##### 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 June 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 0001276518
    
    MSW Energy Holdings II LLC
    
    Delaware
    
    13-32134890001276517
    
    MSW Energy Finance Co. II,
    
    Delaware
    
    20-0400947Inc.Commission 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 Danielson 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
þ No o
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act):
 MSW Energy Holdings II LLC:
    
    yes o no þMSW Energy Finance Co. II, 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 II LLC:
    
    NoneMSW Energy Finance Co. II, Inc:
    
    100 shares of Common Stock
 MSW
Energy Finance Co. II, 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.
Consolidated Financial Statements
    
    
    3Consolidated
Balance Sheets as of June 30, 2005 (Unaudited) and December 31,
2004
    
    
    3Consolidated
Statements of Operations for the period from June 25 through June 30,
2005, the period from April 1 through June 25, 2005 and the Three
Months Ended June 30, 2004 (Unaudited)
    
    
    4Consolidated
Statements of Operations for the period from June 25 through June 30,
2005, the period from January 1 through June 25, 2005 and the Six
Months Ended June 30, 2004 (Unaudited)
    
    
    5Consolidated
Statements of Members Equity for the period from January 1,
2004 to June 24, 2005 (Predecessor) and the period from June 24 to
June 30, 2005 (Successor) (Unaudited)
    
    
    6Consolidated
Statements of Cash Flows for the period from June 25 through June 30,
2005, the period from January 1 through June 25, 2005 and the Six
Months Ended June 30, 2004 (Unaudited)
    
    
    7Notes to the
Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 4. Controls and Procedures
    
    
    28PART II OTHER INFORMATION
    
    
    29Item 1. Legal Proceedings
    
    
    29Item 5. Other Information.
    
    
    30Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    
    

Statement re Computation of Ratio of Earnings to Fixed Charges15d-14(a) Certification of Anthony J. Orlando for MSW Energy Holdings II LLC15d-14(a) Certification of Craig D. Abolt for MSW Energy Holdings II LLC15d-14(a) Certification of Anthony J. Orlando for MSW Energy Finance Co. II, Inc.15d-14(a) Certification of Craig D. Abolt for MSW Energy Finance Co. II, Inc.Section 1350 Certification for MSW Energy Holdings II LLCSection 1350 Certification for MSW Energy Finance Co. II, Inc.
  2




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##### Table of Contents



Part I FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements
 MSW ENERGY HOLDINGS II LLC AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
 June 30, 2005
    
    
    
    December 31, 2004AssetsCurrent assetsCash and cash equivalents
    
    $
    39,385
    
    
    
    $
    86,347Restricted cash and short-term investments
    
    
    62,356
    
    
    
    
    61,995Accounts receivable, net of allowance for doubtful
accounts of $2,044 and $1,491, respectively
    
    
    69,497
    
    
    
    
    72,027Prepaid expenses and other current assets
    
    
    13,059
    

    
    
    
    11,012Total current assets
    
    
    184,297
    
    
    
    
    231,381Long-term assetsProperty, plant and equipment, net
    
    
    1,900,699
    
    
    
    
    1,174,896Intangible assets, net
    
    
    268,379
    
    
    
    
    536,229Goodwill
    
    
    298,089
    
    
    
    
    123,984Restricted cash and long-term investments
    
    
    78,727
    
    
    
    
    85,926Other long-term assets
    
    
    13,565
    

    
    
    
    17,088Total long-term assets
    
    
    2,559,459
    
    
    
    
    1,938,123Total assets
    
    $
    2,743,756
    
    
    
    $
    2,169,504Liabilities and Members EquityCurrent liabilitiesAccounts payable trade
    
    $
    6,291
    
    
    
    $
    5,050Current portion of intermediate debt
    
    
    23,300
    
    
    
    
    20,000Current portion of project debt
    
    
    55,707
    
    
    
    
    67,184Accrued interest payable
    
    
    15,628
    
    
    
    
    16,448Other current liabilities
    
    
    38,672
    
    
    
    
    36,121Income taxes payable
    
    
    
    
    
    
    
    35Total current liabilities
    
    
    139,598
    
    
    
    
    144,838Long-term liabilitiesIntermediate debt
    
    
    440,079
    
    
    
    
    445,000Project debt
    
    
    718,606
    
    
    
    
    738,829Deferred
income taxes
    
    
    238,328

    
    
    
    
    126,944Other long-term liabilities
    
    
    137,501
    
    
    
    
    201,996Total long-term liabilities
    
    
    1,534,514
    
    
    
    
    1,512,769Total liabilities
    
    
    1,674,112
    
    
    
    
    1,657,607Commitments and contingencies (Note 12)Minority interests
    
    
    766,392
    
    
    
    
    364,004Members equityTotal members equity
    
    
    303,252
    
    
    
    
    147,893Total liabilities and members equity
    
    $
    2,743,756
    
    
    
    $
    2,169,504
  3




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MSW ENERGY HOLDINGS II LLC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
 For the Period
    
    
    
    For the Periodfrom
    
    
    
    fromJune 25
    
    
    
