##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
    to.   Commission file number 0-21054
 SYNAGRO TECHNOLOGIES,
    INC.
 (Exact name of Registrant as
    Specified in its Charter)
  DELAWARE(State or other
    jurisdiction
    of incorporation or organization)

88-0219860(I.R.S. employer
    identification no.)1800 BERING DRIVE,
    SUITE 1000
    HOUSTON, TEXAS(Address of principal
    executive offices)
    Internet
    Website
    www.synagro.com

77057(Zip
    Code)   REGISTRANTS
    TELEPHONE NUMBER, INCLUDING AREA CODE:(713) 369-1700
  SECURITIES
    REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
  Common
    Stock, $.002 par value (Title
    of each class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2.
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Items 10-14, Form 10-K.




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##### Table of Contents



2006
    FORM 10-K
    ANNUAL REPORT
  TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


3Item 1A.


Risk
    Factors


18Item 1B.


Unresolved Staff
    Comments


25Item 2.


Properties


25Item 3.


Legal
    Proceedings


25Item 4.


Submission of
    Matters to a Vote of Security Holders


26PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities


27Item 6.


Selected Financial
    Data


30Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


31Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


45Item 8.


Financial
    Statements and Supplementary Data


47Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


91Item 9A.


Controls and
    Procedures


91Item 9B.


Other Information


91PART IIIIn accordance with
    paragraph(3) of General Instruction G to
    Form 10-K,
    Part III of this Report is
    omitted


92PART IVItem 15.


Exhibits and
    Financial Statement Schedules


92SIGNATURES


95INDEX TO
    FINANCIALS


47  2




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##### Table of Contents



PART I  Item 1.
    Business  Forward-Looking
    Statements
  Form 10-K. Form 10-Q, Form 8-K,
  Business
    Overview
  Recent
    Developments
      break-up
   3




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##### Table of Contents



Hart-Scott-Rodino
  General
             4




---



##### Table of Contents



Description
    of Business by Segment
        Year Ended December 31,2006


2005


2004(In thousands)Residuals Management Operations

$
291,740


$
269,639


$
274,790Rail Transportation


44,522



39,309



38,035Engineering Facilities and
    Development


12,275



32,079



17,252Eliminations


(2,731
)


(3,023
)


(4,213
)Total revenues

$
345,806


$
338,004


$
325,864     Year Ended December 31,2006


2005


2004(In thousands)Land application and disposal

$
178,623


$
168,102


$
173,771Facilities operations


117,165



110,627



104,638Cleanout services


37,543



22,338



25,220Product marketing


10,531



11,462



11,430Design and build


1,944



25,475



10,805Total revenues

$
345,806


$
338,004


$
325,864      5




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##### Table of Contents



Industry
    Overview
  History
    
    Population growth and population served;
    Pressures to better manage wastewater;
    More restrictive laws and regulations; and
    Advances in technology.  and/or
  Classes
    of Biosolids
  Sub-Class B.
   6




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##### Table of Contents



Sub-Class B. Sub-Class B
  Market
    Size/Fragmentation
          Market
    Growth
    Population Growth and Population Served.
  Pressures To Better Manage Wastewater.
  Stricter Regulations.
 7




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##### Table of Contents



Advances in Technology.
  Market
    Trends
  Sub-Class B
  Decaying Infrastructure.
  Shrinking Agricultural Base and
    Urbanization.
  Public Sentiment.
  Regulatory Stringency.
  Our
    Competitive Strengths
    National, Full-Service Industry Leader.
 8




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Recurring Revenues and Stable Operating Cash
    Flows.
  Significant Land Base.
  Large Range of Processing Capabilities and Product Marketing
    Experience.
  Experienced Sales Force.
  Regulatory Compliance and Reporting.
  Bonding Capacity.
  Strong, Experienced Management Team.
 9




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##### Table of Contents



Our
    Business Strategy
    Organic Growth.
  
    Developing New Customers.  Our sales and
    marketing efforts focus on adding new customers by marketing our
    products and services. In many cases, we believe that we can
    provide the customer with better service at a cost to them that
    is lower than what it costs them to provide the service
    internally or with their current service provider. We take a
    collaborative approach with potential customers where our sales
    force consults with potential customers and positions us as a
    solution provider.
    Expanding Services to Existing Customers.  We
    have the opportunity to provide many of our existing customers
    with additional services as part of a complete residuals
    management program. We endeavor to educate these existing
    customers about the benefits of a complete residuals management
    solution and offer other services where the value is compelling.
    These opportunities may provide us with long-term contracts,
    increased barriers to entry, and better relationships with our
    customers.
    Capitalize on Increased Demand for Class A
    Services.  In order to take advantage of operating
    efficiencies, technology and our comprehensive capabilities, we
    will endeavor to capitalize on the increased demand for
    Class A services, including drying and pelletizing,
    dewatering and composting. We believe this focus will result in
    more long-term contracts and recurring revenue. In addition, we
    are building several new facilities, which we expect will also
    result in longer-term contracts, steady revenue streams, higher
    barriers to entry for competitors, higher switching costs for
    the customer and lower seasonality.  Growth Through Complementary Acquisitions.
  Disciplined Approach to Capital
    Expenditures. and/or
  Services
    and Operations
     10




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##### Table of Contents



Design and Build Services.
  Facility Cleanout Services.
  Regulatory Compliance.
 11




---



##### Table of Contents



Dewatering.
  Collection and Transportation. and/or
  Composting.
  Drying and Pelletization.
    Product Marketing.
 12




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##### Table of Contents



Incineration.
  Alkaline Stabilization. Sub-Class B Class-B
  Land Application.
  Contracts
       13




---



##### Table of Contents



put-or-pay
        Backlog
    Sales and
    Marketing
     14




---



##### Table of Contents



Acquisitions
    History
    Company

Date Acquired

U.S. Market Served

Capabilities AcquiredA&J Cartage, Inc.

June 1998

Midwest

Land ApplicationRecyc, Inc.

July 1998

West

CompostingEnvironmental Waste Recycling,
    Inc.

November 1998

Southeast

Land ApplicationNational Resource Recovery,
    Inc.

March 1999

Midwest

Land ApplicationAnti-Pollution Associates

April 1999

Florida Keys

Facility OperationsD&D Pumping, Inc.

April 1999

Florida Keys

Land ApplicationVital Cycle, Inc.

April 1999

Southwest

Product MarketingAMSCO, Inc.

May 1999

Southeast

Land ApplicationResidual Technologies, LP

January 2000

Northeast

IncinerationDavis Water Analysis, Inc.

February 2000

Florida Keys

Facility OperationsAKH Water Management, Inc.

February 2000

Florida Keys

Facility OperationsEcosystematics, Inc.

February 2000

Florida Keys

Facility OperationsRehbein, Inc.

March 2000

Midwest

Land ApplicationWhiteford Construction Company

March 2000

Mid-Atlantic

CleanoutsEnvironmental
    Protection & Improvement Inc.

March 2000

Mid-Atlantic

Rail TransportationEarthwise Organics, Inc and
    Earthwise Trucking

August 2002

West

Composting and 
    TransportationAspen Resources, Inc.

May 2003

Midwest

Pulp and Paper Residuals   Competition
   15




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##### Table of Contents



Federal,
    State and Local Government Regulation
  and/or
    Permitting
    Process
  and/or and/or
   16




---



##### Table of Contents



and/or
    Securities
    and Exchange Commission
    http://www.synagro.com Form 10-K, Form 10-Q (713) 369-1700.
  Patents
    and Proprietary Rights
      Employees
   17




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##### Table of Contents



Potential
    Liability and Insurance
    
    personal injury;
    damage to the environment;
    violations of environmental permits;
    transportation matters;
    employee matters;
    contractual matters;
    property damage; and
    alleged negligence or professional errors or omissions in the
    planning or performance of work.        Item 1A.
    Risk
    Factors  Risk
    Factors That May Affect Future Results
  Federal
    wastewater treatment and biosolid regulations may restrict our
    operations and/or increase our costs of operations.
   18




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and/or and/or
  We are
    subject to extensive and increasingly strict federal, state and
    local environmental regulation and permitting, which could
    impose substantial costs on our operations and/or reduce our
    operational flexibility.
  and/or and/or
     19




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We are
    affected by unusually adverse weather and winter conditions,
    which may adversely affect our revenues and operational
    results.
    Our
    ability to grow may be limited by direct or indirect competition
    with other businesses that provide some or all of the same
    services that we provide.
    If our
    long-term contracts are renewed on less attractive terms, or not
    renewed at all, or if we are unsuccessful in bidding on new
    long-term contracts, our operating results and financial
    condition would be adversely affected.
    If one
    or more of our customer contracts are terminated prior to the
    expiration of their term, and we are not able to replace
    revenues from the terminated contract or receive liquidated
    damages pursuant to the terms of the contract, the lost revenue
    would have a material adverse effect on our business,
    financial condition and results of operations.
    If one
    or more of our new facilities is not completed as scheduled, and
    we are not able to replace revenues from the new facility, this
    could have a material and adverse effect on our financial
    performance and cash flow.
   20




