##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 0001261679
    
    MSW Energy Holdings LLC
    
    Delaware
    
    14-18731190001261680
    
    MSW Energy Finance Co., Inc.
    
    Delaware
    
    20-0047886Commission File Number
    
    (Exact name of each registrant as
    
    (State or other jurisdiction
    
    (I.R.S. Employerspecified in its charter)
    
    of incorporation or
    
    Identification Number)organization)
 c/o Covanta Holding Corporation
40 Lane Road
Fairfield, New Jersey 07004
Phone No. 973-882-9000
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes R No £
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act):
 MSW Energy Holdings LLC:
    
    yes
o no þMSW Energy Finance Co., Inc:
    
    yes
o no þ
 Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
 MSW Energy Holdings LLC:
    
    yes o no þMSW Energy Finance Co., Inc:
    
    yes o no þ
 Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date.
 MSW Energy Holdings LLC:
    
    NoneMSW Energy Finance Co., Inc:
    
    100 shares of Common Stock
 MSW Energy Finance Co., Inc. meets the conditions set forth in General Instruction H (1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.




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TABLE OF CONTENTS
 Part I FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2005 (Unaudited) and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for Three Months Ended September 30, 2005 and 2004 (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations for the period from June 25 through September 30, 2005, the
period from January 1 through June 24, 2005 and the Nine Months Ended September 30, 2004 (Unaudited)
    
    
    5Condensed Consolidated Statements of Members Equity for the period from January 1, 2004 to June 24, 2005
(Predecessor) and the period from June 24 to September 30, 2005 (Successor) (Unaudited)
    
    
    6Condensed Consolidated Statements of Cash Flows for the period from June 25 through September 30, 2005, the
period from January 1 through June 24, 2005 and the Nine Months Ended September 30, 2004 (Unaudited)
    
    
    7Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 4. Controls and Procedures
    
    
    26PART II OTHER INFORMATION
    
    
    27Item 1. Legal Proceedings
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29Statement Re: Computation of Ratio of Earnings to Fixed Charges15d-14(a) Certification of Anthony J. Orlando15d-14(a) Certification of Craig D. Abolt15d-14(a) Certification of Anthony J. Orlando15d-14(a) Certification of Craig D. AboltSection 1350 Certification of Anthony J. Orlando & Craig D. AboltSection 1350 Certification of Anthony J. Orlando & Craig D. Abolt
  2




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##### Table of Contents



Part I FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements and Notes
 MSW ENERGY HOLDINGS LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
 September 30, 2005
    
    
    
    December 31, 2004(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    39,917
    
    
    
    $
    86,310Restricted cash and short-term investments
    
    
    68,403
    
    
    
    
    64,703Accounts receivable, net of allowance for
doubtful accounts of $2,419 and $1,317,
respectively
    
    
    74,322
    
    
    
    
    72,027Prepaid expenses and other current assets
    
    
    14,213
    
    
    
    
    12,426Total current assets
    
    
    196,855
    
    
    
    
    235,466Long-term assetsProperty, plant and equipment, net
    
    
    1,879,580
    
    
    
    
    1,174,896Intangible assets, net
    
    
    261,836
    
    
    
    
    535,134Goodwill
    
    
    292,810
    
    
    
    
    2,175Restricted cash and long-term investments
    
    
    88,179
    
    
    
    
    90,972Other long-term assets
    
    
    12,382
    
    
    
    
    17,088Total long-term assets
    
    
    2,534,787
    
    
    
    
    1,820,265Total assets
    
    $
    2,731,642
    
    
    
    $
    2,055,731Liabilities and Members EquityCurrent liabilitiesAccounts payable trade
    
    $
    4,282
    
    
    
    $
    5,050Accounts payable  related party
    
    
    793
    
    
    
    
    Current portion of intermediate debt
    
    
    24,345
    
    
    
    
    20,000Current portion of project debt
    
    
    65,444
    
    
    
    
    67,184Accrued interest payable
    
    
    16,625
    
    
    
    
    16,583Accrued expenses and other current liabilities
    
    
    41,452
    
    
    
    
    39,951Total current liabilities
    
    
    152,941
    
    
    
    
    148,768Long-term liabilitiesIntermediate debt
    
    
    415,873
    
    
    
    
    420,000Project debt
    
    
    681,417
    
    
    
    
    738,829Other long-term liabilities
    
    
    161,899
    
    
    
    
    224,619Deferred income taxes
    
    
    146,253
    
    
    
    
    27,044Total long-term liabilities
    
    
    1,405,442
    
    
    
    
    1,410,492Total liabilities
    
    
    1,558,383
    
    
    
    
    1,559,260Commitments and contingencies (Note 12)Minority interests
    
    
    771,043
    
    
    
    
    365,123Members equityTotal members equity
    
    
    402,216
    
    
    
    
    131,348Total liabilities and members equity
    
    $
    2,731,642
    
    
    
    $
    2,055,731
  3




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MSW ENERGY HOLDINGS LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands of dollars)
 For the Three
    
    
    
    For the ThreeMonths Ended
    
    
    
    Months EndedSeptember 30, 2005
    
    
    
    September 30, 2004RevenuesWaste disposal and related services revenues
    
    $
    81,719
    
    
    
    $
    81,606Electricity and steam sales
    
    
    43,482
    
    
    