    April 1
    
    
    For the Threethrough
    
    
    
    through
    
    
    Months EndedJune 30, 2005
    
    
    
    June 24, 2005
    
    
    June 30, 2004RevenuesWaste disposal and related
services revenues
    
    $
    5,692
    
    
    
    $
    76,452
    
    
    $
    53,889Electricity and steam sales
    
    
    2,968
    
    
    
    
    54,007
    
    
    
    26,477Total operating revenues
    
    
    8,660
    
    
    
    
    130,459
    
    
    
    80,366ExpensesPlant operating expenses
    
    
    2,769
    
    
    
    
    46,902
    
    
    
    33,555Depreciation and amortization
    
    
    1,935
    
    
    
    
    42,058
    
    
    
    18,500Net interest
expense on project debt
    
    
    458
    
    
    
    
    6,645
    
    
    
    5,020General and administrative
    
    
    252
    
    
    
    
    33,413
    
    
    
    4,322(Gain) loss on asset
retirement
    
    
    
    
    
    
    
    (867
    )
    
    
    836Operating income
    
    
    3,246
    
    
    
    
    2,308
    
    
    
    18,133Interest income
    
    
    34
    
    
    
    
    477
    
    
    
    126Interest expense
    
    
    (576
    )
    
    
    
    (7,965
    )
    
    
    (7,269
    )Equity in net earnings of
unconsolidated affiliate -
Ref-Fuel Holdings
    
    
    
    
    
    
    
    
    
    
    
    1,930Minority interests in net
(income) loss of
subsidiary
    
    
    (1,521
    )
    
    
    
    288
    
    
    
    (8,133
    )Income (loss) before income
taxes
    
    
    1,183
    
    
    
    
    (4,892
    )
    
    
    4,787Income tax (provision) benefit
    
    
    (490
    )
    
    
    
    2,109
    
    
    
    (1,976
    )Net income (loss)
    
    
    693
    
    
    
    
    (2,783
    )
    
    
    2,811Other
comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    (211
    )Comprehensive income (loss)
    
    $
    693
    
    
    
    $
    (2,783
    )
    
    $
    2,600
  4




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MSW ENERGY HOLDINGS II LLC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
 For the Period
    
    
    
    For the Periodfrom
    
    
    
    fromJune 25
    
    
    
    January 1
    
    
    For the Sixthrough
    
    
    
    through
    
    
    Months EndedJune 30, 2005
    
    
    
    June 24, 2005
    
    
    June 30, 2004RevenuesWaste disposal and related
services revenues
    
    $
    5,692
    
    
    
    $
    148,990
    
    
    $
    53,889Electricity and steam sales
    
    
    2,968
    
    
    
    
    79,462
    
    
    
    26,477Total operating revenues
    
    
    8,660
    
    
    
    
    228,452
    
    
    
    80,366ExpensesPlant operating expenses
    
    
    2,769
    
    
    
    
    103,616
    
    
    
    33,555Depreciation and
amortization
    
    
    1,935
    
    
    
    
    57,032
    
    
    
    18,500Net interest
expense on project debt
    
    
    458
    
    
    
    
    13,964
    
    
    
    5,020General and administrative
    
    
    252
    
    
    
    
    39,630
    
    
    
    4,530Loss on asset retirement
    
    
    
    
    
    
    
    519
    
    
    
    836Operating income
    
    
    3,246
    
    
    
    
    13,691
    
    
    
    17,925Interest income
    
    
    34
    
    
    
    
    1,012
    
    
    
    143Interest expense
    
    
    (576
    )
    
    
    
    (16,394
    )
    
    
    (11,763
    )Equity in net earnings of
unconsolidated affiliate -
Ref-Fuel Holdings
    
    
    
    
    
    
    
    
    
    
    
    6,148Minority interests in net
income of subsidiary
    
    
    (1,521
    )
    
    
    
    (3,690
    )
    
    
    (8,133
    )Income (loss) before
income taxes
    
    
    1,183
    
    
    
    
    (5,381
    )
    
    
    4,320Income tax (provision)
benefit
    
    
    (490
    )
    
    
    
    2,317
    
    
    
    (1,784
    )Net income (loss)
    
    
    693
    
    
    
    
    (3,064
    )
    
    
    2,536Other
comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    (211
    )Comprehensive income (loss)
    
    $
    693
    
    
    
    $
    (3,064
    )
    
    $
    2,325
 The accompanying notes are
an integral part of these consolidated financial statements. 5




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MSW ENERGY HOLDINGS II LLC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
(Unaudited, in thousands)
 Accumulated OtherMembers Equity
    
    
    Comprehensive Income
    
    
    TotalBalance, January 1, 2004
    
    $
    149,980
    
    
    $
    
    
    
    $
    149,980Finalization of purchase accounting
    
    
    4,573
    
    
    
    
    
    
    
    4,573Current tax benefit contributed to
member
    
    
    11,479
    
    
    
    
    
    
    
    11,479Capital contribution from member
    
    
    52
    
    
    
    
    
    
    
    52Distribution to members
    
    
    (31,150
    )
    
    
    
    
    
