XNYS:EIX Edison International Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

XNYS:EIX Fair Value Estimate
Premium
XNYS:EIX Consider Buying
Premium
XNYS:EIX Consider Selling
Premium
XNYS:EIX Fair Value Uncertainty
Premium
XNYS:EIX Economic Moat
Premium
XNYS:EIX Stewardship
Premium
 


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
________________________
(Mark One)
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                        to
Commission File Number 1-9936
_________________________
EDISON INTERNATIONAL
(Exact name of registrant as specified in its charter)
__________________________
California
 
95-4137452
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2244 Walnut Grove Avenue
(P.O. Box 976)
Rosemead, California
 
91770
(Address of principal executive offices)
 
(Zip Code)
 
 
 
(626) 302-2222
(Registrant's telephone number, including area code)
__________________________
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 S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer S
Accelerated filer £
Non-accelerated filer £
(Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class
 
Outstanding at July 27, 2012
Common Stock, no par value
 
325,811,206
 
 
 
 
 
 




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


ii



GLOSSARY
The following terms and abbreviations appearing in the text of this report have the meanings indicated below.
2011 Form 10-K
 
Edison International's Annual Report on Form 10-K for the year-ended December 31, 2011
2010 Tax Relief Act
 
Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010
AFUDC
 
allowance for funds used during construction
Ambit project
 
American Bituminous Power Partners, L.P.
AOI
 
Adjusted Operating Income (Loss)
APS
 
Arizona Public Service Company
ARO(s)
 
asset retirement obligation(s)
BACT
 
best available control technology
BART
 
best available retrofit technology
Bcf
 
billion cubic feet
Big 4
 
Kern River, Midway-Sunset, Sycamore and Watson natural gas power projects
Btu
 
British thermal units
CAA
 
Clean Air Act
CAIR
 
Clean Air Interstate Rule
CAISO
 
California Independent System Operator
CAMR
 
Clean Air Mercury Rule
CARB
 
California Air Resources Board
CDWR
 
California Department of Water Resources
CEC
 
California Energy Commission
coal plants
 
Midwest Generation coal plants and Homer City plant
Commonwealth Edison
 
Commonwealth Edison Company
CPS
 
Combined Pollutant Standard
CPUC
 
California Public Utilities Commission
CSAPR
 
Cross-State Air Pollution Rule
CRRs
 
congestion revenue rights
DOE
 
U.S. Department of Energy
EME
 
Edison Mission Energy
EMG
 
Edison Mission Group Inc.
EMMT
 
Edison Mission Marketing & Trading, Inc.
EPS
 
earnings per share
ERRA
 
energy resource recovery account
Exelon Generation
 
Exelon Generation Company LLC
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
FGIC
 
Financial Guarantee Insurance Company
FIP(s)
 
federal implementation plan(s)
Four Corners
 
coal fueled electric generating facility located in Farmington, New Mexico in
which SCE holds a 48% ownership interest
GAAP
 
generally accepted accounting principles
GECC
 
General Electric Capital Corporation
GHG
 
greenhouse gas


iii



Global Settlement
 
A settlement between Edison International and the IRS that resolved federal tax disputes related to Edison Capital's cross-border, leveraged leases through 2009, and all other outstanding federal tax disputes and affirmative claims for tax years 1986 through 2002 and related matters with state tax authorities.
GRC
 
general rate case
GWh
 
gigawatt-hours
Homer City
 
EME Homer City Generation L.P., a Pennsylvania limited partnership that leases and operates three coal-fired electric generating units and related facilities located in Indiana County, Pennsylvania
Illinois EPA
 
Illinois Environmental Protection Agency
IRS
 
Internal Revenue Service
ISO
 
Independent System Operator
kWh(s)
 
kilowatt-hour(s)
LIBOR
 
London Interbank Offered Rate
MATS
 
Mercury and Air Toxics Standards
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results
of Operations in this report
Midwest Generation
 
Midwest Generation, LLC, a Delaware limited liability company that owns and/or leases, and that operates, the Midwest Generation plants
Midwest Generation plants
 
Midwest Generation's power plants (fossil fuel) located in Illinois
MMBtu
 
million British thermal units
Mohave
 
two coal fueled electric generating facilities that no longer operate located
in Clark County, Nevada in which SCE holds a 56% ownership interest
Moody's
 