    
    43,066Total operating revenues
    
    
    125,201
    
    
    
    
    124,672ExpensesPlant operating expenses
    
    
    47,028
    
    
    
    
    47,329Depreciation and amortization
    
    
    26,802
    
    
    
    
    29,457Net interest expense on project debt
    
    
    7,692
    
    
    
    
    7,526General and administrative
    
    
    3,704
    
    
    
    
    5,444(Gain) on asset retirement
    
    
    (494
    )
    
    
    
    (218
    )Operating income
    
    
    40,469
    
    
    
    
    35,134Interest income
    
    
    350
    
    
    
    
    285Interest expense
    
    
    (8,514
    )
    
    
    
    (9,143
    )Minority interests in net loss (income) of subsidiary
    
    
    (18,408
    )
    
    
    
    (15,502
    )Income (loss) before income taxes
    
    
    13,897
    
    
    
    
    10,774Income tax (provision)
    
    
    (5,963
    )
    
    
    
    (1,427
    )Net income
    
    $
    7,934
    
    
    
    $
    9,347
  4




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MSW ENERGY HOLDINGS LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands of dollars)
 For the Period
    
    
    
    For the Periodfrom
    
    
    
    fromJune 25
    
    
    
    January 1
    
    
    For the Ninethrough
    
    
    
    through
    
    
    Months EndedSeptember 30, 2005
    
    
    
    June 24, 2005
    
    
    September 30, 2004RevenuesWaste disposal and related services revenues
    
    $
    87,400
    
    
    
    $
    148,792
    
    
    $
    135,408Electricity and steam sales
    
    
    46,461
    
    
    
    
    79,660
    
    
    
    69,630Total operating revenues
    
    
    133,861
    
    
    
    
    228,452
    
    
    
    205,038ExpensesPlant operating expenses
    
    
    49,797
    
    
    
    
    103,616
    
    
    
    80,883Depreciation and amortization
    
    
    28,737
    
    
    
    
    57,032
    
    
    
    47,957Net interest expense on project debt
    
    
    8,150
    
    
    
    
    13,964
    
    
    
    12,546General and administrative
    
    
    3,962
    
    
    
    
    39,745
    
    
    
    9,839(Gain) loss on asset retirement
    
    
    (494
    )
    
    
    
    519
    
    
    
    618Operating income
    
    
    43,709
    
    
    
    
    13,576
    
    
    
    53,195Interest income
    
    
    388
    
    
    
    
    1,076
    
    
    
    440Interest expense
    
    
    (9,130
    )
    
    
    
    (17,553
    )
    
    
    (22,041
    )Equity in net earnings of unconsolidated
affiliate  Covanta Ref-Fuel Holdings
    
    
    
    
    
    
    
    
    
    
    
    6,545Minority interests in net income of subsidiary
    
    
    (19,922
    )
    
    
    
    (3,637
    )
    
    
    (23,498
    )Income (loss) before income taxes
    
    
    15,045
    
    
    
    
    (6,538
    )
    
    
    14,641Income tax (provision) benefit
    
    
    (6,440
    )
    
    
    
    2,761
    
    
    
    (1,640
    )Net income (loss)
    
    
    8,605
    
    
    
    
    (3,777
    )
    
    
    13,001Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    (211
    )Comprehensive income (loss)
    
    $
    8,605
    
    
    
    $
    (3,777
    )
    
    $
    12,790
  5




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MSW ENERGY HOLDINGS LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
(Unaudited, in thousands of dollars)
 AccumulatedOtherMembers
    
    
    ComprehensiveEquity
    
    
    Income
    
    
    TotalBalance, January 1, 2004
    
    $
    160,111
    
    
    $
    
    
    
    $
    160,111Assumption of tax liability
    
    
    (14,892
    )
    
    
    
    
    
    
    (14,892
    )Current tax benefit contributed to member
    
    
    (3,463
    )
    
    
    
    
    
    
    (3,463
    )Distribution to members
    
    
    (29,355
    )
    
    
    
    
    
    
    (29,355
    )Unrealized gain on investments from the consolidation of Covanta
Ref-Fuel Holdings
    
    
    
    
    
    
    211
    
    
    
    211Comprehensive income
    
    
    18,947
    
    
    
    (211
    )
    
    
    18,736Balance, December 31, 2004
    
    
    131,348
    
    
    
    
    
    
    
    131,348Distribution to members
    
    
    (19,395
    )
    
    
    
    
    
    
    (19,395
    )Current tax benefit contributed to member
    
    
    (11,346
    )
    
    
    
    
    
    
    (11,346
    )Net (loss) for the period from January 1, 2005 through June 24, 2005
    
    
    (3,777
    )
    
    
    
    
    
    
    (3,777
    )Balance, June 24, 2005 (predecessor)
    
    $
    96,830
    
    
    $
    
    
    
    $
    96,830Balance, June 24, 2005 (successor)
    
    $
    393,255
    
    
    $
    
    
    
    $
    393,255Current tax provision contributed by member
    
    
    4,077
    
    
    
    
    
    
    
    4,077Adjustments to purchase accounting, net of tax
    
    
    124
    
    
    
    
    
    
    
    124Acquisition of Dukes interest in Covanta Ref-Fuel Holdings
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )Distribution to member
    
    
    (3,824
    )
    
    
    
    
    
    
    (3,824
    )Net income for the period from June 25, 2005 through September 30, 2005
    