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##### Table of Contents



A
    significant amount of our business comes from a limited number
    of customers and our revenue and profits could decrease
    significantly if we lost one or more of them as
    customers.
    If we
    were unable to obtain bonding required in connection with
    certain projects, we would be ineligible to bid on those
    projects.
    We
    could face personal injury, third-party or environmental claims
    or other damages resulting in substantial liability for which we
    are uninsured or inadequately insured and which could have a
    material adverse effect on our business, financial condition and
    results of operations.
      We are
    dependent on the availability and satisfactory performance of
    subcontractors for our design and build operations and the
    insufficiency and unavailability of and unsatisfactory
    performance by these unaffiliated third party contractors could
    have a material adverse effect on our business, financial
    condition and results of operations.
    Fluctuations
    in fuel costs could increase our operating expenses and
    negatively impact our net income.
   21




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##### Table of Contents



If we
    fail to properly estimate the cost of completing a project, and
    we cannot pass additional costs through to our customers, we may
    not generate sufficient revenue from the project to cover the
    operating costs of such project, which would adversely affect
    our net income.
    We are
    not able to guarantee that our estimated remaining contract
    value, which we call backlog, will result in actual revenues in
    any particular fiscal period.
    If we
    lose the pending lawsuits we are currently involved in, we could
    be liable for significant damages and legal
    expenses.
    We
    could face considerable business and financial risk in
    implementing our acquisition strategy.
    
    difficulties in the integration of the operations, technologies,
    products and personnel of the acquired company;
    potential loss of employees;
    diversion of managements attention away from other
    business concerns;
    expenses of any undisclosed or potential legal liabilities of
    the acquired company; and
    risks of entering markets in which we have no or limited prior
    experience. 22




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##### Table of Contents



We are
    dependent on our senior management for their depth of industry
    experience and knowledge.
      Efforts
    by labor unions to organize our employees could divert
    management attention and increase our operating
    expenses.
    We may
    become subject to CERCLA or other federal or state cleanup laws,
    which could increase our costs of operations.
       23




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##### Table of Contents



Our
    intellectual property may be misappropriated or subject to
    claims of infringement.
      If we
    determine that our goodwill is impaired, we may have to write
    off all or part of it.
    We may
    be unable to meet changing laws, regulations and standards
    related to corporate governance and public
    disclosure.
   24




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##### Table of Contents



There
    is no assurance that we will continue declaring dividends or
    have the available cash to make dividend payments.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  (713) 369-1700.
          Item 3.
    Legal
    Proceedings      Reliance
    Insurance
   25




---



##### Table of Contents



and/or
    Design
    and Build Contract Risk
    Other
    Self-Insurance
    Item 4.
    Submission
    of Matters to a Vote of Security Holders   26




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Common
    Stock Price Range
    High


LowFiscal Year 2006First Quarter

$
5.00


$
4.02Second Quarter

$
5.15


$
3.85Third Quarter

$
4.30


$
3.56Fourth Quarter

$
4.67


$
4.00Fiscal Year 2005First Quarter

$
5.10


$
2.50Second Quarter

$
4.85


$
3.96Third Quarter

$
5.42


$
4.53Fourth Quarter

$
5.00


$
3.38     Dividend
    Policy
   27




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##### Table of Contents



Equity
    Compensation Plan Information
    Number of SecuritiesRemaining Available forNumber of Securities





Future Issuance Underto be Issued Upon


Weighted Average


Equity CompensationExercise of


Exercise Price of


Plans (ExcludingOutstanding


Outstanding


Securities ReflectedStock Options


Stock Options


in column (a))Plan Category

(a)


(b)


(c)Equity compensation plans approved
    by security holders(1)


4,017,388


$
3.26



7,677,000Equity compensation not approved
    by security holders(2)


1,224,160


$
2.82



Total


5,241,548







7,677,000     (1)
    
    We have outstanding stock options granted under the 2000 Stock
    Option Plan (the 2000 Plan) and the Amended and
    Restated 1993 Stock Option Plan (the 1993 Plan) for
    officers, directors and key employees. There are 7,677,000
    options for shares of common stock reserved under the 2000 Plan
    for future grants. Effective with the approval of the 2000 Plan,
    no further grants have been made under the 1993 Plan.(2)
    
    Represents options granted pursuant to individual stock option
    agreements. An aggregate of 1,181,954 options were granted to
    executive officers in 1998 and prior. These options had an
    exercise price equal to the market price, vested over three
    years, and expire ten years from the date of grant. An aggregate
    of 850,000 options were granted to executive officers as an
    inducement essential to the individuals entering into an
    employment contract with us. These options have an exercise
    price equal to market value on the date of grant, vest over
    three years, and expire ten years from the date of grant. 28




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##### Table of Contents



Common
    Stock Performance Graph
    CUMULATIVE
    TOTAL RETURN
    Based upon an initial investment of $100 on December 31,
    2001
    with dividends reinvested
  
  Dec-01


Dec-02


Dec-03


Dec-04


Dec-05


Dec-06Synagro Technologies
    Inc.


$
100



$
114



$
100



$
139



$
202



$
232Nasdaq Composite
    Index


$
100



$
72



$
107



$
117



$
121



$
137Custom Composite Index (13
    Stocks)


$
100



$
79



$
102



$
107



$
116



$
146    29




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Year Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share data)Revenue

$
345,806


$
338,004


$
325,864


$
298,552


$
272,628Gross profit


66,252



62,225



67,822



64,101



70,748Selling, general and
    administrative expenses


31,385



24,733



24,346



26,070



22,935Reorganization costs














1,169



905Transaction costs and expenses


287



1,517











Stock option redemptions and
    transaction bonuses






6,805











(Gain) loss on sale of assets


(257
)


(2,659
)


(854
)


7



(244
)Special charges, net










320







Amortization of intangibles


123



238



126



450



108Income from operations


34,714



31,591



43,884



36,405



47,044Interest expense, net


20,995



22,290



22,247



23,356



23,498Net income (loss) before
    cumulative effect of change in accounting for asset retirement
    obligations and preferred stock dividends


8,003



(9,650
)


12,954



7,754



11,064Cumulative effect of change in
    accounting for asset retirement obligations














476



Preferred stock dividends






9,587



8,827



8,209



7,659Net income (loss) applicable to
    common stock

$
8,003


$
(19,237
)

$
4,127


$
(931
)

$
3,405Basic Net income (loss) per share before
    cumulative effect of change in accounting for asset retirement
    obligations

$
0.11


$
(0.40
)

$
0.21


$
(0.03
)

$
0.17Cumulative effect of change in
    accounting for asset retirement obligations














(0.02
)


Net income (loss) per
    share  basic

$
0.11


$
(0.40
)

$
0.21


$
(0.05
)

$
0.17Diluted Net income (loss) per share before
    preferred stock dividends and cumulative effect of change in
    accounting for asset retirement obligations

$
0.10


$
(0.40
)

$
0.21


$
(0.03
)

$
0.17Cumulative effect of change in
    accounting for asset retirement obligations














(0.02
)


Net income (loss) per common
    share  diluted

$
0.10


$
(0.40
)

$
0.21


$
(0.05
)

$
0.17Working capital

$
28,931


$
56,259


$
15,159


$
20,517


$
20,890Total assets

$
550,625


$
543,306


$
515,024


$
490,677


$
492,120Total long-term debt, net of
    current maturities

$
278,599


$
279,951


$
248,799


$
269,133


$
283,530Redeemable preferred stock

$



$



$
95,126


$
86,299


$
78,090Stockholders equity

$
182,119


$
184,154


$
68,725


$
64,022


$
64,449  30




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
    2006
    Secondary Equity Offering
    2005
    Recapitalization
  1 2
    Background
       31




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##### Table of Contents



For the Years Ended December 31,2006


2005


2004Contract


83
%


80
%


83
%Purchase order


2
%


2
%


3
%Product sales


3
%


3
%


3
%Design/build construction


1
%


8
%


3
%Event


11
%


7
%


8
%100
%


100
%


100
%   percentage-of-completion
     32




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##### Table of Contents




    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.  Results
    of Operations
    For the Years Ended December 31,2006


2005


2004Revenue

$
345,806



100.0
%

$
338,004



100.0
%

$
325,864



100.0
%Cost of services


279,554



80.8
%


275,779



81.6
%


258,042



79.2
%Gross profit


66,252



19.2
%


62,225



18.4
%


67,822



20.8
%Selling, general and
    administrative expenses


31,385



9.1
%


24,733



7.3
%


24,346



7.5
%Transaction costs and expenses


287



0.1
%


1,517



0.4
%






Stock option redemptions and
    transaction bonuses










6,805



2.0
%






Gain on sale of assets


(257
)


(0.1
)%


(2,659
)


(0.7
)%


(854
)


(0.3
)%Special charges, net


















320



0.1
%Amortization of intangibles


123



0.1
%


238



0.1
%


126



0.0
%Income from operations


34,714



10.0
%


31,591



9.3
%


43,884



13.5
%Other expense:Interest expense, net


20,995



6.1
%


22,290



6.6
%


22,247



6.9
%Debt extinguishment costs










19,487



5.8
%






Other (income) expense, net


131



0.0
%


(203
)


(0.1
)%


37



0.0
%Total other expense, net


21,126



6.1
%


41,574



12.3
%


22,284



6.9
%Net income (loss) before provision
    (benefit) for income taxes


13,588



3.9
%


(9,983
)


(3.0
)%


21,600



6.6
%Provision (benefit) for income
    taxes


5,585



1.6
%


(333
)


(0.1
)%


8,646



2.6
%Net income (loss) before preferred
    stock dividends


8,003



2.3
%


(9,650
)


(2.9
)%


12,954



4.0
%Preferred stock dividends










9,587







8,827Net income (loss) applicable to
    common stock

$
8,003






$
(19,237
)





