
    DEVELOPMENT
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDThree
Months Ended June 30, 2006Revenue from external services
    
    $
    71,074
    
    
    $
    12,009
    
    
    $
    3,184
    
    
    $
    
    
    
    $
    86,267Revenues from other segments
    
    
    964
    
    
    
    94
    
    
    
    40
    
    
    
    (1,098
    )
    
    
    Income (loss) from operations
    
    
    11,420
    
    
    
    2,433
    
    
    
    (381
    )
    
    
    (4,268
    )
    
    
    9,204Three Months Ended June 30, 2005Revenue from external services
    
    $
    68,431
    
    
    $
    8,639
    
    
    $
    6,462
    
    
    $
    
    
    
    $
    83,532Revenues from other segments
    
    
    499
    
    
    
    309
    
    
    
    54
    
    
    
    (862
    )
    
    
    Income (loss) from operations
    
    
    12,887
    
    
    
    1,030
    
    
    
    68
    
    
    
    (10,597
    )
    
    
    3,388
 RESIDUALS
    
    
    
    
    
    
    ENGINEERINGMANAGEMENT
    
    
    RAIL
    
    
    FACILITIES
    
    
    CORPORATE/OPERATIONS
    
    
    TRANSPORTATION
    
    
    DEVELOPMENT
    
    
    ELIMINATIONS
    
    
    CONSOLIDATEDSix Months Ended June 30, 2006Revenue from external services
    
    $
    136,318
    
    
    $
    22,894
    
    
    $
    6,333
    
    
    $
    
    
    
    $
    165,545Revenues from other segments
    
    
    1,269
    
    
    
    263
    
    
    
    74
    
    
    
    (1,606
    )
    
    
    Income (loss) from operations
    
    
    18,359
    
    
    
    4,373
    
    
    
    (973
    )
    
    
    (9,070
    )
    
    
    12,689Six Months Ended June 30, 2005Revenue from external services
    
    $
    126,722
    
    
    $
    15,923
    
    
    $
    17,101
    
    
    $
    
    
    
    $
    159,746Revenues from other segments
    
    
    728
    
    
    
    974
    
    
    
    54
    
    
    
    (1,756
    )
    
    
    Income (loss) from operations
    
    
    21,035
    
    
    
    1,518
    
    
    
    730
    
    
    
    (13,950
    )
    
    
    9,333
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Segment income from operations
    
    $
    13,472
    
    
    $
    13,985
    
    
    $
    21,759
    
    
    $
    23,283Corporate
    
    
    (4,268
    )
    
    
    (10,597
    )
    
    
    (9,070
    )
    
    
    (13,950
    )Income from operations
    
    
    9,204
    
    
    
    3,388
    
    
    
    12,689
    
    
    
    9,333Total other expense, net
    
    
    4,859
    
    
    
    25,635
    
    
    
    9,651
    
    
    
    32,147Income (loss) before provision (benefit) for income taxes
    
    $
    4,345
    
    
    $
    (22,247
    )
    
    $
    3,038
    
    
    $
    (22,814
    )
  22




---



##### Table of Contents



(9) Stock Based Compensation
      June 30, 2006Three Months Ended
    
    
    Six Months Ended(In thousands of dollars,except per share data)Compensation costs recorded for all plans, net of
tax expense of $231 and $529, respectively
    
    $
    316
    
    
    $
    730Impact of adopting SFAS No. 123R:Reduction in Income from operations
    
    $
    548
    
    
    $
    1,258Reduction in Income before income tax expense
    
    $
    548
    
    
    $
    1,258Reduction in Net income
    
    $
    318
    
    
    $
    730Reduction in Basic and diluted earnings per share
    
    $
    0.01
    
    
    $
    0.01
    23




---



##### Table of Contents



Stock Option Plans
 2000 Plan
  Expected Volatility
    
    
    61.0
    %Expected Dividend
    
    
    10.0
    %Expected Term (in years)
    