    
    (31,150
    )Unrealized gain on investments from
the consolidation of Ref-Fuel Holdings
    
    
    
    
    
    
    211
    
    
    
    211Comprehensive income
    
    
    12,959
    
    
    
    (211
    )
    
    
    12,748Balance, December 31, 2004
    
    
    147,893
    
    
    
    
    
    
    
    147,893Distributions to members
    
    
    (19,469
    )
    
    
    
    
    
    
    (19,469
    )Current tax benefit contributed to
member
    
    
    (3,444
    )
    
    
    
    
    
    
    (3,444
    )Net loss for the period from January
1, 2005 through June 24, 2005
    
    
    (3,064
    )
    
    
    
    
    
    
    (3,064
    )Balance, June 24, 2005 (predecessor)
    
    $
    121,916
    
    
    $
    
    
    
    $
    121,916Balance, June 24, 2005 (successor)
    
    $
    302,001
    
    
    $
    
    
    
    $
    302,001Current tax benefit contributed to
member
    
    
    558
    
    
    
    
    
    
    
    558Net income for the period from June 25,
2005 through June 30, 2005
    
    
    693
    
    
    
    
    
    
    
    693Balance, June 30, 2005
    
    $
    303,252
    
    
    $
    
    
    
    $
    303,252
  6




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MSW ENERGY HOLDINGS II LLC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 For the Period
    
    
    
    For the Periodfrom
    
    
    
    fromJune 25
    
    
    
    January 1
    
    
    For the Sixthrough
    
    
    
    through
    
    
    Months EndedJune 30, 2005
    
    
    
    June 24, 2005
    
    
    June 30, 2004Cash flows from operating activitiesNet income (loss)
    
    $
    693
    
    
    
    $
    (3,064
    )
    
    $
    2,536Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,935
    
    
    
    
    57,032
    
    
    
    18,500Deferred
income taxes
    
    
    (72
    )
    
    
    
    910
    
    
    
    101Revenue contract levelization
    
    
    31
    
    
    
    
    692
    
    
    
    3,844Amortization of lease liability
    
    
    
    
    
    
    
    (1,593
    )
    
    
    Amortization of debt premium and deferred financing costs
    
    
    (199
    )
    
    
    
    (5,182
    )
    
    
    (1,791
    )Amortization of deferred revenue
    
    
    (2
    )
    
    
    
    (75
    )
    
    
    (6
    )Equity earnings in unconsolidated affiliate 
Ref-Fuel Holdings
    
    
    
    
    
    
    
    
    
    
    
    (6,148
    )Distributions from Ref-Fuel Holdings
    
    
    
    
    
    
    
    
    
    
    
    31,500Loss on asset retirements
    
    
    
    
    
    
    
    519
    
    
    
    836Minority interests
    
    
    1,521
    
    
    
    
    3,690
    
    
    
    8,133Changes in assets and liabilities:Accounts receivable, net
    
    
    6,741
    
    
    
    
    (4,211
    )
    
    
    736Prepaid expenses and other current assets
    
    
    845
    
    
    
    
    (2,893
    )
    
    
    1,110Other long-term assets
    
    
    177
    
    
    
    
    (2,943
    )
    
    
    1,796Accounts payable and current liabilities
    
    
    282
    
    
    
    
    (4,073
    )
    
    
    1,434Income taxes payable
    
    
    558
    
    
    
    
    (3,479
    )
    
    
    1,684Accrued interest payable
    
    
    (6,335
    )
    
    
    
    5,515
    
    
    
    (6,540
    )Other long-term liabilities
    
    
    2,536
    
    
    
    
    (1,132
    )
    
    
    1,249Net cash provided by operating activities
    
    
    8,711
    
    
    
    
    39,713
    
    
    
    58,974Cash flows from investing activitiesAdditions of property, plant and equipment
    
    
    
    
    
    
    
    (25,228
    )
    
    
    (4,943
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    2,651
    
    
    
    20Additional investment in unconsolidated subsidiary
    
    
    

    
    
    
    
    

    
    
    
    (75
    )Cash from consolidation of unconsolidated
subsidiary (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    40,238Net cash
provided by (used in) provided by investing activities
    
    
    
    
    
    
    
    (22,577
    )
    
    
    35,240Cash flows from financing activitiesChange in restricted cash and investments, net
    
    
    15,111
    
    
    
    
    (8,273
    )
    
    
    (17,900
    )Payment of financing costs
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Payment of long-term debt
    
    
    (6,000
    )
    
    
    
    (29,178
    )
    
    
    (5,717
    )Distributions paid to members
    
    
    
    
    
    
    
    (19,469
    )
    
    
    (17,453
    )Distributions to be paid to holders of minority interest
    
    
    
    
    
    
    
    (25,000
    )
    
    
    Net cash
provided by (used in) financing activities
    
    
    9,111
    
    
    
    
    (81,920
    )
    
    
    (41,095
    )Net increase (decrease) in cash and cash equivalents
    
    
    17,822
    
    
    
    
    (64,784
    )
    
    
    53,119Cash and cash equivalents, beginning of period
    
    
    21,563
    
    
    