    
    8,605
    
    
    
    
    
    
    
    8,605Balance, September 30, 2005
    
    $
    402,216
    
    
    $
    
    
    
    $
    402,216
  6




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MSW ENERGY HOLDINGS LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands of dollars)
 For the Periodfrom January 1For the Period from
    
    
    
    through
    
    
    For the NineJune 25 through
    
    
    
    June 24,
    
    
    Months EndedSeptember 30, 2005
    
    
    
    2005
    
    
    September 30, 2004Cash flows from operating activitiesNet income (loss)
    
    $
    8,605
    
    
    
    $
    (3,777
    )
    
    $
    13,001Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    28,737
    
    
    
    
    57,032
    
    
    
    47,957Deferred income taxes
    
    
    2,199
    
    
    
    
    8,380
    
    
    
    18,588Revenue contract levelization
    
    
    1,007
    
    
    
    
    692
    
    
    
    9,002Amortization of lease liability
    
    
    748
    
    
    
    
    (1,593
    )
    
    
    (275
    )Amortization of debt premium and deferred financing costs
    
    
    (3,020
    )
    
    
    
    (5,287
    )
    
    
    (5,318
    )Amortization of deferred revenue
    
    
    (6
    )
    
    
    
    (75
    )
    
    
    (16
    )Interest on loss contracts
    
    
    462
    
    
    
    
    1,069
    
    
    
    (Gain) loss asset retirements
    
    
    (494
    )
    
    
    
    519
    
    
    
    618Equity earnings in unconsolidated affiliate  Covanta Ref-Fuel
Holdings
    
    
    
    
    
    
    
    
    
    
    
    (6,545
    )Distributions from Covanta Ref-Fuel Holdings
    
    
    
    
    
    
    
    
    
    
    
    31,374Minority interests
    
    
    19,922
    
    
    
    
    3,637
    
    
    
    18,478Changes in assets and liabilities:Accounts receivable, net
    
    
    1,916
    
    
    
    
    (4,211
    )
    
    
    (3,277
    )Prepaid expenses and other current assets
    
    
    (274
    )
    
    
    
    (2,732
    )
    
    
    1,475Other long-term assets
    
    
    (1,186
    )
    
    
    
    (2,944
    )
    
    
    292Accounts payable and current liabilities
    
    
    (1,323
    )
    
    
    
    (4,198
    )
    
    
    (666
    )Accounts payable affiliates
    
    
    758
    
    
    
    
    
    
    
    
    (480
    )Income taxes payable
    
    
    4,077
    
    
    
    
    (11,421
    )
    
    
    Accrued interest payable
    
    
    (5,584
    )
    
    
    
    5,626
    
    
    
    (6,643
    )Other long-term liabilities
    
    
    405
    
    
    
    
    (1,131
    )
    
    
    (12,601
    )Net cash provided by operating activities
    
    
    56,949
    
    
    
    
    39,586
    
    
    
    104,964Cash flows from investing activitiesAdditions of property, plant and equipment
    
    
    (1,898
    )
    
    
    
    (25,228
    )
    
    
    (8,534
    )Acquisition of Duke minority interest
    
    
    (1,307
    )
    
    
    
    
    
    
    
    Proceeds from sale of assets
    
    
    487
    
    
    
    
    2,651
    
    
    
    20Cash from consolidation of unconsolidated subsidiary (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    40,238Net cash provided by (used in) investing activities
    
    
    (2,718
    )
    
    
    
    (22,577
    )
    
    
    31,724Cash flows from financing activitiesChange in restricted cash and investments, net
    
    
    7,203
    
    
    
    
    (8,110
    )
    
    
    (42,007
    )Payment of long-term debt
    
    
    (23,346
    )
    
    
    
    (29,178
    )
    
    
    (5,731
    )Distributions paid to members
    
    
    (3,824
    )
    
    
    
    (19,395
    )
    
    
    (19,900
    )Distributions paid to holders of minority interests in
consolidated subsidiary
    
    
    (15,883
    )
    
    
    
    (25,100
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (35,850
    )
    
    
    
    (81,783
    )
    
    
    (67,638
    )Net increase (decrease) in cash and cash equivalents
    
    
    18,381
    
    
    
    
    (64,774
    )
    
    
    69,050Cash and cash equivalents, beginning of period
    
    
    21,536
    
    
    
    
    86,310
    
    
    
    3,633Cash and cash equivalents, end of period
    
    $
    39,917
    
    
    
    $
    21,536
    
    
    $
    72,683
  7




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MSW Energy Holdings LLC and Subsidiaries
 
 Notes to Condensed Consolidated Financial Statements
 1. Organization
       Push-Down Accounting
 8




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2. Summary of Significant Accounting Policies
 Principles of Consolidation
  Reclassifications
  Use of Estimates
  Equity Method Investment
 9




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##### Table of Contents



Income Taxes
   Stock-Based Compensation
 Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation  Transition and Disclosure  an Amendment
of FAS No. 123 Accounting for Stock
Issued to Employees
 Treatment of Pass Through Costs
  Risks and Uncertainties
  10




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Effect of New Accounting Standard
 Share-Based Payment
 3. Business Combinations
  Push-Down Accounting Business Combinations
  June
24, 2005
    
    