Moody's Investors Service
MRTU
 
Market Redesign and Technology Upgrade
MW
 
megawatts
MWh
 
megawatt-hours
NAAQS
 
national ambient air quality standards
NAPP
 
Northern Appalachian
NERC
 
North American Electric Reliability Corporation
Ninth Circuit
 
U.S. Court of Appeals for the Ninth Circuit
NOV
 
notice of violation
NOx
 
nitrogen oxide
NRC
 
Nuclear Regulatory Commission
NSR
 
New Source Review
NYISO
 
New York Independent System Operator
PADEP
 
Pennsylvania Department of Environmental Protection
Palo Verde
 
large pressurized water nuclear electric generating facility located near
Phoenix, Arizona in which SCE holds a 15.8% ownership interest
PBOP(s)
 
postretirement benefits other than pension(s)
PBR
 
performance-based ratemaking
PG&E
 
Pacific Gas & Electric Company
PJM
 
PJM Interconnection, LLC
PRB
 
Powder River Basin
PSD
 
Prevention of Significant Deterioration
QF(s)
 
qualifying facility(ies)
ROE
 
return on equity
RPM
 
Reliability Pricing Model


iv



RTO(s)
 
Regional Transmission Organization(s)
S&P
 
Standard & Poor's Ratings Services
San Onofre
 
large pressurized water nuclear electric generating facility located in south
San Clemente, California in which SCE holds a 78.21% ownership interest
SCE
 
Southern California Edison Company
SNCR
 
selective non-catalytic reduction
SDG&E
 
San Diego Gas & Electric
SEC
 
U.S. Securities and Exchange Commission
SIP(s)
 
state implementation plan(s)
SO2
 
sulfur dioxide
US EPA
 
U.S. Environmental Protection Agency
VIE(s)
 
variable interest entity(ies)



v

























(This page has been left blank intentionally.)


1



PART I.    FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS
Consolidated Statements of Income


 

Edison International
 





 

Three months ended
June 30,

Six months ended
June 30,
(in millions, except per-share amounts, unaudited)

2012

2011

2012

2011
Electric utility

$
2,650


$
2,445


$
5,061


$
4,676

Competitive power generation

407


538


851


1,090

Total operating revenue

3,057


2,983


5,912


5,766

Fuel

276


256


559


515

Purchased power

822


649


1,437


1,158

Operation and maintenance

1,209


1,255


2,393


2,404

Depreciation, decommissioning and amortization

467


435


924


852

Asset impairments and other

11


8


26


8

Total operating expenses

2,785


2,603


5,339


4,937

Operating income

272


380


573


829

Interest and dividend income

13


30


16


34

Equity in income from unconsolidated affiliates – net

18


18


17


12

Other income

38


42


68


83

Interest expense

(218
)

(203
)

(430
)

(398
)
Other expenses

(19
)

(13
)

(26
)

(25
)
Income from continuing operations before income taxes

104


254


218


535

Income tax expense

1


62


2


127

Income from continuing operations

103


192


216


408

Loss from discontinued operations, net of tax



(1
)

(1
)

(3
)
Net income

103


191


215


405

Dividends on preferred and preference stock of utility

23


15


41


29

Other noncontrolling interests

6




7



Net income attributable to Edison International common shareholders

$
74


$
176


$
167


$
376

Amounts attributable to Edison International common shareholders:





 

 
Income from continuing operations, net of tax

$
74


$
177


$
168


$
379

Loss from discontinued operations, net of tax



(1
)

(1
)

(3
)
Net income attributable to Edison International common shareholders

$
74


$
176


$
167


$
376

Basic earnings (loss) per common share attributable to Edison International common shareholders:





 

 
Weighted-average shares of common stock outstanding

326


326


326


326

Continuing operations

$
0.23


$
0.54


$
0.51


$
1.16

Discontinued operations







(0.01
)
Total

$
0.23


$
0.54


$
0.51


$
1.15

Diluted earnings (loss) per common share attributable to Edison International common shareholders:





 

 
Weighted-average shares of common stock outstanding, including effect of dilutive securities

334


329


333


328

Continuing operations

$
0.22


$
0.54


$
0.50


$
1.16

Discontinued operations







(0.01
)
Total

$
0.22


$
0.54


$
0.50


$
1.15

Dividends declared per common share

$
0.325


$
0.320


$
0.650


$
0.640


The accompanying notes are an integral part of these consolidated financial statements.

2



Consolidated Statements of Comprehensive Income
 
 
 
Edison International
 
 
 
 
 
 
 
 
Three months ended
June 30,
 
Six months ended
June 30,
(in millions, unaudited)
 
2012
 
2011
 
2012
 
2011
Net income
 
$
103

 
$
191

 
$
215

 
$
405

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Pension and postretirement benefits other than pensions:
 
 
 
 
 
 
 
 
Net loss arising during the period, net of income tax benefit of $2 for both the three and six months ended 2012
 
(4
)
 

 
(3
)
 

Amortization of net loss included in net income, net of income tax expense of $1 and $1 for the three months and $5 and $3 for the six months ended June 30, 2012 and 2011, respectively
 
3

 
1

 
9

 
4

Unrealized loss on derivatives qualified as cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized holding loss arising during the period, net of income tax benefit of $19 and $9 for the three months and $2 and $5 for the six months ended June 30, 2012 and 2011, respectively
 
(28
)
 
(14
)
 
(3
)
 
(8
)
Reclassification adjustments included in net income, net of income tax benefit of $6 and $6 for the three months and $13 and $12 for the six months ended June 30, 2012 and 2011, respectively
 
(9
)
 
(7
)
 
(20
)
 
(17
)
Other comprehensive loss
 
(38
)
 
(20
)
 
(17
)
 
(21
)
Comprehensive income
 
65

 
171

 
198

 
384

Less: Comprehensive income attributable to noncontrolling interests
 
29

 
15

 
48

 
29

Comprehensive income attributable to Edison International
 
$
36

 
$
156

 
$
150

 
$
355



The accompanying notes are an integral part of these consolidated financial statements.