$
4,127  33




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##### Table of Contents



For the Years Ended December 31,2006


2005


2004RevenueResiduals Management Operations

$
291,740


$
269,639


$
274,790Rail Transportation


44,522



39,309



38,035Engineering, Facilities, and
    Development


12,275



32,079



17,252Eliminations


(2,731
)


(3,023
)


(4,213
)$
345,806


$
338,004


$
325,864Income (loss) from operationsResiduals Management Operations

$
48,985


$
48,246


$
55,857Rail Transportation


6,477



4,229



5,134Engineering, Facilities, and
    Development


(1,935
)


564



(1,628
)Corporate


(18,813
)


(21,448
)


(15,479
)$
34,714


$
31,591


$
43,884   Results
    of Operations for the Years Ended December 31, 2006 and
    2005
       34




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##### Table of Contents



Results
    of Operations for the Years Ended December 31, 2005 and
    2004
   35




---



##### Table of Contents



percentage-of-completion
     36




---



##### Table of Contents



Liquidity
    and Capital Resources
  Overview
   37




---



##### Table of Contents



Historical
    Cash Flows
  Cash Flows from Operating Activities
      Cash Flows from Investing Activities
   38




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##### Table of Contents



Cash Flows from Financing Activities
    Capital
    Expenditure Requirements
    Debt
    Service Requirements
  Senior
    Credit Facility
  1 2
            Eurodollar


Base RateRevolver


8.10
%


10.00
%Term


7.63
%


9.50
%    39




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##### Table of Contents



Senior
    Subordinated Notes
    Other
    Debt
    Series 2002-A Series 2002-B
 40




---



##### Table of Contents



Notes Payable
    to Sellers of Acquired Businesses
      Nonrecourse


CapitalLong-Term


Project


Lease


Estimated


Operating


PurchaseYear Ended December 31,

Debt


Revenue Bonds


Obligations


Interest


Leases


Commitments


Total2007

$
1,465


$
3,710


$
4,708


$
22,131


$
11,076


$
4,078


$
47,1682008


1,072



3,935



5,476



21,412



10,021



2,993



44,9092009


27



4,165



2,331



20,922



8,235



2,993



38,6732010


30



4,420



1,268



19,440



6,353



2,993



34,5042011


5,232



4,685



1,123



19,087



4,871







34,9982012-2016


210,151



23,000







23,303



4,946







261,4002017-2021






5,875







2,671



238







8,784Thereafter






6,070







771



1,417







8,258Total

$
217,977


$
55,860


$
14,906


$
129,737


$
47,157


$
13,057


$
478,694           Series D
    Redeemable Preferred Stock
   41




---



##### Table of Contents



Series E
    Redeemable Preferred Stock
    Recent
    Accounting Pronouncements
       42




---



##### Table of Contents



Critical
    Accounting Estimates and Assumptions
    Allowance for Doubtful Accounts
  Loss Contracts
  Long Term Construction Contracts
 43




---



##### Table of Contents



Property and Equipment/Long-Lived Assets
    Goodwill
  Purchase Accounting
  Income Taxes
    Legal and Contingency Accruals
  Derivatives
  Self-Insurance Reserves
 44




---



##### Table of Contents



Off-Balance Sheet Arrangements
 Item 7A.  Quantitative
    and Qualitative Disclosures about Market Risk    Derivatives
    and Hedging Activities
           45




---



##### Table of Contents



floating-to-fixed floating-to-fixed floating-to-fixed
  Interest
    Rate Risk
   46




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS
  
  PageReport of
    Independent Registered Public Accounting Firm 
    Hein & Associates LLP


48Report of
    Independent Registered Public Accounting Firm 
    PricewaterhouseCoopers LLP


50Consolidated
    Balance Sheets as of December 31, 2006 and 2005


51Consolidated
    Statements of Operations for the Years Ended December 31,
    2006, 2005 and 2004


52Consolidated
    Statements of Stockholders Equity and Comprehensive Income
    for the Years Ended December 31, 2006, 2005 and
    2004


53Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2006, 2005 and 2004


54Notes to
    Consolidated Financial Statements


56Amendment No.1 to Employment Agreement - Robert C. BoucherSubsidiariesConsent of Independent Registered Public Accounting FirmConsent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906   47




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm                 
    48




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm               
    49




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm      PricewaterhouseCoopers
    LLP
    50




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  CONSOLIDATED BALANCE SHEETS
 (In Thousands Except Share Data)
  December 31,


December 31,2006


2005ASSETSCurrent Assets:Cash and cash equivalents

$
484


$
18,571Restricted cash


1,356



2,444Accounts receivable, net


70,072



66,429Costs and estimated earnings in
    excess of billings


2,685



10,579Prepaid expenses and other current
    assets


14,606



12,409Deferred tax assets


2,617



2,759Total current assets


91,820



113,191Property, machinery &
    equipment, net


255,169



227,678Other Assets:Costs and estimated earnings in
    excess of billings


5,706



3,837Goodwill


176,579



176,196Restricted cash 
    construction fund






406Restricted cash  debt
    service fund


7,067



7,304Other, net


14,284



14,694Total assets

$
550,625


$
543,306LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Current maturities of long-term debt

$
1,465


$
1,776Current maturities of nonrecourse
    project revenue bonds


3,710



3,480Current maturities of capital lease
    obligations


4,708



3,175Accrued interest payable


2,819



962Accounts payable


35,173



34,011Accrued expenses


15,014



13,528Total current liabilities


62,889



56,932Long-Term Debt:Long-term debt obligations, net


216,512



212,488Nonrecourse project revenue bonds,
    net


51,889



55,575Capital lease obligations, net


10,198



11,888Total long-term debt


278,599



279,951Deferred income taxes


24,977



19,962Other long-term liabilities


2,041



2,307Total liabilities


368,506



359,152Commitments and ContingenciesStockholders Equity:Preferred stock, $.002 par
    value 10,000,000 shares authorized, none issued or
    oustanding






Common stock, $.002 par value,
    100,000,000 shares authorized, 77,819,425 and
    72,813,378 shares issued and outstanding in 2006 and 2005,
    respectively


156



146Unearned restricted stock






(404
)Additional paid in capital


186,980



197,453Accumulated deficit


(5,522
)


(13,525
)Accumulated other comprehensive
    income


505



484Total stockholders equity


182,119



184,154Total liabilities and
    stockholders equity

$
550,625


$
543,306    51




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2006


2005


2004(In thousands except for share and per share data)Revenue

$
345,806


$
338,004


$
325,864Cost of services


279,554



275,779



258,042Gross profit


66,252



62,225



67,822Selling, general and
    administrative expenses


31,385



24,733



24,346Transaction costs and expenses


287



1,517



Stock option redemptions and
    transaction bonuses






6,805



Gain on sale of assets


(257
)


(2,659
)


(854
)Special charges, net










320Amortization of intangibles


123



238



126Income from operations


34,714



31,591



43,884Other expense:Interest expense, net


20,995



22,290



22,247Debt extinguishment costs






19,487



Other (income) expense, net


131



(203
)


37Total other expense, net


21,126



41,574



22,284Income (loss) before provision
    (benefit) for income taxes


13,588



(9,983
)


21,600Provision (benefit) for income
    taxes


5,585



(333
)


8,646Net income (loss) before preferred
    stock dividends


8,003



(9,650
)


12,954Preferred stock dividends and
    accretion






9,587



8,827Net income (loss) applicable to
    common stock

$
8,003


$
(19,237
)

$
4,127Earnings (loss) per share:Basic net earnings (loss) per share

$
0.11


$
(0.40
)

$
0.21Diluted net earnings (loss) per
    share

$
0.10


$
(0.40
)

$
0.21Weighted average shares
    outstanding:Weighted average shares
    outstanding for basic earnings per share calculation


75,763,943



47,725,820



19,777,041Effect of dilutive stock options
    and restricted stock


958,728







Weighted average shares
    outstanding for diluted earnings per share


76,722,671



47,725,820



19,777,041    52




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
 for the
    years ended December 31, 2006, 2005 and 2004
  AccumulatedUnearned


Additional





OtherCommon Stock


Restricted


Paid-in


Accumulated


Comprehensive





ComprehensiveShares


Amount


Stock


Stock


Deficit


Income (Loss)


Total


Income (Loss)(In thousands except share data)BALANCE, January 1, 2004


19,775,821


$
40






$
82,113


$
(16,829
)

$
(1,302
)

$
64,022Change in other comprehensive
    income related to amortization of derivatives, net of
    tax of $309






















504



504


$
504Preferred stock dividends














(8,827
)










(8,827
)


Exercise of options


33,800











72











72



Net income before preferred stock
    dividends


















12,954







12,954



12,954BALANCE, December 31, 2004


19,809,621



40







73,358



(3,875
)


(798
)


68,725


$
13,458Change in other comprehensive
    income related to changes due to the Recapitalization
    (See Note 1), net of tax of $489






















798



798


$
798Change in other comprehensive
    income related to change in fair value of derivatives,
    net of tax of $280






















484



484



484Preferred stock dividends and
    accretion














(9,587
)










(9,587
)


Issuance of common shares, net of
    issuance costs


9,302,326



18







37,623











37,641



Conversion of preferred shares


41,885,597



84







104,630











104,714



Common stock dividends














(14,455
)










(14,455
)


Exercise of options


1,651,772



4







4,148











4,152



Tax benefit from exercise of stock
    options














1,079











1,079



Issuance of restricted stock


164,062







(657
)