    
    6.7Risk Free Rate
    
    
    5.1
    %
  For The Six Months Ended June 30, 2006Weighted
    
    
    WeightedWeighted
    
    
    Average
    
    
    Average
    
    
    AggregateNumber of
    
    
    Average
    
    
    Grant Date
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Fair Value
    
    
    Life In Years
    
    
    Value (000's)Beginning balance
    
    
    3,799,132
    
    
    $
    3.07Options granted
    
    
    553,750
    
    
    $
    4.18
    
    
    $
    1.11
    
    
    
    Options exercised
    
    
    (189,444
    )
    
    $
    2.62Options forfeited
    
    
    (112,300
    )
    
    $
    3.16Total outstanding
    
    
    4,051,138
    
    
    $
    3.24
    
    
    
    
    
    
    
    6.7
    
    
    $
    4,677Options exercisable and vested
    
    
    2,379,928
    
    
    $
    2.91
    
    
    
    
    
    
    
    5.3
    
    
    $
    3,625
 1993 Plan
  For The Six Months Ended June 30, 2006Weighted
    
    
    WeightedWeighted
    
    
    Average
    
    
    Average
    
    
    AggregateNumber of
    
    
    Average
    
    
    Grant Date
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Fair Value
    
    
    Life In Years
    
    
    Value (000's)Beginning balance
    
    
    21,000
    
    
    $
    4.46Options granted
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Options forfeited
    
    
    
    
    
    
    Total outstanding
    
    
    21,000
    
    
    $
    4.46
    
    
    
    
    
    
    
    3.5
    
    
    $
    0.1Options exercisable and vested
    
    
    21,000
    
    
    $
    4.46
    
    
    
    
    
    
    
    3.5
    
    
    $
    0.1
 24




---



##### Table of Contents



Other Options
  For The Six Months Ended June 30, 2006Weighted
    
    
    WeightedWeighted
    
    
    Average
    
    
    Average
    
    
    AggregateNumber of
    
    
    Average
    
    
    Grant Date
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Fair Value
    
    
    Life In Years
    
    
    Value (000's)Beginning balance
    
    
    1,224,160
    
    
    $
    2.82Options granted
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Options forfeited
    
    
    
    
    
    
    Total outstanding
    
    
    1,224,160
    
    
    $
    2.82
    
    
    
    
    
    
    
    4.0
    
    
    $
    1,879Options exercisable and vested
    
    
    984,160
    
    
    $
    2.89
    
    
    
    
    
    
    
    3.5
    
    
    $
    1,435
    Number of SharesNonvested at December 31, 2005
    
    
    100,777Granted
    
    
    66,429Vested
    
    
    (39,939
    )Forfeited
    
    
    (4,489
    )Nonvested at March 31, 2006
    
    
    122,778Granted
    
    
    254,725Vested
    
    
    (56,776
    )Forfeited
    
    
    Nonvested at June 30, 2006
    
    
    320,727
  Prior to January 1, 2006
  25




---



##### Table of Contents



June 30, 2005Three Months
    
    
    Six MonthsEnded
    
    
    EndedNet loss applicable to common stock, as reported
    
    $
    (21,214
    )
    
    $
    (23,826
    )Plus: Option redemptions, net of tax
    
    
    3,404
    
    
    
    3,404Less: Compensation expense per SFAS 123, net of tax
    
    
    1,091
    
    
    
    1,351Pro forma net loss
    
    $
    (18,901
    )
    
    $
    (21,773
    )Loss per share:Diluted loss per share, as reported
    
    $
    (0.84
    )
    
    $
    (1.05
    )Pro forma loss per share after effect of SFAS 123
    
    $
    (0.75
    )
    
    $
    (0.96
    )
  June 30, 2005Three Months
    
    
    Six MonthsEnded
    
    
    EndedRisk-free interest rate
    
    
    4.1
    %
    
    
    4.1
    %Expected volatility
    
    
    265.0
    %
    
    
    264.0
    %Expected term in years
    
    
    6.37
    
    
    