3



Consolidated Balance Sheets
 
Edison International
 
 
 
 
 
 
(in millions, unaudited)
 
June 30,
2012
 
December 31,
2011
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
1,175

 
$
1,469

Receivables, less allowances of $74 and $75 for uncollectible accounts at respective dates
 
864

 
908

Accrued unbilled revenue
 
726

 
519

Inventory
 
567

 
624

Prepaid taxes
 
91

 
88

Derivative assets
 
91

 
106

Restricted cash and cash equivalents
 
110

 
103

Margin and collateral deposits
 
84

 
58

Regulatory assets
 
583

 
494

Other current assets
 
147

 
115

Total current assets
 
4,438

 
4,484

Nuclear decommissioning trusts
 
3,810

 
3,592

Investments in unconsolidated affiliates
 
530

 
525

Other investments
 
220

 
211

Total investments
 
4,560

 
4,328

Utility property, plant and equipment, less accumulated depreciation of $7,153 and $6,894 at respective dates
 
28,708

 
27,569

Competitive power generation and other property, plant and equipment, less accumulated depreciation of $1,548 and $1,408 at respective dates
 
4,535

 
4,547

Total property, plant and equipment
 
33,243

 
32,116

Derivative assets
 
111

 
128

Restricted deposits
 
97

 
51

Rent payments in excess of levelized rent expense under plant operating leases
 
798

 
760

Regulatory assets
 
5,424

 
5,466

Other long-term assets
 
717

 
706

Total long-term assets
 
7,147

 
7,111

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
49,388

 
$
48,039



The accompanying notes are an integral part of these consolidated financial statements.

4



Consolidated Balance Sheets
 
Edison International
 
 
 
 
 
 
(in millions, except share amounts, unaudited)
 
June 30,
2012
 
December 31,
2011
LIABILITIES AND EQUITY
 
 
 
 
Short-term debt
 
$
327

 
$
429

Current portion of long-term debt
 
565

 
57

Accounts payable
 
1,140

 
1,419

Accrued taxes
 
32

 
52

Accrued interest
 
227

 
205

Customer deposits
 
195

 
199

Derivative liabilities
 
170

 
268

Regulatory liabilities
 
721

 
670

Other current liabilities
 
846

 
1,049

Total current liabilities
 
4,223

 
4,348

Long-term debt
 
13,658

 
13,689

Deferred income taxes
 
5,465

 
5,396

Deferred investment tax credits
 
86

 
89

Customer advances
 
150

 
138

Derivative liabilities
 
558

 
547

Pensions and benefits
 
2,854

 
2,912

Asset retirement obligations
 
2,771

 
2,688

Regulatory liabilities
 
5,038

 
4,670

Other deferred credits and other long-term liabilities
 
2,640

 
2,476

Total deferred credits and other liabilities
 
19,562

 
18,916

Total liabilities
 
37,443

 
36,953

Commitments and contingencies (Note 9)
 


 


Common stock, no par value (800,000,000 shares authorized; 325,811,206 shares issued and outstanding at each date)
 
2,371

 
2,360

Accumulated other comprehensive loss
 
(156
)
 
(139
)
Retained earnings
 
7,730

 
7,834

Total Edison International's common shareholders' equity
 
9,945

 
10,055

Preferred and preference stock of utility
 
1,760

 
1,029

Other noncontrolling interests
 
240

 
2

Total noncontrolling interests
 
2,000

 
1,031

Total equity
 
11,945

 
11,086

Total liabilities and equity
 
$
49,388

 
$
48,039



The accompanying notes are an integral part of these consolidated financial statements.