657















Vesting of restricted stock










253















253



Net loss before preferred stock
    dividends


















(9,650
)






(9,650
)


(9,650
)BALANCE, December 31, 2005


72,813,378



146



(404
)


197,453



(13,525
)


484



184,154


$
(8,368
)Reclassification 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 $11






















21



21



21Common stock cash dividends














(29,242
)










(29,242
)


Stock dividends


284,806



1







(1
)














Exercise of options


235,194











601











601



Issuance of restricted stock


490,536



1







722











723



Forfeiture of restricted stock


(4,489
)


























Amortization of restricted stock














591











591



Issuance of common shares, net of
    issuance costs


4,000,000



8







15,852











15,860



Share based compensation on options














1,408











1,408



Net income applicable to common
    stock


















8,003







8,003



8,003BALANCE, December 31, 2006


77,819,425


$
156


$



$
186,980


$
(5,522
)

$
505


$
182,119


$
8,024    53




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2006


2005


2004(In thousands)Cash flows from operating
    activities:Net income (loss) applicable to
    common stock

$
8,003


$
(19,237
)

$
4,127Adjustments to reconcile net income
    (loss) applicable to common stock to net cash provided (used) by
    operating activities:Preferred stock dividends and
    warrant accretion






9,587



8,827Bad debt expense


600



525



300Depreciation and amortization
    expense


23,211



21,667



19,902Amortization and write-off of debt
    financing costs


1,439



5,548



1,244Share based compensation expense


2,722



253



Other






(41
)


Provision (benefit) for deferred
    income taxes


5,165



(979
)


7,468Tax benefit from exercise of stock
    options






1,079



Gain on sale of property, machinery
    and equipment


(257
)


(2,659
)


(854
)(Increase) decrease in the
    following, net:Accounts receivable


(4,243
)


(3,064
)


(4,609
)Costs and estimated earnings in
    excess of billings


6,025



(6,612
)


(11,940
)Prepaid expenses and other assets


(1,418
)


7,161



(2,289
)Increase (decrease) in the
    following:Accrued interest payable


1,857



(3,056
)


(204
)Accounts payable, accrued expenses
    and other long-term liabilities


1,543



(13,194
)


11,458Net cash provided (used) by
    operating activities


44,647



(3,022
)


33,430Cash flows from investing
    activities:Purchase of businesses, including
    contingent consideration and earnout payments, net of cash
    acquired


(383
)


(341
)


(804
)Purchases of property, machinery
    and equipment


(47,725
)


(19,878
)


(14,667
)Proceeds from sale of property,
    machinery and equipment


942



5,022



1,799Facility construction funded by
    restricted cash






(1,648
)


(10,928
)Decrease in restricted cash for
    facility construction






1,648



10,200Decrease (increase) in other
    restricted cash accounts


1,731



(1,872
)


740Other






3



124Net cash used by investing
    activities


(45,435
)


(17,066
)


(13,536
)Cash flows from financing
    activities:Payments of debt


(8,560
)


(184,936
)


(26,421
)Proceeds from debt






210,000



Net increase (decrease) in bank
    revolver borrowings


5,200



(5,100
)


5,100Net increase (decrease) in book
    overdrafts


(824
)


(1,319
)


1,651Debt issuance costs


(334
)


(7,650
)


(176
)Proceeds from equity offerings


15,860



37,641



Dividends on common stock


(29,242
)


(14,455
)


Proceeds from exercise of options


601



4,152



72Net cash provided (used) by
    financing activities


(17,299
)


38,333



(19,774
)Net increase (decrease) in cash and
    cash equivalents


(18,087
)


18,245



120Cash and cash equivalents,
    beginning of period


18,571



326



206Cash and cash equivalents, end of
    period

$
484


$
18,571


$
326Supplemental cash flow information:Interest paid during the period

$
20,079


$
19,555


$
20,009Income taxes paid during the period

$
607


$
1,138


$
959  54




---



##### Table of Contents



NONCASH
    INVESTING AND FINANCING ACTIVITIES RELATING
    TO CONSOLIDATED STATEMENT OF CASH FLOWS
             55




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (1) Business
    and Summary of Significant Accounting Policies
  Business
    and Organization
    2006
    Secondary Equity Offering
    2005
    Recapitalization
  1 2
    Principles
    of Consolidation
    Cash
    Equivalents
   56




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Costs
    and Estimated Earnings in Excess of Billings
    Property,
    Machinery and Equipment, net
        Goodwill
    Self-Insurance
    Liabilities
    Deferred
    Financing Costs
    Revenue
    Recognition
   57




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   percentage-of-completion
    Use of
    Estimates
    Allowance for Doubtful Accounts
  Loss Contracts
  Long Term Construction Contracts
  Property and Equipment/Long-Lived Assets
   58




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Goodwill
  Purchase Accounting
  Income Taxes
    Legal and Contingency Accruals
  Derivatives
  Self-Insurance Reserves
    Off-Balance Sheet Arrangements
  Concentration
    of Credit Risk
    Fair
    Value of Financial Instruments
   59




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Income
    Taxes
    Recent
    Accounting Pronouncements
          ,
   60




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reclassifications
    (2) Property,
    Machinery and Equipment
    EstimatedUseful


December 31,Life in Years


2006


2005(In thousands)Land


N/A


$
5,469


$
5,469Buildings and improvements


7-25



48,430



43,860Machinery and equipment


3-30



260,342



250,259Office furniture and equipment


3-10



8,332



7,739Construction in process






46,722



14,011369,295



321,338Less: Accumulated depreciation






114,126



93,660Property, machinery and equipment,
    net





$
255,169


$
227,678     (3) Detail
    of Certain Balance Sheet Accounts
    December 31,2006


2005


2004(In thousands)Balance at beginning of year

$
1,138


$
1,229


$
1,530Uncollectible receivables written
    off


(758
)


(616
)


(601
)Additions for bad debt expense


600



525



300Balance at end of year

$
980


$
1,138


$
1,229  61




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006


2005(In thousands)Costs and estimated earnings on
    contracts in progress

$
59,693


$
51,709Less  Billings to date


(51,302
)


(37,293
)Costs and estimated earnings in
    excess of billings on uncompleted contracts

$
8,391


$
14,416Current assets

$
2,685


$
10,579Non current assets


5,706



3,837Total

$
8,391


$
14,416       December 31,2006


2005(In thousands)Prepaid insurance

$
2,464


$
2,524Prepaid expenses


3,943



3,980Inventory


4,175



2,989Other current assets


4,024



2,916Total

$
14,606


$
12,409     Balance at January 1, 2005

$
171,855Additions


4,341Balance at January 1, 2006


176,196Additions


383Balance at December 31, 2006

$
176,579       December 31,2006


2005(In thousands)Accrued legal and other claims
    costs

$
341


$
300Accrued salaries and benefits


2,503



1,718Accrued insurance


6,367



4,990Other accrued expenses


5,803



6,520Accrued expenses

$
15,014


$
13,528  62




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (4) Long-Term
    Debt Obligations
    December 31,


December 31,2006


2005(In thousands)$305 million Senior Credit
    Facility Term loans

$
210,000


$
210,000Revolver loan


5,200



Notes payable


2,777



4,264Total debt


217,977



214,264Less: Current maturities


(1,465
)


(1,776
)Long-term debt, net of current
    maturities

$
216,512


$
212,488   Senior
    Credit Facility
  1 2
            Eurodollar


Base RateRevolver


8.10
%


10.00
%Term


7.63
%


9.50
%      63




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Senior
    Subordinated Notes
    Notes Payable
    to Sellers of Acquired Businesses
    Future
    Payments
    Nonrecourse


CapitalLong-Term


Project


LeaseYear Ended December 31,

Debt


Revenue Bonds


Obligations


Total2007


1,465



3,710



4,708



9,8832008


1,072



3,935



5,476



10,4832009


27



4,165



2,331



6,5232010


30



4,420



1,268



5,7182011


5,232



4,685



1,123



11,0402012-2016


210,151



23,000







233,1512017-2021






5,875







5,875Thereafter






6,070







6,070Total

$
217,977


$
55,860


$
14,906


$
288,743  64




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (5) Nonrecourse
    Project Revenue Bonds
    December 31,


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%

$
13,425


$
16,295Term revenue bond due 2016 at
    stated interest rate of 6.45%


22,360



22,36035,785



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 $261 and $285, respectively


19,814



19,790Series 2002B 
    Revenue bonds due 2006 at stated interest rate of 4.25%






61019,814



20,400Total nonrecourse project revenue
    bonds


55,599



59,055Less: Current maturities


(3,710
)


(3,480
)Nonrecourse project revenue bonds,
    net of current maturities

$
51,889


$
55,575Amounts recorded in other assets
    as restricted cash  debt service fund

$
7,067


$
7,304   Maryland
    Project Revenue Bonds
       65




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Sacramento
    Project Bonds
  Series 2002-A Series 2002-B
         66




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     (6) Capital
    Lease Obligations
      Year Ended December 31,2007

$
5,5712008


5,9332009


2,5752010


1,3892011


1,161Total minimum lease payments


16,629Amount representing interest


(1,723
)Present value of minimum lease
    payments


14,906Current maturities of capital
    lease obligations


(4,708
)Long-term capital lease obligations

$
10,198   (7) Income
    Taxes
    Year Ended December 31,2006


2005


2004(In thousands)Provision (benefit) for income
    taxes

$
5,585


$
(333
)