September 30, 2005Fair value of assets acquiredCurrent assets
    
    $
    180,805
    
    
    $
    180,805Property, plant and equipment
    
    
    1,901,787
    
    
    
    1,901,787Intangible assets (excluding goodwill)
    
    
    269,436
    
    
    
    269,436Other assets
    
    
    111,459
    
    
    
    108,870Goodwill
    
    
    298,089
    
    
    
    292,810Total Assets Acquired
    
    
    2,761,576
    
    
    
    2,753,708Fair value of liabilities assumedCurrent liabilities
    
    
    147,996
    
    
    
    147,996Long-term Intermediate debt
    
    
    426,791
    
    
    
    426,791Long-term Project debt
    
    
    718,805
    
    
    
    706,732Deferred income taxes
    
    
    142,042
    
    
    
    145,819Other liabilities
    
    
    164,756
    
    
    
    164,756Total Liabilities Assumed
    
    
    1,600,390
    
    
    
    1,592,094Minority interest account
    
    
    767,931
    
    
    
    768,145Net assets acquired
    
    $
    393,255
    
    
    $
    393,469
  4. Reclassifications of Prior Periods
  11




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As PreviouslyReported Three
    
    
    
    
    
    
    As Reported ThreeMonths Ended
    
    
    
    
    
    
    Months EndedSeptember 30, 2004
    
    
    Reclassifications
    
    
    September 30, 2004RevenuesWaste disposal and related service revenues
    
    $
    73,004
    
    
    $
    8,602
    
    
    $
    81,606Electricity and steam sales
    
    
    36,208
    
    
    
    6,858
    
    
    
    43,066Other revenues
    
    
    3,746
    
    
    
    (3,746
    )
    
    
    Total operating revenues
    
    
    112,958
    
    
    
    11,714
    
    
    
    124,672ExpensesPlant operating expenses
    
    
    44,430
    
    
    
    2,899
    
    
    
    47,329Depreciation and amortization
    
    
    16,820
    
    
    
    12,637
    
    
    
    29,457Net interest expense on project debt
    
    
    
    
    
    
    7,526
    
    
    
    7,526General and administrative
    
    
    9,269
    
    
    
    (3,825
    )
    
    
    5,444Loss on asset retirements
    
    
    (218
    )
    
    
    
    
    
    
    (218
    )Operating income
    
    
    42,657
    
    
    
    (7,523
    )
    
    
    35,134Interest income
    
    
    890
    
    
    
    (605
    )
    
    
    285Interest expense
    
    
    (17,274
    )
    
    
    8,131
    
    
    
    (9,143
    )Minority interests in net income of subsidiary
    
    
    (15,502
    )
    
    
    
    
    
    
    (15,502
    )Other income, net
    
    
    3
    
    
    
    (3
    )
    
    
    Income before income taxes
    
    $
    10,774
    
    
    $
    
    
    
    $
    10,774
 12




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As PreviouslyReported Nine
    
    
    
    
    
    
    As Reported NineMonths Ended
    
    
    
    
    
    
    Months EndedSeptember 30, 2004
    
    
    Reclassifications
    
    
    September 30, 2004RevenuesWaste disposal and related service revenues
    
    $
    122,124
    
    
    $
    13,284
    
    
    $
    135,408Electricity and steam sales
    
    
    58,527
    
    
    
    11,103
    
    
    
    69,630Other revenues
    
    
    5,759
    
    
    
    (5,759
    )
    
    
    Total operating revenues
    
    
    186,410
    
    
    
    18,628
    
    
    
    205,038ExpensesPlant operating expenses
    
    
    75,139
    
    
    
    5,744
    
    
    
    80,883Depreciation and amortization
    
    
    27,993
    
    
    
    19,964
    
    
    
    47,957Net interest expense on project debt
    
    
    
    
    
    
    12,546
    
    
    
    12,546General and administrative
    
    
    17,024
    
    
    
    (7,185
    )
    
    
    9,839Loss on asset retirements
    
    
    618
    
    
    
    
    
    
    
    618Operating income
    
    
    65,636
    
    
    
    (12,441
    )
    
    
    53,195Interest income
    
    
    1,419
    
    
    
    (979
    )
    
    
    440Interest expense
    
    
    (35,566
    )
    
    
    13,525
    
    
    
    (22,041
    )Equity in net earnings of unconsolidated
affiliate  Covanta Ref-Fuel Holdings
    
    
    6,545
    
    
    
    
    
    
    
    6,545Minority interests in net income of subsidiary
    
    
    (23,498
    )
    
    
    
    
    
    
    (23,498
    )Other income, net
    
    
    105
    
    
    
    (105
    )
    
    
    Income before income taxes
    
    $
    14,641
    
    
    $
    
    
    
    $
    14,641
  
    
    The amortization of above and below market contracts were reclassified
from waste disposal and related service revenues and electricity and
steam sales into depreciation and amortization expense.
    
    Other revenues, which primarily consisted of sales of scrap metals,
were reclassified from other revenues into waste and service revenues.
    
    Interest expense on project debt and interest income on funds
restricted for the payment of project debt were reclassified as part
of operating income.
    
    Certain costs associated with operating facilities and TransRiver were
reclassified from general and administrative expenses into plant
operating expenses.
    
    Reimbursements from certain municipal clients for operating expenses
were reclassified from revenues to reductions of operating expenses.
    