5



Consolidated Statements of Cash Flows
 
Edison International
 
 
 
Six months ended
June 30,
(in millions, unaudited)
 
2012
 
2011
Cash flows from operating activities:
 
 
 
 
Net income
 
$
215

 
$
405

Less: Loss from discontinued operations
 
(1
)
 
(3
)
Income from continuing operations
 
216

 
408

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
Depreciation, decommissioning and amortization
 
924

 
852

Regulatory impacts of net nuclear decommissioning trust earnings
 
114

 
75

Other amortization
 
49

 
75

Asset impairments and other
 
26

 
7

Stock-based compensation
 
18

 
15

Equity in income from unconsolidated affiliates
 
(17
)
 
(12
)
Distributions from unconsolidated affiliates
 
6

 
15

Deferred income taxes and investment tax credits
 
(93
)
 
223

Income from leveraged leases
 
(3
)
 
(3
)
Proceeds from U.S. treasury grants
 
29

 

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
10

 
64

Inventory
 
57

 
(21
)
Margin and collateral deposits – net of collateral received
 
(20
)
 
1

Prepaid taxes
 
(3
)
 
34

Other current assets
 
(217
)
 
(189
)
Rent payments in excess of levelized rent expense
 
(38
)
 
(101
)
Accounts payable
 

 
66

Accrued taxes
 
(15
)
 
(19
)
Other current liabilities
 
(115
)
 
(212
)
Derivative assets and liabilities – net
 
(92
)
 
303

Regulatory assets and liabilities – net
 
252

 
(260
)
Other assets
 
(7
)
 
(38
)
Other liabilities
 
80

 
(58
)
Operating cash flows from discontinued operations
 
(1
)
 
(3
)
Net cash provided by operating activities
 
1,160

 
1,222

Cash flows from financing activities:
 
 
 
 
Long-term debt issued
 
495

 
592

Long-term debt issuance costs
 
(11
)
 
(5
)
Long-term debt repaid
 
(29
)
 
(30
)
Bonds purchased
 

 
(56
)
Preference stock issued – net
 
805

 
123

Preference stock redeemed
 
(75
)
 

Short-term debt financing – net
 
(112
)
 
292

Settlements of stock-based compensation – net
 
(41
)
 
(13
)
Cash contributions from noncontrolling interests
 
238

 

Dividends and distributions to noncontrolling interests
 
(36
)
 
(28
)
Dividends paid
 
(212
)
 
(209
)
Net cash provided by financing activities
 
$
1,022

 
$
666


The accompanying notes are an integral part of these consolidated financial statements.

6



Consolidated Statements of Cash Flows
 
Edison International
 
 
 
Six months ended
June 30,
(in millions, unaudited)
 
2012
 
2011
Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
$
(2,291
)
 
$
(2,256
)
Proceeds from sale of nuclear decommissioning trust investments
 
1,097

 
1,146

Purchases of nuclear decommissioning trust investments and other
 
(1,222
)
 
(1,230
)
Proceeds from partnerships and unconsolidated subsidiaries, net of investment
 
5

 
5

Restricted deposits and restricted cash and cash equivalents
 
(69
)
 
19

Customer advances for construction and other investments
 
4

 
(16
)
Net cash used by investing activities
 
(2,476
)
 
(2,332
)
Net decrease in cash and cash equivalents
 
(294
)
 
(444
)
Cash and cash equivalents, beginning of period
 
1,469

 
1,389

Cash and cash equivalents, end of period
 
$
1,175

 
$
945



The accompanying notes are an integral part of these consolidated financial statements.

7



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.    Summary of Significant Accounting Policies
Edison International has two business segments for financial reporting purposes: an electric utility segment (SCE) and a competitive power generation segment (EMG). SCE is an investor-owned public utility primarily engaged in the business of supplying electricity to an approximately 50,000 square mile area of southern California. EMG is the holding company for its principal wholly owned subsidiary, EME. EME is a holding company with subsidiaries and affiliates engaged in the business of developing, acquiring, owning or leasing, operating and selling energy and capacity from independent power production facilities. EME also engages in hedging and energy trading activities in competitive power markets through its Edison Mission Marketing & Trading, Inc. ("EMMT") subsidiary.
Basis of Presentation
Edison International's significant accounting policies were described in Note 1 of "Edison International Notes to Consolidated Financial Statements" included in the 2011 Form 10-K. The same accounting policies are followed for interim reporting purposes, with the exception of accounting principles adopted as of January 1, 2012, discussed below in "—New Accounting Guidance." This quarterly report should be read in conjunction with the financial statements and notes included in the 2011 Form 10-K.
In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state the consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America for the periods covered by this quarterly report on Form 10-Q. The results of operations for the three- and six-month periods ended June 30, 2012 are not necessarily indicative of the operating results for the full year.
The December 31, 2011 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Cash Equivalents
Cash equivalents included investments in money market funds totaling $982 million and $1.3 billion at June 30, 2012 and December 31, 2011, respectively. Generally, the carrying value of cash equivalents equals the fair value, as these investments have original maturities of three months or less.
Edison International temporarily invests the ending daily cash balance in its primary disbursement accounts until required for check clearing. Edison International reclassified $132 million and $220 million of checks issued, but not yet paid by the financial institution, from cash to accounts payable at June 30, 2012 and December 31, 2011, respectively.
Restricted Cash and Cash Equivalents, and Restricted Deposits
Restricted cash and cash equivalents at June 30, 2012 and December 31, 2011 included $97 million received from a wind project financing that was held in escrow at those dates. At June 30, 2012, restricted deposits included $51 million to support outstanding letters of credit issued under EME's letter of credit facilities.
Inventory
Inventory is stated at the lower of cost or market, cost being determined by the weighted-average cost method for fuel, and the average cost method for materials and supplies. Inventory consisted of the following:
(in millions)
June 30, 2012
 