$
8,646     Year Ended December 31,2006


2005


2004(In thousands)Federal:Current

$
208


$
(99
)

$
286Deferred


4,972



(2,347
)


7,351State:Current


212



745



892Deferred


193



1,368



117$
5,585


$
(333
)

$
8,646  67




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2006


2005


2004Provision at the statutory rate


35.0
%


35.0
%


35.0
%Increase resulting from:Increase in deferred tax rate for
    state taxes






(20.5
)%


Reserve for tax contingency






(10.4
)%


State income taxes, net of benefit
    for federal deduction


5.1
%


2.2
%


4.6
%Other items, net


1.0
%


(2.8
)%


0.4
%Change in valuation allowance


(0.1
)%


(0.2
)%


41.0
%


3.3
%


40.0
%       December 31,2006


2005(In thousands)Deferred tax assets Net operating loss carryforwards

$
38,598


$
41,354Alternative minimum tax credit


434



227Accruals not currently deductible
    for tax purposes


2,921



2,373Allowance for bad debts


392



455Other


407



632Total deferred tax assets


42,752



45,041Valuation allowance for deferred
    tax assets


(365
)


(374
)Deferred tax liability Differences between book and tax
    bases of fixed assets


49,261



49,682Differences between book and tax
    bases of goodwill


13,929



12,188Other


1,557



Total deferred tax liabilities


64,747



61,870Net deferred tax liability

$
22,360


$
17,203    68




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (8) Derivatives
    and Hedging Activities
           69




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       floating-to-fixed floating-to-fixed floating-to-fixed
  (9) Commitments
    and Contingencies
  Leases
    Year Ending December 31,2007

$
11,0762008


10,0212009


8,2352010


6,3532011


4,871Thereafter


6,601$
47,157   Customer
    Contracts
   70




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Litigation
    Reliance
    Insurance
    and/or
    Design
    and Build Contract Risk
   71




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Self-Insurance
    (10) Stockholders
    Equity
  Preferred
    Stock
    Series D
    Redeemable Preferred Stock
   72




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Series E
    Redeemable Preferred Stock
    Earnings
    Per Share
   73




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended December 31,2006


2005


2004Net income (loss) applicable to
    common stock:Net income (loss) before preferred
    stock dividends

$
8,003


$
(9,650
)

$
12,954Preferred stock dividends






9,587



8,827Net income (loss) applicable to
    common stock

$
8,003


$
(19,237
)

$
4,127Earnings (loss) per share:Basic earnings (loss) per share

$
0.11


$
(0.40
)

$
0.21Diluted earnings (loss) per share

$
0.10


$
(0.40
)

$
0.21Weighted average shares
    outstanding for basic earnings per share


75,763,943



47,725,820



19,777,041Effect of dilutive stock options


931,491







Effect of dilutive restricted stock


27,237







Weighted average shares
    outstanding for diluted earnings per share


76,722,671



47,725,820



19,777,041     (11) Stock
    Based Compensation
      For the Year EndedDecember 31, 2006(In thousands of dollars,except per share data)Compensation costs recorded for
    all plans, net of tax expense of $1,118

$
1,603Impact of adopting
    SFAS No. 123R:Reduction in income from operations

$
2,722Reduction in income before income
    tax expense

$
2,722Reduction in net income

$
1,603Reduction in basic and diluted
    earnings per share

$
0.02  74




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock
    Option Plans
          2000
    Plan
    Expected Volatility


61.0
%Expected Dividend Yield


10.0
%Expected Term (in years)


6.7Risk Free Rate


5.1
%  75




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedNumber of


AverageShares


Exercise PriceOptions outstanding,
    December 31, 2003


4,649,092


$
2.72Options granted


617,500


$
2.72Options exercised


(7,800
)

$
2.50Options forfeited


(146,200
)

$
2.50Options outstanding,
    December 31, 2004


5,112,592


$
2.73Options granted


927,200


$
4.30Options exercised


(753,476
)

$
2.54Options redeemed


(1,443,184
)

$
2.94Options forfeited


(44,000
)

$
2.50Options outstanding,
    December 31, 2005


3,799,132


$
3.07Options granted


553,750


$
4.18Options exercised


(235,194
)

$
2.59Options forfeited


(121,300
)

$
3.10Options outstanding,
    December 31, 2006


3,996,388


$
3.25Options exercisable and vested


2,510,378


$
2.89    76




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   1993
    Plan
    WeightedAverageNumber of


ExerciseShares


PriceOptions outstanding,
    December 31, 2003


950,673


$
3.48Options exercised


(3,000
)

$
2.38Options forfeited


(87,840
)

$
3.51Options outstanding,
    December 31, 2004


859,833


$
3.48Options exercised


(265,000
)

$
3.01Options redeemed


(555,000
)

$
3.62Options forfeited


(18,833
)

$
4.87Options outstanding,
    December 31, 2005


21,000


$
4.46Options granted






Options exercised






Options forfeited






Options outstanding,
    December 31, 2006


21,000


$
4.46Options exercisable and vested


21,000


$
4.46    77




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other
    Options
    WeightedNumber of


AverageShares


Exercise PriceOptions outstanding,
    December 31, 2003


3,186,954


$
3.05Options granted






Options exercised


(23,000
)

$
2.00Options forfeited


(221,332
)

$
6.94Options outstanding,
    December 31, 2004


2,942,622


$
2.77Options granted






Options exercised


(633,296
)

$
2.27Options redeemed


(1,045,166
)

$
3.01Options forfeited


(40,000
)

$
2.50Options outstanding,
    December 31, 2005


1,224,160


$
2.82Options granted






Options exercised






Options forfeited






Options outstanding,
    December 31, 2006


1,224,160


$
2.82Options exercisable and vested


984,160


$
2.89       Options Outstanding



Options ExercisableWeighted









WeightedAverage









AverageRemaining


Weighted






RemainingRange of

Number


Contractual


Average



Number


Contractual Life


Weighted AverageExercise Prices

Outstanding


Life (in Years)


Exercise Price



Exercisable


(in Years)


Exercise Price$2.00 - 2.99


3,210,329



4.89


$
2.52




2,607,829



4.56


$
2.50$3.00 - 3.99


571,511



2.42


$
3.49




504,845



1.49


$
3.43$4.00 - 5.99


1,384,708



8.39


$
4.32




327,864



7.10


$
4.45$6.00 - 6.99


75,000



2.49


$
6.31




75,000



2.49


$
6.315,241,548












3,515,538    78




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Prior
    to January 1, 2006
    For the Years Ended
December 31,2005


2004Net income (loss) applicable to
    common stock, as reported

$
(19,237
)

$
4,127Plus: Option redemptions, net of
    tax


3,404



Less: Compensation expense per
    SFAS 123, net of tax


1,356



1,191Pro forma net income (loss)

$
(17,189
)

$
2,936Income (loss) per share:Diluted income (loss) per share,
    as reported

$
(0.40
)

$
0.21Pro forma income (loss) per share
    after effect of SFAS 123

$
(0.36
)

$
0.15     For the Years Ended
December 31,2005


2004Risk Free Interest Rate


4.1
%


4.3
%Expected Volatility


264.0
%


111.0
%Expected Term (in years)


6.4



10.0   Restricted
    Stock Plan
     79




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted AverageGrant Date FairNumber of Shares


ValueNonvested at December 31, 2005


100,777


$
4.01Granted


490,536


$
4.34Vested


(276,414
)

$
4.32Forfeited


(4,489
)

$
4.01Nonvested at December 31, 2006


310,410


$
4.26       (12)  Special
    Charges
    (13)  Employee
    Benefit Plans
    (14)  Quarterly
    Results of Operations (Unaudited)
    Quarter Ended


Quarter EndedMarch 31,


June 30,


Sept. 30,


Dec. 31,


March 31,


June 30,


Sept. 30,


Dec. 31,2006


2006


2006


2006


2005


2005


2005


2005(In thousands, except for per share data)


(In thousands, except for per share data)Revenues

$
79,278


$
86,267


$
91,071


$
89,190


$
76,214


$
83,532


$
88,238


$
90,020Gross profit

$
12,221


$
16,948


$
18,980


$
18,103


$
12,038


$
16,971


$
17,743


$
15,473Operating income

$
3,485


$
9,204


$
11,309


$
10,716


$
5,945


$
3,388


$
13,701


$
8,557Net income (loss) applicable to
    common stock

$
(761
)

$
2,523


$
3,010


$
3,231


$
(2,612
)

$
(21,214
)

$
5,138


$
(549
)Earnings (loss) per shareBasic

$
(0.01
)

$
0.03


$
0.04


$
0.04


$
(0.13
)

$
(0.84
)

$
0.07


$
(0.01
)Diluted

$
(0.01
)

$
0.03


$
0.04


$
0.04


$
(0.13
)

$
(0.84
)

$
0.07


$
(0.01
)  80




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    year-to-date
  (15)  Condensed
    Consolidating Financial Statements
   81




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEETS
    AS OF DECEMBER 31, 2006
(Dollars in thousands)
  Non-Guarantor


GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedASSETSCurrent Assets:Cash and cash equivalents

$
155


$
36


$
293


$



$
484Restricted cash






751



605







1,356Accounts receivable, net






68,486



1,595



(9
)


70,072Note receivable, current






214











214Prepaid expenses and other current
    assets


2,669



16,951



74







19,694Total current assets


2,824



86,438



2,567



(9
)


91,820Property, machinery &
    equipment, net






238,677



16,492







255,169Other Assets:Goodwill






176,579











176,579Investments in subsidiaries


103,424











(103,424
)