    
    86,347
    
    
    
    2Cash and cash equivalents, end of period
    
    $
    39,385
    
    
    
    $
    21,563
    
    
    $
    53,121
  7




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MSW Energy Holdings II LLC and Subsidiaries
 
 Notes to Consolidated Financial Statements
 1. Organization
        8




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Push-Down Accounting
   2. Summary of Significant Accounting Policies
 Principles of Consolidation
  Reclassifications
 9




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Use of Estimates
  Equity Method Investment
   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
 Accounting Policies
  Risks and Uncertainties
  Effect of New Accounting Standard
 Share-Based Payment
 10




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3. Business Combinations
  Push-Down Accounting Business Combinations
  Fair value of assets acquiredCurrent assets
    
    $
    175,274Property, plant and equipment
    
    
    1,901,787Intangible assets (excluding
goodwill)
    
    
    269,436Other assets
    
    
    106,367Goodwill
    
    
    298,089Total Assets Acquired
    
    $
    2,750,953Fair value of liabilities assumedCurrent liabilities
    
    
    140,752Long-term Intermediate debt
    
    
    448,479Long-term Project debt
    
    
    718,805Deferred income taxes
    
    
    238,400Other liabilities
    
    
    137,645Total Liabilities Assumed
    
    
    1,684,081Minority interest acquired
    
    
    764,871Net assets acquired
    
    $
    302,001
  11




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4. Reclassifications of Prior Periods
  As Previously Reported Three
    
    
    
    
    
    
    As Reported ThreeMonths Ended
    
    
    
    
    
    
    Months EndedJune 30, 2004
    
    
    Reclassifications
    
    
    June 30, 2004RevenuesWaste disposal
and related service revenues
    
    $
    49,120
    
    
    $
    4,769
    
    
    $
    53,889Electricity and steam sales
    
    
    22,319
    
    
    
    4,158
    
    
    
    26,477Other revenues
    
    
    2,013
    
    
    
    (2,013
    )
    
    
    Total operating revenues
    
    
    73,452
    
    
    
    6,914
    
    
    
    80,366ExpensesPlant operating expenses
    
    
    30,709
    
    
    
    2,846
    
    
    
    33,555Depreciation and amortization
    
    
    11,173
    
    
    
    7,327
    
    
    
    18,500Net interest
expense on project debt
    
    
    
    
    
    
    5,020
    
    
    
    5,020General and administrative
    
    
    7,682
    
    
    
    (3,360
    )
    
    
    4,322Loss on asset retirements
    
    
    836
    
    
    
    
    
    
    
    836Operating income
    
    
    23,052
    
    
    
    (4,919
    )
    
    
    18,133Interest income
    
    
    500
    
    
    
    (374
    )
    
    
    126Interest expense
    
    
    (12,664
    )
    
    
    5,395
    
    
    
    (7,269
    )Equity in net earnings of unconsolidated
affiliate  Ref-Fuel Holdings
    
    
    1,930
    
    
    
    
    
    
    
    1,930Minority interests in net income of
subsidiary
    
    
    (8,133
    )
    
    
    
    
    
    
    (8,133
    )Other income, net
    
    
    102
    
    
    
    (102
    )
    
    
    Income before income taxes
    
    $
    4,787
    
    
    $
    
    
    
    $
    4,787
 As Previously Reported Six
    
    
    
    
    
    
    As Reported SixMonths Ended
    
    
    
    
    
    
    Months EndedJune 30, 2004
    
    
    Reclassifications
    
    
    June 30, 2004RevenuesWaste
disposal and related service revenues
    
    $
    49,120
    
    
    $
    4,769
    
    
    $
    53,889Electricity and steam sales
    
    
    22,319
    
    
    
    4,158
    
    
    
    26,477Other revenues
    
    
    2,013
    
    
    
    (2,013
    )
    
    
    Total operating revenues
    
    
    73,452
    
    
    
    6,914
    
    
    
    80,366ExpensesPlant operating expenses
    
    
    30,709
    
    
    
    2,846
    
    
    
    33,555Depreciation and amortization
    
    
    11,173
    
    
    
    7,327
    
    
    
    18,500Net interest
expense on project debt
    
    
    
    
    
    
    5,020
    
    
    
    5,020General and administrative
    
    
    7,890
    
    
    
    (3,360
    )
    
    
    4,530Loss on asset retirements
    
    
    836
    
    
    
    
    
    
    
    836Operating income
    
    
    22,844
    
    
    
    (4,919
    )
    
    
    17,925Interest income
    
    
    517
    
    
    
    (374
    )
    
    
    143Interest expense
    
    
    (17,158
    )
    
    
    5,395
    
    
    
    (11,763
    )Equity in net earnings of unconsolidated
affiliate  Ref-Fuel Holdings
    
    
    6,148
    
    
    
    
    
    
    
    6,148Minority interests in net income of
subsidiary
    
    
    (8,133
    )
    
    
    
    
    
    
    (8,133
    )Other income, net
    
    
    102
    
    
    
    (102
    )
    
    
    Income before income taxes
    
    $
    4,320
    
    
    $
    
    
    
    $
    4,320
  
    
    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.
 12




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##### Table of Contents




    
    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 a reduction of operating income.
    