    Reductions of revenues shared with certain municipal customers for
energy produced were reclassified from waste and service revenues to
energy revenues.
    
    Other minor miscellaneous reclassifications were also made.
 13




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##### Table of Contents



5. Equity Investment in Covanta Ref-Fuel Holdings
  For the FourMonths EndedApril 30, 2004Revenues
    
    $
    156,623Operating income
    
    
    18,000Net earnings
    
    
    12,753Companys equity in net earnings
    
    
    6,545
 Pro Forma Information
  Pro Forma
    
    
    Pro FormaFor the Nine
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30, 2005
    
    
    September 30, 2004RevenuesWaste disposal and related services revenues
    
    $
    236,192
    
    
    $
    238,574Electricity and steam sales
    
    
    126,121
    
    
    
    123,085Total operating revenues
    
    
    362,313
    
    
    
    361,659ExpensesPlant operating expenses
    
    
    156,551
    
    
    
    165,194Depreciation and amortization
    
    
    80,389
    
    
    
    80,808Net interest expense on project debt
    
    
    23,587
    
    
    
    26,945General and administrative
    
    
    14,668
    
    
    
    11,747Loss on asset retirements
    
    
    25
    
    
    
    960Operating income
    
    
    87,093
    
    
    
    76,005Interest income
    
    
    1,464
    
    
    
    732Interest expense
    
    
    (27,099
    )
    
    
    (28,305
    )Net income (loss) before taxes
    
    $
    61,458
    
    
    $
    48,432
 6. Property, Plant and Equipment
  September 30,
    
    
    
    December 31,Useful Life
    
    
    2005
    
    
    
    2004Plant and equipment
    
    250 years
    
    $
    1,873,996
    
    
    
    $
    1,206,558Land
    
    
    
    
    
    
    3,813
    
    
    
    
    3,813Leasehold improvements
    
    Up to 17 years
    
    
    5,575
    
    
    
    
    5,575Landfill
    
    13 years
    
    
    17,831
    
    
    
    
    17,768Construction in progress
    
    
    
    
    
    
    2,268
    
    
    
    
    6,244Total property, plant and equipment
    
    
    
    
    
    
    1,903,483
    
    
    
    
    1,239,958Accumulated depreciation
    
    
    
    
    
    
    (23,903
    )
    
    
    
    (65,062
    )Property, plant and equipment, net
    
    
    
    
    
    $
    1,879,580
    
    
    
    $
    1,174,896
 14




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##### Table of Contents



7. Intangible Assets and Goodwill
  Useful Life
    
    
    September 30, 2005
    
    
    
    December 31, 2004Waste, electricity and steam contracts
    
    311 years
    
    $
    194,562
    
    
    
    $
    548,725Financing costs
    
    7 years
    
    
    
    
    
    
    
    8,382Lease asset
    
    24 years
    
    
    71,845
    
    
    
    
    Emissions credits
    
    Indefinite
    
    
    
    
    
    
    
    43,377Other intangibles
    
    Indefinite
    
    
    3,029
    
    
    
    
    3,579269,436
    
    
    
    
    604,063Accumulated amortization
    
    
    
    
    
    
    (7,600
    )
    
    
    
    (68,929
    )Intangible assets, net
    
    
    
    
    
    $
    261,836
    
    
    
    $
    535,134
  Waste, electricity
    
    
    Leaseand steam
    
    
    Assetcontracts
    
    
    Contract
    
    
    TotalsEstimated2005 (after September 30, 2005)
    
    $
    7,026
    
    
    $
    748
    
    
    $
    7,7742006
    
    
    26,979
    
    
    
    2,994
    
    
    
    29,9732007
    
    
    26,979
    
    
    
    2,994
    
    
    
    29,9732008
    
    
    26,969
    
    
    
    2,994
    
    
    
    29,9632009
    
    
    23,423
    
    
    
    2,994
    
    
    
    26,417Thereafter
    
    
    76,372
    
    
    
    58,335
    
    
    
    134,707Total
    
    $
    187,748
    
    
    $
    71,059
    
    
    $
    258,807
 Goodwill
 Goodwill and Other Intangibles
 8. Accrued Expenses and Other Current Liabilities
  September 30, 2005
    
    
    
    December 31, 2004Accrued expenses
    
    $
    21,596
    
    
    
    $
    19,988Incentive plan accruals
    
    
    1,688
    
    
    
    
    3,569Compensation liabilities
    
    
    9,738
    
    
    
    
    8,254Short-term Duke liability
    
    
    2,500
    
    
    
    
    2,500Other
    
    
    5,930
    
    
    
    
    5,640$
    41,452
    
    
    
    $
    39,951
 15




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##### Table of Contents



9. Financing Arrangements
  Final
    
    
    September 30,
    
    
    
    December 31,Interest Rate
    
    
    Maturity
    
    
    2005
    
    
    
    2004Company and Intermediate debtSenior Notes
    
    
    8.5
    %
    
    
    2010
    
    
    $
    195,785
    
    
    
    $
    200,000Covanta ARC Senior Notes
    
    
    6.26
    %
    
    
    2015
    
    
    
    234,000
    
    
    
    
    240,000Intermediate debt
    
    
    
    
    
    
    
    
    
    
    429,785
    
    
    
    
    440,000Project debtNiagara Series 2001
    
    
    5.45%5.625
    %
    
    
    2015
    
    
    