    6.37
 
 ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Background
    26




---



##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Contract
    
    
    83
    %
    
    
    84
    %
    
    
    84
    %
    
    
    82
    %Purchase order
    
    
    2
    %
    
    
    3
    %
    
    
    2
    %
    
    
    3
    %Product sales
    
    
    4
    %
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %Design/build construction
    
    
    0
    %
    
    
    5
    %
    
    
    1
    %
    
    
    8
    %Event
    
    
    11
    %
    
    
    5
    %
    
    
    10
    %
    
    
    4
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
     -
    
    new sales (including the mix of contract and event sales) and existing business
retention objectives necessary to maintain our high percentage of contract and other
recurring revenues;-
    
    storage and permitted landbase available to efficiently manage land application of
biosolids, especially during inclement weather patterns;-
    
    regulatory and permit compliance requirements and safety programs and initiatives
specific to our business; and-
    
    reviewing and monitoring utility costs, fuel costs, subcontractor transportation costs,
equipment utilization and availability, equipment purchasing activity, headcount, field
operating overhead and selling, general and administrative expenses.
 27




---



##### Table of Contents



Historical Results of Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    86,267
    
    
    
    100.0
    %
    
    $
    83,532
    
    
    
    100.0
    %
    
    $
    165,545
    
    
    
    100.0
    %
    
    $
    159,746
    
    
    
    100.0
    %Cost of services
    
    
    69,319
    
    
    
    80.4
    %
    
    
    66,561
    
    
    
    79.7
    %
    
    
    136,376
    
    
    
    82.4
    %
    
    
    130,737
    
    
    
    81.8
    %Gross profit
    
    
    16,948
    
    
    
    19.6
    %
    
    
    16,971
    
    
    
    20.3
    %
    
    
    29,169
    
    
    
    17.6
    %
    
    
    29,009
    
    
    
    18.2
    %Selling, general and administrative expenses
    
    
    7,582
    
    
    
    8.8
    %
    
    
    5,390
    
    
    
    6.5
    %
    
    
    16,353
    
    
    
    9.9
    %
    
    
    11,559
    
    
    
    7.2
    %Transaction costs and expenses
    
    
    316
    
    
    
    0.4
    %
    
    
    1,517
    
    
    
    1.8
    %
    
    
    316
    
    
    
    0.2
    %
    
    
    1,517
    
    
    
    1.0
    %Stock option redemptions and transaction bonuses
    
    
    
    
    
    
    0.0
    %
    
    
    6,805
    
    
    
    8.1
    %
    
    
    
    
    
    
    
    %
    
    
    6,805
    
    
    
    4.3
    %Gain on sale of assets
    
    
    (154
    )
    
    
    (0.2
    )%
    
    
    (129
    )
    
    
    (0.2
    )%
    
    
    (189
    )
    
    
    (0.1
    )%
    
    
    (205
    )
    
    
    (0.1
    )%Income from operations
    
    
    9,204
    
    
    
    10.6
    %
    
    
    3,388
    
    
    
    4.1
    %
    
    
    12,689
    
    
    
    7.6
    %
    
    
    9,333
    
    
    
    5.8
    %Other (income) expense:Other (income) expense, net
    
    
    (350
    )
    
    
    (0.4
    )%
    
    
    62
    
    
    
    0.1
    %
    
    
    (671
    )
    
    
    (0.4
    )%
    
    
    59
    
    
    
    0.0
    %Debt extinguishment costs
    
    
    
    
    
    
    
    %
    
    
    19,487
    
    
    
    23.3
    %
    
    
    
    
    
    
    
    %
    
    
    19,487
    
    
    
    12.2
    %Interest income
    
    
    (137
    )
    
    
    (0.2
    )%
    
    
    
    
    
    
    
    %
    
    
    (292
    )
    
    
    (0.2
    )%
    
    
    
    
    
    
    
    %Interest expense
    
    
    5,346
    
    
    