Intercompany


314,436











(314,436
)


Restricted cash  debt
    service fund






5,348



1,719







7,067Other, net


6,126



11,156



2,708







19,990Total assets

$
426,810


$
518,198


$
23,486


$
(417,869
)

$
550,625LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Current maturities of long-term debt

$



$
1,465


$



$



$
1,465Current maturities of nonrecourse
    project revenue bonds






3,055



655







3,710Current maturities of capital lease
    obligations






4,708











4,708Accrued interest payable


2,513



218



88







2,819Accounts payable and accrued
    expenses






49,960



236



(9
)


50,187Total current liabilities


2,513



59,406



979



(9
)


62,889Long-Term Debt:Long-term debt obligations, net


215,200



1,312











216,512Nonrecourse project revenue bonds,
    net






32,730



19,159







51,889Intercompany






314,006



430



(314,436
)


Capital lease obligations, net






10,198











10,198Total long-term debt


215,200



358,246



19,589



(314,436
)


278,599Other long-term liabilities


26,978



40











27,018Total liabilities


244,691



417,692



20,568



(314,445
)


368,506Commitments and ContingenciesStockholders Equity:Capital


187,136



43,925



1,530



(45,455
)


187,136Accumulated earnings (deficit)


(5,522
)


56,581



1,388



(57,969
)


(5,522
)Accumulated other comprehensive
    income


505















505Total stockholders equity


182,119



100,506



2,918



(103,424
)


182,119Total liabilities and
    stockholders equity

$
426,810


$
518,198


$
23,486


$
(417,869
)

$
550,625  82




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    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
)


66,429Note receivable, current






214











214Prepaid expenses and other current
    assets


3,019



22,387



127







25,533Total 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
    income


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  83




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENTS OF OPERATIONS
    FOR THE YEAR ENDED DECEMBER 31, 2006
(Dollars in thousands)
  Non-Guarantor


GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedRevenue

$



$
341,026


$
4,897


$
(117
)

$
345,806Cost of services






276,897



2,774



(117
)


279,554Gross Profit






64,129



2,123







66,252Selling, general and administrative
    expenses






31,477



31







31,508Transaction costs and expenses


287















287Gain on sale of assets






(257
)










(257
)Income (loss) from operations


(287
)


32,909



2,092







34,714Other expense:Interest expense


18,288



1,592



1,115







20,995Intercompany interest (income)
    expense


(25,738
)


25,736



2







Equity in earnings of subs


(3,891
)










3,891



Other (income) expense, net


181



(50
)










131Total other (income) expense, net


(11,160
)


27,278



1,117



3,891



21,126Income (loss) before provision
    (benefit) for income Taxes


10,873



5,631



975



(3,891
)


13,588Provision for income taxes


2,870



2,314



401







5,585Net income (loss) applicable to
    common stock

$
8,003


$
3,317


$
574


$
(3,891
)

$
8,003  84




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENTS OF OPERATIONS
    FOR THE YEAR ENDED DECEMBER 31, 2005(Dollars in thousands)
  Non-Guarantor


GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedRevenue

$



$
333,660


$
4,460


$
(116
)

$
338,004Cost of services






273,472



2,423



(116
)


275,779Gross Profit






60,188



2,037







62,225Selling, general and
    administrative expenses






24,704



14







24,718Transaction costs and expenses


1,517















1,517Stock option redemptions and
    transaction bonuses


6,805















6,805Restricted stock compensation
    expense


253















253Gain on sale of assets






(2,659
)










(2,659
)Income (loss) from operations


(8,575
)


38,143



2,023







31,591Other expense:Interest expense


17,618



3,449



1,223







22,290Debt extinguishment costs


19,487















19,487Intercompany interest (income)
    expense


(23,782
)


23,782











Equity in earnings of subs


(11,518
)










11,518



Other (income) expense, net






(203
)










(203
)Total other expense, net


1,805



27,028



1,223



11,518



41,574Income (loss) before provision
    (benefit) for income Taxes


(10,380
)


11,115



800



(11,518
)


(9,983
)Provision (benefit) for income
    taxes


(730
)


370



27







(333
)Net income (loss) before preferred
    stock dividends


(9,650
)


10,745



773



(11,518
)


(9,650
)Preferred stock dividends


9,587















9,587Net income (loss) applicable to
    common stock

$
(19,237
)

$
10,745


$
773


$
(11,518
)

$
(19,237
)  85




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENTS OF CASH FLOWS
    FOR THE YEAR ENDED DECEMBER 31, 2006(Dollars in thousands)
  Non-Guarantor


GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedCash flows from operating
    activities:Net income (loss) applicable to
    common stock

$
8,003


$
3,317


$
574


$
(3,891
)

$
8,003Adjustments to reconcile net income
    applicable to common stock to net cash provided by operating
    activities:Bad debt expense






600











600Depreciation and amortization
    expense






22,136



1,075







23,211Amortization and write-off of debt
    financing costs


1,415







24







1,439Provision for deferred
    income taxes


2,450



2,314



401







5,165Gain on sale of property, machinery
    and Equipment






(257
)










(257
)Share based compensation expense






2,722











2,722Equity in earnings of subsidiaries


(3,891
)










3,891



(Increase) decrease in the
    following, net:Accounts receivable






(3,590
)


(653
)






(4,243
)Cost in excess of billings






6,025











6,025Prepaid expenses and other current
    assets


361



(1,832
)


53







(1,418
)Increase (decrease) in the
    following, net:Accrued interest payable


1,849



(1,584
)


1,592







1,857Intercompany advances 
    trade


(25,738
)


25,736



2







Accounts payable and accrued
    expenses and other long term liabilities


(53
)


3,807



(2,211
)






1,543Net cash provided (used) by
    operating activities


(15,604
)


59,394



857







44,647Cash flows from investing
    activities:Purchase of business






(383
)










(383
)Purchase of property,
    machinery & equipment






(47,628
)


(97
)






(47,725
)Proceeds from sale of property,
    machinery & equipment






942











942Increase in other restricted cash
    accounts






1,167



564







1,731Net cash provided (used) by
    investing activities






(45,902
)


467







(45,435
)Cash flows from financing
    activities:Payments of debt






(7,950
)


(610
)






(8,560
)Net increase in bank revolver
    borrowings


5,200















5,200Net decrease (increase) in book
    overdrafts


(824
)














(824
)Debt issuance costs


(334
)














(334
)Dividends on common stock


(29,242
)














(29,242
)Proceeds from equity offering


15,860















15,860Intercompany notes with subsidiaries


5,540



(5,540
)










Capital contributions
    (distributions)


725







(725
)






Proceeds from exercise of options


601















601Net cash used by
    financing activities


(2,474
)


(13,490
)


(1,335
)






(17,299
)Net increase (decrease) in cash and
    cash equivalents


(18,078
)


2



(11
)






(18,087
)Cash and cash equivalents,
    beginning of period


18,233



34



304







18,571Cash and cash equivalents, end of
    period

$
155


$
36


$
293


$



$
484  86




---



##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENTS OF CASH FLOWS
    FOR THE YEAR ENDED DECEMBER 31, 2005(Dollars in thousands)
  Non-Guarantor


GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedCash flows from operating
    activities:Net income (loss) applicable to
    common stock

$
(19,237
)

$
10,745


$
773


$
(11,518
)

$
(19,237
)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






525











525Depreciation and amortization
    expense






20,596



1,071







21,667Amortization and write-off of debt
    financing costs


5,212



309



27







5,548Provision (benefit) for deferred
    income taxes


(730
)


(276
)


27







(979
)Tax benefit from exercise of stock
    options


1,079















1,079Gain on sale of property, machinery
    and Equipment






(2,659
)










(2,659
)Restricted stock awards


253















253Other






(41
)










(41
)Equity in earnings of subsidiaries


(11,518
)










11,518



(Increase) decrease in the
    following, net:Accounts receivable






(2,646
)


(418
)






(3,064
)Cost in excess of billings






(6,612
)










(6,612
)Prepaid expenses and other current
    assets


434



6,843



(116
)






7,161Increase (decrease) in the
    following, net:Accrued interest payable


(3,232
)


206



(30
)






(3,056
)Intercompany advances 
    trade


(23,782
)


23,782











Accounts payable and accrued
    expenses and other long term liabilities


524



(13,757
)


39







(13,194
)Net cash provided (used) by
    operating activities


(41,410
)


37,015



1,373







(3,022
)Cash flows from investing
    activities:Purchase of business






(341
)










(341
)Purchase of property,
    machinery & equipment






(16,937
)


(2,941
)






(19,878
)Proceeds from sale of property,
    machinery & equipment






5,022











5,022Facility 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






(1,037
)


(835
)






(1,872
)Other






3











3Net cash used by investing
    activities






(13,290
)


(3,776
)






(17,066
)Cash flows from financing
    activities:Payments of debt


(173,867
)


(6,479
)


(4,590
)






(184,936
)Proceeds from debt


210,000















210,000Net decrease in bank revolver
    borrowings


(5,100
)














(5,100
)Net decrease in book overdrafts






(1,319
)










(1,319
)Debt issuance costs


(7,650
)














(7,650
)Dividends on common stock


(14,455
)














(14,455
)Proceeds from equity offering


37,641















37,641Intercompany notes with subsidiaries


15,914



(15,914
)










Capital contributions


(7,091
)






7,091







Proceeds from exercise of options


4,152















4,152Net cash provided (used) by
    financing activities


59,544



(23,712
)