December 31, 2011
Coal, gas, fuel oil and other raw materials
$
160

 
$
211

Spare parts, materials and supplies
407

 
413

Total inventory
$
567

 
$
624


8




Revenue Recognition
Electric Utility Revenue
Operating revenue is recognized when electricity is delivered and includes amounts for services rendered but unbilled at the end of each reporting period. During the first six months of 2012, pending the outcome of the 2012 GRC, SCE recognized GRC-related revenue based on the 2011 authorized revenue requirement included in customer rates. A GRC memorandum account has been established for SCE, which will make the 2012 revenue requirement ultimately adopted by the CPUC effective as of January 1, 2012.
Earnings Per Share
Edison International computes earnings per share ("EPS") using the two-class method, which is an earnings allocation formula that determines EPS for each class of common stock and participating security. Edison International's participating securities are stock-based compensation awards payable in common shares, including stock options, performance shares and restricted stock units, which earn dividend equivalents on an equal basis with common shares. Stock options awarded during the period 2003 through 2006 received dividend equivalents. EPS attributable to Edison International common shareholders was computed as follows:
 
Three months ended
June 30,
 
Six months ended
June 30,
(in millions)
2012
 
2011
 
2012
 
2011
Basic earnings per share – continuing operations:
 
 
 
 
 
 
 
Income from continuing operations attributable to common shareholders, net of tax
$
74

 
$
177

 
$
168

 
$
379

Participating securities dividends

 

 

 

Income from continuing operations available to common shareholders
$
74

 
$
177

 
$
168

 
$
379

Weighted average common shares outstanding
326

 
326

 
326

 
326

Basic earnings per share – continuing operations
$
0.23

 
$
0.54

 
$
0.51

 
$
1.16

Diluted earnings per share – continuing operations:
 
 
 
 
 
 
 
Income from continuing operations available to common shareholders
$
74

 
$
177

 
$
168

 
$
379

Income impact of assumed conversions

 
1

 

 
1

Income from continuing operations available to common shareholders and assumed conversions
$
74

 
$
178

 
$
168

 
$
380

Weighted average common shares outstanding
326

 
326

 
326

 
326

Incremental shares from assumed conversions
8

 
3

 
7

 
2

Adjusted weighted average shares – diluted
334

 
329

 
333

 
328

Diluted earnings per share – continuing operations
$
0.22

 
$
0.54

 
$
0.50

 
$
1.16

Stock-based compensation awards to purchase 3,266,857 and 5,896,940 shares of common stock for the three months ended June 30, 2012 and 2011, respectively, and 4,928,510 and 5,896,940 shares of common stock for the six months ended June 30, 2012 and 2011, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the awards was greater than the average market price of the common shares and therefore, the effect would have been antidilutive.
New Accounting Guidance
Accounting Guidance Adopted in 2012
Fair Value Measurement
In May 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standards update modifying the fair value measurement and disclosure guidance. This guidance prohibits grouping of financial instruments for purposes of fair value measurement and requires the value be based on the individual security. This amendment also results in new disclosures primarily related to Level 3 measurements including quantitative disclosure about unobservable inputs and

9




assumptions, a description of the valuation processes and a narrative description of the sensitivity of the fair value to changes in unobservable inputs. Edison International adopted this guidance effective January 1, 2012. For further information, see Note 4.
Presentation of Comprehensive Income
In June 2011 and December 2011, the FASB issued accounting standards updates on the presentation of comprehensive income. An entity can elect to present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate but consecutive statements. Edison International adopted this guidance January 1, 2012, and elected to present two separate but consecutive statements. The adoption of these accounting standards updates did not change the items that constitute net income and other comprehensive income.
Accounting Guidance Not Yet Adopted
Offsetting Assets and Liabilities
In December 2011, the FASB issued an accounting standards update modifying the disclosure requirements about the nature of an entity's rights of offsetting assets and liabilities in the statement of financial position under master netting agreements and related arrangements associated with financial and derivative instruments. The guidance requires increased disclosure of the gross and net recognized assets and liabilities, collateral positions and narrative descriptions of setoff rights. Edison International will adopt this guidance effective January 1, 2013.
Note 2.    Consolidated Statements of Changes in Equity
The following table provides the changes in equity for the six months ended June 30, 2012.
 