    Certain costs associated with operating facilities and TransRiver were reclassified from
general and administrative expenses into 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.
 5. Equity Investment in Ref-Fuel Holdings
  For the FourMonths EndedApril 30, 2004Revenues
    
    
    $156,623Operating income
    
    
    18,000Net earnings
    
    
    12,753Companys equity in net earnings
    
    
    6,148
 13




---



##### Table of Contents



Pro Forma Information
  Pro Forma
    
    
    Pro FormaFor the Six
    
    
    For the SixMonths Ended
    
    
    Months EndedJune 30, 2005
    
    
    June 30, 2004RevenuesWaste disposal and related services revenues
    
    $
    154,682
    
    
    $
    157,118Electricity and steam sales
    
    
    82,429
    
    
    
    79,870Total net revenues
    
    
    237,111
    
    
    
    236,988ExpensesPlant operating expenses
    
    
    106,386
    
    
    
    113,048Depreciation and amortization
    
    
    69,406
    
    
    
    69,450Net interest
expense on project debt
    
    
    16,656
    
    
    
    18,753General and administrative
    
    
    11,705
    
    
    
    12,153Loss on asset retirements
    
    
    519
    
    
    
    1,178Operating income
    
    
    32,439
    
    
    
    22,406Interest income
    
    
    1,046
    
    
    
    435Interest expense
    
    
    (16,602
    )
    
    
    (16,938
    )Minority interests in net income of
subsidiaries
    
    
    (12,962
    )
    
    
    (8,186
    )Income
(loss) before income taxes
    
    $
    3,921
    
    
    $
    (2,283
    )
 6. Property, Plant and Equipment
  Useful Life
    
    June 30, 2005
    
    
    
    December 31, 2004Plant and equipment
    
    2-50 years
    
    $
    1,868,682
    
    
    
    $
    1,206,558Land
    
    
    
    
    3,813
    
    
    
    
    3,813Leasehold improvements
    
    Up to 17 years
    
    
    5,575
    
    
    
    
    5,575Landfill
    
    13 years
    
    
    17,831
    
    
    
    
    17,768Construction in progress
    
    
    
    
    5,886
    
    
    
    
    6,244Total property, plant and equipment
    
    
    
    
    1,901,787
    
    
    
    
    1,239,958Accumulated depreciation
    
    
    
    
    (1,088
    )
    
    
    
    (65,062
    )Property, plant and equipment, net
    
    
    
    $
    1,900,699
    
    
    
    $
    1,174,896
 14




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##### Table of Contents



7. Intangible Assets and Goodwill
  Useful Life
    
    June 30, 2005
    
   
    
    December 31, 2004Energy contracts
    
    3-11 years
    
    $
    190,160
    
    
    
    $
    525,125Waste contracts
    
    8 years
    
    
    2,085
    
    
    
    
    23,600Financing costs
    
    7 years
    
    
    
    
    
    
    
    9,270Lease asset
    
    24 years
    
    
    71,845
    
    
    
    
    Renewable energy credits
    
    5 years
    
    
    2,317
    
    
    
    
    Emissions credits
    
    Indefinite
    
    
    
    
    
    
    
    43,377Other intangibles
    
    Indefinite
    
    
    3,029
    
    
    
    
    3,579269,436
    
    
    
    
    604,951Accumulated amortization
    
    
    
    
    (1,057
    )
    
    
    
    (68,722
    )Intangible assets, net
    
    
    
    $
    268,379
    
    
    
    $
    536,229
  Lease
    
    
    
    
    
    
    RenewableEnergy
    
    
    Asset
    
    
    Waste
    
    
    EnergyContracts
    
    
    Contracts
    
    
    Contracts
    
    
    Credits
    
    
    TotalsEstimated2005 (after June 30, 2005)
    
    $
    13,157
    
    
    $
    1,497
    
    
    $
    123
    
    
    $
    211
    
    
    $
    14,9882006
    
    
    26,312
    
    
    
    2,994
    
    
    
    245
    
    
    
    421
    
    
    
    29,9722007
    
    
    26,312
    
    
    
    2,994
    
    
    
    245
    
    
    
    421
    
    
    
    29,9722008
    
    
    26,312
    
    
    
    2,994
    
    
    
    245
    
    
    
    421
    
    
    
    29,9722009
    
    
    22,756
    
    
    
    2,994
    
    
    
    245
    
    
    
    421
    
    
    
    26,416Thereafter
    
    
    74,568
    
    
    
    58,090
    
    
    
    969
    
    
    
    412
    
    
    
    134,039Total
    
    $
    189,417
    
    
    $
    71,563
    
    
    $
    2,072
    
    
    $
    2,307
    
    
    $
    265,359
 Goodwill
 Goodwill
and Other Intangibles
 8. Accrued Expenses and Other Current Liabilities
  June 30, 2005
    
    
    
    December 31, 2004Accrued expenses
    
    $
    21,959
    
    
    