2,501







38,333Net increase in cash and
    cash equivalents


18,134



13



98







18,245Cash and cash equivalents,
    beginning of period


99



21



206







326Cash and cash equivalents, end of
    period

$
18,233


$
34


$
304


$



$
18,571  87




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##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (16)  Segment
    Information
        Residuals





EngineeringManagement


Rail


Facilities


Segments


Corporate/Operations


Transportation


Development


Combined


Eliminations


ConsolidatedYear ended December 31,
    2006Revenue from external services

$
289,731


$
43,920


$
12,155


$
345,806


$



$
345,806Revenue from other segments

$
2,009


$
602


$
120


$
2,731


$
(2,731
)


Depreciation and amortization
    expenses

$
19,159


$
1,696


$
1,107


$
21,962


$
1,249


$
23,211Income (loss) from operations

$
48,985


$
6,477


$
(1,935
)

$
53,527


$
(18,813
)

$
34,714Total assets

$
455,320


$
48,789


$
63,761


$
567,870


$
(17,245
)

$
550,625Capital expenditures

$
18,920


$
532


$
27,927


$
47,379


$
346


$
47,725Year ended December 31,
    2005Revenue from external services

$
267,882


$
38,164


$
31,958


$
338,004


$



$
338,004Revenue from other segments

$
1,757


$
1,145


$
121


$
3,023


$
(3,023
)


Depreciation and amortization
    expenses

$
17,821


$
1,666


$
1,070


$
20,557


$
1,110


$
21,667Income (loss) from operations

$
48,246


$
4,229


$
564


$
53,039


$
(21,448
)

$
31,591Total assets

$
418,294


$
50,214


$
45,510


$
514,018


$
29,288


$
543,306Capital expenditures

$
16,378


$
1,092


$
3,289


$
20,759


$
767


$
21,526Year ended December 31,
    2004Revenue from external services

$
274,790


$
33,822


$
17,252


$
325,864


$



$
325,864Revenue from other segments





$
4,213






$
4,213


$
(4,213
)


Depreciation and amortization
    expenses

$
17,296


$
1,619


$
143


$
19,058


$
844


$
19,902Income (loss) from operations

$
55,857


$
5,134


$
(1,628
)

$
59,363


$
(15,479
)

$
43,884Total assets

$
418,847


$
49,052


$
41,791


$
509,690


$
5,334


$
515,024Capital expenditures

$
11,848


$
733


$
12,127


$
24,708


$
887


$
25,595      88




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##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2006


2005


2004(In thousands)Segment income from operations

$
53,527


$
53,039


$
59,363Corporate expenses and adjustments


18,813



21,448



15,479Income from operations


34,714



31,591



43,884Total other expense, net


21,126



41,574



22,284Income (loss) before provision for
    income taxes

$
13,588


$
(9,983
)

$
21,600       Year Ended December 31,2006


2005


2004(In thousands)Land application and disposal

$
178,623


$
168,102


$
173,771Facilities operations


117,165



110,627



104,638Cleanout services


37,543



22,338



25,220Product marketing


10,531



11,462



11,430Design and build


1,944



25,475



10,805Total revenues

$
345,806


$
338,004


$
325,864       (17)  Subsequent
    Events
     89




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##### Table of Contents



SYNAGRO
    TECHNOLOGIES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    break-up
  Hart-Scott-Rodino
 90




---



##### Table of Contents



ITEM 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    ITEM 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e) Form 10-K,
  Changes
    in Internal Control over Financial Reporting
    Managements
    Report on Internal Control Over Financial Reporting
        Internal
    Control  Integrated Framework. Internal
    Control  Integrated Framework
    ITEM 9B.
    Other Information   91




---



##### Table of Contents



PART III  Form 10-K,
 PART IV  ITEM 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements:
  PageReport of Independent Registered
    Public Accounting Firm  Hein & Associates LLP


48Report of Independent Registered
    Public Accounting Firm  PricewaterhouseCoopers LLP


50Consolidated Balance Sheets as of
    December 31, 2006 and 2005


51Consolidated Statements of
    Operations for the Years Ended December 31, 2006, 2005 and
    2004


52Consolidated Statements of
    Stockholders Equity for the Years Ended December 31,
    2006, 2005 and 2004


53Consolidated Statements of Cash
    Flows for the Years Ended December 31, 2006, 2005 and 2004


54Notes to Consolidated Financial
    Statements


56   Financial Schedules:
    Exhibits:
  3
.1



Restated Certificate of
    Incorporation of Synagro Technologies, Inc. (the
    Company) dated August 16, 1996 (Incorporated by
    reference to Exhibit 3.1 to the Companys
    Post-Effective Amendment No. 1 to Registration Statement
    No. 33-95028,
    dated October 25, 1996).3
.2



Amended and Restated Bylaws of the
    Company dated effective January 27, 2000 (Incorporated by
    reference to Exhibit No. 3.2 to the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2001).4
.1



Specimen Common Stock Certificate
    of the Company (Incorporated by reference to Exhibit 4.1 to
    the Companys Registration Statement on Form 10, dated
    December 29, 1992).4
.2



Certificate of Designations,
    Preferences and Rights of Series D Convertible Preferred
    Stock of Synagro Technologies, Inc. (Incorporated by reference
    to Exhibit 2.5 to the Companys Current Report on
    Form 8-K,
    dated February 17, 2000).4
.3



Certificate of Designations,
    Preferences and Rights of Series E Convertible Preferred
    Stock of Synagro Technologies, Inc. (Incorporated by reference
    to Exhibit 2.3 to the Companys Current Report on
    Form 8-K,
    dated June 30, 2000).10
.1



Form of Indemnification Agreement
    (Incorporated by reference to Appendix F to the Companys
    Proxy Statement on Schedule 14A for Annual Meeting of
    Stockholders, dated May 9, 1996).10
.2



Amended and Restated 1993 Stock
    Option Plan dated August 5, 1996 (Incorporated by reference
    to Exhibit 4.1 to the Companys Registration Statement on
    Form S-8
    (No.
    333-64999),
    dated September 30, 1998). 92




---



##### Table of Contents



10
.3



Employment Agreement dated
    February 19, 1999, by and between Synagro Technologies,
    Inc. and Alvin L. Thomas II (Incorporated by reference to
    Exhibit 10.22 to the Companys Current Report on
    Form 10-K/A,
    dated April 30, 2001); Agreement Concerning Employment
    Rights dated January 27, 2000, by and between Synagro
    Technologies, Inc. and Alvin L. Thomas, II (Incorporated by
    reference to Exhibit 2.10 to the Companys Current
    Report on
    Form 8-K,
    dated February 17, 2000).(1)10
.4



Employment Agreement dated
    May 10, 1999, by and between Synagro Technologies, Inc. and
    J. Paul Withrow (Incorporated by reference to Exhibit 2.11
    to the Companys Current Report on
    Form 8-K,
    dated February 17, 2000); Agreement Concerning Employment
    Rights dated January 27, 2000, by and between Synagro
    Technologies, Inc. and J. Paul Withrow (Incorporated by
    reference to Exhibit 2.12 to the Companys Current
    Report on
    Form 8-K,
    dated February 17, 2000).(1)10
.5



Amendment No. 2 to Agreement
    Concerning Employment Rights dated March 1, 2001, by and
    between Synagro Technologies, Inc. and Alvin L. Thomas, II
    (Incorporated by reference to the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2001).(1)10
.6



Amendment No. 2 to Agreement
    Concerning Employment Rights dated March 1, 2001, by and
    between Synagro Technologies, Inc. and J. Paul Withrow
    (Incorporated by reference to the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2001).(1)10
.7



2000 Stock Option Plan dated
    October 31, 2000 (Incorporated by reference to
    Exhibit A to the Companys Proxy Statement on Schedule
    14A for Annual Meeting of Stockholders, dated September 28,
    2000).(1)10
.8



Employment Agreement dated
    March 1, 2002, by and between Synagro Technologies, Inc.
    and Robert Boucher Incorporated by reference to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2001).(1)10
.9



Third Amended and Credit Agreement
    dated May 8, 2002, among Synagro Technologies, Inc.,
    various financial institutions, and Bank of America, N.A.
    (Incorporated by reference to the Companys
    Form 10-Q
    for the period ended March 31, 2002).10
.10



Credit Agreement, dated as of
    April 29, 2005, among Synagro Technologies, Inc., each
    lender from time to time party thereto, Bank of America, N.A.,
    as Administrative Agent, Swing Line Lender and L/C Issuer,
    Lehman Commercial Paper Inc., as Syndication Agent, and CIBC
    World Markets Corp., as Documentation Agent. (Incorporated by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K/A,
    dated May 23, 2005).10
.11



Amendment  No. 1 to Credit
    Agreement  dated as of March 6, 2006, among Synagro
    Technologies,  Inc., the Lenders  signatory  thereto and Bank of
    America, N.A. (Incorporated by reference to Exhibit 10.1 to
    the Companys Current Report on
    Form 8-K,
    dated March 9, 2006).10
.12



Synagro Technologies, Inc. 2005
    Restricted Stock Plan. . (Incorporated by reference to
    Exhibit 10.24 to the Companys Registration Statement
    on
    Form S-1/A
    (Registration
    No. 333-122351,
    filed on May 23, 2005).10
.13



Third Amendment to the Agreement
    Concerning Employment Rights for Alvin L. Thomas II signed
    December 7, 2005 (Incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K,
    dated December 9, 2005).(1)10
.14*



