01—Abstract
Summary
Summary of the 10-K/A filed October 17, 1997. Cited figures are marked; the original filing is the authoritative source.
Edison International's 1996 filing is a 10-K/A amendment that was filed solely to add two items omitted from Exhibit 13: the Shareholder Information section and the Selected Financial and Operating Data for 1992-1996.
The underlying annual report material shows a company in transition. Consolidated 1996 EPS was $1.64a (versus $1.66 in 1995), with net income of $717 million on operating revenue of $8.545 billion. Southern California Edison (SCE) contributed $1.42 per share, while the nonutility businesses (Edison Mission Energy, Edison Capital, Mission Land) contributed roughly 27 cents, helped by the First Hydro acquisition in the UK.
Buybacks of $344 millionb in 1996 offset flat-to-lower earnings and kept per-share results steady. The central investor issue is California electric restructuring. The September 1996 legislation sets a rate freeze through 1997, a rate reduction of at least 10% for residential and small commercial customers from 1998, and a non-bypassable competition transition charge.
SCE's potential transition costs are estimated at $13.1 to $13.8 billionc. The SEC staff has also questioned whether SCE can keep applying regulatory accounting (SFAS 71) to its generation assets through the 1998-2001 transition period. If it cannot, SCE would have to write off roughly $600 million after tax, which is a material risk to earnings and book value.
Other watch items include about $1.7 billiond paid in 1996 above market cost for federally mandated qualifying-facility power, a $136.8 million contractor claim against the Brooklyn Navy Yard project, and environmental liabilities of $114 million across 56 sites, with a possible excess of up to $211 million. The company's balance sheet is substantial, with total assets of $24.6 billion, long-term debt of $7.5 billion, and dividend coverage of 5.0 times. The dividend payout ratio was 61%, and the dividend was $1.00 per share.
02—Key points
Key Highlights
- 1996 EPS of $1.64 vs. $1.66 in 1995 and $1.52 in 1994; net income of $717 million vs. $739 million in 1995
- SCE contributed $1.42 per share; nonutility units (EME, Edison Capital, Mission Land) contributed about $0.27, up from $0.23 in 1995, driven by the First Hydro acquisition
- Revenue of $8.545 billion, up 2% from 1995, with electric utility revenue down 4% to $7.583 billion because of a $522 million rate-driven decline, partly offset by $237 million in one-time ratepayer credits and higher sales volume
- Share buybacks: 19.2 million shares repurchased for $344 million in 1996; the $800 million authorization had $497 million used through January 1997
- Key regulatory risk: SEC staff concern over continued SFAS 71 treatment for SCE's generation assets; a write-off of about $600 million after tax could follow if the criteria are no longer met
- Estimated transition costs of $13.1 to $13.8 billion (1998 NPV) under California restructuring; SCE's 1997 rates are frozen at 10.1 cents/kWh
- Environmental reserves of $114 million across 56 sites, with reasonably possible additional exposure of up to $211 million; 71% of the reserve relates to one Superfund site
03—Questions
Frequently Asked Questions
Why was this 10-K/A filed?
The amendment was filed on October 16, 1997 solely to add the 'Shareholder Information' section and the 'Selected Financial and Operating Data: 1992-1996' that were omitted from Exhibit 13 of the original 1996 10-K. It does not change the audited financial statements.
How did Edison International perform in 1996?
EPS was $1.64, down slightly from $1.66 in 1995. The decline reflects lower SCE earnings from reduced authorized returns and a rate cut, partly offset by EME's First Hydro contribution and a 3-cent benefit from share repurchases. Dividends were $1.00 per share, with a 61% payout ratio.
What is the biggest risk to the stock for investors?
The biggest risk is the California restructuring. Rates are frozen through 1997, and a 10% or greater residential rate cut begins in 1998. The SEC staff's concern about SFAS 71 could force SCE to write off roughly $600 million after tax of generation-related regulatory assets. The company also expects to be allowed to recover its transition costs through the competition transition charge, but the final outcome is uncertain.
How much debt and liquidity does the company have?
Long-term debt was $7.475 billion at year-end 1996, with $592 million current portion and $397 million in short-term debt. Total available borrowing capacity was $1.8 billion. Cash from operations was $2.2 billion, and 1997-2001 long-term debt maturities total about $2.5 billion.
What are the main contingent liabilities?
Key items include a $136.8 million complaint from a contractor against the Brooklyn Navy Yard project (EME owns 50%), up to $461 million in contingent EME contributions, $114 million in environmental reserves with up to $211 million additional exposure, and about $205 million in minimum purchase commitments through 2017. Management believes none of these will have a material adverse effect.
04—Continue