    $
    19,965Incentive plan accruals
    
    
    1,199
    
    
    
    
    3,569Compensation liabilities
    
    
    9,693
    
    
    
    
    8,254Short-term portion of deferred revenue
    
    
    410
    
    
    
    
    Other
    
    
    5,411
    
    
    
    
    4,333$
    38,672
    
    
    
    $
    36,121
 15




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##### Table of Contents



9. Financing Arrangements
  December 31,Interest Rate
    
    
    
    June 30, 2005
    
    
    
    2004(average rate)
    
    Final MaturityCompany
and Intermediate debtSenior Notes
    
    7.375%
    
    2010
    
    $
    225,000
    
    
    
    $
    225,000ARC Senior Notes
    
    6.26%
    
    2015
    
    
    234,000
    
    
    
    
    240,000Project 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 ARC-
I Series A and ARC-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
    
    
    96,495
    
    
    
    
    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
    
    
    
    
    
    
    230
    
    
    
    
    273Subtotal of Project debt
    
    
    
    
    
    
    722,645
    
    
    
    
    751,824Total debt at par value
    
    
    
    
    
    
    1,181,645
    
    
    
    
    1,216,824Unamortized debt premium, net
    
    
    
    
    
    
    56,047
    
    
    
    
    54,189Current portion
    
    
    
    
    
    
    (79,007
    )

    
    
    
    (87,184
    )Total long-term debt obligations
    
    
    
    
    
    $
    1,158,685
    
    
    
    $
    1,183,829
    16




---



##### Table of Contents



10. Other Long-Term Liabilities
  Amortization
    
    
    June 30,
    
    
    
    December 31,Period (years)
    
    
    2005
    
    
    
    2004Waste contracts acquired
    
    
    9-17
    
    
    $
    120,830
    
    
    
    $
    120,276Operating lease acquired
    
    
    14
    
    
    
    
    
    
    
    
    38,453Energy contract
levelization
    
    
    12
    
    
    
    31
    
    
    
    
    24,123Landfill liabilities
    
    
    13
    
    
    
    11,450
    
    
    
    
    10,699Deferred revenue
    
    
    8-20
    
    
    
    34
    
    
    
    
    5,112Incentive plan accruals
    
    
    
    
    
    
    5,156
    
    
    
    
    3,333$
    137,501
    
    
    
    $
    201,996
 11. Income Taxes
  For the Period from
    
    
    
    For the Period fromJune 25,
    
    
    
    January 1,
    
    
    For the Sixthrough
    
    
    
    through
    
    
    Months EndedJune 30, 2005
    
    
    
    June 24, 2005
    
    
    June 30, 2004Current provision
    
    $
    562
    
    
    
    $
    (3,227
    )
    
    $
    1,683Deferred provision
    
    
    (72
    )
    
    
    
    910
    
    
    
    101Total consolidated income tax provision (benefit)
    
    $
    490
    
    
    
    $
    (2,317
    )
    
    $
    1,784
  12. Commitments and Contingencies
  17




---



##### Table of Contents



Environmental
   Lower Passaic River Study.
 CMW Landfill.
  18




---



##### Table of Contents



13. Stock Option Plan
    14. Subsequent Events
   19




---



##### 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
   20




---



##### Table of Contents



Push-Down
Accounting
 Executive
Summary
    21




---



##### Table of Contents



Operating
Results
  For theFor the Period
    

    
    For the
    
    
    For the
    
    
    For the
    
    

    
    Periodfrom
    
    

    Period from
    
    
    Three
    
    
    Period from
    
    
    
    from
    
    
    For theJune 25,
    
    

    April 1,
    
    
    Months
    
    
    June 25,
    
    
    
    January 1,
    
    
    Six Monthsthrough
    

    
    through
    
    
    Ended
    
    
    through
    
    
    
    through
    
    
    EndedJune 30,
    

    
    June 24,
    
    
    June 30,
    
    
    June 30,
    
    
    
    June 24,
    
    
    June 30,2005
    

    
    2005
    
    
    2004
    
    
    2005
    
    
    
    2005
    
    
    2004Statement
of Operations Data (at end of period):Net revenues
    
    $
    8,660
    
    
    
    $
    130,459
    
    
    $
    80,366
    
    
    $
    8,660
    
    
    
    $
    228,452
    
    
    $
    80,366Equity in net earnings of Ref-Fuel
Holdings
    
    
    
    
    
    
    

    
    
    
    
    1,930
    
    
    
    
    
    
    
    
    
    
    
    
    6,148Net interest
expense on project debt
    
    
    (458
    )
    
    
    
    (6,645
    )
    
    
    (5,020
    )
    
    
    (458
    )
    
    
    
    (13,964
    )
    
    
    (5,020
    )Plant operating expenses
    
    
    (2,769
    )
    
    
    
    (46,902
    )
    
    
    (33,555
    )
    
    
    (2,769
    )
    
    
    
    (103,616
    )
    
    
    (33,555
    )Depreciation and amortization
expense
    
    
    (1,935
    )
    
    
    
    (42,058
    )
    