Amendment No. 1 to Employment
    Agreement for Robert C. Boucher, Jr. dated March 1,
    2002, and effective as of May 24, 2004.(1)10
.15



Amendment No. 2 to the
    Employment Agreement for Robert C. Boucher, Jr. signed
    December 7, 2005 (Incorporated by reference to
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K,
    dated December 9, 2005).(1)10
.16



Amendment No. 3 to the
    Employment Agreement for J. Paul Withrow signed December 7,
    2005 (Incorporated by reference to Exhibit 10.4 to the
    Companys Current Report on
    Form 8-K,
    dated December 9, 2005).(1)21
.1*



Subsidiaries of Synagro
    Technologies, Inc.23
.1*



Consent of Independent Registered
    Public Accounting Firm 93




---



##### Table of Contents



23
.2*



Consent of Independent Registered
    Public Accounting Firm31
.1*



Section 302 Certification of
    Chief Executive Officer31
.2*



Section 302 Certification of
    Chief Financial Officer32
.1*



Section 906 Certification of
    Chief Executive Officer32
.2*



Section 906 Certification of
    Chief Financial Officer     *
    
    Filed with this
    Form 10-K.  (1)
    
    Management contract or compensatory plan or agreement. 94




---



##### Table of Contents



SIGNATURES        By:
    /s/  ROBERT
    C. BOUCHER, JR.         Signature

Title

Date/s/  ROSS
    M. PATTENRoss
    M. Patten

Chairman of the Board

March 2, 2007/s/  ROBERT
    C.
    BOUCHER, JR.Robert
    C. Boucher, Jr.

Chief Executive Officer and Director(Principal Executive Officer)

March 2, 2007/s/  J.
    PAUL
    WITHROWJ.
    Paul Withrow

Chief Financial Officer and Director(Principal Accounting Officer)

March 2, 2007/s/  GENE
    MEREDITHGene
    Meredith

Director

March 2, 2007/s/  ALFRED
    TYLER, 2NDAlfred
    Tyler, 2nd

Director

March 2, 2007/s/  GEORGE
    E. SPERZELGeorge
    E. Sperzel

Director

March 2, 2007/s/  JAMES
    B. MATTLYJames
    B. Mattly

Director

March 2, 2007/s/  ROGER
    J. KLATTRoger
    J. Klatt

Director

March 2, 2007/s/  NOLAN
    LEHMANNNolan
    Lehmann

Director

March 2, 2007  95




---



##### Table of Contents



INDEX TO
    EXHIBITS  2
.1



Agreement and Plan of Merger by
    and among the Synagro Technologies, Inc., Synatech Holding, Inc.
    and Synatech, Inc., dated as of January 28, 2007
    (incorporated by reference to Exhibit 2.1 to the
    Companys Report on
    Form 8-K,
    dated January 28, 2007).2
.2



Guarantee, dated as of
    January 28, 2007, by Carlyle Infrastructure Partners, L.P.,
    in favor of Synagro Technologies, Inc. (Incorporated by
    reference to Exhibit 2.2 to the Companys Current
    Report on
    Form 8-K,
    dated January 29, 2007).3
.1



Restated Certificate of
    Incorporation of Synagro Technologies, Inc. (the
    Company) dated August 16, 1996 (Incorporated by
    reference to Exhibit 3.1 to the Companys
    Post-Effective Amendment No. 1 to Registration Statement
    No. 33-95028,
    dated October 25, 1996).3
.2



Amended and Restated Bylaws of the
    Company dated effective January 27, 2000 (Incorporated by
    reference to Exhibit No. 3.2 to the Companys
    Annual Report on
    Form 10-K
    for the year ended December 31, 2001).4
.1



Specimen Common Stock Certificate
    of the Company (Incorporated by reference to Exhibit 4.1 to
    the Companys Registration Statement on Form 10, dated
    December 29, 1992).4
.2



Certificate of Designations,
    Preferences and Rights of Series D Convertible Preferred
    Stock of Synagro Technologies, Inc. (Incorporated by reference
    to Exhibit 2.5 to the Companys Current Report on
    Form 8-K,
    dated February 17, 2000).4
.3



Certificate of Designations,
    Preferences and Rights of Series E Convertible Preferred
    Stock of Synagro Technologies, Inc. (Incorporated by reference
    to Exhibit 2.3 to the Companys Current Report on
    Form 8-K,
    dated June 30, 2000).10
.1



Form of Indemnification Agreement
    (Incorporated by reference to Appendix F to the
    Companys Proxy Statement on Schedule 14A for Annual
    Meeting of Stockholders, dated May 9, 1996).10
.2



Amended and Restated 1993 Stock
    Option Plan dated August 5, 1996 (Incorporated by reference
    to Exhibit 4.1 to the Companys Registration Statement
    on
    Form S-8
    (No. 333-64999),
    dated September 30, 1998).10
.3



Employment Agreement dated
    February 19, 1999, by and between Synagro Technologies,
    Inc. and Alvin L. Thomas II (Incorporated by reference to
    Exhibit 10.22 to the Companys Current Report on
    Form 10-K/A,
    dated April 30, 2001); Agreement Concerning Employment
    Rights dated January 27, 2000, by and between Synagro
    Technologies, Inc. and Alvin L. Thomas, II (Incorporated by
    reference to Exhibit 2.10 to the Companys Current
    Report on
    Form 8-K,
    dated February 17, 2000).(1)10
.4



Employment Agreement dated
    May 10, 1999, by and between Synagro Technologies, Inc. and
    J. Paul Withrow (Incorporated by reference to Exhibit 2.11
    to the Companys Current Report on
    Form 8-K,
    dated February 17, 2000); Agreement Concerning Employment
    Rights dated January 27, 2000, by and between Synagro
    Technologies, Inc. and J. Paul Withrow (Incorporated by
    reference to Exhibit 2.12 to the Companys Current
    Report on
    Form 8-K,
    dated February 17, 2000).(1)10
.5



Amendment No. 2 to Agreement
    Concerning Employment Rights dated March 1, 2001, by and
    between Synagro Technologies, Inc. and Alvin L. Thomas, II
    (Incorporated by reference to the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2001).(1)10
.6



Amendment No. 2 to Agreement
    Concerning Employment Rights dated March 1, 2001, by and
    between Synagro Technologies, Inc. and J. Paul Withrow
    (Incorporated by reference to the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2001).(1)10
.7



2000 Stock Option Plan dated
    October 31, 2000 (Incorporated by reference to
    Exhibit A to the Companys Proxy Statement on
    Schedule 14A for Annual Meeting of Stockholders, dated
    September 28, 2000).(1)10
.8



Employment Agreement dated
    March 1, 2002, by and between Synagro Technologies, Inc.
    and Robert Boucher (Incorporated by reference to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2001).(1)10
.9



Third Amended and Restated Credit
    Agreement dated May 8, 2002, among Synagro Technologies,
    Inc., various financial institutions, and Bank of America, N.A.
    (Incorporated by reference to the Companys
    Form 10-Q
    for the period ended March 31, 2002)10
.10



Credit Agreement, dated as of
    April 29, 2005, among Synagro Technologies, Inc., each
    lender from time to time party thereto, Bank of America, N.A.,
    as Administrative Agent, Swing Line Lender and L/C Issuer,
    Lehman Commercial Paper Inc., as Syndication Agent, and CIBC
    World Markets Corp., as Documentation Agent. (Incorporated by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K/A,
    dated May 23, 2005)




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##### Table of Contents



10
.11



Amendment No. 1 to Credit
    Agreement dated as of March 6, 2006, among Synagro
    Technologies, Inc., the Lenders signatory thereto and Bank of
    America, N.A. (Incorporated by reference to Exhibit 10.1 to
    the Companys Current Report on
    Form 8-K,
    dated March 9, 2006)10
.12



Synagro Technologies, Inc. 2005
    Restricted Stock Plan. . (Incorporated by reference to
    Exhibit 10.24 to the Companys Registration Statement
    on
    Form S-1/A
    (Registration
    No. 333-122351,
    filed on May 23, 2005)10
.13



Third Amendment to the Agreement
    Concerning Employment Rights for Alvin L. Thomas II signed
    December 7, 2005 (Incorporated by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K,
    dated December 9, 2005).(1)10
.14*



Amendment No. 1 to the
    Employment Agreement for Robert C. Boucher, Jr. dated
    March 1, 2002, and effective as of May 24, 2004.(1)10
.15



Amendment No. 2 to the
    Employment Agreement for Robert C. Boucher, Jr. signed
    December 7, 2005 (Incorporated by reference to
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K,
    dated December 9, 2005).(1)10
.16



Amendment No. 3 to the
    Employment Agreement for J. Paul Withrow signed December 7,
    2005 (Incorporated by reference to Exhibit 10.4 to the
    Companys Current Report on
    Form 8-K,
    dated December 9, 2005).(1)21
.1*



Subsidiaries of Synagro
    Technologies, Inc.23
.1*



Consent of Independent Registered
    Public Accounting Firm23
.2*



Consent of Independent Registered
    Public Accounting Firm31
.1*



Section 302 Certification of
    Chief Executive Officer31
.2*



Section 302 Certification of
    Chief Financial Officer32
.1*



Section 906 Certification of
    Chief Executive Officer32
.2*



Section 906 Certification of
    Chief Financial Officer     *
    
    Filed with this
    Form 10-K(1)
    
    Management contract or compensatory plan or agreement