    6.2
    %
    
    
    6,086
    
    
    
    7.3
    %
    
    
    10,614
    
    
    
    6.3
    %
    
    
    12,601
    
    
    
    7.9
    %Total other expense, net
    
    
    4,859
    
    
    
    5.6
    %
    
    
    25,635
    
    
    
    30.7
    %
    
    
    9,651
    
    
    
    5.7
    %
    
    
    32,147
    
    
    
    20.1
    %Income (loss) before provision (benefit) for income taxes
    
    
    4,345
    
    
    
    5.0
    %
    
    
    (22,247
    )
    
    
    (26.6
    )%
    
    
    3,038
    
    
    
    1.9
    %
    
    
    (22,814
    )
    
    
    (14.3
    )%Provision (benefit) for income taxes
    
    
    1,822
    
    
    
    2.1
    %
    
    
    (8,348
    )
    
    
    (10.0
    )%
    
    
    1,276
    
    
    
    0.8
    %
    
    
    (8,575
    )
    
    
    (5.4
    )%Net income (loss) before preferred stock dividends
    
    
    2,523
    
    
    
    2.9
    %
    
    
    (13,899
    )
    
    
    (16.6
    )%
    
    
    1,762
    
    
    
    1.1
    %
    
    
    (14,239
    )
    
    
    (8.9
    )%Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    7,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,587Net income (loss) applicable to common stock
    
    $
    2,523
    
    
    
    
    
    
    $
    (21,214
    )
    
    
    
    
    
    $
    1,762
    
    
    
    
    
    
    $
    (23,826
    )
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenueResiduals Management Operations
    
    $
    72,038
    
    
    $
    68,930
    
    
    $
    137,587
    
    
    $
    127,450Rail Transportation
    
    
    12,103
    
    
    
    8,948
    
    
    
    23,157
    
    
    
    16,897Engineering, Facilities, and Development
    
    
    3,224
    
    
    
    6,516
    
    
    
    6,407
    
    
    
    17,155Elimination
    
    
    (1,098
    )
    
    
    (862
    )
    
    
    (1,606
    )
    
    
    (1,756
    )$
    86,267
    
    
    $
    83,532
    
    
    $
    165,545
    
    
    $
    159,746Income (loss) from operationsResiduals Management Operations
    
    $
    11,420
    
    
    $
    12,887
    
    
    $
    18,359
    
    
    $
    21,035Rail Transportation
    
    
    2,433
    
    
    
    1,030
    
    
    
    4,373
    
    
    
    1,518Engineering, Facilities, and Development
    
    
    (381
    )
    
    
    68
    
    
    
    (973
    )
    
    
    730Corporate
    
    
    (4,268
    )
    
    
    (10,597
    )
    
    
    (9,070
    )
    
    
    (13,950
    )$
    9,204
    
    
    $
    3,388
    
    
    $
    12,689
    
    
    $
    9,333
 28




---



##### Table of Contents



Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
        29




---



##### Table of Contents



Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
       30




---



##### Table of Contents



Liquidity and Capital Resources
 Overview
  Historical Cash Flows
 Cash Flows from Operating Activities
 Cash Flows from Investing Activities
 Cash Flows from Financing Activities
 31




---



##### Table of Contents



Capital Expenditure Requirements
  Debt Service Requirements
 Senior Credit Facility
   (i)
    
    Revolving Loan up to $95.0 million outstanding at anytime;(ii)
    
    Term B Loans (which, once repaid, may not be reborrowed) of $210.0 million, including
$30.0 million that was borrowed in December 2005; and(iii)
    
    Letters of Credit up to $50.0 million as a subset of the Revolving Loan. At June 30,
2006, we had approximately $34.0 million of Letters of Credit outstanding.
  Eurodollar
    
    
    Base RateRevolver
    
    
    8.10
    %
    
    
    10.00
    %Term
    
    
    7.34
    %
    
    
    9.50
    %
     32




---



##### Table of Contents



Other Debt
   Notes Payable to Sellers of Acquired Businesses
  Future Minimum Principal Payments of Debt
  Nonrecourse
    