    
    (18,500
    )
    
    
    (1,935
    )
    
    
    
    (57,032
    )
    
    
    (18,500
    )Administrative and general expense
    
    
    (252
    )
    
    
    
    (33,413
    )
    
    
    (4,322
    )
    
    
    (252
    )
    
    
    
    (39,630
    )
    
    
    (4,530
    )Interest income
    
    

    34
    
    

    
    
    477
    
    
    
    126
    
    
    
    34
    
    
    
    
    1,012
    
    
    
    143Interest expense
    
    
    (576
    )
    
    
    
    (7,965
    )
    
    
    (7,269
    )
    
    
    (576
    )
    
    
    
    (16,394
    )
    
    
    (11,763
    )Minority interest in net income of
subsidiary
    
    
    (1,521
    )
    
    
    
    288
    
    
    
    (8,133
    )
    
    
    (1,521
    )
    
    
    
    (3,690
    )
    
    
    (8,133
    )Gain (loss) on asset retirement
    
    
    

    
    
    
    
    867
    
    
    
    (836
    )
    
    
    
    
    
    
    
    (519
    )
    
    
    (836
    )Income tax (provision) benefit
    
    
    (490
    )
    
  
    
    2,109
    
    
    
    (1,976
    )
    
    
    (490
    )
    
    
    
    2,317
    
    
    
    (1,784
    )Net income (loss)
    
    $
    693
    
    
    
    $
    (2,783
    )
    
    $
    2,811
    
    
    $
    693
    
    
    
    $
    (3,064
    )
    
    $
    2,536Cash Flow Data:Cash provided by operating
activities
    
    $
    8,711
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,713
    
    
    $
    58,974Cash (used
in) provided by investing
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,577
    )
    
    
    35,240Cash
provided by (used in) financing activities
    
    
    9,111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,920
    )
    
    
    (41,095
    )Balance
Sheet Data:
    
    June 30, 2005
    
    
    
    December 31, 2004Total assets
    
    $
    2,743,756
    
    
    
    $
    2,169,504Total debt
    
    
    1,237,692
    
    
    
    
    1,271,013Minority interest in consolidated
subsidiaries
    
    
    766,392
    
    
    
    
    364,004Total members equity
    
    
    303,252
    
    
    
    
    147,893
  22




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##### Table of Contents



Supplemental Pro Forma Information
  Pro Forma
    
    
    Pro FormaFor the Six
    
    
    For the SixMonths Ended
    
    
    Months EndedJune 30, 2005
    
    
    June 30, 2004RevenuesWaste disposal and related services revenues
    
    $
    154,682
    
    
    $
    157,118Electricity and steam sales
    
    
    82,429
    
    
    
    79,870Total net revenues
    
    
    237,111
    
    
    
    236,988ExpensesOperating
    
    
    106,386
    
    
    
    113,048Depreciation and amortization
    
    
    69,406
    
    
    
    69,450Net interest
expense on project debt
    
    
    16,656
    
    
    
    18,753General and administrative
    
    
    11,705
    
    
    
    12,153Loss on asset retirements
    
    
    519
    
    
    
    1,178Operating income
    
    
    32,439
    
    
    
    22,406Interest income
    
    
    1,046
    
    
    
    435Interest expense
    
    
    (16,602
    )
    
    
    (16,938
    )Minority interests in net income of
subsidiary
    
    
    (12,962
    )
    
    
    (8,186
    )Income
(loss) before income taxes
    
    $
    3,921
    
    
    $
    (2,283
    )
 Comparison of the Unaudited Pro Forma Six Months Ended June 30, 2005 and 2004, respectively
 Total Net Revenues.
  Plant Operating Expenses.
 23




---



##### Table of Contents



Depreciation and Amortization
 Net
Interest Expense on Project Debt
 General and Administrative
 Debt Covenant
    Twelve Months EndedJune 30, 2005(unaudited)Proportionate other dataProportionate Adjusted EBITDA (1)
    
    $
    138,150Proportionate interest expense (2)
    
    
    40,791Ratio of proportionate Adjusted EBITDA to
proportionate interest expense (3)
    
    
    3.4
    x
 
 (1)
    
    Proportionate Adjusted EBITDA is defined under the indenture as 50% of the pro forma Adjusted EBITDA of
Ref-Fuel Holdings. Adjusted EBITDA (as calculated below) is not a measurement of financial
performance under GAAP and should not be considered as an
alternative to cash flow from operating activities or as a measure of liquidity or an alternative
to net income as indicators of operating performance or any other measures of performance
derived in accordance with GAAP. Proportionate Adjusted EBITDA for the last twelve months ended June 30, 2005 is calculated by
subtracting the results for the six months ended June 30, 2004 from the twelve months ended
December 31, 2004, and then adding the six months ended
June 30, 2005, as follows (unaudited, dollars in thousands): 24




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##### Table of Contents



CombinedYear
    
    
    Six Months
    
    
    Six Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2004
    
    
    2004
    
    
    2005
    
    
    2005Ref-Fuel
Holdings:Net Income
    
    $
    92,030
    
    
    $
    28,835
    
    
    $
    10,298
    
    
    $
    73,493Income taxes
    
    
    741
    
    
    