    165,010
    
    
    
    
    165,010Seconn
Corporate Credit Bonds  1992 Series A
    
    
    6.45
    %
    
    
    2022
    
    
    
    30,000
    
    
    
    
    30,000Seconn Corporate Credit Bonds I Series A and II Series A
    
    
    5.50
    %
    
    
    2015
    
    
    
    13,500
    
    
    
    
    13,500Hempstead Corporate Credit Bonds
    
    
    5.00
    %
    
    
    2010
    
    
    
    42,670
    
    
    
    
    42,670Hempstead project debt
    
    
    4.625%5.00
    %
    
    
    2009
    
    
    
    114,543
    
    
    
    
    114,543Essex project debt
    
    
    5.32%7.48
    %
    
    
    2020
    
    
    
    83,422
    
    
    
    
    96,496Seconn project debt
    
    
    5.125%5.50
    %
    
    
    2015
    
    
    
    50,602
    
    
    
    
    50,602Semass Series 2001A
    
    
    5.50%5.625
    %
    
    
    2016
    
    
    
    134,345
    
    
    
    
    134,345Semass Series 2001B
    
    
    5.25%5.50
    %
    
    
    2010
    
    
    
    75,250
    
    
    
    
    104,385Other obligations
    
    
    
    
    
    
    
    
    
    
    215
    
    
    
    
    273Subtotal of Project debt
    
    
    
    
    
    
    
    
    
    
    709,557
    
    
    
    
    751,824Total debt at par value
    
    
    
    
    
    
    
    
    
    
    1,139,342
    
    
    
    
    1,191,824Unamortized debt premium, net
    
    
    
    
    
    
    
    
    
    
    47,737
    
    
    
    
    54,189Current portion
    
    
    
    
    
    
    
    
    
    
    (89,789
    )
    
    
    
    (87,184
    )Total long-term debt obligations
    
    
    
    
    
    
    
    
    
    $
    1,097,290
    
    
    
    $
    1,158,829
   16




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##### Table of Contents



10. Other Long-Term Liabilities
  AmortizationPeriod
    
    
    September 30,
    
    
    
    December 31,(years)
    
    
    2005
    
    
    
    2004Waste contracts acquired
    
    
    917
    
    
    $
    118,881
    
    
    
    $
    120,276Operating lease acquired
    
    
    14
    
    
    
    
    
    
    
    
    38,453Duke liability
    
    
    16
    
    
    
    25,074
    
    
    
    
    22,623Energy contract levelization
    
    
    12
    
    
    
    1,007
    
    
    
    
    24,123Landfill liabilities
    
    
    13
    
    
    
    11,596
    
    
    
    
    10,699Deferred revenue
    
    
    820
    
    
    
    
    
    
    
    
    5,112Other long-term accruals
    
    
    
    
    
    
    5,341
    
    
    
    
    3,333$
    161,899
    
    
    
    $
    224,619
 11. Income Taxes
  For the Period
    
    
    
    For the PeriodJune 25,
    
    
    
    January 1,through
    
    
    
    through
    
    
    For the NineSeptember 30,
    
    
    
    June 24,
    
    
    Months Ended2005
    
    
    
    2005
    
    
    September 30, 2004Current provision
    
    $
    4,241
    
    
    
    $
    (11,141
    )
    
    $
    503Deferred provision
    
    
    2,199
    
    
    
    
    8,380
    
    
    
    1,137Total consolidated income tax provision (benefit)
    
    $
    6,440
    
    
    
    $
    (2,761
    )
    
    $
    1,640
  12. Commitments and Contingencies
  Environmental
   17




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13. Stock Option Plan
   18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Note Regarding Forward-Looking Statements
   Additional Information
    19




---



##### Table of Contents



Push-Down
Accounting
 Executive Summary
    20




---



##### Table of Contents



Operating Results
  For the PeriodFor the three
    
    
    
    For the Three
    
    
    from June 25,
    
    
    
    For the Period
    
    
    For the NineMonths Ended
    
    
    
    Months Ended
    
    
    Through
    
    
    
    From January 1,
    
    
    Months EndedSeptember 30,
    
    
    
    September 30,
    
    
    September 30,
    
    
    
    Through June
    
    
    September 30,2005
    
    
    
    2004
    
    
    2005
    
    
    
    24, 20052004Statement of Operations Data:Net revenues
    
    $
    125,201
    
    
    
    $
    124,672
    
    
    $
    133,861
    
    
    
    $
    228,452
    
    
    $
    205,038Equity in net earnings of Covanta Ref-Fuel
Holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,545Net interest expense on project debt
    
    
    (7,692
    )
    
    
    
    (7,526
    )
    
    
    (8,150
    )
    
    
    
    (13,964
    )
    
    
    (12,546
    )Plant operating expenses
    
    
    (47,028
    )
    
    
    
    (47,329
    )
    
    
    (49,797
    )
    
    
    
    (103,616
    )
    
    
    (80,883
    )Depreciation and amortization expense
    
    
    (26,802
    )
    
    
    
    (29,457
    )
    
    
    (28,737
    )
    
    
    
    (57,032
    )
    
    
    (47,957
    )Administrative and general expense
    
    
    (3,704
    )
    
    
    
    (5,444
    )
    
    
    (3,962
    )
    
    
    
    (39,745
    )
    