    
    CapitalLong-Term
    
    
    Project
    
    
    Lease
    
    
    Estimated
    
    
    Operating
    
    
    PurchaseYear Ended December 31,
    
    Debt
    
    
    Revenue Bonds
    
    
    Obligations
    
    
    Interest
    
    
    Leases
    
    
    Commitments
    
    
    Total2006
    
    $
    219
    
    
    $
    3,480
    
    
    $
    1,768
    
    
    $
    11,147
    
    
    $
    4,721
    
    
    $
    4,436
    
    
    $
    25,7712007
    
    
    1,441
    
    
    
    3,710
    
    
    
    4,494
    
    
    
    20,730
    
    
    
    8,943
    
    
    
    2,993
    
    
    
    42,3112008
    
    
    1,047
    
    
    
    3,935
    
    
    
    5,245
    
    
    
    20,025
    
    
    
    7,442
    
    
    
    2,993
    
    
    
    40,6872009
    
    
    
    
    
    
    4,165
    
    
    
    2,089
    
    
    
    19,548
    
    
    
    6,361
    
    
    
    2,993
    
    
    
    35,1562010
    
    
    
    
    
    
    4,420
    
    
    
    1,134
    
    
    
    18,095
    
    
    
    5,060
    
    
    
    2,993
    
    
    
    31,7022011-2015
    
    
    210,000
    
    
    
    24,005
    
    
    
    428
    
    
    
    24,047
    
    
    
    8,675
    
    
    
    
    
    
    
    267,1552016-2020
    
    
    
    
    
    
    8,250
    
    
    
    
    
    
    
    3,106
    
    
    
    1,526
    
    
    
    
    
    
    
    12,882Thereafter
    
    
    
    
    
    
    7,375
    
    
    
    
    
    
    
    1,142
    
    
    
    1,263
    
    
    
    
    
    
    
    9,780Total
    
    $
    212,707
    
    
    $
    59,340
    
    
    $
    15,158
    
    
    $
    117,840
    
    
    $
    43,991
    
    
    $
    16,408
    
    
    $
    465,444
 33




---



##### Table of Contents



Interest Rate Risk
  Working Capital
  Accounting Pronouncements
   34




---



##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 Derivatives and Hedging Activities
        35




---



##### Table of Contents



Interest Rate Risk
  
 ITEM 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   36




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  Election of Directors
 Director
    
    Votes For
    
    Votes WithheldRoss M. Patten
    
    
    51,325,159
    
    
    
    14,388,827Robert C. Boucher, Jr.
    
    
    51,310,039
    
    
    
    14,403,947David A. Donnini
    
    
    42,569,119
    
    
    
    23,144,867Vincent J. Hemmer
    
    
    48,980,934
    
    
    
    16,733,052James B. Mattly
    
    
    65,066,585
    
    
    
    647,401Gene Meredith
    
    
    64,856,841
    
    
    
    857,145George E. Sperzel
    
    
    49,000,467
    
    
    
    16,713,519Alfred Tyler 2nd
    
    
    65,044,452
    
    
    
    669,534J. Paul Withrow
    
    
    49,017,907
    
    
    
    16,696,079
 Stockholder proposal requesting an environmental study at our NYOFCO facility:
 Votes For: 10,422,218
    
    Votes Against: 22,557,253
    
    Broker Non-Votes: 32,734,515
 
 ITEM 6. Exhibits
  31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 37




---



##### Table of Contents



SYNAGRO TECHNOLOGIES, INC.Date: August 8, 2006
    By:
    /s/ Robert C. Boucher, Jr.Chief Executive Officer and DirectorDate: August 8, 2006
    By:
    /s/ J. Paul WithrowChief Financial Officer and Director 38




---



##### Table of Contents



Exhibit No
    
    Description31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 39