    216
    
    
    
    (39
    )
    
    
    486Net interest
expense on intermediate debt
    
    
   15,351
    
    
    
    7,915
    
    
    
    6,883
    
    
    
    14,319Operating
income
    
    
    108,122
    
    
    
    36,966
    
    
    
    17,142
    
    
    
    88,298One time
charges for Acquisition
    
    
    
    
    
    
    
    
    
    
    30,192
    
    
    
    30,192Interest on
Project Debt
    
    
    28,379
    
    
    
    13,672
    
    
    
    14,422
    
    
    
    29,129Depreciation
and amortization
    
    
    120,530
    
    
    
    61,010
    
    
    
    58,966
    
    
    
    118,486Loss on
retirements
    
    
    2,107
    
    
    
    1,178
    
    
    
    519
    
    
    
    1,448EBITDA
    
    
    259,138
    
    
    
    112,826
    
    
    
    121,241
    
    
    
    267,553Fair value
adjustment amortization and revenue levelization adjustments
    
    
    19,148
    
    
    
    9,476
    
    
    
    (925
    )
    
    
    8,747Adjusted EBITDA
    
    $
    278,286
    
    
    $
    122,302
    
    
    $
    120,316
    
    
    $
    276,300MSW Energy Holdings
ownership
percentage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    %MSW Energy Holdings
Proportionate
Adjusted EBITDA
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    138,150
 
 (2)
    
    Proportionate interest expense is defined under the
indenture as 50% of the interest expense for Ref-Fuel
Holdings plus 100% of interest expense.  Twelve Months EndedJune 30, 2005Ref-Fuel Holdings interest expense
    
    $
    47,893MSW Energy Holdings II ownership percentage
    
    
    50
    %Ref-Fuel Holdings proportionate interest expense
    
    
    23,947MSW Energy Holdings II incremental interest expense
    
    
    16,844MSW Energy Holdings II proportionate interest expense
    
    $
    40,791
 
 (3)
    
    Proportionate Adjusted EBITDA to proportionate interest
expense is defined under the indenture as the quotient of
proportionate Adjusted EBITDA divided by proportionate interest expense. Critical
Accounting Policies.
 Principles of Consolidation.
 Use of Estimates in Preparing Financial Statements.
 25




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##### Table of Contents



Equity
Method Investment.
 26




---



##### Table of Contents



Effect of New Accounting Standard
 Share-Based Payment
 Contractual Obligations and Commercial Commitments
  Less than 1
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLong-Term Debt Obligations
    
    $
    1,181,645
    
    
    $
    52,937
    
    
    $
    268,007
    
    
    $
    232,678
    
    
    $
    628,023Operating Lease Obligations
    
    
    144,430
    
    
    
    14,609
    
    
    
    27,588
    
    
    
    31,463
    
    
    
    70,770Other Long-Term Obligations
    
    
    24,493
    
    
    
    4,577
    
    
    
    8,466
    
    
    
    
    
    
    
    11,450Total
    
    $
    1,350,568
    
    
    $
    72,123
    
    
    $
    304,061
    
    
    $
    264,141
    
    
    $
    710,243
 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.
   27




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##### Table of Contents



Item 4. Controls and Procedures
 MSW Energy Holdings II
     28




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##### Table of Contents



PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Lower Passaic River Study.
 CMW Landfill.
 29




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##### Table of Contents



Item 5. Other Information.
  30




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##### Table of Contents



Item 6. Exhibits
 (a)
    
    Exhibits
 12
    
    Statement re Computation of Ratio of Earnings to Fixed Charges.31(a)
    
    15d-14(a) Certification of Anthony J. Orlando for MSW Energy Holdings II LLC.31(b)
    
    15d-14(a) Certification of Craig D. Abolt for MSW Energy Holdings II LLC.31(c)
    
    15d-14(a) Certification of Anthony J. Orlando for MSW Energy Finance Co. II, Inc.31(d)
    
    15d-14(a) Certification of Craig D. Abolt for MSW Energy Finance Co.II, Inc.32(a)
    
    Section 1350 Certification of Anthony J. Orlando and Craig D. Abolt for MSW
Energy Holdings II LLC.32(b)
    
    Section 1350 Certification of Anthony J. Orlando and Craig D. Abolt for MSW
Energy Finance Co. II, Inc.
 31




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##### Table of Contents



SIGNATURES
  MSW ENERGY HOLDINGS II LLCBy:
    /s/ Craig D. AboltCraig D. AboltSenior Vice President and
Chief Financial Officer By:

/s/ Thomas E. BucksThomas E. BucksVice President and Chief Accounting Officer  32




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##### Table of Contents



SIGNATURES
  MSW ENERGY FINANCE CO. II,
INC.By:
    /s/ Craig D. AboltCraig D. AboltSenior Vice President and
Chief Financial Officer By:

/s/
 Thomas E. BucksThomas E. BucksVice President and Chief Accounting Officer  33




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##### Table of Contents



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