    
    (9,839
    )Interest income
    
    
    350
    
    
    
    
    285
    
    
    
    388
    
    
    
    
    1,076
    
    
    
    440Interest expense
    
    
    (8,514
    )
    
    
    
    (9,143
    )
    
    
    (9,130
    )
    
    
    
    (17,553
    )
    
    
    (22,041
    )Minority interest in net income of subsidiary
    
    
    (18,408
    )
    
    
    
    (15,502
    )
    
    
    (19,922
    )
    
    
    
    (3,637
    )
    
    
    (23,498
    )Gain (loss) on asset retirement
    
    
    494
    
    
    
    
    218
    
    
    
    494
    
    
    
    
    (519
    )
    
    
    (618
    )Income tax (provision) benefit
    
    
    (5,963
    )
    
    
    
    (1,427
    )
    
    
    (6,440
    )
    
    
    
    2,761
    
    
    
    (1,640
    )Net income (loss)
    
    $
    7,934
    
    
    
    $
    9,347
    
    
    $
    8,605
    
    
    
    $
    (3,777
    )
    
    $
    13,001Cash Flow Data:Cash provided by operating activities
    
    
    
    
    
    
    
    
    
    
    $
    56,949
    
    
    
    $
    39,586
    
    
    $
    104,964Cash (used in) provided by investing activities
    
    
    
    
    
    
    
    
    
    
    
    (2,718
    )
    
    
    
    (22,577
    )
    
    
    31,724Cash (used in) provided by financing activities
    
    
    
    
    
    
    
    
    
    
    
    (35,850
    )
    
    
    
    (81,783
    )
    
    
    (67,638
    )
 Balance Sheet Data:
    
    September 30, 2005
    
    
    
    December 31, 2004Total assets
    
    $
    2,731,642
    
    
    
    $
    2,055,731Total debt
    
    
    1,187,079
    
    
    
    
    1,246,013Minority interest in consolidated subsidiaries
    
    
    771,043
    
    
    
    
    365,123Total members equity
    
    
    402,216
    
    
    
    
    131,348
  21




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##### Table of Contents



Supplemental Pro Forma Information
  Actual
    
    
    Pro Forma
    
    
    Pro Forma
    
    
    Pro FormaFor the Three
    
    
    For the Three
    
    
    For the Nine
    
    
    For the NineMonths Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Months EndedSeptember 30, 2005
    
    
    September 30, 2004
    
    
    September 30, 2005
    
    
    September 30, 2004RevenuesWaste disposal and related services
revenues
    
    $
    81,719
    
    
    $
    81,606
    
    
    $
    236,192
    
    
    $
    238,574Electricity and steam sales
    
    
    43,482
    
    
    
    43,066
    
    
    
    126,121
    
    
    
    123,085Total operating revenues
    
    
    125,201
    
    
    
    124,672
    
    
    
    362,313
    
    
    
    361,659ExpensesPlant operating expenses
    
    
    47,028
    
    
    
    48,838
    
    
    
    156,551
    
    
    
    165,194Depreciation and amortization
    
    
    26,802
    
    
    
    27,054
    
    
    
    80,389
    
    
    
    80,808Net interest expense on project debt
    
    
    7,692
    
    
    
    8,952
    
    
    
    23,587
    
    
    
    26,945General and administrative
    
    
    3,704
    
    
    
    2,697
    
    
    
    14,668
    
    
    
    11,747Loss on asset retirements
    
    
    (494
    )
    
    
    (218
    )
    
    
    25
    
    
    
    960Operating income
    
    
    40,469
    
    
    
    37,349
    
    
    
    87,093
    
    
    
    76,005Interest income
    
    
    350
    
    
    
    284
    
    
    
    1,464
    
    
    
    732Interest expense
    
    
    (8,514
    )
    
    
    (9,044
    )
    
    
    (27,099
    )
    
    
    (28,305
    )Net income (loss) before minority
interest and income taxes
    
    $
    32,305
    
    
    $
    28,589
    
    
    $
    61,458
    
    
    $
    48,432
 Comparison of Actual Results for the Three Months Ended September 30, 2005 and Unaudited Pro Forma
Results for the Three Months Ended September 30, 2004
 Total Operating Revenues.
  Plant Operating Expenses.
 Depreciation and Amortization
 Net interest on project debt
 General and Administrative
 Comparison of the Unaudited Pro Forma Nine Months Ended September 30, 2005 and 2004, respectively
 Total Operating Revenues.
 22




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##### Table of Contents



Plant Operating Expenses.
 Depreciation and Amortization
 Net interest on project debt
 General and Administrative
 Debt Covenant
  Critical Accounting Policies
  Principles of Consolidation.
 Use of Estimates in Preparing Financial Statements.
 23




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##### Table of Contents



Equity Method Investment.
 Effect of New Accounting Standard
 Share-Based Payment
 24




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  MoreLess than 1
    
    
    
    
    
    
    
    
    
    
    than 5Contractual Obligations
    
    Total
    
    
    Year
    
    

13 Years
    
    

35 Years
    
    
    YearsLong-term debt principal obligations  project
    
    $
    709,557
    
    
    $
    42,648
    
    
    $
    112,468
    
    
    $
    132,557
    
    
    $
    421,884Long-term debt principal obligations  intermediate
    
    
    429,785
    
    
    
    22,400
    
    
    
    57,100
    
    
    