Equity Attributable to Edison International
 
Noncontrolling
Interests
 
 
(in millions)
Common
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Subtotal
 
Other
 
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2011
$
2,360

 
$
(139
)
 
$
7,834

 
$
10,055

 
$
2

 
$
1,029

 
$
11,086

Net income

 

 
167

 
167

 
7

 
41

 
215

Other comprehensive loss

 
(17
)
 

 
(17
)
 

 

 
(17
)
Contributions from noncontrolling interests1

 

 

 

 
238

 

 
238

Transfer of assets to Capistrano Wind Partners2
(21
)
 

 

 
(21
)
 

 

 
(21
)
Common stock dividends declared ($0.65 per share)

 

 
(212
)
 
(212
)
 

 

 
(212
)
Dividends, distributions to noncontrolling interests and other

 

 

 

 
(7
)
 
(41
)
 
(48
)
Stock-based compensation and other
15

 

 
(56
)
 
(41
)
 

 

 
(41
)
Noncash stock-based compensation and other
17

 

 
(2
)
 
15

 

 

 
15

Issuance of preference stock

 

 

 

 

 
805

 
805

Redemption of preference stock



 
(1
)
 
(1
)
 


(74
)
 
(75
)
Balance at June 30, 2012
$
2,371

 
$
(156
)
 
$
7,730

 
$
9,945

 
$
240

 
$
1,760

 
$
11,945

1 
Funds contribution by third-party investors related to the Capistrano Wind equity capital raise are reported in noncontrolling interest. For further information, see Note 3.
2 
Common stock was reduced by $21 million during the six months ended June 30, 2012 due to a new tax basis in the assets transferred to Capistrano Wind Partners. The tax basis allocation to the transferred assets was updated during the three months ended June 30, 2012. For further information, see Note 3.

10




The following table provides the changes in equity for the six months ended June 30, 2011.
 
Equity Attributable to Edison International
 
Noncontrolling
Interests
 
 
(in millions)
Common
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Subtotal
 
Other
 
Preferred
and
Preference
Stock
 
Total
Equity
Balance at December 31, 2010
$
2,331

 
$
(76
)
 
$
8,328

 
$
10,583

 
$
4

 
$
907

 
$
11,494

Net income

 

 
376

 
376

 

 
29

 
405

Other comprehensive loss

 
(21
)
 

 
(21
)
 

 

 
(21
)
Common stock dividends declared ($0.64 per share)

 

 
(209
)
 
(209
)
 

 

 
(209
)
Dividends, distributions to noncontrolling interests and other

 

 

 

 
(2
)
 
(29
)
 
(31
)
Stock-based compensation and other
4

 

 
(17
)
 
(13
)
 

 

 
(13
)
Noncash stock-based compensation and other
12

 

 
(2
)
 
10

 

 
(1
)
 
9

Issuance of preference stock

 

 

 

 

 
123

 
123

Balance at June 30, 2011
$
2,347

 
$
(97
)
 
$
8,476

 
$
10,726

 
$
2

 
$
1,029

 
$
11,757

Note 3.    Variable Interest Entities
Categories of Variable Interest Entities
Projects or Entities that are Consolidated
At June 30, 2012 and December 31, 2011, 16 and 13 wind projects were consolidated with a total generating capacity of 861 MW and 570 MW, respectively, that have noncontrolling interests held by others. The increase from the projects consolidated after December 31, 2011 was due to the Capistrano Wind equity capital transaction discussed below. In determining that Edison International's subsidiary, EME was the primary beneficiary of the projects that are consolidated, key factors considered were EME's ability to direct commercial and operating activities and EME's obligation to absorb losses of the variable interest entities.
The following table presents summarized financial information of the projects that were consolidated by EMG:
(in millions)
June 30,
2012
 
December 31,
2011
Current assets
$
118

 
$
36

Net property, plant and equipment
1,107

 
675

Other long-term assets
22

 
5

Total assets
$
1,247

 
$
716

Current liabilities
$
34

 
$
28

Long-term debt net of current portion
175

 
57

Deferred revenues
173

 
69

Long-term derivative liabilities
22

 

Other long-term liabilities
37

 
22

Total liabilities
$
441

 
$
176

Noncontrolling interests
$
240

 
$
2

Assets serving as collateral for the debt obligations had a carrying value of $472 million and $136 million at June 30, 2012 and December 31, 2011, respectively, and primarily consist of property, plant and equipment.