    234,485
    
    
    
    115,800Total debt principal obligations of the Company
    
    
    1,139,342
    
    
    
    65,048
    
    
    
    169,568
    
    
    
    367,042
    
    
    
    537,684Less non-recourse debt to MSW Energy Holdings
    
    
    (943,557
    )
    
    
    (65,048
    )
    
    
    (169,568
    )
    
    
    (171,257
    )
    
    
    (537,684
    )Total MSW Energy Holdings debt obligations
    
    
    195,785
    
    
    
    
    
    
    
    
    
    
    
    195,785
    
    
    
    Long-term debt interest obligations  project
    
    
    253,648
    
    
    
    38,863
    
    
    
    68,946
    
    
    
    54,640
    
    
    
    91,199Long-term debt interest obligations  intermediate
    
    
    160,143
    
    
    
    30,852
    
    
    
    56,836
    
    
    
    49,797
    
    
    
    22,658Total debt interest obligations of the Company
    
    
    413,791
    
    
    
    69,715
    
    
    
    125,782
    
    
    
    104,437
    
    
    
    113,857Less non-recourse debt interest to MSW Energy Holdings
    
    
    (330,583
    )
    
    
    (53,073
    )
    
    
    (92,499
    )
    
    
    (71,154
    )
    
    
    (113,857
    )Total MSW Energy Holdings debt interest obligations
    
    
    83,208
    
    
    
    16,642
    
    
    
    33,283
    
    
    
    33,283
    
    
    
    Duke obligation
    
    
    46,500
    
    
    
    2,500
    
    
    
    5,000
    
    
    
    7,500
    
    
    
    31,500Operating lease obligations
    
    
    151,043
    
    
    
    14,122
    
    
    
    27,694
    
    
    
    42,608
    
    
    
    66,619Other long-term obligations
    
    
    24,784
    
    
    
    4,998
    
    
    
    8,190
    
    
    
    
    
    
    
    11,596Less non-recourse lease and other obligation
    
    
    (175,827
    )
    
    
    (19,120
    )
    
    
    (35,844
    )
    
    
    (42,608
    )
    
    
    (78,215
    )Total MSW Energy Holdings other obligations
    
    
    46,500
    
    
    
    2,500
    
    
    
    5,000
    
    
    
    7,500
    
    
    
    31,500Total MSW Energy Holdings contractual
obligations
    
    $
    325,493
    
    
    $
    19,142
    
    
    $
    38,283
    
    
    $
    236,568
    
    
    $
    31,500
  Impact of the Acquisition on the Company
  
    
    incur additional indebtedness;
    
    create liens;
    
    purchase or redeem capital stock;
    
    make investments;
    
    sell assets or consolidate or merge with or into other companies;
    
    engage in transactions with affiliates; and
    
    engage in new lines of business.
  25




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##### Table of Contents



Item 4. Controls and Procedures
 MSW Energy Holdings and Subsidiaries
     26




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##### Table of Contents



PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 5. Other Information.
  27




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##### Table of Contents



Item 6. Exhibits
 (a) Exhibits12
    
    Statement re Computation of Ratio of Earnings to Fixed Charges31(a)
    
    15d-14(a) Certification of Anthony J. Orlando for MSW Energy Holdings LLC.31(b)
    
    15d-14(a) Certification of Craig D. Abolt for MSW Energy Holdings LLC.31(c)
    
    15d-14(a) Certification of Anthony J. Orlando for MSW Energy Finance Co., Inc.31(d)
    
    15d-14(a) Certification of Craig D. Abolt for MSW Energy Finance Co., Inc.32(a)
    
    Section 1350 Certification of Anthony J. Orlando and Craig D. Abolt for MSW Energy
Holdings LLC.32(b)
    
    Section 1350 Certification of Anthony J. Orlando and Craig D. Abolt for MSW Energy
Finance Co., Inc.
 28




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##### Table of Contents



SIGNATURES
  MSW ENERGY HOLDINGS LLCBy:
    /s/ Craig D. AboltCraig D. AboltSenior Vice President and Chief Financial OfficerBy:
    /s/ Thomas E. BucksThomas E. BucksVice President and Chief Accounting Officer  29




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##### Table of Contents



SIGNATURES
  MSW ENERGY FINANCE CO., INC.By:
    /s/ Craig D. AboltCraig D. AboltSenior Vice President and Chief Financial OfficerBy:
    /s/ Thomas E. BucksThomas E. BucksVice President and Chief Accounting Officer  30




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##### Table of Contents



EXHIBIT INDEX
 12
    
    Statement re Computation of Ratio of Earnings to Fixed Charges31(a)
    
    15d-14(a) Certification of Anthony J. Orlando for MSW Energy Holdings LLC.31(b)
    
    15d-14(a) Certification of Craig D. Abolt for MSW Energy Holdings LLC.31(c)
    
    15d-14(a) Certification of Anthony J. Orlando for MSW Energy Finance Co., Inc.31(d)
    
    15d-14(a) Certification of Craig D. Abolt for MSW Energy Finance Co., Inc.32(a)
    
    Section 1350 Certification of Anthony J. Orlando and Craig D. Abolt for MSW Energy Holdings LLC.32(b)
    
    Section 1350 Certification of Anthony J. Orlando and Craig D. Abolt for MSW Energy Finance Co., Inc.
 31