11




Capistrano Wind Equity Capital
As part of its plan to obtain third-party equity capital to finance the development of a portion of EME's wind portfolio, on February 13, 2012, Edison Mission Wind Inc. (Edison Mission Wind) sold its indirect equity interests in the Cedro Hill wind project (150 MW in Texas), the Mountain Wind Power I project (61 MW in Wyoming) and the Mountain Wind Power II project (80 MW in Wyoming) to a new venture, Capistrano Wind Partners. Outside investors provided $238 million of the funding. Capistrano Wind Partners also agreed to acquire the Broken Bow I wind project (80 MW in Nebraska) and the Crofton Bluffs wind project (40 MW in Nebraska) for consideration expected to include $140 million from the same outside investors upon the satisfaction of specified conditions, including commencement of commercial operation and conversion of project debt financing to term loans. In March 2012, EME received a distribution of the proceeds from outside investors, which will be used for general corporate purposes. Through their ownership of Capistrano Wind Holdings, an indirect subsidiary of EME, Edison Mission Wind, and EME's parent company, Mission Energy Holding Company (MEHC), own 100% of the Class A equity interests in Capistrano Wind Partners, and the Class B preferred equity interests are held by outside investors. Under the terms of the formation documents, preferred equity interests receive 100% of the cash available for distribution, up to a scheduled amount to target a certain return and thereafter cash distributions are shared. Cash available for distribution includes 90% of the tax benefits realized by MEHC and contributed to Capistrano Wind Partners.
Edison Mission Wind retains indirect beneficial ownership of the common equity in the projects, net of a $4 million preferred investment made by MEHC, and retains responsibilities for managing the operations of Capistrano Wind Holdings and its projects, and accordingly, EME will continue to consolidate these projects. The $238 million contributed by the third-party interests is reflected in "Other noncontrolling interests" on Edison International's consolidated balance sheets at June 30, 2012. This transaction was accounted for as a transfer among entities under common control and, therefore, resulted in no change in the book basis of the transferred assets. However, the transaction did trigger a taxable gain and new tax basis in the assets with a corresponding adjustment to deferred taxes and a reduction to equity of $21 million.
Variable Interest in VIEs that are not Consolidated
Power Purchase Contracts
SCE has 16 power purchase agreements ("PPAs") that have variable interests in VIEs, including 6 tolling agreements through which SCE provides the natural gas to fuel the plants and 10 contracts with qualifying facilities ("QFs") that contain variable pricing provisions based on the price of natural gas. SCE has concluded that it is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of these entities. In general, because payments for capacity are the primary source of income, the most significant economic activity for these VIEs is the operation and maintenance of the power plants.
As of the balance sheet date, the carrying amount of assets and liabilities in SCE's consolidated balance sheet that relate to its involvement with VIEs result from amounts due under the PPAs or the fair value of those derivative contracts. Under these contracts, SCE recovers the costs incurred through demonstration of compliance with its CPUC-approved long-term power procurement plans. SCE has no residual interest in the entities and has not provided or guaranteed any debt or equity support, liquidity arrangements, performance guarantees or other commitments associated with these contracts other than the purchase commitments described in Note 9. As a result, there is no significant potential exposure to loss as a result of SCE's involvement with these VIEs. The aggregate capacity dedicated to SCE for these VIE projects was 3,820 MW at June 30, 2012 and the amounts that SCE paid to these projects were $57 million and $83 million for the three months ended June 30, 2012 and 2011, respectively, and $134 million and $169 million for the six months ended June 30, 2012 and 2011, respectively. These amounts are recoverable in customer rates, subject to reasonableness review.
Unconsolidated Trust
In May 2012, SCE Trust I issued 5.625% trust securities cumulative, liquidation amount of $25 per share ($475 million aggregate liquidation preference) to the public and $10,000 of common stock (100%) to SCE. The trust invested the proceeds of these trust securities in Series F Preference Stock issued by SCE in the principal amount of $475 million (cumulative, $2,500 per share liquidation value) and which have substantially the same payment terms as the trust securities. The trust securities or the Series F Preference Stock do not have a maturity date. Upon any redemption of the Series F Preference Stock, a corresponding dollar amount of trust securities will be redeemed (for further information see Note 12). SCE Trust I will pay dividends at the same rate and on the same dates on the trust securities when, and if the SCE board of directors declare and make dividend payments on the Series F Preference Stock. The trust will use the dividends, if any, it receives on the Series F Preference Stock to make its corresponding dividend payments on the trust securities. If SCE does not make dividend payments to the trust, SCE would be prohibited from paying dividends on its common stock. SCE has fully and

12




unconditionally guaranteed the payment of trust securities and also its dividends, if and when, SCE pays dividends on the Series F Preference Stock.
SCE Trust I was formed for the exclusive purpose of issuing trust preference securities (“trust securities”). The trust is a VIE. SCE has concluded that it is not the primary beneficiary of this VIE as it does not have the obligation to absorb the expected losses or the right to receive the expected residual returns of the trust. The trust's balance sheet as of June 30, 2012 consisted of an investment of $475 million in the preference stock, $475 million of trust securities and $10,000 of common stock. The trust's income statement for the three- and six-month periods ended June 30, 2012 consisted of dividend income and accrued dividend payments of $3 million.
Note 4.    Fair Value Measurements
Recurring Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an “exit price”). Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including assumptions about nonperformance risk which was not material as of June 30, 2012 and December 31, 2011.
Assets and liabilities are categorized into a three-level fair value hierarchy based on valuation inputs used to determine fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

13




The following table sets forth assets and liabilities that were accounted for at fair value by level within the fair value hierarchy:
 
June 30, 2012
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting
and
Collateral1
 
Total
Assets at Fair Value
 
 
 
 
 
 
 
 
 
Money market funds2
$
982

 
$

 
$

 
$

 
$
982

Derivative contracts:
 
 
 
 
 
 
 
 
 
Electricity

 
108

 
164

 
(70
)
 
202

Natural gas
4

 

 

 
(4
)
 

Subtotal of derivative contracts
4

 
108

 
164

 
(74
)
 
202

Long-term disability plan
8

 

 

 

 
8

Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
 
Stocks3
2,090

 

 

 

 
2,090

Municipal bonds

 
714

 

 

 
714

U.S. government and agency securities
389

 
160

 

 

 
549

Corporate bonds4

 
382

 

 

 
382

Short-term investments, primarily cash equivalents5
2

 
90

 

 

 
92

Subtotal of nuclear decommissioning trusts
2,481

 
1,346

 

 

 
3,827

Total assets6
3,475

 
1,454

 
164

 
(74
)
 
5,019

Liabilities at Fair Value
 
 
 
 
 
 
 
 
 
Derivative contracts:
 
 
 
 
 
 
 
 
 
Electricity

 
7

 
31

 
(28
)
 
10

Natural gas

 
194

 
28

 
(66
)
 
156

Tolling

 

 
448

 

 
448

Subtotal of derivative contracts

 
201

 
507

 
(94
)
 
614

Interest rate contracts

 
114

 

 

 
114

Total liabilities

 
315

 
507

 
(94
)
 
728

Net assets (liabilities)
$
3,475

 
$
1,139

 
$
(343
)
 
$
20

 
$
4,291


14




 
December 31, 2011
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting
and
Collateral1
 
Total
Assets at Fair Value
 
 
 
 
 
 
 
 
 
Money market funds2
$
1,321

 
$

 
$

 
$

 
$
1,321

Derivative contracts:
 
 
 
 
 
 
 
 
 
Electricity

 
66

 
218

 
(62
)
 
222

Natural gas
4

 
5

 

 
(7
)
 
2

Fuel oil
4

 

 

 
(4
)
 

Tolling

 

 
10

 

 
10

Subtotal of commodity contracts
8

 
71

 
228

 
(73
)
 
234

Long-term disability plan
8

 

 

 

 
8

Nuclear decommissioning trusts:
 
 
 
 
 
 
 
 
 
Stocks3
1,899

 

 

 

 
1,899

Municipal bonds

 
756

 

 

 
756

U.S. government and agency securities
433

 
147

 

 

 
580

Corporate bonds4

 
317

 

 

 
317

Short-term investments, primarily cash equivalents5

 
15

 

 

 
15

Subtotal of nuclear decommissioning trusts
2,332

 
1,235

 

 

 
3,567

Total assets6
3,669

 
1,306

 
228

 
(73
)
 
5,130

Liabilities at Fair Value
 
 
 
 
 
 
 
 
 
Derivative contracts:
 
 
 
 
 
 
 
 
 
Electricity

 
13

 
77

 
(21
)
 
69

Natural gas

 
234

 
23

 
(52
)
 
205

Tolling

 

 
451

 

 
451

Subtotal of commodity contracts

 
247

 
551

 
(73
)
 
725

Interest rate contracts

 
90

 

 

 
90

Total liabilities

 
337

 
551

 
(73
)
 
815

Net assets (liabilities)
$
3,669

 
$
969

 
$
(323
)
 
$

 
$
4,315

1 
Represents the netting of assets and liabilities under master netting agreements and cash collateral across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.
2 
Money market funds are included in cash and cash equivalents and restricted cash and cash equivalents on Edison International's consolidated balance sheets.
3 
Approximately 67% and 70% of the equity investments were located in the United States at June 30, 2012 and December 31, 2011, respectively.
4 
At June 30, 2012 and December 31, 2011, corporate bonds were diversified and included collateralized mortgage obligations and other asset backed securities of $44 million and $22 million, respectively.
5 
Excludes net payables of $17 million and net receivables of $25 million at June 30, 2012 and December 31, 2011, respectively, of interest and dividend receivables as well as receivables and payables related to pending securities sales and purchases.
6 
Excludes other investments of $98 million and $81 million at June 30, 2012 and December 31, 2011, respectively, primarily related to the cash surrender value of company owned life insurance investments which are used to fund certain executive benefits including deferred compensation. Also excludes other investments of $110 million and $118 million at June 30, 2012 and December 31, 2011, respectively, primarily related to leveraged leases.

15




The following table sets forth a summary of changes in the fair value of Level 3 net derivative assets and liabilities:
 
Three months ended
June 30,
 
Six months ended
June 30,
(in millions)
2012
 
2011
 
2012
 
2011
Fair value of net assets (liabilities) at beginning of period
$
(662
)
 
$
(44
)
 
$
(323
)
 
$
97